FIXED INCOME INVESTORS PRESENTATION - Here to help you prosper H1 2019 - Banco Santander SA
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Important information Non-IFRS and alternative performance measures In addition to the financial information prepared in accordance with International Financial Reporting Standards (“IFRS”) and derived from our financial statements, 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 2Q Financial Report, published as Relevant Fact on 23 July 2019 and 2018 Annual Financial Report, filed with the Comisión Nacional del Mercado de Valores of Spain (CNMV) 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. 2
Important 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. 3
CONTENT 1. Markets and Macroeconomic Environment 2. Santander Business Model & Strategy 3. Capital 4. Asset Quality 5. Liquidity and Funding 6. Concluding Remarks 7. Appendix 4
Markets and Macroeconomic Environment 01
Markets and Macroeconomic Environment Environment of subdued global growth weighed down by trade tariffs, global tech supply chain concerns, Brexit and geopolitical tensions IMF 2019 GDP Outlook1 Forecast for global economic growth in 2019: 3.2% (3.6% World Output 3.2% in 2018), though estimations continue to be revised down Euro Area 1.3% Mature economies are estimated to grow 1.9%, down from UK 1.3% 2.2% in 2018 as cyclical forces begin to wane United States 2.6% LatAm and the Caribbean 0.6% Developing economies will grow by around 4.1%, below the Mexico 0.9% 4.5% 2018 growth as all regions were revised downwards Brazil 0.8% Santander is well-positioned for growth due to its balanced geographic diversification AMERICAS EUROPE (55% underlying attributable profit2) (45% underlying attributable profit2) 1. World Economic Outlook, July 2019 Update 2. Q2 2019 underlying attributable profit as a % of operating areas excluding SGP 6
Markets and Macroeconomic Environment The expansionary cycle in Spain is expected to continue, but at a slower pace backed by employment creation, higher consumption and real estate recovery Annual GDP Growth Contribution to GDP Growth Real, % % YoY 6 3.2 3.0 4 2.6 2.3 2 1.9 1.7 0 -2 2016 2017 2018 2019 (e) 2020 (e) 2021 (e) -4 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 600 New building permits 120 19.6 17.2 550 110 Sales 14.4 100 13.9 13.0 500 12.2 90 450 80 400 70 60 350 50 300 40 2016 2017 2018 2019 (e) 2020 (e) 2021 (e) 250 30 * 12m rolling sum 7 Source: Santander Research Department, Bank of Spain
Markets and Macroeconomic Environment Loan decrease and deposit building in Spain leading to the continued closing of the funding gap and improved credit quality Funding Gap Non-performing loans EUR bn, Spanish system, latest available data May-19 EUR bn and %, Spanish system, latest available data May-19 250 16% 2,000 1,200 14% 1,750 1,000 200 12% 1,500 800 150 10% 8% 1,250 600 100 6% 1,000 400 4% 50 750 200 2% 0 0% 500 0 Dec-06 Dec-07 Dec-08 Dec-10 Dec-11 Dec-13 Dec-14 Dec-16 Dec-17 Dec-18 Dec-09 Dec-12 Dec-15 Jun-08 Jun-09 Jun-11 Jun-12 Jun-13 Jun-14 Jun-16 Jun-17 Jun-07 Jun-10 Jun-15 Jun-18 May-19 Dec-06 Dec-07 Dec-09 Dec-10 Dec-11 Dec-13 Dec-14 Dec-15 Dec-16 Dec-18 Dec-08 Dec-12 Dec-17 Jun-07 Jun-08 Jun-09 Jun-10 Jun-12 Jun-13 Jun-14 Jun-16 Jun-17 Jun-18 Jun-11 Jun-15 May-19 Total loans inc. reverse repos (LHS) Non-performing loans (LHS) Total deposits inc. repos (LHS) NPL ratio (RHS) Funding Gap (RHS) Source: Bank of Spain and Santander calculations 8
Markets and Macroeconomic Environment UK economy relatively stable, however uncertainty remains Annual GDP Growth Bank of England base rate Real % Year end, % 1.8 1.8 0.75 0.75 0.75 0.75 1.4 1.6 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) 2016, 2017 and 2018 source: Office for National Statistics and Bank of England. 2019 (e), 2020 (e) and 2021 (e) source: Santander UK forecasts at June 2019 9 1. Consumer Price Index
Markets and Macroeconomic Environment Steady loan growth, deposit growth expected to continue Total loans GBP bn1 2,017 2,030 2,040 2,053 Mortgage lending growth at c.3% in 2019, with weaker buyer 2,000 demand and subdued house price growth likely to continue Consumer credit growth has slowed from double-digit rates 3.8 3.9 3.9 YoY 3.7 3.9 to c.7%, and is expected to slow further to c.5% in 2019 (%) Corporate borrowing market is expected to grow by c.2-3%, as uncertainty continues to dampen investment intentions Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 (e) Total deposits GBP bn2 1,947 1,947 1,978 Retail deposit growth is expected to be c.4% in 2019 1,909 1,921 Household saving ratio has fallen since the end of 2018 from 4.5% to 4.1% in Q1 2019 and remains low by historical standards YoY (%) 3.6 3.6 3.6 3.6 3.6 Corporate deposit growth expected to remain at c.5% Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 (e) Source:Bank of England Bankstats (Monetary and Financial Statistics) published at end-Jun 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 holdings
Markets and Macroeconomic Environment Gradual recovery in economic activity expected starting in 2020 Annual GDP Growth Interest rate – Selic Real, % Year end, % 2.5 2.1 7.00 6.50 6.00 7.00 1.0 1.1 5.50 0.8 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 3.80 3.80 3.81 3.30 3.8 3.8 3.9 3.8 3.0 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 (July 12 2019). 11
Markets and Macroeconomic Environment Privately owned banks continue to support loan growth Total loans Constant EUR bn1 Loans slight following resumption of the Brazilian economy with 730 749 751 755 721 different dynamics in the segments. 5.7% 5.5% Loans to Individuals grew 9.9%, while Corporate & SME Loans 5.0% YoY 3.8% (%) 1.5% rose 0.3% (YoY). Privately owned banks grew 13.2% YoY, while state-owned banks dropped 1.2% YoY. Jun-18 Sep-18 Dec-18 Mar-19 May-19 Total customer funds Constant EUR bn1,2 1,743 1,684 1,708 1,651 Total customer funds increased 9.2%, mostly influenced by 1,602 YoY Time Deposits (+13.7%), Savings Deposits (+7.2%) and 7.8% 9.2% (%) 6.3% 7.1% 7.1% Funds (+12.3%). Jun-18 Sep-18 Dec-18 Mar-19 May-19 Source: Central Bank of Brazil (1) End period exchange rate as of May-19. 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 2.60 2.55 2.55 2.9 2.31 2.5 2.2 1.7 1.5 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 1.14 1.13 1.10 2.4 2.3 2.3 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 as of 12 July 2019. 13 1. 3-month LIBOR rate from ICE Benchmarking Administration.
Markets and Macroeconomic Environment Industry loan growth driven by commercial balances Total loans Total deposits USD bn 1 USD bn 1 10,155 10,150 13,866 13,926 9,942 13,529 13,469 13,574 9,755 9,859 YoY YoY 3.4% 3.5% 2.9% 4.9% 4.4% 4.1% 2.8% 2.7% (%) 4.2% 4.0% (%) Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Quarter over Quarter Jun-19 2 Jun-18 Sep-18 Dec-18 Mar-19 Growth % (est.) Total Loans 4.8% 0.0% 11.6% (0.4%) 8.0% C&I 7.6% 0.4% 24.4% 3.6% 2.0% Mortgages and C&I Loans projected to drive Real Estate 1.2% (0.4%) (2.0%) (0.4%) 2.4% growth in Q2 2019. Home equity continues to Resi Mortgages 0.8% 2.8% (2.0%) (0.8%) 6.8% CRE 6.8% (2.8%) 0.0% 2.0% (0.4%) decline Home Equity (13.6%) (10.8%) (9.2%) (8.0%) (10.8%) Deposits expected to grow in Q2 2019 Deposits (2.8%) 4.0% 15.6% (0.4%) 2.4% Loan to Deposit Ratio 71.6% 70.9% 70.2% 70.3% 71.3% 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 data.
Markets and Macroeconomic Environment Economy expected to decelerate, 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 15
Markets and Macroeconomic Environment Softer system loan and deposit growth Total loans Constant EUR bn1 230 237 240 243 Consumer loans growing at a moderate pace reflecting 227 persistently high interest rates YoY 11.6% (%) 10.2% 9.3% 10.1% Deceleration in corporate loan growth 8.3% Jun-18 Sep-18 Dec-18 Mar-19 May-19 Total customer deposits Constant EUR bn1 225 224 232 233 236 Slower YoY deposit expansion mainly driven by lower growth rates in demand deposits experienced since Q3’18 YoY 11.9% 9.6% Sequentially, softer deposit growth was mainly driven by (%) 8.3% 8.4% 7.6% term deposits while demand deposit growth was stable Jun-18 Sep-18 Dec-18 Mar-19 May-19 (1) End period exchange rate as of May-19 16 Source: CNBV Banks as of May-19 (last available)
Santander Business Model & Strategy 02
Santander 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 18
Santander 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 Jun-19 9% Loans 1 Billion 9% Deposits Total Population 12% 18% Loans 3% Loans 16% 12% Deposits 142 mn Loans 3% Deposits Top 3 Total Customers 13% 17% Loans Deposits Loans Argentina; 3% Others; 1% 14% 19% Chile; 2% Spain; 10% Deposits Deposits 10% Loans SCF; 14% 11% 18% Deposits Brazil; 31% Loans 17% 10% Deposits Loans UK; 18% 12% Deposits Poland; 3% Mexico; 12% US; 4% Portugal; 2% Data: Market-share as at Mar-19 and the US latest available. The UK: includes London Branch. Poland: including SCF business in Poland. The US: in all states 19 where Santander Bank operates. Brazil: deposits including debenture, LCA (agribusiness notes), LCI (real estate credit notes), financial bills (letras financieras) and COE (certificates of structured operations)
Santander Business Model & Strategy Focus on increasing customer loyalty via unique personal banking 2 relationships... Total customers Loyal customers Loyal / Active 142 mn (+4%) 20.6 mn (+10%) customers Individuals (mn) Companies (k) +11% +7% 29% 30% 142 18.9 1,626 1,743 139 141 17.1 136 138 135 Jun-18 Jun-19 Increased loyalty ratio in Q1'18 Q2 Q3 Q4 Q1'19 Q2 Jun-18 Jun-19 Jun-18 Jun-19 8 core countries Note: Year-on-year changes 20
Santander Business Model & Strategy … together with increased digitalisation… 2 Digital customers1 # Accesses2 # Active transactions3 (online and mobile) (monetary and voluntary) 34.8 mn (+22%) 3,725 mn in H1’19 (+28%) 1,062 mn in H1’19 (+25%) 1,895 545 33.9 34.8 1,768 1,830 517 32.0 1,624 498 30.1 1,521 443 456 27.5 28.4 1,381 409 Q1'18 Q2 Q3 Q4 Q1'19 Q2 Q1'18 Q2 Q3 Q4 Q1'19 Q2 Q1'18 Q2 Q3 Q4 Q1'19 Q2 Note: YoY changes. 1. Data as of 30 June. Every natural or legal person that, being part of a commercial bank, has logged in to their personal area of internet banking or mobile phone (or both) in the last 30 days. Digital customers in the last 90 days: 38.4 mn. 21 2. Private accesses. Logins of bank’s customers on Santander internet banking or apps. ATM accesses by mobile are not included. 3. Customer interaction through mobile or internet banking which resulted in a change of balance (monetary and voluntary). ATM transactions are not included.
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 peers1 Constant EUR mn Cost-to-income, Peers Mar-19, Santander Jun-19 47% 9 pp better than Peer 1 49% peer avg. Net interest income 8,650 8,986 8,278 Peer 2 49% Peer 3 53% Peer 4 54% Net fee income 2,843 2,917 2,946 Peer 5 56% Peer 6 56% Peer 7 57% Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Peer 8 63% Peer 9 70% 22 1. Peers included are: BBVA, BNP Paribas, Citibank, Credit Agricole, HSBC, ING, Itau, Scotiabank and Unicredit
Santander 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 ex. SGP Breakdown of total gross loans excluding reverse repos, Jun-19 Jun-19 Argentina; Other individuals; Chile; 5% 1% Other S. Am.; 1% 11% Brazil; 9% Spain; 22% Mexico; 4% CIB; 12% Home mortgages; 35% US; 10% SCF; 11% Corporates; Other Eur; 4% 14% Portugal; 4% Poland; 3% UK; 26% SMEs; 11% Consumer; 17% Total gross loans excluding reverse repos: EUR 899 bn RWAs as of Jun-19: EUR 605 bn 88% of loan portfolio is Retail, 12% Wholesale 23
Santander Business Model & Strategy … with strong balance sheet growth… 3 Loans and advances to customers in core markets Customer funds in core markets Jun-19 Jun-19 232 0% 317 +5% 201 -4% 205 +2% SCF 101 +7% 121 +11% 90 +10% 70 +10% 78 +9% 42 +7% 41 +7% 42 +2% 37 -1% SCF 38 +3% 33 +8% 36 +22% 30 +26% 35 +5% 6 +14% 11 +40% Group Group 899 899 896 +4% Total1 350 954 +6% Total1 1. Group Total also includes Other Europe, Other South America, Santander Global Platform and Corporate Centre. 24 Note: Gross loans and advance to customers excluding reverse repos. Customer funds: deposits excluding repos + marketed mutual funds
Santander Business Model & Strategy … and underlying attributable profit distributed across regions… 3 Underlying attributable profit distribution1 H1’19 Underlying attributable profit in core markets % underlying profit, H1’19 EUR mn and % change vs. H1’18 in constant euros 1,482 +18% Spain; Brazil; 13% 694 +5% 29% SCF 658 -1% 582 -13% South Europe SCF; America 13% 465 +30% 45% 38% 424 +12% Chile; 6% North America UK; 311 +4% Argentina; 1% 17% 11% 260 +14% Uruguay and Andean Region;2 Portugal; 2% 5% 150 -1% Mexico; Poland; 8% USA; 3% 9% 73 0% 1. Excluding Corporate Centre (EUR -1,108 mn) and Santander Global Platform (EUR -51 mn) 25 2. Uruguay and Andean Region underlying profit (EUR 95 mn)
Santander Business Model & Strategy … has allowed us to generate high and recurring pre-provision profit, leading to 3 resilient growth through the economic cycle… Resilient profit generation throughout the cycle PPP/Loans well above most European peers1 Group attributable profit, EUR bn %, Jun-19, Santander calculations Peer 1 3.1 2.8 9.1 8.9 8.9 8.2 Peer 2 2.6 7.6 7.8 6.6 6.0 6.2 5.3 5.8 Peer 3 2.3 4.2 Peer 4 2.0 2.3 Peer 5 1.9 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Peer 6 1.4 1. European peers include: BBVA, BNP Paribas, Credit Agricole, HSBC, ING and Unicredit 26
Santander 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-Q1’19 695% 344% 123% 108% 88% 76% 61% 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 27
Santander 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 28
Santander Business Model & Strategy Improving operational performance: Further leveraging our diversification and scale and adding value via our global businesses and shared capabilities Accelerating growth Global capabilities to enhance operating with sustainable profitability efficiency across the Group USA Europe Mexico Building the leading European bank in customer experience and profitability, leveraging Medium-term efficiency South our scale & digital expected, mainly in Europe: America IT & Operations A region with structural growth and high and Shared services & Others increasing profitability 29
Santander Business Model & Strategy Improving operational performance: Key regional expected levers Europe North America South America Low credit demand & rates: Attractive US market: better High structural growth limited revenue growth… risk return dynamics. Mexico: high growth potential …and CoR at lows… Focus on customer Benefitting from Group scale and strong experience & digitalisation …requires a cross-border operational leverage approach in a fragmented High & sustainable revenue market Volume growth expected to growth (double digit expected be above the market to CAGR4) Further operational drive higher revenues integration and cost Organically deploying more Stable cost to income efficiencies (c.€1Bn) capital (>30% of RWAs in the despite heavy investment in Mexico medium-term) Focus on customer experience & digitisation Stable credit quality Stable credit quality 30
Santander Business Model & Strategy Accelerating digitalisation: creation of Santander Global Platform to accelerate progress towards being the best open financial services platform in order to improve customer experience and lower cost of delivery Santander Global Platform (SGP) Openbank Global Payments Services Digital Assets Paymentsplatform Payments platform to to better betterserve serve Fully digital banking platform Our common digital assets and existing existing andand newnew customerswith customers and value proposition in our existing Centres of Digital Expertise help our with best-in-class best-in-class value value propositions propositions markets and in new markets banks in their digital transformation developed globally developed globally • Openbank • Superdigital • Digital assets – SaaS model1 • Open Digital Services (ODS) • Pago FX • Centres of Expertise2 • Global Merchant Services (GMS) • InnoVentures • Global Trade Services (GTS) 1. SaaS: Software as a Service 31 2. Contact Centre Digitalisation; Conversion Rate Optimisation; Machine Learning; …
Santander 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 32
Capital 03
Capital Santander’s capital levels, both phased-in and fully loaded, exceed minimum regulatory requirements SREP capital requirements (phased-in) and MDA Assumed capital requirements (fully loaded) Jun-19 Jun-19 14.83% 14.80% >15% 13.20% +163 bps 13.20% 2.00% 1.96% T2 +160 bps 2.07% T2 T2 2.00% 1.57% AT1 T2 2.00% 1.43% 1.50% AT1 AT1 1.50% +160 bps AT1 1.50% +160 bps G-SIB buffer 1.00% G-SIB buffer 1.00% CCyB; CCyB; 1 CCoB 2.50% 0.20% CCoB 2.50% 0.20% 11.30% CET1 11.30% 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 Jun-19 Assumed regulatory Group ratios Jun-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 Jun-19, the distance to the MDA for 2019 is 160 bps2 eligible liabilities (MREL)3 following the MREL eligible issuances over the last two years Note: Data calculated using the IFRS 9 transitional arrangements. 1. Estimated Countercyclical buffer 2. MDA trigger = min (A;B;C) = 1.60%; (A) Group CET1 (11.30%) + AT1 (1.57%) + T2 (1.96%) vs. Regulatory Total Capital (13.20%) = 1.63%; 34 (B) Group CET1 (11.30%) + AT1 (1.57%) vs. Regulatory T1 Capital (11.20%) = 1.67%; (C) Group CET1 (11.30%) vs. Regulatory CET1 Capital (9.70%) = 1.60%. 3. Parent bank, preliminary data
Capital We consistently generate capital organically CET1 ratio % 11.30 +0.29 +0.15 11.30 10.80 10.94 -0.08 -0.36 Jun-18 Dec-18 Regulatory Organic Perimeter and Market Jun-19 impacts1 generation restructuring and others costs2 H1'19 H1'18 Diff. CET1 ratio 10.80% 11.30% 50 bps FL Total capital ratio 14.24% 14.80% 56 bps Santander has a high RoTE with strong capital quality: FL Leverage ratio 4.98% 4.97% -1 bp • Equal density (40% vs 40% European peers) RoRWA 1.55% 1.48% -7 bps • Similar FL leverage ratio (5.0% vs 5.4% European RoTE 11.79% 10.51% -128 bps peers) Density 41.48% 40.04% -144 bps 1. IFRS 16 (-19 bps); models and TRIM (-15 bps); Other (-2 bps) 2. Restructuring costs (-13 bps); Prisma (+2 bps); Other (+3 bps) 35 Note: 2019 data applying 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 2019. Previously, the average cash pay-out for the last three years was considered.
Capital 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 36
Capital 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 37
Capital 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 crisis periods MDA As of Jun-19, the distance to the MDA for 2019 is 1.60%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 56.4 bn in Available Distributable Items This amount of ADI represents 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 38 2. MDA trigger = min (A;B;C) = 1.60%; (A) Group CET1 (11.30%) + AT1 (1.57%) + T2 (1.96%) vs. Regulatory Total Capital (13.20%) = 1.63%; (B) Group CET1 (11.30%) + AT1 (1.57%) vs. Regulatory T1 Capital (11.20%) = 1.67%; (C) Group CET1 (11.30%) vs. Regulatory CET1 Capital (9.70%) = 1.60%
Capital AT1 issuances distributed by call date AT1 issuances outstanding at Jun-19 Nominal Reset EUR mn Currency EUR Coupon Structure Call date Spread Santander S.A. EUR 1,500 5.48% PNC5 12-Sep-19 541 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 1,500 1,500 Call date 1,500 1,000 1,048 750 2019 2021 2022 2023 2024 2025 39
Capital 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 11.30%1 rates on equity and dynamic on the countervalue of the units’ annual results in euros Mitigate impact of FX volatility Corporate Centre assumes all hedging costs Managed to mitigate FX volatility in our CET1 ratio Based on Group regulatory capital and RWAs 1. Data calculated using the IFRS 9 transitional arrangements. 40
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, Jun-19 %, Jun-19 Chile 4% +1,1671 Brazil Spain 22% 24% +55 +297 EUR 86 bn Mexico o/w HTC&S EUR 66 bn 5% +1362 UK 19% USA 12% -66 Portugal Poland 5% 9% 1. Parent bank 41 2. SBNA
Asset Quality 04
Asset Quality Continued credit quality improvement on a YoY and QoQ basis… % 0.99 0.97 0.98 Cost of credit ratio flat YoY, maintaining Cost of credit low levels in H1’19 3.92 3.62 3.51 NPL ratio NPL ratio fell YoY in most markets 69 68 68 High level of allowances to total loans: Coverage strong first line of defense ratio Jun-18 Mar-19 Jun-19 43
Asset Quality …to levels well below previous years, supported by generalised improvements across geographies Credit quality ratios NPL ratios by country % % Q2 2018 Q2 2019 Spain 7.62 7.02 4.08% 4.02% SCF 2.44 2.24 3.93% 3.92% 3.87% UK 1.13 1.13 3.73% 3.62% Poland 4.58 4.21 NPL ratio 3.51% Portugal 7.55 5.00 US 2.91 2.32 Mexico 2.58 2.21 Brazil 5.26 5.27 1 2016 2017 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Chile 4.86 4.52 Argentina 2.40 3.79 Cost of credit ratios by country 1.18% % Q2 2018 Q2 2019 1.07% Spain 0.36 0.41 1.04% Cost of credit 0.99% 0.98% 1.00% 0.97% 0.98% SCF 0.37 0.36 UK 0.10 0.06 Poland 0.71 0.66 Portugal 0.10 0.03 USA 3.02 3.09 1 2016 2017 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Mexico 2.78 2.61 Brazil 4.30 3.84 Chile 1.18 1.10 1. Acquisition of Banco Popular in 2017 Argentina 2.47 4.33 44
Liquidity and Funding 05
Liquidity 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 S.A.1 Santander Consumer Santander Finance1 Holdings USA Banco Santander UK Group Santander Holdings Brasil Santander Grupo Bank Financiero Banco Polska Mexico Banco Santander Santander Totta Chile Banco SGPS, SA Santander Río Legal autonomy: There are no legal commitments that entail 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 1. Spain Resolution Group headed by Santander S.A. includes, among others, SCF 46
Liquidity 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 Spain1 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 Spain1 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 1. Spain Resolution Group headed by Santander S.A. Includes, among others, SCF 47
Liquidity and Funding Santander follows an autonomous capital and liquidity model Capital ratios by country Jun-19, %, local figures (phased-in) USA UK 17.75 16.27 20.87 17.07 15.04 13.83 Portugal 20.11 Brazil 19.78 Poland 16.19 16.58 16.26 Mexico 15.11 14.45 16.50 14.02 13.16 Santander 14.45 S.A. 11.89 21.89 Argentina 19.75 Chile Total 13.93 13.13 17.55 T1 11.42 10.42 10.78 CET1 10.42 SCF: Total Capital Ratio: 14.75%; T1 13.96% and CET 1 12.37% 48
Liquidity 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 49
Liquidity and Funding Conservative and decentralised liquidity and funding model EUR 19 bn1 issued in public markets in 2019 YTD Very manageable maturity profile EUR bn, Jun-19 EUR bn, Jun-19 40.4 6.9 9.1 7.8 6.3 San S.A. 1.6 3.4 5.4 4.3 5.8 4.6 SCF 1.2 3.0 2.4 3.1 3.1 4.7 2.4 18.4 2019 2020 2021 12.4 2022 2023 2023+ 1.0 11.9 1.1 UK 3.0 3.0 4.8 0.9 2.3 2.1 1.5 0.7 0.2 2019 2020 2021 2022 2023 2023+ Spain UK SCF USA Other Brazil 4.4 1.1 1.2 0.2 0.0 0.0 2019 2020 2021 2022 2023 2023+ Other public market issuances in Brazil and Chile USA 0.7 1.2 0.9 1.6 0.9 2.9 2019 2019 2020 2020 2021 2021 2022 2022 2023 2023 2023+ 2023+ 50 1. Data include public issuances from all units with period-average exchange rates. Excludes securitisations
Liquidity 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 1.5 3-5 Senior preferred 0.5 4.3 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 6.9 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 51 3. EUR 1.1 bn AT1 issued in February 2019 however EUR 1.3bn AT1 amortised in Q2 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 %, Jun-19 EUR bn and %, Jun-19 Preference shares; Other; 9.6; 6% 6.8; 4% USA; 8.2; 5% Sub debt; 12.8; 7% Brazil; 7.0; 4% Chile; 10.8; 6% Senior non- Senior; San S.A.; preferred; SCF; 68.6; 39% 68.5; 39% 35.2; 20% 20.1; 11% Covered bonds; UK; 53.4; 48.6; 28% 31% 52
Liquidity 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, Jun-19 1,215 1,215 Liquidity Coverage Net Stable Funding Ratio (LCR) 1 Ratio (NSFR) Jun-19 Mar-19 Loans and Customer advances to 815 deposits 155% 113% 908 customers Group 2 54 Securitisations and others 158% 122% 175 M/LT debt issuances Financial assets 206 33 ST Funding Fixed assets & other 100 138 Equity and other liabilities Assets Liabilities 153% 109% HQLAs3 EUR bn, Jun-19 HQLAs Level 1 189.8 2 156% 104% HQLAs Level 2 15.0 Level 2A 7.3 Level 2B 7.7 Note: Liquidity balance sheet for management purposes (net of trading derivatives and interbank balances) 1. Provisional data 53 2. Spain: Parent bank, UK: Ring-fenced bank 3. 12 month average, provisional
Liquidity 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 Jun-19 (Deposits + M/LT 2015 2016 2017 2018 Jun-19 LTD Ratio funding) / Loans 2 2 Loans / net assets 75% 75% 75% 76% 75% Spain 77% 165% 2 SCF 260% 66% Loan-to-deposit ratio (LTD) 116% 114% 109% 113% 111% UK 119% 108% Customer deposits and medium- Poland 90% 117% 2 114% 114% 115% 114% 115% and long-term funding / loans Portugal 92% 119% Short-term wholesale funding / USA 145% 109% 2% 3% 2% 2% 3% net liabilities Mexico 98% 110% Structural liquidity surplus / net Brazil 98% 125% 14% 14% 15% 13% 14% liabilities Chile 148% 95% 3 Encumbrance 26% 25% 28% 25% 25% Argentina 61% 167% GROUP 111% 115% 1. Balance sheet for liquidity management purposes 54 2. Loans and advances to customers 3. Latest data Mar-19
Liquidity 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 15/01/2019 ↑ Senior Debt (P) A2 17/04/2018 ↑ A 05/04/2018 ↑ A 17/07/2018 ↑ Senior Non-preferred Baa1 27/09/2017 ↑ A- 04/06/2018 ↑ A- 09/02/2017 Initial Subordinated (P) Baa2 04/03/2014 ↑ BBB+ 04/06/2018 ↑ BBB+ 29/05/2014 ↑ AT1 Ba1 17/07/2014 ↑ - - - BB 29/05/2014 ↑ Short Term Debt P-1 17/04/2018 ↑ A-1 06/04/2018 ↑ F2 11/06/2012 ↓ 55
Liquidity 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+*- 01/03/2019 ↓ - San UK Group Holding PLC Baa1 16/09/2015 ↑ POSITIVE BBB 10/04/2015 ↑ STABLE A*- 01/03/2019 ↓ - Santander Consumer Finance SA A2 17/04/2018 ↑ STABLE A- 06/04/2018 ↑ STABLE A- 29/05/2014 ↑ 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 A3 03/06/2019 ↑ STABLE - - - 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 56
Concluding Remarks 06
Concluding Remarks Concluding Remarks The Group’s stable capital generation has been supported by strong pre-provision profits providing Santander with a high capacity to absorb provisions 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 requirements1 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 1. Parent bank, preliminary data 58
Appendix 07
Appendix: H1’19 P&L H1’19 underlying P&L YoY performance H1’19 H1’18 % vs. H1’18 EUR million Constant Euros euros Higher customer revenue due to Net interest income 17,636 16,931 4 6 increased business volumes and spread management Net fee income 5,863 5,889 0 2 Lower market revenue and Gains on fin. trans. and other 937 1,342 -30 -29 higher cost of FX hedging Total income 24,436 24,162 1 3 Operating expenses -11,587 -11,482 1 2 Cost control with an individualised and targeted cost management across the board Net operating income 12,849 12,680 1 3 Loan-loss provisions -4,313 -4,297 0 1 Good credit quality evolution, Other results -957 -903 6 10 with low cost of credit and better NPL ratio Underlying PBT 7,579 7,480 1 3 Taxes -2,679 -2,659 1 3 Minority interests -855 -769 11 11 Underlying attributable profit 4,045 4,052 0 2 Net capital gains and provisions1 -814 -300 171 171 XXXXXX Mainly restructuring costs Attributable profit 3,231 3,752 -14 -12 60
Appendix: Costs Costs (-1.8% YoY in real terms) reflect the first integration synergies, maintaining a best-in-class cost-to-income ratio and high quality customer service Cost evolution H1’19 vs. H1’18, % Nominal In real terms1 Targeted cost management by geographies: -7.3 -8.8 Europe: -3.2% cost reduction in real terms, enhancing SCF 2.0 0.3 operating efficiency -0.6 -2.8 Better operational leverage in the US, while we are 2 12.0 10.3 investing to update distribution capacity in Mexico -3.8 -4.7 Costs under control in the South American markets 0.1 -2.0 SGP up EUR 46 mn due to the higher ongoing 7.1 2.6 investments in its initial stage 3.1 -1.2 1.7 -0.8 Costs in real terms Cost-to-income 89.0 41.3 -1.8% YoY 47.4% in H1’19 -9.1 -10.6 Note: Constant euros 1. Excluding inflation 2. Impacted by DB Polska integration. Efficiency ratio improved 0.6 pp 61
Appendix: Profitability Creating shareholder value whilst maintaining high profitability TNAV per share Profitability ratios EUR Underlying RoTE1 Underlying RoRWA1 4.30 12.1% 11.7% 1.59% 1.62% 4.19 4.10 Jun-18 Dec-18 Jun-19 2018 H1'19 2018 H1'19 1. Statutory RoTE 2018 11.7% and H1’19 10.5%. Statutory RoRWA 2018 1.55% and H1’19 1.48% Notes: : The averages for the H1 RoTE and RoRWA denominators are calculated on the basis of 7 months from December to June. 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. 62 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, Jun-19 Underlying attributable profit in constant EUR mn, Underlying RoTE in %, H1’19 YoY Change ex. FX YoY Change ex. FX Total abs. % Total abs. % RoTE Spain 344,831 -14,861 -4.1 Spain 694 33 5.0 9.3 SCF 112,622 8,875 8.6 SCF 658 -9 -1.4 15.4 UK 327,109 -14,863 -4.3 UK 582 -83 -12.5 7.8 Poland 44,591 9,409 26.7 Poland 1 150 -5 -3.1 9.6 Portugal 56,747 634 1.1 Portugal 260 31 13.5 12.5 USA 142,572 19,824 16.2 USA 2 465 131 39.4 6.4 Mexico 66,930 867 1.3 Mexico 424 68 19.0 20.5 Brazil 1,482 165 12.6 21.6 Brazil 172,869 13,027 8.1 Chile 311 4 1.3 17.6 Chile 56,203 6,179 12.4 Argentina 73 -63 -46.4 17.0 Argentina 12,903 4,065 46.0 1. Adjusted RoTE for 11.30% CET1, 17% 2. Adjusted RoTE for 11.30% CET1, 11% 63
Appendix: UK loan portfolio: Mortgage and Corporate RE Credit quality remains very strong, supported by our prudent approach to risk Credit impairment losses and cost of risk Prudent mortgage lending criteria Cost of risk (%) Dec-18 H1 2019 0.10 Average LTV on new lending 63% 64% 0.08 0.07 > 85% LTV 17% 21% 0.02 > London 58% 60% Stock 42% 42% Credit impairment losses (GBP million) Mortgage loan loss allowance and gross write-offs (GBP million) 9x1 10x 13x Gross write-offs 279 Loan loss allowance 225 237 214 203 153 67 69 33 22 18 6 Dec-16 Dec-17 Dec-18 H1 2019 2016 2017 2018 H1 2019 1. Illustrates how many times the current value of write-offs would be covered by the current stock of mortgage impairment loan loss allowances, crystallised during the year. 64
Appendix: UK loan portfolio: Mortgage and Corporate RE Prime residential mortgage book of GBP 159.4 billion Residential mortgage portfolio of GBP 159.4 bn Geographical distribution (stock %, Jun-19) (stock %, Jun-19) 10 31 Fixed rate 15 25 Product 14 13 Variable rate 11 profile 75 4 2 Standard Variable Rate South East London North Midlands South West, Scotland Northern and East Wales and Ireland Anglia Other Prime London Lending 6 Home movers Central Prime Prime Prime 18 Fringe Central Remortgagers Asset (£bn) 39.8 1.85 1.10 0.27 Borrower profile 43 First time buyers Ave Loan 203k 288k 325k 411k Buy to Let (BTL) Volume 196k 6.42k 3.40k 661 33 % >75LTV 11% 10% 6% 8% % >90LTV 1% 1% 1% 3% 65
Appendix: 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 66
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