BANCO SANTANDER S.A. MORTGAGE COVERED BONDS INVESTOR PRESENTATION 4Q 17. ( Cédulas Hipotecarias )

Transcription

1 BANCO SANTANDER S.A. MORTGAGE COVERED BONDS INVESTOR PRESENTATION 4Q 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, with interest rates rises not anticipated before 2019 Annual GDP Growth (%, real) Interest rate (official rate, %) (e) 2018 (e) 2019 (e) (e) 2019 (e) Inflation (annual change, %) Unemployment rate (%) (e) 2019 (e) (e) 2019 (e) Source: Santander Research Department 4

5 Macroeconomic environment backed by the adjustments and the structural reforms undertaken Annual GDP Growth (%, real) Contribution to GDP growth (% YoY) Spain Eurozone (e) (e) 2018 (e) Net external demand Domestic demand GDP y-o-y data Investment (exc. Construction) (% GDP) Housing: sales and permits (thousands of units) New building permits Sales Q Q'17 30 Source: Santander Research Department 5

6 Total banking system volumes Loans to Households & Non Financial entities are decreasing at a slower pace than 2016 In savings, the flow from deposits to mutual funds continues Loans to customers Savings EUR billion YTD EUR billion Mutual Funds YTD +10.7% 1,455 1,410 1, % 1,537 1,517 1, % 1,232 1,196 1, % % Dec'15 Dec'16 Nov'17 Dec'15 Dec'16 Nov'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 BE DK NL DE NO GB FI SE Source: Bank of Spain (Sep-17) and EBA Risk Dashboard (Sep-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) Nov 17/Nov 16 : +24% * 80 Finished houses: 2013: : : : 26 Nov 17*: 36 (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) 3Q'17 vs Minimum Q 17 / 3Q 16: +1% (real terms) Price increases Price decreases 70 3Q 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 FY 17 FINANCIAL HIGHLIGHTS Group including Popular 2017 YoY change Improved profitability and earnings per share together with a higher capital ratio Strong and high quality profit growth Attributable profit Underlying att. profit 6,619 mill.; +7% 7,516 mill.; +14% (constant euros) Improved capital adequacy and profitability FL CET % Underlying RoTE 11.8% Committed to generating value for shareholders EPS 0.404; +1% Cash DPS 0.19; +11% 10

11 FY 17 FINANCIAL HIGHLIGHTS Group excluding Popular 2017 YoY change More loyal and digital customers, thanks to enhanced customer experience, drive growth in NII, fee income, volumes and credit quality Loyal customers: 17.3 million 15.8 million individuals and 1.5 million companies Individuals +1.9 mill. +14% NII 1 Fee income 1 33,293 mill.; +7% 11,308 mill.; +11% Companies +138k +10% Loans 1 +2% Digital customers: 25.4 million Of which 15.6 million mobile Customer funds 1 +8% Digital Mobile +4.5 mill. +21% +5.2 mill. +50% NPL ratio Cost of credit 3.38%; -55 bps 1.12%; -6 bps 11 (1) % change in constant euros

12 Excellent P&L quality and strong top-line growth... Mn 2017 % vs Euros Constant euros Net interest income 34, Net fees 11, Customer revenues 45, Other income 2, Gross income 48, Operating expenses -22, Net operating income 25, Net loan-loss provisions -9, Underlying PBT 13, Underlying attrib. profit 7, Net capital gains and provisions Attributable Profit 6, Quarterly gross income performance excluding Popular (constant Mn) 8,342 8,458 7,969 7,632 2,582 2,608 1,638 1,523 1,679 1,734 1,790 1,711 2,836 2, Q'16 2Q 3Q 4Q 1Q'17 2Q 3Q 4Q Underlying attributable profit (constant Mn) 1,700 2,022 1,993 1,854 1,909 1Q'16 2Q 3Q 4Q 1Q'17 2Q 3Q 4Q NII Fees Other Incl. Pop Excl. Pop 12 Note: Contribution to the SRF (net of tax) recorded in 2Q 16 and 2Q 17. Contribution to the DGF (net of tax) in 4Q 16 and 4Q 17.

13 2017 BALANCE SHEET Volumes performance excluding Popular and highly diversified balance sheet, by geography and product Loan portfolio: growth supported by developing markets Customer funds: growth in 8 core units Mature markets Developing markets Mature markets Developing markets Dec 17 Bn YoY change Dec 17 Bn YoY change Dec 17 Bn YoY change Dec 17 Bn YoY change Spain 149-2% UK 236 1% USA 75-4% SCF 92 6% Portugal 31 8% Poland 23 5% Brazil 74 7% Mexico 27 5% Chile 38 3% Argentina 8 44% Spain % UK 210 3% USA 59-9% SCF 35 2% Portugal 32 2% Poland 28 2% Brazil % Mexico 36 6% Chile 33 0% Argentina 13 53% Other individuals, 11% Individuals demand deposits, 38% GCB, 11% Home mortgages, 36% GCB, 9% Corporates, 15% Loan portfolio by businesses Corporates, 13% Customer funds by businesses SMEs, 9% Consumer, 18% SMEs, 9% Consumer, 4% Individuals time deposits, 13% Individuals mutual funds, 14% Note: Loans excluding repos. Customer funds: deposits excluding repos + marketed mutual funds. % change in constant euros 13

14 All asset quality ratios improved with cost of credit achieving the Investor Day goals Credit quality ratios %, including Popular Coverage ratio 65 NPL ratio NPL ratios by country % Dec 16 Dec 17 Spain SCF Poland Portugal United Kingdom Brazil Mexico Chile Argentina USA Cost of credit ratios by country Cost of credit 1.25 Banco Popular NPL ratio Coverage ratio % 49% % Dec 16 Dec 17 Spain SCF Poland Portugal 0.18 (0.04) United Kingdom Brazil Mexico Chile Argentina USA

15 High and recurring pre-provision profit leads to predictable growth Profit generation supported by high capacity to absorb provisions Predictable results with the lowest volatility amongst peers coupled with growth in earnings Profitability drivers Pre-provision profit / loans Quarterly reported EPS volatility 1 EPS volatility calculated using quarterly date from Jan 99-Sep % 358% 3.03% 3.28% 3.26% 3.25% 3.06% 2.76% 3.04% 2.90% 2.83% 2.97% 128% 113% 92% Cost of credit 78% 52% 46% 44% 32% 9% 1.02% 1.36% 1.40% 1.65% 2.44%1.69% 1.43% 1.25% 1.18% 1.07% 1x -9x -1x 1x 5x 2x 3x 2x 1x 6x 4x Net income increase Note: 2017 figures include Popular (1) Source: Bloomberg, with GAAP Criteria. Note: Standard deviation of the quarterly EPS starting from the first available data since Jan

16 Well-funded, prudent and highly liquid balance sheet Liquidity Balance Sheet 1 billion, Dec 17 Liquidity Coverage Ratio (LCR) Net loans to customers Deposits Group 1 133% 120% 126% 130% Fixed assets & other Financial assets Assets Liabilities Securitisations M/LT Funding Equity and other ST Funding Additionally, the Group, as well as all its main units have Net Stable Funding ratio (NSFR) above 100% 16 Note: Liquidity balance sheet for management purposes (net of trading derivatives and interbank balances) (1) includes Banco Popular

17 SANTANDER GROUP FUNDING STRATEGY Diversified funding strategy Debt outstanding by type (EUR MM; as of 31 December 2017) Debt outstanding by issuer entity (%; as of 31 December 2017) Mortgage Covered Bonds 29% 44,313 Preferred 7% 10,365 UK 31% Others 1% Subord 8% Senior TLAC 15% 1,272 12,049 23,085 62,877 Senior 40% Others Popular US 4% 7% Chile 5% 6% 4% Brazil 10% SCF 33% Parent Co. All figures including Popular 17

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

19 Our Franchise in SPAIN excl. Popular The financial group includes retail networks, global businesses and specialised entities 2017 STRATEGIC PRIORITIES KEY DATA 2017 Var. YoY Predictable, sustainable and profitable growth Gross loans 1 148,585 Customer funds 1 251,196 Attributable profit 1 1,180-2% +12% +46% Bank of choice for SMEs and corporates ROTE % +122 bp Efficiency ratio 57.2% -154 bp Loans market share bp Improve efficiency and customer experience Deposits market share bp Loyal customers % Best bank to work for Digital customers Branches 2,843 Employees 22, % -2% -0% (1) Million euros; (2) Underlying ROTE; (3) Other non-resident sector in Spain as of Nov 2017 (lastest available) excluding Popular. Including Popular: Market share Loans 18.3% and Deposits 18.9%. (4) Millions. 19

20 SPAIN excl. Popular Loyal customers (million) Digital customers (million) NPL ratio (%) Cost of credit (%) Efficiency ratio (%) RoTE (%) Volumes in Bn 149 Loans KEY DATA % QoQ -2% YoY 251 Funds ACTIVITY +5% QoQ +12% YoY Yield on loans 2.10% 2.04% 2.04% 1.96% 1.96% Cost of deposits 0.47% 0.46% 0.46% 0.46% 0.48% 4Q'16 1Q'17 2Q 3Q 4Q P&L 1 4Q'17 %3Q' %2016 NII , Fee income , Gross income 1, , Operating expenses , LLPs PBT , Underlying att. profit , Non-recurring Attributable profit , (1) Mn (2) 2016 profit included - 216Mn related to capital gains from the disposal of the stake in VISA Europe and restructuring costs Building lasting relations with customers and ongoing digital transformation Market share gain in mortgages and corporates. Leaders in mobile payments and GCB Profit backed by fee income (more than offsets pressure on NII), cost control and LLPs. NII + Fee income:+2.4% QoQ impacted by DGF and higher costs (POS integration perimeter and hardware depreciation) Note: Loans excluding repos. Funds: deposits excluding repos + marketed mutual funds. Underlying RoTE in

21 Accelerating the reduction of real estate exposure in Spain Real estate exposure 1 Bn Net value Bn Dec 17 Real estate assets 4.7 Foreclosed assets 3.5 Rental assets RE non-performing loans (NPLs) 1.0 RE assets + RE non-performing loans 5.7 Gross value Jun 17 Blackstone transaction and other Gross value Dec 17 Provisions Net value Dec 17 (1) Santander Real estate Activity in Spain and Banco Popular 21

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

23 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 by Moody s) compared to Santander LT senior unsecured (A3 by Moody s). CH represent ~29% 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 23 Note.- Banco Santander S.A. total mortgage portfolio: EUR 70,875 mill.

24 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 53,173 Outstanding Total cover pool December 2017 Retained In the market 21,970 8,528 13,442 December 2017 Average loan size ( thousand) 99.7 Number of loans (thousand) Loan seasoning (year) 6.8 Remaining loan maturity (year) 14.3 Average cover pool LTV (%) 64 Eligible pool LTV (%) 46 Eligible portfolio NPL ratio (%) 2.6 Interest rate type 10% fixed; 90% FRN Collateralisation rate (1) 396% Maximum issuance capacity: EUR 29,933 mill. (80% eligible cover pool portfolio (2) ) (1) Only over mortgage covered bonds (CH) in markets. Considering 100% CH, 242% (Dec'17) (2) Eligible cover pool (Dec'17): EUR 37,416 mill. 24

25 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (1/5) Low risk portfolio focused on residential and first home financing... December 2017 Cover pool portfolio: EUR 53.2 billion Segments Guarantees Developer activities 1 Other business activities 5% 29% Second home 2 3% 5% 21% Land Other Households 66% First home 2 97% 74% Residential 3 25 (1) Developer mortgage product. (2) Estimate from mortgages to individuals. (3) Finished and under construction buildings with residential purposes

26 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (2/5)... concentrated in urban areas, with lower unemployment rates December 2017 Andalucía Comunidad Valenciana Galicia Baleares Cantabria, Asturias Castilla-LM, Extremadura Canarias Aragón, Nav., Murcia 67% 33% Castilla y 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 29.7 Cataluña 17.7 Andalucia 15.2 Comunidad Valenciana 7.1 Canarias 5.2 Pais Vasco 4.0 Castilla y Leon 3.5 Castilla La Mancha 2.7 Galicia 2.7 Baleares 2.6 Aragón 2.5 Cantabria 1.9 Murcia 1.5 Extremadura 1.4 Asturias 1.3 Navarra 0.6 La Rioja 0.4 Total

27 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (3/5) well distributed by maturity Distribution by maturity 1 Maturity profile 2,3 December 2017 EUR million > 30 years years 22% 4% < 10 years 37% 3,500 3,000 2,500 2,000 1,500 37% years 1, Average remaining loan maturity: Average loan seasoning: 14.3 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 27

28 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (4/5)... and with an adequate loan to value Cover pool portfolio Eligible portfolio 1 December 2017 December % = 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 28

29 MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (5/5) EUR million Maturity profile , , , , , , , , , , , , , , , , , , , , ,246.8 TOTAL 49, , Matured 3, , ,

30 MORTGAGE COVERED BONDS - 2) DESCRIPTION Average maturity ~5y due to low issuing activity in recent years Distribution by maturity Maturity profile % over total outstanding, December 2017 December % 2021 Retained In the market 11,770 28% 6,250 < % 2, , >2020 Average maturity: 5.2 years 100% issued in euros 30

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

32 APPENDIX CHARACTERISTICS OF THE MAIN EUROPEAN COVERED BOND PROGRAMMES (1/3) 32

33 APPENDIX CHARACTERISTICS OF THE MAIN EUROPEAN COVERED BOND PROGRAMMES (2/3) 33

34 APPENDIX CHARACTERISTICS OF THE MAIN EUROPEAN COVERED BOND PROGRAMMES (3/3) 34

35 APPENDIX SPANISH CH MARKET: VOLUMES Spain. Covered bonds outstanding ( mn) Spain. Covered bonds issuance ( mn) 35

36 APPENDIX SPANISH CH MARKET: VOLUMES Spain. Covered bonds outstanding by collateral, size, currency and coupon ( mn) 36

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