FIXED INCOME INVESTORS PRESENTATION - Here to help you prosper Q1 2019 - Banco Santander SA
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Q1 2019 FIXED INCOME INVESTORS PRESENTATION Here to help you prosper
Important information
Non-IFRS and alternative performance measures
In addition to the financial information prepared in accordance with International Financial Reporting Standards (“IFRS”), this presentation contains certain financial measures that constitute alternative
performance measures (“APMs”) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority (ESMA) on 5 October 2015
(ESMA/2015/1415en) and other non-IFRS measures (“Non-IFRS Measures”). The financial measures contained in this presentation that qualify as APMs and non-IFRS measures have been calculated using
the financial information from Santander Group but are not defined or detailed in the applicable financial reporting framework and have neither been audited nor reviewed by our auditors. We use these APMs
and non-IFRS measures when planning, monitoring and evaluating our performance. We consider these APMs and non-IFRS measures to be useful metrics for management and investors to facilitate
operating performance comparisons from period to period. While we believe that these APMs and non-IFRS measures are useful in evaluating our business, this information should be considered as
supplemental in nature and is not meant as a substitute of IFRS measures. In addition, other companies, including companies in our industry, may calculate or use such measures differently, which reduces
their usefulness as comparative measures. For further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the
financial data presented in the consolidated financial statements prepared under IFRS, please see 2019 1Q Financial Report, published as Relevant Fact on 30 April 2019 and 2018 Annual Financial Report,
published as Relevant Fact on 28 February 2019. These documents are available on Santander’s website (www.santander.com).
The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable
accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries
Forward-looking statements
Santander cautions that this presentation contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RoRAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”, “estimate”, “future” and
similar expressions. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and
economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a
number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. The following important factors, in addition to those discussed
elsewhere in this presentation, could affect our future results and could cause outcomes to differ materially from those anticipated in any forward-looking statement: (1) general economic or industry
conditions in areas in which we have significant business activities or investments, including a worsening of the economic environment, increasing in the volatility of the capital markets, inflation or deflation,
and changes in demographics, consumer spending, investment or saving habits; (2) exposure to various types of market risks, principally including interest rate risk, foreign exchange rate risk, equity price
risk and risks associated with the replacement of benchmark indices; (3) potential losses associated with prepayment of our loan and investment portfolio, declines in the value of collateral securing our loan
portfolio, and counterparty risk; (4) political stability in Spain, the UK, other European countries, Latin America and the US (5) changes in laws, regulations or taxes, including changes in regulatory capital and
liquidity requirements, including as a result of the UK exiting the European Union and increased regulation in light of the global financial crisis; (6) our ability to integrate successfully our acquisitions and the
challenges inherent in diverting management’s focus and resources from other strategic opportunities and from operational matters while we integrate these acquisitions; and (7) changes in our ability to
access liquidity and funding on acceptable terms, including as a result of changes in our credit spreads or a downgrade in our credit ratings or those of our more significant subsidiaries. Numerous factors
could affect the future results of Santander and could result in those results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause
actual results to differ materially from those in the forward-looking statements.
2Important information
Forward-looking statements speak only as of the date of this presentation and are based on the knowledge, information available and views taken on such date; such knowledge,
information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information,
future events or otherwise.
No offer
The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure
document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person’s own judgment as to the merits or the suitability of the
securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or
appropriate in the circumstances and not in reliance on the information contained in this presentation. No investment activity should be undertaken on the basis of the information
contained in this presentation. In making this presentation available Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or
in any other securities or investments whatsoever.
Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be
made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is
intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets
Act 2000.
Historical performance is not indicative of future results
Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any
period will necessarily match or exceed those of any prior period. Nothing in this presentation should be construed as a profit forecast.
3CONTENT
1. Markets and Macroeconomic Environment
2. Santander Business Model & Strategy
3. Capital
4. Asset Quality
5. Liquidity and Funding
6. Concluding Remarks
7. Appendix
4Markets and
Macroeconomic
Environment
01Markets and Macroeconomic Environment
Trade tensions, financial tightening and normalisation of monetary policies in
advanced economies are driving weakened growth prospects in the near term
Global economic growth slowed in 2018, leaving behind the IMF 2019 GDP Outlook1
peak of this expansion, though a relatively dynamic
World Output 3.3%
environment is expected to be maintained
Euro Area 1.3%
Forecast for global economic growth in 2019: 3.3% (3.6% in UK 1.2%
2018), though estimations continue to be revised down
United States 2.3%
Mature economies are estimated to grow 1.8%, down from LatAm and the Caribbean 1.4%
2.2% in 2018 as cyclical forces begin to wane Mexico 1.6%
Developing economies will grow by around 4.4%, slightly Brazil 2.1%
below the 4.5% growth in 2018
Santander is well-positioned for growth due to its balanced geographic diversification
MATURE MARKETS DEVELOPING MARKETS
Cyclical macro acceleration Structural growth remains strong
(52% underlying attributable profit2) (48% underlying attributable profit2)
1. World Economic Outlook, April 2019 Update
2. Q1 2019 underlying attributable profit excluding Real Estate Activity Spain and Corporate Centre 6Markets and Macroeconomic Environment
The expansionary cycle in Spain is expected to continue, backed by employment
creation, higher consumption and real estate & investment recovery
Annual GDP Growth Contribution to GDP Growth
Real, % % YoY
6
3.2 3.0 4
2.6
2.1 2.0 2
1.7
0
-2
-4
2016 2017 2018 2019 (e) 2020 (e) 2021 (e) 2013 2014 2015 2016 2017 2018 2019(e) 2020(e) 2021(e)
Net external demand Domestic demand
Unemployment rate in Spain Housing sales and permits
% k
19.6 600 110
New building permits
17.2 550 100
14.4 Sales
14.1 500 90
13.0 12.1 80
450
70
400
60
350 50
300 40
250 30
2016 2017 2018 2019 (e) 2020 (e) 2021 (e) 2010 2011 2012 2013 2014 2015 2016 2017 2018
1. Source: Santander Research Department, Bank of Spain 7Markets and Macroeconomic Environment
Loan stabilisation in Spain is accompanied by the closing of the funding gap and
improved credit quality
Funding Gap Non-performing loans
EUR bn, Spanish system, latest available data Feb-19 EUR bn and %, Spanish system, latest available data Feb-19
250 16%
2,000 1,200
14%
1,750 1,000 200
12%
1,500 800 10%
150
8%
1,250 600
100 6%
1,000 400
4%
50
750 200 2%
0 0%
500 0
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Feb-19
Dec-06
Dec-07
Dec-09
Dec-10
Dec-11
Dec-12
Dec-14
Dec-15
Dec-16
Dec-08
Dec-13
Dec-17
Dec-18
Jun-07
Jun-08
Jun-09
Jun-10
Jun-12
Jun-13
Jun-14
Jun-15
Jun-17
Jun-18
Jun-11
Jun-16
Feb-19
Total loans inc. reverse repos (LHS) Non-performing loans (LHS)
Total deposits inc. repos (LHS) NPL ratio (RHS)
Funding Gap (RHS)
1. Source: Bank of Spain and Santander calculations 8Markets and Macroeconomic Environment
UK economy relatively stable, however uncertainty remains
Annual GDP Growth Bank of England base rate
Real % Year end, %
1.8 1.6 1.8 0.75 0.75 0.75 0.75
1.4 1.2 0.50
2017 2018 2019 (e) 2020 (e) 2021 (e) 2017 2018 2019 (e) 2020 (e) 2021 (e)
Annual CPI inflation rate1 Average exchange rate
Annual average, % EUR/GBP
0.90
2.7 2.5 0.88
2.1 1.9 1.8
0.87 0.87 0.87
2017 2018 2019 (e) 2020 (e) 2021 (e) 2017 2018 2019 (e) 2020 (e) 2021 (e)
2017 and 2018 source: Office for National Statistics and Bank of England. 2019 (e), 2020 (e) and 2021 (e) source: Santander UK forecasts at March 2019 9
1. Consumer Price IndexMarkets and Macroeconomic Environment
Steady loan growth and slight acceleration in deposit growth expected to continue
Total loans
GBP bn1
2,031
Mortgage lending growth at c.3% in 2019, with weaker buyer
2,017 2,042
2,000
1,946 demand and subdued house prices seen to date likely to
4.0
continue
3.8 3.8 3.7 3.8
YoY
(%) Consumer credit growth has slowed from double-digit rates
to c.7%, and is expected to be c.5% in 2019
Corporate borrowing market is expected to grow by c.2-3%,
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 (e)
as uncertainty continues to dampen investment intentions
Total deposits
GBP bn2
1,946 1,955 Retail deposit growth is expected to be c.4% in 2019
1,909 1,921
1,877 Household saving ratio has risen since the start of 2018,
from 4.1% in Q1’18 to 4.8% in Q4’18, but remains low by
YoY historical standards
(%)
3.7 3.6 3.6 3.6
3.9
Corporate deposit growth expected to remain at c.5%
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 (e)
Source:Bank of England Bankstats (Monetary and Financial Statistics) published at end-Mar 2019, internal estimates for latest month. Annual growth rates are calculated using Bank of
England methodology. As a result, stated growth rates may differ from percentage change in assets
1. Total loans includes household (mortgages and consumer credit) plus corporate loans
10
2. Total deposits include household deposits (with banks and NS&I) and corporate deposits, excluding cash holdingsMarkets and Macroeconomic Environment
Expectations indicate a gradual recovery in economic activity
Annual GDP Growth Interest rate – Selic
Real, % Year end, %
7.50 8.00
7.00 6.50 6.50
2.5 2.5
1.7
1.0 1.1
2017 2018 2019 (e) 2020 (e) 2021 (e)
2017 2018 2019 (e) 2020 (e) 2021 (e)
Annual inflation rate End of period exchange rate
IPCA, % BRL/USD
3.87 3.75 3.80 3.82
3.8 4.0 4.0 3.8
3.0 3.30
2017 2018 2019 (e) 2020 (e) 2021 (e) 2017 2018 2019 (e) 2020 (e) 2021 (e)
Sources: Brazilian Central Bank, IBGE and “Pesquisa Focus” estimates (April 18, 2019) 11Markets and Macroeconomic Environment
Privately owned banks continue to support loan growth, while customer funds
maintained a positive trend
Total loans
Constant EUR bn1
765 761
Loans increased slightly following resumption of the Brazilian
724 735 744
economy with different dynamics in the segments
5.4 5.5 Loans to Individuals grew 9.0%, while Corporate & SME Loans
YoY 3.9
(%) 1.7 rose 1.4% (YoY)
0.1
Privately owned banks grew 13.0% YoY, while state-owned
banks dropped 0.7% YoY
Mar-18 Jun-18 Sep-18 Dec-18 Feb-19
Total customer funds
Constant EUR bn1,2
1,721 1,723
1,680
1,629 1,638
Total customer funds increased 7.3%, mostly influenced by
YoY Time Deposits (+16.9%), Savings Deposits (+8.7%) and
(%) 7.4 6.8 6.7 8.0 7.3
Funds (+9.9%)
Mar-18 Jun-18 Sep-18 Dec-18 Feb-19
Source: Central Bank of Brazil
(1) End period exchange rate as of Feb19
12
(2) Total Deposits+ mutual funds + other funding (debentures, real estate credit notes - LCI, agribusiness credit notes - LCA, treasury notes (letras financeiras) and
Certificate of Structured Transactions - COEs)Markets and Macroeconomic Environment
US growth projected to slow as interest rates level off
GDP Growth Interest Rate
%, real %, period average1 3.17 3.14
2.93
2.9 2.31
2.2 2.3
1.9
1.6 1.26
2017 2018 2019 (e) 2020 (e) 2021 (e) 2017 2018 2019 (e) 2020 (e) 2021 (e)
CPI Inflation Rate USD/EUR Exchange Rate
%, period average Period end
1.20 1.14 1.15 1.14
1.10
2.4 2.3 2.2
2.1 1.9
2017 2018 2019 (e) 2020 (e) 2021 (e) 2017 2018 2019 (e) 2020 (e) 2021 (e)
Source: FRB, Knoema.com (U.S. IMF Forecasts), LongForecast.com, and estimates by Santander Research La Semana 26/04/2019 13
1. 3-month LIBOR rate from ICE Benchmarking AdministrationMarkets and Macroeconomic Environment
Industry Loan growth driven by Commercial balances
Total Loans Total Deposits
USD bn 1 USD bn 1
10,155 13,866
9,859 9,942 13,529 13,469 13,574
9,723 9,755 13,399
YoY 4.4% YoY 3.9% 3.4% 2.7% 3.5%
4.5% 4.9% 4.2% 4.0% 2.8%
(%) (%)
Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
Quarter over Quarter Mar-19
2 Mar-18 Jun-18 Sep-18 Dec-18
Growth % (est.)
Total Loans (3.6%) 4.8% 0.4% 11.2% (3.6%)
C&I 4.0% 7.6% (0.4%) 24.0% 1.6% Home Equity loans continue to decline, driving
Real Estate (2.4%) 1.2% (0.4%) (2.0%) 1.2%
the reduction in Q1’19 loan growth
Resi Mortgages 0.0% 0.8% 2.8% (2.0%) 0.8%
CRE (0.4%) 6.8% (2.8%) 0.0% 3.6% Deposit growth slowing after gains in 2018
Home Equity (16.0%) (13.6%) (10.8%) (9.2%) (5.6%)
Deposits 0.0% (2.8%) 4.0% 15.6% (3.6%)
Loan to Deposit Ratio 70.5% 71.8% 71.2% 70.5% 70.5%
Source: FDIC Statistics on Depository Institutions; data available one quarter in arrears.
1. Gross Loans
14
2. Annualised large banks ending QoQ growth rate based on Federal Reserve dataMarkets and Macroeconomic Environment
Expected deceleration of economy along with lower inflation and 8.00%
benchmark rate
Annual GDP Growth Central Bank rate
Real, % Year end, %
8.25 8.00
7.25 7.50
7.00
2.1 2.0
1.7 1.7
1.0
2017 2018 2019 (e) 2020 (e) 2021 (e) 2017 2018 2019 (e) 2020 (e) 2021 (e)
Annual Inflation Rate Average Exchange Rate
% MXN/USD
20.5 20.8
6.8 18.9 19.2 19.7
4.8
3.9
3.5 3.5
2017 2018 2019 (e) 2020 (e) 2021 (e) 2017 2018 2019 (e) 2020 (e) 2021 (e)
Source: Deputy General Direction of Analysis, Strategy & Public Affairs 15Santander
Business Model &
Strategy
02Santander Business Model & Strategy
Our business model has unique competitive advantages
1
1 Our scale provides potential for organic growth
2 Unique personal banking relationships strengthen customer loyalty
Our geographic and business diversification and our model of
3 subsidiaries makes us more resilient under adverse circumstances
17Santander Business Model & Strategy
We have in-market scale in our core markets, with customers distributed across 1
geographies with high growth potential
Market shares Customers distributed across geographies
Mar-19
10%
Loans
1 Billion
9%
Deposits
Total Population
12%
18% Loans
3%
Loans
16%
12%
Deposits 144 mn
Loans
3%
Deposits Top 3 Total Customers
13% 17%
Loans Deposits Loans
US; 4% Others; 1%
14% 18% Argentina; 3%
Deposits Deposits Spain; 12%
Chile; 2%
9%
Loans Mexico; 12%
11% SCF; 13%
19% Deposits
Loans
Poland; 3%
18% 10% Portugal; 2%
Deposits Loans
12% Brazil; 30%
Deposits UK; 18%
Source: Own calculation based on public information of the market (Central banks, regulators, etc.)
Data: Mar-19 or latest available. UK: loans include household (mortgages and consumer credit) plus corporate loans. Deposits include household deposits (with banks and NS&I) and 18
corporate deposits, excluding cash holdings; Poland: including Santander Consumer Finance business in Poland; US: in all states where Santander operates; Brazil: deposits includes
demand, savings and time deposits, LCA (agricultural credit notes) and LCI (real estate credit notes); Spain: other Resident Sectors in SpainSantander Business Model & Strategy
Focus on increasing customer loyalty via unique personal banking relationships, 2
together with increased digitalisation…
Active Loyal Digital
68.5 mn (+8%) 20.2 mn (+10%) 33.9 mn (+24%)
Active customers Loyal customers Digital customers
+2.2 mn
active customers 30% +1.8 mn
QoQ
loyal / active customers digital customers
QoQ
~77% of PBT1 among Top 3 in customer satisfaction
Note: Year-on-year changes 19
Source: Customer satisfaction study (clients and non-clients) audited by Stiga/Deloitte
1. % of operating areas (excluding Corporate Centre and Real Estate Activity Spain)Santander Business Model & Strategy
… improves operational excellence by helping to deliver sustained top line 2
growth and increase cost savings
Increased customer revenue… …with better cost-to-income than peers2
Constant EUR mn, % change YoY Cost-to-income, Peers Dec-18, Santander Mar-19
48%
EU 49%
18 pp
Net interest income better than
EU 53%
9,019 1 peer avg.
8,307 8,682 EU 54%
+5% EU 55%
US 57%
US 58%
Net fee income US 59%
UK 63%
2,855 2,898 2,931
+3% UK 64%
US 65%
UK 67%
EU 71%
Q1'18 Q2 Q3 Q4 Q1'19 EU 72%
UK 72%
UK 77%
EU 79%
EU 93%
1. QoQ decrease as Q4’18 was favoured by Troubled Debt Restructuring reclassification in the US and Q1’19 was impacted by IFRS 16 20
2. Peers included are: Bank of America, Barclays, BBVA, BNP Paribas, Citibank, Deutsche, HSBC, ING, Intesa Sanpaolo, JP Morgan, Lloyds, RBS, Société Générale, Standard
Chartered, UBS, Unicredit and Wells FargoSantander Business Model & Strategy
Our geographic and business diversification, coupled with our subsidiaries 3
model…
Loan portfolio by country Loan portfolio by business
Breakdown of total gross loans excluding reverse repos, % of operating areas Mar-19 Breakdown of total gross loans excluding reverse repos, Mar-19
Argentina;
Other individuals;
Chile; 5% 1% Other LatAm; 1%
12%
Mexico; 4%
Spain; 23%
Brazil; 8%
CIB; 12% Home
mortgages;
35%
US; 10%
SCF; 11%
Corporates;
14%
Portugal; 4%
Poland; 3%
UK; 28% Other Eur; 2% SMEs; 11% Consumer;
16%
Total gross loans excluding reverse repos: EUR 896 bn
88% of loan portfolio is Retail, 12% Wholesale
RWAs as of Mar-19: EUR 606 bn
21Santander Business Model & Strategy
… with strong balance sheet growth… 3
Loans and advances to customers Customer funds
EUR bn and YoY change in constant EUR EUR bn and YoY change in constant EUR
247 +1% 325 +4%
210 -3% 213 +1%
98 +7% 114 +11%
88 +11% 68 +6%
76 +10% 42 +5%
41 +8% 40 +8%
36 -3% 37 0%
33 +10% 35 +28%
29 +29% 34 +4%
6 +50% 10 +55%
300
896 +4% 350
935 +5%
Note: Loans excluding reverse repos. Customer funds: deposits excluding repos + marketed mutual funds 22Santander Business Model & Strategy
… and underlying attributable profit distributed across regions… 3
Underlying attributable profit distribution1 Q1’19 Underlying attributable profit in core markets
% underlying profit, Q1’19 EUR mn and % change vs. Q1’18 in constant euros
Americas Europe
724 +15%
52% 48%
403 -11%
Other 325 +1%
Latam;
2%
Chile; 6% UK; 11% 271 -16%
206 +12%
Spain;
Brazil;
16% 182 +35%
29%
149 +1%
135 +7%
SCF; 13%
62 +1%
Mexico;
8% Portugal; 5%
11 -68%
US; 7% Poland;
3%
1. Excluding Corporate Centre and Real Estate Activity Spain 23Santander Business Model & Strategy
… allow us to generate high and recurring pre-provision profit, leading to resilient 3
growth through the economic cycle…
Resilient profit generation throughout the cycle PPP/Loans well above most European peers1
Group attributable profit, EUR bn %, 2018, Santander calculations
EU 3.2
2.9
EU 2.1
EU 2.1
9.1 8.9 8.9 EU 2.0
8.2
7.6 7.8 UK 1.9
6.6
6.0 6.2 EU 1.6
5.8
5.3 EU 1.6
4.2
UK 1.6
2.3 UK 1.6
EU 1.4
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
UK 1.2
UK 1.2
EU 0.5
1. European peers include: Barclays, BBVA, BNP, Deutsche, HSBC, ING, Intesa Sanpaolo, Lloyds, RBS, Société Générale, Standard Chartered, UBS and Unicredit 24Santander Business Model & Strategy
… and to generate stable and predictable growth 3
Predictable results with the lowest volatility among peers coupled with growth in earnings
Quarterly reported EPS volatility1, 1999-2018
699% 346%
124%
109%
88%
77%
58%
44% 42%
34%
9%
US IT CH CH FR FR US US NL US
2x 2x 0x 0x 6x 4x 6x 4x 1x 10x 5x
Net income increase 1999-2018
1. Source: Bloomberg, with GAAP Criteria. Note: Standard deviation of the quarterly EPS starting from the first available data since Jan-99 25Santander Business Model & Strategy
The Group’s medium-term strategy is based on three main pillars
Improving operating performance
Our three-pillar
plan for Accelerating digitalisation:
building an open financial
increasing services platform
profitability
Continuing to improve
capital allocation
26Santander Business Model & Strategy
Improving operational performance: Further leveraging our diversification
and scale
US Europe
Accelerating Building the leading
growth with European bank in
sustainable customer experience
profitability and profitability,
leveraging our scale
& digital
LatAm
A region with structural
growth and high and
increasing profitability
27Santander Business Model & Strategy
Improving operational performance: Key regional expected levers
Latin America USA Europe
High structural growth: Loans Attractive US market: better Low credit demand & rates:
to GDP at 49% risk return dynamics limited revenue growth…
Focus on customer experience & Benefitting from Group …and CoR at lows…
digitalisation scale
…requires a cross-border
High & sustainable revenue approach in a fragmented
growth (double digit expected Volume growth expected to market
CAGR4) be above the market to
drive higher revenues
Further operational
Organically deploying more integration and cost
capital (>30% of RWAs in the Strong operational leverage efficiencies (c.€1Bn)
medium-term)
Focus on customer
Stable credit quality
Stable credit quality experience & digitisation
28Santander Business Model & Strategy
Improving operational performance: adding value through our global
businesses and shared capabilities
Existing Corporate and Investment Banking
global
businesses Wealth Management
Consumer Finance
Global Merchant Services
Payment
related Global Trade Services
businesses
One Pay FX
Shared services Digital | IT&Ops | Procurement
29Santander Business Model & Strategy
Accelerating digitalisation: building an open financial services platform via a
twin-track approach to transformation to improve customer experience and
lower cost of delivery
1
1st Blockchain-based retail
payments solution
Global Trade Services1 Accelerate
Transform through high growth
One global platform offering fast and our Core banks
efficient Trade Finance, Supply chain ventures
and FX Payments products to SMEs “Supertankers” “Speedboats”
One of Europe’s largest full service
Fast experimentation to serve
Be the best for our digital banks
our banks with new solutions while
customers and deliver
competing in the
profitable growth
open market to attract
Global Merchant new customers
Services1
Global acquiring platform that Financial solutions targeting the over
leverages Getnet’s world-class 30 million underbanked in Latin
capabilities America
Investment in IT and digital transformation
in the coming years
1. Global Trade Services, Global Merchant Services and One Pay FX are all incorporated in the new Santander Global Payments Services unit 30Santander Business Model & Strategy
Continuing to improve capital allocation: executing the following levers to drive
further improvement in profitability, aligned with our strategic plan
Improved capital Capital Further alignment
allocation: efficiency: Digitalisation: of senior
more capital to our minimum profitability driving higher revenue management
most profitable thresholds and faster growth & operational remuneration with
geographies asset rotation efficiency capital goals
Higher profitability leads to higher capital generation capacity and potential
to increase growth & shareholder remuneration
31Capital
03Capital
Santander’s capital levels, both phased-in and fully loaded exceeds minimum
regulatory requirements
SREP capital requirements (phased-in) and MDA Assumed capital requirements (fully loaded)
Mar-19 Mar-19
14.84% 14.82% >15%
13.20% 1.81%
13.20% 2.00%
T2 +162 bps 1.93% T2
+164 bps
T2 2.00% 1.80% AT1 T2 2.00% 1.66% 1.50% AT1
AT1 1.50% AT1 1.50% +153 bps
+153 bps
G-SIB buffer 1.00% G-SIB buffer 1.00%
CCyB; CCyB;
1
CCoB 2.50% 0.20% CCoB 2.50% 0.20%
11.23% CET1 11.23% 11-12% CET1
Pillar 2 R 1.50% Pillar 2 R 1.50%
Pillar 1 4.50% Pillar 1 4.50%
Regulatory Requirement Group ratios Mar-19 Assumed regulatory Group ratios Mar-19 Medium-term
2019 requirement Mar-19 target ratios
The minimum CET1 to be maintained by the Group as for 2019 AT1 and T2 issuance to target 1.5% and 2% of RWAs
following the results of the Supervisory Review and Evaluation respectively is close to zero assuming constant RWAs
Process (SREP) is 9.70% Santander currently complies with the minimum required
As of Mar-19, the distance to the MDA for 2019 is 153 bps eligible liabilities (MREL)2 following the MREL eligible
issuances over the last two years
Note: Data calculated using the IFRS 9 transitional arrangements. As indicated by the consolidating supervisor, a pay-out of 50%, the maximum within the target range (40%-50%),
was applied for the calculation of the capital ratios in March 2019. Previously, the average cash pay-out for the last three years was considered 33
1. Estimated Countercyclical buffer
2. Parent bank, preliminary dataCapital
We consistently generate capital organically
CET1 ratio
%
11.30 +0.02 11.23
11.00 11.01 +0.18 +0.02
-0.29
Mar-18 Dec-18 Regulatory Organic Perimeter2 Others Mar-19
impacts1 generation
1T'18 1T'19 Diff.
CET1 ratio 11.00% 11.23% 23 bps
FL Total capital ratio 14.43% 14.82% 39 bps Santander has a high RoTE with strong capital quality:
FL Leverage ratio 5.09% 5.07% -2 bps • Higher density (40% vs 31% European peers3)
RoRWA 1.59% 1.54% -5 bps • Equal FL leverage ratio (5.1% vs 5.0% European
RoTE 12.42% 11.15% -127 bps peers3)
Density 41.72% 40.25% -147 bps
1. IFRS 16: -19 bps; IFRS 9 phased-in: -3 bps; models in Spain (-2 bps) and TRIM (-5 bps) 2. Mainly Prisma (+2 bps) 3. Dec-18 data
Note: Data calculated using the IFRS 9 transitional arrangements. . If the transitional arrangements hadn’t been applied, the CET1 ratio would have been 23 bps less 34
As indicated by the consolidating supervisor, a pay-out of 50%, the maximum within the target range (40%-50%), was applied for the calculation of the capital ratios in March 2019.
Previously, the average cash pay-out for the last three years was consideredCapital
2018 EBA stress test - Fully loaded CET1: adverse scenario
Fully loaded CET1: adverse scenario (%) FL CET1: 2017 vs 2020 adverse scenario (bps)
-141
-141 bps System: -395 bps -193
Peer average: -403 bps
-219
-265
-288
-334
10.61 9.20 -341
-363
-381
2017 2020 -437
-533
-576
Santander is the bank with lowest fully -625
loaded CET1 capital destroyed in the -657
adverse scenario compared to its peers -694
35Capital
2018 EBA stress test - Fully loaded CET1: baseline scenario
Fully loaded CET1: baseline scenario (%) FL CET1 2017 vs 2020 baseline scenario (bps)
326
+326 bps 233
199
196
175
13.87 113
10.61 108
102
102
2017 2020 82
62
System: 126 bps
59 Peer average: 114 bps
Santander is the bank with the strongest 43
capital generation in the baseline -45
scenario compared to its peers -52
36Capital
Strong fundamentals for AT1 bond holders
Distance to trigger1
Santander Group’s CET1 levels are well above the minimum loss absorption trigger of 5.125%: >EUR 37 bn
The first line of defense is the Group’s strong pre-provision profitability providing a high capacity to absorb provisions during the
crisis and should continue to underpin the Group’s earnings generation capacity
MDA
As of Mar-19, the distance to the MDA for 2019 is 1.53%2
Targeting a comfortable management buffer to MDA of >100 bps at all times, in line with Santander’s business model and
predictable results
ADIs
Santander Parent Bank has EUR 56.2 bn in Available Distributable Items, “Best in Class”
This amount of ADI represent more 110x times the 2019 full AT1 cost of the Parent
Santander has never been prohibited from making a Tier 1 payment or dividend due to insufficient ADIs. Santander has never
cancelled the payment of coupons of any of its Tier 1 securities
1. CET1 level below which AT1 capital instruments must either convert into ordinary shares or have their principal about written down
2. MDA trigger = min (A;B;C) = 1.53%; (A) Group CET1 (11.23%) + AT1 (1.80%) + T2 (1.81%) vs. Regulatory Total Capital (13.20%) = 1.64%; (B) Group CET1 (11.23%) +
AT1 (1.80%) vs. Regulatory T1 Capital (11.20%) = 1.83%; (C) Group CET1 (11.23%) vs. Regulatory CET1 Capital (9.20%) = 1.53% 37
Note: Data calculated using the IFRS 9 transitional arrangements. As indicated by the consolidating supervisor, a pay-out of 50%, the maximum within the target range (40%-
50%), was applied for the calculation of the capital ratios in March 2019. Previously, the average cash pay-out for the last three years was consideredCapital
AT1 issuances distributed by call date
AT1 issuances outstanding at Mar-19
Reset
EUR mn Currency Nominal Coupon Structure Call date Spread
Santander S.A. EUR 1,500 5.48% PNC5 12-Jun-19 541 bps
Santander S.A. USD 1,335 6.38% PNC5 19-May-19 1 478.8 bps
Santander S.A. EUR 1,500 6.25% PBC7 11-Sep-21 564 bps
Santander S.A. EUR 750 6.75% PNC5 25-Apr-22 680.3 bps
Santander S.A. EUR 1,000 5.25% PNC6 29-Sep-23 499.9 bps
Santander S.A. EUR 1,500 4.75% PNC7 19-Mar-25 409.7 bps
Santander S.A. USD 1,048 7.50% PNC5 8-Feb-24 498.9 bps
2,835
Call date
1,500 1,500
1,000 1,048
750
2019 2021 2022 2023 2024 2025
1. On 16 April 2019, Santander announced the full amortisation of the note on its call date 38Capital
FX hedging policy on capital ratio and P&L…
Stable capital ratio hedge Our P&L Policy
Hedged
Exposure
Group Strategic management of the exposure to exchange
CET1
11.23%1 rates on equity and dynamic on the countervalue of the
units’ results in euros for the next 12 months
Mitigate impact of FX volatility
Corporate Centre assumes all hedging costs
Manages FX volatility in our CET1 ratio
Based on Group regulatory capital and
RWAs
1. Data calculated using the IFRS 9 transitional arrangements. As indicated by the consolidating supervisor, a pay-out of 50%, the maximum within the target range (40%- 39
50%), was applied for the calculation of the capital ratios in March 2019. Previously, the average cash pay-out for the last three years was considered.Capital
… and interest rate risk hedging
Mostly positive interest rate sensitivity ALCO portfolios reflect our geographic diversification
Net interest income sensitivity to a +100 bp parallel shift Distribution of ALCO portfolios by country
EUR mn, Feb-19 %, Mar-19
Chile
Mexico 4%
5%
+1,0301
Spain
26%
Brazil
+21 22%
+298 EUR 91 bn
o/w HTC&S EUR 71 bn
Portugal
4%
+1272
USA
12% UK
-52 18%
Poland
9%
1. Parent bank 40
2. SBNAAsset Quality
04Asset Quality
Continued credit quality improvement on a YoY and QoQ basis…
%
-7 bps
1.04
1.00
0.97 YoY cost of credit ratio improved,
Cost of credit
maintaining low levels in Q1’19
-40 bps
4.02
3.73 3.62
NPL ratio NPL ratio fell YoY in most units
-2 pp
70 67 68
High level of allowances to total loans:
Coverage strong first line of defense
ratio
Mar-18 Dec-18 Mar-19
42Asset Quality
…to levels well below previous years, supported by generalised improvements
across geographies
Credit quality ratios NPL ratios by country
% %
Q1 2018 Q1 2019
Spain 6.27 6.19
4.08% SCF 2.48 2.33
4.02% Poland 4.77 4.39
3.93% 3.92%
3.87% Portugal 8.29 5.77
NPL ratio
3.73% United Kingdom 1.17 1.14
3.62% Brazil 5.26 5.26
Mexico 2.68 2.12
Chile 5.00 4.67
1
2016 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Argentina 2.54 3.50
USA 2.86 2.41
Cost of credit ratios by country
1.18% %
Q1 2018 Q1 2019
1.07% Spain 0.29 0.34
1.04%
0.99% 0.98% 1.00% 0.97% SCF 0.36 0.38
Cost of credit
Poland 0.69 0.61
Portugal 0.08 0.03
United Kingdom 0.10 0.07
Brazil 4.35 3.88
1
2016 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Mexico 2.95 2.62
Chile 1.22 1.13
Argentina 2.06 4.02
1. Acquisition of Banco Popular in 2017
USA 3.29 3.11 43Liquidity and
Funding
05Liquidity and Funding
The Group’s business model combines local knowledge with global best practices
through legally, financially and operationally autonomous subsidiaries…
Legal autonomy structure
Dec-18
Santander Group
100%
99% 67% 100% 100 89% 75% 67% 99%
%
Santander
Consumer
Finance Santander
Holdings
USA Banco
Santander
UK Group Santander
Holdings Brasil
Santander Grupo
Bank Financiero
Banco Polska Mexico Banco
Santander Santander
Totta. Chile Banco
Santander
Río
Legal autonomy: There are no legal commitments that imply financial support
Financial autonomy: Financial interconnections are limited and at market prices
Operational autonomy: Shared services are limited and carried out through autonomous factories. Access to FMIs through other
Group entities is very limited
45Liquidity and Funding
… divided into different resolution groups that can be resolved separately
though multiple entry points
MPE resolution strategy
Dec-18, EUR bn
Banking Union European Union 3rd Countries
Spain Poland Brazil Mexico
Resolution Group PE PE PE PE
PE Point of Entry Portugal UK Chile Argentina
PE PE PE PE
USA
PE
Size of Resolution Groups (Total assets by geography)
163 118
709 Brazil USA
324
52 48 61 49 12
Spain (Parent) Portugal United Kingdom Poland Mexico Chile Argentina
We have defined the Resolution Groups (RGs) mirroring the model of autonomous financial groups so that all entities have
been assigned to one RG
Each RG comprises the entity identified as the entry point in resolution and the entities that belong to it
46Liquidity and Funding
Santander’s MPE approach follows its autonomous capital and liquidity model,
though there are still issues under discussion with regards to TLAC application
Issues still under discussion
USA Final TLAC transposition to EU and
UK
18.14 relevant jurisdictions
16.65 20.21
16.46
15.36 TLAC level and perimeter of resolution
13.31
Portugal groups
18.14
Brazil 17.92 Internal TLAC requirement
Poland
15.43
14.90 16.47
Mexico 14.33
14.63 Deductions and mitigants final treatment
16.90 13.23
13.50 Santander 14.63
S.A.
12.19
22.57
Argentina SCF
Chile 20.43
14.76 Total
13.07
13.59 17.83 14.06 T1
10.47
10.79
12.44 CET1
9.82
10.79
Local figures as of Mar-19 in percent (phased-in) 47Liquidity and Funding
Santander’s liquidity management is based on the following principles:
Decentralised liquidity model
Needs derived from medium- and long-term activity must be financed by medium- and long-term instruments
High contribution from customer deposits, due to the retail nature of the balance sheet
Diversification of wholesale funding sources by instruments/investors, markets/currencies and maturities
Limited recourse to wholesale short-term funding
Availability of sufficient liquidity reserves, including the discount window / standing facility in central banks to be
used in adverse situations
Compliance with regulatory liquidity requirements both at Group and subsidiary level, as a new conditioning
management factor
48Liquidity and Funding
Conservative and decentralised liquidity and funding model
EUR 7 bn1 issued in public markets in 2019 YTD Very manageable maturity profile
EUR bn, Mar-19 EUR bn, Mar-19
36.7
2.7
6.3 9.1 7.8
San S.A. 2.4 3.4
1.7
5.8
1.2 2.5 SCF 2.7 3.0 3.6 2.4 1.6
0.6
0.1 1.0
2019 2020 2021 2022 2023 17.0
2023+
12.0 12.6
1.1 1.1 UK 4.2 3.1 4.8
0.9
0.3
0.0
0.04
2019 2020 2021 2022 2023 2023+
Spain UK SCF USA Other
Brazil 1.5 4.2
1.1 0.1 0.0 0.0
2019 2020 2021 2022 2023 2023+
Other public market issuances in Brazil and Chile
USA 0.8 1.3 0.9 1.7 0.9 2.0
2019
2019 2020
2020 2021
2021 2022
2022 2023
2023 2023+
2023+
49
1. Data include public issuances from all units with period-average exchange rates. Excludes securitisationsLiquidity and Funding
Santander S.A. funding plan
Santander S.A. meets current MREL
2018 2019 2019
requirement1 and Group capital
EUR bn issued issued YtD issuance plan 2
buffers (AT1: 1.5%; T2: 2%)
Covered bonds 1.6 0.0 3-5
Senior preferred 0.5 0.6 3-5
Senior non-preferred 6.1 0.0 --
Hybrids 2.8 1.1
3
1.5* During the last 2 years Santander
S.A.’s Funding Plan was focused on
TOTAL 10.9 1.7 7.5 - 11.5 TLAC-eligible instruments…
o/w Subordinated 8.9 1.1 1.5
… and in 2019 the Funding Plan is
expected to cover debt maturities,
and manage our funding structure
1. Santander’s understanding of current policy under the existing recovery and resolution rules
2. Issuance plan subject to, amongst other considerations, market conditions and regulatory requirements 50
3. EUR 1.1 bn AT1 issued in February 2019 however EUR 1.3bn AT1 will be amortised on 19 May 2019
* Net issuance. Includes AT1 (EUR 500 mn) and T2 (EUR 1 bn)Liquidity and Funding
Issuances show diversification across instruments and entities
Debt outstanding by type Debt outstanding by issuer entity
EUR bn and %, Mar-19 EUR bn and %, Mar-19
Preference shares; Other;
11.1; 6% 7.1; 4%
USA; 7.6; 4%
Sub debt;
Brazil; 6.9; 4%
12.9; 8%
Chile; 10.6; 6%
Senior; San S.A.;
Senior non-
64.4; 38% SCF; 65.7; 39%
preferred;
34.9; 20% 19.1; 11%
Covered bonds; UK; 53.8;
47.5; 28% 32%
51Liquidity and Funding
Well-funded, prudent and highly liquid balance sheet with high contribution from
customer deposits and diversified wholesale instruments
Liquidity Balance Sheet
EUR bn, Mar19 1,200 1,200 Liquidity Coverage Net Stable Funding
Ratio (LCR) 1 Ratio (NSFR)
Mar-19 Dec-18
Loans and Customer
advances to 808 deposits
customers 910 150% 114%
Group
54 Securitisations and others
M/LT debt issuances
146% 128%
171
Financial assets 191
32 ST Funding
Fixed assets & other 98 135 Equity and other liabilities
Assets Liabilities
120% 109%
HQLAs3
EUR bn, Mar-19 HQLAs Level 1 184.5 2 2
147% 105%
HQLAs Level 2 14.6
Level 2A 7.5
Level 2B 7.2
Note: Liquidity balance sheet for management purposes (net of trading derivatives and interbank balances)
1. Provisional data 52
2. Parent bank
3. 12 month averageLiquidity and Funding
The main metrics show the strength and stability the Group’s liquidity position
Evolution of key liquidity metrics1 LTD and MLT funding metrics by geography
Mar-19
(Deposits + M/LT
2015 2016 2017 2018 Mar-19 LTD Ratio funding) / Loans 2
2
Loans / net assets 75% 75% 75% 76% 76% Spain 80% 158%
2
SCF 260% 66%
Loan-to-deposit ratio (LTD) 116% 114% 109% 113% 113% Poland 88% 119%
Customer deposits and medium- Portugal 93% 120%
2 114% 114% 115% 114% 113%
and long-term funding / loans UK 123% 104%
Short-term wholesale funding / Brazil 102% 120%
2% 3% 2% 2% 3%
net liabilities Mexico 93% 115%
Structural liquidity surplus / net Chile 148% 94%
14% 14% 15% 13% 13%
liabilities Argentina 69% 149%
Encumbrance 26% 25% 28% 25% USA 141% 111%
GROUP 113% 113%
1. Balance sheet for liquidity management purposes 53
2. Loans and advances to customersLiquidity and Funding
Banco Santander S.A. ratings
Moody's S&P Fitch
Date last Direction Date last Direction Date last Direction
Rating Rating Rating
change last change change last change change last change
Covered Bonds Aa1 17/04/2018 ↑ - - - Aa "u" 25/09/2014 ↑
Senior Debt (P) A2 17/04/2018 ↑ A 05/04/2018 ↑ A 17/07/2018 ↑
Senior Non-preferred Baa1 27/09/2017 ↑ A- 05/04/2018 ↑ A- 09/02/2017 Initial
Subordinated (P) Baa2 04/03/2014 ↑ BBB+ 05/04/2018 ↑ BBB+ 29/05/2014 ↑
AT1 Ba1 27/09/2017 ↑ - - - BB 29/05/2014 ↑
Short Term Debt P-1 17/04/2018 ↑ A-1 06/04/2018 ↑ F2 11/06/2012 ↓
54Liquidity and Funding
Santander Parent & Subsidiaries’ Senior Debt Ratings
Moody's S&P Fitch
Date last Direction Date last Direction Date last Direction
Rating Outlook Rating Outlook Rating Outlook
change last change change last change change last change
Group A2 17/04/2018 ↑ STABLE A 06/04/2018 ↑ STABLE A 17/07/2018 ↑ STABLE
San UK PLC Aa3 21/12/2016 ↑ POSITIVE A 09/06/2015 ↓ STABLE A+*- 03/01/2019 ↑ -
San UK Group Holding PLC Baa1 16/09/2015 ↑ POSITIVE BBB 10/04/2015 ↑ STABLE A*- 01/03/2019 Initial -
Santander Consumer Finance SA A2 17/04/2018 ↑ STABLE A- 06/04/2018 ↑ STABLE A- 09/05/2014 ↑ STABLE
Banco Santander Totta SA Baa3 16/10/2018 ↑ STABLE BBB 18/03/2019 ↑ STABLE BBB+ 21/12/2017 ↑ STABLE
Santander Holding US Baa3 18/10/2016 ↓ STABLE BBB+ 06/04/2018 ↑ STABLE BBB+ 17/11/2017 → STABLE
Banco Santander Mexico A3 14/06/2016 ↑ STABLE - - - - BBB+ 13/06/2012 ↓ STABLE
Banco Santander Chile A1 27/07/2018 ↓ STABLE A 04/08/2017 ↓ STABLE A 17/08/2017 ↓ STABLE
Santander Bank Polska Baa1 31/08/2018 Initial POSITIVE - - - BBB+ 18/09/2018 Initial STABLE
Banco Santander Brasil Ba1 25/02/2016 ↓ STABLE BB- 12/01/2018 ↓ STABLE - - -
Kingdom of Spain* Baa1 13/04/2018 ↑ STABLE A-u 23/03/2018 ↑ POSITIVE A- 19/01/2018 ↑ STABLE
Note: Santander Mexico decided to withdraw the S&P ratings 55Concluding
Remarks
06Concluding Remarks
Concluding Remarks
The Group’s stable capital generation is supported by strong pre-provision profits providing Santander with a high
capacity to absorb provisions and underpins the Group's capacity to generate future earnings
Strong capital levels in line with Santander’s business model based on geographic diversification, solid market
positions in areas where it operates and independent subsidiary model in terms of capital and liquidity
The Group is above the regulatory capital requirement with significant payment capacity from available distributable
items, while maintaining comfortable margins to conversion and MDA triggers
Santander S.A. already meets with its MREL requirements and Group capital buffers
Comfortable liquidity position: Compliance with regulatory liquidity requirements established at Group and
subsidiary levels ahead of schedule, with high availability of liquidity reserves
57Appendix
07Appendix: Q1’19 P&L
Q1’19 P&L YoY performance
change vs Q1’18
Constant EUR
EUR million
Q1’19 % EUR Amount % Higher customer revenue due to
Net interest income 8,682 +3 +375 +5 increased business volumes and
spread management
Net fee income 2,931 -1 +76 +3
Lower market revenues and
Gains on fin. trans. and other 472 -36 -264 -36 higher cost of FX hedging
Total income 12,085 -1 +187 +2
Operating expenses -5,758 0 -101 +2 Cost control with an individualised and
targeted cost management across the board
Net operating income 6,327 -1 +85 +1
Loan-loss provisions -2,172 -5 +85 -4 Good credit quality evolution,
Other results -471 +13 -71 +18 with better cost of credit and NPL ratio
PBT 3,684 0 +99 +3
Tax -1,326 +4 -87 +7
Minority interests -410 +15 -57 +16
Underlying profit 1,948 -5 -45 -2
Prisma sale1 (EUR 150 mn), real estate disposal2
Net capital gains and provisions -108 — -108 — (EUR -180 mn) and restructuring costs in the UK
Attributable profit 1,840 -10 -153 -8 and Poland (EUR -78 mn)
1. Capital gains due to the sale of part of our stake in Prisma in Argentina 59
2. Santander sold a Spanish portfolio of residential properties to CerberusAppendix: Costs
Cost management reflects integration synergies, maintaining a best-in-class cost-
to-income, whilst enhancing customer experience
Cost evolution
Q1’19 vs. Q1’18, % Nominal In real terms1 Targeted cost management by geographies:
-5.7 -7.4
-1.1 -2.0 Synergies from integrations in Europe
0.0 -1.8
Better operational leverage in the US
15.42 13.82
1.2 -1.1 Costs under control in the units where we are investing to
-2.7 -5.0 update distribution capacity, such as in Mexico
3.1 -0.9
9.9 5.3
Costs in real terms Cost-to-income
1.0 -1.6
-2% YoY 47.6% in Q1’19
81.3 40.9
-1.3 -3.1
Note: Constant euros 1. Excluding inflation 2. Impacted by DB Polska integration. Efficiency ratio improved 0.5 pp 60Appendix: Profitability
Creating shareholder value whilst maintaining high profitability
TNAV per share Profitability ratios
EUR
Underlying RoTE1 Underlying RoRWA1
4.30 12.1%
4.19 11.3% 1.59% 1.56%
4.12
Mar-18 Dec-18 Mar-19 2018 Q1'19 2018 Q1'19
1. Statutory RoTE 2018 11.7% and Q1’19 11.2%. Statutory RoRWA 2018 1.55% and Q1’19 1.54%
Notes: The averages for the Q1 RoTE and RoRWA denominators are calculated on the basis of 4 months from December to March.
For periods of less than a year, and in the event of non-recurring results existing, the profit used to calculate the statutory RoTE is the annualised underlying attributable profit
(excluding non-recurring results), to which are added non-recurring results without annualising them. 61
For periods of less than a year, and in the event of non-recurring results existing, the profit used to calculate the statutory RoRWA is the annualised underlying consolidated result
(excluding non-recurring results), to which is added non-recurring results without annualising them.Appendix: Balance sheet size and profits by geography
Total assets and profit generation by geography
Total assets by geography Profitability by geography
Constant EUR bn, Mar-19 Underlying attributable profit in constant EUR mn, Underlying RoTE in %, Q1’19
YoY Change ex. FX YoY Change ex. FX
Total abs. % Total abs. % RoTE
Spain 442,498 -2,386 -0.5 Spain 403 -52 -11.4 10.5
SCF 109,275 6,710 6.5 SCF 325 4 1.1 14.9
Poland 44,208 11,779 36.3 Poland 1 62 1 1.0 7.8
Portugal 56,620 2,182 4.0 Portugal 135 8 6.7 13.1
UK 363,439 -1,796 -0.5 UK 271 -53 -16.3 7.0
Brazil 163,627 10,585 6.9 Brazil 724 93 14.8 21.1
Mexico 67,037 4,961 8.0 Mexico 206 22 12.0 20.2
Chile 149 2 1.3 16.4
Chile 53,517 3,785 7.6
Argentina 11 -23 -67.9 5.3
Argentina 12,244 5,318 76.8 2
USA 182 47 34.7 5.1
USA 143,321 23,154 19.3
1. Adjusted RoTE for 11.30% CET1, 14% 2. Adjusted RoTE for 11.3% CET1, 9% 62Appendix: Risk profile
Risk profile: RWAs mostly formed by credit risk…
On average, credit risk represents 81% for Global Peers RWAs (vs.78% in 2017), with Santander at
86% as of Q2’18
Operational risk at the bank remains as the last year at 10% (vs. 14% average, 3 pp lower than last
year)
RWAs: Split by risk
100%
5%
90%
80% 17%
70%
60%
50%
40%
78%
30%
20%
10%
0%
Ave.
Credit Risk Operational Risk Market Risk
Source: EBA transparency exercise 2018 for EU and UK banks. UBS and US banks latest data available from Pillar 3 disclosures. 63
Peers: BAML, Barclays, BBVA, BNP, Deutsche, HSBC, ING, Intesa SP, JP Morgan, Lloyds, RBS, Société Générale, UBS, UniCredit and Wells FargoAppendix: Risk profile
… and highly biased to the standardised approach
Santander, with c. 56% of credit risk under the standard method (55% in 2017 and 60% in 2016), is
better positioned than its European peers (33% average vs. 30% in 2017 and 35% in 2016) for
potential regulatory changes
Credit risk: Standardized vs. IRB approach
100%
90%
80%
70%
67%
60%
50%
40%
30%
20% 33%
10%
0%
Ave.
Standarised Aproach IRB
Standardised approach IRB
Source: EBA transparency exercise 2018 for EU and UK banks. UBS and US banks latest data available from Pillar 3 disclosures. 64
Peers: BAML, Barclays, BBVA, BNP, Deutsche, HSBC, ING, Intesa SP, JP Morgan, Lloyds, RBS, Société Générale, UBS, UniCredit and Wells FargoAppendix: UK loan portfolio: Mortgage and Corporate RE
Strong credit performance in retail and corporate businesses
Retail Banking NPLs and NPL ratio Corporate NPLs and NPL ratio1
NPL ratio (%) NPL ratio (%)
1.51 3.07
1.39 2.28 2.51
1.25 1.23 1.46
NPLs (£mn) NPLs (£mn)
838
2,520
2,340 689
2,104 2,126
604
353
2
Dec-15 Dec-16 Dec-17 Dec-18 Dec-15 Dec-16 Dec-17 Dec-18
1. Corporate defined as the combined lending to business banking customers in Retail Banking and all customers in our Corporate & Commercial Banking and Corporate & 65
Investment Banking business segments
2. Increase in Corporate NPLs was predominantly due to the Carillion plc exposures that moved to non-performance in 2017Appendix: UK loan portfolio: Mortgage and Corporate RE
Consistently prudent mortgage lending criteria
Average loan size Geographical distribution
(new business) (stock %, Dec-18)
Dec-17 Dec-18 31
25
London and South East £260k £270k
14 13 11
Rest of the UK £146k £150k
4 2
All UK £196k £203k
South East London North Midlands South West, Scotland Northern
and East Wales and Ireland
Anglia Other
Simple average loan-to-value (LTV)1 House price change by region
(annual %, Nov-18, nsa2)
6
5 5 4 4
Dec-17 Dec-18 4
3 3
Total new lending 62% 63% 3
2
London new lending 56% 58% 1
Stock 42% 42%
-1
Wales Northern West East South North North Scotland East Yorkshire South London
1. Unweighted average loan-to-value of all accounts Ireland Midlands Midlands West East West East 66
2. Not seasonally adjusted
Source: HM Land Registry, United KingdomAppendix: UK loan portfolio: Mortgage and Corporate RE
Prime residential mortgage book of £158.0bn
Product profile Lending breakdown
(stock %, Dec-18) (£bn, Dec-18)
28.8 27.7
Standard
Variable Rate
(SVR) 12 (25.5)
Fixed rate
73 Net lending £3.3bn
Variable rate1
15
154.7 157.2
158.0
Dec-17 New business Redemptions Internal Dec-18
& repayments transfer
Borrower profile
(stock %, Dec-18)
Net mortgage growth of £3.3bn; strongest lending in
Buy to Let (BTL) First-time buyers
19
over three years despite the highly competitive market
5
SVR attrition2 of £4.9bn (2017: £5.5bn)
Remortgagers ~78% of maturing mortgages retained
Home movers
44 32 55% (+6pp YoY) of refinancing mortgage loans
retained online
1. Variable rate includes tracker and base rate linked 67
2. SVR attrition includes loan balances which have reverted on to SVR and balances moved to the Follow-on-Rate which was introduced in January 2018Appendix: UK loan portfolio: Mortgage and Corporate RE
Greater focus on risk-weighted returns in CRE portfolio
Credit performance Sector analysis
(stock %, Dec-18)
Dec-17 Dec-18
Total committed exposure £8.1bn £6.4bn
24
Up to 70% LTV 88% 87%
16
14 14 14
70% to 100% LTV - 1%
10
> 100% LTV 1% - 5
2 1
Standardised portfolio1 8% 10%
Office Retail Industrial Mixed use Residential Standardised Hotels and Student Other
Total with collateral 97% 99% portfolio leisure accomodation
Development loans 3% 1%
No new business written above 70% LTV (Dec-17: 0%)
100% 100%
All new business written at or below 60% LTV
(Dec-17: 91%)
Dec-17 Dec-18
Weighted average LTV on exposures of 47%
NPL ratio 0.85% 0.45% (Dec-17: 48%)2
Average loan size of £3.2mn (Dec-17: £4.7mn)
1. Consists of smaller value transactions, mainly commercial mortgages 68
2. All non-standardised stockAppendix: Glossary
Glossary and Acronyms
ADIs: Available distributable items MPE: Multiple Point of Entry
bn: Billion MREL: Minimum Required Eligible Liabilities
bps: Basis points NII: Net interest income
BTL: Buy-to-Let NPL: Non-performing loans
CCoB: Capital Conservation Buffer PBT: Profit before tax
CCyB: Countercyclical buffer P&L: Profit and loss
CET1: Common equity tier 1 PPP: Pre-Provision Profit
CIB: Corporate & Investment Banking QoQ: Quarter-on-Quarter
DGF: Deposit Guarantee Fund RoRWA: Return on risk-weighted assets
DPS: Dividend per share RWA: Risk-weighted assets
EPS: Earning per share RoTE: Return on tangible equity
FL: Fully loaded SCF: Santander Consumer Finance
G-SIBs: Global Systemically Important Banks SMEs: Small and Medium Enterprises
HTC: Held to collect portfolio SRF: Single Resolution Fund
HTC&S: Held to collect & sell portfolio ST: Short term
k: thousands SVR: Standard variable rate
LTV: Loan-to-Value TDR: Troubled Debt Restructuring
LLPs: Loan-loss provisions TLAC: Total Loss-Absorbing Capacity
MDA: Maximum distributable amount TNAV: Tangible net asset value
M/LT: Medium- and long-term YoY: Year-on-Year
mn: Million
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