2

Access to development is our mission. The challenge is to

attend wholeheartedly to the needs of persons who have had

fewer opportunities, as well as those of the micro, small and

medium sized businesses. Our aim is to be a true agent of

development.

Access to development

2

BOARD OF DIRECTORSpage. 4

MANAGEMENTpage. 5

WORDS FROM THE PRESIDENTpage. 7

THE GLOBAL ECONOMY IN 2003page. 10

THE BANCO DEL DESARROLLO IN 2003page. 17

BRANCHES OF BANCO DEL DESARROLLOpage. 23

MICRO-BUSINESS CENTERS INDEPENDENT OF THE BANKpage. 27

CORRESPONDENT BANKSpage. 29

CONSOLIDATED BALANCE SHEETSpage. 35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSpage. 40

Table of Contents

4 5Board of Directors

PRESIDENTVicente Caruz M.

PRESIDENT (HONORARY)Domingo Santa María S. C.

VICEPRESIDENTSSergio Molina S.Alberto Etchegaray A.

DIRECTORSRoberto CivalleriBernard De WitNicolás Flaño C.Thomas von HessertMarco PizziMaximiliano Poblete A.Jorge Prado A.Michel Tombu

ALTERNATE DIRECTORSJean-Luc OrsiSergio Fernández A.

SPECIAL INVITEE(Staff Representative)José Veloso C.

CHIEF LEGAL OFFICERAlberto Liberona S.

COMPTROLLEREduardo Ojeda J.

4 5

Tecnological Development ManagerJorge Núñez G.

Building Banking ManagerJosé Gabriel Varela M.

Comercial Manager (Leasing)José Veloso C.

Housing ManagerArnaldo Vera C.

ZONES MANAGEMENT

Northern Zone ManagerNelson Díaz R.

Fifth Region managerAlejandro Iturra P.

Center South Area ManagerClarisa Ayala A.

Eighth Region ManagerJuan Cristóbal Ramírez H.

Southern Area ManagerJuan Carlos de la Jara C.

Metropolitan Area Manager( Northwest)Gustavo Avaria B.

Metropolitan Area Manager (Center)Rodrigo Zapata F.

Metropolitan Area Manager (Southeast)Guillermo Ortiz S.

Management

General ManagerHugo Trivelli O.

General Manager (Comercial)José Massaro O.

General Manager (Operations)Mauricio Rojas M.

General Manager (Zones)Andrés Joannon M.

Development Division ManagerMauricio Ramos B.

Division manager standardizationCarlos Peralta P.

Human Resources and AdministrationJorge Silva L.

Risks División ManagerKay Dunlop E.

Legal Area ManagerPatricia Torres K.

Personal Banking ManagerFrancisco Calderón V.

Finance ManagerJuan Luis Dietert H.

Operations ManagerDomingo Ortega P.

Informatics ManagerSergio Moya C.

Foreign trade managerJuan Naranjo B.

Client ManagerNorgia Niño T.

Annual Report 2003

6 7

121,000 familiesSince 1983 we have financed the construction of more

than 121,000 homes and granted more than 90,000

mortgages.

Providing access to home ownership to those who

most need it is one of our objectives.

6 7

Words from the President

8 9

Dear shareholders and friends

We submit the following assessment of the most re-

levant events and data for the fiscal year 2003 and

respective consolidated financial statements, and of the

independent auditors’ report.

Considering both an external and internal economic

context of slow recovery in which the national economy

expanded at a rate of 3.2%, -higher than the previous

year, but still below the average of the previous decade,

the bank performed satisfactorily

Net profits increased 39% to 17,415 million pesos in

the year, which corresponds to profitability over capital

of 14.8%, and consolidated cost-effectiveness (opera-

tional support costs/gross margin) improved to 53.8%

in 2003 from 56.4% in 2002. Total loan placements

grew by 11.1% well above the 4.6% registered by the

financial system.

This increase allowed market share to rise to 3.9% from

3.7% at end-2002.

Capital and reserves grew 23.1% in the year, enabling

the acquisition in July of the assets and liabilities of Ban-

co Sudameris, Chile and increasing the Basle indicator

(effective equity over assets balanced by risk) to 11.9%

from 11.3% in 2002.

The decentralization strategy continued to be success-

ful, as placements in distinct regions in the metropolitan

area grew 13.9% and the bank’s market share in them

reached 6.8%. In fact, the branch network now has 77

sales points from Arica to Punta Arenas. There are also

26 microbusiness centers, a sector which is serviced

by another 49 outlets, both in bank branches, and

information centers and municipalities through special

agreements.

In 2003, the plans for 2004 and the three years from

2004 to 2006 were approved.

For 2004, we plan to increase our client base by some

43,000, with a rise of some 10% in loan placements.

We expect to open five sales points and improve cost-

effectiveness from 53.8% at present to less than 50%

“Attention on a human scale continues to be a

necessary condition for stable growth with long

term perspectives.”

Words from the President

8 9

at the end of 2004. We also hope to conclude the year

with profitability of over 15% and a Basel indicator of

over 11%.

For the 2005-2006 period, we expect growth of over

12% and profitability of over 16%, maintaining the Basle

indicator at over 11%. We have decided in these plans

to continue the policy of distributing a dividend of 50%

of profits and capitalizing the remaining 50%.

The three-year plan envisages a further series of shares

and investments aimed at improving asset profitability,

increasing training and starting up the executive plan,

hiring a significant number of high-potential young

professionals, developing the Banca de Asociados,

strengthening differentiation, improving client aware-

ness of objective segment goals and focusing on de-

centralization.

I would like to finish by saying that while we are opti-

mistic about the country’s economic recovery, we are

concerned about other rising trends that could impact

the generation of accelerated and sustainable growth.

By this we mean factors such as the growing concen-

tration in certain sectors causing distortions in markets;

which could lead to an increase in oligopoly. We are

concerned with what could happen in important sec-

tors of the economy and production.

We are also worried about the “neutrality” of controls

and regulations. We are not against rules, but we be-

lieve that they must take into account past experiences

and at the same time allow the new and bold deve-

lopments that a developing country like Chile needs.

Balance is the key and the regulator has to be very wise

in order not to impede managerial creativity and the ta-

king of sound risks by businesses. We are fearful that,

in today’s globalized world, we will have to follow paths

more suited to others in order to satisfy the conditions

imposed by more developed countries and systems,

paths which are too narrow for the pioneering and the

young to tread.

Finally we would like to give special thanks to each and

every one of the 1,900 people who work in the bank

and its subsidiaries and who are the ones who have

made the results we have outlined possible.

Annual Report 2003

Vicente Caruz MiddletonPresident of the bank

10 11

More than 35,000 higher education loans In 1997 a product called higher education credit was

developed and by December 2003 more than 35,000 of

these credits had been issued, permitting thousands of

students to achieve their dreams of acceding to higher

education.

10 11

The global economy in 2003

More than 35,000 higher education loans

12 13

The global economy accentuated the tendency toward growth begun the preceding year. This situation was generalised – with the notable exception of Europe – especially in certain countries and regions that had shown relatively low or negative growth rates the previ-ous year, such as Japan and Latin America.

The principal international risk indicators as a whole, such as interest rate differentials, stock price variability, the relation between precious and industrial metals, etc., showed important increases over the first quarter. This was a consequence, among other reasons, of rel-evant geopolitical phenomena. A downward tendency was observed over the following quarters, when the international scenario showed greater stability. This ultimately favourable evolution, together with the ex-pansive monetary policies implemented in the previous years, which were broadened in 2003 and which in certain cases were accompanied by similar fiscal meas-ures, brought about an important shift in expectations and caused growth to accelerate.

As a consequence of all this, noteworthy changes in the value of certain important assets, such as stocks, long-term debt instruments and real estate could be seen over the course of the year. Raw materials also experienced considerable improvements in their prices. Likewise, the evolution of the main parities favoured the value of the majority of national or regional currencies against the US dollar.

In Latin America, the reduction in international risk and the favourable evolution of the global economy were translated into a shift toward a positive perception of the region. However, the ultimate performance was un-even. In Brazil’s case, while is it true that annual growth did not improve substantially, there was greater stabil-ity. Meanwhile, Argentina managed to come out of a prolonged and deep recession. Mexico and Colombia experienced moderate increases in their growth rates, while Peru’s diminished, and the recession affecting Venezuela since 2002 deepened.

CHILE IN 2003

An important improvement in external conditions characterized 2003. Over the second half of the year, copper prices, like those of other base metals, expe-rienced sustained growth. For its part, the price of oil experienced a sharp drop toward the end of the first quarter of the year, and from that point on it showed a moderate upward tendency.

The national economy’s growth was 3.2%, -higher than the preceding year’s,- but still far below the aver-age of the previous decade. The greatest dynamism was shown in mining, public services and the agricul-tural and forestry sectors. The areas that showed less growth were manufacturing and construction.

The global economy in 2003

An important improvement in external con-

ditions characterized 2003. Over the second

half of the year, copper prices, like those of

other base metals, experienced sustained

growth.

12 13

For its part, internal demand grew at a rate similar to that of production, repeating the situation that was observed the preceding year. However, the growth of the components is different from what was registered in 2002, with the importance of private consumption and investment increasing. With regard to production, savings and investment did not experience significant changes.

MONETARY POLICY, INFLATION AND EXCHANGE RATE

Over the course of the year, the Consumer Price Index (IPC) experienced an increase of only 1.1%, with nega-tive variations in six of the year’s 12 months. This level of inflation –the lowest registered in several decades– was the result of weak growth in internal demand, which worsened over the second half of the year due to the sharp appreciation of the Chilean peso and certain sec-tors with situations of extreme competition. For its part, underlying inflation was only reduced marginally with regard to the preceding year.

In January 2003, the Central Bank of Chile decided to implement a cut in its base interest rate from 3% to 2.75%, the level at which it was kept until December, when it cut it to 2.25%. Currency aggregates behaved unevenly, with sustained high levels of growth in the most basic ones (M1A) and very moderate or negative ones in the broader forms. Although to a lesser degree than the previous year, initial growth projections from the monetary authorities were corrected toward the lower end of the range initially established.

The nominal exchange rate was the variable that reflected the majority of the fluctuations in internal and external factors. After a brief initial rise due to an increase in international risk, in March a downward

tendency was begun, which stopped temporarily in the middle of the year and regained strength over the last third of the year. In all, the nominal exchange rate practi-cally did not change with regard to 2002, while the real average exchange rate increased by 8.1% with regard to the year before.

UNEMPLOYMENT AND WAGES

Unemployment showed a slight downward tendency throughout the entire year. From January to November, the work force expanded by 2.4% annually, while em-ployment did so by 2.9%, with the result being an aver-age unemployment rate of 8.5%, which compares fa-vourably to the 9.1% corresponding to the same period from the previous year. Over the same period of time, real wages grew by 0.9%, with a large proportion of this increase concentrated in the second half of the year.

EXTERNAL SECTOR

Exports and imports grew by 13.8% and 13.3%, re-spectively, the highest expansion rates of the last three years. The increase in exports was led by raw materials. For their part, imports of intermediate goods were the ones that grew most, supported by an increase in oil

Annual Report 2003

14 15

imports. The net result was a trade balance surplus of US $3.015 billion. Meanwhile, the balance of payments experienced a rising deficit of US $347 million.

Asia registered the greatest growth among the principal destinations for exports, making it the main buyer of na-tional products, followed by Europe and Latin America. With regard to imports, the main supplier continued to be Latin America, which also showed the greatest increase.

Over the course of the year, trade agreements previous-ly reached with the United States and the European Un-ion, which will enter into effect gradually, were ratified. Likewise, it should be noted that in January 2004, the international agency Standard & Poors improved Chile’s risk rating from “A-” to “A,” which implies an important qualitative shift and confirms the commencement of a period of improved economic conditions in the country.

FINANCIAL SYSTEM

Over 2003, the Financial System registered a greater rhythm in the growth of its total loan placements and an increased production of results. Its indicators of op-erational management, efficiency, and the solvency of equity maintain satisfactory levels.

The economy’s greater growth expectations, despite the fact that internal demand continues to remain low, together with an intensification in the supply of personal loans, allowed consumer loans and home mortgages to register positive growth, for their part stimulated by the improved conditions affecting interest rates that was observed throughout the entire year.

Electronic banking has achieved significant importance over the last few years. In this way, electronic means of payment in 2003 reached 50% of the total number of transactions carried out. In addition, one can observe a massive return of customers to the System, which totalled 2,630,000, surpassing the historic maximum set in 1997.

During 2003, a new bank specialising in treasury op-erations was incorporated into the Financial System, Financial Partnership as a form of business association was eliminated under the law and authorization was given to a new financial institution aimed at the me-dium-level income segment.

The main movements within the Financial System cor-respond to the acquisition of the assets and liabilities of Banco Sudameris in Chile by the Banco del Desarrollo; the acquisition of a bank specializing in personal bank-ing, by a mid-to-large institution; and the creation of a strategic business alliance between the country’s larg-est private bank and an important department store,

During 2003, the Financial System proved

once again that the constant efforts and impro-

vements that have been implemented in terms

of efficiency have borne fruit.

14 15

which will allow the latter to have a platform that serves as a basis for its upcoming operations as a bank.

The Banks and Financial Institutions Regulators (SBIF) continued developing activities aimed at preserving and strengthening the stability of the Financial System. Amongst the main activities carried out by this entity, the consolidation of the management assessment sys-tem and the transition toward the new portfolio classi-fication regulation that has been in force since January 2004 should be mentioned.

ACTIVITY AND RESULTS

The Financial System’s total placements experienced growth that was higher than that observed by the economy: 4.6%, at the same time surpassing the 1.6% managed during 2002. Consumer and home mortgage loans were behind this growth, with variations of 16.8% and 12.4%, respectively.

Business loans only increased by 1.4%, affected by the economic cycle and by the expansion of both of debt issues and capital issues on the stock market. For their part, foreign trade related loan placements showed a 6.4% reduction.

The Financial System’s accumulated profits over the year reached $616.960 billion pesos, 19.6% higher than those obtained in 2002, producing profits on capi-tal and reserves of 16.4%, an indicator that the previous year had been at 14.4%.

This improved result can be explained by an adequate management of operation costs, which were 3.7% lower with regard to 2002; a decrease in risk levels and expired portfolios, which caused an 8.9% decrease in charges on results for provisions and write-offs with regard to the previous period; and in particular due to

greater non-operational profits, which went from a loss of $39.140 billion pesos in 2002, to a profit of $86.748 billion pesos.

For its part, the contribution of operations on the level of gross operational results, was reduced by 3.9%, which is reflected in the fact that the operational spread on profitable assets went down from the 5.7% observed in 2002, to 5.3% in 2003.

Accumulated profits before voluntary coverage and tax-es totalled $726.347 billion pesos, 27.5% higher than those obtained the year before. During 2003, voluntary provisions for $10.418 billion pesos were liberated.

With regard to the quality of the portfolio, the risk index improved, going from 1.95% at the end of October 2002 to 1.82% on the same date in 2003. Expired placements were reduced by 6.2% over the course of the year, meaning that the proportion of expired portfo-lios out of the total number of placements was reduced over the same period from 1.82% to 1.63%.

During 2003, the Financial System proved once again that the constant efforts and improvements that have been implemented in terms of efficiency have borne fruit, consolidating a new level of operational efficiency. In this way, this indicator rose to 53.8%, which com-pares favourably with the 55.2% obtained in 2002. In addition, the Basle Index rose to 14.1%.

All of the above has caused favourable repercussions, in which the Chilean Financial System was considered by the Standard & Poors Risk Rating Agency as the most solid in Latin America.

Prospects for 2004 project around 5-6% growth in total placements, profitability similar to 2003 and ongoing improvement in efficiency indicators, due to the greater incorporation of technological channels and progress in management in general.

Memoria Anual 2003Annual Report 2003

16 17

22,000 SME clientsAttending to small and medium sized entrepreneurs has

been a priority in the history of our Bank. We currently

serve 22,000 of these customers with loan placements

in the sector worth more than US$ 838mn.

Access for SMEs to the financial system is to contribute

to the development of the country.

16 17

The Banco del Desarrollo in 2003

18 19The Banco del Desarrollo in 2003

On March 15 the Banco del Desarrollo celebrated 20 years of existence. This anniversary was commemora-ted by an event in which the principal speaker was His Excellency the President of Chile, Ricardo Lagos, in the presence of national and financial sector figures, as well as bank customers, partners and friends of the bank. In this celebration, the Banco reaffirmed its commitment to deepen bonds with its customers via a program called “Lets associate with Desarrollo”, consisting in support for training initiatives and self improvement for customer groups. Celebrations of similar characteristics were held in the towns of Chillán and Quillota.

RESULTS

During 2003, the Bank generated a profit of $17.415 billion pesos, reaching profitability on capital of 14.8%. This profit experienced 38.9% greater growth over the year, higher than the 19.6% increase registered by the Financial System (see tables 1 and 2). The growth in the Bank’s results can be explained principally by an increase in its operational generation, a reduction in its coverage and punishment costs and the maintenance of its operational support expenses.

The gross margin (difference between operational in-come and operational costs) increased by 5.9% with regard to 2002, due to a greater differential between

income and interest expenses and readjustments, as well as greater net commissions, which was partially compensated by lower income from document inter-mediation.

The costs of coverage for risky assets went from $21.608 billion pesos in 2002, to $19.172 billion in 2003, which is equivalent to an 11.3% reduction.

Despite the increase in business activity, the operational support costs have been kept practically constant, only increasing by 0.9%. Increases in personnel wages and expenses were compensated by reductions in adminis-trative, depreciation and repayment costs.

The above, together with the increase in the gross margin, allowed the efficiency coefficient (operational support expenses/gross margin) to register a reduction, going from the 56.4% obtained in 2002, to 53.8% in 2003, which places the Bank within the Financial Sys-tem’s average for this indicator.

The operational result totalled $25.45 billion pesos, 34.4% higher than what was registered the previous year. Non-operational results had a $6.737-billion-peso negative impact. With this, before-tax profits were $18.713 billion pesos, 50.1% higher than the previous year.

2001

2002

2003

11,53012,409

17,415

Table 1: Profits (MM$)Growth 2003/2002: 38,9%

2001

2002

2003

14.2%13.1%

14.8%

Table 2: eReturn

18 19

BUSINESS ACTIVITY

Total placements experienced 11.1% growth during the year, higher than the 4.6% registered by the Financial System. Market share rose from 3.66% at the end of 2002, to 3.88%.

The growth in placements is concentrated in the Bank’s strategic segments. In this way, the segments for Small Businesses, Personal Banking and Medium-Sized Companies contributed with 37.5%, 34.2% and 19.0% of the growth, respectively.

In the Small Business segment, where the bank pro-vides services to over 22,000 customers and concen-trates 40% of its net inter-bank placements, placements showed 9.8% growth (see table 3).

In the Personal Banking segment, what stands out are consumer loans, with 24%; loans for financing higher education, with 30%; and loans to finance the acquisi-tion of homes, with 17%, all numbers that are higher than those registered by the Financial System. The bank serves 203,000 customers in this segment, of which 82,000 are customers with a current account or a debit account (see table 4).

The acquisition in July of the assets and liabilities of the Chilean branch of Banco Sudameris allowed the Bank to strengthen its position in the Medium-Size Company

Annual Report 2003

segment. Placements in these companies increased by 17.6%. In addition, said acquisition incorporated two new branches and two subsidiaries: a Stock Broker and a Leasing Agency.

For its part, the Micro-Business segment increased its placements by 10.9% and the number of customers by 7.3%, serving close to 38,000 customers. Over 30,000 loans were given over this period, for a total of $15.000 billion pesos. The balance in the Microenterprise seg-ment reached $18.881 billion pesos at close of 2003. (see table 5).

Expired loans were reduced by 4.3%, causing the index of expired loans over total placements to drop from the 2.8% registered in December 2002, to 2.4% now. The risk index, on the other hand, has shown slight growth, rising from 2.42% to 2.5%.

2001

2002

2003

386,886456,131

502,237

Table 3: Small Business Loans (MM$)Growth 2003/2002: 9,0%

2001

2002

2003

249,093257,562

309,140

Table 4:Personal Loans (MM$)Growth 2003/2002: 18,8%

20 21

The decentralization strategy continued to deepen over the course of the year. This is reflected in a higher growth in loans in regions other than the Metropolitan Region, which increased by 13.9%, comprising 35% of the Bank’s total placements, with a 6.8% market share. For its part, the Financial System registers 21% of its total placements in the regions, with an annual growth of 7%.

Of the total number of Bank customers, which in De-cember 2003 totalled 265,000, 43% come from the regions.

CAPITAL AND RESERVES

Capital and reserves reached $ 117.597 billon, expe-riencing a growth of 23.1%/ for the year, product of a subscription to and payment for 2,361,582 shares worth $22.016 billon (see table 6).

At the close of the year the Bank had 2,076 sharehol-ders, of which the six principal ones below own 88.9% of capital:

Sociedad de Inversiones Norte Sur S.A. 39,6%Crédit Agricole S.A. 23,7%San Paolo IMI S.p.A. 15,7%Corporación Interamericana de Inversiones 5,2%Oikocredit 3,8%Inversiones para el Desarrollo 0,9%

Cash assets reached $143.184 billion pesos, with 14.9% growth, and the indicator of cash assets over risk-weighted assets rose from 11.29% in 2002, to 11.88% in 2003.

HUMAN RESOURCES

Human resource management in 2003 was oriented towards the training and development of staff for the optimal performance of their duties, emphasizing specialisation in executive posts. For this reason, the programmes were mainly centred on the organization’s management and executive levels. These activities have been oriented towards developing and fostering the technical abilities and knowledge of executive manage-ment, in accordance with the Bank’s strategy.

In this framework, at the beginning of 2003, the Semi-nar “Let’s Join With the Desarrollo of the Next 20 Years” was held, including the participation of the organiza-tion’s 100 principal executives, where the leadership and the strategies that are guiding the Bank’s actions in this new stage were reinforced.

Along these same lines, a strategic alliance was signed with the University of Barcelona, which as of October 2003 is giving the Diploma course “Creation of Leaders and Management of Change,” with the participation of

2001

2002

2003

10,197

16,843

18,881

Table 5: Microbusiness Loans (MM$)Growth 2003/2002: 10,9%

2001

2002

2003

81,42194,549

117,597

Table 6:Capital (MM$)Growth 2003/2002: 23,1%

20 21

47 professional collaborators, whose goal is for create an internal network of leaders and agents of change who will be capable of promoting a differentiated lead-ership style.

Likewise, the Bank’s Internal Training School placed heavy emphasis on the implementation of programmes oriented towards reinforcing and training staff with development potential, so as to gain access to posi-tions of greater responsibility, giving them technical knowledge and developing leadership abilities for their future projection. The actions implemented allowed 131 collaborators to get professional training.

During 2003, 1,248 of the Bank’s employees, equiva-lent to 81% of all staff, received 125,321 hours of training. This means that each collaborator received an average of 100 hours of training, with a distribution that allowed more participants than in previous years. Along these lines, the progress made in the implementation of programs based on E-Learning made a great impact.

In addition, it should be highlighted that during the year, the Bank received a “Diploma of Recognition” from the Vida Buena Corporation as a business leader, unique in the Financial System, for having trained 100% of branch staff in matters pertaining to values, which allows an integrated view and training, and improves the work atmosphere and teamwork. The Bank also received a national training service “Sence Distinction” for its concern over improving the quality of life of its staff and contributing to their competitiveness.

TECHNOLOGICAL AND PROCESS DEVELOP-MENTS

With the aim of boosting the Bank’s products and services, the following services were put at the disposal of customers: notification of banking emergencies via “fonocliente;” fund transfers between customers of

During 2003, 1,248 of the Bank’s

employees, equivalent to 81% of

all staff, received 125,321 hours of

training.

the Bank and other banks via Online-Internet Bank-ing; implementation of mobile banking, which allows customers to request information on their accounts via cellular phones; the sale and administration of general insurance, using the Fidens system; implementation of online transactions (Internet) with the Housing Ministry so customers can apply for housing subsidies; and the implementation of Internet consultation of mutual fund balances and statements.

With regard to process modernization, what stands out as the most important is the implementation of the dematerialisation of mortgage IOUs and certificates of deposit, as well as the replacement of current account and debit account debit cards with ones that allow op-erations on international networks of ATMs and which contain more security elements.

To increase and promote the business area’s capac-ity, all executives and sales agents were given an email address, allowing them more expedite communica-tion with customers. In addition, the communications system was improved by increasing the bandwidth for branches in the regions. A series of new systems were also put at the disposal of branches, allowing them to operate more effectively and efficiently. These include the System for Normalization and Judicial Collection, the System of Various Accounts, the System for Finan-cial Analysis and the System for the Segmentation of Business Portfolios.

Annual Report 2003

22 23

103 outlets The Bank and subsidiaries have 77 outlets from Arica in the

north to Punta Arenas in the south. Along with these, there

are 26 Centers exclusively for microbusinesses all along the

country.

Access is being where our customers need us.

22 23

Branches of Banco del Desarrollo

24 25

NORTHERN ZONE BRANCHES

Arica **Bolognesi 306. 232193 - 232157

Iquique Patricio Lynch 427. 413932 - 413933

AntofagastaArturo Prat 430. 260536 - 281787

Copiapó**Atacama 686. 232296 - 232297

La SerenaLos Carrera 341. 222342 - 215103

Coquimbo**Melgarejo 800. 313828 - 313833

Ovalle**Vicuña Mackenna 340. 624898 - 624930

FIFTH REGION ZONE BRANCHES

La Ligua**Ortiz de Rozas 487. 712525 - 713000

San Felipe**Arturo Prat 135. 511651 - 514253

Los Andes**Esmeralda 502. 403213 - 403215

ValparaísoBlanco 691. 213617 - 253051

Viña del MarArlegui 253, local 1. 883553 - 882110

Villa Alemana**Av. Valparaíso 945. 533111 - 533112

QuillotaFreire 203. 314595 - 314596

HEADQUARTERS:

Av. Libertador Bernardo O’Higgins 949, 3º nivel, SantiagoTelex: 340654 BANDES CKPD Box: 320 V SantiagoFax: (56-2) 6715547 Postal Code: Santiago 1Teléphone: 6745000 (*) Webpage: www.bdd.cl

(*) call this line to reach all the bank’s branches.

PROPERTY BANKINGAv. Bdo. O’Higgins 949, floor 36873373 - 6745188

LEASING Huérfanos 699, floor 26993391 - 6745747 FOREIGN TRADEHuérfanos 699, piso 26745876 - 6745331

FINANCE Huérfanos 699, piso 26745750 - 6745746

BUSINESS BANKINGHuérfanos 699, piso 26745278 - 6745649

HOUSING CENTERNueva York 616747528 – 6745947

Branches of Banco del Desarrollo by zone

** Specialised attention for Microbusiness available at these branches

24 25

SOUTH CENTRAL ZONE BRANCHES

Rancagua **Sucursal Centro. Cuevas 621. 232489 - 233160

RancaguaSucursal San Martín. San Martín 151. 229146 - 229277

RequinoaPablo Rubio 199. 551656 - 551649

ColtaucoArturo Prat 280. 452286 - 452293

PichilemuAv. Ortúzar 472. 842858 - 842417

San Vicente de Tagua-Tagua **Germán Riesco 850. 572162 - 572012

PichideguaAv. Independencia 568. 591408

San FernandoManuel Rodríguez 690. 713299 - 713291

Curicó **Estado 551. 310161 - 313184

Talca **Uno Norte 901. 225083 - 225099

ConstituciónFreire 645. 671006 - 672900

Linares**Independencia 477. 213320 - 213393

EIGHTH REGION ZONE BRANCHES

Concepción ** Lord Cochrane 778. 229797 - 236501

Talcahuano**Colón 421, Of. 105. 545760 - 545585

Los ÁngelesLautaro 268. 312923 - 312784

Chillán ** Constitución 654. 224285 - 215841

SOUTHERN ZONE

Temuco **Antonio Varas 699. 233517 - 233554

Valdivia **Independencia 563. 211302 - 211303

OsornoLord Cochrane 614. 231326 - 231327

Puerto Montt**Guillermo Gallardo 174. 259730 - 259731

Punta Arenas **21 de mayo 1190. 249233 - 246530

METROPOLITAN NORTH-WEST BRANCHES

CerrillosAv. Pedro Aguirre Cerda 7003 - B. 5390875 - 5390877

Diez de Julio10 de Julio 621. 6359232 - 6359233

Estación CentralSan Alfonso 22. 3610617 - 3610618

Maipú **Av. Pajaritos 2465. 5315032 - 5315004

Melipilla **Av. Serrano 302. 8324101 - 8323871

Panamericana Norte **Panamericana Norte 8001, local 86240867 - 6240932

** Specialised attention for Microbusiness available at these branches

Annual Report 2003

26 27

Quinta Normal **Av. José Joaquín Pérez 4272. 7751861 - 7738601

Recoleta**Av. Recoleta 336. 7775475 - 7776994

República **Av. Libertador Bernardo O’Higgins 23106731400 - 6731401

Talagante**Av. Libertador Bernardo O’Higgins 7208152027 - 8152028

San Antonio **Av. Centenario 193. 210853 – 210863

METROPOLITAN SOUTH-EAST BRANCHES

ApoquindoAv. Apoquindo 6448. 3421632 – 3421631

El BosqueEl Bosque Norte 0134. 2343440 – 2338182

Franklin **San Diego 2270. 5545496 – 5545531

La Cisterna **Gran Av. José Miguel Carrera 79305487367 – 5486156

La FloridaAv. Vicuña Mackenna Oriente 73992217240 – 2839374

La ReinaAv. Larraín 8602. 2733934 - 2734292

MaculAv. José Pedro Alessandri 3019. 2397152 - 2397170

ÑuñoaAv. Irarrázaval 2801. 2097920 - 2050118

Plaza Egaña **Av. Ossa 130. 2660468 - 2271432

ProvidenciaAv. Providencia 1948. 2317366 - 2320646

Puente Alto **Balmaceda 323. 8504840 - 8508137

San Bernardo **Av. Colón 608. 8598074 - 8592185

San MiguelGran Av. José Miguel Carrera 5098.5563458 – 5228849

TobalabaProvidencia 2601. 2313488 – 2311069

VitacuraAv. Vitacura 3841. 2630851 - 2630849

METROPOLITAN CENTER BRANCHES

CalicantoPuente 850. 6883238 - 6883237

Casa MatrizBanca PYME. 6745959 - 6745202

Casa MatrizBanca Personas. 6745688 - 6745059

EstadoEstado 135. 6394847 - 6956569

HuérfanosHuérfanos 1207. 6725683 - 6725692

Plaza ItaliaAv. Libertador Bernardo O’Higgins 77 6393459 – 6394805

Universidad de ChileAv. Libertador Bernardo O’Higgins 884 6320875 - 6320964

Vicuña MackennaAv. Vicuña Mackenna 3081. 5533993 - 5532896

** Specialised attention for Microbusiness available at these branches

26 27

Micro-Business Centers independent of the Bank

Annual Report 2003

San Bernardo (*)Av. Colón 608. 8597509

Talagante (*) Av. Bdo. O’Higgins 720. 8153741

San Antonio (*) Centenario 193 local 13. 210863 - 210853

San Fernando Manuel Rodríguez 680. 718769 - 718102

Curicó (*) Estado 551. 315018 – 315294

Talca Uno Norte 911. 234221 - 236882

Chillán (*) Constitución 654 of. 1 y 2. 220240 – 220042

Los Angeles Lautaro 252. 326486

Concepción (*) Lord Cochrane 778. 247740 –221602

TemucoVicuña Mackenna 686. 210757 - 211363

Valdivia Arauco 135. 257130 - 250423

Osorno Lord Cochrane 610. 310679 - 310678

Puerto Montt Guillermo Gallardo 178. 313857 - 310033

IquiquePatricio Lynch 548 módulos 24 al 28. 416443 - 471103

Antofagasta Latorre 2528. 225636 - 283707- 490594 La Serena Arturo Prat 475. 220890 - 220891

La Ligua Ortiz de Rosas 434 L1-B1. 713368 - 712457

Quillota Freire 282 local A. 312641 - 310725

Los Andes (*) Esmeralda 502. 403213 - 406602

Valparaíso Esmeralda 1040 local 11. 230540 - 227199 - 225202

Viña del Mar Arlegui 383. 713908 - 713910

La Florida (*) Vic. Mackenna Oriente 7399. 2935253 - 2943207 - 2935661

Maipú (*) Av. Pajaritos 2465. 5317268 - 5324404

Quinta Normal (*)Av. Joaquín Pérez 4272. 7747259 - 7747260

República (*) Av. Bdo. O’Higgins. 2310. 6951766

Melipilla (*) Serrano 302. 8324651

(*) These center are at the same address as the bank branch but with separate entrance.

28 29

BANDESARROLLO S.A. ASESORÍA FINANCIERAAv. Libertador Bernardo O’Higgins 969, floor 9Telephones: (56-2) 6384928 – 6719132

BANDESARROLLO MICROEMPRESAS ASESORÍA FINANCIERA DE INTERÉS SOCIAL S.A.Av. Libertador Bernardo O’Higgins 2310Telephones: (56-2) 6951766 - 6745271

BANDESARROLLO ADMINISTRADORA GENERAL DE FONDOS S.A.Av. Libertador Bernardo O’Higgins 949, floor 22, Of. 2201Telephone: (56-2) 6745835 Fax: (56-2) 6745834

Banco del Desarrollo Subsidiaries

BANDESARROLLO SOCIEDAD DE LEASING INMOBILIARIO S.A.Nueva York 57, floor 4ºTelephones: (56-2) 6996029 ( 56-2) 6995804Fax (56-2) 6979104

BANDESARROLLO SERVIPYME S.A.Av. Libertador Bernardo O’Higgins 949, floor 14Telephones: (56-2) 6956080 Fax: (56-2) 6956137

SUDAMERIS LEASING S.A.Huérfanos 669 Of. 302Telephones: (56-2) 4644926 - 4644922

SUDAMERIS AGENCIA DE VALORES S.A. Huérfanos 669, 2nd floor.Telephones: (56-2) 4644912 - 4644919

28 29

Annual Report 2003

Correspondent Banks

ANDORRABanc Sabadell d’Andorra, Andorra-La-Vella

ARGENTINABanca Nazionale del Lavoro, Buenos AiresBanco Credicoop Cooperativo Ltdo., Buenos AiresBanco Patagonia Sudameris S.A., Buenos Aires

AUSTRALIABank of America N.A., Sydney

AUSTRIAABN Amro Bank N.V., ViennaSanPaolo IMI Bank S.p.A., Vienna

BELGIUMABN Amro Bank N.V., BrusselsArtesia Bank N.V., BrusselsFortis Bank S.A./N.V., BrusselsING Belgium S.A./N.V., Brussels

BRAZILBanco do Brasil S.A., Rio de JaneiroBanco BNL do Brasil S.A., Sao PauloBanco Bradesco S.A., Sao PauloBanco Itaú S.A., Sao PauloBanco Santos S.A., Sao Paulo

CANADAABN Amro Bank Canada, MontrealThe Royal Bank of Canada, Toronto

CHINAABN Amro Bank N.V., Hong KongAmerican Express Bank, Ltd., Hong KongCommerzbank A.G., Hong KongFortis Bank, Hong KongWachovia Bank N.A., Hong KongBank of America N.A., ShanghaiCrédit Agricole Indosuez, ShanghaiING Bank N.V., Shanghai

COLOMBIAABN Amro Bank – Colombia, BogotáBancolombia S.A., Cali

CZECH REPUBLICABN Amro Bank N.V., PragueCommerzbank A.G., Prague

DENMARKABN Amro Bank N.V., CopenhagenDanske Bank A/S, Copenhagen

ECUADORBanco del Pacífico, GuayaquilBanco del Pichincha, Quito

EGYPTAmerican Express Bank, Ltd., CairoBank of America N.A., Cairo

EL SALVADORBanco Agrícola S.A., San SalvadorBanco Salvadoreño S.A., San Salvador

30 31

FINLANDCrédit Agricole Indosuez, HelsinkiDanske Bank, HelsinkiOKO Osuuspankkien Keskuspankki Oyj, Helsinki

FRANCEBank of America N.A., ParisBNP Paribas S.A., ParisBRED Banque Populaire, ParisCommerzbank A.G., ParisCrédit Agricole Indosuez, ParisCrédit Agricole S.A., ParisFortis Banque France, ParisING Bank (France), Paris

GERMANYAmerican Express Bank GmbH, Frankfurt/MainBHF Bank A.G., Frankfurt/MainCommerzbank A.G., Frankfurt/MainDresdner Bank A.G., Frankfurt/MainDZ Bank A.G. Deutsche Zentral-Genossenschaftsbank, Frankfurt/MainSanPaolo IMI S.p.A., Frankfurt/Main

GREECEABN Amro Bank N.V., AthensAmerican Express Bank, Ltd., AthensBank of America N.A., AthensSanPaolo IMI S.p.A., Athens

HUNGARYCommerzbank (Budapest) Rt., Budapest

INDIAAmerican Express Bank, Ltd., ChennaiABN Amro Bank N.V., MumbaiBank of America N.A., MumbaiCrédit Agricole Indosuez, Mumbai

INDONESIAABN Amro Bank N.V., JakartaAmerican Express Bank, Ltd., JakartaBank of America N.A., JakartaCrédit Agricole Indosuez PT, Jakarta

IRELANDBank of America N.A., DublinSanPaolo IMI Bank Ireland Plc, Dublin

ITALYBanca Agricola Mantovana S.p.A., MantuaCommerzbank A.G., MilanCrédit Agricole Indosuez, MilanFortis Bank, MilanBanca Nazionale del Lavoro, RomeSanPaolo IMI S.p.A., Turin

JAPANABN Amro Bank N.V., TokyoAmerican Express Bank, Ltd., TokyoBanca Intesa S.p.A., TokyoBank of America N.A., TokyoCommerzbank A.G., TokyoCrédit Agricole Indosuez, TokyoING Bank N.V., TokyoSanPaolo IMI S.p.A., TokyoWachovia Bank N.A., Tokyo

KUWAITAl Ahli Bank of Kuwait, KuwaitCommercial Bank of Kuwait, Kuwait

MALAYSIABank of America N.A., Kuala Lumpur

30 31

MEXICOABN Amro Bank N.V., Mexico CityBanco Nacional de Comercio Exterior S.N.C., Mexico CityBank of America N.A., Mexico CityBanco del Bajío S.A., León

MONACOCrédit Foncier de Monaco, Monte Carlo

NETHERLANDSABN Amro Bank N.V., AmsterdamBank of america N.A., AmsterdamCommerzbank (Nederland) N.V., AmsterdamFortis Bank (Nederland) N.V., AmsterdamSanPaolo IMI S.p.A., Amsterdam

NORWAYDanske Bank, OsloSkandinaviska Enskilda Banken, Oslo

PAKISTANABN Amro Bank N.V., Karachi

PANAMABanco Atlántico (Panamá) S.A., Panama City

PARAGUAYABN Amro Bank N.V., Asunción

PHILIPPINESBank of America N.A., ManilaIng Bank N.V., Manila

POLANDBRE Bank S.A., WarsawFortis Bank Polska S.A., Warsaw

PORTUGALABN Amro Bank N.V., LisbonBanco Atlántico S.A., LisbonFortis Bank, Lisbon

ROMANIAABN Amro Bank (Romania) S.A., Bucharest

RUSSIAABN Amro Bank (Moscow) Ltd., MoscowCommerzbank (Eurasija) SAO, MoscowGazprombank, Moscow

Annual Report 2003

32 33

SPAINBanca Nazionale del Lavoro, BarcelonaCommerzbank A.G., BarcelonaABN Amro Bank N.V., MadridBanco Atlántico S.A., MadridBanco Cooperativo Español S.A., MadridBanco Popular Español S.A., MadridCrédit Agricole Indosuez, MadridFortis Bank, MadridING Belgium S.A., Madrid

SINGAPOREAmerican Express Bank, Ltd., SingaporeBank of America N.A., SingaporeCommerzbank A.G., SingaporeING Bank N.V., SingaporeSanPaolo IMI Bank, Singapore

SOUTH AFRICAABN Amro Bank N.V., JohannesburgCommerzbank A.G., JohannesburgCrédit Agricole Indosuez. Johannesburg

SOUTH KOREAABN Amro Bank N.V., SeoulAmerican Express Bank, Ltd., SeoulBank of America N.A., SeoulThe Export-Import Bank of Korea, SeoulING Bank N.V., SeoulWachovia Bank N.A., Seoul

SWEDENABN Amro Bank N.V., StockholmCrédit Agricole Indosuez, StockholmNordea Bank AB (Publ), StockholmSkandinaviska Enskilda Banken, StockholmSwedbank (Förenings Sparbanken AB), Stockholm

SWITZERLANDING Belgium NV/SA Brussels, GenevaCrédit Agricole Indosuez (Switzerland) S.A., LaussaneBanca Unione di Crédito, LuganoABN Amro Bank (Switzerland) Ltd., ZurichUBS A.G., Zurich

TAIWANABN Amro Bank N.V., TaipeiBank of America N.A., TaipeiCrédit Agricole Indosuez, TaipeiFortis Bank, TaipeiING Bank N.V., TaipeiWachovia Bank N.A., Taipei

THAILANDBank of America N.A., BangkokCrédit Agricole Indosuez, BangkokUNITED ARAB EMIRATESCrédit Agricole Indosuez, Dubai

UNITED KINGDOMABN Amro Bank N.V., LondonBank of America N.A., LondonCommerzbank A.G., LondonCrédit Agricole Indosuez, LondonCrédit Agricole, London, LondonFortis Bank, LondonHSBC Bank plc, LondonING Bank N.V., LondonSanPaolo IMI Bank, LondonWachovia Bank N.A., London

UNITED STATES OF AMERICACommercebank N.A., Coral Gables, Fl.Banco Atlántico S.A., Miami, Fl

32 33

Annual Report 2003

PineBank N.A., Miami, FlABN Amro Bank N.V., New York, NYAmerican Express Bank, Ltd., New York, NYBank of America N.A., New York, NYCommerzbank A.G., New York, NYCrédit Agricole Indosuez, New York NYDeutsche Bank Trust Co. Americas, New York, NYSanPaolo IMI S.p.A., New York, NYThe Bank of New York, New York, NYWachovia Bank N.A., New York, NY

URUGUAYABN Amro Bank, N.V., MontevideoAmerican Express Bank (Uruguay) S.A., MontevideoBanco ACAC S.A., Montevideo

VENEZUELABanco del Caribe C.A., CaracasBanco Mercantil C.A. (Banco Universal), Caracas

34 35

172,000 loansOur committment to microentrepreneurs materializes in

the granting of 172,000 crédits, worth US$ 177 million, to

97,000 customers.

Providing access to microentrepreneurs is to contribute ot

their quality of life and the generation of employment in

the country.

34 35

Consolidated Financial Statements

172,000 loans

36 37

Annual Report 2003

CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 2003 AND 2002(Translated into Thousands of United States dollars - US$)

2003 2002 US$ US$ASSETS LIQUID ASSETS 110,072 74,673

LOANS: Commercial 949,579 694,468 Foreign trade 83,627 76,833 Consumer 110,630 71,308 Mortgage 507,214 425,778 Leases 123,838 69,369 Contingent 70,317 41,362 Other outstanding loans 192,518 129,501 Past-due 53,407 45,608 Total loans 2,091,130 1,554,227 Less: Provision for loan losses (68,930) (48,370) Total loans-net 2,022,200 1,505,857 OTHER LOAN OPERATIONS: Loans to financial institutions 97,700 53,596 Investments purchased under agreement to resell - - TOTAL OTHER LOAN OPERATIONS 97,700 53,596

INVESTMENTS: Banco Central de Chile and Tesoreria securities 55,887 54,302 Other financial investments 61,674 21,345 Trading securities 954 1,108 Assets for leasing 6,582 3,750 Assets received in settlement of loans 21,073 34,168 Other non-financial investments 1 1 TOTAL INVESTMENTS 146,171 114,674

OTHER ASSETS 99,601 48,830

FIXED ASSETS: Premises and equipment 60,248 45,068 Investments in related companies 183 115 TOTAL FIXED ASSETS 60,431 45,183

TOTAL ASSETS 2,536,175 1,842,813

The accompanying notes are an integral part of these consolidated financial statements

36 37

Annual Report 2003

2003 2002 US$ US$LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES:

DEPOSITS AND OTHER LIABILITIES: Checking accounts 143,514 99,101 Deposits and savings 983,128 814,490 Other time and demand liabilities 198,051 74,222 Investment sold under agreements to repurchase 1,140 1,108 Mortgage notes 526,926 437,629 Contingent liabilities 71,587 42,657 TOTAL DEPOSITS AND OTHER LIABILITIES 1,924,346 1,469,207

BONDS: Ordinary bonds 15,636 3,309 Subordinated bonds 64,126 55,061 TOTAL BONDS 79,762 58,370

BORROWINGS FROM BANCO CENTRAL DE CHILE AND OTHER FINANCIAL INSTITUTIONS: Banco Central de Chile lines of credit for renegotiation - - Other Banco Central de Chile borrowings 17,236 4,920 Domestic borrowings 13,870 10,912 Foreign borrowings 86,649 46,942 Other borrowings 115,599 83,729 TOTAL BORROWINGS FROM FINANCIAL INSTITUTIONS 233,354 146,503 OTHER LIABILITIES 71,255 17,457 TOTAL LIABILITIES 2,308,717 1,691,537

VOLUNTARY PROVISIONS - 2,370 MINORITY INTEREST 39 66 SHAREHOLDERS’ EQUITY: Capital and reserves 198,041 131,503 Other accounts 50 69 Net income for the year 29,328 17,268 TOTAL SHAREHOLDERS’ EQUITY 227,419 148,840 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,536,175 1,842,813

38 39

Annual Report 2003

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (Translated into Thousands of United States dollars - US$) 2003 2002 US$ US$OPERATING REVENUES: Interest and indexation income 194,620 177,037 Gains from trading securities 5,879 8,736 Commission income 26,861 17,253 Exchange gain - net 1,887 2,837 Other operating income 9,668 7,366 TOTAL OPERATING REVENUES 238,915 213,229

LESS: Interest and indexation expenses (86,150) (96,950)Loss from trading securities (4,177) (798)Commission expense (2,418) (1,549)Other operating expenses (2,990) (3,276) GROSS OPERATING MARGIN 143,180 110,656

Remuneration and personnel expenses (48,781) (37,592)Administrative and other expenses (20,983) (18,104)Depreciation and amortization (7,247) (6,739) NET OPERATING MARGIN 66,169 48,221

Provisions for assets at risk (32,287) (29,772)Recovery of loans written off 8,978 7,643 OPERATING INCOME 42,860 26,092

OTHER INCOME AND EXPENSES: Non-operating income 2,395 2,371 Non-operating expenses (12,990) (10,389)Equity in income (losses) of related companies 5 (9)Monetary correction (756) (884) INCOME BEFORE INCOME TAXES 31,514 17,181 INCOME TAXES (5,167) (1,885) MINORITY INTEREST 113 102 INCOME BEFORE VOLUNTARY PROVISIONS 26,460 15,398 VOLUNTARY PROVISIONS 2,868 1,870 NET INCOME FOR THE YEAR 29,328 17,268

The accompanying notes are an integral part of these consolidated financial statements

38 39

Annual Report 2003

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (Translated into Thousands of United States dollars - US$) 2003 2002 US$ US$CASH FLOWS FROM OPERATING ACTIVITIES: Net income for the year 29,328 17,268 Charges (credits) to income that do not represent cash flows: Depreciation and amortization 7,247 6,710 Provisions for assets at risk 32,287 25,220 Voluntary provisions (2,868) (1,870)Provision for adjustment of non-permanent investments to market value (5,072) 1,245 Equity in earnings of related companies 5 (9)Net gain from sale of assets received in settlement of loans (7,405) (3,887)Loss (gain) on sale of fixed assets (10) 96 Write-off of assets received in settlement of loans 11,342 8,999 Monetary correction - net 756 884 Leases (net) (2,683) (2,566)Other charges (credits) that do not represent cash flows (4,530) (6,099)Net variation in the interest, indexation and commissions accrued on assets and liabilities (2,958) (346)

Net cash provided by operating activities 55,439 45,645 CASH FLOWS FROM INVESTING ACTIVITIES: Changes in assets and liabilites that affect cash flows: Net increase in loans (141,700) (109,912)Net increase in other loan operations (33,004) (17,797)Net decrease (increase) in investments (17,273) 2,255 Cash and cash equivalent at the beginning of the year in subsidiaries of Sudameris 13 - Additions to fixed assets (3,906) (6,224)Sale of fixed assets 12 118 Investments in related companies (112) (175)Credits from trading securities 3,858 - Sale of assets received in settlement of loans 17,392 13,938 Net decrease in other assets and liabilities 10,930 16,023

Net cash used in investing activities (163,790) (101,774) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in checking accounts 14,706 21,946 Net increase (decrease) in deposits and loans (13,722) 67,779 Net (decrease) increase in other time and demand liabilities 86,939 (2,668)Net decrease in other liabilities arising from trading activities (438) (2,031)Increase in short-term foreign borrowings 43,347 7,196 Issuance of mortgage notes 115,867 70,576 Redemption of mortgage notes (124,463) (82,749)(Decrease) increase in other short-term liabilities 13,006 (3,811)Repayment of borrowings obtained from Banco Central de Chile (long-term) (512) (376)Bond issuance - 3,297 Bond redemption (4,531) (3,958)Long-term foreign borrowings 10,917 27,571 Repayment of long-term foreign borrowings (22,216) (34,399)Long-term borrowings from financial institutions 19,286 5,387 Repayment of long-term borrowings from financial institutions (3,273) - Other long-term borrowings 65,799 16,271 Repayment of other long-term borrowings (46,701) (15,761)Subscription and payment of shares 146 6,628 Dividends paid (28,641) (8,255)

Net cash provided by financing activities 125,516 72,643

NET POSITIVE CASH FLOWS FOR THE YEAR 17,165 16,514

EFFECT OF INFLATION ON CASH AND CASH EQUIVALENTS 1,635 2,745

INCREASE IN CASH AND CASH EQUIVALENTS DURING THE YEAR 18,800 19,259

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 91,272 55,414

CASH AND CASH EQUIVALENTS AT END OF YEAR 110,072 74,673

The accompanying notes are an integral part of these consolidated financial statements

40 41

Annual Report 2003

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(In millions of Chilean pesos - US$)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Information providedThe financial statements have been prepared in accordance with accounting standards issued by the Superintendencia de Bancos e Instituciones Financieras (hereinafter, the Superintendencia). Such standards agree with accounting principles generally accepted in Chile.

The 2002 Chilean peso amounts have been price-level restated for changes in the Consumer Price Index (1.0%) used for monetary correction.

b. Basis of consolidationThe consolidated group comprises Banco del Desarrollo (“the Bank”) and its subsidiaries listed below (jointly, “the Group”):

OwnershipName: Direct Indirect 2003 2002 2003 2002 % % % %

Bandesarrollo Sociedad de Leasing Inmobiliario S.A. (3) 99.64 99.64 0.36 0.36Bandesarrollo Microempresa Asesoría Financiera de Interés Social S.A. 99.00 99.00 1.00 1.00Bandesarrollo S.A. Asesoría Financiera 99.00 99.00 - -Bandesarrollo Austral S.A. Administradora de Fondos de Inversión (4) - - - -Bandesarrollo Servipyme S.A. (2) y (6) 52.32 51.00 - -Bandesarrollo Administradora General de Fondos S.A. (Ex Bandesarrollo Administradora de Fondos para la Vivienda S.A.) (5) 99.00 99.00 1.00 1.00Sudameris Agencia de Valores S.A. (1) 95.00 - 5.00 -Sudameris Leasing S.A. (1) 95.00 - 5.00 -

In 2003:(1) As a consequence of the materialization of the capital contribution authorized by the Superintendencia in accordance with Resolution N°58 dated June 3, 2003 through the contribution of assets and purchase of liabilities of the branch in Chile of Banco Sudameris at July 7, 2003, the Bank acquired two new subsidiaries: Sudameris Agencia de Valores S.A. y Sudameris Leasing S.A.

The income of such subsidiaries, recognized until the acquisition date, was recorded in the investment value, therefore consolidated income from investment in the aforementioned subsidiaries corresponds to the period between July 8 and December 31, 2003. (2) On January 24, 2003, the Company presented to the Superintendencia the request for authorization to make a capital increase of the Company of US$560 millions, divided into 34,580 no-par value shares, which was approved

40 41

Annual Report 2003

by the Superintendencia in letter N°01434 received on February 6, 2003. On April 4, 2003, the Bank completed a capital increase in the subsidiary Bandesarrollo Servipyme S.A., for US$87 millions as agreed at the Extraordinary Shareholders’ Meeting held on March 24, 2003.

(3) On April 24, 2003, “Bandesarrollo Sociedad de Leasing Inmobiliario S.A.” agreed to distribute 2002 income of US$3,720 through the payment of a dividend of US$98 per share, as agreed at the General Shareholders’ Meeting.

In 2002:(4) On December 31, 2002, the Bank sold its shares in Bandesarrollo Austral S.A. Administradora de Fondos de Inversión, which consisted of 145,720 shares that represented a 55.5% interest in such company. The sale was made at the book value of the shares and as a result, there were no effects on the Bank’s results.

(5) At the Ordinary Shareholders’ Meeting No. 177 of Banco del Desarrollo, held on January 17, 2002, it was agreed to authorize the merger of the subsidiary Bandesarrollo Administradora de Fondos para la Vivienda S.A. with the subsidiary Bandesarrollo Administradora de Fondos Mutuos S.A., through the merger of the latter with the former, an agreement that was ratified by the Extraordinary General Shareholders’ Meeting of Bandesarrollo Administradora de Fondos para la Vivienda S.A. held on April 26, 2002. This merger was authorized by the Superintendencia on April 3, 2002. The application for the transfer of shares as well as their registration in the Shareholders Register, which produced the dissolution of Bandesarrollo Administradora de Fondos Mutuos S.A., were approved by the Superintendency of Securities and Insurance on August 14, 2002. With this merger, the on going company changed its corporate purpose and name to “Bandesarrollo Administradora General de Fondos S.A.”, in keeping with Title XXVII of Law No. 18,045.

The request for authorization of the Superintendencia was submitted on March 7, 2002 and the authorization was granted in the letter N°2,734 dated April 3, 2002.

On August 14, 2002, the Superintendence of Securities and Insurances approved the share transfer and request for registration in the shareholders’ register, which gave rise to the dissolution of Bandesarrollo Administradora de Fondos Mutuos S.A..

(6) On February 14, 2002 the subsidiary Bandesarrollo Servipyme S.A. was incorporated and an initial capital contribution of US$167 was made by the Bank, equivalent to 51% of the authorized capital.

c. Interest and indexationThe amounts recorded in the balance sheets for loans, investments, and liabilities include interest and indexation accrued until the year end. However, the Group has taken the conservative position of discontinuing the accrual of interest and indexation on high-risk or past-due loans.

d. Monetary correctionShareholders’ equity, fixed assets, and other non-monetary balances have been monetarily corrected, using the change in the Chilean Consumer Price Index (CPI). The application of monetary correction results in a net charge to income of US$756 (US$884 in 2002).

42 43

Annual Report 2003

The income statements of the Bank and the subsidiary Bandesarrollo Sociedad de Leasing Inmobiliario S.A. are not monetarily corrected.

e. Foreign currencyAssets and liabilities denominated in foreign currency are stated in Chilean pesos at the exchange rate prevailing at year end (Ch$599.42 = US$1 in 2003 and Ch$712.38 = US$1 in 2002).

The net gain from foreign exchange of US$1,886 (US$2,837 in 2002) shown in the consolidated income statement includes the net gains obtained from foreign exchange transactions, as well as the recognition of the effects of exchange rate variations on net assets or liabilities denominated in foreign currency.

f. Finance leasesFinance lease transactions are leases that grant the lessee a purchase option at the end of the contract. These transactions are presented as assets net of unearned interest and unaccrued value-added tax (V.A.T.).

Housing finance leases are leases that include a commitment for the future purchase of the leased housing plus a contract for a programmed savings plan by the lessee.

These operations are recorded as assets net of unearned interest.

g. Financial investmentsThe financial investments that are traded in the secondary market are stated at market value, in accordance with instructions of the Superintendencia. Said instructions call for the recognition of the adjustments to market value against income for the year, unless permanent investments are involved, in which case, subject to certain limitations, the aforementioned adjustments can be made directly against the “Fluctuation in value of financial investments” in shareholders equity.

The application of the adjustment to market value resulted in a net charge of US$4,026 (net charge of US$754 in 2002) to income for the year, which is included in operating income as “Loss from trading securities”. The amount determined at December 31, 2003 includes a special provision of provisional character over securitized bonds, as detailed in Note N°6. The adjustment to the permanent portfolio resulted in a net charge to shareholders’ equity of US$34 (US$27 historical in 2002).

The subsidiary Bandesarrollo Sociedad de Leasing Inmobiliario S.A. acquired subordinated bonds that are carried at the lower of acquisition value plus accrued interest at the purchase TIR, or the asset’s estimated recovery value. At December 31, 2003, the Company recorded a special provision of provisional character over subordinated bonds for ThUS$241 to Bandesarrollo Sociedad de Leasing Inmobiliario S.A. and ThUS$4,446 to Banco del Desarrollo as detailed in Note N°6.

Other financial investments corresponding to financial instruments are stated at acquisition value plus accrued interest and indexation.

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h. Premises and equipmentPremises and equipment are stated at monetarily corrected cost and are shown net of accumulated depreciation. Depreciation is calculated using the straight-line method over the useful lives of the assets.

i. Provisions for doubtful assetsThe Bank has established all the provisions that are required to cover the risk of loss on assets, in accordance with the standards issued by the Superintendencia. These reserves are included in the balance sheet, deducted from the corresponding assets, or shown in the case of loans.

j. Voluntary provisionsIn accordance with the General Banking Law, financial institutions may establish special provisions, called “Voluntary provisions”, which can be considered as part of the equity for purposes of complying with certain regulations of the General Banking Law. The provision and effect on each year’s income are shown directly on the consolidated balance sheet and the consolidated statement of income.

k. Deferred taxesThe effects of deferred taxes arising from temporary differences between the tax and book bases are recorded on the accrual basis, in conformity with both Technical Bulletin N° 60, of the Colegio de Contadores de Chile A.G. and its interpretations and instructions issued by the Superintendencia (Note 17). Technical Bulletin N°71 of the Colegio de Contadores de Chile A.G. states that deferred taxes are to be recorded by applying the enacted income tax rate of the year in which the temporary difference that gave rise to such deferred taxes will reverse.

l. Servicing fees The Bank and its subsidiary Bandesarrollo Sociedad de Leasing Inmobiliario S.A. provide portfolio management services to Santander S.A. Sociedad Securitizadora and Securitizadora Bice S.A. Revenue is recorded on the accrual basis.

m. Employee vacationsThe annual cost of employee vacations and benefits is recorded on the accrual basis.

n. Cash and cash equivalentFor the purpose of cash flows, cash balances are considered as cash and cash equivalents. The financing and investing activities that do not affect cash flows correspond to the capital increase and contribution of assets and purchase of liabilities of Banco Sudameris, Chilean branch, as detailed in Note 5.

o. ReclassificationsThe Company has reclassified certain items of the 2002 financial statements for comparative purposes.

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2. SIGNIFICANT EVENTS

Capital increaseAs agreed upon at the Extraordinary Shareholders’ Meeting held on April 29, 2003, a capital increase of the Bank for US$38.734 millions was approved, equivalent to 2,466,162 shares. The Bank issued stock certificates on July 7, 2003 representative of 2,356,794 shares on behalf of Banco Sudameris - branch in Chile, equivalent to US$37.002 millions, by means of which the Bank materialized the contribution of assets and assumption of liabilities of the branch in Chile of Banco Sudameris, as authorized by the Superintendencia in Resolution N°58 of June 3, 2003. As a consequence of the aforementioned contribution, the Bank acquired two new subsidiaries, Sudameris Agencia de Valores S.A. and Sudameris Leasing S.A. (Note N°5).

Change of DirectorIn accordance with resolution N°782/2003 adopted at the Ordinary Meeting of the Board of Directors N°191 dated August 21, 2003, the voluntary resignation of the Director Mr. Jean Marion was accepted as of August 31, 2003. Mr. Michel Tombu replaced Mr. Marion as of September 1, 2003 until the date of the next General Ordinary Shareholders’ Meeting.

3. RELATED PARTY TRANSACTIONS

In accordance with the General Banking Law and the Superintendencia’s instructions, individuals and companies that are related, directly or indirectly, to the Bank’s owners or management are considered related parties.

a. Loans to related partiesAt December 31, 2003 and 2002, loans to related parties are as follows:

Current portfolio Past due portfolio Total Guarantees(*) 2003 2002 2003 2002 2003 2002 2003 2002 US$ US$ US$ US$ US$ US$ US$ US$ Operating companies 22,958 24,989 - 66 22,958 25,055 14,702 10,325 Investment companies 25,555 18,134 - - 25,555 18,134 14,989 7,061 Individuals(**) 540 824 - - 540 824 271 277 Total 49,053 43,947 - 66 49,053 44,013 29,962 17,663

(*) Includes only those guarantees that are admitted by Article 84 of the General Banking Law for purposes of establishing the individual credit limits defined by the Law. The guarantees are valued in accordance with the Superintendencia’s instructions.

(**) Includes only those loans to individuals whose outstanding balances are not less than the equivalent of UF3,000. The UF is a unit of account that is indexed to the changes in the consumer price index.

In accordance with regulations issued by the Superintendencia, the Bank must also record, for purposes of statutory covenants, a total of US$0,0 (US$25 in 2002), in loans provided to debtors related to the Bank that had been written off over the last four years.

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b. Other transactions with related partiesDuring 2003 and 2002, the Group entered into the following transactions in excess of UF1,000 with related parties, under normal market terms and conditions:

Amount Credit receivable (charge) to Item Transactions (payable) income2003: US$ US$ US$Inversiones para el Desarrollo S.A. Rental service 525 - (525) Banco del Desarrollo Welfare Department for Workers Contributions to welfare 1,422 - (1,422)Universidad Viña del Mar Donation 674 - (337) Scholarships 5 - (5)Transbank Amortization of rights for use of Red compra system - - (146)Vicente Caruz Ltda. Professional services 119 - (119)Other RBI services, recording of cards and transfers of files 46 - (46) Professional services 114 - (114) Accounting and administrative services 30 - 30 2002: Inversiones para el Desarrollo S.A. Rental service 399 - (399)Banco del Desarrollo Welfare Department for Workers Contributions to welfare 1,216 - (1,216) Reimbursement of expenses 4 - (4)Vicente Caruz Ltda. Professional services 183 - (183)Universidad Viña del Mar Donation 419 - (209) Scholarships 18 - (18)Transbank Amortization of rights for use of Red compra system - - (114) Increase in rights for use of Red compra system 15 - (3)Other RBI services, recording of cards and transfers of files 38 - (38) Professional services 74 - (74) Maintenance of assets received or adjudicated in payment 26 - (26)

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4. PROVISIONS

a. Provisions for assets at riskAt December 31, 2003, the Bank and its subsidiaries have accrued provisions for a total of US$70,107 (US$50,907 in 2002) which correspond to the minimum provisions required by the Superintendencia to cover possible losses.

Changes in the above provisions are as follows:

Provisions for Assets received in Other Loans Leases settlement assets Total US$ US$ US$ US$ US$Balances, December 31, 2001 54,492 32 1,871 459 56,854 Write-offs (31,360) - (3,631) (727) (35,718)Provisions 25,193 13 3,671 894 29,771 Balances, December 31, 2002 48,325 45 1,911 626 50,907 Currency alignment 10,157 10 402 131 10,700 Balances, December 31, 2002 58,482 55 2,313 757 61,607 Write-offs (24,245) (23) (3,855) (1,077) (29,200)Provisions 29,236 12 2,377 662 32,287 Provisions released 5,189 224 - - 5,413 Balances, December 31, 2003 68,662 268 835 342 70,107

In the opinion of management, the provisions established cover all possible losses that might result from non recovery of assets based on the evidence examined by the Bank and its subsidiaries.

b. Voluntary provisionsIn addition to the provisions for assets at risk indicated in a) above, the Bank does not have voluntary provisions at December 31, 2003 (US$2,370 in 2002). As a result of changes in these voluntary provisions, US$2,868 were credited to income in 2003 (US$1,870 in 2002).

In accordance with instructions issued by the Superintendencia and in order to apply conservative criteria in the recording of income from loans acquired from the former Asociación Nacional de Ahorro y Préstamo (ANAP), the Bank has established an additional provision of US$1,711 (US$1,717 in 2002), on loans denominated in “Unidad Reajustable”. This reserve is included in “Other liabilities” and will be extinguished as the loans are repaid.

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5. SHAREHOLDERS’ EQUITY

a. Equity

The movements in the shareholders’ equity accounts during 2003 and 2002 are summarized as follows:

Paid-in Legal Other Net income capital reserves reserves for the year Total US$ US$ US$ US$ US$Balances, December 31, 2001 113,206 - 96 16,045 129,347 Dividends paid - - - (8,029) (8,029)Subscription and payment of shares 6,520 - - - 6,520 Capitalization of retained earnings 8,016 - - (8,016) - Monetary correction of capital 3,761 - - - 3,761 Fluctuation in value of financial investments - - (27) - (27)Net income for the year - - - 17,268 17,268 Balances, December 31, 2002 131,503 - 69 17,268 148,840 Currency alignment 27,640 - 15 3,630 31,285 Balances, December 31, 2002 159,143 - 84 20,898 180,125 Dividends paid - - - (20,877) (20,877)Subscription and payment of shares 37,077 - - - 37,077 Capitalization of retained earnings - 21 - (21) - Monetary correction of capital 1,518 282 - - 1,800 Fluctuation in value of financial investments - - (34) - (34)Net income for the year - - - 29,328 29,328 Balances, December 31, 2003 197,738 303 50 29,328 227,419

2003:

a. Subscribed and paid-in sharesThe Bank’s authorized capital is composed of 15,638,843 shares, of which 14,999,316 are effectively subscribed and paid in.

b. Capital increaseAt the Extraordinary Shareholders’ meeting held on April 29, 2003, it was agreed to increase the capital of the Bank by US$38,734 millions (equivalent to UF1,356,389) through the issue of 2,466,162 shares of a special series that

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will be paid with the contribution of assets and assumption of liabilities of the Branch in Chile of Banco Sudameris, considering UF0.55 as the value of the shares at the date of payment. These shares will be paid as aforementioned, in a term of one year from the approval of this agreement by the Superintendencia. These shares, given the nature of their payment, will not be offered to shareholders preferentially. The capital increase aforementioned was autho-rized by the Superintendency of Banks and Financial Institutions through Resolution N°58 dated June 3, 2003. On July 7, 2003, the Company issued the stock certificates representative of 2,356,794 shares in the name of Banco Sudameris - Branch of Chile, equivalent to US$37.002 millions, through the contribution of assets and assumption of liabilities of the Chilean Branch of Banco Sudameris, as authorized by the Superintendencia.

Out of the capital increase authorized by the Superintendencia in resolution No. 54 of June 7, 2001, published in the official gazette (Diario Oficial) on June 13, 2001, 4,798 shares worth US$75 millions were subscribed and paid during 2003.

c. Dividends paid and reservesAt the General Shareholders’ Meeting held on April 29, 2003, it was agreed to declare a cash dividend of US$0.50 per share, which represents distribution of 30% of 2002 income, i.e. US$6,279 million and distributing additional cash dividends of up to US$14,619 million, at the date determined by the Board of Directors, within the course of the current year, for which it was expressly empowered.

In order to comply with the aforementioned agreement, at May 2, 2003, the Company paid the dividend of US$0.50 per share, which represented US$6,279 millions. At July 31, 2003, and as agreed in the aforementioned meeting, the Company paid an additional dividend of US$0.000973 per share for US$14,598 millions.

2002:At the Extraordinary General Shareholders’ Meeting held on April 29, 2002, it was agreed to nullify 251,920 shares then un-subscribed and unpaid, corresponding to bonds convertible into shares, a capital increase that had been approved at the General Extraordinary Shareholders’ Meeting held on April 19, 1990. At the April 29, 2002 meeting, the shareholders unanimously voted to approve the proposal put forth at the Ordinary Shareholders’ Meeting held on April 29, 2002 of capitalizing US$8,016 out of the 2001 income to be distributed through the issuance of 800,797 paid-up shares. This transaction was authorized by the Superintendencia in resolution No. 70 dated July 12, 2002.

Out of the capital increase authorized by the Superintendencia in resolution No. 54 dated June 7, 2001, published in the Official Gazette on June 13, 2001, 518,580 shares worth US$6,520 were subscribed and paid-in during 2002.

At the Ordinary General Shareholders’ Meeting held on April 29, 2002 it was also agreed to allocate US$8,029 out of 2001 income for payment of a dividend of US$0.000709 per share.

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Annual Report 2003

a. Minimum Basic Capital and Effective EquityAccording to the General Banking Law, a financial institution’s minimum basic capital may not be lower than 3% of its total assets, while the effective equity may not be lower than 8% of its risk weighted assets. At each year end, the Bank’s situation was as follows:

December 31 2003 2002 US$ US$Basic capital (*) 198,091 131,572 Total assets 2,538,506 1,844,855 Percentage 7.80% 7.13% Effective equity (**) 241,132 171,759 Risk weighted assets 2,029,186 1,520,923 Percentage 11.88% 11.29%

(*) Equivalent for these purposes to the paid-in capital and the reserves.

(**) According to article 66 of the General Banking Law, in order to calculate the effective equity, the capital assigned to branches abroad must be deducted, and subordinated bonds, as well as voluntary provisions within certain limits have to be considered as equity.

6. INVESTMENTS

a. Financial investmentsAt December 31, 2003: Adjustment to market value Type of investment Against Against Securities (*) Permanent (**) Non Permanent Subtotal equity income Total US$ US$ US$ US$ US$ US$Banco Central de Chile - 54,323 54,323 - 582 54,905 Tesorería General República or Other Government Entities 1,887 - 1,887 50 - 1,937 Chilean financial institutions - 35,087 35,087 - 6 35,093 Other local investments (***) 29,636 2,603 32,239 - (5,659) 26,580 Investments abroad - - - - - - Total 31,523 92,013 123,536 50 (5,071) 118,515

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At December 31, 2002: Adjustment to market value Type of investment Against Against Securities (*) Permanent (**) Non Permanent Subtotal equity income Total US$ US$ US$ US$ US$ US$Banco Central de Chile - 53,555 53,555 - 126 53,681 Tesorería General de la República or other Government Entities 1,661 - 1,661 69 - 1,730 Chilean financial Institucions - 1,606 1,606 - 20 1,626 Other local investment (****) 18,940 1,820 20,760 - (1,042) 19,718 Total 20,601 56,981 77,582 69 (896) 76,755

(*) Classification according to the issuers. This amount includes, in total, an amount of US$954 (US$1,108 in 2002), for securities sold under repurchase agreements.

(**) Permanent investments include securities whose adjustment to market value is charged to the “Fluctuation in value of financial investments” account, as described in Note 1g.

(***) In conformity to regulations of the Superintendencia, the adjustment to market value of these investments was recorded against income for the year, as they do not have the degree of investment. The aforementioned amount includes at December 31, 2003, a special provision over securitized bonds with the character of ThUS$242 to Bandesarrollo Sociedad de Leasing Inmobiliario S.A. and ThUS$4,446 to Banco del Desarrollo.

b. Other investments 2003 2002 US$ US$Assets for leasing 6,582 3,750 Assets received in settlement of loans (*) 21,073 34,168 Other investments 1 1 Total 27,656 37,919

(*) Assets received in settlement of loans are included net of provisions of US$836 (US$1,911 in 2002). The amount shown on the balance sheet corresponds to the estimated realizable value of these assets taken as a whole.

In addition to the assets received in settlement of loans that are classified as assets, the Group owns properties and other assets that have been written off but not yet sold. Management estimates that sales proceeds for these assets could total US$608 approximately (US$2,687 in 2002).

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7. MATURITIES OF ASSETS AND LIABILITIES

a. Maturity of loans and financial investmentsThe information below shows assets and liabilities at December 31, 2003 and 2002 through their maturity. The balances, which include interest accrued at year end, are as follows:

At December 31, 2003: Due after Due after Due 1 year but 3 years but Due within within within after one year 3 years 6 years six years Total US$ US$ US$ US$ US$LOANS (1): Commercial and others 804,247 209,316 143,115 185,850 1,342,528 Mortgage 26,856 51,325 71,412 223,217 372,810 Consumer 34,485 35,155 21,412 18,121 109,173 Leases 22,269 31,682 28,809 40,162 122,922 OTHER LOANS: Loans to other financial institutions 97,700 - - - 97,700 FINANCIAL INVESTMENTS: Permanent investments (2) 996 849 41 29,636 31,522 Non-permanent investments (3) 92,602 - - - 92,602

At December 31, 2002: Due after Due after Due 1 year but 3 years but Due within within within after one year 3 years 6 years six years Total US$ US$ US$ US$ US$LOANS (1): Commercial and others 613,685 160,984 129,153 149,770 1,053,592 Mortgage 20,576 39,996 56,182 149,452 266,206 Consumer 20,645 23,150 14,500 11,905 70,200 Leases 10,051 15,072 16,615 27,104 68,842 OTHER LOANS: Loans to other financial institutions 53,596 - - - 53,596 FINANCIAL INVESTMENTS: Permanent investments (2) 842 636 183 18,940 20,601 Non-permanent investments (3) 57,126 - - - 57,126

(1) Considers only those loans outstanding at year end that fall due within the indicated periods. Consequently, excluded are contingent loans and loans transferred to the past-due portfolio, as well as delinquent debts that have not been transferred to the past-due portfolio amounting to US$19,974 (US$8,417 in 2002), of which US$8,409 (US$4,022 in 2002) have been delinquent less than 30 days.

(2) Includes financial investments designated as permanent, as described in Note 1, without considering their adjustments to market value.

(3) Includes all the other financial investments, with adjustments to market value.

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b. Maturities of deposits, borrowings and other financing operationsThe information detailed below shows deposits, borrowings and other liabilities at December 31, 2003 and 2002 through their maturity. The balances, which include interest accrued at year end, are as follows:

At December 31, 2003: Due after Due after Due 1 year but 3 years but Due within within within after one year 3 years 6 years 6 years Total US$ US$ US$ US$ US$DEPOSITS AND OTHER LIABILITIES (*): Deposits 809,577 90,980 9,262 - 909,819 Other term liabilities 17,049 40 73 544 17,706 Liabilities arising from trading securities 1,140 - - - 1,140 Mortgage notes 36,493 86,601 121,803 282,029 526,926 BONDS 8,577 14,055 19,734 37,396 79,762 BORROWINGS FROM BANCO CENTRAL DE CHILE AND OTHER FINANCIAL INSTITUTIONS: Other Banco Central de Chile borrowings 14,207 3,030 - - 17,237 Domestic borrowings 11,223 2,647 - - 13,870 Foreign borrowings 86,649 - - - 86,649 Other borrowings 43,246 19,811 24,276 28,266 115,599

At December 31, 2002: Due after Due after Due 1 year but 3 years but Due within within within after one year 3 years 6 years 6 years Total US$ US$ US$ US$ US$DEPOSITS AND OTHER LIABILITIES (*): Deposits 662,351 78,564 15,397 - 756,312 Other term liabilities 7,642 486 522 - 8,650 Liabilities arising from trading securities 1,108 - - - 1,108 Mortgage notes 31,195 74,117 108,000 224,317 437,629 BONDS 4,965 8,018 11,099 34,288 58,370 BORROWINGS FROM BANCO CENTRAL DE CHILE AND OTHER FINANCIAL INSTITUTIONS: Other Banco Central de Chile borrowings 1,255 2,445 1,220 - 4,920 Domestic borrowings 8,212 2,700 - - 10,912 Foreign borrowings 46,822 120 - - 46,942 Other borrowings 23,963 17,095 20,458 22,213 83,729

(*) Excludes all demand deposits, savings accounts and contingent liabilities.

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8. FOREIGN CURRENCY POSITION

The balance sheet includes assets and liabilities that are denominated in foreign currencies or are indexed to changes in exchange rates. These amounts are summarized below:

Payable in Foreign currency Chilean currency (*) Total 2003 2002 2003 2002 2003 2002 US$ US$ US$ US$ US$ US$ASSETS: Liquid assets 9,621 23,300 - - 9,621 23,300 Loans 95,660 101,030 8,264 9,586 103,924 110,616 Contingent loans 20,934 16,256 - - 20,934 16,256 Other assets 211,976 116,164 - - 211,976 116,164 Total assets 338,191 256,750 8,264 9,586 346,455 266,336 LIABILITIES: Time and demand deposits 36,905 22,845 - - 36,905 22,845 Contingent liabilities 21,082 16,349 - - 21,082 16,349 Liabilities with domestic banks - - - - - - Liabilities with foreign banks 85,836 47,344 - - 85,836 47,344 Other liabilities 197,193 173,183 6,937 12,641 204,130 185,824 Total liabilities 341,016 259,721 6,937 12,641 347,953 272,362

(*) Corresponds to operations denominated in foreign currencies and payable in Chilean pesos or operations that are indexed to changes in the exchange rate.

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9. TRANSACTIONS WITH DERIVATIVE INSTRUMENTS

Transactions for the purchase and sale of foreign currency futures and other derivative products at year end, are summarized below (in thousands of U.S. dollars):

Contracts for the purchase and sale of foreign currency futures, and interest rates on those currencies.

Number of Contract amounts transactions Up to 3 months Over 3 months Type of futures operation 2003 2002 2003 2002 2003 2002 US$ US$ US$ US$Local market: Foreign currency forwards Purchases 57 37 153,080 112,827 22,003 - Sales 61 74 137,244 126,611 22,003 46,193 Foreign market: Foreign currency forwards 1 - 2,623 - - - Foreign sale forwards 1 1 - 15 2,623 -

The amount refers to either the US dollar futures bought or sold, or the equivalent in US dollars of foreign currency futures bought or sold, or the US dollar basis associated with interest rate futures, as appropriate. The terms correspond to the duration of the contracts from the transaction date.

10. CONTINGENCIES, COMMITMENTS AND RESPONSIBILITIES

a. Commitments and responsibilities recorded in memorandum accounts:The Group has recorded the following commitments and responsibilities in memorandum accounts:

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Annual Report 2003

2003 2002 US$ US$ Securities held in custody 1,318,346 209,693 Loans approved and not disbursed 57,097 33,536 Chilean documents held for collection 240,198 145,961 Foreign documents held for collection 9,315 972 Contracts under lien in favor of Corporación de Fomento de la Producción (CORFO) - 173 Lease contracts signed, but goods not yet delivered 3,607 508 Deferred customs duties transferred to customers 56 12 Other notes pledged in settlement of housing registration in process 2,865 2,922 Contracts signed by clients with housing under purchase 551 565 Time deposits pledged in settlement of housing in process registration 232 157 Personal guarantees received on contracts 6,306 3,979 Contractual commitment to buy land 926 784 Guarantee provided by Company 5,991 4,142 Contracts delivered as guarantee from bonds issued 4,735 - Purchase and sale obligations of houses 1,596 - Guarantee for merger of equity 1,140 -

The above includes only the more significant balances. Contingent loans and liabilities are stated in the balance sheet.

At December 31, 2003, the subsidiary Sudameris Leasing S.A. has delivered leasing contracts in guarantee for the issue of bonds, whose total income amounts to US$4,735 (US$6,446 in 2002).

The subsidiary Bandesarrollo Sociedad de Leasing Inmobiliario S.A. was committed to acquire from Securitizadora Bice S.A., residences that this latter recovers from early termination of lease contracts with repurchase agreement that are part of its separated equity. The purchase price is approximately of 80% of the price committed for the residence in the contract that is terminated in advance. For separated equity N°12 and N°14, the Company has taken certificate of deposits for which the obligation of the Company is limited to the equivalent of UF27,000 in equity N°12 and UF29,000 in equity N°14, and in both cases the obligation matures on December 31, 2009.In addition, the subsidiary Bandesarrollo Sociedad de Leasing Inmobiliario S.A. has provided its guarantee that the equities N°12 and N°14 of Securitizadora Bice S.A. will merge in the terms contemplated in Law N°18,045. This guarantee assumes the obligation of contributing assets up to the equivalent of UF40,000 for equity N°14, as long as they are necessary in order that the merger with equity N°12 does not impair the level of investment in force of securities issued by the latter. At December 31, 2003, the opinion of the risk classifying firms that provided the classification of such securities is that based on available background, the merger of both equities does not impair the level of investment in force of securities, for which this guaranteee would not be necessary.

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At December 31, 2003, the subsidiary Sudameris Agencia de Valores S.A., in accordance with article 30 of the law N°18,045 has taken out an insurance policy issued by “Compañía de Seguros de Crédito Continental S.A.” expiring April 16, 2004. The beneficiary is Banco del Desarrollo (in representation of beneficiary creditors) for UF 4,000. The guarantee above is to ensure the correct and exact compliance of all obligations related with the securities intermediation, in benefit of present or future creditors that it has or may have with regard to intermediation operations.

b. Pending lawsuits:The Group had lawsuits pending against it at December 31, 2003 and 2002, related to loans and others which, mostly present no risk of significant losses, in the opinion of the Group’s legal counsel.

11. COMMISSIONS

Commission income and expenses shown on the statement of income correspond to the following:

Revenue Expenses 2003 2002 2003 2002 US$ US$ US$ US$Commissions earned or paid on: Letters of credit, guarantees, pledges and other contingent loans 615 409 - - Collection of notes 1,313 1,014 - - Custody and trust 635 308 - - Credit cards 1,387 671 640 491 Automatic teller cards 1,754 983 1,558 839 Lines of credit 8,220 5,798 - - Checking accounts 2,663 1,366 - - Saving accounts 782 641 - - Cashier checks and transfers of funds 15 8 - - Collection of insurance 4,256 3,025 - - Commission for professional services 1,255 1,326 - - Commission to foreign banks - - - 107 Commission on collections 326 175 - - Commission on payment of third party remuneration 461 314 - - Comission on prepayments 729 378 - - Others 2,450 837 220 112 Total 26,861 17,253 2,418 1,549 The commissions earned on mortgage note transactions are included in “Interest and Indexation Income” in the consolidated statement of income.

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12. OTHER OPERATING INCOME AND EXPENSES

The detail of other operating income and expenses is as follows: 2003 2002 US$ US$OPERATING INCOME: Gain on sale of assets received in settlement 7,405 5,343 Recovery of acquired non-capitalized U.R. credit 210 197 Proceeds from lease contracts 1,272 1,174 Financial consulting (subsidiaries) 516 454 Others 265 198

Total 9,668 7,366 OPERATING EXPENSES: General and maintenance expenses for assets received or adjudicated in settlement 2,431 2,928 Lease contract expenses 549 345 Others 10 3

Total 2,990 3,276

13. OTHER NON-OPERATING INCOME AND EXPENSES

The detail of other non-operating income and expenses is as follows: 2003 2002 US$ US$NON-OPERATING INCOME: Recovery of expenses 515 502 Gain on sale of fixed assets 10 6 FOSIS, MINVU, CORMI and CORFO subsidy received 1,077 864 Rental of real estate and other property 43 68 Gain on sale of written-off assets 365 550 Others 385 381

Total 2,395 2,371 NON-OPERATING EXPENSES: Special provision for securitized endorsable mortgage notes 51 443 Loss on sale of fixed assets - 102 Write-offs on assets received in settlement of loans 11,342 8,999 Amortization of goodwill on investments in related companies - 61 Payment to other preferential creditors on adjudicated assets 216 - Donations 616 319 Accruals for contingencies 17 - Damages paid in litigations 212 73 Others 536 392

Total 12,990 10,389

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Annual Report 2003

14. PURCHASES, SALE, REPLACEMENT OR EXCHANGE OF LOANS FROM THE LOAN PORTFOLIO

In 2002, the following transactions for the sale or purchase of loans took place with other financial institutions:

2003 Purchase Operating Effect Par value value Sale value Reserves expenses on income US$ US$ US$ US$ US$ US$

1,032 - 1,032 - - - 6,377 6,377 - - - - 1,673 - 1,673 17 - 17 10,449 10,449 - - - - (*) 13,571 - 14,395 18 (51) 792 (**) 5,806 6,211 - - - - (**) 27,065 - 31,623 204 (1,198) 3,564

(*) On November 28, 2003, the Bank sold 592 mortgage loans in its portfolio to Securitizadora BICE S.A..

(**) During September and November 2003, the subsidiary Bandesarrollo Sociedad de Leasing Inmobiliario S.A. sold Securitizadora BICE S.A. 684 and 562 residences, respectively, transferring the applicable lease contracts. In May and December 2003, the same subsidiary acquired from Inmobiliarias Delta Leasing Habitacional S.A. and Sociedad Inmobiliaria Leasing Habitacional Chile S.A. a total of 315 lease contracts with repurchase agreement. Overprice paid in these credit repurchase operations is being amortized in accordance with the remaining term of the contracts.

15. MINORITY INTEREST

The minority interest in the equity and income of the subsidiaries is as follows:

2003: Ownership by Minority interest third parties Equity Income % US$ US$Subsidiary: Bandesarrollo S.A. Asesoría Financiera 1.00 8 (1)Bandesarrollo Servipyme S.A. 47.68 31 114 Total 39 113 2002: Subsidiary: Bandesarrollo S.A. Asesoría Financiera 1.00 6 (2)Bandesarrollo Servipyme S.A. 49.00 60 104 Total 66 102

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16. DIRECTORS’ REMUNERATION AND EXPENSES

As agreed by the shareholders, the Group either charged to income for the year or paid to Directors as per diem or fees for attending meetings a total of US$1,273 (US$804 in 2002).

17. INCOME TAX AND DEFERRED TAXES

a. Income taxThe Bank and its subsidiaries provided for first category income tax charging income for US$6.404 millions (US$230 millions in 2002), except for the subsidiaries Sudameris Leasing S.A. and Bandesarrollo Servipyme S.A. that do not provide for income tax as they have tax losses amounting to US$2.739 and US$559 millions (US$1.692 and US$239 millions in 2002), respectively.

b. Deferred taxesTechnical Bulletin N°71 of the Colegio de Contadores de Chile A.G., states that, deferred taxes are to be recorded by applying the enacted income tax rate of the year in which the temporary difference that gave rise to such deferred taxes will reverse.

Shown below are the deferred taxes as a result of the following temporary differences:

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At December 31, 2003: Balance at ITEM 1/1/03 12/31/03 US$ US$Debit differences:

Suspended interest and indexation 1,938 1,666 ANAP portfolio in memorandum accounts 1,814 1,885 Price adjustment of investments 177 821 Write-off of assets received in settlement of loans 825 1,113 Repurchase/resale agreements (net) - 3 Loan portfolio overall provision 8,629 9,361 Other provisions 1,436 1,381 Other debit differences 1,030 1,900 Lease contracts 402 4,291 Other debit differences for lease contracts 124 50 Tax loss 505 637 Subtotal 16,880 23,108

Complementary account balance (302) (166)

Total debit differences 16,578 22,942

Credit differences:

Provision for uncollectible individual loans 917 1,088 Future transactions (net) 53 346 Remodeling of rented premises 57 35 Application software 1,122 1,497 Fixed assets with accelerated depreciation 320 339 Price difference in subordinated bonds 912 865 Lease contracts - 5,414 Other credit differences 402 515 Other credit differences for lease contracts 1,275 57 Subtotal 5,058 10,156

Complementary account balance (680) (508)

Total credit differences 4,378 9,648

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At December 31, 2002 Balance at ITEM 1/1/02 12/31/02 US$ US$Debit differences:

Suspended interest and indexation 2,548 1,602 ANAP protfolio in memorandum accounts 1,463 1,500 Price adjustment of investments - 146 Write-off assets received in settlement of loans 477 682 Repurchase/resale agreements (net) - - Loan portfolio overall provision 8,628 7,130 Other provisions 1,132 1,187 Other debit differences 579 851 Lease contracts 47 332 Other debit differences for lease contracts 84 102 Tax loss 406 417 Subtotal 15,364 13,949

Complementary account balance (363) (250)

Total debit differences 15,001 13,699

Credit differences

Provision for uncollectible individual loans 1,004 757 Price adjustment of investments 54 - Future transactions (net) 236 44 Remodeling of rented premises 68 47 Application software 748 927 Fixed assets with accelerated depreciation 325 265 Price difference in subordinated bonds 1,170 753 Lease contracts 1 - Other credit differences 239 332 Other credit differences for lease contracts 64 1,053 Subtotal 3,909 4,178

Complementary account balance (773) (562)

Total credit differences 3,136 3,616

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c. Tax expense in each year is as follows:

2003 2002Item US$ US$ Current tax expense (6,404) (230)Deferred tax assets and liabilities for the year 1,129 (1,686)Amortization of complementary accounts of deferred tax assets and liabilities for the year (36) (98)Effect from cash at the beginning of the year for Sudameris subsidiaries 95 - Others 49 129 Total income tax (5,167) (1,885)

18. SUBSEQUENT EVENTS

From January 1 to January 15, 2004, the date these financial statements are issued, there have been no subsequent events that would materially affect them.

JUAN CARLOS CONTRERAS C. DOMINGO ORTEGA PALMA Chief Accountant General Operations and Accountant Manager

HUGO TRIVELLI OYARZÚN MAURICIO ROJAS MUJICA General Manager General Manager Adjusted Operations

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IINDEPENDENT AUDITORS’ REPORT

To the Shareholders of Banco del DesarrolloWe have audited the consolidated balance sheets of Banco del Desarrollo and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of income and of cash flows for the years then ended (all expressed in millions of Chilean pesos and not submitted herewith). These financial statements (including the related notes) are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, such consolidated financial statements present fairly, in all material respects, the financial position of Banco del Desarrollo and subsidiaries at December 31, 2003 and 2002, the results of their operations, and their cash flows for the years then ended, in conformity with accounting principles generally accepted in Chile and regulations of the Superintendencia de Bancos e Instituciones Financieras (Superintendency of Banks and Financial Institutions).

As explained in Note 5 to the financial statements, on July 7, 2003 the capital increase for US$37 million approximately agreed at the Extraordinary Shareholders’ Meeting held on April 29, 2003 was settled through the contribution of assets and assumption of liabilities of Banco Sudameris, Chile Brand.

Our audits also comprehended the translation of the Chilean peso amounts into United States Dollar amounts as shown in the accompanying translated financial statements and, in our opinion, such translation has been made in conformity with the basis stated in Note 1o. to the financial statements. The translation of the financial statements into United States Dollars and the translation of the financial statements into English have been made solely for the convenience of readers outside Chile.

January 15, 2004

Alberto Kulenkampff G.

Deloitte & ToucheSociedad de Auditores y Consultores Ltda.RUT: 80.276.200-3Av. Providencia 1760Pisos 6, 7, 8 y 9Providencia, SantiagoChileFono: (56-2) 270 3000Fax: (56-2) 374 9177e-mail: auditchile@deloitte.comwww.deloitte.cl

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