31 January 2018 ARGENTINA. January - December 2017

Transcription

1 31 January 2018 ARGENTINA January - December 2017

2 Disclaimer Banco Santander, S.A. ("Santander") and Banco Santander Rio, S.A. caution that this presentation contains statements that constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 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. These factors include, but are not limited to: (1) general market, macro-economic, industry, 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. Numerous factors, including those reflected in the Santander Annual Report on Form 20-F filed with the Securities and Exchange Commission of the United States of America (the SEC ) under Key Information-Risk Factors - and in the Santander Documento de Registro de Acciones filed with the Spanish Securities Market Commission (the CNMV ) under Factores de Riesgo - could affect the future results of Santander and could result in other 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. 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. 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 or Santander Rio, S.A. 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. No investment activity should be undertaken on the basis of the information contained in this presentation. In making this presentation available, Santander and Banco Santander Rio S.A. give no advice and make no recommendation to buy, sell or otherwise deal in shares in Santander or Banco Santander Rio S.A. 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 may differ materially from those of such subsidiaries. In addition to the financial information prepared under International Financial Reporting Standards ( IFRS ), this presentation includes certain alternative performance measures as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415es) as well as Non-IFRS measures. The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. Please refer to the quarterly financial Report 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 IFR, see Section 26 of the Documento de Registro de Acciones for Banco Santander filed with the CNMV on July 4, 2017 (available on the Web page of the CNMV - and at Banco Santander - and Item 3A of the Annual Report on Form 20-F for the year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission on March 31, 2017 (the Form 20-F ). For a discussion of the accounting principles used in translation of foreign currency-denominated assets and liabilities to euros, see note 2(a) to our consolidated financial statements on Form 20-F and to our consolidated financial statements available on the CNMV s website ( and on Banco Santander s website ( 2

3 Content Macroeconomic environment and financial system Strategy and business Results Appendix

4 Macro-economic environment GDP recovery in 2017, with declining inflation. Positive real interest rates expected for 2018 Annual GDP Growth (%, real)* Interest Rates (%, end year) (e) 2019 (e) (e) 2019 (e) Inflation (%, annual change) Peso / euro exchange rates (end year) (e) 2019 (e) (e) 2019 (e) Source: Central Bank of Argentina, National Institute of Statics and Census (INDEC) and estimates by Santander Research *Based on update of GDP series published by INDEC on 4Q17. 4

5 Macro-economic environment Fiscal deficit reduction for 2018 while consumption continues to grow at high real rates. Fiscal surplus / deficit (% of GDP) External sector (US$ bn) -4.3% -4.4% -3.5% -2.4% 10,0 5,0 0,0-5, ,0 66,0 56,0 46,0 36,0 26, (e) 2019 (e) -10,0-15, (e) 2019 (e) 16,0 6,0-4,0 Exports Imports Trade balance Consumer spending (%,YoY) Employment 8,0% 7.6% 7.2% 26% 24% 6.8% 7,0% 6.4% 22% 20% 19% 6,0% % 13% 5,0% 13% 4,0% (e) 2019 (e) (e) 2019 (e) Shoppings Malls Grocery Stores Employment (millions) Unemployment rate, % 10,0 5 Source: Central Bank of Argentina, National Institute of Statics and Census (INDEC) and estimates by Santander Research.

6 Financial system: Loan and deposit evolution Transactional and low risk financial system: profitable, with low scale of businesses, good asset quality, and funded domestically. High growth potential in financial intermediation. Total loans ( bn constant euros) Loans / GDP*: 14.0% YoY (%) YoY 40 (%) % 52% 40% 31% 33% 4Q'16 1Q'17 2Q'17 3Q'17 4Q'17 Total deposits ( bn constant euros) % 36% 38% 37% 31% 140% 120% 100% 80% 60% 40% 20% 0% 140% 120% 100% 80% 60% 40% 20% Deposits / GDP*: 16.5% Dec 17 : Term deposits grow 23.6% YoY while sight deposits 30.7%. Loans are driven by commercial loans nominated in dollars (92.6% YoY), mortgages (112.9%), car loans (67.5% YoY), and personal loans (growing at 59.4% YoY). Liquid assets / Deposits: 29% BIS ratio: 16.0% Private sector NPLs remain at low levels of 1.87% (coverage: 136.4%) Financial system net income trend: Net Income** ROE % % % % 11M % 0 4Q'16 1Q'17 2Q'17 3Q'17 4Q'17 0% * Measure under new GDP series with 2004 base. Loans and deposits to private sector. ** In constant EUR billion 6

7 Content Macroeconomic environment and financial system Strategy and business Results Appendix

8 Our Franchise Santander Río: The leading franchise in Argentina STRATEGIC PRIORITIES Continue transformation towards a full digital bank New Citi customers: focus on increase profitability Growing loans sustaining profitability (RoRWA > 3%) KEY DATA 2017 Var. YoY* Loans 7, % Deposits 10, % Attributable profit % RoTE 32.0% -351 bps Efficiency ratio 55.5% 169 bps Loans market share 9.5% -80 bps Customer funds market share 11.5% 125 bps Loyal customers (1) 1, % Develop business with Public Sector Develop and grow wealth management businesses Digital customers (1) 1, % Branches % Employees 9, % 8 (1) Thousands (*) Constant euros

9 Commercial strategy and business transformation Growth based on a customer centered strategy. Transformation and digitalisation focused on efficiency and customer service. New Reward program Miles fidelity program cobranded with AAdvantage. Strengthen the Bank positioning in high income segments. Online and Mobile Banking Mortgages This new product launched in 2016, is an inflation indexed mortgage. Well positioned to capture market growth potential. 8.5% market share (*) Citibank retail business acquisition Building a digital bank New digital platform to support entirely digital processes. Biometrics technology to identify customers. New version of digital channels. + CHE 95% transactions through digital channels. 68% of branch network under new model.** 67% of digital customers 30% of our customers use Mobile Banking + 70 branches thousand customers thousand high income customers + 1.3% market share New CRM: Enables to offer the most appropriate products and services, in the best moment, through the most accurate channels. 5% additional increase of branches sales. American Airlines" and "AAdvantage" are trademarks of American Airlines, Inc. American Airlines is not responsible for products or services offered by other participating companies (*) of UVA Mortgages since launched in Source: Central Bank of Argentina. (**) Exclude ex Citi branches 9

10 Customers Santander Rio aims to broaden its leadership in profitability, market share and customer s satisfaction through customer service improvements, and digital transformation. Loyal individuals (k) 1, % 1,214 More customised products and services. 76% of our Select customer base is loyal. Dec-16 dic-16 Dec-17 dic-17 Loyal companies (k) +23.1% Increased customer transactions. 42% of our companies customer base is loyal. Dec-16 dic-16 Dec-17 dic-17 Digital customers (k) 1, % 1,957 Focus in automatisation and customer service. High penetration in Online Banking. Focus on mobile app usage. Dec-16 dic-16 Dec-17 dic-17 10

11 Total loans performance Loans increased 42%* YoY, driven mainly by commercial loans nominated in dollars, consumer loans and the Citibank retail portfolio acquisition. New inflation-indexed mortgages boosted mortgage loans Total loans ( bn constant euros) 12M'17 YoY (%) QoQ (%) 5,156 5,815 6,668 7,317 7,314 Individuals 3,598 67% 9% Mortgage % 22% Consumer Credit 3,333 64% 8% 4Q16 1Q17 2Q17 3Q17 4Q17 Companies 3,716 24% -8% SMEs 1,020 44% 9% Corporates 1,384 29% -1% Large Corporates 1,312 7% -22% Total * 7,314 42% 0% 11 (*) Excluding the Citibank portfolio acquired total loans grow ~31%

12 Total customer funds performance Total deposits growing 43% YoY driven by saving deposits, the Citibank retail baking acquisition and dollar denominated deposits from the tax amnesty. FUM YoY reflects the Bank campaigns on promoting investments products Total deposits ( bn constant euros) 12M'17 YoY (%) QoQ (%) 7,132 8,375 8,914 9,261 10,188 Demand 2,444 40% 5% Savings 5,472 52% 18% Time 2,273 27% -1% Total deposits * 10,188 43% 10% FUM 2, % 2% Total customer funds 12,813 53% 8% 4Q16 1Q17 2Q17 3Q17 4Q17 12 (*) Excluding the Citibank portfolio acquired total deposits grow ~35%.

13 Content Macroeconomic environment and financial system Strategy and business Results Appendix

14 Net interest income NII increased 58% YoY mainly due to credit growth and the increase of sight deposits Net Interest Income ( MM constant euros 1 ) Yield on loans (%) Q 16 1Q 17 2Q 17 3Q 17 4Q 17 Cost of deposits (%) 4Q16 1Q17 2Q17 3Q17 4Q17 NIM 2 (%) Q16 1Q17 2Q17 3Q17 4Q17 Official interest rate 3 (%) (1) Average exchange rate as of 12M 17 (2) Group criteria; (3) Quarter average. 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 14

15 Net fees Net fees increased 43%, driven by account management, mutual funds and FX. Credit cards affected by new pricing regulation applied in 2Q17 Net fees ( MM constant euros 1 ) Q16 1Q17 2Q17 3Q17 4Q17 (1) Average exchange rate as of 12M 17 15

16 Gross income Gross income increased 44% YoY driven by increases on customers revenues. Gains on financial transactions declined mainly due to lower trading activities Gross income ( MM constant euros 1 ) 12M'17 12M'16 YoY (%) QoQ (%) Net interest income % 10% Net fees % -1% Subtotal 1,582 1,041 52% 6% Gain/losses on financial transactions % -11% Other Op. Income % -1550% Total 1,747 1,210 44% 8% 4Q16 1Q17 2Q17 3Q17 4Q17 (1) Average exchange rate as of 12M 17 16

17 Operating expenses Costs grow 49% YoY mainly due to costs associated to the Citi retail integration. QoQ dynamic exhibits positive jaws Operating expenses ( MM constant euros 1 ) 12M'17 12M'16 YoY (%) QoQ (%) General and admin. expenses % 4% Personal % 6% Other % 2% Depreciation and amortization % 18% Operating expenses % 5% Efficiency ratio (with amortisations) 55.5% 53.9% 53.8% Number of employees 9,277 7,940 Number of branches Q16 1Q17 2Q17 3Q17 4Q17 (1) Average exchange rate as of 12M 17 17

18 Net operating income after loan-loss provisions (LLPs) Cost of credit remains stable. Provisions and NPL ratio increase mainly due to individuals segment and SMEs affected by the 2016 economy turndown. Recovery expected for the upcoming quarters Cost of credit LLPs and Cost of credit ( MM constant euros 1 ; %) 1.7% 1.7% 1.8% 1.9% 1.9% 12M'17 12M'16 YoY (%) QoQ (%) Net loan-loss provisions Net Operating Income % 10% LLP's % -8% Net op. income after LLPs % 16% NPL Coverage ratio 100% 142% NPL ratio 2.50% 1.49% 4Q16 1Q17 2Q17 3Q17 4Q17 (1) Average exchange rate as of 12M 17 18

19 Attributable profit Attributable profit grew 14% YoY driven by improvements in customer revenues and cost control. Second and third quarter reflect one-offs related to the acceleration of synergies of the Citibank integration Attributable profit ( MM constant euros 1 ) 12M'17 12M'16 YoY (%) QoQ (%) Profit before taxes % 30% Tax on profit % 23% Consolidated profit % 34% Non-recurring Attributable profit % 34% Effective tax rate 31.3% 28.2% 4Q16 1Q17 2Q17 3Q17 4Q17 (1) Average exchange rate as of 12M 17 19

20 Final remarks Market Environment & Financial System Financial System remains transactional, solid, liquid, well capitalized, and profitable. High growth potential of financial intermediation. Improvements in economic variables expected for 2017 and incoming years, with GDP recovery. Consolidation opportunities in the Financial System. Strategy & Business Proven transactional business model focused on customer, with low risk. Customer service improvements and digital transformation to broaden leadership in profitability, market share and customer s satisfaction. Well positioned to capture the benefits of bancarisation in Argentina. Citibank Retail Banking acquisition: integration concluded by the end of august and synergies objectives achieved. Looking forward: focus on increasing customers profitability Increases in loyal individuals and companies, digital customers, and automatisation index. Loans volumes increase YoY driven mortgages and Citibank retail portfolio. by commercial nominated in dollars, consumer loans, Results Attributable profit reaches 359M in 12M17, growing 14%YoY driven by the increase of all revenues lines and cost control. Variation reflects one-offs related to the Citi integration. 20

21 Content Macroeconomic environment and financial system Strategy and business Results Appendix

22 Balance sheet Constant EUR million* Variation 31-Dec Dec-16 Amount % Customer loans 7,808 5,156 2, Cash, central banks and credit institutions 4,766 3,254 1, Debt securities (175) (56.0) o/w: available for sale (86) (41.6) Other financial assets Other assets Total assets 13,449 9,237 4, Customer deposits 10,235 7,132 3, Central banks and credit institutions Debt securities issued Other financial liabilities Other liabilities Total liabilities 12,266 8,296 3, Total equity 1, Other managed and marketed customer funds 2,620 1,259 1, Mutual funds 2,620 1,259 1, Pension funds Managed portfolios (*) End of period exchange rate, as of 31/12/

23 Income statement Constant EUR million* Variation Amount % Net interest income Net fees Gains (losses) on financial transactions (18) (10.8) Other operating income Gross income 1,747 1, Operating expenses (970) (652) (318) 48.9 General administrative expenses (899) (605) (294) 48.6 Personnel (445) (310) (135) 43.4 Other general administrative expenses (454) (295) (160) 54.1 Depreciation and amortisation (71) (46) (24) 52.0 Net operating income Net loan-loss provisions (159) (94) (65) 69.4 Other income (92) (23) (69) Underlying profit before taxes Tax on profit (165) (125) (40) 32.2 Underlying profit from continuing operations Net profit from discontinued operations Underlying consolidated profit Minority interests Underlying attributable profit to the Group Net capital gains and provisions Attributable profit to the Group * Average exchange rate

24 Quarterly statements of income Constant EUR million* 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Net interest income Net fees Gains (losses) on financial transactions Other operating income (6) (1) 6 (1) 14 Gross income Operating expenses (154) (159) (166) (173) (199) (250) (254) (267) General administrative expenses (145) (147) (154) (159) (183) (233) (236) (247) Personnel (76) (77) (78) (79) (93) (111) (117) (124) Other general administrative expenses (69) (70) (76) (80) (90) (123) (120) (122) Depreciation and amortisation (9) (11) (12) (14) (16) (17) (17) (21) Net operating income Net loan-loss provisions (19) (22) (24) (28) (26) (39) (49) (45) Other income (3) (9) (3) (7) 1 (32) (36) (25) Underlying profit before taxes Tax on profit (28) (29) (35) (33) (43) (35) (39) (48) Underlying profit from continuing operations Net profit from discontinued operations Underlying consolidated profit Minority interests Underlying attributable profit to the Group Net capital gains and provisions Attributable profit to the Group * Average exchange rate

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