BANCO SANTANDER S.A. MORTGAGE COVERED BONDS INVESTOR PRESENTATION 2Q 17. ( Cédulas Hipotecarias )

Transcription

1 BANCO SANTANDER S.A. MORTGAGE COVERED BONDS INVESTOR PRESENTATION 2Q 17 ( Cédulas Hipotecarias )

2 Important information Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements. 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. 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. These factors include, but are not limited to: (1) general market, macro-economic, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. The risk factors that we have indicated in our past and future filings and reports, including those with the Securities and Exchange Commission of the United States of America (the SEC ) could adversely affect our business and financial performance. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forwardlooking statements. Forward-looking statements speak only as of the date on which they are made and are based on the knowledge, information available and views taken on the date on which they are made; 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. 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 the 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 Note: 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 year. Nothing in this presentation should be construed as a profit forecast. 2

3 Content Spanish macroeconomic environment Santander Group Santander Spain Main figures Mortgage Covered Bonds (Banco Santander S.A.) Appendix

4 Macroeconomic environment The expansionary cycle in the Spanish economy is expected to continue in the coming years Annual GDP Growth (%, real) Interest rate (official rate, %) (e) 2018 (e) 2019 (e) (e) 2018 (e) 2019 (e) Inflation (annual change, %) Unemployment rate (%) (e) 2018 (e) 2019 (e) (e) 2018 (e) 2019 (e) Source: Santander Research Department 4

5 Macroeconomic environment backed by the adjustments and the structural reforms undertaken Annual GDP Growth (%, real) Spain Eurozone (e) Contribution to GDP growth (% y/y) (e) Net external demand Domestic demand GDP y-o-y data Investment (exc. Real Estate) (% GDP) Housing: sales and permits (thousands of units) New building permits Sales Q' Q' Source: Santander Research Department

6 Total banking system volumes System loans are decreasing at a slower pace In savings, the flow from deposits to mutual funds continues Loans to customers Savings EUR billion YTD EUR billion Mutual Funds YTD +6.8% 1,455 1,409 1, % 1,537 1,517 1, % 1,232 1,196 1, % % Dec'15 Dec'16 May'17 Dec'15 Dec'16 May'17 Households & non-financial entities in Spain Non-monetary financial institutions EMU Public sector in Spain Other non-resident sectors in Spain 6 Source: ECB and Bank of Spain. Other Monetary Financial Institutions.

7 MACROECONOMIC ENVIRONMENT CREDIT QUALITY Spanish NPL ratios in a downward trend and in line with EU average Spain Mortgage NPL ratios (%) European Banks Total NPL ratio by country (%) IT IE HU PL ES EU AT FR DK BE NL DE NO GB FI SE Source: Bank of Spain (Mar-17) and EBA Risk Dashboard (Mar-17) 7

8 MACROECONOMIC ENVIRONMENT - SPANISH HOUSING MARKET ADJUSTMENT At an advanced stage: adjustment ended in flows and prices, started in stocks Housing starts (thousand units) Total housing sales (thousand units) May 17/May 16 : +26% * Finished houses: 2013: : : : 26 May 17*: 28 (thousands) * Source: Ministry of Development Source: Ministry of Development and General Council of Notaries 110 Housing: Prices (price index per m2 in real terms) Base 100: 3Q 07 peak Housing: Prices (Spanish regions) 2Q'17 vs Minimum Q 17 / 2Q 16: -0,4% (real terms) Price increases Price decreases 70 2Q 17: Q01 4Q03 4Q05 4Q07 4Q09 4Q11 4Q13 4Q15 Source: Ministry of Development and Bank of Spain (appraisal methodology) Source: Ministry of Development * Accumulated 12 months 8

9 Content Spanish macroeconomic environment Santander Group Santander Spain Main figures Mortgage Covered Bonds (Banco Santander S.A.) Appendix

10 1H 17 Financial Highlights Group excl. Popular 1H 17 / 1H 16 change Strong profit growth Attributable profit Underlying att. profit* 3,605 mill.; +24% +11% (constant euros) Revenues increase consistent with our commercial strategy Net interest income 1 +7% Fee income 1 +11% Improved capital adequacy and profitability level FL CET % RoTE 11.7% Committed to generate value for shareholders EPS 0.235; +23% TNAV/share 4.15; +0.5% (*) 1H 16 included capital gains from the disposal of the stake in Visa Europe and restructuring costs (1) % change in constant euros 10

11 1H 17 Business Highlights Group excl. Popular Jun 17 / Jun 16 change Selective growth: Retail banking lending (+2%) Demand deposits (+12%); mutual funds (+13%) Loans +1% Customer funds +8% Enhanced balance sheet quality and low cost of credit NPL ratio Cost of credit 3.55%; -74 bp 1.19%; 0 bp Loyal customers: 16.3 million Individuals: 14.9 million Companies: 1.4 million Individuals Companies +1.7 mill. +13% +179k +14% Digital customers: 23.0 million Mobile: 12.1 million Digital Mobile +4.0 mill. +21% +4.0 mill. +50% Note: Loans excluding repos. Customer funds: deposits excluding repos + marketed mutual funds. % change in constant euros 11

12 SANTANDER GROUP DIVERSIFICATION Medium-low risk model: our loan portfolio is highly diversified and collateralised Loan portfolio 1 by country Loan portfolio 1 by business Jun'17 Jun'17 Other America 1% Argentina 1% Chile 5% UK 30% Other individuals, 11% Brazil 9% GCB, 12% Home mortgages, 36% Mexico 4% USA 10% 778bn Corporates, 15% 778bn Other Europe 1% Portugal 4% Poland 3% SCF 12% Spain 20% SMEs, 9% Consumer, 17% RWAs as of Jun'17: 577bn (1) Gross customer loans (w/o repos) Note: all figures excluding Popular 12

13 All credit quality ratios improved with cost of credit already achieving the Investor Day goals Credit quality ratios (%) %, including Popular Coverage ratio 5.37 NPL ratio J'15 J'16 J'17 NPL ratios by countries (%) Jun 16 Jun 17 Spain SCF Poland Portugal United Kingdom Brazil Mexico Chile Argentina USA Cost of credit Banco Popular NPL ratio Coverage ratio J 17 20% 61% J'15 J'16 J'17 Cost of credit ratios by countries (%) Jun-16 Jun-17 Spain SCF Poland Portugal United Kingdom Brazil Mexico Chile Argentina USA

14 In summary, our business model has allowed us to generate high and recurrent pre-provision profit which has provided us a high capacity to absorb provisions Group net operating income (Pre-provision profit, EUR bn.) Profitability drivers billion billion > 22 billion per year 3.03% 3.28% 3.26% 3.25% 3.06% 2.94% 3.04% 2.90% 2.83% 3.03% Pre-provision profit / loans Cost of credit 1.02% 1.36% 1.40% 1.65% 2.44%1.69% 1.43% 1.25% 1.18% 1.19% 1H billion H'17 (1) Cost of credit: Provisions to cover losses due to impairment of loans in the last 12 months / average customer loans and advances of the last 12 months data has been re-expressed to reflect the gain of control of Santander Consumer USA (SC USA), in 2014, and the loss of control of certain fund management companies in 20pre-provision 13, as if such changes had been effective as of January 1 st 2013 Note: all figures excluding Popular 14

15 Well-funded, prudent and highly liquid balance sheet billion Liquidity balance sheet (Jun'17) Conservative liquidity metrics Liquidity Coverage Ratio (LCR) Net loans to customers Deposits Group including Popular 140% 133% 132% 130% Fixed assets & other Financial assets Assets Liabilities Securitisations Funding M/LP Equity (101) and other (25) Funding CP Commercial Gap: 79 bill. Structural liquidity surplus 1 : 154 bill. (15% net liabilities) 15 Note: Liquidity balance sheet for management purposes (net of trading derivatives and interbank balances). Provisional (1) Financial assets short term wholesale funding markets All figures excluding Popular except Group LCR ratio

16 SANTANDER GROUP FUNDING STRATEGY Diversified funding strategy Debt outstanding by type (EUR MM; as of 30 June 2017) Debt outstanding by issuer entity (%; as of 30 June 2017) Mortgage Covered Bonds 24% 34,110 9,428 Preferred 7% UK 34% Others 0% Subord 9% Senior TLAC 11% ,827 15,592 69,004 Senior 49% Other 5% US 4% 33% Parent Co. 6% CHILE 7% 11% BRAZIL SCF 16 All figures excluding Popular

17 Content Spanish macroeconomic environment Santander Group Santander Spain Main figures Mortgage Covered Bonds (Banco Santander S.A.) Appendix

18 Our Franchise The financial group includes retail networks, global businesses and specialised entities STRATEGIC PRIORITIES KEY DATA 1H 17 Var. YoY Profitable growth Gross loans 1 151,533 Customer funds 1 239,269 Attributable profit % +9% +102% Bank of choice for corporates RoTE 10.54% +344 bp Efficiency ratio 55.5% -239 bp Loans market share bp Improve efficiency and customer experience Deposits market share bp Loyal customers % Best bank to work for Digital customers Branches 2,869 Employees 22, % -8% -2% (1) Million euros; (2) Other resident sector in Spain as of May 2017 (last available); (3) Millions. All figures excluding Popular 18

19 SPAIN excl. Popular KEY DATA 1H 16 1H 17 Loyal customers (millions) Digital customers (millions) NPL ratio (%) Cost of credit (%) Efficiency ratio (%) RoTE (%) Volumes in billion 239 ACTIVITY Yield on loans P&L 1 2Q 17 %2Q 17 1H 17 %1H 16 NII , Fee income Gross income 1, , Operating expenses , LLPs PBT Underlying att. profit Non-recurring Attributable profit (1) million (2) Including - 216m in 2Q16 related to capital gains from the disposal of the stake in Visa Europe and restructuring costs Growing loyalty: 1l2l3 Smart proposition launch for millennials (~90k C/A since launch); number of credit cards (+1 mill. YTD) with a turnover (+43% /1H 16) 152 Loans +1% QoQ -4% YoY Funds +5% QoQ +9% YoY 2.14% 2.06% 2.10% 2.04% 2.04% Cost of deposits 0.44% 0.49% 0.47% 0.46% 0.46% 2Q'16 3Q 4Q 1Q'17 2Q In SMEs, good evolution in new lending /1H 16: commercial (+10%) and international business (+29%). GCB remains leader in the key League tables Attributable profit up YoY backed by higher fee income, cost control and lower provisions. Strong credit quality improvement In the quarter, attributable profit evolution affected by lower trading gains and the contribution to SRF Note: Loans excluding repos. Funds: deposits excluding repos + marketed mutual funds. 1H 16 RoTE was on an underlying basis 19

20 SANTANDER REAL ESTATE ACTIVITY IN SPAIN ACTIVITY P&L Balance sheet Coverage ratio million 1H 17 1H 16 %1H 16 billion Jun 17 and change / Dec 16 Gross income Dec'16 Jun 17 Sareb and Other Metrovacesa Rentals Net foreclosures Net loans -3 p.p. Loans -1 p.p. 53% 57% Net Foreclosures Operating expenses Provisions Tax recovery Attributable profit Reduction of non-core exposure continued at double digit (loans: -37% YTD; -43% YoY) Coverage ratio already adapted to the requirements of Appendix IX YoY profit comparison affected by the requirements of Appendix IX Note: all figures excluding Popular 20

21 Content Spanish macroeconomic environment Santander Group Santander Spain Main figures Mortgage Covered Bonds (Banco Santander S.A.) Appendix Note: All figures excluding Popular

22 MORTGAGE COVERED BONDS (BANCO SANTANDER S.A.) - MAIN FIGURES The Mortgage Covered Bonds are direct obligations of Banco Santander S.A. collateralised by its mortgage portfolio Banco Santander S.A. mortgage portfolio is a low risk profile business, focused on residential and first home financing well diversified by geography and maturity and an adequate LTV Santander mortgage covered bonds (CH) show a high overcollateralisation level and have a three notches of rating uplift (i.e. Aa2/AA by Moody s/fitch) compared to Santander LT senior unsecured (A3/A- by Moody s/fitch). CH represent 24% of total funding at Santander Group. Santander is one of the top issuers in Spain Santander is a relevant player in the Spanish mortgage business (Parent bank market share ~ 10%), a key commercial product in our customer-focused business model 22 Note.- Banco Santander S.A. total mortgage portfolio: EUR 72,905 mill.

23 MORTGAGE COVERED BONDS (BANCO SANTANDER S.A.) - MAIN FIGURES 1 2 Collateral description (cover pool - 100% mortgage loans) EUR million EUR million Mortgage covered bonds description 53,666 Outstanding Total cover pool June 2017 Average loan size ( thousand) Retained In the market 22,457 9,043 13,414 June 2017 Number of loans (thousand) Loan seasoning (year) 6.8 Remaining loan maturity (year) 13.8 Average cover pool LTV (%) 68 Eligible pool LTV (%) 46 Eligible portfolio NPL ratio (%) 3.1 Interest rate type 10% fixed; 90% FRN Collateralisation rate (1) 400% Maximum issuance capacity: EUR 29,808 mill. (80% eligible cover pool portfolio (2) ) (1) Only over mortgage covered bonds (CH) in markets. Considering 100% CH, 239% (Jun'17) (2) Eligible cover pool (Jun'17): EUR 37,260 mill. 23

24 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (1/5) Low risk portfolio focused on residential and first home financing... June 2017 Cover pool portfolio: EUR 53.7 billion Segments Guarantees Developer activities 1 Other business activities 6% 29% Second home 2 3% 6% 21% Land Other Households 65% First home 2 97% 73% Residential 3 (1) Developer mortgage product. (2) Estimate from mortgages to individuals. (3) Finished and under construction buildings with residential purposes 24

25 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (2/5)... concentrated in urban areas, with lower unemployment rates June 2017 Andalucía Comunidad Valenciana Galicia Baleares Castilla-LM, Extremadura Canarias Murcia 66% 34% Cantabria, Castilla y Asturias Aragón, Nav., La Rioja León País Vasco Madrid Cataluña Regions with unemployment rates < Spain s average Regions with unemployment rates > Spain s average Regions % Back-book Madrid 29.3 Cataluña 17.5 Andalucia 15.3 Comunidad Valenciana 7.4 Canarias 5.2 Pais Vasco 4.0 Castilla Leon 3.6 Castilla La Mancha 2.8 Galicia 2.6 Baleares 2.5 Aragón 2.4 Cantabria 1.9 Murcia 1.6 Extremadura 1.5 Asturias 1.3 Navarra 0.6 La Rioja 0.5 Total

26 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (3/5) well distributed by maturity Distribution by maturity 1 Maturity profile 2,3 June 2017 EUR million > 30 years years 20% 4% < 10 years 39% 3,500 3,000 2,500 2,000 1,500 37% years 1, Average remaining loan maturity: Average loan seasoning: 13.8 years 6.8 years (1) Bucket < 10 years includes lines of credit and past due and non-performing loans undergoing legal proceedings (2) Excluding lines of credit and past due and non-performing loans undergoing legal proceedings (3) See annex for detailed data 26

27 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (4/5)... and with an adequate loan to value Cover pool portfolio Eligible portfolio 1 June 2017 June % = LTV (weighted average) Cumulative (%) % = LTV (weighted average) Cumulative (%) Outstanding by LTV interval (%) Outstanding by LTV interval (%) % 20-40% 40-60% 60-80% >80% % 20-40% 40-60% 60-80% >80% (1) Total cover pool portfolio excluding high LTV loans (residential >80% and commercial >60%, without additional guarantees); loans w/o appraised value and non-euro loans; 100% developer loans; and others 27

28 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (5/5) EUR million Maturity profile , , , , , , , , , , , , , , , , , , , , , ,328.5 TOTAL 49, , Matured 4, , ,

29 MORTGAGE COVERED BONDS - 2) DESCRIPTION Average maturity > 5y due to low issuing activity in recent years Distribution by maturity Maturity profile % over total outstanding, June 2017 June ,982 Retained 2% 2017 In the market > % 18% ,500 1, >2020 Average maturity: 5.1 years 100% issued in euros 29

30 Content Spanish macroeconomic environment Santander Group Santander Spain Main figures Mortgage Covered Bonds (Banco Santander S.A.) Appendix

31 APPENDIX CHARACTERISTICS OF THE MAIN EUROPEAN COVERED BOND PROGRAMMES (1/3) 31

32 APPENDIX CHARACTERISTICS OF THE MAIN EUROPEAN COVERED BOND PROGRAMMES (2/3) 32

33 APPENDIX CHARACTERISTICS OF THE MAIN EUROPEAN COVERED BOND PROGRAMMES (3/3) 33

34 APPENDIX SPANISH CH MARKET: VOLUMES Spain. Covered bonds outstanding ( mn) Spain. Covered bonds issuance ( mn) 34

35 APPENDIX SPANISH CH MARKET: VOLUMES Spain. Covered bonds outstanding by collateral, size, currency and coupon ( mn) 35

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