FIXED INCOME INVESTORS PRESENTATION 4Q 17

Transcription

1 FIXED INCOME INVESTORS PRESENTATION 4Q 17

2 Important information Banco Santander, S.A. ("Santander") cautions 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 forwardlooking 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 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 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. 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 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 may differ materially from those of such subsidiaries. 2

3 Important Information 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. 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 - 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 ) and section Alternative Performance Measures of the Financial Report 4 th Quarter 2017 (available at Banco Santander 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 ( 3

4 Content Santander Business model Capital Asset Quality TLAC requirements and Funding Plan Liquidity and funding Concluding Remarks Appendix UK: loan portfolio. Mortgage and Corporate RE

5 Our business model has unique competitive advantages 1 A differential business model Serving 133 million customers with in-market scale in our core markets drives profitable growth Well balanced profit generation Other Latam, 1% Argentina, 4% Chile, 6% UK, 16% 2 Our geographic diversification generates predictable growth in profits, resulting in lower capital needs Brazil, 26% Underlying Attributable profit 2017* 1 Spain, 15% 3 The subsidiary model, with a strong culture of innovation and collaboration, drives efficiency and service excellence SCF, 13% Mexico, 7% Portugal, USA, 4% Poland; 5% 3% Americas Europe Note. Percentage of total operating areas, excluding Corporate Centre and Real Estate activity in Spain (1) Popular included (2%) 5

6 In-market scale in our core markets High market shares in retail and commercial banking Main countries Santander Consumer Finance USA Brazil Argentina Portugal UK Mkt. share 1,4 : 3% Branches: 683 Mkt. share 1 : 9% Branches: 3,465 Mkt. share 1 : 10% Branches: 482 Mkt. share 1 : 16% Branches: 563 Mkt. share 2 : 10% Branches: 808 Mexico Mkt. share 1 : 13% Branches: 1,401 SCF Nº countries 5 : 15 Branches: 546 Chile Mkt. share 1 : 19% Branches: 439 Poland Mkt. share 1,3 : 10% Branches: 576 Spain Mkt. share 1, 6 : 18% Branches: 2,843 (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 (6) Including Banco Popular. Excluding it: 13%. Data: Dec 17 or latest available. Branches do not include Santander Consumer Finance business 6

7 Medium-low risk model: our loan portfolio is highly diversified and collateralised Loan portfolio by country including Popular Dec'17 Loan portfolio by business excluding Popular Dec'17 Mexico 3% Other America 1% Argentina 1% Chile 4% Brazil 9% UK 28% GCB, 11% Other individuals, 11% Home mortgages, 36% USA 9% 854bn Corporates, 15% 774bn Other Europe 1% Portugal 4% Poland 3% SCF 11% Spain 26% 1 SMEs, 9% Consumer, 18% RWAs as of Dec'17: 605bn Note: Gross customer loans (excluding repos) (1) Spain excluding Popular: 17% 7

8 Operational excellence: allowing us to improve both customer experience and efficiency Improving customer experience # of countries Top 3 in customer experience with best in class cost-to-income Cost-to-income >75% of PBT amongst Top 3 in customer experience 47% 50% 51% 54% 57% 58% 58% 62% 63% 64% 65% 67% 68% 69% 73% 17pp better than peer avg. 80% 85% Source: Company data and Bloomberg (1) Santander data Dec-17, competitor data Sep-17. Note: Peers included are Wells Fargo, JP Morgan, Bank of America, UBS, BBVA, ING, BNP Paribas, HSBC, Unicredit, Lloyds, Citibank, Intesa Sanpaolo, Société Générale, Standard Chartered, Deutsche Bank and Barclays 8

9 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 99. 9

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 but results impacted by several one-offs, mainly related to integrations and goodwill 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, ( Mn, net of tax) Allfunds +297 Integration processes -385 Goodwill -603 Other -206 Total

14 Delivering on our commitments to reach our targets Customers and results targets Loyal customers (Million) Digital customers (Million) Fee income 1 8% 13% 3yr ave. ~10% Cost of credit 1.18% 1.07% 3 yr ave. 1.20% Cost to income 48.1% 47.4% 45%-47% EPS ( ) Double digit increase vs 2017 DPS 2 ( ) Increase FL CET % 10.84% >11% RoTE 11.1% % % EPS, DPS, FL CET1 and ROTE include Popular for 2017 Note: 2016 EPS and DPS adjusted for the rights issue completed on 27 July (1) % change in constant euros. (2) Total dividends charged to 2017's earnings are subject to the Board and AGM approval. (3) Underlying, statutory: 10.4% in 2016 and

15 Main opportunities to strengthen growth in our franchises Popular, positive delivery on a transformational deal We have built a great and improving bank with sustainable profit and solid organic growth Efficiently relaunching our commercial banking while improving the risk-returnprofile of SCUSA 4 5 Argentina: Great potential to grow & consolidate market leadership Poland: Most profitable bank in the country. Reinforce presence with Deutsche Bank acquisition 6 7 SCF: Consolidate our leadership while increasing penetration in personal loans via digital transformation UK: Well positioned as the only fullservice scale challenger 8 9 Mexico: High potential growth in a stable and largely untapped market Chile: Leaders in a stable growth and profitable market GCB: Expanding international / trade business & collaboration revenues Wealth Management: Strengthen our Asset Mgt. & Private Banking Unit 15

16 Content Santander Business model Capital Asset Quality TLAC requirements and Funding Plan Liquidity and funding Concluding Remarks Appendix UK: loan portfolio. Mortgage and Corporate RE

17 Consistent progress on reaching our target of CET1 FL >11% in 2018 Fully-loaded CET1 % +29 bps 9.65% 10.05% 10.55% +114 bps -114 bps +53 bps -19 bps -5 bps 10.84% 1 2 Committed to organically generate ~40 bps of CET1 per year after paying dividends and growing loans Loan growth > RWA growth Profit growth > RWA growth Capital increase Popular acquisition Organic Perimeter Other 2017 Dec'17 3 Capital management and M&A discipline across the Group FL Total capital ratio: 14.48% FL Leverage ratio: 5.0% Underlying RoRWA : 1.48% 17 (1) Including rights issue completed in January 2015

18 Geographic diversification = stable and predictable earnings growth enabling cash DPS and business growth whilst accumulating capital Top tier profitability allows us to equally: Pay dividends +11% Cash dividend per share (2017 vs. 2016) Finance business growth +11% customer revenues 1 (2017 vs. 2016) Accumulate capital +29bps 10.84% FL CET1 (2017 vs. 2016) 18 (1) Constant euros, NII + fees

19 Group regulatory capital and current distance to MDA Current distance to MDA 14.99% Comfortable buffer to MDA in regulatory transitional total capital and CET1 ratios T2 AT1 2.22% 0.51% 0.99%*** (shortfall AT1) % Total capital 2.00% T2 As of Dec'17,the distance to the MDA for 2018 amounts is 2.615% Significant payment capacity from distributable items: As of Dec 17 ADIs at Santander Parent Bank 56.7bn more than 130x times 2017 full AT1 cost CET % 2.615%* 8.655%** required 1.50% 0.75% 1.875% 1.50% 4.50% AT1 Countercyclical buffer (0.03%) G-SIB buffer CCoB Pilar II requirement Minimum Pilar I Group Phased-in ratios Dec'17 Regulatory requirement 2018 (*) MDA trigger= Group CET1 (12.26%) Shortfall AT1 (0.99%) vs. Regulatory CET1 (8.655%) = 2.615% (**) 8.655% is the MDA threshold which reflects the minimum CET1 to be maintained by the Santander Group as communicated by the ECB on its decision regarding prudential minimum capital requirements for 2018 following the results of the Supervisory Review and Evaluation Process (SREP) (***) Shortfall: Regulatory AT1 (1.50%) Group AT1 (0.51%) = 0.99% Following the EBA interpretative criteria such shortfall is to be added to the MDA threshold to calculate the final applicable MDA at a given moment in time 19

20 Group targeted end-point distance to MDA Targeted distance to MDA 1 January T2 2.00% Significant payment capacity from distributable items ~130 times 2017 full AT1 cost 1 AT1 1.50% ~150bps 0.03% 1.00% CCyB G-SIB buffer Comfortable management buffer of >100bps at all times in line with Santander s business model and predictable results. CET1 >11,00% 2.50% 1.50% CCoB Pilar II requirement 4.50% Minimum Pilar I Regulatory ratios Dec'18 Target Assumed regulatory requirement 2019 CET1 20 (1) As of Dec 17 ADIs at Santander Parent Bank ( 56.7Bn). (2) Assuming stability in the minimum requirements

21 Santander is committed to fulfil the AT1&T2 buckets through the transitional period Group FL Total capital ratio Dec 17 1 Group FL Total capital ratio 2018E 14.48% T2 issuances to target >14.5% 0.63% 1.74% 1.27% TIER2 TIER1 ~26bps AT1 issuances to target ~23bps 2.0% 1.5% TIER2 TIER1 Generic provision excess (0.63pp) not considered in 2018 AT1 issuance to target 1.5% of RWAS ~ 1.4bn in 2018 CET1 Generation % >11% >20bps T2 issuance to target 2% of RWAS ~ 1.6bn, of which 1.25bn has already been issued 3 adding ~20bps to the T2 ratio 21 Note: Assuming constant RWAs (1) Total capital ratio fully-loaded proforma (2) Net of announced acquisitions + IFRS9. (3) As of 12 Feb 2018 All amounts except Dec 17 are targets

22 Prudent FX hedging policy on capital ratio and P&L Stable capital ratio hedge Our P&L Policy Hedged Exposure Group FL CET % Dynamic P&L hedging policy Mitigate impact of FX volatility Corporate Centre assumes all hedging costs Neutralises FX volatility in our FL CET1 ratio Based on Group regulatory capital and RWAs 22

23 and prudent interest rate risk hedging Mostly positive interest rate sensitivity Net Interest income sensitivity to +100pbs parallel shift mn; Dec'17 AFS portfolios reflect our geographical diversification Distribution of AFS portfolios by country Parent % 4% % 96bn 38% +456 Dec' % 6% 10% 4% Note: Last available data (1) In the case of Santander Brazil, there is a negative sensitivity which means that for a -100bps parallel shift we would have a positive impact of around 100mn.

24 Content Santander Business model Capital Asset Quality TLAC requirements and Funding Plan Liquidity and funding Concluding Remarks Appendix UK: loan portfolio. Mortgage and Corporate RE

25 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 1.25 Banco Popular NPL ratio Coverage ratio % 49% Cost of credit ratios by country % Dec'16 Dec'17 Spain SCF Poland Portugal United Kingdom Brazil Mexico Chile Argentina USA

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

27 Content Santander Business model Capital Asset Quality TLAC requirements and Funding Plan Liquidity and funding Concluding Remarks Appendix UK: loan portfolio. Mortgage and Corporate RE

28 TLAC requirements are manageable and an optimisation exercise for Santander TLAC phase-in requirements The TLAC requirements regulation is a work in progress. On 23 November 2016 the European Commission published the proposals to amend the CRD IV and CRR On the same date the European Commission also published a proposal for the amendment of the BRRD regarding the ranking of unsecured debt instruments in the creditor insolvency hierarchy (the Senior Ranking Harmonisation Directive ) 3 The amendments include measures that will implement the TLAC requirement into EU and national law Implementation of the TLAC requirement is expected to phase-in from 1 January 2019: 16% from 1 January 2019 (18% from 2022) plus applicable capital buffers G-SIB 1 CCoB 2 TLAC T2 AT1 Using the Group requirements as a proxy for the aggregate TLAC requirement 19.5% 1.0% 2.5% 8.0% 2.0% 1.5% 2018 Total Capital Target 14.5% Eligible Senior 2.5% > 2.5% Indicative amount of Senior Non- Preferred subject to significant issues still under discussion Santander has a resolution strategy approach of multiple point of entry (MPE). The TLAC requirement is expected to be requested at each resolution entity CET1 4.5% Jan 2019 TLAC phase-in requirements CRD IV: Capital requirement directive. CRR: capital requirement regulation. BRRD: Bank recovery and resolution directive (1) G-SIB buffer. (2) Capital Conservation Buffer (3) According to proposal of Senior Ranking Harmonisation Directive, Royal Decree-law 11/2017 of 23 June on urgent actions on financial matters was approved by the Spanish Government, creating the new category of senior non-preferred debt under Spanish Law. 28

29 MPE approach follows Santander model of autonomous subsidiaries in capital and liquidity Significant issues still under discussion USA Portugal UK Final TLAC transposition to EU and relevant jurisdictions TLAC level and perimeter of resolution groups Eligible Senior debt final treatment Mexico Chile Brazil Argentina Parent bank Poland Total T1 CET1 Internal TLAC requirement Deductions and mitigants final treatment Excess of generic provisions in T2 29 Local figures as of Dec Figures are subject to usual regulatory approval,

30 Funding plan focus on TLAC-eligible instruments 1 Parent Bank funding plan 2017 ( Bn) Senior Non preferred Target Issuances 9.9 Issuances : 27bn (~ 19bn TLAC-eligible) Senior preferred Diversified issuers: Parent bank, SCF, UK and USA Hybrids Total AT1 T Diversified currencies: EUR, USD, GBP Popular: Additional need for 750Mn AT1 and 1Bn T2 Santander in line with MREL requirements 3 (1) Estimates are based on current financial forecasts and are subject to changes (2) Issuances by Parent Bank, SCF, UK and US (3) Based on current available information Note: Royal Decree-Law 11/2017 of 23 June on urgent actions on financial matters (Royal Decree-law 11/2017) was approved by the Spanish Government, creating the new category of senior non-preferred debt under Spanish law. According to the proposals of the Senior Ranking Harmonisation Directive, ordinary claims are now classified as either preferred ordinary claims or non-preferred ordinary claims, the latter having a lower ranking that the former. Once Royal Decree-law 11/2017 has been approved in Spain, Santander has accordingly accommodated the issuance of the relevant TLAC-eligible instruments to the new senior non-preferred legal category created under Spanish law. 30

31 Content Santander Business model Capital Asset Quality TLAC requirements and Funding Plan Liquidity and funding Concluding Remarks Appendix UK: loan portfolio. Mortgage and Corporate RE

32 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 maturities. Limited recourse to wholesale short-term funding. Availability of sufficient liquidity reserves, including the discount window / standing facility in central banks to be used in adverse situations. Compliance with regulatory liquidity requirements both at Group and subsidiary level, as a new conditioning management factor. 32

33 Conservative and decentralised liquidity and funding model 38bn 1 issued during 2017 Very manageable maturity profile 31.0 Parent Poland 0.1 bn UK 6.9 bn Popular US 2.7 bn Parent 14.3 bn SCF Mexico 0.1 bn Chile 1.3 bn Brazil 3.0 bn Portugal 2.0 bn SCF 5.7 bn UK Argentina 0.1 bn Brazil (1) Data include issuances from all units and all product types (covered bonds, senior, senior non-preferred ( Senior TLAC ), preferred stock, subordinated, etc.) with period-average exchange rates.

34 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% 34 Note: Liquidity balance sheet for management purposes (net of trading derivatives and interbank balances) (1) includes Banco Popular

35 The main metrics show the strength and stability the Group s liquidity position Evolution of key liquidity metrics LTD and MLT funding metrics by geography Net loans / net assets 75% 74% 74% 75% 75% 75% Net loan-to-deposit ratio (LTD) 113% 112% 113% 116% 114% 109% Customer deposits and mediumand long-term funding / net loans Short-term wholesale funding / net liabilities Structural liquidity surplus / net liabilities 117% 118% 116% 114% 114% 115% 2% 2% 2% 2% 3% 2% 16% 16% 15% 14% 14% 15% December 2017 LTD Ratio (Deposits + M/LT funding) / Net lending Spain 79% 160% Popular 117% 100% Portugal 100% 115% SCF 254% 66% Poland 92% 111% UK 106% 117% Brazil 101% 122% Mexico 87% 123% Chile 143% 95% Argentina 76% 134% USA 141% 110% Group total 109% 115% 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 SC USA by global integration. 35 Note: all figures as of December 2017 including Popular

36 Banco Santander S.A. ratings Long Term Ratings Moody s Standard and Poor s Fitch A3 LT senior unsecured debt A- Stand-Alone Credit Profile, Issuer Credit Profile LT senior unsecured debt A- Viability Rating, Issuer Default Rating LT senior unsecured debt Senior non-preferred Baa1 Adjusted Baseline Credit Assessment Senior non-preferred BBB+ Senior non-preferred BBB+ Dated T2 Baa2 Dated T2 BBB Dated T2 BBB Baa3 BBB- BBB- Ba1 Additional T1 BB+ BB+ 36

37 Content Santander Business model Capital Asset Quality TLAC requirements and Funding Plan Liquidity and funding Concluding Remarks Appendix UK: loan portfolio. Mortgage and Corporate RE

38 Concluding Remarks The Group s stable capital generation is supported by strong pre-provision profits providing Santander with a high capacity to absorb provisions and underpins the Group's capacity to generate future earnings. Strong capital levels in line with Santander s business model based on geographic diversification, solid market positions in areas where it operates and independent subsidiary model in terms of capital and liquidity. The Group is well above the regulatory capital requirement with significant payment capacity from distributable items, while maintaining comfortable margins to conversion and MDA triggers. The Group continues with its objective to organically generate 40bps of fully loaded CET1 per year, maintaining business growth and dividend payment. TLAC/MREL requirements are manageable and have been a key focus in 2017 and represent an optimisation exercise for Santander. Comfortable liquidity position: Compliance with regulatory liquidity requirements established at Group and subsidiary levels ahead of schedule, with high availability of liquidity reserves. 38

39 Content Santander Business model Capital Asset Quality TLAC requirements and Funding Plan Liquidity and funding Concluding Remarks Appendix UK: loan portfolio. Mortgage and Corporate RE

40 Robust residential mortgage credit performance Mortgage NPLs ( m) Balance of prime residential mortgages ( bn) , % 2, % 2, % 1, % 579 Mortgage loan loss allowances and write-offs ( m) Loan loss allowance Dec'14 Dec'15 Dec'16 Dec'17 Write-offs during the period Dec'14 Dec'15 Dec'16 Dec'17 NPL ratio FY'14 FY'15 FY'16 FY'17 40 (1) Residential mortgages NPL ratio for Dec 14 excludes PIPs

41 Well diversified CRE portfolio Credit performance Sector analysis (stock %, Dec 17) Dec16 Dec17 27 Total committed exposure 9.0bn 8.1bn Up to 70% LTV 88% 88% 70% to 100% LTV 2% > 100% LTV 1% 1% Standardised portfolio 1 7% 8% Office Retail Industrial Mixed use Residential Standardised portfolio Hotels and leisure Student acc Other Total with collateral 98% 97% Development loans 2% 3% 100% 100% No new business written above 70% LTV (Dec16: 0%) 91% written at or below 60% LTV (Dec16: 95%) Weighted average LTV on exposures Dec17: 48% (Dec16: 50%) 2 Dec16 Dec17 Average loan size of 4.8m at Dec17 (Dec16: 4.8m) NPL ratio 2.00% 0.85% NPL coverage ratio 32% 78% NPL ratio decreased primarily due to the sale of collateral to repay two impaired loans, as well as other redemptions and write-offs of older vintage loans 41 (1) Consists of smaller value transactions, mainly commercial mortgages (2) Excludes standardised portfolio

42 Prime residential mortgage book of 154.9bn Mortgage product profile (stock, Dec 17) Geographical distribution (stock %, Dec 17) Standard Variable Rate (SVR) 15% Variable rate 1 19% 66% Fixed rate South East London North Midlands and East Anglia South West, Wales and Other Scotland Northern Ireland Mortgage borrower profile (stock, Dec 17) Mortgage lending ( bn) Buy to Let (BTL) First-time buyers 19% 4% (24.9) 44% Home movers Remortgagers 33% Dec16 New business Redemptions & repayments Internal transfer Dec17 29% interest only mortgages (Dec 16: 31%) 2 c77% of maturing mortgages retained 3 42 (1) Variable rate includes tracker and base rate linked products (2) Full interest only loans and the element of part-and-part attribution to interest only balances, excluding BTL mortgages (3) Refer to glossary at for a full definition

43 Consistently prudent mortgage lending criteria Mortgage loan distribution Loan to value (LTV) Dec16 Dec17 Dec16 Dec17 Loan size distribution (stock) Simple average LTV 2 Less than 0.25m 71.6% 69.1% 0.25m - 0.5m 21.3% 23.3% 0.5m - 1m 1m - 2m 6.3% 0.7% 6.8% 0.7% Over 2m 0.1% 0.1% Average loan size distribution (new business) London and South East Rest of UK All UK 264k 144k 198k 260k 146k 196k Loan-to-income multiple new lending 65% 62% stock 43% 42% Indexed LTV distribution (stock) > 85% - 100% > 100% 4% 4% 1% 1% New lending % with LTV > 85% 17% 19% 24,000 first-time buyers ( 4.0bn gross lending) 7,500 BTL mortgages (average LTV of 61%) 43 (1) Average earnings multiple of new business at inception in the periods (2) Unweighted average loan-to-value of all accounts

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