FIXED INCOME INVESTOR PRESENTATION. March 2016

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1 FIXED INCOME INVESTOR PRESENTATION March 2016

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, macroeconomic, 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. 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 my differ materially from those of such subsidiaries. 2

Good financial performance in 2015 Change 2015 / 2014 Loan growth 1 +6.4% Fully-loaded CET1 +50 b.p. (excl. non-recurring items) Funds growth 1 +7.5% Underlying RoTE 11.0% Customer revenues +7.

9% Cash dividend per share +79% Note: on 3 February 2016, the European Central Bank authorised the use of the Alternative Standardised Approach to calculate the capital requirements at consolidated

3 Good financial performance in 2015 Change 2015 / 2014 Loan growth % Fully-loaded CET1 +50 b.p. (excl. non-recurring items) Funds growth % Underlying RoTE 11.0% Customer revenues +7.6% TNAV per share +11 cents Underlying profit +12.9% Cash dividend per share +79% Note: on 3 February 2016, the European Central Bank authorised the use of the Alternative Standardised Approach to calculate the capital requirements at consolidated level for operational risk at Banco Santander (Brasil) S.A. The impact of the aforementioned authorisation on the Group s risk-weighted assets (EUR - 7,840 million) and, in consequence, on its capital ratios, was not taken into account in the data published on 27 January 2016, which are those presented in this report. (1) % change in constant euros 3

STABLE PROFIT GENERATION Our business model allows us to generate high pre-provision profit which provide us with a high capacity to absorb provisions Group net operating income (Pre-provision

4 STABLE PROFIT GENERATION Our business model allows us to generate high pre-provision profit which provide us with a high capacity to absorb provisions Group net operating income (Pre-provision profit, EUR bn.) Profitability drivers % 3.3% 3.3% 3.3% 1.0% 1.4% 1.4% 1.7% 3.1% 2.9% 3.0% 3.0% 2.4% PPP/ loans 1.7% 1.4% 1.3% Cost of credit Note: 2013 data has been re-expressed to reflect the gain of control of Santander Consumer USA (SCUSA), in 2014, and the loss of control of certain fund management companies in 2013, as if such changes had been effective as of January1st

5 MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Santander loan portfolio: high diversified and collateralized Dec'15 Loan portfolio 1 by country Brazil 8% Chile 4% Other America 1% Argentina 1% UK 36% Mexico 4% USA 10% Spain's run-off real estate 0,4% Other Europe 1% Portugal 4% Poland 2% SCF 9% 791bn. Spain 20% 41% of the total loan portfolio are home mortgages RWAs as of Dec 2015: 584bn (1) Net customer loans 5

MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Cost of credit and credit quality continue to improve in 2015 NPL and coverage ratios (%) NPL ratio Coverage 65 67 +6pp 73 Spain UK -83bp 5.61 5.

6 MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Cost of credit and credit quality continue to improve in 2015 NPL and coverage ratios (%) NPL ratio Coverage pp 73 Spain UK -83bp Cost of credit (%) NPL 4.36 D'13 D'14 D' D'14 M'15 J'15 S'15 D' D'14 M'15 J'15 S'15 D' bp Brazil USA bp D'14 M'15 J'15 S'15 D' D'14 M'15 J'15 S'15 D'

7 MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Credit quality evolved much better than other private sector banks in Brazil thanks to our change of mix and risk management Local criteria NPLs Over 90 days Portfolio mix % Others 1.8% 3.7% 3.7% 3.5% 3.5% 3.3% 3.1% 4.1% 3.5% 3.2% Peer1 Peer2 SAN Santander Finances* 8.4% Retail 26.3% SMEs 11.7% Institutions 1.3% Companies 16.6% Corporate banking 33.9% *Santander Financiamientos: unit specialised in consumer finance (mainly auto finance) Vintages. Changes in the Over 30* ratio over time at 3 and 6 months from each vintage admission As a percentage D'13 D'14 D'15 Individuals SMEs High coverage ratio: Santander 199% (180% D 14) *Ratio calculated as the total amount of operations that are mora tan 30 days overdue on the total amount of the vintage 7

8 MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Credit quality evolved much better than other private sector banks in Brazil thanks to our change of mix and risk management Local criteria 6.5% Cost of credit 5.7% 5.4% 3.8% 4.1% 4.4% 3.8% Peer1 SAN 3.9% 3.3% 3.7% Peer2 3.3% 3.2% D'12 D'13 D'14 D'15 8

9 MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Santander loan portfolio: retail, granular and diversified by economic sector Credit risk distribution Corporate banking 16% Individuals 57% SMEs, companies and institutions 27% 9

MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Exposure to Oil&Gas: limited and diversified by clients and geographies Rating Detail Funded Oil & Gas BB/B; 10% CCC or Below; 1% - Oilfield Services EUR 2.

10 MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Exposure to Oil&Gas: limited and diversified by clients and geographies Rating Detail Funded Oil & Gas BB/B; 10% CCC or Below; 1% - Oilfield Services EUR 2.1 Bn - Guarantees and Derivatives* EUR 3.9 Bn Oil & Gas financing (net) EUR 14.2 Bn - Unused limits EUR 4.7 Bn BBB; 46% AAA/A; 43% Funded Oil & Gas (net) Total Funded <1.3% of the Group s loan portfolio EUR 9.5 Bn Geographic Distribution Spain; 18% Other, EMEA; 17% North America; 6% Latam; 30% Asia ; 6% UK; 23% * Derivatives: 1.18Bn 10

11 MEDIUM-LOW RISK MODEL. LOAN PORTFOLIO Exposure to Mining&Steel: limited and diversified by clients and geographies Funded Mining & Steel Rating Detail - Guarantees and Derivatives EUR 3.8 Bn Mining&Steel financing (net) EUR 4.77 Bn A; 19% BB/B; 32% - Back up lines EUR 1.3 Bn Funded Mining & Steel (net) Total Funded <0.5% of the Group s loan portfolio EUR 3.47 Bn Geographic Distribution Chile; 6% Continental Europe; 20% Argentina; USA; 5% 5% Mexico; 2% BBB; 49% United Kingdom; 33% Brazil; 29% 11

12 Capital

CAPITAL Achieved the fully-loaded CET1 of 10% at year-end Fully-loaded CET1 (%) Capital generation of +50bps before non-recurring items Capacity to generate capital organically at an average rate of

13 CAPITAL Achieved the fully-loaded CET1 of 10% at year-end Fully-loaded CET1 (%) Capital generation of +50bps before non-recurring items Capacity to generate capital organically at an average rate of 10bps per quarter 9.65% % 10.05% Absorbed impacts of DPV portfolio valuations and corporate transactions Total ratio (+130bps) to 13.05% CET1 D 14* 2015 Generation Net of positive and negative non-recurring items CET1 D 15 Fully-loaded leverage ratio: 4.7% Note: on 3 February 2016, the European Central Bank authorised the use of the Alternative Standardised Approach to calculate the capital requirements at consolidated level for operational risk at Banco Santander (Brasil) S.A. The impact of the aforementioned authorisation on the Group s risk-weighted assets (EUR - 7,840 million) and, in consequence, on its capital ratios, was not taken into account in the data published on 27 January 2016, which are those presented in this report. * Pro-forma, including capital increase in January

CAPITAL Santander is committed to fulfil the AT1&T2 buckets through the transitional period Expected

quarter. Excess of generic provision 0,65% 2.05% 0.95% TIER2 TIER1 AT1 issuances to target of 1.

14 CAPITAL Santander is committed to fulfil the AT1&T2 buckets through the transitional period Expected total capital ratio in December 2018 Hypothesis: RWAs growth of ~3.5% per year % 1.2% 0.65% 0.87% > 14.5% No excess of generic provision in 2018 (prudent approach) Average capital generation of 10bps per quarter. Excess of generic provision 0,65% 2.05% 0.95% TIER2 TIER1 AT1 issuances to target of 1.5% in 2018: ~ 4.3bn 10.05% T2 issuances to target of 2% in 2018: ~ 5.6bn Group FL Total capital ratio 2015 Expected organic capital generation AT1 issuances to target T2 issuances to target Expected total capital ratio

CAPITAL Regulatory Capital As of dec-2015 surplus of 280bps over the minimum required. 14.

25% Systemic buffer Target of CET1FL >11% in Dec-2018. CET1 12.55% 5% 4.

15 CAPITAL Regulatory Capital As of dec-2015 surplus of 280bps over the minimum required % Estimated cumulating transitional deductions from CET1 phase in: ~30bps in 2016, ~90 bps in 2017 and ~130pbs in Capital ratio 9.75% CET1 0.25% Systemic buffer Target of CET1FL >11% in Dec CET % 5% 4.5% Pilar II requirement (including capital conservation buffer) Minimum Pilar I Management buffer >50 bps above Pillar 2 requirement in Total capital target FL >14.5% at end Regulatory ratios Dec'15 Regulatory requirement 2016 CET1 1 (1) Minimum prudential requirements established by the ECB, based on the supervisory review and evaluation process (SREP) Note: on 3 February 2016, the European Central Bank authorised the use of the Alternative Standardised Approach to calculate the capital requirements at consolidated level for operational risk at Banco Santander (Brasil) S.A. The impact of the aforementioned authorisation on the Group s risk-weighted assets (EUR -7,840 million) and, in consequence, on its capital ratios, was not taken into account in the data published on 27 January 2016, which are those presented in this report. 15

CAPITAL Regulatory Capital Significant payment capacity from distributable items: As of dec-2015 ADIs at Santander Parent Bank 48.3bn more than150x times estimated 2016 full AT1 cost.

22% Comfortable buffer to MDA: As of dec-2015 the CET1 of the Group was 280bps over the minimum required and 115bps including AT1 and T2 gaps. Group CET1 phase in Dec.

16 CAPITAL Regulatory Capital Significant payment capacity from distributable items: As of dec-2015 ADIs at Santander Parent Bank 48.3bn more than150x times estimated 2016 full AT1 cost. Wide margin with respect to the conversion trigger, ie. 7.4% / 43.5bn (Group), 9.1% / 36.1bn (Parent Bank) 12.55% 14.22% Comfortable buffer to MDA: As of dec-2015 the CET1 of the Group was 280bps over the minimum required and 115bps including AT1 and T2 gaps. Group CET1 phase in Dec. 15 Parent Bank CET1 phase in Dec. 15 Note: on 3 February 2016, the European Central Bank authorised the use of the Alternative Standardised Approach to calculate the capital requirements at consolidated level for operational risk at Banco Santander (Brasil) S.A. The impact of the aforementioned authorisation on the Group s risk-weighted assets (EUR -7,840 million) and, in consequence, on its capital ratios, was not taken into account in the data published on 27 January 2016, which are those presented in this report. 16

17 TLAC

18 TOTAL LOSS ABSORBING CAPACITY (TLAC) TLAC for Santander Full implementation on 1 st January Therefore TLAC requirements will be 16% + Buffers (18% from 2022). Out of 16% up to 2.5% can be met with ordinary senior unsecured (3.5% from 2022). Santander has a resolution strategy approach of multiple point of entry (MPE). TLAC requirement is stablished at each resolution entity being TLAC requirement at consolidated level a floor. The regulation is work in progress. As of December 2015 and depending on the interpretation of the FSB s Term Sheet, TLAC shortfall for Santander in 2019 is estimated between 20-25bn (base case) and 30-35bn (worst case). If finally there was an homogeneous decision at European level in line with the German statutory solution, Santander Group would be already compliant with TLAC taking into account the current stock of unsecured debt in the balance sheet. Under both scenarios, the fulfillment of TLAC requirements is an optimization exercise for Santander 18

TOTAL LOSS ABSORBING CAPACITY (TLAC) MPE approach

subsidiaries in capital and liquidity USA 15.

33 Mexico 15.61 12.10 Brazil 15.73 14.33 12.98 15.

54 Chile 13.37 10.34 10.34 Argentina 14.11 14.

19 TOTAL LOSS ABSORBING CAPACITY (TLAC) MPE approach follows Santander model of autonomous subsidiaries in capital and liquidity USA UK Portugal Mexico Brazil Spain Poland Chile Argentina Total T1 CET1 19 Local criteria as of December 2015

jurisdictions Final Senior debt treatment Internal TLAC treatment Deductions and mitigants final treatment

20 TOTAL LOSS ABSORBING CAPACITY (TLAC) The estimates of TLAC are based on our current interpretation of the FSB s Term Sheet 1 Base case scenario: 20-25bn Negative impact Positive impact Final transposition to EU and relevant jurisdictions Final Senior debt treatment Internal TLAC treatment Deductions and mitigants final treatment Evolution of the excess of generic provision in T2 Worst case scenario: 30-35bn 20 (1) 9 November 2015 (the FSB TLAC Term Sheet )

21 TOTAL LOSS ABSORBING CAPACITY (TLAC) TLAC: Santander 3 year issuance plan AT1: 1bn-1.5bn per year +...mainly from the Parent Bank and San UK T2: ~ 2bn per year + Other TLAC Eligible Debt: 3-5bn per year (base case) or 6-8bn per year (worst case) anywhere 21

22 Liquidity and Funding

23 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 terms. Limited recourse to wholesale short- term funding. Availability of sufficient liquidity reserves, including the discounting capacity in central banks to be use in adverse situations. Compliance with regulatory liquidity requirements required at Group and subsidiary level, as a new conditioning management factor.

LIQUIDITY AND FUNDING Decentralised liquidity model 2015 Group s medium and long term issues 1

0bn Parent SCF 14.3 9.6 11.7 8.2 3.7 2.2 5.3 4.9 1.8 2.3 0.0 2.3 0.0 0.2 Mexico 0.6bn Brazil 9.

0 0.1 2016 2017 2018 2019 2020 2021-2025 Others Subordinated Debt Senior Debt Covered Bond

24 LIQUIDITY AND FUNDING Decentralised liquidity model 2015 Group s medium and long term issues 1 Issues maturity 2. EUR billion USA 12.4bn UK 15.6bn Nordics 1.4bn Rest of Europe 20.0bn Parent SCF Mexico 0.6bn Brazil 9.5bn Total issued in bn UK Brazil Others Subordinated Debt Senior Debt Covered Bond Preferred Shares (1) Figures include securitisations. Average issuance per year of 40-45bn excluding securitisations 24

LIQUIDITY AND FUNDING Well-funded balance sheet with high structural liquidity surplus Liquidity balance sheet (Dec 15) % Retail banking balance sheet- High share of retail

Funding M/LP Low Commercial Gap: EUR 108 bn. Financial assets 17% Assets 12% 2% Equity and other Funding CP Liabilities High structural liquidity 1 surplus: EUR 149.1 bn.

25 LIQUIDITY AND FUNDING Well-funded balance sheet with high structural liquidity surplus Liquidity balance sheet (Dec 15) % Retail banking balance sheet- High share of retail deposits Net loans to customers 75% 65% Deposits Diversified Wholesale Funding with focus on M/L-T Very low recourse to S-T funding 7% Securitisations Fixed assets & other 8% 14% Funding M/LP Low Commercial Gap: EUR 108 bn. Financial assets 17% Assets 12% 2% Equity and other Funding CP Liabilities High structural liquidity 1 surplus: EUR bn. (14% net liabilities) Note: Liquidity balance sheet for management purposes (net of trading derivatives and interbank balances). Provisional (1) Financial assets short term wholesale funding markets 25

26 LIQUIDITY AND FUNDING Liquidity metrics Net loans/net assets 79% 75% 74% 74% 75% Net loan-to-deposit ratio (LTD) Customer deposits and medium- and long-term funding/net loans Short-term wholesale funding/net liabilities* Structural liquidity surplus (% net liabilities*) 150% 113% 112% 113% 116% 104% 117% 118% 116% 114% 7% 2% 2% 2% 2% 4% 16% 16% 15% 14% Net loan-todeposit ratio Deposits + M & LT funding / net loans Spain 89% 149% Portugal 97% 121% SCF 226% 69% Poland 88% 115% UK 122% 107% Brazil 106% 128% Mexico 107% 101% Chile 133% 98% Argentina 78% 130% US 140% 115% Total Group 116% 114% (*) Balance sheet for liquidity management purposes. Note: in 2012 and 2013 customer deposits include retail commercial paper in Spain (excluding short term wholesale funding). The 2012 and 2013 ratios include SCUSA by global integration, the same as in Source: 2015 Group Annual report

LIQUIDITY AND FUNDING Liquidity metrics Liquidity Coverage Ratio (LCR) High Liquid Assets 120% 146%

Unencumbered sovereign debt Undrawn credit lines granted by central Banks 48,051 85,454 110,033 UK 51%

undrawn credit lines 14,202 Liquidity reserve 257,740 Note: the reserve excludes other assets of high

27 LIQUIDITY AND FUNDING Liquidity metrics Liquidity Coverage Ratio (LCR) High Liquid Assets 120% 146% Cash value (net of haircuts) Million 2015 Geography Dec'14 Dec'15 Cash and deposits at central banks Unencumbered sovereign debt Undrawn credit lines granted by central Banks 48,051 85, ,033 UK 51% Eurozone 27% US 9% Brazil 4% Rest 9% Encumbered assets (Group) Assets eligible as colateral and undrawn credit lines 14,202 Liquidity reserve 257,740 Note: the reserve excludes other assets of high liquidity such as listed fixed income and equity portfolios. 76% 24% Dec Source: 2015 Group Annual report

28 Final Remarks Strong continuous generation of capital supported by strong group pre-provision profitability has provided Santander with a high capacity to absorb provisions during the crisis and should continue to underpin the group's earnings generation capacity. Strong capital levels in line with Santander s business model based on wide geographic diversification, solid market positions in the markets where it operates and independency subsidiary model in terms of capital and liquidity. The Group is well above the regulatory capital requirement. Significant payment capacity from distributable items and wide margin to triggers (conversion and MDA). Capacity to generate capital organically at an average rate of 10bps per quarter maintaining business growth. TLAC shortfall in the worst case scenario is manageable for Santander. Comfortable liquidity position: Compliance with regulatory liquidity requirements established at Group and subsidiary level with high availability of liquidity reserves. 28

29 Thank you Our purpose is to help people and businesses prosper. Our culture is based on the belief that everything we do should be

Jose García Cantera. Group Chief Financial Officer

Jose García Cantera. Group Chief Financial Officer Jose García Cantera Group Chief Financial Officer Banco Santander, S.A. ("Santander"), Santander UK Group Holdings ( Santander UK ) and Banco Santander (Brasil) S.A. ( Santander Brasil ) all caution that