28 July 2017 ARGENTINA. First half 2017

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1 28 July 2017 ARGENTINA First half 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 rebounding in 2017, with declining inflation and lower interest rates. Annual GDP Growth (%, real)* Interest Rates (%, end year) (e) 2018 (e) 2019 (e) (e) 2018 (e) 2019 (e) Inflation (%, annual change) Peso / euro exchange rates ( average) (e) 2018 (e) 2019 (e) (e) 2018 (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 3Q16. 4

5 Macro-economic environment Fiscal deficit contract in 2018 while consumption continues to grow at high real rates. Fiscal surplus / deficit (% of GDP) External sector (US$ bn) -5.9% -6.2% -5.2% -4.3% 10,0 8,0 6,0 4,0 2,0 0,0-2, ,0 66,0 56,0 46,0 36,0 26,0 16, (e) 2018 (e) 2019 (e) -4,0-6, (e) 2018 (e) 2019 (e) 6,0-4,0 Exports Imports Trade balance Consumer spending (%,YoY) Employment 8,0% 7.6% 7.2% 6.8% 26% 7,0% 23% 6.4% 22% 24% 6,0% 17% % 5,0% 10% 10% 4,0% (e) 2018 (e) 2019 (e) (e) 2018 (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*: 12.1% YoY 20 (%) YoY (%) % 31% 31% 33% 40% 2Q'16 3Q'16 4Q'16 1Q'17 2Q'17 Total deposits ( bn constant euros) % 37% 43% 36% 36% 2Q'16 3Q'16 4Q'16 1Q'17 2Q'17 140% 120% 100% 80% 60% 40% 20% 0% 140% 120% 100% 80% 60% 40% 20% 0% Deposits / GDP*: 16.5% Jun 17 : Term deposits grow 12.8% YoY while sight deposits 57.9%. Loans are driven by commercial loans (42.7% YoY) and personal loans (growing at 51.1% YoY). Liquid assets / Deposits: 32% Loans durations : 34.5% less than 1 month; 66.8% less than 1 year BIS ratio: 16.4% Private sector NPLs remain at low levels of 2.01% (coverage: 131,7%) Financial system net income trend: Net Income** ROE % % % % 5M % * 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 KEY DATA 2Q 17 Var. YoY* Gross loans 8, % Continue the transformation toward a digital bank Deposits 10, % RoTE 32.5% 63 bps Complete the integration of Citibank s retail business Boost lending to companies and households that have a low level of debt Efficiency ratio 56.0% -50 bps Loans market share 11.5% 122 bps Customer funds market share 11.8% 220 bps Loyal customers 1, % Digital customers 1 1, % Grow in customer funds, particularly mutual funds Branches Employees 9, % (1) Thousands. Does not include Citibank retail customers acquired (*) Constant euros 8

9 Commercial strategy and business transformation Growth based on a customer centered strategy. Transformation and digitalization focused on efficiency and customer service New Reward program Miles fidelity program cobranded with AAdvantage. Strengthen the Bank positioning in high income segments. Online y Mobile Banking 65 % of our customers use Online Banking 26% of our customers use Mobile Banking Mortgages This new product launched in 2016, is an inflation indexed mortgage. Well positioned to capture market growth potential. 21% market share (*) Citibank retail bussiness acquisition + 70 branches thousand customers thousand high income customers + 1,3% market share Building a digital bank New digital platform to support entirely digital processes. Biometrics technology to identify customers. New version of digital channels. + CHE 96% transactions through digital channels. 65% of branch network under new model. New CRM: Enables to offer the most appropiate 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 Argemtina 9

10 Customers Santander Rio aims to broaden its leadership in profitability, market share and client s satisfaction, through customer service improvements, and digital transformation Loyal individuals % More customized products and services. 79% of our Select customer base is loyal. jun-16 jun-17 Loyal companies % 126 Increased customer transactions. 42% of our companies customer base is loyal. jun-16 Digital customers* jun % Focus in automatisation and customer service. High penetration in Online Banking. Focus on mobile app usage. jun-16 jun (*) Does not include new Citibank customers acquired

11 Total loans performance Loans increased 67%* YoY, driven mainly by commercial loans and the Citibank retail portfolio acquisiton. New inflation-indexed mortgages have good market reception Total gross loans ( MM constant euros) 6M'17 YoY (%) QoQ (%) Q16 3Q16 4Q16 1Q17 2Q17 Individuals % 7% Mortgage % 27% Consumer Credit % 6% Companies % 37% SMEs % 9% Corporates % 17% Large Corporates % 82% Total * % 22% 11 (*) Excluding the Citibank portfolio acquired total loans grow 44%

12 Total funds performance Total deposits grew 62%* YoY driven by saving deposits, the Citibank retail baking acquisition, and dollar denominated deposits from the tax amnesty Total deposits ( MM constant euros) Q16 3Q16 4Q16 1Q17 2Q17 6M'17 YoY (%) QoQ (%) Demand % -21% Savings % 28% Time % 9% Total deposits * % 7% FUM % 17% Total customer funds % 9% 12 (*) Excluding the Citibank portfolio acquired total deposits grow 41%. QoQ variation on Demand deposits reflects Citi retail portfolio incorporation

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

14 Net interest income NII increased 63% YoY mainly due to volume growth and declining cost of deposits Net Interest Income ( MM constant euros 1 ) Yield on loans (%) Q 16 3Q 16 4Q 16 1Q 17 2Q 17 2Q16 3Q16 4Q16 1Q17 2Q Cost of deposits (%) NIM 2 (%) Q16 3Q16 4Q16 1Q17 2Q17 Official interest rate 3 (%) Q 16 3Q 16 4Q 16 1Q 17 2Q 17 (1) Average exchange rate as of 2Q17 (2) Group criteria; (3) Quarter average. 14

15 Net fees Net fees increased 51%, driven by account management, mutual funds, and FX. Credit cards affected by new pricing regulation applied in 2Q17 Net fees ( MM constant euros 1 ) M'17 6M'16 YoY (%) QoQ (%) Credit cards % -21% Account managment % 37% Insurance % 14% Checks % 94% Other % 18% Total % 12% 2Q16 3Q16 4Q16 1Q17 2Q17 (1) Average exchange rate as of 2Q17 15

16 Gross income Gross income increased 45% YoY, due to net interest income and fees. Gains on financial transactions declined mainly due to less trading activities Gross income ( MM constant euros 1 ) M'17 6M'16 YoY (%) QoQ (%) Net interest income % 22% Net fees % 12% Subtotal % 18% Gain/losses on financial transaction % 14% Other Op. Income % -643% Total % 20% 2Q16 3Q16 4Q16 1Q17 2Q17 (1) Average exchange rate as of 2Q17 16

17 Operating expenses Costs grow 43%, and below gross income. QoQ trend reflects Citibank consolidation processes. Improvements in efficiency ratio YoY Operating expenses ( MM constant euros 1 ) 6M'17 6M'16 YoY (%) QoQ (%) General and admin. expenses % 27% Personal % 19% Other % 36% Depreciation and amortization % 8% Operating expenses % 26% 2Q16 3Q16 4Q16 1Q17 2Q17 Efficiency ratio (with amortisations) 56,0% 56,5% -52 p.p. 148 p.p. Number of employees % 21% Number of branches % 6% (1) Average exchange rate as of 2Q17 17

18 Net operating income after loan-loss provisions (LLPs) Lower cost of credit YoY. Provisions and NPL ratio increase mainly due to individual segment affected by decrease in real salary LLPs and Cost of credit ( MM constant euros 1 ; %) Cost of credit 2.0% 1.9% 1.7% 1.7% 1.8% 6M'17 6M'16 YoY (%) QoQ (%) Net loan-loss provisions Net Operating Income % 13% LLP's % 50% Net op. income after LLPs % 6% NPL Coverage ratio 110% 166% NPL ratio 2,21% 1,38% 2Q16 3Q16 4Q16 1Q17 2Q17 (1) Average exchange rate as of 2Q17 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 18

19 Attributable profit Attributable profit grew 36% YoY, driven by increase in all core revenues lines, and cost control. The QoQ variation reflects high costs due to the Citibank integration Attributable profit ( MM constant euros 1 ) 6M'17 6M'16 YoY (%) QoQ (%) Profit before taxes % -18% Tax on profit % -19% Consolidated profit % -18% Non-recurring Attributable profit % -18% Effective tax rate 30.6% 30.4% 2Q16 3Q16 4Q16 1Q17 2Q17 (1) Average exchange rate as of 2Q17 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 client s satisfaction. Well positioned to capture the benefits of bancarisation inargentina. Citibank Retail Banking acquisition: Focus on integration process and synergies capture Increases in loyal individuals and companies, digital customers, and automatization index. Loans volumes increase in 2Q17 driven by commercial, mortgages, and retail Citibank portfolio. Results Attributable profit reaches EUR 193 M in first half of 2017, growing 36%YoY, driven by the increase of all revenues lines and efficiency improvements. 20

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

22 Balance sheet Constant EUR million* Variation 30-jun jun-16 Amount % Customer loans 8,503 5,094 3, Cash, central banks and credit institutions 3,600 3, Debt securities o/w: available for sale Other financial assets (0) (2.4) Other assets Total assets 13,777 9,409 4, Customer deposits 10,691 6,546 4, Central banks and credit institutions 308 1,043 (736) (70.5) Debt securities issued Other financial liabilities Other liabilities Total liabilities 12,509 8,471 4, Total equity 1, Other managed and marketed customer funds 2,553 1,238 1, Mutual funds 2,553 1,238 1, Pension funds Managed portfolios * End of period exchange rate 30-jun-17 22

23 Income statement Constant EUR million* Variation 1H17 1H16 Amount % Net interest income Net fees Gains (losses) on financial transactions (29) (29.6) Other operating income Gross income Operating expenses (490) (342) (148) 43.3 General administrative expenses (455) (319) (136) 42.4 Personnel (223) (167) (55) 33.1 Other general administrative expenses (232) (152) (80) 52.7 Depreciation and amortisation (35) (23) (13) 55.2 Net operating income Net loan-loss provisions (72) (45) (26) 58.6 Other income (34) (14) (20) Underlying profit before taxes Tax on profit (85) (62) (23) 37.5 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

24 Quarterly statements of income Constant EUR million* 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Net interest income Net fees Gains (losses) on financial transactions Other operating income (7) (1) 6 Gross income Operating expenses (169) (174) (181) (189) (217) (273) General administrative expenses (158) (161) (168) (173) (200) (255) Personnel (83) (84) (86) (86) (102) (121) Other general administrative expenses (75) (77) (83) (87) (98) (134) Depreciation and amortisation (10) (12) (13) (15) (17) (18) Net operating income Net loan-loss provisions (21) (24) (26) (31) (29) (43) Other income (3) (10) (4) (7) 1 (35) Underlying profit before taxes Tax on profit (30) (32) (39) (36) (47) (38) 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

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