Santander Consumer Bank. Q Investor Presentation

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1 Santander Consumer Bank Q Investor Presentation

2 Who we are Santander Consumer Bank is a Nordic bank with more than 1,500 colleagues in Sweden, Norway, Denmark and Finland, with a long history in the Nordics, and with global strength by being a part of Banco Santander. We are one of the largest Nordic banks providing loans and credits, credit cards, deposits and insurance to private customers. We work with the best people in an engaged, challenging and passionate organization, which provides great opportunities for professional growth. 2

3 Regulated in Norway, owned by Banco Santander Santander Consumer Bank AS Fitch/Moody s A-/A3 SCB is regulated by the Norwegian FSA Banco Santander S.A. Fitch/Moody s/s&p A-/A2/A Santander Consumer Finance S.A Fitch/Moody s/s&p A-/A2/A- Santander Consumer Bank Denmark (Branch) Santander Consumer Finance Finland (Subsidiary) Santander Consumer Bank Sweden (Branch) 3

YTD Q3 2018 Key figures Gross Lending Core capital CET1 1 Total deposits Profit Before Tax 2 155.3 NOK Bn 15.

4 YTD Q Key figures Gross Lending Core capital CET1 1 Total deposits Profit Before Tax NOK Bn 15.8 per cent 53.1 NOK Bn 2,792 NOK million People 3 Customers 4 Return on Partners 1,530 employees 1.51 million Assets per cent 4,817 merchants +5,600 car dealers 4 Source: SCB Q Report and Management Figures as per Q ) Adjusted for IFRS9 transitional rules 2) YTD Q3 figures 3) Headcount includes FTEs and temporary employees 4) Figure as per Oct 2018

5 History ELCON Finance A leading Norwegian company within equipment leasing, factoring and auto financing Bankia Bank acquired (credit cards) ELCON Finance becomes Santander Consumer Bank AS (SCB) GE Finland acquired (auto finance, consumer loans) Deposits launched in Denmark in / /13 Santander Consumer Finance (SCF) acquires ELCON Company demerges Auto finance retained in Norway and Sweden Launch consumer loans Norway Start up auto finance in Denmark and Finland Consumer loans in Sweden (2012) and Denmark (2013) Deposits launched in Norway and Sweden (2013) SCB merges with GE Money Bank SCB becomes leader within car finance and unsecured loans in the Nordic region 5

6 Main product areas Auto & Leisure Unsecured Deposits Insurance Loans and financial services provided to private customers and car dealers Loans, credit cards and sales finance services offered to private customers Saving products with high interest rates provided to private customers Insurance products related to payment protection, auto, health and travel, offered to private customers 6

7 Gross outstanding loans, distribution by product Total Auto and Total Unsecured Consumer Loan 17% Credit Card 4% Non Std. Auto 7% Total Unsecured 21% Total Auto 79% Auto Private Persons 61% Auto SME 11% Source: SCB Q Report and Management Figures as per Q

8 Auto products Auto & Leisure Loans and financial services provided to private customers SMEs and car dealers Distribution Online Dealers Cross sale Auto Loans & Hire Purchase Customers Private Customers Business Customers Distribution Online direct distribution Indirect distribution with dealers and importers Auto Leasing Customers Private Customers Business Customers Distribution Dealers Direct SME Saving products with high interest rates provided to private customers Stock & Demo Financing Finance of dealer inventories Importer agreements (new) Direct to dealers (used) 8

9 Position within Auto Position and market share in the Nordics #1 Position 21% market share #1 Position 26% market share #4 Position 9% market share #1 Position 39% market share Partnerships with 21 auto brands dealers 9 Source Norway: Internal calculations based on data from Finansieringsselskapenes Forening YTD Q Source Finland: Internal calculations based on data from Finnish Transportation Safety Agency (Trafi) YTD Q Source Denmark: Internal calculations based on data from Finans og Leasing as per Q Source Sweden: Internal calculations based on data from Finansbolagens Förening YTD Q3 2018

Unsecured products and portfolio Distribution of Unsecured portfolio¹ Unsecured Loans, credit cards and sales finance services offered to private customers 34% 11.1 Bn 8% 2.

10 Unsecured products and portfolio Distribution of Unsecured portfolio¹ Unsecured Loans, credit cards and sales finance services offered to private customers 34% 11.1 Bn 8% 2.6 Bn Direct loans Sales finance Credit cards Distribution Online Agents Cross sale Distribution Online Stores Cross sale Distribution Online Stores Cross sale Portfolio Management 17% 5.8 Bn 41% 13.5 Bn 10 Source: SCB Q Report 1) Gross Outstanding (in NOK billion)

11 Partnerships a key success factor We started working with Santander as an exclusive partner two years ago. Since then, we have reached targets we didn t think were possible Paal Jahrmann, CEO Birger N. Haug 4,817 merchants +5,600 car dealers and 36 brokers I ve seen Santander work in a way that is not typical to a bank. You always take and run with our targets Stefan Andström, Sales Director, Nissan Nordic, Helsinki 11

12 12 Financials

13 YTD Q Santander Group key figures Santander Group Santander Consumer Finance Subgroup Total assets 1.44 (trillion ) Loans 103 (billion ) Profit After Tax 5,742 (million ) Profit After Tax 1,090 (million ) Customers142 (million) Customers 20 (million) Headcount 201,101 Headcount 15,752 Branches globally13,414 (units) European countries15 Source: Banco Santander and SCF Q Institutional Presentation 13

14 YTD Q SCB overview Nordic YTD Q Result % of Gross Lending Norway 48.0 Bn Auto Loans Finland 28.3 Bn Auto Loans Bn Gross lending 38% Norway 20% Finland 11.1 Bn 1,255 MM Unsecured Loans Profit Before Tax 2.6 Bn 421 MM Unsecured Loans Profit Before Tax 2,792 MM Profit Before Tax 20% Denmark 22% Sweden Denmark 24.9 Bn 5.8 Bn 647 MM Auto Loans Unsecured Loans Profit Before Tax Sweden 21.1 Bn 13.5 Bn 469 MM Auto Loans Unsecured Loans Profit Before Tax Source: SCB Q Report 14

15 Growing presence in the Nordics Gross lending more than doubled in the past 5 years 1 16% 39% mnok 8% , (mnok) mnok 15% mnok 124,625 (mnok) 5% ,615 mnok (mnok) ,575 mnok (mnok) ,891 mnok (mnok) 83,322 (mnok) Q Source: SCB Annual Reports ( ) and Q Report 1) Gross Lending includes consignment and operational lease

16 Solid profitability Strong profitability, especially since the merger with GE Money Bank in 2015 PBT development NOK MM 3 995¹ 23% CAGR 3 250¹ YTD Q Source: SCB Annual Reports ( ) and Q Report 1) The Group reclassified issued AT1 capital of 2,25 Bn NOK from liabilities to equity in Interest expenses for 2017 of 169 MM NOK are consequently presented in equity instead of profit and loss, with related tax impact presented as part of other equity. Comparison figures are changed similarly. Please see principle 6) on page 40 in the 2017 Annual Report for further details.

17 Strong financial performance Return on Assets 1 Per cent Net Interest Income Ratio 2 Per cent Cost / Income Ratio 3 Per cent YTD Q YTD Q YTD Q Source: SCB Annual Reports ( ) and Q Report 1) ROA = PBT / ANEA (Annualized) 2) NII Ratio = Net Interest Income / ANEA (Annualized) 3) Cost/Income Ratio = OPEX / Gross Margin (OPEX: Total Operating Costs)

18 Group Balance Sheet summary Robust balance sheet driven by growth in loans to customers NOK MM Q Q Δ 18/17 % Deposits with external institutions % Loans to customers (net) % Other financial assets % Other assets % Total assets % Debt to credit institutions % Deposits from customers % Debt established by issuing securities % Other liabilities % Subordinated loan capital % Total equity % Total liabilities and equity % Key changes Deposits with external institutions: Increase due to placement of excess cash with banks Loans to customers: Growth in gross loans are partially offset by IFRS9 impact on LLR Other financial assets: Increased liquidity portfolio due to net purchase of bonds YTD Q Other assets: Change mainly driven by decreased consignment Debt to credit institutions: Increased levels of intragroup funding due to large EUR bond maturity Deposits from customers: Increase in deposits in accordance with funding strategy Debt established by issuing securities: Net repayments of issued securities during YTD Q Source: SCB Q Report 18

19 Group Income Statement summary P&L showing steady growth with increasing profits NOK MM YTD Q YTD Q Δ 18/17 % Interest income and similar income % Interest expenses and similar expenses % Net interest income % Commissions and fees % Other product and funding related income and cost % Gross margin % Salaries and personnel expenses % Administrative expenses % Depreciations and amortisation % Net operating income % Other incomes and costs % Total losses on loans, guarantees etc % Profit before tax % Income tax % Profit after tax % Key changes year-on-year Net Interest Income: Increased due to higher volumes and lower cost of funding Commissions and fees: Increase bank fees and shift from single premium insurance product to monthly premium in Norway during Salaries personnel and administrative expenses: Increase in salaries and personnel expenses reflects a higher activity level throughout the Nordic region in Q compared to Q Total losses: Significant increase in loan losses mainly driven by the effect of the new methodology in IFRS9, which results in higher reserves coverage for the same credit risk levels. Impact of IFRS9 was partially offset by bad debt sales in June 2018, resulting in recoveries of approx. 870 MM NOK, compared to approx. 600 MM NOK in June Source: SCB Q Report 19

Risk Management Recent developments Business strategy defined by risk appetite All risks to be managed Forward-looking approach Independent risk function

reporting Risk data captures all types of risks with appropriate accuracy and timeliness Complete, precise and regular data for effective risk management

accuracy of models, improve scoring, processes and routines and in general the risk management practice of the bank IFRS9 parameters are developed

20 Risk Management Recent developments Business strategy defined by risk appetite All risks to be managed Forward-looking approach Independent risk function Robust data management Risk culture (greater synergy and integration of IRB into management) Answer to the BIS initiative on risk data aggregation and risk reporting Risk data captures all types of risks with appropriate accuracy and timeliness Complete, precise and regular data for effective risk management SCB was approved as an IRB bank in 2015 The operational benefits of IRB are related to improved client information IRB requires the bank to increase the accuracy of models, improve scoring, processes and routines and in general the risk management practice of the bank IFRS9 parameters are developed leveraging from the IRB system Strong governance in place including internal validation and audit Engine developed, tested, in use to face the new impairment requirements 20

21 Clear risk controls result in stable performance Risk ratio breakdown NPL Ratio Q Denmark 0.71% 0.61% 0.98% 1.24% 1.17% 1.19% Finland 1.04% 0.89% 0.72% 0.71% 0.74% 0.76% Norway 2.47% 2.36% 3.40% 3.36% 3.50% 3.68% Sweden 0.48% 0.61% 1.53% 1.22% 1.12% 1.07% Nordic 1.61% 1.48% 2.05% 2.01% 1.96% 2.02% NPL ratio 3 Per cent NPL Ratio Q Auto % 1.09% 1.03% 1.10% 1.07% 1.16% Unsecured % 4.77% 4.95% 4.89% 4.92% 5.11% Nordic 1.61% 1.48% 2.05% 2.01% 1.96% 2.02% Q Coverage ratio 4 Per cent Coverage Ratio Q Auto % 89.4% 95.4% 90.4% 91.8% 104.9% Unsecured % 148.1% 111.8% 113.1% 100.6% 120.4% Nordic 98.6% 126.9% 107.7% 113.6% 96.9% 113.5% Q Source: SCB Q Report and Management Figures as per Q ) Auto includes Stock Finance 2) Unsecured includes Direct Loans, Credit Cards and Sales Finance ( Durables ) 3) NPL ratio = Non-performing loans / Gross loans 4) Coverage Ratio = Loan Loss Reserves (Write Downs) / NPL

22 Self-funding is a strategic focus Three pillars approach provides funding flexibility Funding Composition 24% Self-funding pillars ¹ 38% 7% Securitization Unsecured Deposits 31% Q Parent funding Securitization Deposits Unsecured Bonds Self-funding ratio 70% 70% 77% 62% 69% 50% 22% 28% 6 outstanding transactions across Nordics Represents a low-cost and stable funding source NOK billion outstanding in the Norwegian bond market including NOK 900 MM in Commercial Paper SEK 5.45 billion outstanding in the Swedish bond market EUR 2.00 billion outstanding from four Benchmark transactions In Norway deposits are guaranteed up to NOK 2 MM In EU countries the guarantee is up to EUR 100,000 NOK 53.1 billion in total deposits across Norway, Sweden and Denmark Q Source: SCB Q Report 1) Outstanding amounts/transactions as per Q3 2018

23 Deposits at a glance Consolidated total balance: NOK 53.1 Bn 43% of total balance Saving account Saving account Floating interest rates Full flexibility 30% of total balance Saving account Notification product Term deposits 27% of total balance Saving account Notification product Notification product Withdrawals with 31 days notice Floating interest rates Term deposits Fixed interest rates Balance locked for 24 months Fees for withdrawals within term period 23 Source: SCB Q Report Deposit guarantees: Norway NOK 2 million Sweden SEK 950,000 Denmark EUR 100,000 equivalent

24 Strict capital requirements in Norway Ensuring strong capitalization of the bank CET1-ratio requirement for 2018 Capital requirements in Norway 2.3% Pillar 2 CET1-requirement Strict requirements in Norway with the inclusion of additional buffer requirements and a high countercyclical buffer requirement Countercyclical buffer ~1.3% 1 Pillar 2 requirement for SCB was set to 2.3% by the Norwegian FSA, applicable from January 2018 Systemic risk buffer 3% ~13.6% ~11.3% Pillar 1 CET1-requirement Conservation buffer 2.5% Minimum CET1 requirement 4.5% ~11.3% During 2019, the countercyclical buffer in Denmark will increase from 0% to 0.5% and in Sweden from 2% to 2.5%. In Norway and Finland they are expected to remain unchanged at 2% and 0% 1) Portfolio allocation per , show a countercyclical buffer requirement for SCB Group of 1.13% and SCB AS of 1.46% 24

25 Strong Capital Position CET1 ratio of 15.8% Capital ratios evolution SCB Group Per cent Full IFRS9 impact Adjusted for IFRS9 transitional rules SCB is using the transitional rules for IFRS9 capital impact when calculating capital ratios SCB Group had a CET1-ratio of 15.8% per Q3 using transitional rules for IFRS9 impact SCB Group had a strong Leverage Ratio of 11.9% per Q Q Q In October, SCB chose to call its existing Hybrid loan of NOK 2.5 billion and replace it with three new Hybrid loans of NOK 750 million each CET 1 Tier 1 Tier 2 Leverage ratio Source: SCB Q Report 25

26 Unsecured Senior & Commercial Paper Funding 2017 and 2018 YTD summary NOK SEK EUR New Issuances 2,750 million 2,000 million 500 million Repurchases Maturities 2,700 million 1,000 million 750 million Total Outstanding¹ 9,151 million 5,450 million 2,000 million Preferred Format FRN/FXD FRN FXD Preferred Tenor 3 5 year 3 5 year 5 year NOK SEK EUR New Issuances 4,050 million 2,000 million 500 million Repurchases 800 million - - Maturities - 2,410 million - Total Outstanding² 9,101 million 4,450 million 2,250 million Preferred Format FRN/FXD FRN FXD Preferred Tenor 3 5 year 3 4 year 3 year 26 Source: Bloomberg 1) Outstanding amounts as per Q ) Outstanding amounts as per Q4 2017

27 Unsecured Funding Maturity profile for Senior Unsecured and Commercial Paper Total Maturity (EUR MM) DKK EUR SEK EUR MM NOK SEK MM NOK MM 3701 Commercial Paper Senior Source: Bloomberg Outstanding amounts as per Q FX: EURNOK EURSEK EURDKK

28 Key takeaways Anchored by a global banking franchise Sustained market leader in auto Building out position in unsecured space Robust financial results Stable credit risk 28

29 November 2018 Santander & Santander Consumer Finance

30 1. Santander Section divider 01

31 Santander, a leading financial group Key Figures Sep 18 Total assets (trill. ) 1.44 Attributable Profit 9M 18 (mill. ) 5,742 Attributable Profit 2017 (mill. ) 6,619 Headcount 201,101 Customers (millions) 142 Shareholders (millions) 4.19 Branches (units) 13,414 31

32 Well diversified between Europe and the Americas Americas Europe 48% 52% (1) Excluding Corporate Centre and Spain Real Estate Activity. NOTE: SCF excluding SCUK 32

33 Leading positions in its core markets Americas Europe United States Brazil Argentina Portugal United Kingdom Mkt. share 1,4 : 3% Branches: 670 Mkt. share 1 : 9% Branches: 3,490 Mkt. share 1 : 11% Branches: 482 Mkt. share 1 : 18% Branches: 672 Mkt. share 2 : 10% Branches: 780 Mexico Chile Poland Spain Mkt. share 1 : 13% Branches: 1,402 Mkt. share 1 : 19% Branches: 420 Mkt. share 1,3 : 10% Branches: 540 Mkt. share 1 : 18% Branches: 4,469 SCF Nº of countries 5 : 15 Branches: 442 (1) Lending (2) UK mortgages (excluding Social Housing), Consumer credit and commercial lending (excluding Financial Institutions) (3) Including Santander Consumer Finance business (SCF) (4) In the states where the Group operates (5) Including SCF UK Data: Jun-18 or latest available. Branches do not include Santander Consumer Finance business 33

34 Group performance 9M 18 9M 18 Highlights (1) Data calculated using the IFRS 9 transitional arrangements 34

Group performance 9M 18 9M 18 performance driven by strong customer revenue and lower provisions (1) In 9M 18 charges related to integrations (mainly restructuring costs), net of tax impacts, in

35 Group performance 9M 18 9M 18 performance driven by strong customer revenue and lower provisions (1) In 9M 18 charges related to integrations (mainly restructuring costs), net of tax impacts, in Spain (EUR -280 mn), C.C. (EUR -40 mn) and Portugal (EUR 20 mn). (2) In 9M 17 charges related to integration costs, equity stakes and intangible assets. In Spain (EUR -300 mn), SCF (EUR -85 mn) and C.C. (EUR -130 mn). 35

36 Group performance 9M 18 On track to meet our 2018 targets (1)% change in constant euros (2) Underlying EPS: EUR (3) Total dividends charged to 2018 earnings are subject to the Board and AGM approval (4) Data calculated using the IFRS 9 transitional arrangements (5) Underlying RoTE % and 9M % 36

37 EBA stress testing 2018 MATERIAL FACT 2018 Results that Banco Santander S.A. obtained in the latest stress test exercise carried out by the European Banking Authority (EBA) and the European Central Bank (ECB) The exercise covered a three-year period (end of 2017 end of 2020), with two scenarios (baseline and adverse) applied to the entire consolidated perimeter of the Santander Group. Santander s results were as follows: Under the adverse scenario, Santander Group s fully loaded CET1 ratio (i.e. including the full impact of CRR/CRD and IFRS 9) would decrease by 1.41 percentage points to 9.20% as of 31 December 2020, from the starting point of 10.61% as of 31 December Under the same scenario, the Group s phased-in CET1 ratio (i.e. adopting the CRR/CRD and IFRS 9 transitional arrangements) would decrease by 2.59 percentage points to 9.72% as of 31 December 2020, from the starting point of 12.31%. Under the baseline scenario, Santander Group s fully loaded CET1 ratio (i.e. including the full impact of CRR/CRD and IFRS 9 and without adopting the CRR/CRD and IFRS 9 transitional arrangements) would increase by 3.26 percentage points to 13.87% as of 31 December Under the same scenario, the phased-in CET1 ratio (i.e. adopting the CRR/CRD and IFRS 9 transitional arrangements) would increase by 1.76 percentage points to 14.07%. 37

38 2. Santander Consumer Finance Section divider 02

Loans (bill. ) 103 Deposits (bill. ) 37 Underlying Attrib. Profit 9M 18 (mill. ) 1,090 Underlying Attrib. Profit 2017 (mill.

39 Santander Consumer Finance, European leader in the consumer finance industry Grupo Santander is the main and unique shareholder of SCF... and at the same time, SCF acts as a holding for its subsidiaries through a banking license Operations are mainly done through points-ofsale (dealers and retailers) Key Figures Sep 18 Loans (bill. ) 103 Deposits (bill. ) 37 Underlying Attrib. Profit 9M 18 (mill. ) 1,090 Underlying Attrib. Profit 2017 (mill. ) 1,373 European countries 15 Market positions 1 Top 3 Customers (million) 20 PoS partners (thousand) >130 SCF: Management perimeter (i.e. including SCUK) Attributable profit without non-recurring (provisions or capital gains) (1) In its main geographies by market share in New Business car loans or durables 39

Recurrent profits through the cycle Underlying Attributable Profit Million 472 555 744 825 895 908 1 093 1 238 1 373 9M 18 Underlying Attrib.

40 Recurrent profits through the cycle Underlying Attributable Profit Million M 18 Underlying Attrib. Profit 1,090 million (+6% YoY) SCF: Management perimeter (i.e. including SCUK) Attributable profit without non-recurring (provisions or capital gains) 40

41 Significant contributor to Santander s results, representing 13% of the Group s profit 1 in 9M 18 SCF, 13% SCF excluding SCUK. Including SCUK, SCF represents 14% of SAN profit 1. (1) Percentage over SAN underlying attributable profit in 9M 18, excluding Corporate Centre and Spain Real Estate Activity 41

the biggest share of the portfolio: 71% Consumer lending (durables financing, cash loans and credit cards): 20% SCF:

42 Well spread across Europe and well balanced between car and consumer loans SCF Portfolio: 103 bn Sep 18 Well spread across 15 European countries Important foothold in the largest economies 74% portfolio in AAA & AA countries Car financing represents the biggest share of the portfolio: 71% Consumer lending (durables financing, cash loans and credit cards): 20% SCF: Management perimeter (i.e. including SCUK). NOTE: SCF s portfolio also includes mortgages (6%), corporate loans (1%) and other loans (1%). 42

Advanced car financing platform and strong foothold in consumer finance Advanced car financing platform Strong foothold in consumer finance Presence in all main European markets TOP positions in its

43 Advanced car financing platform and strong foothold in consumer finance Advanced car financing platform Strong foothold in consumer finance Presence in all main European markets TOP positions in its geographies, including the 5 biggest European auto markets: Germany, France, UK, Italy and Spain > POS (captive and non-captive) The longest European captive agreements base: more than 100 agreements with 15 manufacturers TOP retail chain agreements throughout Europe >55,000 POS partners >4 MM consumer loans per year TOP 3 in core geographies Digital direct business platforms Consumer Finance: Durable financing, Personal loans and Credit Cards 43

geographies LLPs over ANEAS (%) Low cost of risk, despite important

44 Sound risk metrics Delinquency rate (%) KPIs better than sector average Strong capacity to balance adverse economic cycles across geographies LLPs over ANEAS (%) Low cost of risk, despite important increase in SCF s loan portfolio SCF: Management perimeter (i.e. including SCUK) 44

countries Short Term Unsecured Issuances 2% Interbank 22% ECB 7% Non Retail Deposits 4% Secured

45 Funding diversification Sep 18 M/L Term Unsecured Issuances 21% SCF s funding structure (%) Retail Deposits 32% High diversification of funding sources Capacity to do issuances in all countries Short Term Unsecured Issuances 2% Interbank 22% ECB 7% Non Retail Deposits 4% Secured funding 11% Diversification of deposits in many countries Increasing long-term finance vs short term 45

46 46 Clear strategic priorities

47 To learn more about Santander visit Santanderconsumer.no Santanderconsumer.dk Santanderconsumer.se Santanderconsumer.fi Our purpose is to help people and businesses prosper. Our culture is based on the belief that everything we do should be

Santander Consumer Bank. Q Investor Presentation

Santander Consumer Bank. Q Investor Presentation Santander Consumer Bank Q2 2018 Investor Presentation Who we are Santander Consumer Bank is a Nordic bank with more than 1,500 colleagues in Sweden, Norway, Denmark and Finland, with a long history in