2019 Annual Report
Consolidated directors' report
Auditor's report and consolidated
financial statements
6 Business model and strategy
468 Auditor's report
479 Consolidated financial statements
Notes to the consolidated financial
496 statements
735 Appendix
460 Glossary
788 General information
12 Responsible banking
14 Our approach
26 Challenge 1: new business environment
58 Challenge 2: inclusive and sustainable growth
94 Key metrics
105 Contribution to UN Sustainable Development Goals
109 Further information
110 Non-financial information Law content index
114 UNEP FI Principles for Responsible Banking reporting index
120 Global Reporting Initiative (GRI) content index
142 Independent verification report
146 Corporate Governance
148 Overview of corporate governance in 2019
154 Ownership structure
159 Shareholders, engagement and shareholder meeting
168 Board of directors
212 Management team
214 Remuneration
236 Group structure and internal governance
238 Internal control over financial reporting (ICFR)
248 Other corporate governance information
282 Economic and financial review
284 Economic, regulatory and competitive context
286 Group selected data
288 Group financial performance
328 Financial information by segments
372 Research, development and innovation (R&D&I)
374 Significant events since year end
375 Trend information 2020
381 Alternative performance measures (APM)
388 Risk management and control
390 Risk management and control overview
394 Risk management and control model
402 Credit risk profile
423 Trading market risk, structural and liquidity risk profile
439 Capital risk profile
442 Operational risk profile
448 Compliance and conduct risk profile
456 Model risk profile
458 Strategic risk profile
Our 2019 annual report is provided in Spanish and English versions. In case of discrepancy the Spanish version prevails.
Table of Contents
<
2019 consolidated directors’ report
This report has been approved unanimously
by our board of directors on 27 February 2020.
Our approach to this document
The presentation of our consolidated directors’ report was
improved last year to provide in a single, streamlined
document the contents of several documents that were
previously published separately and are no longer prepared
but as sections of this consolidated directors’ report. In
particular, before 2018, the contents now included in this
report were spread in the following documents:
– Annual report
– Consolidated directors’ report
– Annual corporate governance report (CNMV format
document)
– Report of the board committees
Level of auditors’ review
The contents of our 2019 consolidated directors’ report have
been subject, as required by applicable legislation, to
different levels of review by our independent statutory
auditors, PricewaterhouseCoopers Auditores, S.L. These
different levels of review can be summarised as follows:
– PricewaterhouseCoopers Auditores, S.L. has verified that
the information in this consolidated directors’ report is
consistent with that of our consolidated financial
statements and its contents comply with applicable
regulations. For further information see ‘Other information:
Consolidated management report section of the 'Auditor’s
report' within 'Auditor's report and consolidated annual
accounts'.
– Sustainability report
– Annual report on our directors’ remuneration (CNMV format
document)
Additionally, the consolidated directors’ report includes all the
information requirements to comply with Spanish Law
11/2018 on non-financial information and diversity. This
information can be found in the 'Responsible banking'
chapter, which represents the Consolidated non-financial
information statement.
This format allows a clearer presentation of the information
and, therefore, of understanding, avoids repetition and, at the
same time, enhances the level of disclosure rather than
reducing it.
– PricewaterhouseCoopers Auditores, S.L. has issued a
verification report with a limited assurance scope on the
non-financial and diversity information required by Spanish
Law 11/2018 and included in this consolidated directors’
report. Such report is included as 'Independent verification
report' of the 'Responsible banking' chapter.
– PricewaterhouseCoopers Auditores, S.L. has issued an
independent reasonable assurance report on the design
and effectiveness of the Group´s internal control over
financial reporting which is included in section 8.6 of the
'Corporate governance' chapter.
Non-IFRS and alternative performance measures
In addition to financial information prepared in accordance
with International Financial Reporting Standards (IFRS) and
derived from our consolidated financial statements, this
consolidated directors’ report contains financial measures
that constitute alternative performance measures (APMs) as
defined in the Guidelines on Alternative Performance
Measures issued by the European Securities and Markets
Authority (ESMA) on 5 October 2015 and other non-IFRS
measures.
The financial measures contained in this consolidated
directors’ report that qualify as APMs and non-IFRS measures
have been calculated using the financial information from
Santander Group but are not defined or detailed in the
applicable financial reporting framework and have neither
been audited nor reviewed by our auditors.
We use these APMs and non-IFRS measures when planning,
monitoring and evaluating our performance. We consider
these APMs and non-IFRS measures to be useful metrics for
management and investors to facilitate operating
performance comparisons from period to period. While we
believe that these APMs and non-IFRS measures are useful in
evaluating our business, this information should be
considered as supplemental in nature and is not meant as a
substitute of IFRS measures. In addition, other companies,
4
2019 Annual Report
Responsible banking
Corporate governance
Economic and financial
review
Risk management and
control
including companies in our industry, may calculate or use
such measures differently, which reduces their usefulness as
comparative measures.
Section 8 of the 'Economic and financial review' chapter
provides further information about those APMs and non-IFRS
measures.
Forward-looking statements
Santander cautions that this annual report contains
statements that constitute “forward-looking statements”
within the meaning of the US Private Securities Litigation
Reform Act of 1995. Forward- looking statements may be
identified by words such as ‘expect’, ‘project’, ‘anticipate’,
‘should’, ‘intend’, ‘probability’, ‘risk’, ‘target’, ‘goal’, ‘objective’,
‘estimate’, ‘future’ and similar expressions. These forward-
looking statements are found in various places throughout
this annual report 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 judgement
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.
The following important factors, in addition to those
discussed elsewhere in this consolidated financial
statements, could affect our future results and could cause
outcomes to differ materially from those anticipated in any
forward-looking statement: (1) general economic or industry
conditions in areas in which we have significant business
activities or investments, including a worsening of the
economic environment, increasing in the volatility of the
capital markets, inflation or deflation, and changes in
demographics, consumer spending, investment or saving
habits; (2) exposure to various types of market risks,
principally including interest rate risk, foreign exchange rate
risk, equity price risk and risks associated with the
replacement of benchmark indices; (3) potential losses
associated with prepayment of our loan and investment
portfolio, declines in the value of collateral securing our loan
portfolio, and counterparty risk; (4) political stability in Spain,
the UK, other European countries, Latin America and the US;
(5) changes in laws, regulations or taxes, including changes in
regulatory capital and liquidity requirements, including as a
result of the UK exiting the European Union and increased
regulation in light of the global financial crisis; (6) our ability
to integrate successfully our acquisitions and the challenges
inherent in diverting management’s focus and resources from
other strategic opportunities and from operational matters
while we integrate these acquisitions; and (7) changes in our
ability to access liquidity and funding on acceptable terms,
including as a result of changes in our credit spreads or a
downgrade in our credit ratings or those of our more
significant subsidiaries.
Numerous factors could affect the future results of Santander
and could result in those 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
annual report 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.
Historical performance is not indicative of future results
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 period. Nothing in this annual report should be
construed as a profit forecast.
No offer
Neither this annual report nor any of the information
contained therein constitutes an offer to sell or the solicitation
of an offer to buy any securities.
5
Table of Contents
Business model
and strategy
The Santander Way
Our purpose
Our aim as a bank
Our how
To help people and
businesses prosper
To be the best open financial
services platform, by acting
responsibly and earning the
lasting loyalty of our people,
customers, shareholders and
communities
Everything we do should be
Simple | Personal | Fair
For further information about our corporate culture see Responsible Banking chapter.
6
2019 Annual Report
Responsible banking
Corporate governance
Economic and financial
review
Risk management and
control
Our strategy is built around a virtuous circle based on loyalty
People
Employees who are engaged ...
Our aim is to be an employer of choice. Focus on
employee engagement, leveraging our SPF culture to
retain and attract the best talent.
This year we received important recognitions, of note:
one of the 25 best companies to work for at global
level (Great Place to Work). Leader in diversity 2020
by the Financial Times, and in addition, for the third
consecutive year, we lead the Bloomberg Gender-
Equality Index.
Customers
... generate more loyal customers ...
Increase in loyal customers, both individuals and
businesses, has resulted in a significant growth in
revenues, loans and customer funds.
Loyal customers use our digital channels more as
they hold more of our products and services and
interact with us more often.
Shareholders
... leading to strong financial results ...
+8% value creation for
shareholder
TNAV per share + dividends per share
declared in 2019
Communities
Our focus on customer loyalty is delivering results:
all-time record figure in customer revenueA with 3%
growth (+4% in constant euros) and accounting for
95% of total revenue.
We continued to strengthen our balance sheet,
generating more capital and improving credit quality.
We continue growing our cash dividend, as we have
been doing for the last five years.
A. Customer revenue= net interest income + net fee income
... and more investment in communities,
helping to motivate and engage our people ...
2.0 mn empowered
people
financially
in 2019
people helped
through our
1.6 mn community
programmes
in 2019
Most sustainable
bank in the world
by Dow Jones Sustainability index 2019
We remain committed to generating profit in a more
responsible and sustainable way.
Initiatives and actions to support inclusive and
sustainable causes, and good causes in the
communities in which we operate.
7
Table of Contents
Our business model
1. Our scale
Local scale and
global reach
• Local scale based on three geographic regions,
where we maintain a leadership position in our
10 core markets.
• Global reach backed by our global businesses,
enabling greater collaboration across the Group
to generate higher revenue and efficiencies.
A. Market share in lending as of Sep-19 including only private owned banks. UK benchmark covers mortgage market.
2. Customer focus
Unique personal
banking relationships
strengthen customer
loyalty
• We serve 145 million customers, in markets
with a total population of more than
one billion people.
• We have over 100,000 people talking to our
customers every day in our c.12,000 branches
and contact centres.
B. NPS – Customer Satisfaction internal benchmark of active customers’ experience and satisfaction audited by Stiga / Deloitte.
3. Diversification
Our geographic
and business
diversification make
us more resilient
under adverse
circumstances
• Geographic diversification in three regions, with
a good balance between mature and developing
markets, and among customer segments
(individuals, SMEs and large corporates).
• Global businesses contributing 26% of Group
earnings that strengthen our local franchises.
• Santander Global Platform (SGP) supports the
digital transformation across the Group and
aims to become the best open financial services
platform.
Note. Underlying attributable profit contribution by region, excluding Santander Global Platform and Corporate Centre.
Resilient profit
generation
throughout
the cycle
In 2019, once again, our business model
demonstrated strength and resilience,
supported by a disciplined execution against
our strategic priorities
Net operating income = Total income-operating expenses.
8
2019 Annual Report
Responsible banking
Corporate governance
Economic and financial
review
Risk management and
control
Our business model and our track record executing our strategy support the
delivery of our mid-term goals while we are building a Responsible Bank
Execution of our three-pillar plan to drive profitable growth in a responsible way
1.
Improving operating performance
2. Optimising capital allocation
3. Accelerating the digital transformation through Santander Global Platform
1. Improving operating performance leveraging One Santander:
Three geographic regions (with 10 core markets) to improve productivity and generate new efficiencies:
47%
weight of profit/
operating areas
71%
weight of loans/
operating areas
16%
weight of profit/
operating areas
14%
weight of loans/
operating areas
37%
weight of profit/
operating areas
15%
weight of loans/
operating areas
Building one European
banking platform, with
enhanced profitability
Investing together
to improve commercial
capabilities
Natural reweighting
and high profitable
growth opportunity
Data: Market shares as of Sep-19 and the latest available for the SBNA and SCF as of Jun-19.
A. Includes London Branch.
B. Includes SCF business in Poland.
C. In every state where Santander Bank operates.
D. Includes debentures, LCA (agribusiness credit notes), LCI (real estate credit notes), LF (letras financeiras) and COE (structured transactions certificate).
9
Table of Contents
Global businesses to leverage our local scale with global reach and collaboration:
+17%
YoY
collaboration
revenues
17%
weight of profit/
operating areas
+20%
YoY
collaboration
revenues
(only Private Banking)
9%
weight of profit/
operating areas
We continue to be strategic
partners for our customers,
leveraging our capital-light model and
geographic diversification
We aim to become the best and
most responsible Wealth Manager
in Europe and the Americas,
underpinned by the Global Private
Banking platform, digital investments,
and a greater value proposition in SAM
and insurance
A. . Profit after tax + net fee income generated by this business.
2. Ongoing capital allocation optimisation to improve profitability:
For further details on RoRWA and underlying RoRWA, see section 8 'Alternative Performance Measures' in the 'Economic and financial review'.
10
2019 Annual Report
Responsible banking
Corporate governance
Economic and financial
review
Risk management and
control
3. Accelerating the digital transformation through SGP:
Our technology strategy is aligned with our two-pronged approach of digitalising our core banks and global
businesses and building Santander Global Platform, focusing on better serving our customers needs.
Innovation and technological development are strategic pillars of the Group. Our objective is to respond to
the new challenges that emanate from digital transformation, focusing on operational excellence and
customer experience.
Accelerating digitalisation and building Santander Global Platform. Moving towards One Santander to build
simpler, faster and better services.
11
Responsible
bankinga
Consolidated non-financial information statement
a
Our approach
What our stakeholders tell us
Challenges and opportunities
Principles and governance
2019 highlights
Challenge 1: New business environment
Our strong corporate culture
A talented and motivated team
Responsible business practices
Shareholder value
Challenge 2: Inclusive and sustainable growth
Meeting the needs of everyone in society
Financial inclusion and empowerment
Sustainable finance
Environmental footprint
Supporting higher education
Community investment
Tax contribution
Key metrics
Contribution to UN Sustainable Development Goals
Further information
Non-financial information Law content index
UNEP FI Principles for Responsible Banking Index
Global Reporting Initiative (GRI) content index
Independent verification report
16
18
20
24
28
34
48
56
60
64
72
84
86
90
92
94
105
109
110
114
120
142
Table of Contents
Our approach
"By delivering on our purpose, and helping people and businesses prosper, we
grow as a business and we can help society address its challenges too. Economic
progress and social progress go together. The value created by our business is
shared - to the benefit of all. Communities are best served by corporations that
have aligned their goals to serve the long term goals of society."
Ana Botín
By being responsible, we build
loyalty
14
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
How we have helped people and
businesses prosper in 2019
People
EUR 12.141 million
Personnel costsA
Customers
EUR 942,218 million
Loans outstanding (net)
98%
of employees with fixed
contracts
55%
of employees are
women
EUR 519,996 million
to households
EUR 20,053 million
to public
administrations
EUR 319,616 million
to companies
EUR 82,553 million
to othersB
EUR 500 million
to microbusinesses
through our
microfinance programs
Shareholders
EUR 3,822 million
Total shareholder
remunerationC
EUR 61,986 million
Stock market value at
year-end 2019, second
bank in the eurozone
Communities
EUR 165 million
Community investment
EUR 119 million
Investment in
universities
Suppliers
EUR 4,746 million
Payments to suppliersD
Tax
contribution
4,744
suppliers awarded in
2019 through our global
procurement model
EUR 0.23
per share of total
shareholders
remunerationC
EUR 46 million
Investment in
programmes and
projects to support
communities
93.2%
Local Group suppliers
EUR 6,765 million
Total taxes paid by the Group
EUR 2,951million
Corporate income tax
EUR 3,814 million
Other taxes paid
A. From Group consolidated financial statements.
B. Including financial business activities and customer prepayments.
C. Subject to the approval of the total dividend against the 2019 results by 2020 annual general meeting.
D. Data refers exclusively to purchases negotiated by Aquánima.
15
Table of Contents
What our stakeholders tell us
To build a more responsible bank, we are constantly engaging with and analysing
the views of all our stakeholders, so that we can improve our performance and do
more to help people and businesses prosper.
How we engage
Earning and keeping people's loyalty is key to creating
lasting value. To do this, we must understand the concerns
of all our stakeholders. By listening to their opinions, and
measuring their perception of the Group, we not only
identify issues, we also spot opportunities.
We encourage active listening and have several channels
that enable us to understand stakeholders' expectations.
This ongoing dialogue is key to ensuring the success of the
Group’s activities through the value chain.
We participate in consultations held by third parties about
the impact the Group has on the sustainable development
agenda.
Furthermore, to understand our overall impact on society,
we are always assessing social and environmental
externalities (both negative and positive). This helps
Santander to detect possible risks for business; and identify
opportunities to create additional value for the society and
ways in which we can protect the environment.
As well as this, and to help us define and manage our
responsible banking agenda, we also analyse what the
leading environmental, social and governance analysts are
telling us.
Finally, we are part of major local and global initiatives to
support inclusive and sustainable growth, and help good
causes in the markets where we operate. Details of these
partnerships can be found on page 22 of this chapter.
We are also continuously monitoring political and
regulatory agendas in all markets where we operate.
16
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Identifying the issues that matter
Santander regularly analyses the most relevant social,
environmental and ethical behaviour issues through its
materiality assessment. This systematic study is conducted
across the whole Group’s value chain on an annual basis,
and consists of an in-depth quantitative and qualitative
analysis that uses information from both internal and
external sources. Each of these inputs is weighted according
to its relevance as regards defining material matters for the
Bank. Weights are not distributed statically but are
reviewed every year to adapt the study as much as possible
to the current context and reality.
Based on this materiality assessment, a materiality matrix
has been generated, where 15 material issues for the Bank
have been identified as the most relevant issues. In 2019
we addressed the issues raised in a wide range of ways, as
the following pages highlight. In particular, we focused on
measures to embed responsible business practices; to
tackle climate change and support the green transition; and
to build a diverse and talented team.
Relevant aspects for the Group matrixA
Main inputs considered for the analysis
External
• Shareholders (ESG investors; Rep risk)
• Banking sector (Peers reporting and materiality analysis)
• People (Customers surveys; Impact by business segment; Press
Analysis; social networks)
• Regulators (Regulatory & voluntary frameworks such us GRI,
SASB or IIRC)
Internal
• Santander Strategic view (Public Commitments, Internal
communication messages, workshops, Top risk analysis)
• Employees´perspective (employees' surveys; interviews with
local & global areas)
• Executive perspective (Responsible Banking committees;
Chairman and CEO messages)
This analysis helps us to focus our initiatives and programmes right across the Group.
Key issues in
which we have
put focus in
2019 (and what
our stakeholder
expect from us)
• Customer satisfaction
measures
• Diversity
• Financial Inclusion
Mechanisms to control and manage the entity's ethical behaviour and risks (fraud,
corruption, terrorism, money laundering prevention tax evasion, etc.)
Initiatives to promote the incorporation of women, persons with disabilities, ethnic or
other minorities
Initiatives to make financial services accessible for all,including those individuals and
businesses with low incomes or no access to the formal financial system.
• Financial activity with climate
and environmental impact
Strategy tackle to climate change and the transition to a low-carbon economy.
Environmental impact derived from the Bank's financing of certain activities.
A. Aspects such as food waste, light and noise pollution, human rights and biodiversity are not material to the Group
17
Table of Contents
Challenges and opportunities
Like every business, Santander operates in a world that is changing fast, creating
new challenges and opportunities. Using the results of the materiality
assessment, we have identified two core challenges - the challenge of the new
business environment, and the challenge of inclusive and sustainable growth.
Challenge 1:
New business environment
Adapting to an evolving world
The world's economy continues to change fast.
Advances in information technology and
communications are transforming markets and
business models. In this highly competitive
environment, and in a time of rapid change, companies
must work in new ways and have responsible business
practices.
Santander, like all businesses, needs a motivated,
diverse, skilled workforce that is able to deliver
what customers want, harnessing the power of
new technology. Meanwhile, we face new
regulations and laws. These trends create the
challenge of the new business environment in
which we operate. Our task is to exceed our
stakeholders' expectations, to do the basics
brilliantly, every day. Key to this is having a strong
culture - a business in which all we do is Simple,
Personal and Fair.
For more detailed
information on our
strategy to tackle this
challenge and turn it into
an opportunity, please
see section “Challenge 1:
New business
environment” of this
chapter.
18
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Challenge 2:
Inclusive & sustainable growth
Helping society achieve its goals
Growth should meet the needs of today’s generation,
without hampering future generations’ ability to meet
their own needs: a balance should always be struck
between economic growth, social welfare and
environmental protection. Financial institutions can
deliver this by managing their own operations
responsibly, and lending responsibly to help society
achieve its goals.
We can play a major role in helping ensure growth
is both inclusive and sustainable. Inclusive: by
meeting all our customers’ needs, helping
entrepreneurs start companies and create jobs,
strengthening local economies, improving financial
empowerment, and supporting people get the
education and training they need. Sustainable: by
financing renewable energy, supporting smart
infrastructure and technology to tackle climate
change. We do this while taking into account the
social and environmental risks and opportunities in
our operations, and actively contributing to a more
balanced and inclusive economic and social system.
Risk management
and control
For more detailed
information on our
strategy to tackle this
challenge and turn it into
an opportunity, please
see section Challenge 2:
Inclusive & sustainable
growth of this chapter.
19
Table of Contents
Principles and governance
All our activity is guided by principles, frameworks and policies to ensure we
behave responsibly in everything we do. We have reformed and strengthened our
responsible banking governance to help us manage initiatives which tackle the two
challenges we have identified.
Policies that support our responsible banking strategy
General Code
of Conduct
Corporate
Culture Policy A
Establishes the
guidelines and
required standards
to be followed
ensuring a
consistent culture
is embedded
throughout the
Group.
Brings together
the ethical
principles and
rules of conduct
governing the
actions of all of
the Group's staff
and is the central
element of the
Group's
compliance
function
General
Sustainability
Policy
Defines our
general
sustainability
principles and our
voluntary
commitments
with the aim of
generating long-
term value for our
stakeholders.
Human Rights
Policy
Sector Policies
Sensitive Sectors
Policy
Sets out how we
protect human
rights in all
operations, and
reflects the UN
Guiding Principles
on Business and
Human Rights.
Lays down the
criteria governing
the Group´s
financial activity
with the defence,
energy, mining &
metals and soft
commodities
(products such as
palm oil, soy and
timber) sectors.
Sets down
guidelines for
assessment and
decision making
about the Group's
participation in
certain sectors,
whose potential
impact could lead
to reputational
risks.
Consumer
Protection
Policy B
Code of
Conduct in
Security
Markets
Cybersecurity
Policy
Third-party
Certification
Policy C
Tax
Policy
Conflicts
of Interest
Policy
Financing
of
Political
Parties
Policy
Policy on
Contributions
for Social
Purpose
Global
Mobility
Policy
A. Includes the Group's Diversity & Inclusion Principles and the Corporate Volunteering Standard.
B. Includes financial consumer acting principles.
C. Includes principles of responsible behaviour for suppliers.
Changes to policies in 2019
• To make our policies easier to navigate, we
have incorporated our climate change policy
into our General Sustainability Policy. More
detail on the governance of the policy has
been included. The protected areas criteria
has been aligned with the new
Environmental and Social Sector Policy
approach.
• The Corporate Culture Policy has
incorporated the Volunteering Policy. We
have also updated our Diversity & Inclusion
principles to reflect our commitment to
people with disabilities and different sexual
orientations; and to highlight the importance
of having appropriate, accessible products for
all. Our Leadership Commitments have been
included under our Santander Way minimum
standards.
20
2019 Annual Report
• The Human Rights Policy has been amended
to update the main declarations and codes
on which it is based. It also gives further
specifics on relevant issues regarding our
relationships with customers, suppliers and
communities; and more detail on the policy
governance.
• The Global Mobility Policy has been
reviewed to give our employees new
opportunities to work in different
geographies. We have also reviewed
compensation and benefits given to
employees when they work abroad, as well
as the governance model.
Available on our website
www.santander.com those
policies that the bank has
made public.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Strategic overview and coordination
Governance
The responsible banking, sustainability & culture committee assists the board of directors in fulfilling its oversight
responsibilities with respect to the Group's responsible banking strategy overall. It focuses on corporate culture, ethics and
conduct; the impact of digital transformation on our working practice; the Group's policies on sensitive issues and sectors; and
how the Group delivers inclusive and sustainable growth.
The committee is supported by the culture steering group and the inclusive & sustainable banking steering group.
• The culture steering, promotes, supports and tracks the implementation of The Santander Way (our corporate culture) across
the geographies, ensuring corporate and local actions are consistent.
• The inclusive & sustainable banking steering reviews and tracks initiatives to tackle social and financial inclusion; extend
and improve access to education and training; support by financing in the transition to a low carbon economy; and support
investment which benefits society as a whole.
Responsible Banking network
• The corporate Responsible Banking unit coordinates and drives the responsible banking agenda. Supporting this unit,
Santander has a Senior Advisor on Responsible Business Practices, who reports directly to the executive chairman.
• Santander subsidiaries' sustainability and culture units coordinate and drive their local responsible banking agendas,
ensuring they are aligned to Santander´s corporate strategy and policies. Each subsidiary has appointed a senior executive
responsible for the Responsible Banking function. Its function is to drive responsible banking agenda at local level aligned
with the Group.
Coordination and strategy
• Metrics and targets have been established to drive Santander´s Responsible Banking agenda and embed Responsible
Banking into the heart of the Group's business strategy.
• Guiding principles have been developed for subsidiaries (and global business units) to ensure the governance and
implementation of our responsible banking agenda is embedded across the Group as a whole.
• There is regular coordination between business units, including joint meetings held every two months. Additionally, the first
Responsible Banking workshop, attended by Responsible Banking representatives from across the Bank's businesses and
geographies, was held in 2019.
Key initiatives agreed by the RBSCC in 2019:
Responsible Banking strategy
Challenge 2. Inclusive and sustainable growth
• Approval of our Responsible Banking priorities for the
• A new climate change strategy created.
next cycle, 2020-2022.
• A new Global Sustainable Framework for the issuance
• Launch of Responsible Banking commitments for 2021
of Green, Social and Sustainable Bonds created.
and 2025.
Challenge 1. The new business environment
• Leadership Commitments have been included underThe
Santander Way.
• Global simplification initiative has been launched,
nominating the responsible people and setting main
indicators: Global Engagement Survey (GES), Net
Promoter Score (NPS), Simple, Personal and Fair
perception (SPF).
• New globalmaternity and paternity minimum standards
created.
• New initiatives launched to increase recruitment of
people with disabilities.
• Signed up to the UN Women´s Empowerment Principles
• Update of Corporate Culture Policy.
• Update of Human Rights Policy.
• Updated environmental & social policies.
• A financial empowerment and inclusion action plan
created.
• A new approach taken to responsible banking at
Santander Wealth Management and Santander
Corporate Investment Banking.
• New Santander Group Energy Efficiency and
Sustainability plan to reduce our internal
environmental footprint.
• New commitment made to become carbon neutral in
2020.
For more information,
see section 4.9.
´Responsible banking,
sustainability and
culture committee´of
Corporate governance
chapter.
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Main international initiatives we
support
At Group-level, we work with a number of initiatives and
working groups at local and international level to drive
forward our agenda on responsible banking. These include
the following:
• UNEP Finance initiative. We are a founding signatory of
the United Nations Principles for Responsible Banking.
We also participate along with other 15 banks in the
UNEP FI pilot project on implementing the TCFD
recommendations for banks.
• World Business Council for Sustainable Development
(WBCSD). Our president, Ana Botín, is a member of the
executive committee. And we participate in the WBCSD
Future of Work initiative, by looking into how to adapt our
own business and human resource strategy to evolve
with the digital age.
• Banking Environment Initiative (BEI). We participate in
two climate related work streams, the Soft Commodities
Compact and the new initiative Bank 2030, which aims to
build a roadmap for the banking industry to 2030 seeking
to increase the financing to low carbon activities.
• CEO Partnership for Financial Inclusion. We, along with
other nine companies are part of a private sector alliance
for financial inclusion, an initiative promoted by Queen
Maxima of the Netherlands, Special Representative of the
United Nations to promote Inclusive Financing for
Development.
• Equator Principles. We analyse the environmental and
social risks of all our financing operations under the scope
of the Equator Principles and we actively participate in
the evolution of a common criteria.
In addition, during 2019 we took an active role in the
climate change and sustainable finance policy debate,
participating in the formal consultation process on relevant
regulatory files (particularly in Europe) and industry forums
focusing on the transition to a low carbon economy. We
have worked very closely with trade bodies - including the
Institute of International Finance, European Financial
Services Round Table, the Association for Financial Markets
in Europe, and the European Banking Federation - to reach
common positions on issues so relevant as the EU
framework for identifying sustainable economic activities
(the so-called taxonomy), and the ongoing work on the
technical criteria undertaken by the TEG; the disclosure
regulation relating to sustainable investment and
sustainability risks; or the ongoing work on the
identification and management of climate-related risks. In
addition, Santander is participating in the EBF-UNEP FI
working group that will develop voluntary guidelines for
banks on the application of the EU taxonomy.
Other international and local initiatives in which we participate
United Nations Global Compact
International Wildlife Trade Financial
Taskforce
UN Women´s Empowerment Principles
Round table in responsible soy
The Valuable 500
Working group on sustainable Livestock
Principles for Responsible Investment
Climate Leadership Council
CDP (before Carbon Disclosure Project)
The Wolfsberg Group
UN Global Investors for Sustainable
Development (GISD) Alliance
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Helping us to address today´s
main global challenges: 2030
agenda
We want to do more every day to promote inclusive,
sustainable growth and ensure that we are actively tackling
climate change.
Our activity and investments help us to contribute to a
number of the United Nations’ Sustainable Development
Goals, and support the Paris Agreement’s aim to combat
climate change and adapt to its effects.
Main SDGs where Banco Santander’s business activities and community investments have the most weight.
We are committed to reduce poverty and
strengthen the welfare and local economy of
the countries in which we operate. Through our
microfinance products and services and our
community investment programmes we
empower and help millions of people each
year.
We promote an inclusive and diverse
workplace. Ensuring equal opportunities and
fostering gender equality at all levels is a
strategic priority for us. Additionally, we also
operate a number of initiatives to support
diversity in our business activity.
We have a prepared and committed team that
allows us to respond and meet the needs of
customers, help entrepreneurs to create
businesses and employment, and strengthen
local economies.
We finance the construction of sustainable
infrastructure that guarantees basic services
and drives inclusive economic growth.
Additionally, we also promote affordable
housing opportunities.
We are at the forefront of support for higher
education. Through Santander Universities, a
pioneering programme and the only one of its
kind in the world, we support universities and
students to prosper, focusing on education,
entrepreneurship and employment. Santander
Scholarships is one of the largest scholarship
programme financed by a private company.
We have a long history of leadership in the
financing of renewable energy projects.
Actually, we are the global leader in renewable
energy financing. Additionally, we support our
customers financing energy efficiency projects,
low-emission, electric and hybrid vehicles, and
other electric mobility solutions.
We develop products and services for the most
vulnerable in society, giving them access to
financial services and teaching them how to
use these in an appropriate way to manage
their finances in the best possible way. We
have continued to support diversity and
inclusion in our business.
We promote sustainable consumption both in
our own operations as well as with our
customers, offering our products and services
that are Simple, Personal and Fair, and
promoting ethical behaviours among our
suppliers.
We tackle climate change in two main ways:
by reducing our own environmental footprint
and by supporting our more than 144 million
customers to help them transition towards a
more sustainable economy.
We participate actively and we are part of the
main initiatives and working groups at local
and international level as an important way to
manage our responsible banking agenda.
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2019 highlights
We have set 11 targets which reflect our commitment to building a more
responsible bank...
We work to have a strong corporate culture – a skilled,
motivated and diverse workforce that can deliver solutions
to our customers’ needs: increase access to finance; improve
financial resilience through education and training, and
supporting our customers in their transition to the green
economy, while reducing our environmental footprint.
Meanwhile, we create new opportunities by supporting
education through our Universities programme and
improving lives in the communities where we operate.
Our aim was to create commitments that were SMART:
specific, measurable, achievable, realistic and time-bound.
The commitments also reflect the ways in which our
business can address the United Nations' Sustainable
Development Goals most relevant to our operations; and
our support for the Paris Agreement’s aim to combat climate
change and adapt to its effects.
Our external commitments: we need to deliver
1 According to relevant external indexes in each country (Great Place to Work,
7 People supported through Santander Universities initiative (students who
Top Employer, Merco, etc.).
2 Senior positions represent 1% of total workforce.
3 Calculation of equal pay gap compares employees of the same job, level
and function.
will receive a Santander scholarship, will achieve an internship in an SME or
participate in entrepreneurship programmes supported by the bank).
8 People helped through our community investment programmes (excluded
Santander Universities and financial education initiatives).
5
4 People (unbanked, underbanked or financially vulnerable), who are given
access to the financial system, receive tailored finance and increase their
knowledge and resilience through financial education.
Includes Santander overall contribution to green finance: project finance,
syndicated loans, green bonds, capital finance, export finance, advisory,
structuring and other products to help our clients in the transition to a low
carbon economy. Commitment from 2019 to 2030 is 220Bn.
In those countries where it is possible to certify renewable sourced
electricity for the properties occupied by the Group.
6
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... and we have continued to
address the challenge of the new
business environment...
• Updated the Corporate Culture Policy, which now
incorporates our Leadership commitments under
The Santander Way, our updated principles of
Diversity and Inclusion, and integrates the
Volunteering Policy.
• Approved global parental leave minimum
standards, which includes minimum period of 14
weeks paid for primary maternity/paternity leave
and 4 weeks in a row or divided into periods of 15
days for seconday maternity/paternity leave.
• Launched Canal Abierto, a new way for employees
to report breaches of the General Code of Conduct
and actions that do not reflect our corporate
behaviour.
• Launched new customer feedback techniques in
Portugal and Mexico, so we can improve our
products and services.
• Developed corporate guidelines for good practices
on treatment of vulnerable customers, so we can
cater for their individual needs and help prevent
over-indebtedness.
• Opened our new corporate Cyber Security centre
to protect Santander, our systems and customers
from cyber threats.
• Integrated new ESG criteria into suppliers'
certification process.
• Signed the UN Women’s Empowerment Principles.
• Signed 'The Valuable 500'. Commitment to put
inclusion of people with disabilities on our board
room agenda.
…while promoting inclusive and
sustainable growth...
• Signed, as a founder member, the United
Nations Principles for Responsible Banking,
created to use the power of finance to tackle the
major challenges that societies face, and
support the UN Sustainable Development Goals
and the Paris Climate Agreement.
• Signed the Collective Commitment to Climate
Action, which sets out concrete and time-bound
actions that banks will take to scale up their
contribution to and align their lending with the
Paris Climate Agreement.
• Analysed part of our portfolio's alignment to
climate scenarios, as a step towards addressing
the recommendations of the Task Force for
Climate-related Financial Disclosures.
• Launched Santander Sustainable & Green
Bonds Frameworks and issued a €1 billion
green bond, starting our global sustainable
debt plan.
• Launched a new Green Bond investment fund
that completes Santander Asset Management
sustainable range, exceeding EUR 1,500 million
of assets under management.
• Joined the United Nations' CEO Alliance on
Global Investors for Sustainable Development
(GISD) to help scale up long-term investment in
sustainability development.
• Joined the International Wildlife Trade
Financial Taskforce as a part of the Group’s
commitment to the prevention and deterrence
of wildlife trafficking.
We have received global recognition for our efforts
• Santander was recognised as the most sustainable
bank in the world in the Dow Jones Sustainability Index.
• We also have been recognised as one of the top 25
companies to work for in the world by Great Place to
Work and as one of the Best Places to Work in Latin
America.
• We received the Top Employer Europe certification,
which acknowledges excellence in the working
conditions a company provides to its employees and its
contribution to their personal and professional
development.
• Santander leads the 2020 Bloomberg Gender-Equality
Index out of 322 companies analysed. The index is
focused on several metrics like equal pay & gender
parity, inclusivity and female leadership & talent.
• Santander Brazil was recognised by Fortune Magazine
as one of the companies that are changing the world,
and by Great Place to Work as one of the 10
companies that stand out for their corporate
practices focused on the LGBTQI+.
• Santander Mexico was recognised in the International
Finance Banking Awards for being “the most Socially
Responsible Bank in Mexico” for second time.
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The new business environment
To meet the challenge of the new business environment, we’re focusing on...
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Our strong corporate culture:
The Santander Way
The Santander Way reflects our purpose, our aim, and how we do business. It is the
bedrock on which we are building a more responsible bank.
To be more responsible, we need
a strong culture
Our corporate culture is critical to Santander´s ambition to
build a more responsible banking. By fulfilling our purpose,
and helping people and businesses prosper, we grow as a
business while helping society address its challenges.
Economic progress and social progress go together. The
value created by our business is shared to the benefit of all.
The Santander Way
To live The Santander Way, and be Simple, Personal and Fair
in all we do, in 2016 we defined eight corporate behaviours.
We have embedded them in every step of the employee’s
lifecycle, making sure they are present in everything we do:
from recruitment and hiring, performance management,
training, career development, remuneration, recognition,
etc.
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“Just as important as what we do is
how we do it”
Ana Botín, Group Executive Chairman
Responsible Corporate
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Economic
and financial review
governance
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and control
Leadership commitments
Leadership is key if we are to accelerate our business and
cultural transformation. That is why, in 2019, we launched
the Leadership Commitments for our leaders. These
Commitments had been defined by more than 300
employees from across 28 different units and countries in
the Group.
To embed the Commitments in all our operations
worldwide, we ran a major internal communications
campaign; and included them in the leaders' development
programs and specific training modules. Four questions,
which reflect the Leadership Commitments, have been
included in the global engagement survey and feed into the
performance management system, MyContribution.
We have also changed our corporate culture policy to reflect
leadership commitments as a common minimum standard
(mandatory) in all units.
To embed a strong culture, in 2019 we focused on the initiatives below.
Stakeholder perception of Santander as a Simple, Personal and Fair bank
People
84%
of employees believe that
their colleagues behave in a
way that is more simple,
personal and fair
Customers
63%
of customers think they have
been treated in a Simple,
Personal and Fair way
Shareholders
56%
of shareholders think the bank
is Simple Personal and Fair
Communities
59%
of university students think
the bank is Simple, Personal
and Fair
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Cultural transformation:
a never-ending journey
Cultural transformation takes time. The Santander Way
journey started in 2015, and since then we have focused
hard on making all we do Simple Personal and Fair.
Our culture transformation is a 3-phase journey … we are moving into phase 3
Culture Plan 2019 objectives and achievements
Diversity &
Inclusion
Speaking up
SPF for
customers
Simplification
Objectives
Achievements
Promote gender diversity and
pay equality.
Foster cultural diversity.
Corporate vendor process to
incorporate D&I principles.
• External gender commitments launched
• Bloomberg Gender Equality index: highest score
• 40% women on the Board
• Equal pay improved from 3% to 2%
• Approved global maternity and paternity
minimum standards
• D&I included in vendor assessments
• Gender and cultural diversity targets set for 2025
Global minimum standards and
the promotion of anonymous
whistle-blowing channels.
• Global minimum standards approved
• Anonymous "escalations" channels in all
geographies
• 2% increase in Global Engagement Survey "speak
up" related question
Development & communication
of Consumer protection
principles.
• Consumer protection principles launched and
embedded
• >90% of customer facing workforce completed
conduct training
Promote conduct global training • Top 3 for Customer Satisfaction in 6 countries
for customer facing employees.
Define and map simplification
current position for people &
customers.
Simplify governance structures
to improve accountability and
decision-making.
• Global mapping completed and measurement
standards introduced
• Strategic simplification projects identified
• 48% reduction in head quarters committees,
saving 533 senior management hours
• Corporate policies reduction: 30%
Further details regarding Diversity & Inclusion and Speaking up can be found in Talented and Motivated team chapter. How we are
making our approach Simple, Personal and Fair for Customers is within Responsible Business Practices chapter.
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Simplification
Simplification is a priority for our Responsible Banking
agenda, not only because Simple is one of our core values,
but also because it is closely related to the ability to adapt
to a changing environment, which remains a challenge for
the Group according to feedback from our stakeholders.
An initiative was launched in 2019, working with countries
and global areas, to ensure we meet our customers' and
employees' expectations of making Santander a Simple
bank.
This means:
• focusing on processes and systems that are both
internal and customer-facing.
• breaking down silos so we work across business units
and geographies, or, where appropriate, focusing on
local projects and initiatives.
During 2019 we asked our employees and customers what
their priorities are in terms of simplification. They told us
they wanted:
• clear, simple language
• processes that are easy to understand
• quick service
• easy to understand products.
In light of these findings, we have launched from Group a
series of initiatives. For example:
• Simplification is now included in the objectives for
management roles.
• We have simplified the Group's structure into three
regions: Europe, South America, North America.
• We have launched the new Santander.com website to
provide a simplified and streamlined platform for our
stakeholders.
• We have developed a new digital workplace platform to
enhance and promote communications, collaboration
and best practice sharing across the Group. It will be
launched during 2020.
• We simplified our HR platform for our employees to
make it easier to access relevant information.
• A products and services global review is being
conducted, focusing in particular on speed of service.
• A systems review is being conducted, and improvements
made to foster digitalization, making it easier for
customers to deal with us and for teams to work
together.
• Using agile methodologies, we are changing processes
to reduce the time to market, time to make decisions
and boost collaboration.
Portugal, a case study on simplification
Santander Portugal has conducted a series of initiatives to
simplify its operations:
• Processes: through a focus on end to end process
simplification, the time to market for mortgages has been
reduced from 75 days to below 25 days, becoming the
best in class in Portugal. The focus is now on reducing the
end to end process for individual loans, reducing time
from an average of 11 days to a few hours. This will be
deployed in 2020.
• Product offering: reducing and simplifying the number of
products being marketed and enhancing digital channels
in the following business lines remains a key area of
focus: accounts, cards, credit, savings & investment and
protection. The target is to reduce the number of products
from 206 to 54.
In 2019, they focused on reducing the number of
products related to individuals from 159 to 77.
• Operational excellence: alignment of processes
transformation with business priorities, with strong focus
on improving the internal customer experience and cost
savings, including automation tools that that decrease
implementation time for new processes and reduce
manual intervention along several processes.
• Governance: reduction in number of committees from 37
to 27. Simplification has increased transparency,
effectiveness and efficiency in decision-making, reducing
duplication and the time spent preparing for and
attending meetings.
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Risk pro: our risk culture
Managing risk is the business of banking - and prudent risk
management is a cornerstone of a responsible bank. This
requires clear policies, processes and lines of accountability
– all backed by a strong risk culture that reflects the fact
that, in a bank like Santander, everyone has a role to play in
managing risk.
Banks' approach to risk, and their "risk culture", is under
increasing regulatory scrutiny: the European Central Bank
and other regulators are focusing on how risk is understood
at all levels in financial services.
Against this backdrop of constant change, with new types of
risk emerging and increasing regulatory requirements, the
Group maintains an excellent level of risk management that
enables it to achieve sustainable growth.
Our risk culture is called risk proA, with the aim of
promoting everyone´s personal responsibility for managing
risks, regardless of their level or role. This requires prudent
risk management, while building a sound internal risk
management culture across the whole organisation, which
is understood and implemented by all employees.
Risk pro is included within the common minimum standards
within the Corporate Culture Policy.
Embedding a strong risk culture
In 2019 we have continued to focus on embedding the
importance of risk culture across all areas of the employee
lifecycle including:
• recruitment and onboarding
• training and awareness
• performance management and reward
• recognition
• day to day management including promoting speaking
up and raising concerns
• best practice sharing and promoting the importance of
risk culture from our senior executives
*I AM Risk is the name of Risk Pro in UK and US
Risk management: key to being a responsible bank
Our approach to risk management and compliance is key to
ensuring we operate and behave in a way that reflects our
values and corporate culture, and delivers our responsible
banking strategy. It is based on three lines of defence:
1. Business and support units
2. Risk management and compliance
3. Internal audit
The board of directors is responsible for the risk control and
management, and, in particular, for setting the risk appetite
for the Group. To do this it counts with the expert support of
the risk, supervision, regulation and compliance board
committee.
Risks related to compliance, conduct, digitalisation and
climate change, as well as the analysis of social,
environmental and reputational risks, are clearly highly
relevant to our efforts to build a responsible bank. These are
overseen by risk supervision, regulation and compliance
board committee.
In 2019, following the recommendations made by TCFD, a
special effort was invested in the analysis and identification
of short, medium, and long-term climate change risks (for
more information, see the Sustainable finance chapter).
For more information on environmental and social risks can be
found in section 2.5 of the Risk Management and Control chapter.
Information on measures taken to prevent corruption and bribery,
money laundering and financing of terrorism is available in
section 7.3 of the Risk Management and Control chapter.
93%
of employees claim that
they are able to identify
and feel responsible for
the risks they face in
their daily work.
91%
of employees claim that
cyber security is
considered a critical
priority.
Source: Global engagement survey 2019
75%
of employees consider
that senior leadership
encourages reporting
important information
up-the-line even if it is
bad news.
79%
of employees affirm they
can report unethical
behaviour or practices
without fear of
retaliation.
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Cybersecurity
Cybersecurity is critical in the digital age. Cyber attacks and
fraud risk pose systemic risks to financial services.
Customers expect their data to be held securely and
handled ethically. Therefore embedding behaviour that
promotes cybersecurity remains a key priority for us.
Our aim is to help employees, customers and wider society
prosper in the cyber space. Our Cybersecurity and IT conduct
Policy defines acceptable use of Santander equipment and
Information Technology (IT) services, and the appropriate
employee cybersecurity and IT conduct rules to protect
Santander.
The policy also highlights areas of risk and misuse and gives
guidance on how reputational or commercial risks can be
avoided, mitigated or managed through Santander´s key
cybersecurity rules. Our policy also sets out how the Group
and its subsidiaries must use and handle technology, work
tools and information Santander gives its employees so as
to avoid legal, reputational or cyber-related incidents.
In 2019 a wide range of employee training and awareness
campaigns have been launched across all entities in the
Group, including online courses, articles, and practical
exercises. Furthermore, a new tool for employees to help
them to report any cyber incident was developed. This tool
is available through a website or through "App Tips".
Information is also being shared with customers and
general public through Santander digital channels, such us
social media, banking apps, emails and the web.
As well as this, a new Global Cyber Security Centre was
launched. The centre protects Santander, our systems and
customers by taking a proactive approach to monitoring
cyber threats 24 hours, 7 days a week, across all of
Santander’s core markets.
We also work in partnership with public and private
organisations to promote information sharing and
collaboration on cyber security. Activities include: building
bilateral information sharing processes with key public
entities and peers; leading efforts across key geographies to
help increase information sharing with government
agencies and local financial institutions; and championing
the creation of international information sharing
mechanisms to help combat cyber crime.
Cybersecurity is a responsibility for everyone
employed or engaged in any way by
Santander.
For more information on the cyber-risk
training given to our employees see "A
talented and motivated team" section
of this chapter.
For more information on our cyber
security plan see "Risk management
and control model" chapter.
Our cybersecurity and IT conduct policy has five simple rules to help protect employees and Santander, which
have been promoted throughout 2019.
Protect your
information and
equipment
Be discreet online
and in public
Think before you
click or reply
Keep your passwords
safe
If you suspect it,
report it
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A talented and motivated team
To win in the new business environment, and to earn and retain customers’ loyalty,
we need a workforce that is both talented and motivated. And if we are to
understand the needs of today’s society, our team needs to reflect its diversity.
Target for 2021
Progress 2019
We believe that by acting responsibly towards our employees, we
will build a strong team that is willing to go the extra mile for our
customers. This will generate predictable returns for our
shareholders, enabling us to invest more to support communities
– which builds employees’ pride in Santander. This is the virtuous
circle of loyalty which drives success. In 2019 we set the target
to be one of the top 10 companies to work for in at least 6 of
geographies where we operate by 2021.A
A. According to a well-known external source in each country (Great Place to Work, Top
Employer, Merco, etc.).
*Portugal, Chile, Argentina, Spain and Uruguay. In Portugal the
employed ranking was that corresponding to businesses with
more than 1,000 employees.
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Talent Management
Successful businesses need skilled and motivated teams: a
responsible business attracts the best talent and earns its
loyalty. Talent management and retention is therefore one
of our key human resources strategies.
We have developed a number of core projects which will
help us attract and retain the best talent:
• Strategic Workforce Planning (SWP) aims to identify
and quantify the resources and skills needed to deliver
the future business strategy. This dynamic tool allows a
detailed analysis to help Human Resources and
Organisation teams to create action plans and address
the need of new and changing profiles.
• Skill Model helps focus our current workforce up-
skilling and re-skilling efforts.
• Dojo is the programme that tackles Santander’s learning
and development transformational challenge.
Finally, Workday, the new human resources information
system global platform, will provide us with a seamless
view of individuals' skills and competences, while making it
easier to communicate internally and work together.
Talent attraction
Santander’s workforce is constantly evolving and
developing. Our ability to identify the talent we need to
contribute to the company’s vision, as well as how to recruit
and retain these people, is critical in order to remain at the
forefront of the industry.
Global career site
In 2019 we launched the new global careers site, a gateway
for the talent which will continue to build the future of
Santander over the next few years. Candidates and
employees can search on one website for career
opportunities all around the world in all the Group's
companies.
In 2019 we also created the Global Talent Attraction
Community, to design and implement global initiatives to
recruit new talent.
Santander Effect: our employee value proposition
We have updated our employee value proposition and
launched The Santander Effect, reflecting our values and
highlighting Santander as an employer of choice for current
and future talent.
Digital Cellar
Following our internal research (80 interviews in 4
geographies) we have identified target areas for talent
attraction such as Cybersecurity, Data Science and User
Experience. This enables us to target our attraction and
recruitment strategies with personalised elements which
are most relevant to prospective recruits, helping us to
differentiate Santander from other companies competing
for the same talent.
To achieve this, in 2019 we launched the Digital Cellar
website and toolkit to attract and retain the digital talent we
need.
Main Group data
2019
2018
Total employees (thousand)
196
203
% employees with a permanent contract
97.9
96.0
% employees working full time
94.9
94.6
Employees joining/leaving (turnover)
17.6
15.4
% of workforce promoted
8.3
8.6
Average length of service (years)
10.2
10.3
% coverage of collective agreements
74.5
70.6
For additional information, see ‘Key
metrics’ section of this chapter
Social dialogue
Banco Santander maintains a fluid and permanent social
dialogue with the legal representation of employees,
which is articulated through bilateral meetings and
specific committees where the dynamics of information,
participation, consultation and negotiation of the trade
union representatives are channelled. Respect for labour
standards, trade union rights, and freedom of association
and collective representation, are relevant aspects for the
Group.
Restructuring processes
In the last few years, Santander has restructured its
workforce, affecting people's roles and employment.
Whenever this has happened, we have followed a series
of steps, namely:
• We negotiate and engage with the local unions and
legal representatives, ensuring employees' rights are
respected.
• We commit to supporting employees by offering
alternative roles within Santander or finding alternative
roles in other companies.
• We undertake to make redundancy payments in excess
of the mandatory amount paid to employees being
made redundant.
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Talent development
Identifying talent with leadership potential, and giving
employees the chance to progress in their careers and fulfil
their ambitions, is key to accelerating Santander’s
transformation and achieve our purpose of helping people
and business prosper.
Our main programmes to identify and develop the best
talent are:
Talent mobility
The mobility of our employees is an essential if we are to
develop talent. We want to give our employees the chance
of further career opportunities and professional progress,
while increasing the diversity of the teams by providing
businesses with employees with different profiles and
experiences.
• Talent review. A structured process to identify and
Our main mobility programmes are:
• Global Job Posting. This offers all employees the chance
to apply for vacant positions in other countries,
companies or divisions. Since its launch in 2014, over
5,500 positions have been posted globally.
• Mundo Santander. Our employees can work for several
months on a project in another country, helping the
exchange of best practices and broadening their global
mindset. Since its launch, over 2,000 people in 38
different countries have taken part.
"Mundo Santander allowed me to meet
incredible people, learn new languages and
broaden my horizons"
Jonathan Lee, UK
In 2019 we set a new target to be top 10 employer in 6 of
the countries we operate by 2021. We have changed our
commitment to be a "top bank" to be a "top company", to
reflect the competitive environment we operate in to attract
best talent.
assess the potential of our employees.
• Succession planning. Succession planning for the key
positions in the Group to ensure the sustainability of
Santander.
• Action Learning Programme Santander (ALPS). A
learning programme for senior management talent.
ALPS develops leadership and business problem
resolution skills within a collaborative environment. In
2019 we concluded the second series of this programme
and launched a third one. Since its launch, 95 people
have participated.
• Young Leaders. Launched in 2018, this 18-month
professional development programme is aimed at 280
emerging leaders from 22 countries, who have
distinguished themselves with their digital
understanding, innovative approach, adherence to our
SPF culture and corporate behaviours. Participants were
chosen by their peers, and have the chance to work with
our top executives and contribute to the strategy of
Santander by proposing new ideas and perspectives. A
second series is planned for September 2020.
Santander, a great company to work for
Santander has received Top Employers Europe 2019
certification, which acknowledges excellence in the working
conditions a business provides for its employees, and the
business's contribution to their personal and professional
development. The Group is being awarded this certificate
for companies in eight European countries.
In 2019 the Bank has also been included (for the first time}
in the Great Place to Work list of the 25 best companies to
work for in the world. Santander ranked 24th and is the
world's 2nd best bank to work for thanks to the
performance of our operations in Portugal, Argentina,
Brazil, Chile, Mexico and Uruguay, among others.
As well as this, Santander was distinguished by Great Place
to Work as one of the Best Places to Work 2019 in Latin
America in the Multinationals category, ranking no. 15.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Learning and development
Continuous learning is key to helping our employees adapt
to a fast-paced, continuously changing work environment.
We have a global policy on induction, knowledge and
development that provides criteria for the design, review,
implementation and supervision of training to:
• Support the business transformation.
• Encourage global talent management, facilitating
innovation, knowledge transfer and sharing and
identifying key employees in the various skills domains.
• Support the company’s cultural transformation under the
governance standards set for the Group, including the
Corporate Culture Policy and Code of Conduct.
To support the required up-skilling and re-skilling of our
current workforce identified by our Strategic Workforce
Planning, the foundations of two transformational projects
have been set to be launched in 2020: Skill Model and Dojo.
Santander's Skill Model will help us focus efforts up-skill
and re-skill the workforce by helping our professionals
assess their capacity gap - in other words, the gap between
what they know now and the demands of the future.
Dojo is the programme that tackles Santander’s learning
and development transformational challenge in 4 levels -
technology, content, operating model and data - by
interconnecting all Santander countries in one global L&D
ecosystem, in order to accelerate the required up-skilling/
reskilling of our workforce.
This will transform Santander’s course-based training to a
skill-based training approach, linked to the new global skill
model shared with Workday and Strategic Workforce
Planning.
Other focus areas for training in 2019
• The Risk Pro Banking School and Academy, together
with the other training centres for risk, help define the
best strategic training lines for the Bank's professionals in
accordance with Group priorities, as well as
disseminating the risk culture & developing the best
talent.
• The Global School of Internal Audit supports the training
and developing of auditors by providing practical training
solutions designed to complement business evolution
and regulators' requirements.
• Leaders Academy Experience is an executive programme
with two work-streams - business transformation and
cultural transformation - to make it easier for participants
(638 senior leaders and 280 young leaders) to transform
the Group, and to equip them with the tools and training
they need to accelerate change. In 2019, the "Leading in
the digital era" programme was the key pillar of this
training.
In 2019, the Global Learning Council, composed of Chief
Learning Officers of all geographies was established as part
of the strategic governance transformation.
The Scouts Community was also launched as a key element
of Dojo, a global community of experts whom the Group´s
employees can contact for advice about various topics.
Main Group data
Millions invested in training
2019
102.6
2018
98.7
Investment per employee (euros)
522.3
486.8
% employees trained
100.0
100.0
Hours of training per employee
40.7
33.8
Employee satisfaction (over 10)
9.3
8.0
For additional information, see ‘Key
metrics’ section of this chapter
• Leading in the digital era: an executive masterclass for
the 35 top leaders of the Group which provides a
foundation of technical knowledge, creating a common
language and underscoring the urgency of our mission to
become a global platform. The programme is sponsored
by our Executive Chairman and leads to a certification.
• Cyber Heroes global programme is an online training
programme which aims to reinforce the idea that each of
us play a direct role in the protection of Santander, our
people and customers. The objective is to build a culture
of cybersecurity awareness, and put into practice
cybersecurity rules outlined in the Cybersecurity Policy.
This training became mandatory for all the countries and
business inside the Group in 2019.
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Sharing good practices across the Group
Fostering collaboration and sharing best practices helps us
leverage our global scale and improve our performance
faster.
In 2019, more than fifteen global workshops were held by
the different functions. Some of these are:
• Good Conduct with Customers Workshop: focused on
conduct with customers, digitalization and process
simplification.
• Planning and monitoring Compliance&Conduct (C&C)
programmes: these aimed at reinforcing the process of
C&C planning and monitoring annual programmes.
• Responsible Banking Workshop: helped outline the
future of Santander Responsible Banking strategy.
In addition, through country visits and presentations to
monthly Culture Steering meetings, good practices are
shared. Some local initiatives that have been shared wider
and adopted in other countries include:
– Risk Pro Heroes, developed and launched in Poland to
recognise employees who have highlighted potential
fraud has also been adopted in Germany;
– the UK Keep it Simple Santander (KISS), which has been
adopted and launched in the US during 2019;
• First Data Forum: focused on the relevance of data and
how Santander must extract maximum value from it in a
responsible way.
– the successful Work Cafe, launched in Chile a couple of
years ago, which has been extended in a number of
countries including Spain and UK in 2019.
• First workshop on best reputational risk practices: the
purpose of this workshop was to strengthen the network
of people working on reputational risk and share
experiences and best practices.
• Internal communications workshop: shared best
practices and discussed on how to move forward towards
a single digital workplace across the Group.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Evaluation and remuneration
We have a comprehensive remuneration system that
combines a fixed salary (which reflects the individual’s role
and level of responsibility) with short- and long-term
variable remuneration. This system rewards employees for
their performance on the basis of merit. It reflects both
what has been achieved (Group targets and individual or
team targets) and how these results are obtained
(reflecting behaviour and conduct such as leadership,
commitment, development and risk management). In
addition, the Group also offers competitive benefits such as
pension plans, banking products and services, life insurance
and medical insurance.
Fixed remuneration is referenced to the local market.
Remuneration levels are set according to local practices and
strictly follow the collective agreements applicable in each
geography and community. Variable remuneration is a form
of reward for achieving the Group’s quantitative and
qualitative strategic targets.
To align with European regulations on remuneration, we
have identified 1,359 staff who take decisions that may
involve some risk for the Group. We apply to them a deferral
policy for their variable remuneration which includes
deferral of between three and seven years, payment in
shares (50% of variable remuneration) and potential
reduction (malus) or recovery (clawback).
MyContribution
Our employee evaluation model is designed to reinforce the
key role that the corporate culture has in driving the Group’s
transformation.
MyContribution directly applies to senior leaders,
employees nominated as being in key positions, and
employees nominated as being material risk takers
(according to Regulatory & Compensation policy). In
addition to them, other employees may participate or fall
within the scope, subject to agreement with local HR teams.
The model is based upon two core concepts: 40% of reward
is based upon the How we do things, and 60% based upon
What we do or deliver:
Main initiatives developed in 2019:
• Support the adoption and methodology to include
responsible banking within executive remuneration
framework.
• Continue to reinforce the embedding of risk
frameworks within the context of remuneration.
• Drive the awareness of fair pay practices, including
gender pay, equal pay, and diversity inclusion within
remuneration.
Approved for 2020:
• In the 2020 executive scorecard (which underpins the
Group’s remuneration scheme), when calculating our
achievement of our profitability metrics, we will
consider progress against our Responsible Banking
targets.
For additional information
regarding remuneration data see
‘Key metrics’ section of this
chapter.
For additional information
regarding board remuneration
see section 6 of the Corporate
governance chapter.
• How: Key elements to demonstrate achievement of
The Santander Way.
• What: Key individual goals with measures that link to
the organisational goals.
During 2019 we have been working on harmonising a
Global Performance Management Framework continuing
with MyContribution, which will be launched in 2020.
Based on this, MyContribution framework will permeate to
all levels and all geographies. It will be a common model;
one model for all the employees with some variations
depending on the segment and level.
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Diversity & Inclusion
If we are to understand and reflect modern society, we need
a diverse and inclusive workforce that reflects society.
Managing this diverse talent in an inclusive way, reflecting
our values, will enable us to attract, develop and retain the
best professionals and to achieve better results in a
sustainable manner.
During 2019, the Group´s Diversity & Inclusion (D&I)
General Principles, included in the Corporate Culture Policy,
were updated as follows:
• Increased the reference to diversities based on sexual
orientation and disabilities.
• Introduced a statement about our products reflecting the
diversity of our customers and being accessible to all.
• Reworded some principles for simplification and clarity.
In order to ensure appropriate management and promote
diversity and inclusion at Group level, we have two working
groups:
• A Global D&I Executive Working Group with business
influencers and decision makers from different
geographies and functions to develop and direct to Group
diversity and inclusion strategy.
• A Global Network of D&I experts with representatives
from the countries (operational team to share practices
and be the transmission chain at a local level).
The Group also takes measures against sexual harassment
and to promote employment. In Spain, for example, the
Group has an equality plan that incorporates measures to
promote employment, protocols against sexual and gender-
based harassment, and plans for the integration and
universal accessibility of persons with disabilities.
54.7%
of women employed,
=vs 2018
22.7%
of women in management
positions,+ 2 vs 2018
38.6
Average age of the workforce, of employees with a
=vs 2018
1.8%
disability, +11 b.p. vs 2018
86%
of employees believe Santander treats employees fairly
regardless of their age, family, marital status, gender identity,
expression, disability, race, colour, religion or sexual orientation.
+1 vs 2018.A
A. 2019 Global engagement survey
The Santander Group has been named as a Leader in
Diversity 2020 by the Financial Times in a new index, which
lists the 700 leading companies across Europe with
outstanding diversity and inclusion policies.
Initiatives and achievements in 2019 at Group and local level
Gender
Culture+ identity
Disability
• Agreed minimum standards in all countries
for maternity and paternity leave to be
implemented from 2020 over a 3 year
period: a primary maternity/paternity
leave of 14 weeks paid and a secondary
maternity/paternity leave of 4 weeks (in a
row or divided into two periods of 15 days)
until each child is one year old. Plus
flexible return to work schedule.
• Improve or at least maintain male/female
ratio in divisions when hiring for leadership
positions and increase the percentage of
women in the pipeline for succession
planning in order to meet 2025
commitments.
• Supported women growth by cross
function mentoring and development
programmes.
• Signed the UN Women´s Empowerment
Principles.
• Spain launched Santander Career Forward
programme to help women who left they
professional careers to take care of their
family responsibilities.
• Portugal and Mexico launched
programmes to promote women
leadership.
40
2019 Annual Report
• In countries without legal requirements for
employability, we have set the target to
increase 1 p.p. the percentage of
employees with disabilities.
• The 2019 executive committee includes
40% of members from international
background.
• In Spain, Proyecto Integra of Integra
Foundation enables access of refugees
from war zones to take part in internship
programmes
• Affinity Groups: ensured minority groups
are represented in relevant employees´
networks.
• UK: mentoring programme Black, Asian and
Minority Ethic (BAME) talent.
LGBTI
Enablement
• In 2019 we launched a global brand for our
• In order to foster inclusive leadership and
LGBTI employee networks called.
“Embrace”. For now, the LGBTI networks
have members from Brazil, Corporate
Centre, Spain, Openbank, UK and US.
raise awareness, we launched a global D&I
online training programme for our senior
management leaders, including a focus on
unconscious bias.
• UK: LGBTI training for staff on how to be a
LGBTI ally.
• Santander Brazil recognised by Great Place
to Work as one of the 10 companies that
stand out for their corporate practices
focused on the LGBTI.
• Brazil launched Aliados diversity training
programme which focuses on gender and
sexual orientation.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Gender equality
Ensuring equal opportunities and fostering gender equality
at all levels continues to be a strategic priority for Banco
Santander. Currently 55% of the employees in the Group
are women, but this percentage falls significantly in
leadership positions. There is significant work that is
underway to increase representation of women in senior
positions.
To support this goal, in 2019 we have established specific
diversity objectives for our top-level executives:
• At the Board level, we agreed to raise our current
objective of women representation (30%) to be between
40% and 60% in 2021.
• In senior leadership positions, we have set an ambition to
have at least 30% of these positions to be filled by
women by 20251.
1. Senior leadership positions represent 1% of total workforce
Pay equality
Guaranteeing full pay equality between men and women is
another of our key strategic commitments.
Across the Group, and aligned with emerging standards, the
measurement of pay equality is focused around two
concepts: Equal pay, and Gender pay (expressed as gaps).
Gender pay gap: 31%
What it measures:
Gender Pay Gap (GPG) metric measures the difference in
pay regardless of the work´s nature, in an organization, a
business, an entire industry or the economy in general. At
Santander, differences are mainly driven by the following
factors: lower representation of women in senior and
business positions and higher presence of women in retail
banking and support positions.
GPG is calculated as the difference of median of
compensation paid to male and female employees
expressed as a percentage of the male compensation. For
this calculation, compensation includes base salary and
variable remuneration, excluding benefits/in kind
remuneration or local allowances.
Our progress:
In order to address the gender pay gap, Santander has
established a methodology based on best practices,
establishing common guidelines for both, the Group and
local units, on how to address issues and opportunities and
improve.
In 2019, the action plans have focused on building rigorous
standards for promotion, recruitment, succession planning,
unconscious bias training and the building of talent
pipelines to ensure strong diversity representation. This
accompanies communications from management and
initiatives such as mentoring to build balance in the
organization.
In 2019, the calculated median GPG was 30.8%, slightly
better than 2018 reported figure of 30.9%. However, there
are a number of noticeable underlying achievements,
including 15% growth in women occupying executive
segment positions over the last two years, and the fact that
female promotions to top segments have more than
doubled since 2017.
Banco Santander leads the
Bloomberg Gender-Equality
For the third consecutive year,
Santander has achieved the
highest score out of 322
companies.
Equal pay gap: 2%
What it measures:
The Equal Pay Gap (EPG) metric compares compensation for
women and men who hold the same job, with the same
level, in the same function. This is intended to capture
“equal pay for equal work”.
Currently, factors which may impact these comparisons
such as tenure in position, years of service, previous
experience or background have not been considered to
mitigate the reported figures.
Our progress:
In 2019 we developed different programmes across the
Group to promote fair pay practices and reduce the
measured equal pay gap. Actions include systematic
reviews tied to compensation cycles (promotions, merit and
bonus processes), the fine-tuning of the job architecture
and grading structures and professional development
programmes to support the recruiting of diverse talent.
Likewise, the incorporation and promotion of women and
the reduction of the wage gap have been included among
the factors determining variable pay in some units.
In 2019 the calculated gap was 2%, a 33% improvement
over the reported figure at 3% in 2018 and we are working
across the Group to reduce this each year. Demonstrable
improvement was evident in the majority of our main
markets.
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Disability
We believe that the inclusion of people with disabilities is a
question of talent, ethics and responsibility. Employing
people with disabilities promotes their independence,
freedom and dignity.
In 2019 we have focused on increasing the percentage of
people with a disability in our workforce reaching to 1.8% in
the Group. To achieve this, we have undertaken a global
disability mapping exercise to ensure compliance regarding
employability and accessibility; and in countries without
legal requirements for employability, we have set the target
to increase by 1% employees with disabilities.
Fundación Universia is a key partner who helps us integrate
people with a disability into the bank.
All the geographies are making efforts towards the
inclusion of people with disability.
Our commitment to the inclusion of people with disability
led us to join The Valuable 500, a global movement for
putting disability on the business leadership agenda.
Inclusion of people with disabilities in Santander Corporate Centre
Santander Corporate Centre, via Fundación Universia,
fosters the inclusion of talent with disability within its
workforce. To achieve this, we have several initiatives:
Thanks to these initiatives, at the end of 2019, 54 people
with disabilities joined the Corporate Centre, 25 as full time
employees and 29 as interns.
• Fundación Universia offers different scholarships for
students with disability. Through them, they map and
identify talented professionals to be considered for
vacancies in the Corporate Centre.
• “Santander Incluye” internship programme: 10% of the
internship in Corporate Centre are assigned to
professionals with disability. This initiative aims to create
a pool of talent with disability.
• The bonus of senior managers is linked to fostering
diversity (which includes disability) within their teams.
• Awareness and teamwork sessions through talks and
training, like "Open up your Senses", an initiative that
aims to demonstrate how diverse teams - including
people with disabilities - can be stronger and more
effective.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Employee experience
Keeping our workforce motivated is key to ensuring their commitment and success
in helping people and businesses prosper.
1. Speaking up / active listening/ taking action
This
means: What we do:
If we are to build a responsible bank, everyone should feel
able to speak up, not just to suggest how to improve doing
things, but to alert management when things go wrong, or
when there is suspected malpractice.
Protect
Innovate
Engage
Risks and ethical
concerns, internal
governance
How we do it:
Ethical channels &
Whistleblowing lines
Committees and forums
Ideas, solutions,
simplification improved
processes
Agile working, ideas
channels
Recognition,
performance
management, feedback
StarMeUp,
MyContribution; Global
Engagement survey
Global engagement survey
Measuring our employees’ satisfaction is fundamental for
our Group, as it enables us to continue to progress towards
being the best company to work for.
Areas of improvement include the need to continue
improving our processes to make them simpler, and to
foster collaboration.
2019 survey results show that our team is proud of working
for Santander and committed to continue making a bank
that is more Simple, Personal and Fair. The results also
show that Santander continues to have a strong Risk Culture
(85% favourable) across countries and business lines, while
more than 8 out of 10 colleagues are positive about living
The Santander Way, our common culture. Also the
perceptions about Openness to Change are very high and
have improved since 2018, with most employees being
positive about a culture of sharing best practices, being
innovative and creative.
Ethical Channels
In 2019, a new model for employees was launched, Canal
Abierto, and it has been implemented in most of the
Group's units and is expected to be launched in Portugal,
Poland, Openbank and Argentina during 2020. The purpose
of the Canal Abierto is to report breaches of the General
Code of Conduct and also to report conduct which is not in
line with the corporate values and behaviours.
In developing this model, the Group's best practices have
been taken into account, as well as the opinions of
employees. Common standards have been established for
all geographies, which include easy access, the avoidance of
conflicts of interest during the investigations, confidentiality
through external third party management and
communication to employees of the measures adopted as a
result of their issues raised. Various communication
campaigns have also been carried out to remind employees
of the importance of reporting inappropriate conduct.
During 2019, 4,473 issues have been received through the
Group's channels, 79% of which have been processed. The
main types of communications were: labour relations
(64.8%)A; fraud, conflicts of interest and corruption (19.4%);
and marketing of financial products and services (9.2%). In
addition, 20.57% of the communications received have
88%
of participation
= vs 2018
82%
of employees committed
= vs 2018
85%
of employees are satisfied of employees believe
with Santander as a place
to work. +1 point vs 2018
86%
Santander acts
responsibly in the way it
does business. +3 points
vs 2018
given rise to disciplinary proceedings, with 32%B, having
concluded with the dismissal of the employees involved.
The average processing time for managing issues raised
through these channels is 30 days.
Canal Aberto in Santander Brazil
In 2018, a number of communications were received
highlighting alleged irregularities in the marketing of
products related to the activation of customer accounts by
branch employees. This led to the investigation of the
activity of the offices and the promotion of measures
against the employees involved.
In 2019, the reporting of these irregularities has served to
strengthen internal processes and to raise the awareness of
employees about appropriate conduct in situations that may
pose a risk to themselves and to the Group. As a result, the
number of breaches of internal product marketing
regulations has fallen by 37% in the last year.
A. No complaints have been received through the Canal Abierto
regarding incidents of discrimination or human rights violations. Outside of the
channel, only one related complaint has been received, which has led to a
penalty of 150,000 euros on the bank.
B. Data obtained taking into account the information reported by local units in
June, September and December of 2019.
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2. The way we work
We actively promote flexible working for our employees to
enhance work-life balance.
Flexiworking
Our corporate flexiworking policy applies to the entire
Group. It covers:
• How we organise the working day (flexibility and time),
searching compatibility with the type of job: schedules of
entry / exit, alternative configurations of the workday,
regulation of vacations, guides and recommendations for
the rational use of email and meetings.
• Where we work from: working remotely, teleworking.
In 2019 we undertook a survey of 6,000 employees to
understand their needs related to flexiworking. After
reviewing the results and undertaking a gap analysis, we
reviewed the policy and refreshed the value proposition
while developing local action plans. We created guides with
a clearer, common definition and vision of flexiworking.
In addition, the Bank has measures aimed at facilitating the
work-life balance of its employees through the different
agreements signed with the relevant unions´
representatives. Santander has committed to promoting a
rational management of working time and its flexible
application, as well as the use of technologies that allow a
better organisation of the work of our professionals,
specifically addressing the employees´ right to digital
disconnection.
New workspaces
We continue to redesign our offices to create new work
spaces that encourage collaboration and improve
employees' experience.
In 2019 we opened a new corporate building in Argentina,
in which the space, furniture and technology enables better
collaboration and a more conducive working environment.
Facilities such as a gym, medical centre, dining rooms and
open air spaces have all been incorporated.
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2019 Annual Report
85%
of employees indicate that
their direct manager helps
them reach a
reasonable balance between
personal and professional
life.A
A. 2019 Global engagement survey results.
Digital workplace
A digital workplace is a unified online platform where tech-
based solutions and tools allow employees to be
productive, creative and engaged any time, anywhere. In
2019 we launched a pilot of a digital workplace that will be
rolled out in the Corporate centre in 2020 and then
gradually in other countries.
The new digital workplace will help us change the way we
work in terms of how we communicate and collaborate
across the entire Group as well as locally, and will simplify
our employees' work integration into one single platform
tools and processes. This platform will provide increased
opportunities to share best practices and initiatives across
the Group.
Agile methodologies
During 2019 we continued working on agile methodologies
to foster collaboration, help speed up decision making and
and to drive change through multiple remote teams in
several countries.
We celebrated “Agile days”, where representatives from the
Agile Transformation and Engineering Excellence teams
from different countries had the opportunity to share
progress and experiences.
Risk management
and control
StarMeUp
2
millions stars given
by employees
Responsible Corporate
banking
Economic
and financial review
governance
3. Culture of recognition
The StarMeUp initiative is a global recognition network that
allows employees to appraise colleagues who lead by
example by championing our 8 corporate behaviours, and
the work of teams or groups of people, who performance
following the SPF culture.
Three yeas after its launch, 2 million stars have been
awarded by Santander’s professionals to other colleagues
through StarMeUp. To achieve this, in 2019 we promoted
the platform launching new temporary stars:
•
•
•
•
Cyber hero star, to award employees for their focus
on cybersecurity.
Champion star, to recognise the team mates who
have stood out the most during the 2019 season.
Santander effect star, to acknowledge employees
who have make a big positive impact both within
and outside the Bank.
Risk pro star, to recognise those employees who
identify or escalate risks enabling action to be taken.
Overall, in 2019, the number of active users of StarMeUp in
the Group grew to 183,000 (out of 196,419 employees in
total) and we have already given 700,000 stars to our
colleagues.
4. Social benefits
We offer several benefits for employees across all the
geographies. Each country establishes programmes
adapted to the local conditions, with benefits ranging from
maternity and paternity leave, free services for employees
and family members, to discounts on products and services.
Santander Contigo
Santander Contigo gives employees in Spain and
Corporate Centre, and their families, access to many
services to make life easier and help them balance their
personal and professional lives. Some of the benefits
and services of the programme are:
• Mental health and legal advisory services
• A 24hr personal assistant to help with daily personal
tasks like planning holidays, booking restaurants, etc.
• 56 annual hours of help for people whose medical
condition means they need assistance with activities
such as house cleaning and babysitting,
• 14 annual visits to specialists (e.g psychologists or
speech therapists).
• And much more like: conciliation service on non-labour
conflicts, online will writing, a network of specialists
and private medical centres, dentists and beauty
centres.
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5. Volunteering
Volunteering builds a strong team spirit and a sense of
purpose - while also helping the communities in which we
operate. Our corporate volunteering standard, included in
our Corporate Culture Policy, sets out that employees are
entitled to spend a certain number of working hours each
month or year in volunteering.
At Group level, there are two important moments during
the year: our “Santander Week” and the International
Volunteering Day.
Our “Santander Week” is held in all Group countries at the
same time. During this week, countries arrange different
volunteering initiatives in which employees can take part.
In addition, in December we participate in International
Volunteering Day. Most local units support this with
volunteering initiatives to support vulnerable people and
their families.
At a local level, the Group’s subsidiaries, within their
community investment commitments, organise multiple
volunteering programmes.
In Spain, we have Santander Natura programme, which
covers all our initiatives, services and products that aim to
protect the environment and fight climate change. This
programme includes volunteering initiatives, and in 2019
more than 450 volunteers, including employees and
pensioners, along with their families and the bank's
customers, collected more than a ton of waste, garbage,
and plastic from different beaches in Spain.
In the UK, in 2019, our team supported Wise, a Santander
developed programme in which our colleagues advise
students how to manage their money, prepare for the world
of work and be safe online. Also, through our partnership
Pro bono activities
with Young Enterprise, we enabled 197,470 students during
My Money Week, an initiative aimed at 4 - 19 year old to
gain skills, knowledge and confidence in money matters.
In Portugal, a group of about 110 volunteers participated in
the renovation of the retirement home at Nossa Senhora da
Penha de França’s Social Centre and Parish. Several of
Santander’s employees have collaborated in painting the
walls and ceilings of this retirement home and have also
repaired the facilities.
+38,000
employees participating
in community activities
+140,000
hours devoted
In 2019, our legal department at our HQ and across all our
markets have offered pro bono legal assistance to social,
cultural and educational non-profit organisations, assisting
vulnerable or socially excluded people.
In Spain, Portugal, Poland and the United Kingdom, pro
bono initiatives have included supporting vulnerable
children in need of education, and advising cancer sufferers
as to how their data is handled and protected by hospitals.
Santander Consumer Finance also joined the volunteering
scheme, providing legal training for immigrants every two
months.
The Corporate Centre offered legal training on contractual,
data protection and intellectual property issues to various
non-profit organisations. The "Legal Marathon" was held in
February to tackle the legal challenges that charities face
when creating a social enterprise.
In the United States, our legal teams advised "pro bono"
various charities on a wide range of issues, including
veteran matters, immigration, property law and family law.
In Argentina, Brazil, Chile and Mexico, we have given pro
bono financial training and legal advice: in Chile, we have
helped on 23 cases.
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Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and control
6. Health and occupational risk prevention
Santander considers employees' safety and health to be of
paramount importance. The continuous improvement of
working conditions, and achieving the highest level of
protection for our teams is a priority for the Group.
Our Occupational Risk Prevention plans are regularly
reviewed with employees´ legal representatives. These
plans are implemented through:
• Periodic evaluations of the risks that could be detected in
the workplace in terms of safety and / or health.
• Planning what needs to be done to eliminate or control
the risks detected.
• Considering how to prevent risks emerging in the first
place, by improving the design, contracting or acquisition
of products or services, such as work centres, furniture,
equipment, products and IT equipment.
• Developing, applying and maintaining the appropriate
procedures for the control and assurance of safe working
conditions.
• Ensuring employees get the information and training
they need.
• Integrating the prevention of occupational risks into the
management of the bank.
BeHealthy
In Santander, the health of our people is the health of our
company. This is why we have a commitment to be one of
the healthiest companies in the world. We offer employees
health and wellness benefits, and we raise awareness
through our BeHealthy wellbeing programme.
BeHealthy focusses on 4 main pillars: Know Your Numbers,
Eat Well, Move, and Be Balanced. The purpose of the
programme is to give employees access to health and
wellbeing benefits, which differ in each market we operate
in.
It has a digital space through which employees around the
world can access training on the four pillars of BeHealthy.
Employees can access the flagship training programme
called Sustaining Executive Performance, where they can
find the keys to achieving improved performance, both
personally and at work, by encouraging healthy habits. We
also have a global agreement with Gympass that offers
employees the chance to benefit from over 52,000 affiliated
health and wellness centres across the globe which offer a
wide range of activities.
In 2019, we launched a new nutrition programme about
optimum nutrition. Our employees have access to videos,
recipes and backup material such as infographics or
downloadable action plans.
We also held in 2019 our third BeHealthy week. Tens of
thousands of colleagues took part in various activities
related to the four main pillars of the programme.
3.0%
9,862
Absenteeism rateA
thousand hours missed
due to non-working
related illnesses &
accidents
0.2%
Severity rateB
For additional information
regarding remuneration data see
‘Key metrics’ section of this
chapter.
A.
B.
Hours missed due to work related accidents, non-work related illness or non-work related accident for every 100 hours worked.
Hours missed due to occupational accidents involving leave for every 100 hours worked.
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Responsible business practices
Being responsible means offering our customers products and services that are
Simple, Personal and Fair, and promoting ethical behaviours among our suppliers.
We need to do the basics brilliantly, and we must solve problems fast and learn
from our mistakes.
• Customer care on social media: we have to improve
constantly the way we care for and engage with
customers. This is why in 2019 we analysed the
countries´ social media customer care models and best
practices; and we have designed a global to-be model to
provide the best customer care on social media to be
implemented with countries.
Focusing on the customer
We listen to our customers
By placing our customers at the heart of what we do, we
aim to win and keep their loyalty.
To achieve that, we use a range of interactive channels to
listen to and understand them better. The Consumer
Protection function gathers Santander insights on
customers at a global working group called CuVo (Customer
Voice) that meets monthly, and includes all global areas that
have an impact on customers.
The matters discussed in this forum come from many
different channels. For example:
• Customer centres: these enable us to listen to our
customers’ views, in person and online, about our
products and services. For example, we invite our
Spanish customers to our corporate headquarters in
Madrid to get their insights about any possible product
launch. Meanwhile, we have created a digital platform
for online focus groups. We have customer centres in
Chile, Mexico, Spain and Portugal (last two were opened
in 2019).
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Transforming our customer experience
Customer satisfaction is critical to building loyalty. We
believe that we will achieve this by focusing on improving
our customers' experience. We are doing this in several
ways:
• Simplifying our products catalogue.
•
Improving the service for our clients with initiatives
such as Toque Santander in Mexico, a protocol that
reminds employees how to welcome customers, listen
and solve their problems, and how to encourage the
engagement with the Bank. Likewise, there is our
Service attitude program in Portugal - a mandatory
training focusing on the best ways employees should
behave to deliver excellent customer service.
Smart Red branches
Spain, Portugal , Mexico and UK are redesigning their
branches to generate a more positive experience. The Smart
Red branches have an innovative and functional design that
makes them more comfortable and accessible to all, and
they use technology to allow a more agile and personalised
service.
Our Work Cafés around the world
The Work Café concept adds a whole new banking
experience reflecting our commitment to bringing
innovation and investment to the branch network.
This innovative space for customers and non-customers
brings a bank, working area and coffee house together in a
single place. It is a collaborative space open to all, where
one can work, surf the internet, hold meetings, attend
events and, of course, make financial arrangements as it
works also as a branch. All of this can be done while having
a delicious coffee.
The Work Café concept was developed by Santander in Chile
in 2016. Since then, Spain, Portugal, Brazil and Argentina
have followed. In 2019, Work Cafés opened in Poland, UK
and Mexico. We currently have 69 Work Cafés across eight
countries.
More information of our Work Café
innovative branch concept available at
‘www.santander.com’.
• Enhancing our customers experience with new models
of branches, such as Work Café, Smart Red, Digital
(highly automated branch, focused on self-service and
multichannel strategy, videoconference booths and
tablets to support customers in digitalization, digital
sales of basic products and extended opening hours),
Fast point (service hub for monetary and operational
transactions with the quickest service), and
Multichannel point (small format retail kiosk to provide
banking services to customers located within retail
locations such as shopping malls).
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Customer satisfaction
We are consistently tracking our customers’ views and their
experiences with Santander. This data reveals where we can
improve our services further, and helps us gauge customers’
loyalty to Santander. More than a million surveys are
conducted annually.
We measure the loyalty and satisfaction of our customers
through the Net Promoter Score (NPS). This metric has been
included as a metric in the variable remuneration systems
of most of the Group’s employees.
In 2019 we were in the top 3 in 6 out of 9 geographies.
Three main drivers impact NPS: the main driver is service
(56%), followed by product and price (24%) and image
(20%).
In 2019, the number of loyal customers increased by 1.7
million, to a total of 21.6 million loyal customers.
Internal benchmark to measure customer satisfaction, audited by Stiga / Deloitte
We measure 3 main
drivers: Service,
Image and Product
Price
SERVICE
Branch
Channels
Personal
Simple
General service, waiting time, meet your needs when
you visit the branch, layout,….
Mobile, internet, ATM, CDM, contact centre, personal
manager
Treats me as an individual, kindness, employee
professionalism….
Simple to operate, speed and agility….
Communications
Clarity of statements, offer and promotions info,
consistency of info, ……
Problems
Issues perceived
IMAGE
Strong and solid, commitment to social responsibilities,
innovative, trust, transparent….
PRODUCT PRICE
Product and service offer, simple products, fees and
charge, benefits offered, credit card, ….
Customer satisfaction by channel
% of satisfaction among active retail customers
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banking
Economic
and financial review
governance
Risk management
and control
Protecting consumers, helping
vulnerable customers
Being responsible means offering our customers products
and services that are Simple, Personal and Fair. We need to
do the basics brilliantly and, when it comes to customer
protection, we aim to go beyond legal requirements.
In 2019, we have implemented a reporting process from
countries to assess whether we are embedding our
principles and adopting SPF behaviour with customers.
Customer protection policy and principles
Data protection
Santander Group has a strong culture with a focus on
consumers. To embed this, the Compliance & Conduct
function has developed the Customer Protection Policy,
which sets out principles that embody how we expect our
teams to handle customer relationships.
Customer protection principles
To ensure our Consumer Protection principles are
embedded into our day to day practices, we have launched
thematic reviews involving different issues related to the
protection of our customers: treating customers in fraud
cases, in debt collecting activity, and customer care on social
media. As a result of this, we have created action plans to
share best practices across the Group; launched awareness
campaigns in several countries; and held workshops on
product governance and consumer protection.
Customer protection principles
Santander is fully committed to ensuring that customers'
personal data is collected, stored and used safely and
securely.
While 2018 saw the implementation of General Data
Protection Regulation (GDPR), in 2019 our focus was on
reviewing key internal procedures to ensure their effective
implementation; and the consolidation of our control
framework to monitor compliance and anticipate potential
breaches. We have also created new guidelines and
operating criteria to reinforce corporate guidance for our
business units and to achieve everyone understands what is
expected of them. We also launched a a series of corporate
initiatives to foster cooperation and share best practice.
Treat Customer fairly
Complaints handling
Consideration of special
customers`circumstances
and prevention of over-
indebtedness
Data protection
Customer-centric design of
products and services
Responsible pricing
Financial education
Transparent
communication
Responsible innovation
Safeguarding of assets
Vulnerable customers
We consider a vulnerable customer to be someone whom,
due to their personal circumstances, is especially
susceptible to suffer a financial and / or personal damage or
loss. Customers can be considered vulnerable for a number
of reasons like gender, age, incapacities, disabilities or
impairments, limited access to education and illiteracy.
This definition is included in the guidelines we have
approved in 2019, which have been developed to establish
a consistent approach throughout the Group regarding
vulnerable customers.
The goal is to prevent their over-indebtedness, ensure they
are always treated fairly, with empathy and sensitivity
according to their particular circumstances.
Additionally, since 2019, as part of the continuous
enhancement of the new product validation process, it is
required to specify whether the new product or service can
be offered to a vulnerable customer.
Santander UK has developed a framework to help our
understanding of vulnerability in order to be able to offer
support and special treatment to those customers. This
framework allows easy access to relevant information for
employees and customers, and considers vulnerability within
internal governance across all product and process
developments. This model includes specific training to assist
all employees to identify situations in which customers may
need support.
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Product governance
Our governance structure reflects the importance we attach
to protecting customers' interests.
Our Product Governance & Consumer Protection function,
within our Compliance and Conduct area, is responsible for
ensuring appropriate management and control in relation to
products and services and consumer protection.
Within this function, the Product Governance Forum
protects the customers by validating products and services
and preventing the launch of inappropriate ones.
In this context, the current focus is on the following topics:
• How we use digital technology without undermining
customers' rights. To achieve this, in 2019 we created a
guide to help the business areas to identify what needs
to be considered in terms of the design, launch and
post-sale of digital products in order to protect
customers' rights.
• Consumer finance products targeted at vulnerable
segments, as we must ensure applicable financing
terms are reasonable and over-indebtedness is not
encouraged.
Sales force cultural transformation
We want our managers to lead culture change, reflecting
not simply our customers' rising expectations but also the
fact that the first line of defence is key to managing risk and
creating a sustainable business. For these reasons we
believe that improving our remuneration plan is directly
correlated with our customers’ satisfaction.
To achieve this, a three year transformation plan is
underway to revise our remuneration practices for our
sales force. Corporate Compliance & Conduct, with the
collaboration of HR and local teams, have monitored the
implementation of the local action plans to check that
significant improvements are made. The action plan covers
topics such as governance, variable/fixed remuneration
ratio, linear business objectives that do not promote specific
products, and relevant weight of quality components with
adequate diversification of conduct metrics.
Since 2017 we have reached, in 5 out of our 10 most
relevant geographies, the objective of setting a 40% of
variable remuneration based on conduct and quality
components.
Training is also critical if we are to improve customer
service. The main initiatives include designing a specific
mandatory course on conduct risk with customers for all
employees, and developing a procedure for sales force
training. The Conduct and Compliance and HR functions
in our subsidiaries have focused during 2019 on
ensuring good governance in this area, analysing the
adequacy and sufficiency of existing training initiatives,
ensuring a relevant presence of customer conduct issues
in training programs and strengthening the control
environment. Local action plans are in progress.
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2019 Annual Report
Since 2019, the Responsible Banking Unit is also
represented on the Product Governance Forum. Also, the
product validation process involves ESG categorization and
how we are supporting vulnerable customers.
For more detail on product governance
and consumer protection see ‘Risk
management and control’ chapter.
Santander Consumer Finance and
responsible lending
Santander Consumer Finance (SCF) distinguishes between
credit worthiness and affordability.
SCF is assessing the market best practices both from a
prudential and conduct perspective, as well as regulations
in place in the different markets in which it operates. Based
on them it is defining a policy to be complied with in all
units. The aim is to provide responsible financing in the best
interest of customers and SCF.
Santander Bank Polska: authors of
the Declaration of Responsible
Selling
Santander Bank Polska is one of the originators and authors
of the financial market self-regulation standard called "The
Declaration of Responsible Selling". The project has been
initiated by financial institutions and is coordinated by the
Polish Consumers’ Association.
The aim is to raise and promote ethical standards in
relationships with customers, educate the business and
consumers, improve consumer trust in the financial sector
and prevent unfair practices. It is the first example of a
partnership of businesses who want to improve the quality
of banking services. Its founders also include ANG
Cooperative and BNP Paribas Bank Polska.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Complaints management
We don’t simply aim to address complaints, but to learn
from them – tackling the issues that gave rise to complaints
in the first place. The Group's procedure for complaint
management and analysis aims to handle any complaints
submitted, ensuring that customers may submit complaints
via their usual contact channels including digital ones (web/
internet banking/App/social media) and to provide
customers with the best possible service.
In 2019 the Group has focused on the first point of contact
resolution with customers, to improve complaints handling
and the customer experience. We have also sought to
improve the root cause analyses of complaints in all the
markets where we operate, while strengthening reporting
of mitigation plans and governance.
We listen to our customers and act to improve
our service, as their loyalty is important to us
and generates sustainable returns.
Listen
We listen carefully to our customers´
questions, complaints and claims.
Analyse
We review and understand our customers’
needs.
Act
We provide innovative solutions to address
complaints.
Improve
We apply new processes globally.
Type of complaintsA (%)
Average resolution timeA (%)
ResolutionA , B (%)
A. Personal Protection Insurance (PPI) complaints in UK are excluded. This adjustment has been made to avoid a biased global outcome.
B. If the UK complaints were included, the uphold ratio would decrease up to 16%.
C.+2 p.p. vs 2018
Continuous improvement of processes
During 2019, Santander UK continued to improve its
resolution of customer issues by simplifying processes and
through a dedicated knowledge tool, providing customer-
facing employees with improved access to information and
enabling them to solve customer problems faster.
The evolving content and usage of a single knowledge tool,
coupled with increased coaching, has driven improved
customer experience through resolution of issues at first
point of contact in branches and telephone channels, and
resulted in overall complaint volumes (excluding Personal
Protection Insurance) reducing by 15%.
Argentina has launched COSMOS, a new customer
service and problem resolution model, which includes
digital attention to queries and complaints on all channels;
automated complaint resolution and service requests
through predefined business rules; diverting to offline
resolutions for more complex cases; multichannel
monitoring and more resolution information.
As a result, the length of calls to contact centres has
decreased 50%, the average resolution time decreased
from 5 days up to one day, and the NPS improved from -10
up to 48 in December 2019.
Payment Protection Insurance (PPI) complaints
The Financial Conduct Authority set a deadline of 29 August
2019 for PPI complaints and delivered a nationwide
communications campaign to raise awareness of this
deadline among consumers. In line with industry
experience, we received unprecedented volumes of
information requests in August 2019 and saw a significant
spike in both these requests and complaints in the final
days prior to the complaint deadline, with the processing of
these claims ongoing.
Cumulative complaints to 31 December 2019 were 4.4
million, including 327,000 (approximately) that were still
being reviewed. Future expected claims, regardless of the
likelihood of Santander UK incurring a liability, were 49,000
(approximately).
We aim to clear the majority of the PPI complaints by the
end of the first half of 2020, and the remaining queries
second half of 2020.
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Responsible procurement
We have a responsibility to ensure that our suppliers are
themselves acting responsibly, as suppliers have an impact
on society and the environment. So we expect our suppliers
to uphold ethical, social and sustainable standards just as
we do.
We have a model and a certification policy for managing our
suppliers, setting out a common methodology for all
countries to follow when selecting, approving and
evaluating suppliers. In addition to traditional criteria such
as price and quality of service, diversity and sustainability
issues are included in this methodology, through the
Principles of Responsible Behaviour.
Following the approval of these principles in 2018, during
2019 we enhanced the existing supplier questionnaire to
reflect the new Principles of Responsible Behaviour,
including diversity and inclusion, and human rights. These
applied to all the new suppliers, reaching at least 5,000 of
our critical vendors per year.
In total, the Group has 9,863 certified suppliers (-7% vs
2018). 16.7% of the total supplier base in AquanimaA,, has
been certified for the first time in 2019 (+5 p.p. vs 2018).
Additionally, in 2019 we awarded 8,721 contracts (+6% vs
2018) to 4,744 suppliers (+4% vs 2018) through Aquanima.
Of those suppliers, 93.2% were local (companies that
operate in the same geographical area where the purchase
is made), representing 95.7% of the total volume of
purchases (+1 p.p vs 2018), reflecting our support to the
local economies.
We also have a whistleblowing channel for suppliers,
through which any supplier that provides services to the
Group is able to report inappropriate conduct by Group
employees which breaches the General Code of Conduct.
This whistleblowing channel has been implemented in
Argentina, Brazil, Chile, Mexico, Portugal, Spain, United
Kingdom and United States.
The Group is working to implement different controls and/or
audits to the suppliers which allow us to ensure policy
compliance as well as alignment with our corporate values.
Risk control
• Suppliers are an important community at Santander. In
2018 a new focus on risk assessment was agreed at
Group level. This goes beyond the traditional approach
on financial, reputational, tax, health and other issues,
adding specialists into the onboarding process to check
our largest suppliers' performance in five key areas:
Cybersecurity, Business Continuity, Physical Security,
Facilities and Data Privacy. These specialists provide
suppliers with advice on how to improve their
performance, and monitor the implementation of any
remediation plan.
• With the support of the Compliance Unit, all companies
in Spain have implemented the Norkom system, which
is software to prevent money laundering and the
financing of terrorism. This tool allows us to perform a
daily check of suppliers; it will be progressively
implemented in the other countries during 2020. In
addition, in order to control better the cybersecurity
among our suppliers, we have assesed their
cybersecurity ratings using data supplied by the
American company BitSight.
•
In 2020, we will launch a new platform for supplier risk
management. This tool will create as a single point of
contact for the Group with its suppliers and will mean
all the supplier management and information will be
on an integrated into a single platform making the
system more efficient and dynamic.
A. Aquanima is the Group´s subsidiary specialized in purchases.
Brazil, promoting the sustainability amongst its suppliers
Santander Brazil promotes the sustainability of its suppliers
in different ways:
• It has a portal for suppliers management through which it
promotes best practices.
• It adheres to CDP Supply Chain to foster the commitment
of its suppliers to climate change.
• It holds events to share with suppliers best practice to
reduce operational, social and environmental risk. In
2019 it focused on personal data protection and
cybersecurity laws.
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Shareholder value
Our aim is to build lasting loyalty among our four million shareholders by
delivering sustainable growth and stable profits
Creating value for the shareholder
Shareholder remuneration
As a responsible bank, transparency and engaging with our
shareholders and investors is a priority.
We are addressing key shareholder issues as follows:
• Equality principle for all shareholders: one share, one
vote.
• Encouraging active, informed participation at
shareholders' meetings. In 2019 Santander broke its
record for participation, both at the general meeting of
shareholders (quorum of 68.5% and nearly one million
shareholders participating) and at the extraordinary
general meeting (quorum of 59.2%).
• At our 2019 annual general shareholders’ meeting we
took one additional step to incorporate blockchain
technology for shareholder voting. Building on the
success with our institutional tranche last year, we
launched a pilot targeting the delegation and voting cycle
of minority shareholders. Blockchain technology offers
greater transparency during the voting cycle, helps
simplify the process, increases the motivation to vote,
and improves voting security. The best results in digital
participation were also achieved at a general meeting
(more than 300,000 shareholders).
• Maintaining constant communication with shareholders
and investors, informing them about the evolution of the
Group and the share and encouraging a fluid dialogue
with them, is also a priority for us.
In 2019 the Santander remained one of the most profitable
and efficient banks in the world. In a trading environment of
high volatility, we met all the financial targets we set .
• Total shareholder remuneration has been 23 cents per
share in 20191. The percentage of the underlying
attributable profit of 2019 dedicated to shareholder
remuneration (pay-out) is 46.3% (within the range of
40%-50% announced at the beginning of 2019) and the
proportion of cash dividend 89.6%2 (thus exceeding
that of 2018, also as announced at the beginning of
2019).
• The European banking sector, against a backdrop of
economic slowdown, was affected by changes in the
monetary policies of the main central banks, especially
the European Central Bank. The Santander share price
ended the year at EUR 3.73, as it was additionally
affected by some uncertainties in geographies in which
the Group is present3.
• On 31 December, Santander was the second bank in the
Eurozone and the twenty-fifth largest bank in the world
by market cap at EUR 61,986 million. It had
16,618,114,582 shares outstanding and posted daily
average trading of 76 million shares in 2019.
4
million
shareholders
EUR 3,822
million total
shareholders
remuneration1
EUR 0.23
total shareholders
remuneration per
share1
0.20 cash dividend
per share1, c.+3% vs
2018
EUR 4.36 TNAV per
share +4% vs 2018
Share capital ownership
Geographical distribution of share capital
1 The board of directors has resolved to submit to the 2020 annual general meeting that the second payment of remuneration against the results of 2019 amounts to
0.13 euros per share by means of (1) a final dividend in cash of 0.10 euros per share (the 'Final Cash Dividend') and (2) a scrip dividend (under the 'Santander Dividendo
Elección' scheme) (the SDE Scheme) that will entail the payment in cash, for those shareholders who choose so, of 0.03 euros per share. In November 2019,
shareholders received the first dividend charged to 2019’s earnings, totalling EUR 0.10 per share in cash. The total dividend for 2019 would be EUR 0.23 per share
(EUR 0.20 in cash and EUR 0.03 in scrip).
2 Assuming a ratio of cash options in the Santander Dividendo Elección scheme of 80%.
3 Presidential elections in Argentina; social protests in Chile; Brexit in the United Kingdom; or the ruling on mortgages in Swiss francs in Poland.
A Shares owned or represented by directors. For further details on shares owned and represented by directors, see Corporate Governance chapter.
For more information on shareholder
transparency & remuneration, please see section
3 of the Corporate governance chapter.
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Economic
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Risk management
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Awards and recognitions
Environmental commitment
Social commitment
The performance of our Shareholder
and Investor Relations team was
recognised by prestigious industry
publications such as IR Magazine
and Institutional Investor, and it
gained prominent positions in the
Extel survey.
In 2019 we have offset the carbon footprint
of our main corporate events globally.
We were the first European financial
institution to obtain AENOR certification for
its Investor Day. AENOR also renewed for the
third year in a row its certification of
"sustainable event" for our Ordinary General
Meeting and also for the Extraordinary
General Meeting.
In collaboration with the Fundación
Universia, in 2019 Santander awarded
60 grants to university students with
disabilities, shareholders and their
relatives, to support socio-occupational
integration of people with disabilities.
Engagement with shareholders, investors and analysts
The Shareholder and Investor Relations team had the following
priorities in 2019:
– Maintain continuous, fluid communication as well as the
dissemination of relevant information to our stakeholders,
fostering a flowing dialogue.
40,924
shareholder and investor
opinions received through
studies and qualitative
surveys
3,507
contacts with institutional
investors (including 126
meetings with ESG
investors and analysts)
– Optimise and enhance the Group’s reputation in the markets.
– Offer shareholders and investors personal attention adjusted to
their needs, and adapting the channels to their profile.
– Facilitate the participation of shareholders in the progress of the
bank through, for example, the general shareholders' meeting.
– Offer exclusive products and benefits through the new
yosoyaccionista.santander.com website.
In 2019 we launched a new section for shareholders and investors
on the corporate website, which improves user experience by
facilitating access to information and improving accessibility from
mobile devices.
322
events with shareholders
133,939
queries managed by
email, phone, WhatsApp
and virtual meetings
+800
communications using
mainly digital channels
Evaluation of Santander by ESG indexes and analysts
Santander sustainability performance is periodically
evaluated by well-regarded indices and ESG analysts.
These evaluations and their results are used internally to
measure our performance and identify improvement
opportunities. In 2019 our results stand out in both the
Dow Jones Sustainability Index (DJSI) and Vigeo Eiris.
Santander was recognised as the most sustainable bank in
the world by the DJSI, an international benchmark which
assesses economic, environmental and social impact of
over 175 banks globally. The bank achieved a total score of
86 points out of 100, achieving the maximum score in a
number of areas, including tax strategy, privacy protection,
environmental reporting, corporate citizenship and
philanthropy, and financial inclusion. As a result it has
received the Gold Class distinction.
In November 2019 Vigeo Eiris updated Santander’s ESG
rating profile and the new ESG overall score achieved shows
a notable improvement, moving from a position of 22nd in
the sector in December 2016 to 5th in 2019. Vigeo Eiris
recognised upward trends in four areas of performance:
Environment, Human Rights, Community Involvement and
Corporate Governance.
In addition, Santander remains a constituent of the
FTSE4Good Index Series and is also evaluated by other ESG
analysts such as Sustainalytics, ISS-ESG or MSCI.
Others ESG analyst valuationsA
Rating/Scoring
2019
Vs.last 2018 Vs. Sector average
year
=
=
DJSI
ISS-ESG
MSCIB
Sustainalytics
Vigeo Eiris
86
C
BBB
32.7
63
86
C
A
First position within
the banking sector.
Gold class
> (decile rank of 2 out
of 280 companies in
the industry)
-
30.8 > (52nd percentile in
the industry group)
> (rank 5 of 31
companies in the
sector)
57
A.Source: latest ISS-ESG rating (on a scale of A+ to D-) available at January
2020, compared to December 2018. The ISS-ESG decile rank of 1 indicates the
highest relative ESG performance, and 10 the lowest. Latest MSCI ESG rating
available (on a scale of AAA to CCC) at June 2019, compared to October 2018.
Latest Sustainalytics scores (on a scale of 0 to 100) available at December
2019, compared to November 2018. Since September 2018 Sustainalytics has
applied a new methodology for its ratings, where the score indicates a
company’s exposure to and management of ESG risks. Latest Vigeo Eiris overall
scoring (on a scale of 100 to 0) available at November 2019, compared to
December 2018.
B. Please review page 104 for MSCI disclaimer.
For more information on
communication with ESG analysts,
see section 3.1 of the Corporate
Governance chapter.
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Inclusive and sustainable
growth
We play a major role in supporting inclusive and sustainable growth
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Economic
and financial review
governance
Risk management
and control
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Meeting the needs of everyone
in society
We want to increase our customer loyalty by offering services and products that
enable all our customers to manage their finances in the best possible way.
Our value proposition aims to meet the differing needs of our customers
Total customers
145 million
Loyal customers
21.6 million
Customers loans
EUR 942,218 million
Customer funds
EUR 824,365 million
The financial sector is key to sustainable economic and
social growth, and banks play a very specific role: we
manage the savings of individuals and companies, finance
their needs and facilitate commercial transactions.
Good access to finance improves a country’s overall welfare
because it enables people to thrive and better manage their
needs, expand their opportunities and improve their living
standards.
Our value offer
Our value offer adapts to the economic and social
circumstances of each of the markets in which we are
present, complemented by the advantages offered by our
global businesses such as Santander Corporate &
Investment Banking and Santander Wealth Management &
Insurance.
In addition, we have developed and launched Santander
Global Platform (SGP), through which we aim to create the
best open financial services platform. By consolidating all
our digital services under a single unit, we will be able to
leverage the Group’s talent and scale in high growth
payments and digital businesses, targeting retail customers,
large businesses and SMEs.
2019 highlights:
• Loans and advances to customers increased 7% year-on-
year. 47% of loans were to individuals, 17% to consumer
credit, 24% to SMEs and companies and 12% to corporate
customers and institutional investors.
• Customers funds increased 6% year-on-year.
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banking
Economic
and financial review
governance
Risk management
and control
Helping people and families
When people are financially included, they can manage
their money more easily - and thereby get access to better
housing, healthcare and education; start a small business;
and buy insurance to protect themselves from shocks. In
this way, finance helps to reduce inequalities, and create
new opportunities in society.
In 2019 credit to households increased 6.6% year-to-year.
Credit to households
Loans to customers at December 31, 2019, net of impairment losses
Residential
Consumer loans
Other purposes
Total
millions euros
332,881
167,338
19,777
519,996
Digital solutions for better personal financial
management
Openbank
We continued investing across the Group in better, smarter
and more accessible services which empower our customers
- especially in terms of easy to use, simple, safe and
effective payment and accounts solutions via mobile
devices.
One Pay FX. The first multi-corridor international
blockchain solution in the world for individuals and SMEs-
was launched in four Santander Banks (Spain, UK, Brazil and
Poland) in 2018: two more countries have joined in 2019
(Portugal and Chile), and Mexico will be offering the
solution in early 2020.
One Pay FX offers transparency & predictability, competitive
cost, digital experience and better speed, improving the
current sub-optimal customer experience and client
stickiness through a best-in-class global payment system.
Openbank is Europe’s largest fully digital bank and part of
the Santander Group. Developed in Spain, our strategy is to
expand its operations across Europe and the Americas.
In 2019 Openbank was launched in Germany, Portugal and
the Netherlands. The bank offers a fee-free current account
that allows free transfers to any EU country via the
Openbank website or mobile app. This account comes with
a free debit card that allows customers to use all mobile
payment systems (Apple Pay, Google Pay, Fitbit). Customers
can also turn on and off their cards from the website or app,
as well as being able to block them in a particular country
and unlock them instantly. Users can restrict the use of their
cards to particular channels, such as ATMs, online or
physical purchases, while also being able to authorize or
block devices from which their account has been accessed
within the last 30 days.
All Openbank cards have a charitable purpose and are
linked to a charity chosen by the customer through the first
‘charity marketplace’, made up of a group of charities,
selected by the bank
Openbank was named Best Bank in Spain in
2019 by Forbes while achieving the best ‘Net
Promoter Score’ (NPS) among Spanish banks.
Country examples on value offers for different segments
Santander Senior
iU Segment
Santander ELA
We offer products and services, financial
and non-financial, suited to meet the
needs of the growing number of people
aged over 65 (forecast to account for 25%
of the population in 2030) who need
support in planning their savings for old
age.
Santander iU was created by Santander
Rio for customers aged between 18 and
31 years old. The credit cards offer
advantages such as discounts on certain
transport services, brands and events;
facilities for university payments, direct
debit. It also offers information tailored
for young people on topics such as
entrepreneurship, job search,
volunteering initiatives.
To support businesses led by women,
Santander Brazil has worked with IFC
Brazil to offer a senior loan for US$225
million to finance Santander’s loans to
women-owned SMEs, with a 15%
discount on the rate during the month of
June. The program was a success and
every available line was taken up during
that month.
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Boosting enterprise
Small and medium-sized enterprises are a key driver of
economic growth, especially job creation. It is critical that
we support them - by lending and providing them with
technologies that help them grow, employ more people and
have everything they need to make their business
competitive. At Santander we want to contribute to this
growth and become the bank of choice for SMEs. By helping
them, we can help all society prosper.
We now work with more than four million SMEs around the
world, offering an increasing number of services to support
with their growth and trade overseas.
In 2019, credit to companies and individual entrepreneurs
increased 5.8% year-to-year.
Agreements with multilateral entities
Our focus on customers, our size and diversification enables
us to maintain close relationships with a number of
multilateral organisations such as the European Investment
Bank (EIB). Working with these organisations, we can offer
businesses credit lines with advantageous conditions.
In Spain, we recently signed - with the European Investment
Bank Group, comprising the European Investment Bank
(EIB) and the European Investment Fund (EIF) - a line of EUR
1,900 million to offer Spanish mid-caps and SMEs financing
with advantageous conditions.
In Brazil, we have signed a 200 million euro credit line with
the International Finance Corporation (IFC) to expand credit
to small and medium-sized enterprises where women hold
at least 50% of management positions.
In Poland, in cooperation with the EIB, we have negotiated a
credit line of EUR 400 million available to SMEs and mid-
cap companies, with a special focus on the development of
micro-enterprises.
Credit to companies and individual entrepreneurs
Large companies
SMEs and individual entrepreneurs
Other purposes
Total
millons euros
173,090
124,559
21,967
319,616
In total, in the last three years, the Group has signed
agreements with multilaterals such as EIB, EBRD, IFC, CEB
and CAF to offer financing lines to SMEs in Spain, Brazil, and
Poland for a total value over EUR 2,500 million.
Supporting the most vulnerable SMEs
The European Investment Bank will participate in a portfolio
of corporate loans approved by Banco Santander to the
volume of EUR 450 million. This support will allow the
Group in Spain to make EUR 900 million available to SMEs.
Part of this sum will be for financing vulnerable SMEs: self-
employed people; micro companies with fewer than ten
employees; and small businesses that perform their activity
in regions with high unemployment. This agreement will
enable us to support to almost 7,000 SMEs, providing jobs
for about 160,000 people.
Patricio González, an agricultural entrepreneur in Mexico
A good example is the Valencia family, who are one of the
first berry producers to work with Patricio González. Before
they joined Sun Belle, this hard-pressed family had a small
cattle business. Now their quality of life has significantly
improved. Thanks to the business loans approved by
Santander through Sun Belle, they established their own
company to supply Sun Belle, creating new jobs in their
community.
In 2001, Patricio González, an agricultural entrepreneur
from Chile, tried to expand his berries production in Santa
Clara del Cobre, a poor area located in the state of
Michoacan, Mexico. He needed financial support to achieve
his goal. That same year Sun Belle, Patricio’s small
company, received its first loan from Santander, the only
institution that trusted this project. For González, this
changed everything.
Today, Santander is Sun Belle’s main bank, and this
company’s production has exponentially grown from
250,000 boxes of berries to around 7.5 million. Sun Belle
works with 900 local producers that the company supports
by providing technical knowledge and by purchasing all of
their production.
Santa Clara del Cobre, a traditional artisan and craft
community based on farming, has seen poverty fall thanks
to access to new services and education.
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banking
Economic
and financial review
governance
Risk management
and control
Innovative solutions to drive business growth
The world of payments is a critical component in finance.
Payments systems allow banks know their customers’
needs and preferences, enabling the banks to personalise
the products and services they offer.
At our Investor Day in April 2019 we set out how Santander
Global Payments will be the cornerstone of our global
platform and loyalty strategy, consisting of Global Merchant
Services (GMS), Global Trade Services (GTS) alongside our
other payment businesses (Superdigital, PagoFX). This
payments platform will allow us to serve existing and new
customers better, with best-in-class value propositions
developed globally.
Global Trade Services (GTS)
Supports small and medium-sized businesses access global
trade finance. This platform will offer trade finance, supply
chain, payments, and foreign exchange, while operating
quickly and efficiently for SMEs.
Global Merchant Services (GMS)
Gives online and offline retailers the ability to accept various
forms of payment, helping them better manage and grow
their business; built with Getnet, a leading payment
platform in LatAm. We are currently extending it to Mexico
and other Latin American market.
In 2019 we also invested EUR 400 million in acquiring
50.1% of Ebury, one of the major payments and forex
platforms for SMEs, which already operates in 19 countries
and with 140 currencies. With this investment we want to
drive Ebury's growth through a capital increase, and benefit
from the opportunities that will arise from helping more
SMEs grow around the world. Ebury is looking to enter new
markets in Latin America and Asia.
Trade Club Alliance
Along with other international banks, we launched
the Trade Club Alliance, a global network of banks aiming to
make international trade simpler with an innovative digital
platform which enables companies in Europe and Latin
America to connect with each other. This new platform will
provide members with market information on more than
180 countries including currency analysis, market trends
and shipping requirements, serving as a conduit for trusted
buyers and suppliers to connect with counterparts in
markets around the world.
“Santander is the best positioned bank to
help SMEs in their international expansion
and to provide them with global services for
trade finance”.
Ana Botín, Group executive chairman.
Santander Cash Nexus, global connectivity for the bank’s largest corporate multinational clients.
For our largest corporate clients, Santander Cash Nexus
offers an industry-leading, highly-automated mass
transaction engine that combines the best security
technologies and procedures available today with 24/7
availability.
At its core, Santander Cash Nexus provides clients with a
single point of entry to the global treasury management
services we offer in the countries where we operate. The
platform is currently available in more than 15 countries.
Santander Innoventures
Santander InnoVentures (SIV) is our $200 million corporate
venture fund. SIV invests in start-ups in fintech and adjacent
areas to accelerate their growth, support entrepreneurs and
teams with the capital, scale and expertise of the Santander
Group. Since launching in 2014, the fund has invested in
more than 25 companies, being one of the most active
bank-backed fintech corporate venture in the world. Over
70% of the fund’s portfolio companies are now in strategic
engagements with Santander
By creating one, simple platform for SCIB’s global
connectivity solutions, SCIB helps clients optimize costs,
achieve greater control over their transactions, and provides
a standardised digital service in the countries where
Santander operates and Cash Nexus is available.
Cash Nexus is already being used by more than 100 of
SCIB’s global clients.
In 2019 we invested in companies, as for example:
• Klar, a Mexican alternative to traditional credit cards and
debit services.
• Trulioo, a Vancouver-based global identity verification
provider.
• Securitize, a California-based startup which offers a
trusted global solution for issuing and managing
compliant digital securities on the blockchain.
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Financial inclusion and
empowerment
We help people get access to finance; set up and grow microbusinesses; and give
them the skills to manage their finances through financial education. Our aim is to
financially empower 10 million people from 2019 to 2025.
Target
Progress
We believe that we can help more people prosper
and enjoy the benefits of growth by empowering
them financially: giving them access to tailored
financial products and services, and improving their
financial resilience through education. So we aim to
financially empower 10 million people between
2019 and 2025.A
A. In order to measure, assess and improve the Bank’s contribution to financial inclusion, we have designed a Santander Group corporate methodology tailored to
Santander’s requirements and specific mode . This methodology sets out a series of principles, definitions and criteria that can be used to consistently count those
individuals who have been financially empowered through the diferent initiatives, products and services promoted by the bank.
Digital technology: boosting access to finance
We want to give everyone access to financial services,
regardless of factors such as income level, gender,
educational attainment, geographic location or age.
Our flagship digital platform Superdigital helps us achieve
this ambition, allowing us to overcome some of the barriers
that prevent unbanked and underserved populations from
accessing financial products and services.
Our branches and ATMs in remote locations are also an
integral part of our strategy to foster access to basic financial
services. We operate branches in sparsely populated regions
in Spain, Portugal, and the US and branches in remote
locations in Argentina. In Mexico, we have reached
agreements with retailers to manage basic financial services
through their POS.
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Fostering access to basic financial services: our twin track
approach
Traditional
banking
Branches, ATMs and retail
agents
+
Digital banking
Internet + Mobile banking
Guaranteeing access for all segments
Sparsely
populated
communities
Low-income
communities
Most
vulnerable
groups
University
students
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Superdigital - Banking without a bank
Mobile phones and the internet are powerful tools to drive
financial inclusion amongst the unbanked or underserved.
We want our digital platform Superdigital to become the
single-most important access-point to financial services for
many of our low-income clients in Latin America.
Available in Brazil, Mexico and Chile, Superdigital leverages
the rapid growth in smartphone adoption and improved
network coverage in Latin America to increase financial
inclusion in the region1. To date the platform has almost
500,000 active users, with plans to reach five million active
clients by 2023 across seven markets in Latin America. In
the long-term, we aim to have 10 million active users on
the platform given the growth potential of digital payment
solutions in the region.
Developed with Santander's proprietary technology,
Superdigital is very user-friendly and offers a differential
customer experience. For instance, clients are able to make
online financial transactions without having a bank
account, chat with other users of the app, split expenses
amongst groups, and receive automated alerts regarding
their financial situation. At the same time, fostering digital
channels such as Superdigital allows us to drive greater
operational efficiencies within the bank, enabling us to
serve this segment in a sustainable manner.
In Brazil, Superdigital’s largest market, the platform offers
access to financial services to individual micro
entrepreneurs who use the platform to pay suppliers and
receive customer payments and companies with large
numbers of employees on their payroll that large banks
tend not to serve. Access to financial services through our
digital channel, combined with financial education, helps
our customers develop their financial resilience.
Globally, 1.7 billion adults
remain unbanked, yet two-
thirds of them own a mobile
phone that could help them
access financial services1
45% of adults in Latin America
sent or received digital
payments in the last year vs.
91% in high-income economies2
For more information visit
Superdigital Brasil
Superdigital México
Superdigital Chile
(1) According to GSMA, which groups more than 750 telecom operators
worldwide, smartphone adoption in Latin America will reach 78% of total
connections by 2025, compared to 62% at the end of 2017. Source: GSM
Association (2018).
(1) Source: World Bank (2018)
(2) Source: World Bank (2017)
Other initiatives and services that offer physical access to financial services
Financial inclusion
branches & remote
agents in Argentina
Santander Río has opened four
branches in Buenos Aires (in the
neighborhoods of Santa María,
Castelar Sur, La Juanita and Don
Orione, which previously had no
banking coverage) as means to
encourage financial integration.
Branches in small
villages in Portugal
Partnerships with
Oxxo and 7 Eleven
for cash-in, in Mexico
Cashless program in
Poland
In Portugal, Santander operates
79 branches in small urban
areas, highlighting those in
Azores and Madeira islands,
providing services to over
103,623 customers.
In Mexico, Santander offers
customers the ability to carry
out basic transactions through
more than 26,000 convenience
stores such as Oxxo, 7 Eleven
and others.
Developed by the Polish
government, this program aims to
expand the card payment network in
small urban areas and amongst
small and micro businesses. The
program allows participants to use a
card terminal at no cost for the first
twelve months.
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Banking the unbanked, while
supporting our more vulnerable
customers
We offer specific banking products aimed at those groups
who are not in the banking system, who are underserved or
who are financially vulnerable.
Microfinance products and services can support economic
and social development in a number of ways. They can help
increase people’s earnings potential; help increase their
spending on necessities such as education and health; and
help people save for retirement or unforeseen events1.
Our geographical footprint is wide and our clients' needs
differ significantly across countries. As a result, our
microfinance products and services are tailored to meet local
needs, with a focus on income-generating loans to low
income and underbanked entrepreneurs.
In Latin America, we launched our microfinance offer in
2002 in Brazil and have since scaled up rapidly across the
region, starting operations in Argentina and Mexico. Most
recently, in 2019, we set up our microfinance programme in
Uruguay, leveraging on the Group’s existing presence in the
country.
In mature markets, our initiatives are focused on affordable
housing programs and loans to SMEs in Spain, US and
Portugal, with plans to further enhance our product offering
in these countries.
1Source: World Bank (2018)
2 In developing economies 67% of men but only 59% of women have an
account, a gender gap of 8 percentage points. Source: World Bank (2018)
Financial solutions to support unbanked, under-
banked and vulnerable customers
Microfinance programmes
Our programmes target micro-entrepreneurs and mainly focus on
women borrowers, given that in developing countries women are
less likely than men to own a bank account2. Our value offer
includes microloans, microinsurance, and remittance services,
amongst others.
Affordable housing initiatives
In the US, through our Inclusive Communities Plan, we offer
affordable home purchase and home improvement products. We
also lend to projects that benefit low-to-moderate income
individuals and communities, primarily through affordable
housing projects.
In Spain, we have contributed 1,000 homes to the Social Housing
Fund, of which 985 are for rent. Meanwhile, we have another 609
houses with more affordable rents for families in a vulnerable
situation.
Specific programs to refinance debt
In Spain, since 2011 we have helped more than 140,000 families
with financial problems to continue paying their mortgages, with
specific measures which include: the suspension of evictions,
mortgage re-financing and restructuring.
Lending in underserved communities in the US
The cornerstone of Santander’s approach to supporting communities in the
US is our “Inclusive Communities” plan, the Bank’s $11 billion commitment
across its eight-state north-eastern footprint for 2017 through 2021. This
plan increases Santander’s Community Reinvestment Act1 activity by 50%
compared to 2012 to 2016, and includes a goal of $9.1 billion in loans to
underserved communities for the 2017-2021 period.
Santander’s pledge to increase lending in underserved communities includes
enhanced affordable home purchase and home improvement products,
piloting pre-foreclosure counseling with community organisations,
expanded Small Business Administration lending, and community
development financial institution (CDFI) loan products.
Santander Bank has
committed to lending
$9.1 billion to
underserved
communities over a
five-year period
(1)Enacted in 1977, the Community Reinvestment Act requires federal financial regulatory agencies to encourage regulated financial institutions to help meet the credit
needs of their local communities, including low to moderate-income neighbourhoods. The US Office of the Comptroller of the Currency (OCC) within the United States
Department of the Treasury evaluates a bank’s record of meeting these credit needs and takes this record into account when evaluating certain corporate applications filed
by the bank, such as branch openings.
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governance
Our main microfinance programmes
Risk management
and control
EUR 277 million
in outstanding credit to micro-
entrepreneurs at the end of 2019
(+73% vs. 2018)
+850,000
micro-entrepreneurs supported in
2019 (+97% vs 2018)
71% of microentrepreneurs
supported are women (in Brazil and
Mexico)
70% of income generated
circulated within local communities
In 2019, 56 new Prospera Santander Microfinanzas branches
were opened, and the number of municipalities served has
grown from 600 to more than 1,700. The number of active
clients grew by 253,000 to more than 500,000, with 69% of
them being women borrowers.
• Average microcredit size: $550
• Average microcredit term: 7 months
Prospera Brasil
Banco Santander is recognised as the leading provider of
microcredits among private banks in Brazil. Since its creation
in 2002, Prospera Santander has supported growth of small
businesses, mainly micro-businesses, helping
disadvantaged populations and low-income families escape
from poverty.
The program grants loans to groups of microentrepreneurs
who share the responsibility of repaying the full amount of
the loan. A team of Loan Officers helps and guides the
entrepreneurs throughout the life of the loan.
Elaine Cristina, Brazil
Elaine Cristina began her business at the age of 17 as a
street vendor selling clothes in her area and to family
members. After 8 years, she managed to open Elaine
Boutique, a women's clothing store in a busy area of Sao
Paulo, hired two 2 people and is now considering opening
other stores.
Prospera has been with her at every moment of her journey,
advising her and supporting the realization of her dreams.
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TUIIO
Launched in 2017, TUIIO offers a comprehensive range of
products and services specially designed for low income and
under-banked populations, including tailor-made loans,
savings products and insurance. All the products offered
have a high digital component, which delivers operating
efficiencies and a better user experience.
Tuiio supplements its offer with financial, technological and
entrepreneurial education courses for its customers; and has
branches and ATMs in the communities where customers
live.
Patricia Santos, Mexico
In early 2018 artisan Patricia Santos set up her own business
with the help of a MXN 5,000 loan from Tuiio. Since then,
her food business, La Magia del Sabor, has grown and she
has now been granted a MXN 20,000 loan. Today, Patricia
holds banquets for more than 300 people.
Full story of Patricia Santos. See video
Microcredits are granted to groups of neighbours composed
of at least eight micro-entrepreneurs, with 92% of them
being women micro-entrepreneurs.
• Average microcredit size: $330
• Average microcredit term: 4 months
"Tuiio gave us workshops to help us manage the cash that
had been given to us, it supported us, and gave us a bank
card. But it was not just about giving us a card to withdraw
all the cash in one go. We also learnt how to make online
payments and to use the app... Initially we were like "what
if I hit the wrong button and our money goes where it
shouldn't?!" But we learnt how to do it... I also paint
ceramics that I sell on the open market, I receive payments
on my card and my products reach people I never thought it
would... I am deeply grateful to Tuiio for its trust and for
saying "go ahead, you can make it".
Prospera Argentina
Prospera Uruguay
Through our Social Integration Branches we help unbanked
communities gain access to the financial system, offering
opportunities for inclusion and growth.
Since 2015, we offer microcredits and other products
specially designed for the community where each branch is
located.
• Average microcredit size: $500
• Average microcredit term: 9 months
Launched in 2019 as a pilot programme in the Salto
department, Prospera Uruguay offers credits and insurance
to entrepreneurs. Since then, the programme has scaled up
across the country (current coverage of 84%), reallocating
the sales force arising from the digital transformation of a
financial institution in Uruguay. With every expansion
Prospera has trained its sales agents, 95% of them women
with extensive experience in marketing financial services.
In 2020 Prospera Uruguay aims to expand the product
offering include savings accounts and payment solutions,
amongst others.
• Average microcredit size: $800
• Average microcredit term: 12 months
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Promoting financial education
Poor access to financial services is often associated with
lower levels of education1. As a result, our financial inclusion
strategy goes beyond providing access to bank accounts and
other basic financial services, as we want people to have the
skills to manage their finances, so they can make the right
choices about what products and services meets their needs.
Our financial education initiatives are online (websites and
social media networks with videos, tools, courses and
games) as well as face-to-face (such us training actions,
workshops and courses in schools, social organizations and
other institutions).
1. According to the World Bank’s Global Findex Database 2017, globally 62% of
unbanked adults have primary education or less. Source: World Bank (2018)
Outstanding programmes
+580,000
People benefited from
financial education
programmes in 2019
"Finanzas para Mortales" programme in Spain
"My Money Week" initiative in the UK
In Spain, we held over 1,300 financial education sessions at
schools, NGOs, and other institutions. Highlights our
financial education project “Finance for Mortals” (“Finanzas
para Mortales” in Spanish).
Launched by Santander, the University of Cantabria, and
Santander Financial Institute (SanFi), “Finance for Mortals”
has been recognised as one of the country’s leading financial
education programmes by the Central Bank and the National
Securities Market Commission (CNMV in Spanish). The
programme involves Santander volunteers who provide
face-to-face financial education sessions at schools,
institutes, NGOs, associations and vocational training
centres across Spain.
More information see www.finanzasparamortales.es
Santander UK supports financial education by partnering
with organisations such as National Numeracy, Young
Enterprise (YE) and the Financial Inclusion Alliance.
In 2019 Santander sponsored YE’s My Money Week, a
national activity week for primary and secondary schools
that provides the opportunity for young people to gain the
skills, knowledge and confidence in money matters. My
Money Week is regarded as the highest profile and most
recognised personal finance education initiative in England,
having reached 197,470 people in 2019 across England,
Wales, Scotland and Northern Ireland. For 2019 the focus
was placed on financial decision making to help saving.
More information see My Money Week.
SanodeLucas
Multiple initiatives in Mexico
Sanodelucas is the platform that brings together all of Banco
Santander's financial education initiatives in Chile. Among
them, the following stand out:
• Sanodelucas tips and advice. Information, articles and
videos on basic aspects of managing individual and family
finances.
• Financial Education Programme in Schools. Helps to
improve the financial skills and knowledge of students in
the country's schools.
• First steps. Initiative that seeks to train those who open a
checking account for the first time in the proper use of
commercial products.
More information see www.sanodelucas.cl
• Launch of a new financial education website: this includes
a course on basic personal finance concepts and tools such
as calculators. In 2019, more than 40k users visited the
bank's financial education website.
• Participation in the National Financial Education Week:
Every year the Government organises a week of
conferences and activities that provide information on
how to better manage one's finances. During this week
Santander provided financial education to 10,950 people.
• Financial education courses through the “Tuiio, Finanzas
de tú a tú” programme: A microfinance programme aimed
at informal entrepreneurs (mainly women) who want to
grow their business. The main support mechanisms for
microentrepreneurs are courses designed to facilitate the
use of financial services and financial tips, digital
simulations and calculators available on the Tuiio website.
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Forging partnerships to catalyze financial inclusion
Using our global networks, we have developed partnerships
that help to further financial inclusion in markets where we
operate. We believe partnerships are an important tool for
sharing knowledge, learning about industry best practices,
and developing innovative approaches to bridging the
financial inclusion gap. With the CEO Partnership for
Financial Inclusion (CEOP), in 2019 we have made progress
on a number of initiatives that have the potential to expand
access to financial services at scale.
CEO Partnership for Economic Inclusion
Founded by the United Nations Secretary-General’s Special
Advocate for Inclusive Finance for Development, Queen
Máxima of the Netherlands, the CEOP brings together an
influential group of CEOs from a diverse set of sectors
working together with the aim of accelerating financial
inclusion around the world.
Under the auspice of the CEOP, Santander and Mastercard have joined forces to help
smallholder farmers in Mexico.
At the beginning of 2019 Santander and Mastercard launched a pilot programme designed to meet the financial
needs of smallholder coffee farmers in Mexico. Thanks to this initiative, close to 2,000 farmers have been able to
go cashless, receiving digital payments into a digital account associated with a debit card linked to additional
financial services.
In 2020 the project will be rolled out to other segments of the economy while also expanding the financial product
offering to smallholder farmers.
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Risk management
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Sustainable finance
We play a major role in the transition towards a more sustainable economy,
offering a wide range of products and services, integrating environmental, social
and governance criteria into our lending decisions. We are committed to support
the climate change goals of the 2015 Paris Agreement.
Target
Progress
We believe that we can support our customers
by helping them make the transition to the green
economy. So we aim to raise or facilitate the
mobilization of 120Bn euros between 2019 and
2025, and 220Bn euros between 2019 and 2030
in green finance to help tackle climate change.A
A. Includes Santander overall contribution to green finance: project finance,
syndicated loans, green bonds, capital finance, export finance, advisory,
structuring and other products to help our clients in the transition to a low
carbon economy. Commitment from 2019 to 2030 is 220Bn.
A. SCIB´s contribution to green finance target includes: Project Finance (lending): 5Bn;
Project Finance (advisory): 6.1bn; Green bonds (DCM): 1.9bn; Export Finance (ECA):
0.3bn; M&A: 3bn; Equity Capital Markets: 2.2bn. This information was obtained from
public sources, such as lead tables from Dialogic or TXF. All roles undertaken by
Banco Santander in the same project are accounted for. Other aspects related to
sustainable finance in a social manner, such as financial inclusion or
entrepreneurship, are not included.
Climate Finance
The transition to a low-carbon economy is critical in light of
climate change and if we are to meet the goals set by the
Paris Agreement.
At Banco Santander we lead the change with initiatives to
fund renewable energies and supporting our customers in
the transition.
The banking sector has a key role to play in the transition to
a low-carbon economy, which presents both challenges and
major investment opportunities.
Our strategy reflects our commitment both to contribute to
the UN Sustainable Development Goals and to the Paris
Climate Agreement's goals to combat climate change and
adapt to its effects.
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Our progress on climate-related actions
The Task Force on Climate-related Financial Disclosures
(TCFD) made a number of recommendations regarding the
clear disclosure, backed by comparable and consistent
information, of the risks and opportunities presented by
climate change. Below we set out how we are
implementing the TCFD's key recommendations, and the
most significant actions we have taken to embed climate in
our risk and opportunity management.
TCFD Disclosures
Governance
• The responsible banking, sustainability & culture
committee (RBSCC) assists the board in the oversight of
the responsible banking strategy, which includes climate
change. The RBSCC consists of eight directors, seven
external, with the majority being independent, and the
Executive Chairman and it is chaired by an independent
Board Director. All Directors have been appointed taking
into account their knowledge, qualifications and
experience. This Committee meets quarterly.
As part of the responsible banking governance, the
inclusive & sustainable banking steering has been set up
to promote, among other topics, the transition to a low
carbon economy, and fostering sustainable consumption.
This steering meets every six weeks and consist of nine
senior management permanent members and 2 rotating
members (country heads).
Governance is underpinned by the general sustainability
policy which explains the Bank’s action framework, in
both its internal operations and its banking activities as
well as sector-specific policies covering environmental
including climate-change issues.
In 2019 the General Sustainability Policy was updated.
This policy is owned by the Board of Directors and it now
further describes responsible banking (including climate)
governance. This policy now also incorporates climate
change and environmental management.
During this year, climate change has been discussed in all
four meetings of the RBSCC including issues such as
TCFD, specific sector analysis, business lines plans and
environmental footprint. This included a joint session of
the RBSCC and the Board Risk Supervision, Regulation
and Compliance Committee that reviewed a deep dive
analysis of the extractive industries, as climate-relevant
sectors.
Incorporating climate into our businesses'
day-to-day activity will help steer decisions
so that we can make progress towards the
Paris Goals.
in 2019, the board attended a responsible banking
training session, and another session solely dedicated to
climate change and designed to better equip the Board to
address the challenges posed by this subject. It was also
agreed that the induction of new board members will
include responsible banking and specifics on climate
change.
For more information on the committee, see
Corporate governance chapter of this report and
the Board Committee´s report.
For more information on our policies and
governance, see Principles and governance
section of this chapter
General Sustainability policy is available at
www.santander.com.
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Strategy
Risks related to the transition to a lower carbon economy
and physical impacts from climate change need to be
incorporated in the risk analysis in the medium to long
term.
We have made progress in performing a high level
analysis to identify sectors and geographies that are
more likely to be impacted by climate transition and
physical risks. This basic materiality approach is
informing the selection of our sector deep dives with
specific risk assessment exercises. Having undertaken an
initial analysis of transition risk on the transportation
sector in 2018, in 2019 we performed specific analysis for
our European power sectors portfolio in Santander
Corporate and Investment Banking. In relation to physical
risk the focus has been on our UK mortgages book.
During 2019 we have also taken steps to introduce
climate-related information, specifically capturing
information relating to products in the three year budget
plans. It was also agreed at the RBSCC to incorporate
climate into the long term business strategic planning
process which will be started in 2020.
Climate-related time horizons have been defined and
embedded into our strategy process. We define short
term as up to a year aligned with budget; medium term
as 3-4 years aligned with budget planning; long term as
5-7 years; and, for ad hoc analysis, we define longer term
as beyond 7 years.
We have also made a number of commitments to help us
achieve our aim to align our portfolios with the
Sustainable Development Goals and the Paris Climate
Risk management
Climate change related risks and opportunities are being
embedded into the Group’s processes. The top risk
identification and assessment process led by the
Enterprise-wide Risk Management department
incorporates climate change and it is updated on a
quarterly basis to reflect the evolution of the regulatory
changes on the climate change agenda.
Climate-related risk management criteria is included in
Santander sector policies and covers issues such as
financing of fossil fuels and protecting against
deforestation. Dedicated E&S champions in the credit risk
function review customers and provide assessments in
relation to these criteria.
A number of steps have been taken to incorporate climate
change into the bank’s overall risk management
approach. Key highlights include the incorporation of
climate change in our risk appetite statement. Starting
from 2020 physical and transition risk will be included in
the Group’s risk management framework as factors that
could aggravate the existing risks in the medium and long
term.
We have undertaken a number of detailed analysis to
further understand what impact climate change has on
certain portfolios.
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Agreement. This includes raising and facilitating green
finance as well as joining the UNEP FI Collective
Commitment on Climate Action (which sets by 2022 a
scenario based sector specific target to steer our
portfolios to be aligned with the Paris Agreement on
climate).
This approach furthers Santander’s track record as a
leader in financing renewable energy projects.
Furthermore, our responsible banking approach will help
us to deliver sustainable development aligned financial
products, including climate.
A good example of this was the development of the
Santander Sustainability Bond Framework and the
issuance of our first green bond - a tangible way to
support our strategy and meet our targets regarding new
green investments.
We have also set targets to reduce the emissions from
our own operations. The approach incorporates both a
reduction of emissions (by switching to renewable
sources for electricity consumption) as well as offsetting
the remaining emissions to become carbon neutral as
regards to our own operations.
The training session regarding climate scenarios were led
by experts who coached our Risk & Analysis teams.
i. We performed a deep dive analysis of the oil and
gas, mining and steel sectors with particular focus
on the risks and opportunities that arise from
climate change. This analysis was reviewed at a joint
session of the RBSCC and the Board Risk Supervision,
Regulation and Compliance Committee.
ii. A specific analysis of the European Union power
sector was undertaken to quantify the potential
impact of a number of financial drivers linked to the
International Energy Agency scenarios.
iii.As part of our continued participation in the UNEP FI,
TCFD Pilot II, Santander UK designed and performed
a pilot to quantify the physical risks of climate
change embedded in the UK mortgage portfolio.
Sessions on climate scenarios training were given by
experts to our risk and research teams.
Further information on our risk
management approach and progress is
available in the Risk Management chapter
Responsible Corporate
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Metrics and targets
Santander has been increasing the number of climate-
related metrics disclosed regarding business
performance, such as our position in market league tables
showing the number of deals; total financing of most
relevant climate financial services; and emissions avoided
from renewable energy financing.
In this report we also provide metrics that help track
delivery against our commitments and as well as metrics
relating to the different assessments the bank has
initiated to manage risks and opportunities from climate
change.
We continue to identify and develop new metrics that
support climate management and which will be
incorporated in future reports along with the continued
disclosure of scope 1, 2 & 3 emissions data as detailed in
Environmental footprint section of this chapter.
Santander has set a number of targets on climate change.
In relation to commercial activity we have set a green
finance target to raise and facilitate 120Bn euros between
2019 and 2025 and 220Bn euros between 2019 and
2030. This includes Santander overall contribution to
green finance: project finance, syndicated loans, green
bonds, capital finance, export finance, advisory and other
products to help our clients in the transition to a low
carbon economy.
Santander has also joined the UNEP FI Collective
Commitment on Climate Action towards setting and
publishing sector-specific, scenario-based targets for
portfolio alignment with the Paris Agreement goals.
Noteworthy is the disclosure of key highlights results
from our implementation of the recognized PACTA
methodology from 2º Investment Initiative, using
International Energy Agency climate scenarios.
Implementing this methodology is a valuable step in
making progress towards the Collective Commitment on
Climate Action and the alignment of sector-specific
scenario -based targets.
Our approach also incorporates the management and
reduction of scope 1 and 2 emissions, in this regard Banco
Santander has committed to have 100% of electricity
from renewable sources by 2025. Furthermore, we have
committed to become carbon neutral by offsetting all the
emissions generated by our own operations from 2020
onwards.
Assessing our portfolios in relation to the Paris Agreement on climate
During 2019 we have started implementing measures to
fulfil the Collective Commitment on Climate Action. A key
action was our participation in the PACTA (Paris Agreement
Capital Transition Assessment)1 pilot led by 2º Investment
Initiative, along with 16 other banks. This recognised
methodology allows banks to study the alignment of their
corporate lending portfolios with 2°C benchmarks. It is a
science based approach that uses scenarios to provide
valuable information to banks in steering their portfolios to
be aligned with the Paris Agreement on climate.
The methodology focuses on high climate impact sectors
including fossil fuels (oil & gas, coal), power, automotive,
cement, steel, and shipping. The pilot was undertaken using
Santander Corporate and Investment Banking (SCIB)
portfolio. Sectors covered by the methodology represent
31% of the entire SCIB portfolio.
Focus on fossil fuels and power sectors
We provide here more detailed information on the results
from two of the key climate impact sectors, fossil fuels and
power.
The initial analysis shows that against today’s Corporate
economy2 our portfolio compares favourably - in fossil fuels
with lower coal exposure, and in power with a high
exposure to renewables energy. Santander's portfolio
projected to 2024 is broadly in line with the mix of
technologies in the International Energy Agency scenarios
to align to Paris targets3. To remain aligned with the Paris
targets beyond 2024, we would need to shape our portfolio
and engage with our clients so that the share of renewables
and gas increases while the share of coal falls.
The Santander portfolio projection is based solely on
confirmed plans by companies in our portfolio with no
additional intervention.
Santander will continue to perform scenario based analysis
going forward, to inform how to steer our portfolios to be
aligned with the Paris Agreement on climate, and achieve
our Collective Commitment on Climate Action and
corresponding internal targets.
1 PACTA: this methodology uses asset level performance metrics, including forward looking performance based on confirmed plans from companies in relation to future
performance changes to these assets and contrasts this scenarios from the International Energy Agency to identify Paris aligned transitions paths.
2 Corporate Economy: represents the aggregate/combined production of all assets in the 2Dii database, which captures approximately 70% of total world CO2 emissions
(CO2 is the largest greenhouse gas (GHG) contributor to human induced climate change). Considering the inclusion of other GHG (such as nitrous oxide and methane -
relevant in agriculture), the database captures approximately 60% of total GHG emissions. Based on data from the 2018 World Energy Outlook from the International
Energy Agency.
3 Paris targets: This is a suggested trajectory for Santander portfolio where every technology attributed to the portfolio is set on the rate of change defined by the
International Energy Agency scenarios.
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Santander will
continue to
undertake scenario
based analysis to
inform its decisions
to meet the
Collective
Commitment on
Climate Action.
(2) Corporate Economy: represents the aggregate/combined production of all assets in the 2Dii database, which captures approximately 70% of total world CO2 emissions
(CO2 is the largest greenhouse gas (GHG) contributor to human induced climate change). Considering the inclusion of other GHG (such as nitrous oxide and methane –
relevant in agriculture), the database captures approximately 60% of total GHG emissions. Based on data from the 2018 World Energy Outlook from the International
Energy Agency.
During 2019 Santander UK submitted to the UK Prudential
Regulatory Authority its plan to address the PRA’s
Supervisory Expectation regarding climate change.
In developing a coherent view of climate change we
circulated a briefing paper to inform our teams of climate
change science facts, geopolitical and macro-economical
implications, as well as commercial impacts on companies.
This provided the basis for a training session attended by
over 200 staff in Head Quarters, which will be now rolled
out to local units as part of our training programmes.
Santander has also been active engaging different
stakeholders such as regulators, sector associations, think
tanks and other in working groups, consultations and
debates to contribute and shape the discussions to build
finance solutions to better support the UN Sustainable
development Goals and the Paris Agreement on climate.
UNEP FI Pilot project on TCFD recommendations
Banking Environment Initiative
During 2018 and 2019 Santander participated actively in
the development of the United Nations Principles for
Responsible Banking. In September 2019, Santander
became one of the founding signatories to the principles,
committing to strategically align its business with the Sus-
tainable Development Goals and the Paris Agreement on Cli
-mate Change. Furthermore, we have also signed up to the
Collective Commitment on Climate Action, to scale up our
contribution on the climate change agenda and align
lending with the objectives of the Paris Agreement on
Climate. We will continue engaging with UNEP FI in
progressing on the development and implementation of
these two important initiatives.
We have also continued our participation in the TCFD Pilot II
following the first pilot which started back in 2017. The
project focuses on implementing certain elements of the
TCFD recommendations for banks. This initiative aims to
develop models and metrics to enable scenario-based,
forward-looking assessment and disclosure of climate-
related risks and opportunities.
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2019 Annual Report
Santander shared insights on sustainable finance practice
with the Banking Environment Initiative (BEI), to help on its
Bank 2030 research report. The research seeks to shed light
on how banks can accelerate the transition to a low carbon
economy and develop a vision for a bank in 2030. The report
is a significant contribution to the banking sector in
identifying barriers and opportunities for banks in this
transition, which requires a transformation of assets and
behaviours. Also working with the BEI, Santander remains
committed to the soft commodities compact and the fight
against deforestation.
For more information see section Environmental
and social risk section of the Risk management
and control chapter
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
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Finance for renewable energy and energy efficiency
As a major financier of energy production infrastructure, we
understand that the banking sector has to play a particularly
prominent role in the transformation of the energy sector.
Aware of this, we have a long history of leadership
financing renewable energy projects.
In 2019, we have been the global leader in
renewable energy financing, in terms of both
the number of transactions and their
amounts.
Financing of renewable energies ranking1, 2
1. As indicated by Dealogic and Bloomberg New Energy Finance league tables for project financing within the Lead Arranger category.
2. Peers are considered those banks that due to their size an market capitalization are comparable to Santander. The peers' list includes: BBVA, BNP Paribas, Citi,bHSBC,
ING, ITAÚ, Scotia Bank and , UniCredit.
Compared with other large peers and other large commercial banks, Santander has a comparatively low total
amount of financing to fossil fuels. According to Banktrack Santander is placed in 31 out of 33 banks in absolute
terms in financing fossil fuels and in the last place (33 out of 33)as a relative measure of total credit provided.
(Source: Banking on Climate Change – Fossil Fuel Finance Report Card 2019)
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Renewable energy projects
In 2019, we helped finance greenfield renewable energy
projects with a total installed capacity of 8,036 MW. In
addition, we also contributed to the expansion,
improvement or maintenance of existing renewable energy
infrastructure projects (brownfield), with a total installed
capacity of 16,785 MW.
Our total portfolio of renewable energy project finance at
the end of last year totalled €10.03 billion, approximately
half of the bank’s total project finance portfolio. The
renewable projects are spread over 349 transactions, of
which 166 are wind projects and 145, solar projects.
These projects have a generation capacity
equivalent to the consumption of 6.5 million
households in one year1.
1. Equivalence calculated using data on final electricity consumption for the
residential sector by country published by the International Energy Agency
(source updated in 2019 with data from 2017).
Financing of renewable energy
(MW financed)A
Breakdown of MW financed by type of renewable energy
Wind energy
Solar energy
OthersB
81%
2017
19%
2017
--
2017
77%
2018
22%
2018
1%
2018
77%
2019
22%
2019
1%
2019
Breakdown of renewable MW financed by country in 2019C
3,135MW
USA
1,164MW
United
Kingdom
1,312MW
727MW
839MW
480MW
256MW
117MW
Spain
Chile
Brazil
France
Argentina
Mexico
A. In the chart, the light colors represent the attributable MW to the Bank according its participation percentage in each project. In 2019 this represents 34% of total.
B. Include biomass for 2018 and hiydroelectric for 2019.
C. Others: The Netherlands (6MW).
€1 billion green bond as a starting point for a global sustainable debt plan
On top of this, we issued our first green bond for €1,000
million as a starting point for a global plan on sustainable
emissions. The net proceeds will be divided between
existing wind and solar assets on Santander balance sheet
and new assets of the same nature that will be added. The
re-financing share will be less than 50% during the term of
the bond.
In 2019 a Global Sustainable Bonds Framework was
developed in line with the Green and Social Bond Principles
2018. This framework is aligned with and supports our
Responsible Banking strategy and reflects our intention to
deploy additional capital for responsible and sustainable
projects.
This Global Sustainable Bonds Framework enables the
issuance of Green Bonds, Social Bonds and Sustainable
Bonds that align the finance-raising activities with
sustainable development and our commitment towards a
more inclusive and sustainable growth.
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Financing lines with multilaterals for energy efficiency
and renewable energy projects.
In Chile, Santander signed a risk-sharing agreement with
the IFC. The additional RWA capacity will be used by the
Bank to support new climate finance projects and extend
more credit to MSMEs, including women-led enterprises,
thereby promoting growth and employment in the country.
In Poland, Santander signed a EUR 80 million loan facility
whose proceeds will be used to provide green financing in
form of sub-loans or leases to micro, small and medium-
sized enterprises in Poland for energy and resource
efficiency investments, including the acquisition of energy-
efficient equipment and machinery, to upgrade their
facilities and support a lower carbon footprint.
Over the last 3 years the Group has signed agreements with
multilaterals such as the EIB, EBRD, IFC, MIGA, CEB and CAF
to support green finance in Spain, Poland, Brazil, Chile and
Peru for a total value of EUR 1,016 million.
Financing low-emission, electric and hybrid vehicles
Funding sustainable agriculture and livestock farming
We also fund agricultural initiatives that promote the
sustainable agricultural practices.
In Brazil, since 2010 we have offered credit as well as
technical guidance to rural producers who wish to invest in
innovation and sustainability in the field. Financing is
available, among others for equipment for renewable
energy generation on rural properties; for low carbon
agriculture solutions such as direct planting of straw,
integration of crop-livestock and forestry and recovery of
degraded pastures; for modernization and expansion
solutions that include soil recovery and animal defense; for
the purchase and modernization of assets, environmental
projects, research and innovation and for technological
innovations, increased productivity, good management
practices and marketing.
We concentrate efforts on shifting the automotive sector
towards a low-carbon economy through services such as
vehicle leasing and renting, to promote the use of hybrid or
electric cars in the countries where it operates.
.
Supporting other electric mobility solutions
In Brazil, we offer an exclusive financing line for bicycles,
improving transport alternatives with non-polluting sources
and helping to reduce traffic in our cities. Up to 100% of the
purchase can be financed and both bicycles and electric
chargers have special rates.
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Socially Responsible Investment
We see Sustainable and Responsible Investment (SRI) as a
source of value for investments. The assumption of ESG
criteria allows our managers to have a more complete
vision of the assets to be invested in; to identify those
differential elements that reflect competitive advantages
and warn about potential risks; and - overall - to help us
make more and better informed investment decisions.
Santander Asset Management has a full-time dedicated SRI
expert team, which is responsible for developing and
implementing our ESG analysis methodology. This
methodology allows us to obtain an ESG score in order to
have a better picture by incorporating extra-financial criteria
into our assessment.
Santander Asset Management's commitment to SRI has
several lines of action:.
• Investment. We offer a range of SRI products and services
to meet the demand of different types of clients.
Currently we manage nine SRI funds, seven in Spain
(Inveractivo Confianza, Santander Responsabilidad
Solidario, the four products of the Santander sustainable
range, Santander Equality Acciones fund), one in Brazil
(Fundo Ethical), and one in Portugal (Santander
Sustentável Fund).
• Training. We collaborate with universities and
educational centres, organising and participating in
events and training days in SRI.
• Dissemination and development. We participate in
initiatives and organisations to help spread SRI, and
which enable different organisations share best practice
and understanding.
In 2009 Santander Asset Management became a co-
founder of SPAINSIF, the Spanish SRI forum.
In addition, both Santander Pensiones SA SGFP in Spain
(since 2010) and Santander Asset Management Brazil
(since 2008), are signatories to the United Nations
principles for responsible investment (PRI). Santander
employees’ pension fund in Spain is also a signatory to
this initiative.
Santander Asset Management held in 2019 its first SRI
conference in Spain and Portugal. And actively
participated in COP25, having organised 2 official events
in the Green Zone.
• Donations through solidary funds: . We collaborate with
NGOs, through some of our SRI products, to support
initiatives which help those who are at risk of social
exclusion.
Best Private Bank in ESG & Impact Investing
award in Latin America, Chile, Mexico,
Portugal and Spain.
For information on socially responsible
Investment visit:
www.santanderassetmanagement.es.
New Green Bond Investment Fund
Santander Asset Management strengthened its range of
sustainable investment funds with the launch of Santander
Sustainable Bonds, a product aimed at conservative savers
who will invest their portfolio in issues mainly of green
bonds (corporate debt designed to finance green projects:
clean energy, reduction of emissions...), which will be
complemented with other types of sustainable bonds, such
as social, climate change or environmental bonds, all
focused on generating positive impacts on society and the
environment.
SAM has over EUR 3.5 billion in SRI assets under management. The Santander Sustainable
Range now has over EUR 1.5 billion in assets under management.
Santander AM is the undisputed leader in SRI management
in Spain. We manage 58% of the assets in SRI funds, and
we are a pioneer in the launch of this type of product, with
more than 20 years creating SRI Investment Solutions.
In addition, in our commitment to continue promoting
sustainability in investments, we have launched the first
Spanish sustainable bond fund, Santander Sostenible
Bonos.
The Santander Sostenible range consists of two mixed
funds: Santander Sostenible 1 and Santander Sostenible 2,
with different weights in equities and fixed income; and a
European equity fund Santander Sostenible Acciones.
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Sustainable Infrastructure
Infrastructure is fundamental to drive development. Finance
institutions play a critical role as enablers in providing the
environment that satisfies the basic needs of society.
Infrastructures have a significant impact on the three
dimensions of sustainable development, the economic,
environmental and social. Therefore, it is critical that
infrastructures are planned and operated in a way that is
consistent with the Sustainable Development Goals and the
Paris Agreement on climate.
Aligned with our commitment towards a more inclusive and
sustainable growth and working on the implementation of
the Principles for Responsible Banking we have started
work towards having a better understanding of the positive
and negative impacts from financing infrastructure, while
tacking into account the local necessities and priorities
towards a more sustainable development.
We have started working with the methodology developed
by the UNEP FI Impact working group, and its application to
project finance, assessing positive and negative impacts of
individual projects. In working with this newly developed
methodology we have also looked into incorporating other
developments, namely around taxonomies.
The first phase of this methodology consists of analysing,
for each country, the relevance of 22 different factors in
different areas (air quality, biodiversity, employment,
health, education, etc.) from a sustainable development
perspective. In the second phase, we analyse both the
positive and the negative impacts (both direct and indirect)
of a particular sector using UNEP FI’s IP Impact Radar, as it
applies to a specific country. Cross-referencing this
information with the project finance portfolio data of each
country, we are able to quantify the impact of our portfolio
investments in such country.
Using different global and local taxonomies, we are then
able to refine further more the impact information.
Ultimately, this approach will help us in making better
decisions while directing our investments towards those
projects that generate the greatest positive impact on the
local society.
Risk management
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Analysis of environmental and
social risks
Within the framework of our sustainability policies, we
analyse the environmental and social risks of all our project
finance deals.
At Santander we attach great importance to the
environmental and social risks which might result from our
customers’ activities in sensitive sectors. We follow
international best practice regarding social welfare and the
environment, particularly the Equator Principles.
In addition, the Group employs the precautionary principle
in order to analyse and manage its main environmental
risks throughout its value chain, considering both the direct
impacts on the assets where it carries out its activity, as well
as the indirect ones derived from it.
Sector policies
The Group has specific sectoral policies that define the
criteria for analysing environmental and social risks in
customers’ activities in sensitive sectors, such as energy,
mining & metals, and soft commodities. These policies
include specific activities within those sectors that we will
not support (prohibited activities), and those where detailed
assessments of their environmental and social impacts
must be carried out (restricted activities).
During 2019, the energy, soft commodities and mining &
metals sector policies have been updated. We have aligned
these policies with our general sustainability policy,
including two new prohibitions: Projects or activities located
in areas classified as Ramsar Sites, World Heritage Sites or
by the International Union for Conservation of Nature
(IUCN) as categories I, II, III or IV; and the prohibition of the
development, construction or expansion of oil and gas
drilling projects on the north of the Arctic Circle.
Equator Principles
As well as our sustainability policies, since 2009 we have
been a signatory to the Equator Principles, in order to
analyse the environmental and social risks of all our project
finance deals.
During 2019 we continued to contribute to the evolution of
the Principles through direct participation in working
groups. As a result, the Group will implement Equator
Principles IV approved in November 2019 and due to come
into full effect on 1 July 2020.
In 2019, 46 projects were analysed that fell under the
Equator Principles' scope, all within the project finance
category. All included under category B, which are those
classified with potential limited adverse environmental and
social risks and/or impacts.
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2019 Annual Report
Further information on the policies and their
governance, see Risk management and control
chapter.
Sector policies are available on our corporate
website www.santander.com
Equator Principles
Project Finance
Category
TOTAL
Sector
Infrastructures
Oil & gas
Energy
Others
Region
America
United States
Mexico
Chile
Brazil
Europe
United Kingdom
France
Spain
Type
Designated countries1
Non-designated countries
Independent review
Yes
No
A
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
B
46
1
3
41
1
18
4
2
1
5
1
15
41
5
45
1
C
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1. In accordance with the definition of designated countries included in the
Equator Principles, i.e., those countries considered to have a solid
framework of environmental and sociaI governance, legislation and
institutional capacity to protect their inhabitants and the environment.
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Environmental footprint
We are strongly committed to protecting the environment by reducing our own
footprint.
Target
Progress
We believe that, if we are to tackle climate change,
we have a responsibility to reduce emissions and our
environmental footprint. So we aim to purchase
100% of our electricity from renewable sources in
all countries where it is possible to do so by 2025A.
A. In those countries where it is possible to certify electricity from renewable
sources on properties occupied by the Group.
A. This percentage includes only the G10 countries (10 main markets where
Santander operate).
Since 2001, we have been measuring our environmental
footprint by quantifying energy consumption, waste and
atmospheric emissions. And since 2011 the Group has
implemented strict criteria through different energy
efficiency and sustainability plans to ensure its
environmental impact is kept to an absolute minimum.
2019-2021 Energy Efficiency Plan
In 2019 we launched the 2019-2021 efficiency plan to
encourage energy efficiency measures in site and on the
maintenance of buildings and of our branches. To do so we
have supported and helped countries to implement energy-
saving schemes; implemented efficiency projects with a
return period that is longer than usual for these projects;
analysed opportunities to optimise spaces; and created
awareness to the users of the buildings as to how to make
their use and operation as efficient as possible.
In addition to our strategy targets, with the 2019-2021
Energy Efficiency we plan the following:
• Electricity consumption: a 2.8% reduction of electricity
consumption in G10 countries.A
• Emissions of CO2: a 1,4% reduction of emissions in G10
countries.
To meet these targets, during 2019 we have implemented
diverse initiatives, focusing on energy savings, saving raw
materials, waste reduction, emission reduction and
awareness campaigns.
A. Ten main markets where Santander operate.
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2019 highlights
Use of energy from renewables sources
Awareness of environmental issues
50% of energy used in our buildings and branches is
renewable, reaching 100% green energy in Germany, Spain
and United Kingdom. The United States, Brazil, Chile and
Portugal also acquire green energy for some of their
facilities’ consumption.
Certified Environmental Management System
All direct environmental impacts caused by the Group's
activities are duly measured and managed through
Environmental Management Systems implemented in most
of the Group's buildings, which are externally audited under
the ISO 14001 standard.A
The bank has also received LEED certifications in:
LEED PLATINUM certification in buildings in Poland
(Atrium I, Warszawa Atrium II and Poznan Business
Garden).
LEED GOLD certification in buildings in Germany
(Santander Platz and An der Welle 5), Brazil (Torre
Santander and data center in Campinas), Spain (Tripark;
Abelias; Luca de Tena and data center Norte Santander),
and in Poland (Robotnicza , 11 Street).
Additionally, we received "Zero Waste" accreditation1 in
Santander Group headquarters in Boadilla del Monte. This
certification recognises that at least 90% of the waste
generated is reintroduced into the value chain (a maximum
of 10% of the waste generated goes to the landfill).
Both globally and locally, the Group organises awareness
campaigns to involve employees in the importance of
reducing the consumption and waste we generate in our
daily activities. In addition, via our internal Santander Today
channel, the Bank provides employees with a space with
guides and other information materials which enable them
to join the challenge of reducing the organisation's
environmental impact.
A year on, Banco Santander participated in Earth Hour, an
international initiative to raise awareness of the impact we
can have on our environment. The Group turned off the
lights in its most iconic buildings of the main countries in
which it operates for the tenth consecutive year.
Carbon neutral commitment for 2020
During the UN Climate Change Conference (COP25) in
Madrid, we launched our new commitment to become
carbon neutral in 2020 by offsetting all the emissions
generated by our own operations.
A. Aspects such as light or noise pollution are not considered material aspects for Santander, due to its own activity.
B. The bank has buildings with ISO 14001 certification in Argentina, Brazil, Chile, Spain, Mexico, Portugal and UK.
C. By AENOR.
2019 environmental footprint1
2,811,322 M3
water consumed from
the supply system
1,070 MILL. KWH
total electricity
18,101 T
total paper consumed
9,410,831 KG
paper and cardboard waste
50%
renewable
energy
85%
recycled or
certified
paper
Var. 2018-2019 (%)
Var. 2018-2019 (%)
-4.9
321,164 T CO2 teq
total emissions (market based)
-15.5
-0.7
Scope 1
22,691 T CO2 teq
direct emissions
1.0
-2.1
Scope 2
177,504 T CO2
indirect electricity emissions
(market based)
322,038 T CO2 teq
indirect electricity emissions
(location based)
120,969 T CO2 teq
indirect emissions from employees
travelling to work
4,252,669 GJ
total internal energy consumption
-3.5
Scope 3
1. The environmental footprint table with 2-year historical data and the consumptions and emissions per employee can be found in the ‘Key Metrics’ section.
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Supporting higher education
As the largest company investing in education in the world1, we have been working
for more than 20 years with universities around the world to support education,
entrepreneurship and employability, which are the basis for inclusive and
sustainable growth.
EUR 119 million
of investment in higher
education
agreements with
1,333 universities
and other institutions of 33
countries
68,671 beneficiaries
of scholarships, internship and
entrepreneurship programmes
2019 metrics
30,669 beneficiaries of Santander
Scholarships
18,755 university entrepreneurs
supported
8 awards and +140 published
calls in Santander X
19,247 beneficiaries of Santander
Internship Scholarships
We focus on three areas
1
2
3
Education
We promote education mainly through studies and
mobility scholarships. Our goal is to contribute to a
more equitable and diverse educational system and
helping to improve the university students' lives. We
have created Santander Scholarships, one of the
largest scholarship programmes financed by a private
company.
Entrepreneurship
We also support university entrepreneurship through
acceleration programmes, training workshops, startup
awards and several competitions. Santander X aims to
become the world’s largest community for university
entrepreneurship, connecting entrepreneurs with the
3 most important things they need: talent, clients and
financing. This helps them turn an idea into a reality.
Employability
Santander Universities helps university students find
employment through Santander Scholarship
programmes for companies and SMEs. In addition, we
run professional skills programmes including training
in digital and transversal skills with universities
worldwide. Universia offers career guidance and
employment services, as we aim to be the main
source of advice in the Ibero-American world for
young talent management.
Target
Progress
We believe that education is the bedrock of a fair
society and strong economy. So through our world
leading Universities programme, we aim to fund
200,000 scholarships, internships and
entrepreneurs programmes between 2019 and
2021.
1 Varkey / UNESCO / Fortune 500
2 Fortune Magazine
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Santander Scholarships
Scholarships promote excellence, equal opportunities and
the recognition of effort, improving education and the
employability of young people.
Banco Santander has been developing its scholarship
programme since 1996. More than 420,000 Santander
Scholarships have been granted since 2005.
We have seven different programmes of Santander
Scholarships:
- Santander Study Scholarships to support university
studies and guarantee equal opportunities in access to
education, thus promoting educational inclusion.
- Santander National and International Mobility
Scholarships for students who participate in programmes
that require them to travel from their university and usual
place of residence.
Santander Erasmus Scholarship
Alejandro Villaluenga, Complutense University, and María
Alonso, Francisco de Vitoria Universiy, Spain.
"I would define the Santander Erasmus Scholarship with
the word 'Excitement'. We have to live this experience
intensely and take advantage of the opportunity because
we are very lucky", Alejandro Villaluenga.
"Receiving this scholarship means not only economic
assistance, which is also very necessary, but knowing that
a company as important as Banco Santander supports us
to continue studying", María Alonso.
See video
- Santander Scholarships for Internships in companies
and institutions.
Santander W50
Santander W50 programme offers 45 Santander Scholar-
ships to female managers. Participants receive high
performance training in leadership skills, so they can
progress into senior management positions.
The programme was launched in 2011 and since then
more than 680 women have participated.
- Santander Digital and Transversal Skills
Scholarships for training in multidisciplinary skills and
skills such as leadership, communication, security, digital
content.
- Santander Scholarships for Professors, supporting
academics who wish to stay at other universities,
continuing education courses and attracting innovative
talent.
- Santander Research Scholarships for research projects,
mainly doctorates.
- Santander Scholarships for Entrepreneurs for
entrepreneurial initiatives (prizes, competitions,
accompaniment of new ideas and startups).
For more information visit
www.becas-santander.com
See video
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Entrepreneurship
We support university entrepreneurship through
acceleration programmes, training workshops, startup
awards and several competitions. A centrepiece is
Santander X, which aims to become the world’s largest
community for university entrepreneurship, offering free
training, support and mentoring to young people.
Santander X offers an ecosystem for university
entrepreneurship, connecting entrepreneurs with the three
most important things they need: talent, clients and
financing. We promote collaboration between universities,
the business sector and entrepreneurs themselves.
To recognise successful university entrepreneurs on an
international level, Santander Universities launches
Santander X Global Award.
Santander X has been chosen by the Spanish
Network of the Global Compact as one of
the best initiatives that are contributing to
the UN SDGs.
Our success was highlighted in ‘A Global Alliance for the
2030 Agenda’, which aims to raise awareness and provide
information to the Spanish private sector about SDGs.
For more information visit
www.santanderx.com
Emprendedor X, Argentina
Santander Universities Entrepreneurship Awards, UK
Facundo Noya / Winner - Project Ebers.
Lauren Bell / Winner - Project: Cosi Care.
"Winning the entrepreneurship award has given us the
necessary financial support to improve design issues of our
product, as well as the ability to start manufacturing and
testing it both here in Argentina and in Brazil, where we
have begun working at the Hospital Israelita Albert Einstein
in Sao Paulo".
See video
“The prize will enable us to take our product all the way to
the shop floor in six months. The support I’ve had has been
incredible and we’ve made connections for life. Such a great
all-round experience.”
Robert Van Den Bergh / Winner - Project Scribless.
“The support we’ve had throughout has been instrumental
in driving forward the growth of the business. It’s been a
great experience which will enable us to provide hand-
written marketing to more companies around the world.”
Santander Business Innovation Awards, Mexico
Empreenda Santander, Brazil
Paola Alejandra Garro Almendaro and José Luis Leopoldo
González / Winners - Project Ecofilter
Bruno Costa Candia / Winner Univeristy Entrepreneur -
Project Aurem.
"It is very difficult to generate an impact with an environ-
mental project. Winning this award is a great boost for us,
which will enable us to achieve what we want", Paola
Alejandra Garro.
"It has been many months of effort. Winning this award will
help me grow as a person, professional and entrepreneur.
My project promotes the inclusion of hearing-impaired
students in schools".
Santander Explorer, Spain
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2019 Annual Report
9th edition of Explorer Awards
with entrepreneurs from
Argentina, Spain and Portugal.
More than 80,000 euros in
prizes were awarded. The
winner of this edition, was
BactiDec, a device that allows a
surgeon to know the number of
bacteria present in the surgical
wound in real time.
See video
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Universia
Academic Guidance
Digital technology gives users access to accurate
and quality information, offering complete
resources that link academic guidance and
employment making us unique and relevant at
decisive moments for the students.
Employment
Our ambition is to create the largest community
of professional guidance, internship and
employment services for youth in Latin America
and Santander America, strengthening their
candidacies across 7 countries, and providing
them with qualified job offers for a successful
immersion in the labor market.
Universities Digital Transformation
Universia is encouraging the development of
new technologies at several universities of
around the world. And MetaRed is a great
example of this digital transformation.
Fundación Universia
Fundación Universia is a private non-profit organisation
promoted by Universia. Our goals are broad, focusing in
particular on how we can support the people with
disabilities, through supporting their higher education and
professional development.
The foundation aims to become internationally recognised
as the benchmark organisation in qualified employment,
linked to the identification and development of diverse
talent. It also aims to build collaborative networks capable
of producing changes that generate social value in
educational and productive responsible environments.
Our strategic focus reflects the UN SDG: access and
accessibility (SDG 11), education (SDG 4) and inclusive and
equitable quality education (SDG 8).
436 scholarships
awarded to university
students with disabilities
166 people with
disabilities incorporated in
companies
XIX Universia Spain Shareholders' Meeting with deans and
academic representatives from universities in Spain and Latin
America.
Ana Botin participated in a panel with five representatives of the
Santander Erasmus scholarships. She highlighted the role that
banks and the education system can play in changing the world.
She emphasized the need for all people to have access to
education and excellence.
Universia Jobs - For more
information (link here)
MetaRed - For more information
(link here)
Charles Fotso, a story of overcoming
Born in 1988 in Cameroon, Charles Fotso is a member of a
large family of 14 brothers and sisters, two of whom suffer
from albinism. The consequences of this genetic anomaly
are physical-sensory imbalances of the eyes, cutaneous
hypersensitivity to the sun’s UV rays and photophobia.
After a difficult childhood, he arrived in Madrid in 2005 and
studied a Higher Degree in International Trade.
"I heard about Fundación Universia whilst at university
because I decided to continue studying. In 2012 I received
this information but I did not apply for a scholarship from
the foundation to study English until 2016 (He obtained a
B2 diploma)".
In 2018 he received a job offer through Santander Summer
Experience to work in a bank office during the summer. And
a new offer from the Santander Private Banking Experience
programme and currently works in a branch of Private
Banking.
See video
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Community investment
We foster inclusive and sustainable growth through initiatives and programmes
that support access to education, social entrepreneurship, employability and
welfare in the communities where we operate.
Target
Progress
We believe that we can play a major role to improve lives
in the communities where we operate. So we aim to
help 4 million people through our community
programmes between 2019 and 2021.A
A. The Bank has devised a corporate methodology tailored to Santander’s requirements and specific model for contributing to society. This methodology identifies a
series of principles, definitions and criteria to allow the Bank to consistently keep track of those people who have benefited from the community investment
programmes promoted by the Bank. This methodology has been reviewed by an external auditor. The number of people helped though art and culture programmes has
not been included in the methodology.
Main achievements in 2019
EUR 46 million
in social investment
2,300
partnerships with NGOs
and social welfare
institutions
1.6
million people
helped
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2019 Annual Report
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Key initiatives by country
Commitment to childhood education
Education is the core of our social investment strategy. In
addition to supporting university and financial education,
the Group supports programmes that are mainly focused on
Latin America, where we have been working for many years
to guarantee access to quality education.
+500,000
children helped through
programmes to support childhood
education
Programa Escola Brazil
(PEB)
Bécalos
Fundación Belén Educa
Scholarships
This programme, promoted by the Once again, we collaborated in
Bank, works with the objective of
contributing to the improvement
of the quality of basic education
for children and young people in
public schools in Brazil.
this initiative of the Association of
Banks of Mexico and the Televisa
Foundation to promote access to
and improvement of education
through student scholarships and
teacher training grants.
Banco Santander collaborates in
Chile with the Belén Educa
Foundation through various
initiatives that foster educational
excellence for children and young
people (scholarships, internships,
workshops, talks and teacher
training for secondary school
students).
In collaboration with Caritas, the
Bank provides scholarships for
students from low-income
families to combat school
dropouts.
Support for social welfare
We promote different initiatives to improve people's quality
of life. Our actions are mainly focused on the fight against
social exclusion through programmes that address
situations of poverty and vulnerability.
+800,000
people helped through programmes
designed to tackle social exclusion
Calls for aid to NGOs
Matched Donations
programme
Fideicomiso por los
Niños de México
Techo Chile
Through various internal and
public calls for proposals, the
Bank supports projects and
initiatives of non-profit
organisations that contribute to
improving people's lives.
The programme is designed to
help social enterprises, small
charities and community groups
deliver projects that improve
communities and help
disadvantaged people to have
confidence in the future.
Programme promoted by the
bank's employees to help children
in vulnerable situations in areas
such as education, health and
nutrition.
Banco Santander has been
collaborating for years with
TECHO-Chile to help families at
risk of exclusion. In 2019, for the
second consecutive year,
scholarships were awarded to
allow access to training courses
such as catering or hairdressing.
Promotion of art and culture
Santander Foundation
Farol Santander
Santander Foundation has a number of aims, among them
making art more accessible and relevant to the public;
fostering the linkage between the humanistic and scientific
worlds, as well as recovering memory in art, literature and
history. It also manages the Banco Santander Collection,
and develops support programmes for NGOs and
programmes to restore natural areas.
The Santander Emplea Cultura programme is aims to help
creating jobs for young people and fostering the
professionalisation of the culture sector. Each year, ten
cultural organisations are selected and young professionals
are sought to work in them for a year.
More information in: www.fundacionbancosantander.com
Cultural and entrepreneurial centre located in Sao Paulo and
Porto Alegre. It promotes contemporary art exhibitions,
some of which are interactive, to raise awareness of real
community problems, as well as discussion forums and
events related to start-ups and innovation.
More information in: www.farolsantander.com.br
Santander Theatre
The largest and most modern multipurpose space in Brazil.
Developed to bring cultural events, concerts, shows,
exhibitions closer to the population, etc.
More information in: www.teatrosantander.com.br
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Tax contribution
We support the communities where we operate, paying the taxes we owe in each
of them.
Santander pays its fair share in taxes in every jurisdiction
where we operate. Our tax strategy, which has been
approved by the Board, sets out the principles by which the
entire Group operates. It is published on our website.
All Group entities must comply with the Group's tax risk
management and control system following its internal
control model.
Since 2010 Banco Santander is a member of the Code of
Good Tax Practices in Spain and the Code of Practice on
Taxation for Banks in the United Kingdom. Santander also
participated actively in cooperative compliance initiatives
led by different national Tax administrations.
Tax contribution
Santander contributes economically and socially to the
countries in which it operates by paying all taxes borne
directly by the Group (taxes paid by the GroupA) and
collecting or withholding taxes from third parties generated
through business activity, cooperating as required with the
local tax authorities (taxes from third partiesB).
Total taxes raised and paid by the Group in 2019 amount to
EUR 16,099 million, of which EUR 6,765 million correspond
to taxes paid directly by the Group with the remainder being
taxes collected from third parties.
Therefore, for every 100 euros of the total income of the
Group, 33 euros correspond to taxes paid and collected, as
follows:
• 19 euros for the payment of taxes collected from third
parties.
• 14 euros for own taxes paid directly by the Group.
A. Including net income tax payments, VAT and other non-recoverable indirect
taxes, social security payments made as employer and other payroll taxes, and
other taxes and levies.
B. Including net payments for salary withholdings and employee social
security contributions, recoverable VAT, tax deducted at source on capital, tax
on non-residents and other taxes
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2019 Annual Report
More information on the Group's tax
strategy is available on our corporate
website www.santander.com.
Core principles of the Group’s tax strategy
Fulfill our tax obligations, making a reasonable
interpretation of applicable rules that address its spirit and
purpose.
Respect the rules on transfer pricing, paying taxes in each
jurisdiction in accordance with the functions performed,
risks assumed and benefits generated.
Not to provide any kind of advice or tax planning to
customers in the marketing and sale of financial products
and services.
Communicate transparently the total tax contribution of
the Group, distinguishing for each jurisdiction between
own taxes borne and those born by third-parties.
Not to create or acquire entities domiciled in offshore
jurisdictions without the specific authorization of the board
of directors, ensuring adequate control over the presence
of the Group in these territories, and reduce it gradually.C
Seek to create a good working relationship with the tax
authorities, based on the principles of transparency and
mutual trust, so as to avoid disputes and consequently
minimize litigation.
C. At the end of 2019, we had 3 subsidiaries and 4 branches in offshore
territories, having liquidated one in Jersey during the year. See detailed
information on off-shore entities in note 3 c) of the notes to the
consolidated financial statements.
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These amounts (taxes accrued-taxes paid) usually differ
from each other, given that the date of payment established
by national regulations in each country usually is not the
same that the date of generation of the income or the date
of the operation taxed.
Santander pays taxes in those jurisdictions where the
Group’s profit is generated. Thus, the profits obtained, taxes
accrued and taxes paid correspond to the countries in which
the Group carries out its activity.
The taxes included in each year’s income statement are
largely income tax accrued in the period (EUR million 4,427
in the 2019 financial year - see note 27c of the consolidated
annuals accounts - which represents an effective rate of
35.3% or, if the extraordinary results are discounted, EUR
million 5,103, which represents a 34.2% tax rate – see note
52.c of the aforementioned report). It also includes non-
recoverable VAT, social security contributions as employer,
and other levies paid, regardless of the date these amounts
are paid.
The taxes paid directly by the Group shown in the
accompanying table are included in the cash flow
statement. The tax rate when comparing the corporate
income tax paid (EUR million 2,951) with the Group’s pre-
tax profit is 23.5%. Additionally, total taxes paid by the
Group includes non-recoverable indirect taxes and
contributions to public social security systems, and other
taxes that are exclusively levied on banking activities (such
as the bank levy in the United Kingdom, Poland and
Portugal), and also taxes imposed on financial transactions
(in Brazil and Argentina among others). Total taxes paid
directly by the Group amounts to 54% of the profit before
taxes.
Tax disclosure by jurisdiction
EUR million
Jurisdiction
Spain
UK
Portugal
Poland
Germany
Rest of Europe
Total Europe
Brazil
Mexico
Chile
Argentina
Uruguay
Rest of Latin America
2019
Corporate
income tax
Other
taxes paid
(271)
1,313
Total
taxes paid by
the Group
1,042
369
37
210
98
400
842
1,321
396
186
107
32
27
486
185
228
47
230
2,490
513
248
66
287
72
13
855
222
438
144
630
3,331
1,834
644
252
394
103
40
Third-party
taxes
Total
contribution
1,685
375
260
160
198
(9)
2,669
2,476
749
302
2,208
37
17
2,727
1,230
482
598
343
621
6,001
4,309
1,392
554
2,602
140
57
9,056
1,035
9
Total Latin America
2,069
1,198
3,267
5,788
United States
Other
TOTAL
39
1
124
2
163
3
871
5
2,951
3,814
6,765
9,334
16,099
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Table of Contents
Key metrics
Employees
1. Employees by geographies and gender1
N0 employees
% men
% women
% graduates
Geographies
Spain
Brazil
Chile
Poland
Argentina
Mexico
Portugal
UK
USA
SCF
Others
Total
2018
2019
2018
2019
2018
2019
2018
2019
29,078
46,248
11,267
10,902
8,254
19,673
6,255
22,561
17,005
12,406
12,770
30,868
45,179
11,614
12,403
9,000
19,096
6,499
18,297
16,783
12,642
20,332
196,419
202,713
52
43
46
31
49
45
54
41
43
47
51
45
54
43
46
30
50
46
55
40
42
46
49
45
48
57
54
69
51
55
46
59
57
53
49
55
46
57
54
70
50
54
45
60
58
54
51
55
70
72
56
82
40
61
55
16
15
34
46
53
73
79
42
86
23
49
55
22
15
34
31
52
1. The employee data presented is broken down according to the criteria of legal entities, and is therefore not comparable to that found in the Auditors' report and
annual consolidated accounts, which are presented by management criteria.
2. Functional distribution by gender 2018
Senior managers
Other managers
Other employees
Men
Women
Total
Men
Women
Total
Men
Women
Total
913 77.8%
260 22.2%
1,173
6,735 64.5% 3,711 35.5% 10,446
26,173 44.4%
32,759 55.6%
58,932
107 73.3%
39 26.7%
146
1,309 67.2%
640 32.8%
1,949
9,218 39.9%
13,862 60.1%
23,080
523 83.9%
100 16.1%
623
6,427 60.2% 4,256 39.8% 10,683
40,729 42.6%
54,952 57.4%
95,681
Continental
Europe
United
Kingdom
Latin America
and other
regions
Group total
1,543 79.5%
399 20.5%
1,942
14,471 62.7% 8,607 37.3% 23,078
76,120 42.8% 101,573 57.2% 177,693
2. Functional distribution by gender 2019
Senior managers
Other managers
Other employees
Men
Women
Total
Men
Women
Total
Men
Women
Total
918 76.4%
283 23.6%
1,201
6,043
63.1%
3,534 36.9%
9,577
24,117
44.3%
30,370
55.7%
54,487
99 76.2%
31 23.8%
130
1,076
68.4%
496 31.6%
1,572
8,870
39.8%
13,391
60.2%
22,261
543 79.2%
143 20.8%
686
4,615
61.6%
2,876
38.4% 7,491
42,626
43.1% 56,388
56.9% 99,014
1,560 77.3%
457 22.7%
2,017
11,734
63.0%
6,906
37.0% 18,640
75,613
43.0% 100,149
57.0% 175,762
Continental
Europe
United
Kingdom
Latin America
and other
regions1
Group total
1. The decrease in the variation between 2018 and 2019 related to other managers in Latin America and other regions is due to a change in the categorization criteria in
Mexico and Argentina.
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and control
3.1. Workforce distribution by age bracket 2018
Number and % of total
Continental Europe
United Kingdom
Latin America
regions
Group total
aged <= 25
2,352 3.3%
3,964 15.8%
aged 26 - 35
14,715 20.9%
7,092 28.2%
aged 36 - 45
aged 46 - 50
age over 50
27,241 38.6%
10,739 15.2%
15,504 22.0%
6,470 25.7%
2,810 11.2%
4,839 19.2%
and other
11,474 10.7%
46,233 43.2%
29,553 27.6%
8,637 8.1%
11,090 10.4%
17,790 8.8%
68,040 33.6%
63,264 31.2%
22,186 10.9%
31,433 15.5%
3.2. Workforce distribution by age bracket 2019
Number and % of total
Continental Europe
United Kingdom
Latin America
regions
Group total
aged <= 25
2,040
3.1%
3,941 16.5%
aged 26 - 35
13,365 20.5%
7,032 29.4%
aged 36 - 45
aged 46 - 50
age over 50
25,374 38.9%
10,599 16.2%
13,887 21.3%
6,064 25.3%
2,537 10.6%
4,389 18.3%
and other
10,546
9.8%
46,337 43.2%
30,597 28.5%
8,402
7.8%
11,309 10.6%
16,527
8.4%
66,734 34.0%
62,035 31.6%
21,538 11.0%
29,585 15.1%
4.1. Distribution by type of contract1 2018
Continental Europe
United Kingdom
32,252 49.7%
32,604 50.3%
9,580 53.5%
8,338 46.5%
Permanent / Full time
Men
Women
Total
64,856
17,918
Permanent / Part-time
Men
Women
348 17.3%
1,662 82.7%
622 9.8%
5,711 90.2%
Latin America and other regions
45,950 44.8%
56,591 55.2%
102,541
204 25.6%
594 74.4%
Group total
87,782 47.4%
97,533 52.6%
185,315
1,174 12.8%
7,967 87.2%
Continental Europe
United Kingdom
Latin America and other regions
Group total
Temporary / Full time
Men
Women
966 33.2%
380 49.5%
1,249 46.5%
2,595 40.8%
1,942 66.8%
387 50.5%
1,436 53.5%
3,765 59.2%
Total
2,908
767
2,685
6,360
Temporary / Part-time
Men
Women
255 32.8%
52 33.1%
276 28.7%
583 30.7%
522 67.2%
105 66.9%
687 71.3%
1,314 69.3%
Total
2,010
6,333
798
9,141
Total
777
157
963
1,897
4.2. Distribution by type of contract1 2019
Permanent / Full time
Permanent / Part-time
Men
Women
Total
Men
Women
Continental Europe
United Kingdom
29,768
49.2%
30,746 50.8%
60,514
9,152
52.7%
8,213 47.3%
17,365
309
538
17.6%
1,451 82.4%
9.2%
5,296 90.8%
Latin America and other regions
47,253
44.9%
57,986 55.1% 105,239
413
24.8%
1,251 75.2%
Group total
86,173
47.1%
96,945 52.9% 183,118
1,260
13.6%
7,998 86.4%
Total
1,760
5,834
1,664
9,258
Continental Europe
United Kingdom
Latin America and other regions
Temporary / Full time
Men
34.3%
50.1%
40.8%
833
328
116
Women
1,596
65.7%
327
168
49.9%
59.2%
Group total
1,277
37.9%
2,091
62.1%
Total
2,429
655
284
3,368
Temporary / Part-time
Men
Women
Total
168
29.9%
394
70.1%
27
2
24.8%
50.0%
82
2
75.2%
50.0%
197
29.2%
478
70.8%
562
109
4
675
1. The decrease in the variation between 2018 and 2019 related to temporary contracts in Latin America and other regions is due to a change in the policies of new
contracts in Mexico, during the second half of 2019, established that every new employee must have a temporary contract, unless otherwise stated.
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5. Annual rate of contracts by gender1
2019
2018
Men
Women
Total
Men
Women
Total
Employees with permanent /full time contract
87,111
97,701
184,813
88,738
98,294
187,031
Employees with permanent/part-time contracts
Employees with temporary/full-time contracts
Employees with temporary/part-time contracts
1,251
1,813
225
8,075
2,761
526
9,326
4,574
752
1,166
3,684
666
8,044
4,971
1,446
9,209
8,656
2,112
Group Total
90,401
109,064
199,465
94,253
112,755
207,008
Group Total
17,267
68,772
64,350
22,143
1. The figure for 2018 has been estimated in this indicator.
6.1. Annual rate of contracts by age bracket 20181
Employees with permanent /full time contract
Employees with permanent/part-time contracts
Employees with temporary/full-time contracts
Employees with temporary/part-time contracts
aged <= 25
12,940
1,185
2,448
694
1. The figure for 2018 has been estimated in this indicator.
6.2. Annual rate of contracts by age bracket 2019
Employees with permanent /full time contract
Employees with permanent/part-time contracts
Employees with temporary/full-time contracts
Employees with temporary/part-time contracts
aged <= 25
12,787
1,200
1,294
247
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
61,561
60,015
20,833
31,683
187,031
2,602
3,854
755
2,502
1,410
424
891
329
90
2,030
615
149
34,476
9,209
8,656
2,112
207,008
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
60,831
2,635
3,854
269
59,303
2,534
745
151
20,586
31,307
184,813
902
174
32
2,056
325
53
33,740
9,326
4,574
752
199,465
Group Total
15,527
65,771
62,733
21,694
7. Annual rate of contract by category1
2019
2018
Senior
Other
Other
Managers Managers employees
Other
Total Managers Managers Employees
Senior
Other
Total
Employees with permanent /full time contract
2,022
18,418
164,373
184,813
2,046
18,639
166,346
187,031
Employees with permanent/part-time contracts
Employees with temporary/full-time contracts
Employees with temporary/part-time contracts
4
12
0
227
88
165
9,095
9,326
4,474
4,574
587
752
4
23
0
224
167
463
8,981
9,209
8,466
8,656
1,648
2,112
Total Grupo
2,038
18,898
178,528
199,465
2,073
19,493
185,442
207,008
1. The figure for 2018 has been estimated in this indicator.
8. Employees who work in their home country1
%
Continental Europe
United Kingdom
Latin America and other regions
Group total
Managers
Other employees
Total
2019
89.26
86.92
89.21
89.09
2018
89.77
92.47
88.44
89.55
2019
96.98
94.11
98.28
97.34
2018
96.83
96.89
98.94
97.96
2019
96.84
94.07
98.23
97.26
2018
96.72
96.87
98.88
97.88
1. United States data not included as it is confidential information.
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9. Differently-abled employees ratio by region
%
Continental Europe
United Kingdom
Latin America and other regions
Group total
2019
2018
1.38
2.05
2.09
1.84
1.24
1.61
2.09
1.73
9.1. Differently-abled employees
Number of employees
Spain
Rest of the Group
Total Group
2019
361
3,223
3,584
2018
365
3,071
3,436
10. Coverage of the workforce by collective agreement
Countries
Spain
Brazil
Chile
Poland
Argentina
Mexico
Portugal
UK
US
SCF
Other business units
Total Group
2019
%
N0 Employees
2018
%
N0 Employees
96.20
98.80
100.00
0.00
99.20
22.50
99.10
94.40
0.00
94.00
66.20
73.70
27,961
45,674
11,267
0
8,188
4,429
6,197
99.94
94.13
100.00
0.00
99.00
20.05
99.40
30,848
42,529
11,614
-
8,910
3,829
6,460
21,294
100.00
18,297
0
11,663
8,459
144,800
0.00
50.22
70.31
70.61
-
6,349
14,295
143,131
11.1. Distribution of new hires by age bracket 2018
% of total
Continental Europe
United Kingdom
Latin America and other regions
Group total
11.2. Distribution of new hires by age bracket 2019
% of total
Continental Europe
United Kingdom
Latin America and other regions
Group total
11.3. Distribution of new hires by gender
aged <= 25
aged 26-35
aged 36-45
aged over 45
aged > 50
23.79
47.81
33.84
33.67
44.73
28.51
44.04
41.72
23.50
13.39
15.19
16.89
4.69
4.09
3.49
3.87
3.30
6.20
3.44
3.85
aged <= 25
aged 26-35
aged 36-45
aged over 45
aged > 50
30.16
50.83
26.35
31.84
44.54
27.97
46.71
42.62
18.03
11.14
17.30
16.18
4.26
4.44
3.52
3.82
3.01
5.63
6.12
5.53
Continental Europe
United Kingdom
Latin America and other regions
Men
6.6%
22.36%
16.5%
2019
Women
5.5%
19.5%
13.6%
Total
6.0%
14.9%
20.7%
2018
Men
Women
9.18%
22.31%
18.43%
11.29%
15.79%
16.97%
Total
10.28%
16.97%
19.23%
Group total
13.67%
11.78%
12.63%
15.48%
14.45%
14.92%
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12. Distribution of dismissals 1
by gender
Senior managers
Other managers
Other employees
Total Group
by age
aged <=25
aged 26-35
aged 36-45
aged 46-50
aged >50
Total Group
2019
%2 Women %2
Men
Total %2
Men %2
2018
Women %2
45 2.88%
752 6.40%
6,945 9.19%
7,742 8.71%
12 2.63%
342 4.95%
8,245 8.23%
8,599 8.00%
57 2.82%
1,094 5.86%
15,190 8.64%
16,341 8.32%
68 4.41%
26 6.52%
375 2.59%
189 2.20%
3,087 4.06%
3,530 3.83%
3,681 3.62%
3,896 3.52%
Total
%2
94
564
6,768
7,426
4.84%
2.44%
3.81%
3.66%
Men
451
1,963
1,878
696
2,754
7,742
2019
Women
535
2,603
2,710
866
1,885
8,599
Total
986
4,566
4,588
1,562
4,639
Men
382
1,071
884
395
798
16,341
3,530
2018
Women
492
1,310
1,028
343
723
3,896
Total
874
2,381
1,912
738
1,521
7,426
1. Dismissal: unilateral termination. decided by the company. of an employment contract not subject to term expiration. The concept includes encouraged redundancies
within the context of restructuring processes.
2. Percentage expressing the number of dismissals over the total number of employees in each group.
13. External turnover rate by gender1
%
Continental Europe
United Kingdom
Latin America and other regions
Group total
Men
15.58
19.73
19.94
18.39
2019
Women
14.39
20.49
17.64
16.99
Total
14.95
20.18
18.66
17.61
Men
12.32
16.39
17.99
15.70
2018
Women
12.48
14.17
17.01
15.10
1. Excludes temporary leaves of absence and transfers to other Group companies.
14.1 External turnover rate by age bracket1 2018
% of total
Continental Europe
United Kingdom
Latin America and other regions
Group total
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
40.01
35.72
25.73
29.84
16.15
15.74
17.16
16.75
8.68
8.75
13.72
11.04
7.46
6.48
15.49
10.46
14.43
10.52
21.45
16.31
1. Excludes temporary leaves of absence and transfers to other Group companies.
14.2. External turnover rate by age bracket1 2019
% of total
Continental Europe
United Kingdom
Latin America and other regions
Group total
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
40.32
38.97
25.19
30.39
17.93
19.59
18.19
18.31
9.65
13.49
15.18
12.75
6.85
11.51
17.56
11.56
24.16
18.61
24.64
23.52
1. Excludes temporary leaves of absence and transfers to other Group companies.
.
Total
12.41
15.10
17.45
15.37
Total
12.41
15.10
17.45
15.37
Total
14.95
20.18
18.66
17.61
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15.1 Employees average remuneration and evolution
Euros
Total remuneration (average)1
Variación 2019 vs. 2018
54,123
34,273
408,598
101,520
34,372
43,262
5%
6.7%
2.6%
4.2%³
4.1%
5.7%
By gender
Men
Women Senior officers2
By professional category
Other
managers
Other
employees
Total
By Age Brackets
Total remuneration (average)1
Variación 2019 vs. 2018
17,597
27,563
47,221
62,574
66,216
43,262
(4.9)%
10%
6.4%
4.6%
5.1%
5.7%
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
1. Data at end of 2019. The total remuneration of employees includes annual base salary, pensions and variable remuneration paid in the year.
2. Includes Group Sr. Executive VP. Executive VP and Vice President.
3. The variation includes the effect of internal reclassification between the category and the rest of employees carried out in different geographies.
15.2 Average remuneration Senior officers
Thousands euros
Executive officers
Non-executive officers
Senior officers
Men
6,571
354
3,693
2019
Women
9,952
251
3,902
Total
7,698
292
3,740
Men
6,738
347
3,349
2018
Women
10,481
255
3,343
Total
7,986
317
3,348
16.1 Ratio between the Bank’s minimum annual salary and the legal minimum
annual salary by country and gender 2018
Germany
Argentina
Brazil
Chile
US
Spain
Mexico
Poland
Portugal
UK
% Legal Minimum Wage
Men
Women
% legal minimum
wage
242.00%
337.00%
183.00%
111.00%
179.00%
213.00%
130.00%
100.00%
207.00%
102.00%
215.00%
337.00%
183.00%
112.00%
207.00%
213.00%
130.00%
114.00%
207.00%
102.00%
228.49%
336.53%
183.12%
111.63%
193.02%
212.58%
130.23%
107.14%
206.90%
102.43%
16.2 Ratio between the Bank’s minimum annual salary and the legal minimum
annual salary by country and gender 2019
% Legal Minimum Wage
Men
Women
% legal minimum
wage
Germany
Argentina
Brazil
Chile
US
Spain
Mexico
Poland
Portugal
UK
225.00%
338.00%
182.00%
175.00%
207.00%
176.00%
128.00%
100.00%
200.00%
130.00%
193.00%
338.00%
182.00%
136.00%
207.00%
176.00%
128.00%
100.00%
200.00%
130.00%
209.00%
338.03%
182.25%
155.43%
206.80%
176.05%
128.14%
100.27%
200.00%
130.40%
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17. Training
Total hours of training
% employees trained
Total attendees
2019
2018
8,002,784
100.0
6,842,825
100.0
6,024,981
4,700,013
Hours of training per employee
40.70
33.76
Total investment in training
102,586,146 98,689,210
Investment per employee
Cost per hour
% female participants
% of e-learning training attendees
% of e-learning hours
Employee satisfaction (up to 10)
522.28
12.82
486.84
14.42
54.2
84.6
48.1
9.3
54.4
90.0
48.1
8.0
18. Hours of training by category
Senior officers
Managers
Other employees
Group total
2019
2018
Hours
77,861
678,335
7,246,558
8,002,784
Average
38.6
36.39
41.23
40.74
Hours
69,358
764,104
6,009,363
6,842,825
Average
35.71
33.11
33.82
33.76
19. Hours of training by gender
Men
Women
Group total
2019
Average
41.49
40.13
40.74
2018
Average
34.27
33.37
33.76
20. Absenteeism by gender and region1
%
Continental Europe
United Kingdom
Latin America and other regions
Group total
Men
2.18
3.73
1.36
1.90
2019
Women
5.49
5.40
2.86
4.00
Total
3.94
4.72
2.19
3.06
Men
1.85
3.65
3.05
2.64
2018
Women
4.36
5.14
4.22
4.40
Total
3.18
4.54
3.70
3.61
1. Hours missed due to occupational accident. non-work related illness and non-work related accident for every 100 hours worked. The decline in Latin America and the
rest stems from a change in the quantification of hours in Brazil.
21. Accident rate1
%
Continental Europe
United Kingdom
Latin America and other regions
Group total
Men
0.10
0.01
0.18
0.14
2019
Women
0.27
0.02
0.33
0.27
Total
0.19
0.02
0.26
0.21
Men
0.07
0.01
0.66
0.36
2018
Women
0.09
0.05
0.95
0.53
Total
0.08
0.03
0.83
0.45
1. Hours missed due to occupational accident involving leave for every 100 hours worked. The hours worked are theoretical hours. Accidents in itinere are included.
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22. Occupational health and safety
Frequency rate1
Severity rate2
No. of fatal occupational accidents
Work related illness3
Hours of absenteeism (hours not worked
due to common illness and non-work
accident) (millions of hours).
2019
Men
1.61
0.14
0
0
Women
2.41
0.27
1
0
Total
1.77
0.21
1
0
2018
Men
4.14
0.36
2
0
Women
6.32
0.53
2
0
Total
5.26
0.45
4
0
2,959,796
7,682,744
10,642,540
3,812,224
7,884,418
11,696,642
1. Days not worked due to accidents at work with and without leave for every 10,000 hours worked. The hours worked are theoretical hours. In itinere accidents are
included.
2. Days not worked due to work accident with leave for every 1000 hours worked. The hours worked are theoretical hours. In itinere accidents are included.
3. No member of the Group's staff is exposed to occupational diseases, given that the activity carried out by Santander professionals and the sector in which they operate
is not recognized in Royal Decree 1299/2006.
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Customers
23. Group Customers1
Europe
Spain
Portugal
UK2
Poland
SCF3
Rest of Europe
Latinamerica
Brazil
Chile
Argentina
Rest of Latam.
North America
Mexico
Santander Bank
SGP
Total
2019
66,278,825
13,711,173
3,062,608
25,078,945
5,047,909
19,286,148
92,042
53,933,059
46,089,431
3,415,807
3,548,366
879,455
23,395,482
18,134,468
5,261,014
1,187,935
2018
66,367,725
13,752,964
3,056,238
25,519,550
4,525,138
19,427,881
85,954
50,089,573
42,074,640
3,460,654
3,701,498
852,781
21,906,671
16,690,402
5,216,269
1,085,053
144,795,301
139,449,022
var.
(0.1)%
(0.3)%
0.2%
(1.7)%
11.6%
(0.7)%
7.1%
7.7%
9.5%
(1.3)%
(4.1)%
3.1%
6.8%
8.7%
0.9%
9.5%
3.8%
1. Figures corresponding to total customers, understood as the first holder of at least one product or service with a current contract. Of the European countries listed,
except for the United Kingdom, the customers of Santander Consumer Finance are included under "Rest of Europe".
2. Includes SCF.
3. SCF includes all European countries, except UK.
24. Dialogue by channel
Branches
Number of branches
ATMs
Nº ATMs
Digital banking1
Users2
Visits
Monetary transactions3
1. Santander Consumer Finance not included.
2. Counts once for users of both Internet and mobile banking.
3. Millions.
25. Customer satisfaction
% satisfaction among active retail customers
Spain
Portugal
UK
Poland
Brazil
Mexico
Chile
Argentina
US
Uruguay
Total
2019
2018 Var .2019/2018 %.
11,952
13,217
(9.6)%
39,593
38,503
2.8%
36.8
7,907
2,251
32.0
6,302
1,843
15%
25.5 %
22.1 %
2019
2018
2017
85.5
86.4
96.5
97.9
86.2
94.5
85.6
86.0
88.4
93.6
90.2
87.1
91.3
97.0
97.5
79.6
97.8
85.8
83.3
83.3
94.5
88.7
85.5
91.4
96.0
95.9
77.9
96.4
91.6
87.1
81.8
93.3
88.0
Source: Corporate benchmarking of experience and satisfaction among active Retail & Commercial banking customers. Based on audited external
and local studies developed by well-known vendors (IPSOS, IBOPE,GFK,TNS…) (Data at end 2017, corresponding to survey results in the second
half of the year). Uruguay's data has been added as it is now available for 2018 and 2019
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26. Total complaints received
Spain1
Portugal
United Kindom 2
Poland
Brazil 3
Mexico4
Chile5
Argentina6
US
SCF
2019
91,046
4,655
30,298
6,193
133,841
75,459
6,474
4,106
4,097
30,535
2018
85,519
4,298
33,797
4,480
111,829
60,740
6,171
5,464
4,160
29,067
2017
107,103
4,275
37,746
4,785
101,589
51,895
5,526
4,372
4,041
30,126
Compliance metrics according to Group criteria, homogeneous for all geographies.
It may not match with other local criteria such us Financial Conduct Authority (FCA) in the United Kingdom or in Brazil.
1. Even Popular Bank complaints have been included, in Spain complaints inflow has decreased due to the effects of Supreme Court Ruling
related to set up mortgages fees.
2. In the United Kingdom, claims have been reduced due to the new approach in the complaint management model adopted in the equipment,
as well as the improvements in the analysis root cause of claims and their government. Claims for personal protection insurance (SPP) are not
included. More details can be found in the claims management section.
3. In Brazil complaints inflows have increased mainly due to fees, charges not recognised, and direct debits.
4. In Mexico complaints are increasing mainly due to fraud cases, especially e-commerce, and debt collecting (REDECO Channel).
5. Chile shows a slight increase mainly due to fraud cases, especially online cases.
6. In Argentina Complaints volumes increased due to fees and fraud cases.
THE USE BY BANCO SANTANDER SA OF ANY MSCI ESG RESEARCH LLC OR ITS AFFILIATES (“MSCI”) DATA, AND THE USE OF MSCI LOGOS, TRADEMARKS,
SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT, RECOMMENDATION, OR PROMOTION OF BANCO
SANTANDER SA BY MSCI. MSCI SERVICES AND DATA ARE THE PROPERTY OF MSCI OR ITS INFORMATION PROVIDERS, AND ARE PROVIDED ‘AS-IS’ AND
WITHOUT WARRANTY. MSCI NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI.
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Environment and climate change
27. Environmental footprint 2018-20191
Consumption
Water (m3)2
Water (m3/employee)
Normal electricity (millions of kwh)
Green electricity (millions of kwh)
Total electricity (millions of kwh)
Total internal energy consumption (GJ)3
Total internal energy consumption (GJ/employee)
Total paper (t)
Recycled or certified paper (t)
Total paper (t/employee)
Waste
Paper and cardboard waste (kg)4
Paper and cardboard waste (kg/employee)
Greenhouse gas emissions
Direct emissions (CO2 teq)5,6
Indirect electricity emissions (CO2 teq)-MARKET BASED7
Indirect electricity emissions (CO2 teq)-LOCATION BASED8
Indirect emissions from displacement of employees (CO2 teq)9
Total emissions (CO2 teq)- MARKET BASED
Total emissions (CO2 teq/employee)
Average number of employees
2019
2018 Var. 2018-2019 (%)
2,811,322
2,956,420
14.55
533
537
1,070
15.24
616
461
1,077
4,252,669
4,404,750
22.00
18,101
15,388
0.09
22.70
17,926
15,746
0.09
9,410,831
9,613,690
48.69
49.55
22,691
177,504
322,038
120,969
321,164
1.66
193,261
31,227
223,920
364,682
124,823
379,970
1.96
194,027
-4.9
-4.5
-13.5
16.5
-0.7
-3.5
-3.2
1.0
-2.3
1.4
—
-2.1
-1.7
—
-27.3
-20.7
-11.7
-3.1
-15.5
-15.1
-0.4
1. The scope of information includes the main countries of operation: Argentina, Brazil, Chile, Germany, Mexico, Poland, Portugal, Spain, United
Kingdom and United States (excluding Puerto Rico and Miami). The information on Banco Popular is included on a consolidated basis within Spain and
Portugal.
2. Information is provided exclusively on water consumption from the public network.
3. It is also reported that the external energy consumption resulting from employee travel and business trips has been: 1,721,139 GJ in 2019 and
1,666,802 GJ in 2018.
4. The data for 2018 and 2019 do not include waste from Argentina and the commercial network in Brazil.
5. These emissions include those derived from the direct consumption of energy (natural gas and diesel) and correspond to scope 1, defined by the
GHG Protocol standard. To calculate these emissions, the emission factors DEFRA 2019 for 2019 and DEFRA 2018 for 2018 were applied. The
variation is due to the consideration of the emissions derived from the use of own vehicles in Mexico.
6. The reduction in direct emissions was mainly due to lower diesel consumption in 2019. This reduction was mainly due to the completion of
maintenance operations at the Data Processing Centre in Brazil in 2018 and to the reduction in the number of buildings in the USA and of branches in
Germany that used this type of fuel.
7. These emissions include those derived from electricity consumption and correspond to the scope 2 defined by the GHG Protocol standard. In 2019
the IEA (International Energy Agency) emission factors for 2017 have been used, and in 2018, the IEA 2015 factors were used.
- Indirect Electricity Emissions - Market-based: zero emissions have been considered for green electricity consumed in Germany, Brazil, Spain, UK,
USA, which has meant a reduction of 144,783 tons of CO2 equivalent in 2019 and 140,762 in 2018. For the rest of the electrical energy consumed,
the emission factor of the IEA corresponding to each country has been applied.
- Indirect emissions of electricity - Location-based: the emission factor of the AEI corresponding to each country has been applied to the total
electricity consumed, regardless of its source (renewable or non-renewable).
8. The reduction in indirect electricity emissions has been mainly due to the increase in the purchase of green energy in 2019 in the countries that
make up the G10.
9. These emissions include emissions from employees travelling from central services in each country to their workplaces by individual car, collective
vehicle and rail, and from employees' business travel by air and car. The distribution of employees by type of travel has been made on the basis of
surveys or other estimates. The conversion factors DEFRA 2019 for 2019 and DEFRA 2018 for 2018 were used to calculate emissions from employee
travel. - The number of employees travelling to work in their own vehicles was estimated taking into account only the number of parking spaces in
the central services buildings in each country and the diesel/petrol consumption mix of the vehicle fleet in each country. Data on employee travel by
individual vehicle from Argentina, Poland and the United Kingdom are not reported, as the information is not available. - Employees' journeys in
collective vehicles were calculated on the basis of the average distance travelled by the vehicles rented by Grupo Santander for collective transport of
its employees in the following countries: Germany, Brazil, the US, Spain, Mexico, Poland, Consumer and Portugal, and within the central services of
Spain (CGS). - Data on business trips by air from Poland Geoban and business trips by car from Poland Geoban and USA Consumer are not reported, as
the information is not available. - Emissions derived from the use of courier services are not included, nor are those derived from the transport of
funds, nor those from any other purchase of products or services, nor those indirect ones caused by the financial services provided.
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Contribution to UN Sustainable
Development Goals
We contribute directly achieving the SDGs through our business activities and our community
investment programmes.
Main SDGs where Banco Santander’s business activities and community investments have the most weight.
Goal
Target
Scope
Data
Section
1.4
1.5
4.3
4.4
4.5
4.B
By 2030, ensure that all men and women,
in particular the poor and the vulnerable,
have equal rights to economic resources,
as well as access to basic services,
ownership and control over land and other
forms of property, inheritance, natural
resources, appropriate new technology
and financial services, including
microfinance.
By 2030, build the resilience of the poor
and those in vulnerable situations and
reduce their exposure and vulnerability to
climate-related extreme events and other
economic, social and environmental
shocks and disasters.
By 2030, ensure equal access for all
women and men to affordable and quality
technical, vocational and tertiary
education, including university.
By 2030, substantially increase the
number of youth and adults who have
relevant skills, including technical and
vocational skills, for employment, decent
jobs and entrepreneurship.
The Prospera microfinance
program in Brazil, chosen as good
practice by the Brazilian Global
Compact Network to achieve the
SDGs in 2030.
Commitment to financially
empower 10 million people by
2025. We have empowered 2M
people in 2019.
Support to the community: 46
million in social investment and
1.6 million people helped
through our social programmes .
Commitment of 4 million people
helped through community
programmes by 2022.
We have 1,333 agreements with
different universities.
Financial
inclusion and
empowerment
2019 highlights
Community
investment
2019 highlights
We have invested 119 million
euros to support higher education
through our programmes.
Supporting
higher education
By 2030, eliminate gender disparities in
education and ensure equal access to all More than 500,000 children
levels of education and vocational training helped through programmes to
for the vulnerable, including persons with support childhood education.
disabilities, indigenous peoples and
children in vulnerable situations.
Community
Investment
By 2020, substantially expand globally
the number of scholarships available to
developing countries, in particular least
developed countries, small island
developing States and African countries,
for enrolment in higher education,
including vocational training and
information and communications
technology, technical, engineering and
scientific programmes, in developed
countries and other developing countries.
Banco Santander is the largest
company investing in education in
the world.
More than 68.671 scholarships
and grants awarded to students
in 2019.
The largest private scholarship
program in the world.
Commitment of 200k
scholarships between 2019 y
2021.
Supporting
higher education
2019 highlights
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5.1
5.5
5.A.
5.C.
New general principles on
End all forms of discrimination against all diversity and inclusion that
women and girls everywhere.
provide global guidelines and
minimum standards.
Principles and
governance
Ensure women’s full and effective
participation and equal opportunities for
leadership at all levels of decision making
in political, economic and public life.
55% of women in the workforce,
Commitments: Women on board
40-60% by 2021. 30% women in
senior leadership positions by
2025a and eliminate our gender
pay gap by 2025.
Our approach
2019 highlights
Undertake reforms to give women equal
rights to economic resources, as well as
access to ownership and control over land
and other forms of property, financial
services, inheritance and natural
resources, in accordance with national
laws.
In Brazil and Mexico 7 out of 10
individual entrepreneurs helped
through our microfinance
programmes are women.
Financial
inclusion and
empowerment
Adopt and strengthen sound policies and
enforceable legislation for the promotion
of gender equality and the empowerment have signed the UN Women's
of all women and girls at all levels.
Empowerment Principles.
In 2019 the calculated gap was
2% and we have committed to
reduce it to almost 0 by 2025.We Principles and
governance
7.2
By 2030, increase substantially the share
of renewable energy in the global energy
mix.
Promote development-oriented policies
that support productive activities, decent
job creation, entrepreneurship, creativity
and innovation, and encourage the
formalization and growth of micro-,
small- and medium-sized enterprises,
including through access to financial
services.
In 2019, we have been the global
leader in renewable energy
financing in terms of both the
number of transactions and their
amounts.
In 2019, we helped finance
greenfield renewable energy
projects with a total installed
capacity of 8,036 MW. equivalent
to the consumption of 6.5 million
households in one year.
2019 highlights
Sustainable
finance
196.000 employees. 98% with a
fixed contract. 8.3% of the staff
promoted.
A talented and
motivated team
124.559 million euros have been
granted to SMEs and individual
entrepreneurs.
Meeting the
needs of
everyone in
society
Santander X aims to become the
world's largest community for
university entrepreneurship.
Supporting
higher education
By 2030, achieve full and productive
employment and decent work for all
women and men, including for young
people and persons with disabilities, and
equal pay for work of equal value.
Protect labour rights and promote safe
and secure working environments for all
workers, including migrant workers, in
particular women migrants, and those in
precarious employment.
In 2019 we received the Top
Employers Europe 2019
certification and we have also
been included for the first time in
the Great Place to Work list of the
25 best companies to work for in
the World as well as being
distinguished as one of the best
Places to Work 2019 in Latin
America.
Commitment “top 10 companies
to work for” in 6 of our main
geographies by 2022. We
achieved 5 countries in 2019.
2019 highlights
A talented and
motivated team
8.3
8.5
8.8
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10.2
By 2030, empower and promote the
social, economic and political inclusion of
all, irrespective of age, sex, disability, race,
ethnicity, origin, religion or economic or
other status.
11.1
By 2030, ensure access for all to
adequate, safe and affordable housing
and basic services and upgrade slums.
519,996 million euros in loans
granted to households in 2019.
More than 500 million euros to
800,000 micro-entrepreneurs in
2019
More than 1 million people
helped through community
investment to improve the lives
of people at risk of exclusion,
poverty or vulnerability.
436 scholarships awarded to
students with disabilities through
Fundación Universia.
And 166 people with disabilities
incorporated in companies.
Our approach
Financial
inclusion and
empowerment
Supporting
higher education
Community
Investment
332,881 millions euros of credit
to housing.
Our branches and ATMs in remote
locations are also an integral part
of our strategy to foster access to
basic financial
services.
Meeting the
needs of
everyone in
society
Financial
inclusion and
empowerment
11.4
Strengthen efforts to protect and
safeguard the world’s cultural and natural
heritage.
More than 1 million people
benefited from art and cultural
initiatives.
Community
investment
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12.4
By 2020, achieve the environmentally
sound management of chemicals and all
wastes throughout their life cycle, in
accordance with agreed international
frameworks, and significantly reduce their
release to air, water and soil in order to
minimize their adverse impacts on human
health and the environment.
Environmental footprint: 2.1%
reduction in paper and cardboard
waste, 3.5% reduction in internal
electricity consumption, and
15.5% reduction of total CO2
emissions in 2019. 50% of the
energy consumed by Santander
was renewable energy.
Commitments: 60% of electricity
used from renewable energy
sources by 2022 and 100% by
2025. Becoming carbon neutral in
own operations 0% by 2020.
Environmental
footprint
2019 highlights
12.5
By 2030, substantially reduce waste
generation through prevention, reduction,
recycling and reuse.
Commitment: Unnecessary single
use plastic free in corporate
buildings and branches to 0 tons
by 2022.
2019 highlights
Environmental
footprint
12.6
Encourage companies, especially large
and transnational companies, to adopt
sustainable practices and to integrate
sustainability information into their
reporting cycle.
13.A
Implement the commitment undertaken
by developed-country parties to the
United Nations Framework Convention on
Climate Change to a goal of mobilizing
jointly $100 billion annually by 2020 from
all sources to address the needs of
developing countries in the context of
meaningful mitigation actions and
transparency on implementation and fully
operationalize the Green Climate Fund
through its capitalization as soon as
possible.
Environmental and social risks
analysis: 46 projects financed
under Equator Principles criteria.
Responsible procurement: New
principles of responsible
behaviour of suppliers; 93.2%
local Group suppliers.
Responsible
business
practices
2019 Highlights
Sustainable
finance
Analysed part of our portfolio's
alignment to climate scenarios,
as a step towards addressing the
recommendations of the Task
Force for Climate-related
Financial Disclosures.
Founder member of UN
Responsible Banking Principles
In 2019, we have been the global
leader in renewable energy
financing, in terms of both the
number of transactions and their
amounts.
Agreements with multilaterals
for the financing and
development of energy efficiency
projects.
Sustainable
finance
2019 highlights
Financing of vehicles with low
CO2, electric and hybrid
emissions.
1 bn euros first green bond
emission
Commitment: Green finance
raised and facilitated (euros)
120Bn by 2025. In 2019 we
achieved 19Bn euros.
17.16
Enhance the global partnership for
sustainable development, complemented
by multi-stakeholder partnerships that
mobilize and share knowledge, expertise,
technology and financial resources, to
support the achievement of the
sustainable development goals in all
countries, in particular developing
countries.
At Group-level, we work with a
number of initiatives and working
groups at local and international
level to drive forward our agenda,
and support progress towards the
UN SDGs.
Principles and
governance
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Economic
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governance
Risk management
and control
Further information
This Responsible banking chapter constitutes the traditional sustainability report that the Group
prepares and is one of the main tools used by the Group to report on sustainability issues.
Material aspects and stakeholder involvement
The Group maintains active dialogue with its stakeholders
in order to identify those issues that concern them. In
addition, a survey was conducted to determine the most
relevant aspects to be addressed in this sustainability
report. The Group also closely monitors the questionnaires
and recommendations of the main sustainability indexes
(Dow Jones, FTSE4Good, etc.) and the various international
sustainability initiatives to which the Group is party, such as
the World Business Council for Sustainable Development
(WBCSD).
In flagging and identifying content to be included in the
report, and in addition to the materiality study conducted,
the sustainability context of the Group at both the global
and local level was considered. Moreover, and insofar as
there was sufficient available information, the impacts both
within and outside the Bank were addressed.
The details of this process, as well as the results of the
materiality study, can be found on section 'What our
stakeholders tell us' of this document.
International standards and response to legislation in
preparing this Responsible banking chapter
Santander has relied on internationally recognized
standards such as the Global Reporting Initiative (GRI) in the
preparation of its successive Sustainability Reports. This
chapter has been prepared in accordance with the GRI
Standards: Comprehensive option.
Additionally, in this chapter detailed information is provided
to respond to the Law 11/2018, which transposes to the
Spanish legal order the Directive 2014/95/EU of the
European Parliament and of the Council of 22 October 2014
amending Directive 2013/34/EU as regards disclosure of
non-financial and diversity information.
Scope
This chapter is the fifteenth annual document that the
Santander Group has published, giving account of its
sustainability commitments, and refers to the period from 1
January to 31 December 2019. This report has been verified
by PricewaterhouseCoopers Auditores, S.L., and
independent firm which also audited the Group´s annual
financial statements for the year.
This report also covers the Group´s relevant activities in the
geographical areas in which it is present: Continental
Europe, the United Kingdom, the United States and Latin
America. The economic information is presented according
to the definition used by the Group for accounting purposes;
the social and environmental information has been
prepared according to the same definition, wherever this is
available.
Data contained in this chapter covers Banco Santander SA.
and subsidiaries (for more information see notes 3 and 52
to the consolidated financial statements and sections 3 and
4 of the economic and financial chapter).
When the limitations and scope of the information, and the
changes in criteria applied with respect to the to the 2018
sustainability report are significant, these are reflected in
the corresponding section of the report and the GRI Content
Index.
109
Table of Contents
Non-financial information Law
content index
Equivalent table of legal disclosure requirements under Spanish law 11/2018
Description of the metric/concept included in the 11/2018
Law to be disclosed
Chapters/section of the Consolidated directors
report where the info is available
Correspondence with GRI indicators
n
o
i
t
a
m
r
o
f
n
I
l
a
r
e
n
e
G
.
0
Short description of the Group’s business model (it will
include its business environment, its organisation and
structure, the markets in which it operates, its objectives
and strategies, and the main factors and trends that may
affect its future performance).
Business model and strategy, What our
stakeholders tell us.
A description of the policies that the Group applies,
which will include: the due diligence procedures applied
for the identification, assessment, prevention and
mitigation of risks and significant impacts and of
verification and control, including the measures in which
they have been adopted):
Principles and governance.
Analysis of Environmental & Social Risk
The results of these policies, including key indicators of
relevant non-financial results that allow the monitoring
and evaluation of progress and that favour the
comparability between companies and sectors, in
accordance with national, European or international
frameworks of reference used for each matter.
Challenge 2: Inclusive and sustainable
growth.
A talented and motivated team.
Principles and governance. Responsible
business practices.
GRI 102-1
GRI 102-2
GRI 102-3
GRI 102-4
GRI 102-6
GRI 102-7
GRI 102-14
GRI 102-15
GRI 103-2
GRI 103-3
GRI 103-2
GRI 103-3
The main risks related to these matters associated
with the Group's activities (business relationships,
products or services) that may have a negative effect in
these areas, and how the Group manages these risks,
explaining the procedures used to detect and assess
them in accordance with national, European or
international frameworks of reference for each matter. It
must include information about the impacts that have
been detected, offering a breakdown, in particular of the
main risks in the short, medium and long term.
Detailed information on the current and foreseeable
effects of the activities of the company in the
environment and, where appropriate, health and safety,
environmental evaluation or certification procedures; the
resources dedicated to the prevention of environmental
risks; the application of the principle of caution, the
amount of provisions and guarantees for environmental
risks.
Sustainable finance,.Responsible business
practices. Risk management and control
chapter.
GRI 102-15
GRI 102-30
Sustainable finance.
GRI 102-29
GRI 102-31
GRI 201-2
GRI 103-2 (GRI of environmental
dimension)
Environmental footprint.
GRI 102-11
GRI 102-29
Analysis of environmental and social risks.
GRI 102-11
At the end of the 2019 financial year, no
significant account is presented in the
Consolidated Annual Accounts of the Group
that should be included in this chapter
regarding environmental provisions or
guarantees.
GRI 102-11
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governance
Risk management
and control
Description of the metric/concept included in the
11/2018 Law to be disclosed
Chapters/section of the Consolidated directors
report where the info is available
Correspondence
with GRI indicators
Contamination:
Measures to prevent, reduce or repair CO2 emissions
that seriously affect the environment, taking into
account any form of air pollution, including noise and
light pollution.
Circular economy and waste prevention and
management:
Environmental footprint.
GRI 103-2 (GRI 302 y 305)
Waste prevention measures, waste recycling
measures, waste reuse measures; other forms of
waste recovery and reuse; actions against food waste.
Environmental footprint.
Sustainable use of resources:
Use and supply of water according to local limitations
Environmental footprint.
Consumption of raw materials and measures taken to
improve the efficiency of its use.
Environmental footprint.
Energy: direct and indirect consumption, measures
taken to improve energy efficiency, use of renewable
energies
Environmental footprint.
Climate change:
Important elements of greenhouse gas emissions
generated as a business activity (including goods and
services produced)
Environmental footprint.
n
o
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t
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f
n
I
l
a
t
n
e
m
n
o
r
i
v
n
E
.
1
Measures taken to adapt to the consequences of
climate change
Sustainable finance, Environmental
footprint.
Reduction targets voluntarily established in the
medium and long term to reduce greenhouse gas
emissions and means implemented for this purpose.
Environmental footprint.
Protection of biodiversity:
GRI 103-2
(GRI 306)
GRI 301-2
GRI 306-1
GRI 303-1
GRI 103-2
(GRI 301)
GRI 301-1
GRI 301-2
GRI 103-2
(GRI 302)
GRI 302-1
GRI 302-3
GRI 103-2
(GRI 305)
GRI 305-1
GRI 305-2
GRI 305-3
GRI 305-4
GRI 103-2
(GRI 305)
GRI 201-2
GRI 103-2
(GRI 305)
Measures taken to preserve or restore biodiversity
Impacts caused by the activities or operations of
protected areas
The impacts caused by the direct activities of
Banco Santander on biodiversity are not
material due to the financial activity carried
out by the entity.
-
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Description of the metric/concept included in the
11/2018 Law to be disclosed
Chapters/section of the Consolidated directors
report where the info is available
Correspondence
with GRI indicators
Employment:
Total number and distribution of employees by gender,
age, country and professional classification
Key Metrics.
Total number and distribution of contracts modes and
annual average of undefined contracts, temporary
contracts, and part-time contracts by: sex, age and
professional classification.
Key Metrics.
Number of dismissals by: gender, age and professional
classification.
Key Metrics.
Average remuneration and its progression broken down
by gender, age and professional classification
Key Metrics.
Salary gap and remuneration of equal or average jobs in
society
A talented and motivated team
Average remuneration of directors and executives
(including variable remuneration, allowances,
compensation, payment to long-term savings forecast
systems and any other payment broken down by gender)
Key Metrics.
Corporate governance chapter.
Implementation of work disconnection policies
A talented and motivated team.
Employees with disabilities
Organisation of work:
Key metrics.
Organisation of work time
A talented and motivated team
Number of absent hours
Key Metrics.
Measures designed to facilitate work-life balance and
encourage a jointly responsible use of said measures by
parents
Health and safety:
A talented and motivated team.
GRI 103-2
(GRI 401)
GRI 102-8
GRI 405-1
GRI 102-8
GRI 405-1
GRI 401-1
GRI 405-2
GRI 103-2
(GRI 405)
GRI 405-2
GRI 102-35
GRI 102-36
GRI 103-2
(GRI 405)
GRI 103-2
(GRI 401)
GRI 405-1
GRI 103-2
(GRI 401)
GRI 403-2
GRI 103-2
(GRI 401)
Conditions of health and safety in the workplace
A talented and motivated team.
GRI 102-41
Occupational accidents, in particular their frequency and
severity, as well as occupational illnesses. Broken down
by gender.
Key Metrics.
Social relations:
GRI 403-2
GRI 403-3
Organisation of social dialogue (including procedures to
inform and consult staff and negotiate with them)
What our stakeholders tell us. A talented and
motivated team. Responsible business
practices.
GRI 103-2
(GRI 402)
Percentage of employees covered by collective
bargaining agreements by country
Balance of the collective bargaining agreements
(particularly in the field of health and safety in the
workplace)
Training:
Key Metrics.
A talented and motivated team.
The policies implemented in the field of training
A talented and motivated team.
Total number of hours of training by professional
categories.
Key Metrics.
GRI 102-41
GRI 403-1
GRI 403-4
GRI 103-2
(GRI 404)
GRI 404-2
GRI 404-1
Accessibility:
Universal accessibility of people
Equality:
Measures taken to promote equal treatment and
opportunities between women and men, Equality plans
(Chapter III of Organic Law 3/2007, of 22 March, for the
effective equality of women and men), measures taken
to promote employment, protocols against sexual and
gender-based harassment, Policy against all types of
discrimination and, where appropriate, integration of
protocols against sexual and gender-based harassment
and protocols against all types of discrimination and,
where appropriate, management of diversity
A talented and motivated team. Supporting
higher education.
GRI 103-2
(GRI 405)
A talented and motivated team.
Supporting higher education.
GRI 103-2 (GRI 405 and 406)
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Economic
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governance
Risk management
and control
Description of the metric/concept included in the
11/2018 Law to be disclosed
Chapters/section of the Consolidated directors
report where the info is available
Correspondence with GRI indicators
Application of due diligence procedures in the field of
Human Rights
Principles and governance. Analysis of
Environmental & Social Risk. Responsible
Procurement.
Prevention of the risks of Human Rights violations
and, where appropriate, measures to mitigate,
manage and repair any possible abuses committed
Principles and governance, Responsible
Procurement. Analysis of Environmental &
Social Risk.
Complaints about cases of human rights violations
Promotion and compliance with the provisions of the
fundamental conventions of the International Labour
Organisation regarding respect for freedom of
association and the right to collective bargaining.
Measures taken to prevent corruption and bribery
n
o
i
t
p
u
r
r
o
c
Measures to combat money laundering
A talented and motivated team. Risk
management and control chapter.
A talented and motivated team.
Principles and governance. Risk management
and control chapter.
Principles and governance. Risk management
and control chapter.
i
s
t
h
g
R
n
a
m
u
H
.
3
i
t
s
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a
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F
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4
y
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o
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r
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f
n
I
.
5
Contributions to non-profit foundations and entities
Community investment.
Commitments of the company to sustainable
development:
The impact of the company’s activity on employment
and local development
Community investment. Financial inclusion
and empowerment.
The impact of the company’s activity on local towns
and villages and in the country.
Community investment. Financial inclusion
and empowerment.
Relations maintained with the representatives of local
communities and the modalities of dialogue with
them.
What our stakeholders tell us.
Association or sponsorship actions
Community investment.
Outsourcing and suppliers:
Inclusion of social, gender equality and environmental
issues in the procurement policy
Responsible procurement.
Consideration in relations with suppliers and
subcontractors of their responsibility
Responsible procurement.
Supervision and audit systems and resolution thereof
Responsible procurement.
Consumers:
Measures for the health and safety of consumers
Responsible Business Practices. Risk
management and control chapter.
Systems for complaints received and resolution
thereof
Responsible Business Practices.
Key metrics. Risk management and control
chapter. GRI content index.
GRI 102-16
GRI 102-17
GRI 103-2
(GRI 412)
GRI 410-1
GRI 412-1
GRI 412-3
GRI 406-1
GRI 103-2
(GRI 406)
GRI 102-16
GRI 102-17
GRI 103-2
(GRI 205)
GRI 205-1
GRI 205-2
GRI 205-3
GRI 413-1
GRI 103-2
(GRI 203)
GRI 203-1
GRI 203-2
GRI 413-1
GRI 103-2
(GRI 203)
GRI 203-1
GRI 203-2
GRI 413-1
GRI 102-43
GRI 413-1
GRI 102-12
GRI 102-13
GRI 103-2 (GRI
204, 308 and 414)
GRI 102-9
GRI 103-2 (GRI 204, 308 and 414)
GRI 204-1
GRI 308-1
GRI 414-1
GRI 103-2
(GRI 204)
GRI 103-2 (GRI 416, 417 and 418)
GRI 416-1
GRI 417-1
G4-FS15
GRI 102-17
GRI 103-2 (GRI 416, 417 and 418)
GRI 416-2
GRI 417-2
GRI 418-1
Tax information:
The profits obtained country by country
Taxes earned on benefits paid
Public grants received
Any other relevant information:
Auditor's report and annual consolidate
accounts.
Tax contribution.
GRI content index.
GRI 103-2
(GRI 201)
GRI 201-4
*NB: The data to report this indicator could be quantitative or qualitative
In addition to the contents mentioned in the previous table, the consolidated non-financial information statement of Banco Santander includes the following contents:
102-5, 102-9, 102-10, 102-12, 102-13, 102-18, 102-19, 102-20, 102-21, 102-22, 102-23, 102-24, 102-25, 102-26, 102-27, 102-28, 102-32, 102-33, 102-34,
102-37, 102-40, 102-42, 102-43, 102-44, 102-45, 102-46, 102-47, 102-48, 102-49, 102-50, 102-51, 102-52, 102-53, 102-54, 102-55, 102-56, 201-1, 201-3,
202-1, 202-2, 203-1, 203-2, 206-1, 302-1, 302-3, 307-1, 308-2, 401-2, 402-1, 404-3, 405-2, 411-1, 414-2, 415-1, 417-3, 419-1.
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UNEP FI Principles for
Responsible Banking reporting
index
Reporting and Self-Assessment
Requirements
High-level summary of bank’s response
Reference(s)/
Link(s) to bank’s
full response/
relevant
information
Principle 1: Alignment
We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the
Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.
1.1. Describe (high-level) your bank's business
model, including the main customer segments
served, types of products and services provided, the
main sectors and types of activities, and where
relevant the technologies financed across the main
geographies in which your bank has operations or
provides products and services.
1.2. Describe how your bank has aligned and/or is
planning to align its strategy to be consistent with
and contribute to society's goals, as expressed in
the Sustainable Development Goals (SDGs), the
Paris Climate Agreement, and relevant national and
regional frameworks.
Corporate website:
www.santander.com
-About us
-Our approach
2019 Annual Report:
-Our approach
- Contribution to UN
SDGs
-Business model and
strategy
Other references:
-Financial report 2019
-2019 Earnings
Presentation
Santander is a retail bank operating in 3 geographies
(Europe, North America and South America) and in 10 main
markets. Furthermore, we have global businesses like
Santander Corporate & Investment Banking; Wealth
Management & Insurance; or Santander Global Platform.
Our purpose as a company is to help people and businesses
prosper.
Our aim is to be the best open financial services platform, by
acting responsibly and earning the lasting loyalty of our
people, customers, shareholders and communities.
Our business model is based on three pillars:
Our scale provides potential for organic growth.
Unique personal banking relationships strengthen
customer loyalty.
Our geographic and business diversification and our
subsidiaries’ model, which make us more resilient under
adverse circumstances.
Our strategic priorities are:
Improve business performance.
Optimize capital deployment
Accelerate digitalization through Santander Global
Platform.
Our value proposition includes a broad variety of solutions
for all our customers: individuals, companies, institutions,
etc. Products and services are tailored to meet the needs of
our customers, taking advantage of global best practices, but
adapted to local singularities.
We work every day to help people and businesses prosper in
a way that is Simple, Personal and Fair. We strive to exceed
our stakeholders´ expectations and carry out our activity in a
responsible way. If we fulfil our purpose, we not only grow
as a business, but help society face the main global
challenges.
Our activity allow us to contribute to several of the UN
Sustainable Development Goals and support the Paris
Agreement to fight climate change.
We have a committed, diverse and skilled team that offers
our customers simple and innovative solutions, increasing
their access to financial services, improving their financial
education, and supporting them in their transition to a low
carbon economy, while reducing our environmental
footprint. Furthermore, we support education through our
Santander Universities programme and improve the living
standards of the communities where we operate through
several social programmes.
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and control
Principle 2: Impact and Target Setting
We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and
environment resulting from our activities, products and services. To this end, we will set and publish targets where we can have the
most significant impacts.
2.1. Impact Analysis:
a)
Show that your bank has identified the areas in
which it has its most significant (potential) positive
and negative impact through an impact analysis that
fulfills the following elements:
Scope: The bank’s core business areas, products/
services across the main geographies that the bank
operates in have been as described under 1.1. have
been considered in the scope of the analysis.
Scale of Exposure: In identifying its areas of most
significant impact the bank has considered where its
core business/its major activities lie in terms of
industries, technologies and geographies.
c) Context & Relevance: Your bank has taken into
b)
d)
account the most relevant challenges and priorities
related to sustainable development in the
countries/regions in which it operates.
Scale and intensity/salience of impact: In identifying
its areas of most significant impact, the bank has
considered the scale and intensity/salience of the
(potential) social, economic and environmental
impacts resulting from the bank’s activities and
provision of products and services.
(your bank should have engaged with relevant
stakeholders to help inform your analysis under
elements c) and d))
•
•
Show that building on this analysis, the bank has:
-identified and disclosed its areas of most
significant (potential) positive and negative impact.
- identified strategic business opportunities in
relation to the increase of positive impacts /
reduction of negative impacts.
2019 Annual Report-
Responsible banking
chapter
-What our stakeholders
tell us
-Challenges and
opportunities
-Sustainable finance
2019 Annual Report
-Risk management and
control chapter
-1.2 Santander Top and
emerging risks
Other references:
- Stakeholder
engagement & material
concerns reportA
-Climate finance reportA
-Culture reportA
-Financial
empowerment reportA
A. (These reports are
produced after the
Annual Report and will be
available throughout the
month of May 2020)
Banco Santander runs a systematic analysis to identify the
social, environmental and ethical aspects that are most
relevant to its various stakeholders all along its value chain.
This study consists of a detailed quantitative and qualitative
analysis based both internal and external sources.
• Internal sources: employee and senior management
views.
• External sources: shareholders, investors, customers,
regulators, agencies and society in general
In 2019, this assessment identified 15 material issues for
the bank’s responsible banking agenda. It is worth
highlighting:
• Funding of activities with environmental and climate
impact
• Ethical behaviour and risk management
• Diversity
• Customer satisfaction metrics
To address these issues, two main challenges have been
identified:
1) Adapting to the new business environment.
2) Contributing to a more inclusive and sustainable growth,
that allows to build more inclusive and equal economies and
societies, while at the same supporting the transition to a
low carbon economy.
This annual report discloses information on progress and
plans relating to addressing these two challenges.
In particular, in 2019 we have focused on: incorporating
responsible business practices; tackling climate change and
supporting the ecological transition; and fostering a diverse
and skilled team of professionals.
In addition, aligning with the Group's control and
management risk practices, potential threats that may affect
the development of the strategic plan are identified, valued
and controlled, through periodic evaluation of the top risks
under different stress scenarios. The main strategic risks
identified by the Group are regularly monitored by senior
management, including their respective mitigation
measures.
With a focus on measuring positive/negative impacts of our
financing portfolio, in 2019 we have started to work with the
methodology developed by the working group of UNEP FI
on the impact of infrastructures that we finance, evaluating
the positive and negative impacts of the projects
individually.
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Impact Analysis.
We will continue to improve our materiality analysis and while further exploring and integrating recognised impact methodologies as started
this year for our infrastructure operations.
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2.2. Target Setting
Show that the bank has set and published a
minimum of two Specific, Measurable (can be
qualitative or quantitative), Achievable, Relevant
and Time-bound (SMART) targets, which address at
least two of the identified “areas of most significant
impact”, resulting from the bank’s activities and
provision of products and services.
Show that these targets are linked to and drive
alignment with and greater contribution to
appropriate Sustainable Development Goals, the
goals of the Paris Agreement, and other relevant
international, national or regional frameworks. The
bank should have identified a baseline (assessed
against a particular year) and have set targets
against this baseline.
Show that the bank has analysed and
acknowledged significant (potential) negative
impacts of the set targets on other dimensions of
the SDG/climate change/society’s goals and that it
has set out relevant actions to mitigate those as far
as feasible to maximize the net positive impact of
the set targets.
To meet the identified challenges, we have set 11 targets
which reflect our commitment to building a more
responsible bank.
2019 Annual Report-
Responsible Banking
chapter
2019 highlights
Sustainable Finance
Contribution to de UN
SDG
Other references:
10 commitments press
release
These objectives include, amongst others, the commitment
to facilitate the mobilisation of €120 billion of green finance
between 2019 and 2025, as well as to financially empower
10 million people in the same period, through increasing
microfinance activities, financial education programmes and
other tools that give access to financial services.
Other commitments to highlight:
• To have between 40-60% of women on our board by
2021 and to have at least 30% of women in senior
leadership positions by 2025.
• To eliminate the equal pay gap by 2025.
• To use 100% of our electricity from renewable sources in
all countries by 2025.
• To fund 200,000 scholarships, internships and
entrepreneur programmes between 2019 and 2021.
• To help 4 million people through our community
programmes between 2019 and 2021.
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Target Setting.
The Bank has established priority areas for improvement in the short and medium term, specific metrics have been defined for their
monitoring, and progress is disclosed in our annual report. We will continue working on further understanding the impacts from our activities
including those related to our targets and where relevant set mitigating actions.
2.3 Plans for Target Implementation and
Monitoring
Show that your bank has defined actions and
milestones to meet the set targets.
The Responsible Banking unit and its network, in
collaboration with the remaining areas and local units,
2019 Annual Report-
defines short, medium and long term action plans to achieve Responsible Banking
the objectives. These actions are described through the
different sections of the Responsible Banking chapter.
chapter
Show that your bank has put in place the means to
measure and monitor progress against the set
targets. Definitions of key performance indicators, milestones are set and tracked by the the Responsible
any changes in these definitions, and any rebasing
of baselines should be transparent.
Banking governance bodies, in order to ensure delivery of
the longer-term objectives defined.
The monitoring and follow-up of these actions is carried out
through the KPIs defined in the plans, where intermediate
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Plans for Target Implementation and Monitoring.
Banco Santander has defined at corporate and local level, various action plans to boost our commitments.
2.4. Progress on Implementing Targets
For each target separately:
Show that your bank has implemented the actions it
had previously defined to meet the set target.
Or explain why actions could not be implemented /
needed to be changed and how your bank is
adapting its plan to meet its set target.
Report on your bank’s progress over the last 12
months (up to 18 months in your first reporting
after becoming a signatory) towards achieving each
of the set targets and the impact your progress
resulted in. (where feasible and appropriate, banks
should include quantitative disclosures)
Banco Santander reports, annually, the achievements and
scopes of its responsible banking strategy and targets.
Here is a summary of the 2019 results of each of the 11
targets set:
2019 Annual Report-
Responsible Banking
chapter
• To be one of the top 10 companies to work for in at least
six of the core geographies where we operate by 2021. In
2019: Top 10 in 5 geographies.
• To have between 40-60% women on our board by 2021.
In 2019: 40%
• To have 30% women in our senior leadership positions by
2025. In 2019: 22%
• To eliminate the equal pay gap by 2025. In 2019: 2%
• To financially empower 10 million people between 2019
and 2025. In 2019: 2 million
• To finance or facilitate mobilization of €120 billion
between 2019 and 2025 to tackle climate change. In
2019: 19 billion
• To use 100% of our electricity from renewable sources in
our buildings by 2025. In 2019: 50%
• To eliminate unnecessary single use plastic in our
branches and corporate buildings by 2021. In 2019: 75%
of reduction.
• To fund 200,000 scholarships, internships and
entrepreneur programmes between 2019 and 2021. In
2019: 66,000 scholarships
• To help four million people through our community
programmes between 2019 and 2021. In 2019: 1,4
million
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Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Progress on Implementing Targets
In 2019 the Group has made positive progress in achieving the various commitments made
Principle 3: Clients and Customers
We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that
create shared prosperity for current and future generations.
3.1.Provide an overview of the policies and
practices your bank has in place and/or is planning
to put in place to promote responsible
relationships with its customers. This should
include high-level information on any programmes
and actions implemented (and/or planned), their
scale and, where possible, the results thereof.
Being responsible means offering our customers products
and services that are Simple, Personal and Fair.
All our activity is guided by policies, principles and
frameworks to ensure we behave responsibly in everything
we do. As far as our customers are concerned:
Website
- Policies
Annual report 2019
- Principles and
governance
- Responsible business
practices
3.2. Describe how your bank has worked with and/
or is planning to work with its clients and
customers to encourage sustainable practices and
enable sustainable economic activities. This should
include information on actions planned/
implemented, products and services developed,
and, where possible, the impacts achieved.
• The general sustainability policy sets out principles and
commitments focused on adding value to our main
stakeholders.
• The Consumer Protection policy sets out the specific
criteria to identify, organise and execute the principles of
consumer protection for our customers.
• The sector policies stipulate the criteria governing the
Group's financial activity in the defence, energy, mining/
metals and agricultural raw materials (like palm oil, soya
and wood) sectors.
• The sensitive sectors policy establishes guidelines for the
evaluation and decision making on participation of the
Group in certain sectors, which could lead to reputational
risks.
We increasingly incorporate ESG within our SCIB and
commercial clients conversations and product offering.
Customers are at the heart of everything we do. We use all
the interactive channels we have to listen and understand
our customers better. Our Product Governance & Consumer
Protection function, within our Compliance and Conduct
area, is responsible for ensuring appropriate management
and control in relation to products and services and
consumer protection. Within this function, the Product
Governance Forum protects customers by validating
products and services and preventing the launch of
inappropriate ones.
Additionally, the Group has worked on standards and good
practices when dealing with vulnerable customers.
The Group also has a procedure for complaint management
and analysis aimed at adequately handling any complaints
submitted, ensuring compliance with the local and industry
regulations applicable.
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Principle 4: Stakeholders
We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
4.1. Describe which stakeholders (or groups/types
of stakeholders) your bank has consulted,
engaged, collaborated or partnered with for the
purpose of implementing these Principles and
improving your bank’s impacts. This should include
a high-level overview of how your bank has
identified relevant stakeholders and what issues
were addressed/results achieved.
Our strategy is based on a virtuous circle centred on trust
and loyalty of our employees, customers, shareholders and
communities. To achieve this we promote the active
listening of our stakeholders. Listening, analysing, assessing
and responding to their opinions and concerns we not only
identify issues, we also spot opportunities, which allows us
to guarantee our activity and to maintain the right
functioning of the entire value chain.
Annual report 2019
- Principles and
governace
- What our
stakeholders tell us
Other references:
2019 Stakeholder engagement &
material concerns reportA
A. (This report is produced
after the Annual Report and
will be available throughout
the month of May 2020)
In addition, we also regularly analyse the most relevant
social, environmental and good governance issues demands
of analysts and investors. And we continuously monitor the
emergence of new standards and good practice at
international level. Actively participating in the consultation
processes of both authorities and sectoral associations and
other organizations that influence the development of
relevant policies on the sustainable development agenda.
We are also part of the main and most important local and
global initiatives to support the inclusive and sustainable
growth. Some examples are UNEP FI; World Business
Council for Sustainable Development (WBCSD); Banking
Environment Initiative (BEI); UN Global Compact, CEO
Partnership for Financial Inclusion; or Equator Principles.
Principle 5: Governance & Culture
We will implement our commitment to these Principles through effective governance and a culture of responsible banking
5.1. Describe the relevant governance structures,
policies and procedures your bank has in place/is
planning to put in place to manage significant
positive and negative (potential) impacts and
support effective implementation of the
Principles.
5.2. Describe the initiatives and measures your
bank has implemented or is planning to
implement to foster a culture of responsible
banking among its employees. This should include
a high-level overview of capacity building, inclusion
in remuneration structures and performance
management and leadership communication,
amongst others.
5.3 Governance Structure for Implementation of
the Principles
Show that your bank has a governance structure in
place for the implementation of the PRB, including:
a) target-setting and actions to achieve targets set
b) remedial action in the event of targets or
milestones not being achieved or unexpected
negative impacts being detected.
All our activity is guided by policies, principles and
frameworks to ensure we behave responsibly in everything
we do.
The responsible banking, sustainability and culture
committee assists the board of directors in fulfilling its
oversight responsibilities with respect to the Group's
responsible banking strategy, sustainability and culture
issues.
The committee is supported by the culture steering group
and the inclusive and sustainable banking steering group.
The culture steering group ensures we embed our culture,
the Santander Way across the organisation, coordinating
corporate and local actions. Our inclusive and sustainable
banking steering group promotes responsible products,
services and procedures to support small businesses to
create new jobs, improve financial empowerment, support
funding the low carbon economy and to foster sustainable
consumption.
To complete this corporate governance and drive progress on
the responsible banking agenda, there is a Responsible
Banking unit supported by a senior advisor on responsible
business practices reporting directly to the Group's executive
Chairman.
The culture and sustainability local units coordinate and
foster their sustainable banking agenda, ensuring that they
are aligned with the corporate strategy and policies.
Likewise, each subsidiary has appointed a senior responsible
for the sustainable banking function.
Corporate website:
www.santander.com
-About us
-Our approach
2019 Annual Report-
Responsible Banking
chapter
-What our stakeholders
tell us
-Challenges and
Opportunities
-Principles and
Governance
-A strong corporate
Culture
2019 Annual Report-
Corporate Governance
chapter
-Responsible Banking,
sustainability and
culture, Committee
activities
Other references:
-2019 Stakeholder
engagement & material
concerns reportA
-2018 Culture thematic
reportA
Our strong corporate culture, the Santander Way, is fully
aligned to our corporate strategy. It includes our purpose, our
aim, and how we conduct business. It is the bedrock of our
bank, a responsible bank.
A. (This report is produced
after the Annual Report and
will be available throughout
May 2020)
Actively listening to our stakeholders and
using the materiality assessment, we have identified two
main challenges: adapting to the new business environment
and contributing to an inclusive and sustainable growth.
118
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Please provide your bank’s conclusion/ statement if it has fulfilled the requirements regarding Governance Structure for Implementation of the
Principles.
The Group has a solid and well-structured responsible banking governance model to meet future challenges and implement
necessary measures that allow us to develop our activity in a responsible and sustainable way.
Principle 6: Transparency & Accountability
We will periodically review our individual and collective implementation of these Principles and be transparent about and
accountable for our positive and negative impacts and our contribution to society’s goals.
6.1 Progress on Implementing the Principles for
Responsible Banking
Show that your bank has progressed on
implementing the six Principles over the last 12
months (up to 18 months in your first reporting
after becoming a signatory) in addition to the
setting and implementation of targets in minimum
two areas (see 2.1-2.4).
Show that your bank has considered existing and
emerging international/regional good practices
relevant for the implementation of the six Principles
for Responsible Banking. Based on this, it has
defined priorities and ambitions to align with good
practice.
Show that your bank has implemented/is working
on implementing changes in existing practices to
reflect and be in line with existing and emerging
international/regional good practices and has made
progress on its implementation of these Principles.
The Responsible Banking chapter of our 2019 Annual report
is our consolidated non-financial information statement.
This is the eighteenth annual document the Santander Group
publishes to diclose its sustainability commitments. This
chapter includes information for the period: from 1 January
to 31 December 2019.
This chapter has been verified by PricewaterhouseCoopers
Auditores, S.L., the independent firm which also audited the
Group´s annual financial statements for the year.
Santander has relied on internationally recognized standards
such as the Global Reporting Initiative (GRI) in its
preparation. This chapter has been prepared in accordance
with the GRI Standards: Comprehensive option.
Additionally, in this chapter detailed information is provided
to respond to the Law 11/2018, which transposes to the
Spanish legal system the Directive 2014/95/ EU of the
European Parliament and of the Council of 22 October 2014
amending Directive 2013/34/ EU as regards disclosure of
non-financial and diversity information.
2019 Annual Report-
Responsible Banking
chapter
-Principles and
Governance
- Our contribution to the
UN Sustainable
Development Goals
-Complementary
information
Other references:
-2019 Stakeholder
engagement & material
concerns reportA
A. (This report is produced
after the Annual Report and
will be available throughout
May 2020)
We actively participate and we are part of the main
initiatives and working groups that foster responsible
business practices at local and international level. Some
examples are:
• UNEP FInance initiative. We are one of the founding
signatories to the he UN Principles for Responsible
Banking. We have also continued our participation in the
TCFD Pilot II following the first pilot which started back in
2017.
• World Business Council for Sustainable Development
(WBCSD). We are part of the Future of Work, which
supports companies in adapting their own business and
human resources strategy to evolve in line with the digital
age.
• Banking Environment Initiative (BEI). We participate in
two initiatives related to climate, the Soft Commodities
Compact and the new Bank 2030 initiative.
• CEO Partnership for Financial Inclusion. We are part of the
private sector partnership for financial inclusion.
• Equator Principles. We analyse the environmental and
social risks of all our funding transactions that fall under
the scope of the Equator Principles.
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Progress on Implementing the Principles for
Responsible Banking
Through the responsible banking chapter of the Annual Report we give accounts of all our commitments related sustainability and
responsible banking. We participate actively and we are part of the main initiatives and working groups that foster responsible business
practices at local and international level.
119
Table of Contents
Global Reporting Initiative
(GRI) content index
GRI Standards: GENERAL DISCLOSURES
GRI Standard
Disclosure
Page
Omission
GRI 101: FOUNDATION
GRI 102: GENERAL DISCLOSURES
102-1 Name of the organization
Business model and strategy
102-2 Activities, brands, products, and
services
Business model and strategy
102-3 Location of headquarters
Business model and strategy
102-4 Location of operations
Business model and strategy
102-5 Ownership and legal form
Business model and strategy
102-6 Markets served
Business model and strategy
ORGANISATIONALPROFILE
102-7 Scale of the organization
Business model and strategy. Key Metrics
102-8 Information on employees and other
workers
Key metrics
102-9 Supply chain
Responsible business practices
102-10 Significant changes to the
organization and its supply chain
Responsible business practices
102-11 Precautionary Principle or approach
Sustainable finance
102-12 External initiatives
Our approach. 2019 highlights.
102-13 Membership of associations
Santander participates in industry associations
representing financial activity in the countries
where it operates, as the AEB in the case of Spain
102-14 Statement from senior decision-
maker
Chairman's letter.
102-15 Key impacts, risks, and opportunities
Our strong corporate culture. What our
stakeholders tell us. Sustainable finance. Risk
management and control
102-16 Values, principles, standards, and
norms of behaviour
Principles and governance. Our strong corporate
culture. Responsible business practices.
102-17 Mechanisms for advice and concerns
about ethics
A talented and motivated team. Responsible
business practices. Risk management and control
STRATEGY
ETHICS AND INTEGRITY
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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Economic
and financial review
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Risk management
and control
GRI Standard
Disclosure
Page
Omission
102-18 Governance structure
Corporate Governance chapter of the annual report.
102-19 Delegating authority
Corporate Governance chapter of the annual report.
102-20 Executive-level responsibility for economic,
environmental, and social topics
102-21 Consulting stakeholders on economic,
environmental, and social topics
102-22 Composition of the highest governance body
and its committees
Corporate Governance chapter of the annual report.
Corporate Governance chapter of the annual report.
Auditor's report and annual consolidated accounts.
What our stakeholders tell us.
Corporate Governance chapter of the annual report.
102-23 Chair of the highest governance body
102-24 Nominating and selecting the highest
governance body
102-25 Conflicts of interest
102-26 Role of highest governance body in setting
purpose, values, and strategy
102-27 Collective knowledge of highest governance
body
102-28 Evaluating the highest governance body’s
performance
102-29 Identifying and managing economic,
environmental, and social impacts
102-30 Effectiveness of risk management processes
What our stakeholders tell us. Shareholder value.
Corporate Governance chapter of the annual report.
Auditor's report and annual consolidated accounts.
What our stakeholders tell us. Shareholder value.
Corporate Governance chapter of the annual report.
Auditor's report and annual consolidated accounts.
What our stakeholders tell us. Corporate Governance
chapter of the annual report. Auditor's report and
annual consolidated accounts.
Shareholder value. Corporate Governance chapter of
the annual report. Auditor's report and annual
consolidated accounts.
Shareholder value. Corporate Governance chapter of
the annual report. Auditor's report and annual
consolidated accounts.
Shareholder value. Corporate Governance chapter of
the annual report. Auditor's report and annual
consolidated accounts.
Sustainable finance. Risk management and control
chapter. Auditor's report and annual consolidated
accounts.
Challenge2: Inclusive and sustainable growth.Auditor's
report and annual accounts. Risk management
chapter .
102-31 Omission of economic, environmental, and
social topics
Auditor's report and annual accounts. Risk
Management chapter .
102-32 Highest governance body’s role in
sustainability reporting
Santander´s Board approved this report on February,
27th 2020 related to 2019 period and the Corporate
Governance Chapter of the Annual Report published in
2020.
102-33 Communicating critical concerns
Auditor's report and annual accounts.
102-34 Nature and total number of critical concerns
102-35 Remuneration policies
102-36 Process for determining remuneration
102-37 Stakeholders’ involvement in remuneration
Principles and governance. Responsible business
practices.
A talented and motivated team. Corporate Governance
Chapter of the Annual Report
What our stakeholders tell us. Shareholder's
value.Corporate Governance Chapter of the Annual
Report. Report of the remuneration committee
What our stakeholders tell us. Shareholder's value.
Corporate Governance Chapter of the Annual Report.
Report of the remuneration committee
GOVERNANCE
102-38 Annual total compensation ratio
A talented and motivated team.
102-39 Percentage increase in annual total
compensation ratio
A talented and motivated team.
102-40 List of stakeholder groups
What our stakeholders tell us.
STAKEHOLDER
ENGAGEMENT
102-41 Collective bargaining agreements
What our stakeholders tell us.
102-42 Identifying and selecting stakeholders
What our stakeholders tell us.
102-43 Approach to stakeholder engagement
What our stakeholders tell us.
102-44 Key topics and concerns raised
What our stakeholders tell us.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
1
-
-
-
-
-
121
Table of Contents
GRI Standard
Disclosure
Page
Omission
REPORTING
PRACTICE
102-45 Entities included in the consolidated financial
statements
Further information section of this chapter. Auditor's
report and annual accounts.
102-46 Defining report content and topic Boundaries
102-47 List of material topics
Our approach. Further information sections of this
chapter.
What our stakeholders tell us.
102-48 Restatement of information
Further information section of this chapter
102-49 Changes in reporting
102-50 Reporting period
Further information section of this chapter
Further information section of this chapter
102-51 Date of most recent report
Further information section of this chapter
102-52 Reporting cycle
Further information section of this chapter
102-53 Contact point for questions regarding the
report
102-54 Claims of reporting in accordance with the GRI
Standards
General information chapter.
Further information section of this chapter
102-55 GRI content index
102-56 External assurance
GRI Content Index.
Further information section of this chapter.
-
-
-
-
-
-
-
-
-
-
-
-
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Economic
and financial review
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Risk management
and control
GRI Standards: Topic-specific diclosures
Identified
material aspect
Material
aspect
boundary
ECONOMIC STANDARDS
ECONOMIC PERFORMANCE
GRI Standard
Disclosure
Page
Scope
Omission
103-1 Explanation of What our stakeholders tell us.
the material topic and
its boundary
"Material aspect boundary" of GRI
Content Index
GRI 103:
MANAGEMENT
APPROACH
103-2 The
management
approach and its
components
Principles and governance "Page"
of the GRI 201: Economic
Performance"
103-3 Evaluation of
the management
approach
Principles and governance "Page"
of the GRI 201: Economic
Performance"
-
-
-
-
-
-
Ethical
behaviour and
risk
management /
Compliance and
adapting to
regulatory
changes
Internal and
external
GRI 201:
ECONOMIC
PERFORMANCE
€ million
Economic value generated1
Gross income
2019
50,553
49,494
Net loss on discontinued operations
0
Gains/(losses) on disposal of assets
not classified as non-current held
for sale
Gains/(losses) on disposal of assets
not classified as discontinued
operations
1,291
-232
Economic value distributed
28,295
Dividends3
Other administrative expenses
(except taxes)
Personnel expenses
Income tax and other taxes2
CSR investment
201-1 Direct economic
value generated and
distributed
Economic value retained (economic
value generated less economic
value distributed)
1. Gross income plus net gains on asset
disposals.
2. Only includes income tax on profits
accrued and taxes recognised during
the period. The chapter on Community
Investment provides additional
information on the taxes paid.
3,424
8,138
12,141
4,427
165
22,258
Group
-
123
Table of Contents
GRI Standards: Topic-specific diclosures
Identified
material aspect
Material
aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
Sustainable finance. Key metrics
Group
201-2 Financial
implications and other
risks and
opportunities due to
climate change
201-3 Defined benefit
plan obligations and
other retirement plans
201-4 Financial
assistance received
from government
The liability for provisions for
pensions and similar obligations at
2019 year-end amounted to EUR
6,358 million. Endowments and
contributions to the pension funds
in the 2019 financial year have
amounted to EUR 364 million. The
detail may be consulted in Auditor´s
report and annual consolidated
accounts.
The Bank has not received
significant subsidies or public aids
during 2019. The detail may be
consulted in Auditor´s report and
annual consolidated accounts.
MARKET PRESENCE
Attracting and
retaining
talent /
Diversity /
Community
investment
Internal
INDIRECT ECONOMIC IMPACT
Community
investment
External
103-1 Explanation of What our stakeholders tell us and
the material topic and
column "Material aspect boundary"
its boundary
of GRI Content Index.
103-2 The
management
GRI 103:
MANAGEMENT approach and its
APPROACH
components
Our strong corporate culture.
Column “Page” of the GRI 201:
Economic Performance.
GRI 202:
MARKET
PRESENCE
103-3 Evaluation of
the management
approach
Our strong corporate culture.
Column “Page” of the GRI 201:
Economic Performance.
202-1 Ratios of
standard entry level
wage by gender
compared to local
minimum wage
202-2 Proportion of
senior management
hired from the local
community
Key metrics.
Key metrics . The Group Corporate
Human Resources Model aims to
attract and retain the best
professionals in the countries in
which it operates.
103-1 Explanation of What our stakeholders tell us and
column "Material aspect boundary"
the material topic and
of GRI Content Index.
its boundary
GRI 103:
MANAGEMENT
APPROACH
103-2 The
management
approach and its
components
GRI 203:
INDIRECT
ECONOMIC
IMPACT
103-3 Evaluation of
the management
approach
203-1 Infrastructure
investments and
services supported
203-2 Significant
indirect economic
impacts
Financial empowerment.
Community investment.
Financial empowerment.
Community investment.
Supporting higher education.
Community investment.
Supporting higher education.
Community investment.
PROCUREMENT PRACTICES
Ethical
behaviour and
risk
management
External
GRI 103:
MANAGEMENT
APPROACH
103-1 Explanation of What our stakeholders tell us and
the material topic and
column "Material aspect boundary"
its boundary
of GRI Content Index.
103-2 The
management
approach and its
components
Responsible business practices.
124
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-
-
-
-
-
-
-
-
-
-
-
-
-
-
Group
Group
-
-
-
Group
Group
excludin
g USA
-
-
-
Group
Group
-
-
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
GRI Standards: Topic-specific diclosures
Identified
material aspect
Material
aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
Ethical
behaviour and
risk
management
External
GRI 204:
PROCUREMENT
PRACTICES
ANTI-CORRUPTION
103-3 Evaluation of
the management
approach
204-1 Proportion of
spending on local
suppliers
Responsible business practices.
-
Responsible business practices.
Group
Ethical
behaviour and
risk
management /
Compliance and
adapting to
regulatory
changes /
Corporate
governance-
transparency
Internal and
External
103-1 Explanation of
the material topic and
its boundary
What our stakeholders tell us and
column "Material aspect boundary"
of GRI Content Index.
GRI 103:
MANAGEMENT
APPROACH
103-2 The
management
approach and its
components
2019 highlights. Our strong
corporate culture. Responsible
business practices.
103-3 Evaluation of
the management
approach
2019 highlights. Our strong
corporate culture. Responsible
business practices.
GRI 205: ANTI-
CORRUPTION
205-1 Operations
assessed for risks
related to corruption
205-2 Communication
and training about
anti-corruption
policies and
procedures
205-3 Confirmed
incidents of corruption
and actions taken
Risk management and control
chapter
Risk management and control
chapter
-
2
-
-
-
-
-
-
-
-
Group
Group
Risk management and control
chapter
Group
3
125
Table of Contents
Identified material
aspect
Material aspect GRI Standard
boundary
ANTI-COMPETITIVE BEHAVIOR
Disclosure
Page
Scope
Omission
GRI 103:
MANAGEMENT
APPROACH
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
2019 highlights. Our strong corporate
culture. Responsible business practices and
column “Page” of the GRI 206: Anti-
competitive Behaviour.
103-3 Evaluation
of the
management
approach
2019 highlights. Our strong corporate
culture. Responsible business practices and
column “Page” of the GRI 206: Anti-
competitive Behaviour.
-
-
-
-
-
-
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory changes
Internal and
external
GRI 206: ANTI-
COMPETITIVE
BEHAVIOUR
206-1 Legal
actions for anti-
competitive
behaviour, anti-
trust, and
monopoly
practices
• SCB ITALY received a fine of €135.000
after an Antitrust inspection on unfair
commercial practices by the Italian
Competition Authority (“ICA”), which
found that Santander infringed the
general ban on unfair practices under
Art. 20 of the Italian Consumer Code.
SCB submitted the appeal to the
Administrative Tribunal of Lazio on
November 22, 2019.
• Administrative proceedings brought by
the Portuguese Competition Authority
(“PCA”) related to alleged involvement
of the Bank in the exchange of sensitive
information with its competitors. On
September 9, 2019 the PCA issued its
final decision on the case, considering
there was competition law infringement
by object, derived from commercially
sensitive information exchange
between most of the Portuguese banks,
from 2002 to 2013, on real estate credit
and credit to consumers and small
businesses. 14 Portuguese banks were
fined in amounts up to EUR 246 million.
Santander Portugal and Banco Popular
Portugal, SA have been fined in the
total amount of EUR 35,65 million A
judicial appeal was lodged before the
Competition Court (Tribunal da
Concorrência, Regulação e Supervisão)
on the 21st October 2019.
• The Italian Competition Authority has
imposed Banca PSA Italia a fine of EUR
6,077,606 as part of an investigation
against the Captive Banks. for running
an unlawful cartel from 2003 to April
2017, aimed at exchanging sensitive
commercial information in the car
financing market in Italy, in order to
restrict competition for the sale of
financed cars, in violation of Article 101
TFEU. Decision was appealed before the
administrative court in 2019.
In addition, information on litigation and
other Group contingencies can be found in
Auditor’s report and annual consolidated
accounts.
Group
4
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and control
Disclosure
Page
Scope
Omission
Identified material Material aspect GRI Standard
boundary
aspect
ENVIRONMENTAL STANDARDS
MATERIALS
Internal
environmental
footprint
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
Internal
environmental
footprint
Internal and
external
GRI 301:
MATERIALS
ENERGY
Internal
environmental
footprint
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
GRI 302: ENERGY
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
301-1 Materials
used by weight or
volume
301-2 Recycled
input materials
used
301-3 Reclaimed
products and their
packaging
materials
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
302-1 Energy
consumption
within the
organization
302-2 Energy
consumption
outside of the
organization
302-3 Energy
intensity
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Sustainable finance. Environmental
footprint.
Sustainable finance. Environmental
footprint.
Environmental footprint. Key metrics.
The percentage of the environmentally-
friendly paper consumption with respect to
the total consumption is 85%. This
percentage includes both recycled and
certified paper.
Not applicable due to the type of Group
financial activity.
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Sustainable finance. Environmental
footprint.
Sustainable finance. Environmental
footprint.
-
-
-
Group
Group
Group
-
-
-
Environmental footprint. Key metrics.
Group
Key metrics.
Key metrics.
Group
Group
Group
302-4 Reduction
of energy
consumption
An specific analysis of cause and effect
relation for the implemented measures
and of the obtained reduction is not
available.
302-5 Reductions
in energy
requirements of
products and
services
Not applicable due to the type of Group
financial activity.
Group
-
-
-
5
5
-
-
-
-
5
5
5
-
-
127
Table of Contents
Identified material Material aspect GRI Standard
boundary
aspect
WATER
Disclosure
Page
Scope
Omission
103-1 Explanat
of the material
topic and its
boundary
ion What our stakeholders te
"Material aspect boundar
Index.
ll us and column
y" of GRI Content
Sustainable finance. Environmental
footprint.
Sustainable finance. Environmental
footprint.
-
-
-
-
-
-
Internal
environmental
footprint
Internal and
external
BIODIVERSITY
Not material
Not applicable
GRI 103:
MANAGEMENT
APPROACH
GRI 303: WATER
GRI 103:
MANAGEMENT
APPROACH
GRI 304:
BIODIVERSITY
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
303-1 Water
withdrawal by
source
303-2 Water
sources
significantly
affected by
withdrawal of
water
303-3 Water
recycled and
reused
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
304-1 Operational
sites owned,
leased, managed
in, or adjacent to,
protected areas
and areas of high
biodiversity value
outside protected
areas
304-2 Significant
impacts of
activities,
products, and
services on
biodiversity
304-3 Habitats
protected or
restored
304-4 IUCN Red
List species and
national
conservation list
species with
habitats in areas
affected by
operations
128
2019 Annual Report
Environmental footprint. Key metrics.
Group
5
Not applicable due to the type of Group
financial activity.
Group
Not applicable due to the type of Group
financial activity.
Group
Not material
Not material
Not material
-
-
-
Not material
Group
Not material
Not material
Group
Group
Not material
Group
-
-
-
-
-
-
-
-
-
Responsible Corporate
banking
Economic Risk management
and financial review
governance
and control
Identified material Material aspect GRI Standard
boundary
aspect
EMISSIONS
Disclosure
Page
Scope
Omission
Internal
environmental
footprint
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
Internal
environmental
footprint
Internal and
external
GRI 305:
EMISSIONS
EFFLUENTS AND WASTE
Internal
environmental
footprint
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
GRI 306:
EFFLUENTS AND
WASTE
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
305-1 Direct
(Scope 1) GHG
emissions
305-2 Energy
indirect (Scope 2)
GHG emissions
305-3 Other
indirect (Scope 3)
GHG emissions
305-4 GHG
emissions
intensity
305-5 Reduction
of GHG emissions
305-6 Emissions
of ozone-
depleting
substances (ODS)
305-7 Nitrogen
oxides (NOX),
sulfur oxides
(SOX), and other
significant air
emissions
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
306-1 Water
discharge by
quality and
destination
306-2 Waste by
type and disposal
method
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Sustainable finance. Environmental
footprint.
Sustainable finance. Environmental
footprint.
-
-
-
Environmental footprint. Key metrics.
Group
Environmental footprint. Key metrics.
Group
Environmental footprint. Key metrics.
Group
Key metrics.
An specific analysis of cause and effect
relation for the implemented measures
and of the obtained reduction is not
available.
Group
Group
Not applicable due to the type of Group
financial activity.
Group
Not applicable due to the type of Group
financial activity.
Group
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Sustainable finance. Environmental
footprint.
Sustainable finance. Environmental
footprint.
-
-
-
Not applicable due to the type of Group
financial activity.
Group
-
-
-
5
5
5
5
-
-
-
-
-
-
-
Environmental footprint and Key metrics.
Group
5
306-3 Significant
spills
Not applicable due to the type of Group
financial activity.
306-4 Transport of
hazardous waste
Not applicable due to the type of Group
financial activity.
306-5 Water
bodies affected by
water discharges
and/or runoff
Not applicable due to the type of Group
financial activity.
Group
Group
Group
-
-
-
129
Table of Contents
Identified material Material aspect GRI Standard
boundary
aspect
ENVIRONMENTAL COMPLIANCE
Disclosure
Page
Scope
Omission
103-1 Explanation What our stakeholders tell us and column
of the material
"Material aspect boundary" of GRI Content
topic and its
Index.
boundary
Responsible business practices.
Responsible business practices.
Massachusetts Department of
Environmental Protection (MA DEP)
Remediation. The MA DEP alleged that
SBNA, as title owner of a foreclosed
residential property from 2013-2016, was
required to remediate a contaminated
ground well on the property. SBNA,
without admitting liability, agreed to
remediate the property. SBNA’s insurance
carrier agreed to cover the cost of the
remediation (approximately $100,000).
In addition, information on litigation and
other Group contingencies can be found in
Auditor’s report and annual consolidated
accounts.
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Responsible business practices.
Responsible business practices.
-
-
-
-
-
-
Group
4
-
-
-
-
-
-
Responsible business practices.
Group
2, 6
Responsible business practices.
Group
2, 6
GRI 103:
MANAGEMENT
APPROACH
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
GRI 307:
ENVIRONMENTAL compliance with
COMPLIANCE
307-1 Non-
environmental
laws and
regulations
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory changes
Internal and
external
SUPPLIER ENVIRONMENTAL ASSESSMENT
Ethical behaviour
and risk
management
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
GRI 308:
SUPPLIER
ENVIRONMENTAL
ASSESSMENT
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
308-1 New
suppliers that
were screened
using
environmental
criteria
308-2 Negative
environmental
impacts in the
supply chain and
actions taken
130
2019 Annual Report
Responsible Corporate
banking
Economic Risk management
and financial review
governance
and control
Identified material Material aspect GRI Standard
boundary
aspect
Disclosure
Page
Scope
Omission
SOCIAL STANDARDS
EMPLOYMENT
Attracting and
retaining talent /
Diversity
Internal
LABOUR/MANAGEMENT RELATIONS
Attracting and
retaining talent /
Diversity
Internal
GRI 103:
MANAGEMENT
APPROACH
GRI 401:
EMPLOYMENT
GRI 103:
MANAGEMENT
APPROACH
GRI 402: LABOR/
MANAGEMENT
RELATIONS
OCCUPATIONAL HEALTH AND SAFETY
Attracting and
retaining talent /
Diversity
Internal
GRI 103:
MANAGEMENT
APPROACH
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
401-1 New
employee hires
and employee
turnover
401-2 Benefits
provided to full-
time employees
that are not
provided to
temporary or part-
time employees
401-3 Parental
leave
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
402-1 Minimum
notice periods
regarding
operational
changes
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and motivated team.
A talented and motivated team.
-
-
-
A talented and motivated team. Key
metrics.
Group
Benefits detailed in "A talented and
motivated team" are regarding only full-
time employees.
Not available
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Column "Page" of the GRI 402: Labour/
Management relations"
Column "Page" of the GRI 402: Labour/
Management relations"
Group
Group
-
-
-
Santander Group has not established any
minimum period to give prior notice relating
to organisational changes different from
those required by law in each country.
Group
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and motivated team. Column
"Page" of the GRI 403: Occupational Safe
and Safety.
A talented and motivated team. Column
"Page" of the GRI 403: Occupational Safe
and Safety.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
131
Table of Contents
Identified material
aspect
Material aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
403-1 Workers
representation in
formal joint
management–
worker health and
safety committees
403-2 Types of
injury and rates of
injury, occupational
diseases, lost days,
and absenteeism,
and number of
work-related
fatalities
403-3 Workers
with high incidence
or high risk of
diseases related to
their occupation
403-4 Health and
safety topics
covered in formal
agreements with
trade unions
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
404-1 Average
hours of training
per year per
employee
404-2 Programs
for upgrading
employee skills
and transition
assistance
programs
404-3 Percentage
of employees
receiving regular
performance and
career
development
Omissions
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
In Banco Santander S.A, the percentage of
workforce represented in the Health and
Safety Committee in 100%.
Banco
Santander
S.A. and
SCF
A talented and motivated team. Key
metrics.
Group
There have not been identified work posts
with high risk of disease
Group
A talented and motivated team.
Group
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and motivated team. “Page” of
the GRI 404: Training and education.
A talented and motivated team. “Page” of
the GRI 404: Training and education.
-
-
-
A talented and motivated team. Key
metrics.
Group
Banco Santander in Spain offers
programmes for skills management and
lifelong learning that support the
employability of their employees once they
have finished their carrers or have been
affected by collective redundancies. A
talented and motivated team. Key metrics.
Group
A talented and motivated team. Regular
performance and career development
Omissions are received by the 100% of the
employees.
Group
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and motivated team.
A talented and motivated team.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Attracting and
retaining talent /
Diversity
Internal
GRI 403:
OCCUPATIONAL
HEALTH AND
SAFETY
TRAINING AND EDUCATION
Attracting and
retaining talent /
Diversity
Internal
GRI 103:
MANAGEMENT
APPROACH
GRI 404:
TRAINING AND
EDUCATION
DIVERSITY AND EQUAL OPPORTUNITY
Attracting and
retaining talent /
Diversity /
Incentives tied to
ESG criteria
Internal
GRI 103:
MANAGEMENT
APPROACH
132
2019 Annual Report
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and control
Identified material Material aspect GRI Standard
boundary
aspect
Disclosure
Page
Scope
Omission
405-1 Diversity of A talented and motivated team.
governance bodies
and employees
Responsible business practices. Key metrics.
Corporate governance chapter.
Group
A talented and motivated team.
Group
Group
4
-
-
-
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and motivated team.
A talented and motivated team.
A talented and motivated team. Risk
management and control chapter.
A final verdict has been reached for an
incident of discrimination or infringement
of fundamental rights, following from an
individual procedure on geographical
mobility, resulting in the compensation of
150,000 euros on the bank. However, no
complaints of this nature have been
received through the Canal Abierto.
Not material
Not material
Not material
-
-
-
Not material
Group
Attracting and
retaining talent /
Diversity /
Incentives tied to
ESG criteria
Internal
GRI 405:
DIVERSITY AND
EQUAL
OPPORTUNITIES
NON-DISCRIMINATION
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory changes
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
GRI 406: NON-
DISCRMINATION
405-2 Ratio of
basic salary and
remuneration of
women to men
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
406-1 Incidents of
discrimination and
corrective actions
taken
FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING
Not material
Not applicable
CHILD LABOR
Not material
Not applicable
GRI 103:
MANAGEMENT
APPROACH
GRI 407:
FREEDOM OF
ASSOCIATION
AND COLLECTIVE
BARGAINING
GRI 103:
MANAGEMENT
APPROACH
GRI 408: CHILD
LABOR
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
407-1 Operations
and suppliers in
which the right to
freedom of
association and
collective
bargaining may be
at risk
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
Not material
Not material
Not material
103-3 Evaluation
of the
management
approach
408-1 Operations
and suppliers at
significant risk for Not material
incidents of child
labor
-
-
-
Group
-
-
-
-
-
-
-
-
-
-
-
-
-
133
Table of Contents
Identified material
aspect
Material aspect GRI Standard
boundary
Disclosure
Page
FORCED OR COMPULSORY LABOR
Scope
Omission
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
103-1 Explanation
of the material
topic and its
boundary
Not material
103-2 The
GRI 103:
MANAGEMENT management
APPROACH
approach and its
components
Not material
Not applicable
103-3 Evaluation
of the
management
approach
409-1 Operations
and suppliers at
significant risk for
incidents of forced
or compulsory
labor
GRI 409:
FORCED OR
COMPULSORY
LABOR
Not material
Not material
Not material
Group
SECURITY PRACTICES
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes
Internal and
external
RIGHTS OF INDIGENOUS PEOPLES
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes
External
103-1 Explanation What our stakeholders tell us and column
of the material
"Material aspect boundary" of GRI Content
topic and its
Index.
boundary
GRI 103:
MANAGEMENT
APPROACH
103-2 The
management
approach and its
components
Column "Page" of the GRI 410: Security
Practices.
GRI 410:
SECUTIRY
PRACTICES
GRI 103:
MANAGEMENT
APPROACH
103-3 Evaluation
of the
management
approach
410-1 Security
personnel trained
in human rights
policies or
procedures
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
GRI 411: RIGHTS
OF INIDGENOUS
PEOPLE
411-1 Incidents of
violations
involving rights of
indigenous people
Column "Page" of the GRI 410: Security
Practices.
Santander requires to its Safety Services
suppliers during the hiring process
compliance with Human Rights
Regulations
Banco
Santander
S.A.
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Column "Page" of the GRI 411: Rights of
Indigenous People
Column “Page” of the GRI 411: Rights of
Indigenous People.
The Bank ensures, through social and
environmental risk assessments in their
financing operations under the Equator
Principles, that no violations of the
indigenous peoples’ rights occur in such
operations. In 2019, a total of 46
operations were evaluated in this respect.
Group
7
HUMAN RIGHTS ASSESSMENT
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes
External
GRI 103:
MANAGEMENT
APPROACH
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Column "Page" of the GRI 412: Human
Rights assessment
Column "Page" of the GRI 412: Human
Rights assessment
-
-
-
-
-
-
134
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Identified material Material aspect GRI Standard
boundary
aspect
Disclosure
Page
Scope
Omission
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes
External
LOCAL COMMUNITIES
Community
investment
External
412-1 Operations
that have been
subject to human
rights Omissions
or impact
assessments
All the Bank’s financing operations under
the Equator Principles are subject to social
and environmental risk assessments
(which includes human rights aspects). In
2019, a total of 46 operations were
evaluated in this respect.
412-2 Employee
training on human Not available
rights policies or
GRI 412:
HUMAN RIGHTS procedures
ASSESSMENT
412-3 Significant
investment
agreements and
contracts that
include human
rights clauses or
that underwent
human rights
screening
The Third-party Certification policy was
updated in 2019. This policy includes an
annex with the “principles of responsible
conduct for suppliers”. These principles are
mandatory for all the Bank’s suppliers and
include, among others, human rights
aspects.
103-1 Explanation What our stakeholders tell us and column
of the material
"Material aspect boundary" of GRI Content
topic and its
Index.
boundary
Financial empowerment, Supporting
higher education, Community investment
and Sustainable finance
Financial empowerment, Supporting
higher education, Community investment
and Sustainable finance
Financial empowerment, Supporting
higher education, Community investment.
The Santander Group has several
programmes in its ten main countries aim
to encourage development and
participation of local communities, in
which it is carried out an assessment on
people helped, scholarships given through
agreement with Universities, among
others. Moreover, in the last years the
Group has developed different products
and services offering social and/or
environmental added value adapted to
each country where Santander develops its
activities.
GRI 103:
MANAGEMENT
APPROACH
GRI 413: LOCAL
COMMUNITIES
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
413-1 Operations
with local
community
engagement,
impact
assessments, and
development
programs
413-2 Operations
with significant
actual and
potential negative
impacts on local
communities
Group
7
Group
-
8
-
-
-
Group
-
Not available
Group
-
135
Table of Contents
Identified material
aspect
Material aspect GRI Standard
boundary
Disclosure
Page
SUPPLIER SOCIAL ASSESSMENT
Scope
Omission
GRI 103:
MANAGEMENT
APPROACH
GRI 414:
SUPPLIER
SOCIAL
ASSESSMENT
GRI 103:
MANAGEMENT
APPROACH
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
414-1 New
suppliers that
were screened
using social
criteria
414-2 Negative
social impacts in
the supply chain
and actions taken
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
GRI 415: PUBLIC 415-1 Political
POLICY
contributions
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Responsible business practices.
Responsible business practices.
-
-
-
-
-
-
Responsible business practices.
Group
2, 6
Responsible business practices.
Group
2, 6
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
2019 highlights,Our strong corporate
culture. A talented and motivated team.
Responsible Business Practices. and
column “Page” of the GRI 415: Public
Policy.
2019 highlights,Our strong corporate
culture. A talented and motivated team.
Responsible Business Practices. and
column “Page” of the GRI 415: Public
Policy.
The vinculation, membership or
collaboration with political parties or with
other kind of entities, institutions or
associations with public purposes, as well
as contributions or services to them,
should be done in a way that can assure
the personal character and that avoids any
involvement of the Group, as indicated in
Santander Group General Code of Conduct
103-1 Explanation What our stakeholders tell us and column
of the material
"Material aspect boundary" of GRI Content
topic and its
Index.
boundary
GRI 103:
MANAGEMENT
APPROACH
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
Responsible business practices
Responsible business practices
GRI 416:
CUSTOMER
HEALTH AND
SAFETY
416-1 Assessment Responsible business practices. The
of the health and
safety impacts of
product and
service categories
Commercialisation Committee evaluates
potential impact of all products and
services, previously they are launched onto
the market. These impacts include, among
others, clients security and compatibility
with other products.
Group
416-2 Incidents of
non-compliance
concerning the
health and safety
impacts of
products and
services
The Bank has not received final sanctions
for this concept. In addition, information on
litigation and other Group contingencies
can be found in Auditor’s report and annual
consolidated accounts.
Group
4
-
-
-
Group
-
-
-
-
-
-
-
-
-
-
-
Control and
management of
risks, ethics and
compliance
Internal and
external
PUBLIC POLICY
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes
Internal and
external
CUSTOMER HEALTH SAFETY
Products and
services that are
transparent and
fair
136
2019 Annual Report
Responsible Corporate
banking
Economic Risk management
and financial review
governance
and control
Identified material Material aspect GRI Standard
boundary
aspect
Disclosure
Page
Scope
Omission
MARKETING AND LABELING
Products and
services that are
transparent and
fair
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Responsible business practices
Responsible business practices
-
-
-
-
-
-
137
Table of Contents
Identified material Material aspect GRI Standard
boundary
aspect
Disclosure
Page
Scope
Omission
417-1
Requirements for
product and
service
information and
labeling
417-2 Incidents of
non-compliance
concerning
product and
service
information and
labeling
Group
-
Group
4
Responsible business practices. The
Commercialisation Committee evaluates
potential impact of all products and
services, previously they are launched onto
the market. These impacts include, among
others, clients security and compatibility
with other products. In addition, the Bank
is member of the Association for
Commercial Self- Regulation (Autocontrol)
assuming the ethical commitment to be
responsible regarding the freedom of
commercial communication
• Sanction procedure opened on 2015 by
the Ministry of Economy and
Competitiveness for the violation of the
Securities Market Law, in particular, for
methodological deficiencies in the
convenience questionnaire and the
failure to carry out the appropriate
warnings both in non-convenient and
non-convenient operations evaluated by
the former Banco Popular. Fine of
1,000,000 euros.
• A fine of 4.5 million euros imposed by
Bank of Spain for breaches relating to
the content and delivery of contractual
and pre-contractual information of
contracts with mortgage guaranty and
in relation to the collection of
commissions and roundings, by the
former Banco Popular. The sanction was
notified on 5th November 2018 and
confirmed by resolution on 24th may
2019. Appeal has been filed before the
Administrative Court on 29th July 2019.
• Fine of 6.4 million euros imposed by
Bank of Spain relating to the content
and delivery of contractual and pre-
contractual information of contracts
with mortgage guaranty, and in relation
to the collection of commissions and
roundings. Final resolution notified on
29th March 2019 and has become non
appealable.
• Sanction procedure opened on 2015 by
the Ministry of Economy and
Competitiveness, for the violation of
the Securities Market Law, by the former
Banco Popular: (i) not to act with
transparency and diligence and in the
interest of the clients having charged
commissions not adjusted to the rules
(ii) recommend to clients financial
instruments not adjusted to their
investment objectives or to their
experience and knowledge. Dismissed
judgment of the National Court notified
on September 30, 2019. Appeal filed
before the Supreme Court.
• Sanction procedure opened by the Junta
de Andalucía in 2015 for the
introduction of allegedly abusive
clauses in contracts. Unfavorable
judgment rendered on 20th December
2019. The judgment has become non
appealeable. The fine imposed
amounts to EUR 400,000
Moreover, the information regarding
litigation and the Group's other
contingencies is provided in the auditor's
report and annual accounts.
417-3 Incidents of The Bank has not received final sanctions
non-compliance
concerning
marketing
communications
for this concept. In addition, information on
litigation and other Group contingencies
can be found in Auditor’s report and annual
consolidated accounts.
Group
4
Products and
services that are
transparent and
fair
Internal and
external
GRI 417:
MARKETING
AND LABELING
138
2019 Annual Report
Responsible Corporate
banking
Economic Risk management
and financial review
governance
and control
Identified material Material aspect GRI Standard
boundary
aspect
Disclosure
Page
Scope
Omission
CUSTOMER PRIVACY
Measures taken
for customer
satisfaction
Internal and
External
SOCIOECONOMIC COMPLIANCE
Products and
services that are
transparent and
fair / Ethical
behaviour and risk
management
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
GRI 418:
CUSTOMER
PRIVACY
GRI 103:
MANAGEMENT
APPROACH
GRI 419:
SOCIOECONOMI
C COMPLIANCE
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
418-1
Substantiated
complaints
concerning
breaches of
customer privacy
and losses of
customer data
103-1 Explanation
of the material
topic and its
boundary
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
419-1 Non-
compliance with
laws and
regulations in the
social and
economic area
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Responsible business practices
Responsible business practices
-
-
-
-
-
-
The Bank has not received final sanctions
for this concept. In addition, information on
litigation and other Group contingencies
can be found in Auditor’s report and annual
consolidated accounts.
Group
4
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
2019 highlights,Our Strong corporate
culture. A talented and motivated team.
Responsible business practices. and
column “Page” of the GRI 419:
Socioeconomic Compliance.
2019 highlights,Our Strong corporate
culture. A talented and motivated team.
Responsible business practices. and
column “Page” of the GRI 419:
Socioeconomic Compliance.
-
-
-
-
-
-
The Bank has not received final sanctions
for this concept. In addition, information on
litigation and other Group contingencies
can be found in Auditor’s report and annual
consolidated accounts.
Group
4
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GRI Standards - financial services sector disclosures
Identified material Material aspect G4 Standard
boundary
aspect
FINANCIAL SERVICES SECTOR DISCLOSURES
PRODUCT PORTFOLIO
Disclosure
Page
Scope
Omissi
on
FS1
FS2
FS3
FS4
FS5
FS6
FS7
FS8
Policies with specific
environmental and
social components
applied to business
lines
Procedures for
assessing and
screening
environmental and
social risks in
business lines
Processes for
monitoring clients´
implementation of
and compliance with
environmental and
social requirements
included in
agreements of
transactions
Process(es) for
improving staff
competency to
implement the
environmental and
social policies and
procedures as
applied to business
lines
Interactions with
clients/ investees/
business partners
regarding
environmental and
social risks and
opportunities
Percentage of the
portfolio for
business lines by
specific region, size
(e.g. micro/ SME/
large) and by sector
Monetary value of
products and
services designed to
deliver a specific
social benefit for
each business line
broken down by
purpose
Monetary value of
products and
services designed to
deliver a specific
environmental
benefit for each
business line broken
down by purpose
Principles and governance, Responsible
business practices and Analysis of
environmental and social risks.
Principles and governance, Responsible
business practices and Analysis of
environmental and social risks.
Principles and governance, Responsible
business practices and Analysis of
environmental and social risks.
Sustainable finance. Additionally, to raise
awareness and transmit the policies
content, the Bank has continued with its
employee training and awareness
campaigns. The latest was a video tutorial
explaining the process of adaptation for the
sector-specific policies and involving those
from the Bank who are ultimately
responsible for this area.
2019 highlights. Shareholder value. Risk
and management control chapter.
Responsible business practices. Meeting the
needs of everyone i n society.
Meeting the needs of everyone in society.
Sustainable finance.
Meeting the needs of everyone in society.
Sustainable finance.
Group
Group
Group
-
-
-
Group
-
Group
Group
Group
-
-
-
Group
-
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes / Products
and services that
are transparent
and fair / Products
and services
offering social and
environmental
added value
Internal and
external
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2019 Annual Report
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and control
Identified material Material aspect G4 Standard
boundary
aspect
Disclosure
Page
Scope
Omissi
on
AUDIT
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes
Internal and
external
FS9
ACTIVE OWNERSHIP
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes / Products
and services that
are transparent
and fair / Products
and servicies
offering social and
environmental
added value
Internal
FS10
FS11
FS12
FS13
FS14
FS15
FS16
The Group's Internal Audit area carries out a
biennial review of the sustainability function
to evaluate, among other aspects, the
degree of compliance with social and
environmental responsibility policies, which
includes both the review of the Equator
Principles and additional risk assessment
procedures on specific sectors. In addition,
in 2019 the first review of the governance
and procedures applied by the corporate
function of Responsible Banking was carried
out.
Group
-
Analysis of environmental and social risks
Group
7
Analysis of environmental and social risks
Group
7
The Santander Group has no voting policies
relating to social and/or environmental
matters for entities over which acts as an
advisor. The Santander Employees Pension
Fund does have a policy of formal vote in
relation to social and environmental
aspects, for shareholder meetings of the
entities over which it has voting rights
Group
Financial inclusion and empowerment
Group
Financial inclusion and empowerment,
sustainable finance and Key metrics.
Group
Responsible business practices
Group
Responsible business practices
Group
-
-
-
-
-
Coverage and
frequency of audits
to assess
implementation of
environmental and
social policies and
risk assessment
procedures
Percentage and
number of
companies held in
the institution´s
portfolio with which
the reporting
organization has
interacted on
environmental or
social issues
Percentage of assets
subject to positive
and negative
environmental or
social screening
Voting policy(ies)
applied to
environmental or
social issues for
shares over which
the reporting
organization hold
the right to vote
shares or advises on
voting
Access points in low-
populated or
economically
disadvantaged areas
by type
Initiatives to
improve access to
financial services for
disadvantaged
people
Policies for the fair
design and sale of
financial products
and services
Initiatives to
enhance financial
literacy by type of
beneficiary
1. The indicator is not reported because it is confidential information. 2. Data refers exclusively to centralised purchases data in Aquánima. 3. Information is
provided on the total number of complaints conflicts of interest and corruption 4. Information is provided for claims of any type and over €60,000 that may have a
significant reputational impact on the Group and/or that there is an accounting provision because it may materialize in the short, medium or long term. 5. The scope
and limitations of this indicator are described on Key Metrics. 6. Only total amount of approved suppliers is included. 7. Information is only provided on the number
of project finance deals of Santander’s Bank, which have been analysed regarding social and environmental risks in Equator Principles’ frame. 8. Only qualitative
information is disclosed. 9. Information is provided on programmes and their direct impacts of the ten main countries of the Group, instead on centres.
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Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and control
143
Table of Contents
144
2019 Annual Report
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and control
[This page has been left blank intentionally]
145
Corporate
governance
a
1. Overview of corporate governance in 2019
Structure of our corporate governance report
1.1 Renewing the board
1.2 Responsible banking as a cornerstone of our corporate
governance
1.3 Achieving our 2019 priorities
1.4 Continued improvement in corporate governance
1.5 Priorities for 2020
2. Ownership structure
2.1 Share capital
2.2 Authority to increase capital
2.3 Significant shareholders
2.4 Shareholders' agreements
2.5 Treasury shares
2.6 Stock market information
148
148
148
149
150
152
152
154
154
154
155
156
156
157
5. Management team
6. Remuneration
6.1 Principles of the remuneration policy
6.2 Remuneration of directors for the performance of
supervisory and collective decision-making duties policy
applied in 2019
6.3 Remuneration of directors for the performance of
executive duties
6.4 Directors remuneration policy for 2020, 2021 and 2022
that is submitted to a binding vote of the shareholders
6.5 Preparatory work and decision-making process with a
description of the participation of the remuneration
committee
6.6 Remuneration of non-director members of senior
management
6.7 Prudentially significant disclosures document
7. Group structure and internal governance
3. Shareholders. Engagement and shareholders meeting
159
7.1 Corporate Centre
3.1 Shareholder communication and engagement
3.2 Shareholder rights
3.3 Dividends
3.4 2019 AGM
3.5 2019 EGM
3.6 Our coming 2020 AGM
4. Board of directors
4.1 Our directors
4.2 Board composition
4.3 Board functioning and effectiveness
4.4 Executive committee activities in 2019
4.5 Audit committee activities in 2019
4.6 Appointments committee activities in 2019
4.7 Remuneration committee activities in 2019
4.8 Risk supervision, regulation and compliance committee
activities in 2019
4.9 Responsible banking, sustainability and culture
committee activities in 2019
159
161
163
163
165
165
168
170
175
182
189
190
194
197
201
204
4.10 Innovation and technology committee activities in 2019 207
4.11 International advisory board
4.12 Related-party transactions and conflicts of interest
209
209
7.2 Internal governance of the Group
8. Internal control over financial reporting (ICFR)
8.1 Control environment
8.2 Risk assessment in financial reporting
8.3 Control activities
8.4 Information and communication
8.5 Monitoring
8.6 External auditor report
9. Other corporate governance information
9.1 Reconciliation to the CNMV's corporate governance
report model
9.2 Statistical information on corporate governance required
by the CNMV
9.3 Cross reference table for comply or explain in corporate
governance recommendations
9.4 Remuneration to the CNMV's remuneration report model 274
9.5 Statistical information on remuneration required by the
CNMV
275
212
214
214
214
217
227
233
233
234
236
236
236
238
238
239
240
242
244
245
248
248
251
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Table of Contents
1. Overview of corporate
governance in 2019
Structure of our corporate governance report
On 12 June 2018, the Spanish National Securities Market
Commission (CNMV) approved new formats for the annual
corporate governance and remuneration reports Spanish
companies are required to submit and, more importantly,
allowed companies to draft their reports in a free format.
As in 2018, the 2019 corporate governance report in this
chapter of the annual report follows a free format. Using
such free format allows this 2019 corporate governance
report to include in one single document content that was
previously included in at least five different documents.
The information below is provided to understand how this
chapter is organised and how it relates to the documents we
published before 2018. This chapter and report:
• Merges (1) the summary content on corporate
governance that we typically included in the annual
report and (2) the legally required content for the
corporate governance report itself;
• Includes the content that was previously set out in the
reports on the activities of the board of directors’
committees (see sections 4.5, 4.6, 4.7 and 4.8);
• Includes (1) the annual report on directors’ remuneration
that we are required to prepare and submit to a
consultative vote at our 2020 annual general
shareholders’ meeting (AGM) (see section 6
1.1 Renewing the board
Continued improvement in the board's composition
Throughout 2019, we continued to renew and strengthen
the board, reflecting our strong commitment to ensuring
balance and diversity. This renewal was conducted in line
with our policy for the selection, suitability assessment and
succession of directors, reviewed by the board in February
2019, which replaced the target for 30% of women
representation on the board, set in January 2016, to a new
target to reach a 40-60% women representation by 2021.
Additionally, in February 2020 we reinforced our process of
succession planning for the board and we reviewed again
said policy, which will be submitted for approval of the
board in March 2020.
The main board changes in 2019 were as follows:
• Mr Henrique de Castro was appointed independent
director at our 2019 annual general shareholders'
meeting (2019 AGM). He filled the vacancy left by
independent director Mr Juan Miguel Villar Mir on 1
January 2019.
Mr Henrique de Castro brings to the board his sound
experience in the technological and digital industry along
with significant experience in the US market, which he
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2019 Annual Report
'Remuneration') and (2) our directors’ remuneration
policy (see section 6.4 'Directors remuneration policy for
2020, 2021 and 2022 that is submitted to a binding vote
of the shareholders');
• Provides in section 9.1 'Reconciliation with the CNMV’s
corporate governance report model' and section 9.4
'Reconciliation with the CNMV’s remuneration report
model' cross references to where information can be
found in this chapter or elsewhere in this annual report
for each section of the corporate governance and
remuneration reports in the CNMV's prescribed format;
and
• Provides in section 9.3 'Table on compliance with, and
explanations of, recommendations on corporate
governance' cross-references showing where the
information supporting each response for all
recommendations in the Spanish Corporate Governance
Code for Listed Companies can be found in this 2019
corporate governance chapter or elsewhere in this annual
report.
• In addition, this 2019 corporate governance report
includes reports on the activities of the responsible
banking, sustainability and culture committee and of the
innovation and technology committee (see sections 4.9
and 4.10).
acquired through top positions held in companies such as
Yahoo! Inc. and Google, Inc. For more information see
section 4.1 'Our directors'.
• Mrs Pamela Walkden was appointed independent
director on 29 October 2019 through co-option. She filled
the vacancy left by independent director Mr Carlos
Fernández González. The ratification of her appointment
has been submitted by the board of directors to our 2020
annual general shareholders' meeting (2020 AGM). See
section 3.6 'Our coming 2020 AGM'.
Mrs Pamela Walkden brings to the board greater gender
and geographic diversity, as well as a broad international
experience in the banking industry and audit , as she has
held a number of senior management positions at
Standard Chartered Bank over a period of nearly 30 years.
With her appointment, we achieved our gender equality
target established in the policy for the selection,
suitability assessment and succession of directors more
than one year ahead of the established target date. For
more information see section 4.1 'Our directors'.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
• Mr Rodrigo Echenique continues as a director but ceased
to be vice chairman of the Board and to perform his
executive functions on 1 May 2019.
The following changes have been proposed for 2020:
• Mr Luis Isasi's appointment as a new external director has
been proposed by the board of directors to the 2020 AGM
to fill the vacancy left by Mr Guillermo de la Dehesa, who
notified his decision to resign as director with effects
from the approval of Mr Isasi's election at the 2020 AGM.
See section 3.6 'Our coming 2020 AGM'. It is expected
that, along with his appointment as a director of the
Bank, Mr Isasi is appointed non-executive chairman of
Santander España.
Mr Luis Isasi has a strong track record in financial services,
both in commercial and investment banking, and capital
markets, having held executive positions in JP Morgan in
New York and in First National Bank of Chicago in London.
In 1987, he joined Morgan Stanley, where he was
managing director of investment banking for Europe and
chairman and country head in Spain. He brings to the
board great experience from a wide range of sectors and
international markets, as well as a strong institutional
network within Spain.
• Mr Sergio Rial's appointment as a new executive director
has been proposed by the board of directors to the 2020
AGM to fill the vacancy left by Mr Ignacio Benjumea
Cabeza de Vaca, who has notified his wish that his re-
election as a director is not proposed to the approval of
the AGM, as would be required under the Bylaws, and
therefore to cease in his office as director, with effect as
from the appointment and acceptance of Mr Rial become
effective. See section 3.6 'Our coming 2020 AGM'.
Mr Sergio Rial joined the Group in 2015 as chairman of
the board of directors of Banco Santander (Brasil), S.A. He
is currently head of South America and CEO and vice
chairman of Banco Santander (Brasil), S.A. Provides to the
board extensive experience in the banking and financial
sector, having held various executive positions,as well as
a deep knowledge of the Latin American market,
especially the Brazilian market. His previous experience
in multinational groups in different geographical areas
and sectors, such as Cargill Inc., Seara Foods or Marfrig
Global Foods, also strengthens the international diversity
of the board and provides a valuable vision on
environmental and social issues. He currently serves as
independent director of Delta Airlines Inc.
Renewal of the board
Changes
Stepping down from role
Taking up role
Independent
directors
Mr Juan Miguel Villar
Mir
Mr Henrique de
Castro
Mr Carlos Fernández
Mrs Pamela Walkden
External /
executive
directors
Mr. Rodrigo Echenique
(as executive director)
Mr Guillermo de la
Dehesa (other external
director)
Mr. Rodrigo
Echenique (as other
external director)
Mr Luis Isasi (other
external director)
Board committees
The board has made changes to the composition of its
committees, in order to continue strengthening their
functioning and support to the board in their respective
areas of action, according to the best international practices
and internal rules and regulations.
The changes effected in 2019 are the following:
• Executive committee: Mr Rodrigo Echenique left the
committee on 1 May 2019, which resulted in the
percentage of independent directors in the committee
increasing to 42.8%.
• Audit committee: Mr Henrique de Castro and Mrs Pamela
Walkden became members on 21 and 29 October 2019,
respectively. Mrs Walkden filled the vacancy left by Mr
Carlos Fernández. Therefore, the number of committee
members has increased from four to five, all of whom
are independent directors.
• Appointments committee: Mr Rodrigo Echenique and Ms
Esther Giménez-Salinas i Colomer became members on
1 May 2019 and 29 October 2019, respectively. Ms
Esther Giménez-Salinas i Colomer filled the vacancy left
by Mr Carlos Fernández. The number of committee
members has increased from four to five.
• Remuneration committee: Mr Henrique de Castro
became a member of the committee on 29 October
2019. He filled the vacancy left by Mr Carlos Fernández.
These appointments in the appointments and
remuneration committees further differentiated their
composition, in line with best practice.
•
Innovation and technology committee: Mr Henrique de
Castro became a member of the committee on 23 July
2019.
1.2 Responsible banking as a
cornerstone of our corporate
governance
Responsible banking has been a key priority in the agenda
of our corporate governance during 2019 and will continue
to be in the future.
The responsible banking, sustainability and culture
committee has a key role in guaranteeing that we have a
responsible and sustainable governance and in ensuring
that all of our business practices are sound and consistent.
In particular, and in coordination with steering groups on
culture and on inclusive and sustainable banking,
respectively, in 2019 the committee focused on the two
challenges it identified and formulated in September 2018:
• Adapt to the new business environment with the
necessary culture, skills, governance, digital and business
practices to meet our stakeholders´expectations and do
our job with the highest standards.
Mr Ignacio Benjumea
(other external director)
Mr Sergio Rial
(executive director)
• Support an inclusive and sustainable growth that helps
businesses to create new jobs and eases access to
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finance, supporting the low-carbon economy and
fostering sustainable consumption.
The responsible banking public commitments that we
announced in July 2019, in the context of the above
mentioned two challenges, drive the responsible banking,
sustainability and culture committee's agenda. In particular,
with regard to the challenge to adapt to the new business
environment, we have already achieved our commitment to
have a representation of women on the board between 40
and 60%. In addition, our succession policy for managerial
roles throughout the Group, updated by the board on 27
February 2020, considers diversity as a priority, which puts
us in an excellent position to achieve the commitment of
having 30% of leadership positions held by women by
2025. Those commitments are covered in the chapter
'Responsible banking'.
The conviction that strong corporate values are essential
means to keep working to strengthen our Simple Personal
and Fair culture: what we name The Santander Way. At the
same time, our purpose of helping people and businesses
prosper defines the Group's progress towards our goal of
being a responsible bank.
With regard to climate change, one of the most important
challenges of this era, we have based our strategy on two
main lines of action: reducing our own environmental
footprint and supporting our customers to help them
transition towards a low carbon economy.
1.3 Achieving our 2019 priorities
All our activity is guided by policies, principles and
frameworks to ensure we behave responsibly in everything
we do. These policies are updated on a yearly basis. In
2019, the board, supported by the responsible banking,
sustainability and culture committee, reviewed and updated
our responsible and sustainable corporate policies, taking
into account the latest recommendations and best practices
at international level, also ensuring consistency across the
Group.
Likewise, in 2020 we will consider the progress in meeting
our key public commitments in responsible banking as a
qualitative adjustment criterion for senior management's
remuneration. See section 6 'Remuneration'.
The 2018 consolidated statement on non-financial
information was verified by an external auditor and
submitted for approval to the 2019 AGM receiving a high
level support from our shareholders (see section 3.4 '2019
AGM'). This demonstrates the quality of disclosure and the
importance we place on engagement with our stakeholders
and on ensuring that the messages in responsible banking,
environmental, social and governance (ESG) are well
understood by them.
For further information see section 4.9 'Responsible
banking, sustainability and culture committee activities in
2019´ and the 'Responsible banking' chapter.
The 2018 annual report disclosed our corporate governance goals and priorities for 2019. The following chart describes how we
have delivered on each priority.
2019 goals
Responsible banking
Responsible banking will be a higher priority
than ever. Our culture and corporate values are
essential for long term value creation. For these
purposes we will focus on:
• Overseeing our business practices to ensure
they are sound and responsible and how we
engage with all our stakeholders.
• Strong governance in decisions relating to
sustainability and responsible banking, as
well as transparency and disclosure of our
non-financial information (environmental,
social, prevention of corruption and bribery,
ethics, etc.) will also be key matters for the
responsible banking, sustainability and
culture committee.
Strategy
In the complex environment of today´s financial
markets, the success of the Bank requires:
• Understanding that innovation and digital/
technological transformation are a catalyst in
our business model and strategy, turning the
challenges of technology into opportunities.
• A close monitoring of emerging and
geopolitical risks.
How we have delivered
As we mentioned in section 1.2 'Responsible banking as a cornerstone of our corporate
governance', the responsible banking, sustainability and culture committee, highly
supported by our active culture and inclusive and sustainable banking steerings groups,
had a key role in the responsible banking agenda during 2019.
These efforts in responsible business practices have been recognised by the Dow Jones
Sustainability Index, which has acknowledged Santander as the most sustainable bank in
the world.
Our high standard of transparent disclosure has been ascertained by our stakeholders
through the publication in July 2019 of our commitments to adapt ourselves to the new
business environment and to support an inclusive and sustainable growth that powers and
funds investment in green energy.
Guiding principles in responsible banking have been established for our subsidiaries to
ensure that the agenda is embedded across the Group.
In 2019, the board and committees' forward-looking agendas were reviewed to ensure
appropriate scheduling and time allocation to business strategy. The result has been
shared with all the committee chairs to implement as appropriate.
Our main strategic lines relating to the digital transformation were discussed, together
with other topics, at the Board Strategy Day and were also included in the monthly reports
provided by the executive chairman to the board during 2019.
Moreover, periodic risk reports, covering not only idiosyncratic risks of the Group, but those
arising from macroeconomic trends, including emerging and strategic risks, have been
regularly submitted to, and monitored by, the board.
Group-wide strategy and digitalization were also supervised by the board during 2019.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
2019 goals
How we have delivered
Engagement with investors and other stakeholders
Engagement with investors and other
stakeholders, by:
• Providing tailored feedback to all of
stakeholders under the leadership of the lead
independent director with one-to-one
meetings, and meeting their expectations
with transparency and reliability. Listening
and giving voice to investors will increase the
Bank's long term returns.
• Leveraging on the implementation of the
European Union shareholders’ rights directive
and other legislation to enhance and
encourage stakeholder relations.
Diversity in the boardroom
A strong and unbreakable commitment to
broader diversity will remain a focus for the
board and the appointments committee. The
updated board skills and diversity matrix will
allow any gender and/or other types of
imbalance to be addressed. We believe that
diversity is not a box to be ticked but a strategy
for our success.
Ongoing board and committees renewal
Ongoing board and committees renewal will
remain a priority for the coming years so that the
board and its committees have an appropriate
and diverse composition, as well as a balanced
tenure.
On 27 February 2020 the board of directors approved an update of the policy on
communication and engagement with its shareholders and investors.
In 2019, we performed, among others, the following activities to meet investors and other
stakeholders needs and expectations:
• Our lead independent director maintained regular contact with investors, particularly
during the months prior to the AGM, which allowed us to gather their insights and know
their concerns, especially with respect to corporate governance.
• Our Investors Relations department was in constant contact with the institutional
investors and analysts, seeking direct contact to enable discussion on shareholder value
creation and improvements made to governance, remuneration structures and
sustainability matters. See section 3.1 'Shareholder engagement'.
The proposals for the transposition in Spain of the referred European directive on
shareholders' rights, which is still pending, have been monitored, with no significant
changes in the Group's practices having been identified so far.
Full gender equality in the board of directors was achieved on 29 October 2019 with the
appointment of Mrs Pamela Walkden, which enabled us to deliver on the target we had set
for 2021 more than one year in advance.
With a view to driving gender diversity, all proposed appointments that are submitted to
the appointments committee are now accompanied by a diversity impact analysis as part
of the suitability assessment, according to the policy for the selection, suitability and
succession of directors. This ensures that diversity is considered a priority in our
appointment and succession processes and in all related decisions.
The Group subsidiaries remained also focused on board composition with a view to
enhance gender diversity, in line with the target set by the Group.
Throughout 2019, significant work was carried out to ensure that the overall composition
and skills of the board of directors and board committees are appropriate. Desired areas of
experience were identified and incorporated into board succession and recruitment
planning overseen by the appointments committee. Our policy for the selection, suitability
assessment and succession of directors provides strong assurance about the appropriate
composition of the board of directors.
The appointments of Mr Henrique de Castro and Mrs Pamela Walkden have further
strengthened the board and audit committee's international diversity and brings sound
experience in technological, digital and banking industries, and a significant audit
background. The appointment of Mr Luis Isasi and Mr Sergio Rial that will be submitted to
our next AGM will also strengthen financial industry, international and institutional
experience within the board.
Section 1.1 'Renewing the board' describes all the changes and improvements made to the
composition of the board and the board committees.
In addition, the tenure of board members remained a key area of focus, ensuring that an
appropriate balance between board renewal, continuity and stability was achieved.
Compensation effectiveness
The board and the remuneration committee will
continue to focus on shaping compensation
structures and schemes for our executives,
according to our corporate culture and values,
while driving them towards alternative
performance metrics.
As part of the annual process, in 2019 the remuneration committee reviewed
compensation effectiveness based on the alignment with the corporate culture and values,
and with shareholders, employees, applicable regulations, risk and market practice. This
backdrop supported the launch in 2019 of new incentive schemes designed to support the
ongoing transformation of the Bank and the new business models, and to compete for
talent, such as the digital transformation award approved by the 2019 AGM.
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1.4 Continued improvement in
corporate governance
We keep strengthening our corporate governance
framework and will further improve its soundness and
effectiveness in the coming years. This is key to successfully
fulfilling our mission to become a more responsible bank
and to tackle the many challenges that face us in today's
digital environment.
That is why, on top of delivering on the priorities set in
2019, we have continued to work to keep improving our
corporate governance:
• Greater transparency: As mentioned in the 'Introduction'
to this annual report and in the introduction of this
Corporate governance chapter, in 2019 we took a
significant leap forward in terms of improved disclosure,
including in relation to corporate governance. This
allowed us to use the 2018 annual report as the basis to
prepare our Form 20-F for 2018 filed with the Securities
Exchange Commission (SEC) in 2019 and our share
registration document filed with the CNMV also in 2019.
• New committee reports: In line with the desire to provide
greater transparency, this corporate governance report
provides for the first time reports for the responsible
banking, sustainability and culture, and the innovation
and technology committees (in addition to the reports of
the audit, appointments, remuneration and risk
supervision, regulation and compliance committees). See
sections 4.9 and 4.10, respectively.
• Increased focus on shareholder engagement: The Bank
has always recognized the importance of engagement
with its shareholders and investors. To further increase
the focus on such engagement we have updated our
policy on communication and engagement with
shareholders and investors. See section 3.1 'Shareholder
engagement'.
• Improvements in succession processes: Succession
planning is a key element of our good governance as it
ensures orderly transitions in leadership and, at the same
time, continuity and stability of the board. Based on our
experience in succession for key functions, we have
strengthened our succession policy for managerial roles
throughout the Group, approving its updating by the
board on 27 February 2020, and we will also strengthen
our policy for the selection, suitability assessment and
succession of directors, which its updating will be
submitted for approval of the board in March 2020. To
that purpose, we retained an independent advisor that
ensured compliance with the highest standards.
The changes implemented aim to ensure that we build
strong talent pipelines for each function, with the
required talent in each case, and to establish diversity as
a priority. The process encompasses a yearly activity cycle
with well-defined methodology and timelines and a clear
allocation of responsibilities, ensuring appropriate
involvement of management. For each position included
in the process, the strength of the pipeline is determined
based on the number and readiness of the suitable
candidates, and development and training plans are
defined where required. The process includes specified
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risk-based effectiveness indicators that are analysed on a
yearly basis, and provides for regular final monitoring and
reporting to the board.
In 2019, succession plans were set for 301 roles
throughout the Group, up from 275 in 2018 and 212 in
2017. Out of the 31 critical positions which became
vacant in 2019, 22 of them (71%) were filled with
candidates identified in prior year succession plan. 86% of
the positions covered by the plan have a strong
succession pipeline, meaning that we have identified at
least two successors who could potentially be
immediately ready or one successor who could
potentially be immediately ready and two successors
who could potentially be ready in one to two years. See
'Election, renewal and succession of directors' in section
4.2.
• Further insight into the skills of our directors: In our
2017 annual report we identified each director in our
board skills matrix and in that of 2018 we further
improved the matrix. This year we have added even more
information in the committees skills and diversity matrix,
which provides a clear view of the balance of skills, not
only in the board, but in each board committee. See
'Committees skills and diversity matrix' in section 4.2. In
addition, we have reinforced key skills attributed to each
director in their profiles under section 4.1 'Our directors'.
1.5 Priorities for 2020
Our board’s priorities on corporate governance for 2020 are
the following:
• Santander share
In the creation of long-term value for shareholders, the
board will supervise and support the management team
in implementing our strategy so that total shareholder's
return appropriately reflects the Group's solvency,
results, corporate culture and sustainable growth.
• Continued strength of succession pipeline
Succession planning will remain a key priority for 2020 so
that it ensures that our pipeline of successors has
strength in depth. We will remain proactive in identifying
successors, executing appropriate training plans where
needed to ensure that any succession event can be dealt
with effectively. Our succession planning effectiveness
indicators will continue to help us ensure that our efforts
in this regard are delivering intended outcomes and that
the risks implied in the succession of directors and other
key roles are constantly supervised. Regular reporting to
the board ensures its awareness of the process, its risks
and its results.
• Designing remuneration policies adapted to the new
business environment
It is essential to implement remuneration structures and
schemes for our executives that include environmental,
social and governance-related performance indicators
Responsible Corporate
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governance
that are simple, transparent, measurable, and aligned
with the fulfilment of our public responsible banking
commitments.
Ensuring that the remuneration policies are effective and
adapted to our culture and corporate values, as well as to
the expectations of the investors and other stakeholders,
is essential to our strategy for sustainable growth.
• Fostering communication with shareholders and
investors as part of their engagement with the Group
Furthering our interaction and dialogue with investors
through all the channels and engagement activities
included in our policy on communication and
engagement with shareholders and investors will
facilitate the exercise of their rights, the communication
of information according to their expectations and the
creation of opportunities for them to participate in our
corporate governance in an effective and long-term
sustainable manner. This will be in accordance with the
laws transposing the European directive on shareholders’
rights and its implementing regulation.
Maximising the dissemination and quality of the
economic-financial information we make publicly
available, in a transparent and effective manner, will help
us retain long-term trust of our investors and society.
• Strategy to address risks and opportunities arising from
climate change
We will supervise fulfilment of our public climate change
commitments, including environmental criteria in the
Group’s governance and management of risks, and
reporting the progress achieved in this area in a
transparent manner.
Transition towards a green economy by financing
sustainable projects, namely renewable energy projects
that drive a low-carbon economy, and by supporting the
development of sustainable and smart infrastructures,
will be very important in the board’s agenda.
• At the forefront of national and international best
practices
As part of our commitment to continuously improve
corporate governance, in 2020 we will keep monitoring
the recommendations of supervisors and guidelines of
national and international organisations, so that the
functioning and internal regulations of our governing
bodies are at all times aligned with best practice.
In particular, we will review the amendments to the
Listed Companies’ Good Governance Code that may be
approved, if any. Its first proposal is aligned with our
corporate governance framework in matters such as
communication and engagement with shareholders and
investors, directors’ diversity and suitability assessment,
the composition of the executive committee, the board’s
organization and sustainability.
Risk management
and control
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2. Ownership structure
•
•
•
Broad, widely distributed and well balanced shareholder base
A single class of shares
Authorised capital in line with best practices providing the necessary flexibility
2.1 Share capital
Our share capital is represented by ordinary shares with a
par value of 0.50 euros each. All shares belong to the same
class and carry the same rights, including in voting and
dividends.
There are no outstanding bonds or securities convertible
into shares, other than the contingent convertible preferred
securities (CCPPS) referred to in the next section 2.2
'Authority to increase capital'.
At 31 December 2019, the Bank had a share capital of EUR
8,309,057,291 represented by 16,618,114,582 shares.
In 2019, the share capital was altered only once through the
capital increase carried out on 10 September 2019 as the
result of the public exchange offer for the acquisition of
shares of Banco Santander México that the Group did not
previously own. At this capital increase, which was
approved at an extraordinary shareholders meeting (EGM)
held on 23 July 2019, a total of 381,540,640 new shares
representing 2.30% of the share capital at 31 December
2019 were issued. See section 3.5 '2019 EGM'.
We have a broad, widely distributed and balanced
shareholder structure. At 31 December 2019, the total
number of Santander shareholders was 3,986,093 and the
distribution by type of investor, geographic origin and
number of shares was as follows:
Shareholder distribution by type of investor
Type of investor
% of share capital
BoardA
Institutional
Retail
Total
1.08%
60.39%
38.53%
100%
A. Shares owned or represented by directors. For further details on shares
owned and represented by directors, see 'Tenure, committee membership
and equity ownership' in section 4.2 and subsection A.3 in section 9.2
'Statistical information on corporate governance required by the CNMV'.
Shareholder distribution by continent
Continent
% of share capital
Europe
Americas
Rest of the world
Total
75.63%
22.97%
1.40%
100%
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Shareholder distribution by number of shares
Shares
% of share capital
1-3,000
3,001-30,000
30,001-400,000
Over 400,000
Total
6.97%
18.62%
11.44%
62.97%
100%
2.2 Authority to increase capital
Under Spanish law, the authority to increase share capital
rests with the general shareholder’s meeting (GSM).
However, our GSM may delegate to the board of directors
the authority to approve or execute capital increases. Our
Bylaws are fully aligned with Spanish law, and do not
establish any different conditions for share capital increases.
At 31 December 2019, our board of directors had been
authorized by the GSM to approve or execute the following
capital increases:
• Authorised capital to 2021: At our 2018 AGM, the board
was authorised to increase share capital on one or more
occasions by up to EUR 4,034,038,395.50 (50% of capital
at the time of the 2018 AGM or approx. 8,000 million
shares representing approximately 48.14% of the share
capital at 31 December 2019). This authority was granted
for three years (i.e. until 23 March 2021).
The authority can be used for issuances for a cash
consideration, with or without pre-emptive rights for
shareholders, and for capital increases to back any
convertible bonds or securities issued under the authority
granted to the board by the 2019 GSM.
The issuance of shares without pre-emptive rights under
this authority is capped at EUR 1,613,615,358 (20% of
capital at the time of the 2018 AGM or approx. 3,227
million shares representing approximately 19.42% of the
share capital at 31 December 2019). This limit is further
reduced to 10% of the share capital in connection with
capital increases to convert bonds or other convertible
securities or instruments. As an exception, these limits for
the issuance without pre-emptive rights do not apply to
capital increases to allow the potential conversion of
contingent convertible preferred securities (which can
only be converted into newly-issued shares when the
capital equity tier 1 (CET1) ratio falls below a pre-
established threshold).
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This authority has not been used to date except in
connection with the issuances of CCPS of 8 February
2019 and 14 January 2020 mentioned below. The board
of directors is proposing to have this authority renewed
reducing the limit from 20% to 10% (with an increase
only to reflect the amount of capital that has been
increased since our 2018 AGM) at our 2020 AGM as it
may expire before we hold our 2021 AGM. See section
3.6 'Our coming 2020 AGM'.
• Capital increases approved for contingent conversion of
CCPS: We have issued contingent convertible preferred
securities that qualify as additional tier 1 instruments for
regulatory capital purposes and which would convert into
newly-issued shares if the CET1 ratio fall below a pre-
established threshold. Each of these issuances is
therefore backed by a capital increase approved under the
authority to increase capital granted by the GSM to the
board in force at the time of the CCPS issuance. The
following chart shows the CCPS in circulation as at the
date of this report, with details of the capital increases
agreements. The execution of these capital increases is
therefore contingent and has been delegated to the board
of directors. The board of directors has the authority to
issue further CCPS and other convertible securities and
instruments pursuant to the approval granted by our
2019 AGM which allows the issuance of convertible
Issues of contingent convertible preferred securities
instruments and securities up to EUR 10 billion or the
equivalent thereof in another currency. Any capital
increase to allow the conversion of any such CCPS or
other convertible instruments or securities would be
approved under the authority indicated under 'Authorised
capital to 2021' in this section or any renewal of such
authority.
Authority for scrip dividend: Our 2019 AGM approved a
capital increase with a charge to reserves to allow the
potential implementation of a scrip dividend (under the
“Santander Dividendo Elección” scheme) as part of the
remuneration for shareholders against the results of
2019. As indicated in section 3.3 'Dividend', the board of
directors intends to implement such a scrip dividend
against the results of 2019 but is doing so under a
resolution submitted to our 2020 AGM as the existing
authority will expire on 12 April 2020 and the scrip
dividend will be executed after such date. In addition, the
board of directors is proposing to have this authority
renewed at our 2020 AGM to allow the potential
implementation of a scrip dividend as part of the
remuneration for shareholders against the results of
2020. See sections 3.3 'Dividend' and 3.6 'Our coming
2020 AGM'.
Date of issuance Nominal amount
Discretionary remuneration per annum
Conversion
12/03/2014
EUR 1,500 million
6.25% for the first five years
11/09/2014
EUR 1,500 million
6.25% for the first seven years
25/04/2017
EUR 750 million
6.75% for the first five years
29/09/2017
EUR 1,000 million
5.25% for the first six years
19/03/2018
EUR 1,500 million
4.75% for the first seven years
08/02/2019
USD 1,200 million
7.50% for the first five years
14/01/2020
EUR 1,500 million
4,375% for the first six years
Maximum number
of shares in case
of conversion A
345,622,119 B
299,401,197
207,125,103
If, at any time, the CET1 ratio
of the Bank or the Group is 263,852,242
416,666,666
less than 5.125%
388,349,514
604,594,921
A. The figure corresponds to the maximum number of shares that could be required to cover the conversion of the relevant CCPS, calculated as the quotient (rounded off by
default) of the nominal amount of the CCPS issue divided by the minimum conversion price determined for each CCPS (subject to any anti-dilution adjustments and the
resulting conversion ratio).
B. By means of material facts dated 9 and 15 January 2020, the Bank announced its irrevocable decision to carry out the voluntary early redemption of all of the outstanding
CCPS on the next payment date of the corresponding distribution falling on 12 March 2020.
2.3 Significant shareholders
At 31 December 2019, no shareholder of the Bank
individually held more than 3% of its total share capital
(which is the significant threshold generally established
under Spanish regulations for a significant holding in a
listed company to be disclosed). While at 31 December
2019 certain custodians appeared in our register of
shareholders as holding more than 3% of our share capital,
we understand that those shares were held in custody on
behalf of other investors, none of which exceeded that
threshold individually. These custodians were State Street
Bank and Trust Company (14.06%), The Bank of New York
Mellon Corporation (8.12%), Chase Nominees Limited
(6.38%), EC Nominees Limited (3.97%) and BNP Paribas
(3.40%).
In addition, BlackRock Inc. had as of that date informed the
CNMV of its significant holding of voting rights in the Bank
(5.426%) but had noted in its communications that the
corresponding shares were being held on behalf of a
number of funds or other investment entities, none of which
exceeded 3% individually.
Throughout 2019 BlackRock Inc. informed the CNMV of the
following movements regarding its voting rights in the
Bank: 6 February, increase above 5%, 17 April, decrease
below 5%, 9 May, increase above 5% and, 23 October,
decrease below 5%.
It should be noted that there may be some overlap in the
holdings declared by the above mentioned custodians and
asset manager.
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At 31 December 2019, neither our shareholders registry nor
the CNMV's registry showed any shareholder resident in a
tax haven with a shareholding of 1% or higher of our share
capital (which is the other threshold applicable under
Spanish regulations).
Our Bylaws and Rules and regulations of the board provide
for an appropriate system for analysing and approving
related party transactions with significant shareholders. See
section 4.12 'Related-party transactions and conflicts of
interest'.
2.4 Shareholders’ agreements
In February 2006, a shareholders’ agreement was entered
into by various persons linked to the Botín-Sanz de Sautuola
y O’Shea family whereby a syndicate was created with
respect to their Bank’s shares. CNMV was informed of the
execution of this agreement and the subsequent
amendments made by the parties, and this information can
be found on CNMV website.
The main provisions of the agreement are the following:
• Transfer restrictions: Except when the transferee is also a
party to the agreement or the Fundación Botín, any
transfer of the Bank’s shares expressly included in the
agreement requires prior authorisation from the
syndicate meeting, which may be granted or denied
freely. These transfer restrictions apply to the shares
expressly subject to it by virtue of the agreement and to
those shares that are subscribed for or acquired by the
members of the syndicate in exercise of any subscription,
bonus share, grouping or division, replacement, exchange
or conversion rights that pertain to, are attributed to or
derive from those syndicated shares; and
• Voting syndicate: Under the agreement, the parties
undertake to syndicate and pool the voting rights
attached to all their shares in the Bank, even those not
subject to the restrictions on transferability referred
above, so that these rights may be exercised, and, in
general, the syndicate members will act towards the
Bank in a concerted manner, in accordance with the
instructions and indications and with the voting criteria
and orientation established by the syndicate. This
syndication and pooling of voting rights covers not only
the shares subject to the transfer restrictions referred
above but also any voting rights attached to any other
Bank shares held either directly or indirectly by the
parties to the agreement, and any other voting rights
assigned thereto by virtue of usufruct, pledge or any
other contractual title, for as long as they hold those
shares or are assigned those rights. For this purpose,
representation of the syndicated shares is attributed to
the chair of the syndicate, who shall be the chairman of
the Fundación Botín (currently Mr Javier Botín-Sanz de
Sautuola y O’Shea). Ms Ana and Mr Javier Botín-Sanz de
Sautuola y O’Shea are siblings.
The initial term of the agreement ends on 1 January 2056,
but it will be automatically extended for further 10-year
periods unless terminated by one of the parties with six
months prior notice before the end of the initial term or the
end of one of the extension periods. The agreement may
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2019 Annual Report
only be terminated in advance by unanimous agreement of
all the syndicated shareholders.
At 31 December 2019, the parties of the shareholders'
agreement held 93,453,560 shares in the Bank
(representing 0.56% of its capital at that date), which were
therefore subject to the above mentioned voting syndicate.
Of this total, 77,220,357 shares in the Bank (0.46% of its
capital at the end of 2019) were also subject to above
mentioned transfer restrictions.
Subsection A.7 of section 9.2 'Statistical information on
corporate governance required by the CNMV' contains the
list of parties to the shareholders´ agreement and the
identification of the material facts filed with CNMV in
connection with the shareholders' agreement.
2.5 Treasury shares
Our current treasury share policy was approved by the
board on 23 October 2014. The policy provides that treasury
share transactions shall have the following objectives:
• To provide liquidity or a supply of securities, as
applicable, in the market for the Bank’s shares, giving
depth to such market and minimising possible temporary
imbalances in supply and demand.
• To take advantage, for the benefit of shareholders as a
whole, of situations of share price weakness in relation to
medium-term performance prospects.
The policy further establishes that treasury share
transactions may not be carried out for the purpose of
intervening in the free formation of prices. Therefore, it
requires that:
• Orders to buy should be made at a price not higher than
the greater of the following two:
• The price of the last trade carried out in the market by
independent persons; and
• The highest price contained in a buy order of the order
book.
• Orders to sell should be made at a price not lower than
the lesser of the following two:
• The price of the last trade carried out in the market by
independent persons; and
• The lowest price contained in a sell order of the order
book.
The policy focuses on the discretionary trading of treasury
shares. The policy applies partially to trading of treasury
shares linked to customer activities, such as market risk
hedging and brokerage activities, or hedging for customers.
Transactions with treasury shares are carried out by the
Investments and Holdings department, which is isolated as
a separate area from the rest of the Bank’s activities and
protected by the respective Chinese walls, preventing it
from receiving any inside or relevant information.
Trading in treasury shares was last authorised at our 2019
AGM. This authorisation permits the acquisition of treasury
shares provided that the shares held at any point in time do
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not exceed the legal limit provided for under the Spanish
Companies Act (currently, 10% of the Bank’s share capital).
The authorization further requires that acquisitions are
made at a price that is not lower than the nominal value of
the shares and does not exceed the last trading price in the
Spanish market for a transaction in which the Bank was not
acting for its own account by more than 3%.
The aforementioned resolution also authorized the
acquisition of shares to be held in treasury with the express
possibility of executing share repurchases to reduce the
number of shares in issue, should market conditions make
such action advisable. Any such share repurchases may also
be made in conjunction with a scrip dividend, should such a
dividend be deemed appropriate.
The board of directors is proposing to have this authority
renewed at our 2020 AGM. See section 3.6 'Our coming
2020 AGM'.
As at 31 December 2019, the Bank and its subsidiaries held
8,430,425 shares representing 0.051% of the share capital
at that date (compared to 12,249,652 at 31 December 2018,
representing 0.075% of our Bank’s share capital).
The following chart summarises the monthly average
percentages of treasury shares between 2019 and 2018.
Monthly average percentages of treasury sharesA
% of the Bank’s share capital at month end
January
February
March
April
May
June
July
August
September
October
November
December
2019
0.07%
0.02%
0.01%
0.01%
0.02%
0.02%
0.02%
0.03%
0.04%
0.04%
0.05%
0.05%
2018
0.04%
0.03%
0.02%
0.04%
0.05%
0.07%
0.07%
0.07%
0.07%
0.07%
0.07%
0.07%
A. Monthly average of daily positions of treasury shares.
In 2019, trading of treasury shares by the Bank and its
subsidiaries involved:
• The purchase of 226,681,642 shares equivalent to a par
value of EUR 113.3 million (cash amount of EUR 927.6
million) at an average purchase price of EUR 4.09 per
share;
• The sale of 230,500,869 shares equivalent to a par value
of EUR 115.3 million (cash amount of EUR 947.4 million)
at an average price of EUR 4.11 per share; and
• A net loss for the Group of EUR 6,282,500 that has been
recognised in the Group’s equity under shareholders’
equity-reserves.
The following chart reflects the significant changes in
treasury stock during the year, which have been
communicated to the CNMV.
Significant changes in treasury stock during 2019
Notification
date
Total of
acquired
direct shares
Total of
acquired
indirect shares
Total % of
share capital A
07/02/2019
156,794,393
6,103,283
06/11/2019
149,243,500
21,297,685
1.00%
1.03%
A. Percentage calculated with the existing share capital at the date of the
notification.
2.6 Stock market information
Markets
The Bank’s shares are listed on the Spanish stock exchanges
(Madrid, Barcelona, Bilbao and Valencia, with trading
symbol SAN), the New York Stock Exchange (NYSE) (in the
form of American Depositary Shares, 'ADS', with trading
symbol SAN and where each ADS represents one share of
the Bank), the London Stock Exchange (in the form of Crest
Depositary Interests, 'CDI', with trading symbol BNC and
where each CDI represents one share of the Bank), the
Mexican Stock Exchange (with trading symbol SAN) and the
Warsaw Stock Exchange (with trading symbol SAN).
Share price performance
The main markets improved during the year. In Spain, the
Ibex 35 benchmark index increased by 11.8% and in Europe
the DJ Stoxx 50 rose by 23.3%.
In a context of economic slowdown, the European banking
sector was initially affected by the monetary policies of the
main central banks, namely that of the European Central
Bank (ECB), which delayed the increase of interest rates
beyond 2020. The optimism arising in connection with a
potential trade agreement between China and the USA
raised market prices at the end of the year.
The main European banking benchmark index, DJ Stoxx
Banks, increased by 8.2% while the MSCI World Banks
increased by 16.4%. The Bank's shares closed 2019 at 3.73
euros per share, which represents a 6.1% decrease, also
affected by some uncertainties in geographies where
Santander operates such as Argentina, Chile, UK and
Poland.
Market capitalisation and trading
As at 31 December 2019, Santander was the second largest
bank in the Eurozone in terms of market capitalisation (EUR
61,986 million) and ranked 25th worldwide. During 2019, a
total number of 19,334 million Santander shares were
traded for a total cash amount of EUR 77,789 million, which
is the highest figure of shares belonging to the Eurostoxx,
with a liquidity ratio of 118%.
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The Santander share
Shares (million)
Price (EUR)
Closing price
Change in the price
2019
2018
16,618.1
16,236.6
3.730
3.973
-6.1%
-27.5%
Maximum for the period
4.682
6.093
Date of maximum for the period
17/4/2019
26/1/2018
Minimum for the period
3.386
3.800
Date of minimum for the period
9/3/2019 27/12/2018
Average for the period
End-of-period market capitalisation
(EUR million)
3.963
4.844
61,986
64,508
Trading
Total volume of shares traded (million)
19,334
19,040
Average daily volume of shares traded
(million)
75.8
74.7
Total cash traded (EUR million)
77,789
95,501
Average daily cash traded (EUR
million)
305,1
374,5
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2019 Annual Report
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3. Shareholders. Engagement
and shareholders meeting
• One share, one vote, one dividend
• No takeover defences in our Bylaws
• High participation and engagement of shareholders in our AGM
3.1 Shareholder engagement
Policy on communication and engagement with
shareholders and investors
On 27 February 2020, the board of directors approved a
review of the policy on communication and engagement
with shareholders and investors, which underscores our
commitment to transparency of information,
communication and engagement with them and the capital
markets in general.
The Bank's objectives are to ensure the alignment of the its
interests with those of our shareholders, the creation of
long-term share value, and to gain and retain the long-term
trust of investors and society in general and, to that end:
• We provide information to shareholders and investors
that satisfies their expectations and aligns with our
corporate culture and values.
• To communicate and engage with them on an ongoing
basis, ensuring that their views are considered by the
senior management.
The policy applies to communication with shareholders and
investors, and also with those agents to whom they look for
advice, recommendations or orientation such as analysts
(including financial and environmental, social and
governance analysts), proxy advisors and rating agencies,
as the interaction with those agents to be a vital part of
communication and engagement with shareholders and
investors.
The policy states the following principles for the Bank's
engagement and communication with shareholders and
investors:
• Protection of rights and lawful interests of all
shareholders, facilitating the exercise of their rights,
sharing of information in their favour and the creation of
opportunities for effective involvement in our corporate
governance and the activities of the Bank effectively.
• Equal treatment and non-discrimination, treating all
investors equally.
• Fair disclosure, ensuring that any information dealt with
in the context of interactions with investors is disclosed in
a transparent, truthful and balanced manner in
accordance with applicable rules. All information that is
deemed inside or relevant, in any manner shared with
investors
will have been previously disclosed except when
applicable regulation provides otherwise.
• Disclosure of information in a relevant manner. We
address the information appropriate and relevant to our
investor´s needs, aligning its reporting and disclosure
with their expectations. We ensure that the information is
presented in a rational and organised manner, tailored to
shareholder, and that it is clear, comprehensible, concise
and accurate
• Compliance with statutory provisions and our corporate
governance rules, and with the principles of cooperation
and transparency with the competent regulatory or
supervisory institutions, with due consideration at all
times for the guidelines laid down by our Compliance and
Conduct function. We pay particular attention to the rules
on handling of insider and material information under
applicable laws and regulations and our own regulations
set out in our Code of Conduct in Securities Markets, the
General Code of Conduct and the Rules and regulations of
the board of directors.
The policy further describes:
• The roles and responsibilities of the main bodies and
functions within the Bank that participate in
communication and engagement with shareholders and
investors;
• The channels for information disclosure to, and
communication with, shareholders and investors; and
• The types of engagement by the Bank with shareholders
and investors, which are covered below.
The policy on communication and engagement with
shareholders and investors is available to the general public
on the Bank's website.
Engagement with shareholders in 2019
The following engagement activities have been carried out
during the year putting into practice the above mentioned
policy:
• The annual general meeting. We consider our AGM as
the most important annual corporate event for our
shareholders. For that reason we strive to encourage the
informed attendance and participation of our
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shareholders wherever they are based. See 'Participation
of shareholders at the GSM' and 'Right to receive
information' in section 3.2.
During the AGM the chairman reports, in sufficient detail,
on the most relevant developments during the year of the
Group's corporate governance, supplementing the
corporate governance report, and addresses any
questions that shareholders may pose during the course
of the meeting in connection with the matters included in
the agenda.
The chairmen of the audit, appointments and
remuneration committees also report to the AGM on the
tasks of those committees, supplementing the
information on the committees' activities provided in this
Corporate governance chapter.
Shareholders are entitled to attend the GSM either
physically or remotely. We broadcast our GSMs live on
our corporate website. This allows non-attending
shareholders, other investors and stakeholders in
general, to be fully informed of the discussions and
results.
The record quorum and outstanding voting results in our
2019 AGM show the importance we put on engagement
through our GSMs. See section 3.4 '2019 AGM'.
In 2019 we also held an EGM which had a very with a
high quorum and a broad support to the proposals of
resolutions submitted for approval. See section 3.5 '2019
EGM'.
• Quarterly results presentations: Each quarter we hold a
results presentation on the same day as the results'
publication, which can be followed live, via conference
call or webcast. The corresponding financial report and as
well as presentation material are available to the public
on the day in advance of the market opening. During the
presentation, it is possible to ask questions or send them
via email to: investor@gruposantander.com.
Our most recent event was the 2019 Results Presentation
on 29 January 2020. During 2019, the first, second and
third quarter results presentations took place on 30 April,
23 July and 30 October, respectively.
• Investor and strategy days: We also organise investor
and strategy days. In these events, our senior
management lays out our strategy for investors and
stakeholders in a broader context than what results
presentations typically allow. These events also allow
investors to have direct interaction with senior
management and some of our directors, something we
see as increasingly important and further underscore the
strength of our governance. In line with the CNMV
recommendations, announcements of meetings with
analysts and investors and the documentation to be used
at those meetings are published in advance by the Bank.
Our last Investor Day took place on 3 April 2019 in
London. The information made available during investor
day is not incorporated by reference in this annual report
nor otherwise considered to be a part of it.
• Meetings and conferences: The Shareholders and
Investor Relations team attends group or individual
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meetings with Investors at conferences arranged by third
parties, discussing general or financial issues.
Without prejudice to the above principle of equal treatment
and non-discrimination, our experience is that, when it
comes to communicating with investors, one size does not
fit all. Therefore, and as regards our investors (including,
mainly the institutional, but also fixed-income investors,
analysts and rating agencies) we tailor, among others, the
following engagement activities to meet their needs and
expectations:
• Lead independent director engagement with key
investors: Our lead independent director, Mr Bruce
Carnegie-Brown, maintains regular contact with investors
in Europe and North America, particularly during the
months prior to our AGM, allowing us to gather their
insights and to form an opinion about their concerns,
especially in connection with our corporate governance.
During 2019 and early 2020 he met with 38 investors,
totalling 30% of share capital, in eight different cities. The
contribution of our lead independent director to the
incorporation of international best practices in our
corporate governance, the development of relations with
institutional investors and the provision of tailored
feedback to them is highly valued by the other directors
in our annual board self-assessment. The views received
from investors are duly considered by the appointments
committee..
• Investor roadshows: Our Shareholders and Investors
Relations department is in constant contact with our
institutional investors and analysts, seeking direct contact
to provide all-round discussion on shareholder value,
improvements to governance and remuneration
structures and sustainability matters.
During 2019 they had 3,507 contacts with 699
institutional investors in 60 locations. Those included 140
roadshows, 855 one-on-one meetings, 316 group
meetings and 25 telephone calls. The team engaged with
41.8% of share capital, which is more than 70% of the
capital held by institutional investors.
More than 800 communications were launched in 2019 to
strengthen communication and transparency with our
shareholders and investors, informing them about the
Group's performance, results and Santander share.
We also offer other means of communication especially
geared towards retail shareholders regardless of the size of
their stake:
• Shareholder and Investor Relations team, as part of our
exercise of openness towards our retail shareholders,
during 2019 had 1,739 contacts in 97 locations, including
322 forums and meetings in which they were informed
about the latest results and the Group´s strategy and the
evolution of the share . Our Shareholders team has
personally attended to 16,428 shareholders representing
8.2% of the Bank´s share capital in roadshows and one-
on-one group meetings.
In addition, in 2019, responded to 133,939 queries
received via our shareholder and investor helplines,
mailboxes, WhatsApp and one-on-one meetings held
through the Virtual Customer Channel. Achieved a 96%
recommendation of the attention service obtained.
Responsible Corporate
banking
governance
Economic
and financial review
Risk management
and control
Lastly, in 2019, 40,924 shareholder and investor opinions
were received through quality surveys and studies.
No restrictions on voting rights or on the free transfer
of shares in our Bylaws
Communication with proxy advisors and other analyst
and influencers
Lastly, as indicated above, we have always recognised the
value that our investors place on having an open and
proactive dialogue with proxy advisors, environmental,
social and governance analysts and other influencers. We
ensure that our corporate governance, responsible banking
and sustainability priorities and messages are well
understood by those players, so that these are well
communicated to the investors.
In particular, dialogue with proxy advisors has gained
significant importance as they are increasingly setting the
standards in corporate governance matters. Therefore,
through open dialogue we ensure in-depth knowledge of
our corporate governance and remuneration practices and
markets in which we operate.
In 2019, we had appropriate strengthened both its
communication and engagement with proxy advisors,
taking into account their opinions concerning corporate
governance, and having provided them with any
information or clarification required in relation to any
proposed resolution submitted for the AGM and the EGM,
so that they were enabled to properly set out their voting
recommendations.
Corporate website
At the end of 2019, we redesigned our corporate website to
improve the effectiveness of our communication with
shareholders and, in general, with all our stakeholders at a
global scale. The site's new design enables us to be
transparent and, at the same time, it improves the
experience of users visiting it to obtain accurate and quality
information about the Bank.
Our corporate website includes information on corporate
governance as required by law. In particular, it includes (i)
the key internal regulations of Banco Santander (Bylaws,
Rules and regulations of the board, Rules and regulations
for the GSM, etc.); (ii) information on the board of directors
and its committees as well as the professional biographies
of the directors and (iii) information relating to the GSMs.
The link to our information on corporate governance is:
https://www.santander.com/en/shareholders-and-
investors/corporate-governance. This link is included for
informational purposes only. The content of our corporate
website is not incorporated by reference in this annual
report or otherwise considered to be a part of it.
3.2 Shareholder rights
Our Bylaws provide for only one class of share (ordinary
shares), granting all holders the same rights. Each
Santander share entitles the holder to one vote.
The Bank does not have any defensive mechanisms in the
Bylaws, fully conforming to the principle of one share, one
vote, one dividend.
In this section we highlight certain key features available to
our shareholders.
There are no legal or bylaw restrictions on the exercise of
voting rights except for those resulting from the failure to
comply with applicable regulations as indicated below.
There are no non-voting or multiple-voting shares, or shares
giving preferential treatment in the distribution of
dividends, or shares that limit the number of votes that can
be cast by a single shareholder, or quorum requirements or
qualified majorities other than those established by law.
There are no restrictions on the free transfer of shares other
than the legal ones indicated in this section.
The transferability of shares is not restricted by our Bylaws
or in any other manner other than by the application of legal
and regulatory provisions. In addition, there are no bylaw
restrictions on the exercise of voting rights (except where an
acquisition has been made in breach of legal or regulatory
provisions).
Further, the Bylaws do not include any neutralisation
provisions (as these are referred to in Spanish Securities
Market Law), which apply in the event of a tender offer or
takeover bid.
Please also note that the shareholders’ agreement referred
to in section 2.4 'Shareholders' agreements' contains
transfer and voting restrictions on the shares subject to that
agreement.
Legal and regulatory restrictions on the acquisition of
significant holdings
There are legal and regulatory provisions applicable to the
Bank because the banking activity is a regulated sector
(which involves that the acquisition of significant holdings
or influence is subject to regulatory approval or non-
objection) and because of the Bank's status as a listed
company (which involves that a tender offer or takeover bid
for the Bank’s shares must be launched for the acquisition of
control and other similar transactions).
The acquisition of significant ownership interests is
regulated mainly by:
• Regulation (EU) 1024/2013 of the Council of 15 October
2013, conferring specific tasks on the ECB relating to the
prudential supervision of credit institutions;
• Spanish Securities Markets Law; and
• Law 10/2014, of 26 June, on the organisation,
supervision and solvency of credit institutions (articles 16
to 23) and its implementing regulation, Spanish Royal
Decree 84/2015, of 13 February.
The acquisition of a significant stake in the Bank may also
require the authorisation of other domestic and foreign
regulators with supervisory powers over the Bank’s and its
subsidiaries' activities and shares listings or other actions in
connection with those regulators or subsidiaries.
Participation of shareholders at the GSM
All registered holders of shares on record, at least five days
prior to the day on which a GSM is scheduled to be held, are
entitled to attend. The Bank allows shareholders to exercise
their rights to attend, delegate and vote using remote
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communication systems, which also foster participation in
the GSM.
not available, the GSM shall be held on second call, where
no minimum quorum is required.
Another communication channel is the electronic
shareholders’ forum. This forum is available on our Bank’s
corporate website at the time of the meeting. It allows
shareholders to post supplementary proposals to the
agenda announced in the call notice, along with requests for
support for those proposals, initiatives aimed at reaching
the percentage required to exercise any of the minority
shareholder rights provided for by law, as well as offers or
requests to act as a voluntary proxy.
Supplement to the meeting call
Shareholders representing at least 3% of the share capital
may request the publication of a supplement to the AGM
call with a statement of the name of the shareholders
exercising this right and of the number of shares held by
them, as well as the items to be included on the agenda,
attaching a rationale or substantiated proposal for
resolutions concerning these items and, if appropriate, any
other relevant documentation.
Shareholders representing at least 3% of the share capital
may also submit duly grounded resolutions concerning
matters that have already been included or to be included,
relating to one or more items on the agenda.
These rights must be exercised by means of a certified
notice that must be received by the Bank’s registered office
within five days after the publication of the notice of the call
to meeting.
Right to receive information
From the publication of the call to the GSM until the fifth
day, inclusive, prior to the date for which the meeting has
been called at first call, shareholders may deliver written
requests for information or clarifications, or submit written
questions on issues they consider to be relevant concerning
the items on the meeting agenda. In addition, in the same
manner and within the same period, shareholders may
deliver written requests for clarifications concerning the
relevant information that the Bank has provided to the
CNMV since the last GSM was held or concerning the
auditor’s reports. The requested information and the
answers provided by the Bank are published on its
corporate website.
Additionally, this information right may be exercised in the
meeting itself but when it is impossible to satisfy the
shareholder’s right during the course of the meeting, or
those requests made by remote attendees at the meeting,
the appropriate information is provided in writing within
seven days following after the end of the GSM.
Quorum and majorities required for passing
resolutions at the GSM
The quorum required to hold a valid general shareholders’
meeting and the system for adopting resolutions set out in
our Bylaws and in the Rules and regulations for the Bank’s
GSM are the same as those set down by Spanish law.
Except for specific matters as indicated below, the quorum
on first call shall be met by the attendance of shareholders
representing at least twenty five per cent of the subscribed
share capital with the right to vote. If a sufficient quorum is
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2019 Annual Report
For purposes of determining the quorum, shareholders who
vote by mail or through electronic means before the
meeting are counted as present at the meeting, as provided
by the Rules and regulations for the Bank’s GSM.
Except for specific matters as indicated below, resolutions at
GSMs are passed when, with respect to the voting capital
present or represented at the meeting, the number of votes
in favour is higher than the number of votes against.
The quorum and majorities required for Bylaws
amendments, issuances of shares and bonds, structural
modifications and other significant resolutions provided for
in applicable law are those set out below for Bylaws
amendments. In addition, pursuant to the rules applying to
credit institutions, the increase above 100% (up to 200%) of
the ratio of the variable remuneration components over the
fixed ones for executive directors and other key function
holders requires a qualified majority of two thirds if there is
a quorum of more than 50% of the share capital, and a
majority of three quarters if there is not such a quorum.
Our Bylaws do not require any decisions that entail an
acquisition, disposal or contribution to another company of
core assets or other similar corporate transactions to be
subject to the approval of the GSM, except in those cases
established by law.
Rules governing amendments to our Bylaws
The GSM has the power to approve any amendment of the
Bylaws, except for the change in the location of the
registered office within Spain, which may be decided by the
board.
If the Bylaws are to be amended by the GSM, the Bank’s
board or, where appropriate, the shareholders tabling the
resolution, must draft the complete text of the proposed
amendment along with a written report justifying the
proposed change, which must be provided to shareholders
with the call notice for the meeting at which the proposed
amendment will be voted on.
Furthermore, the call notice for the GSM must clearly set
out the items to be amended, detailing the right of all
shareholders to examine the full text of the proposed
amendment and accompanying report at the Bank’s
registered office, and to request that these documents be
delivered or sent to them free of charge.
If the shareholders are called upon to deliberate on
amendments to the Bylaws, the required quorum on first
call shall be met by the attendance of shareholders
representing at least fifty per cent of the subscribed share
capital with the right to vote. If a sufficient quorum is not
available, the GSM shall be held on second call, where at
least twenty-five per cent of the subscribed share capital
with voting rights must be present.
When shareholders representing less than fifty per cent of
the subscribed share capital with the right to vote are in
attendance, the resolutions on amendments to the Bylaws
may only be validly adopted with the favourable vote of
two-thirds of the share capital present in person or by proxy
at the meeting. However, when shareholders representing
fifty per cent or more of the subscribed share capital with
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
the right to vote are in attendance, resolutions may be
validly adopted by absolute majority.
Any changes to the Bylaws involving new obligations for
shareholders must have the consent of those affected.
Authorisation is required under the Single Supervisory
Mechanism (SSM) to amend our Bylaws. However, the
following amendments are exempt from this authorisation
procedure, although they must be reported to the SSM:
those intended to reflect a change in registered office within
Spain, a capital increase, additions to the wording of the
Bylaws of legal or regulatory requirements of an imperative
or prohibitive nature, wording changes to comply with court
or administrative rulings and any other amendments which
the SSM has ruled to be exempt from authorisation due to a
lack of materiality in response to prior consultations
submitted to it for this purpose.
3.3 Dividends
Remuneration against 2019 results
In February 2019, the board of directors announced that its
intention was to set a pay-out ratio of 40-50% of the
underlying profit in the mid-term, increasing it from a pay-
out ratio of 30-40%; that the proportion of dividend paid in
cash would not be lower than that of 2018; and, as was
announced in the 2018 AGM, to make two payments
against the results of 2019:
• Interim dividend. In September 2019 the board of
directors approved its first dividend against 2019 results
earnings of €0.10 per share, which was entirely paid in
cash from 1 November 2019. The amount was equal to
the sum of the interim dividends paid in 2018 in August
(€0.065) and November (€0.035) and reflected the
change in policy from four dividend payments to two.
• Final remuneration. The board of directors has resolved
to submit to the 2020 AGM that the second payment of
remuneration against the results of 2019 amounts to
0.13 euros per share by means of (1) a final dividend in
cash of 0.10 euros per share (the 'Final Cash Dividend')
and (2) a scrip dividend (under the 'Santander Dividendo
Elección' scheme) (the 'SDE Scheme') that will entail the
payment in cash, for those shareholders who choose so,
of 0.03 euros per share. See 'Authority for scrip dividend'
in section 2.2 and section 3.6 'Our coming 2020 AGM'.
If shareholders approve this proposal, the percentage of
2019 underlying attributable ordinary profit applied to
shareholder remuneration (payout) will be 46.3% (within
the 40-50% range indicated at the beginning of 2019) and
the proportion of cash dividend will be 89.6%, assuming a
ratio of cash options in the SDE Scheme of 80% (thus
exceeding that of 2018, also as announced at the beginning
of the year). This proposal entails an annual increase in the
cash dividend of c. 3% as compared to the one charged to
the 2018 results (0.195 euros per share against 2018 versus
0.20 euros per share against 2019), even without
considering the cash paid under such option in the SDE
Scheme.
Remuneration against 2020 results
As for the remuneration against 2020 results, the intention
of the board of directors, in line with the remuneration
agreed in 2019, is to maintain the one set for the 2019
results: to maintain the announced pay-out ratio of 40-50%
of the underlying profit in the mid-term; that the proportion
of dividend paid in cash is not lower than that of 2019; and
to make two payments against the results of 2020. In the
same vein, the board is proposing to our 2020 AGM to retain
the flexibility it has had in 2019 in determining shareholder
remuneration by:
• Proposing to retain the option to use a scrip dividend, in
view of its significant acceptance, especially among our
retail shareholders, and to allow the required flexibility to
be able to take advantage of the opportunities for
profitable growth in our markets, proposed by the Board.
See section 3.6 'Our coming 2020 AGM'. This could be
combined with share repurchases to satisfy the
maximum number of institutional, retail and
shareholders, with the target of maximizing earnings per
share.
• Proposing to renew the authorization obtained in the
2019 AGM for the acquisition of shares to be held in
treasury with the express possibility of executing share
repurchases to reduce the number of shares in issue,
should market conditions make such action advisable.
Any such share repurchases may also be made in
conjunction with the scrip dividend referred to above,
should market conditions make it appropriate. See
section 2.5 'Treasury shares' and section 3.6 'Our coming
2020 AGM'.
This will provide the board with the required flexibility to
determine whether or not to use these mechanisms.
3.4 2019 AGM
• Record quorum of 68.50%
• Corporate management of the Bank in 2018
approved
with 99.75 % voting in favour
• 2018 annual report on directors remuneration
approved
with 94.41% voting in favour
• No opposing vote of more than 15.57%
Quorum and attendance
The quorum for the annual general meeting of 2019 rose to
68.50%, our highest to date.
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Quorum at annual general shareholders’ meetings
The breakdown of the quorum was as follows:
2019 AGM quorum breakdown
Physically present and remote attendance
By proxy
Cast by post or directly
By electronic means
Remote voting
Cast by post or directly
By electronic means
Total
0.767%
61.104%
4.206%
1.860%
0.568%
68.505%
Voting results and resolutions
All items in the agenda were approved. The average
percentage of votes in favour of proposals submitted by the
board was 94%.
The following chart summarises the resolutions approved at the 2019 AGM and the voting results:
VOTES A
ForB AgainstC BlankD
AbstentionE
QuórumF
1. Annual accounts and corporate management
1A. Annual accounts and directors’ reports for 2018
1B. Consolidated statement of non-financial information for 2018
1C. Corporate management 2018
2. Application of results
3. Appointment, re-election or ratification of directors
3A. Setting of the number of directors
3B. Appointment of Mr Henrique de Castro
3C. Re-election of Mr Javier Botín-Sanz de Sautuola
3D. Re-election of Mr Ramiro Mato
3E. Re-election of Mr Bruce Carnegie-Brown
3F. Re-election of Mr. José Antonio Álvarez
3G. Re-election of Ms Belén Romana
4. Re-election of the external auditor for Financial Year 2019
5. Authorisation to acquire treasury shares
99.82
99.80
99.75
99.80
99.72
99.39
97.63
99.35
84.43
99.32
99.36
99.79
97.85
6. Increase in share capital. Offer to acquire bonus share rights at a guaranteed price 99.58
0.18
0.20
0.25
0.20
0.28
0.61
2.36
0.65
15.57
0.68
0.64
0.21
2.15
0.42
0.08
0.08
0.08
0.08
0.09
0.09
0.10
0.09
0.09
0.09
0.10
0.09
0.08
0.08
3.59
3.60
5.47
3.38
3.75
3.82
3.77
3.81
7.44
3.81
3.76
3.40
3.44
3.38
68.50
68.50
68.50
68.50
68.50
68.50
68.50
68.50
68.50
68.50
68.50
68.50
68.50
68.50
7. Delegation to the board of the power to increase share capital to issue all kinds of
fixed-income securities, preferred interests or debt instruments of a similar nature
(including warrants) that are convertible
8. Delegation to the board of the power to increase share capital to issue all kinds of
fixed-income securities, preferred interests or debt instruments of a similar nature
(including warrants) that are no convertible
9. Directors' remuneration policy
10. Maximum total annual remuneration of directors in their capacity as directors
11. Maximum ratio of fixed and variable components in the total remuneration of
executive directors
12. Remuneration plans which entail the delivery of shares or share options:
12A. Deferred multiyear objectives variable remuneration plan
12B. Deferred conditional variable remuneration plan
12C. Digital Transformation Award
93.08
6.92
0.08
3.43
68.50
96.87
95.40
96.76
3.13
4.60
3.24
0.08
0.10
0.09
98.72
1.27
0.09
97.76
98.43
99.25
2.24
1.57
0.75
0.10
0.10
0.10
3.44
3.84
3.83
3.81
3.80
3.80
3.79
68.50
68.50
68.50
68.34
68.50
68.50
68.50
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
12D. Group buy-out policy
12E. Plan for employees of Santander UK Group Holdings and other companies of
the Group in the UK
13. Authorisation to implement the resolutions approved
14. Annual directors' remuneration report
15. Corporate action to demand director liability(5)
16 to 29. Dismissal and removal of directors(6)
VOTES A
ForB AgainstC BlankD
AbstentionE
QuórumF
99.13
0.87
0.11
99.40
99.76
94.41
0.60
0.24
5.59
0.001
99.999
0.001
99.999
0.10
0.08
0.11
0.00
0.00
3.83
3.79
3.38
3.43
3.86
3.86
68.50
68.50
68.50
68.50
66.07
66.07
A Each Banco Santander share corresponds to one vote.
B Percentage over for and against votes.
C Percentage over share capital present and attending by proxy at the AGM.
D Percentage over Banco Santander's share capital as of the date of the AGM.
E
F
Item not included in the agenda.
Items 16 to 29, not included in the agenda, were submitted to a separate vote. Each item refers to the proposal for dismissal and removal of each director in office at the
AGM.
The full texts of the resolutions adopted at the 2019 AGM
can be viewed on the Group’s corporate website and on the
CNMV’s website, since they were filed as a significant event
on 12 April 2019.
Shareholder communications
In line with the policy on communication and engagement
with its shareholders and investors, in 2019 Banco
Santander continued to strengthen communications
with,and service to, its shareholders and investors in the
context of the 2019 AGM.
Communication with its shareholders and investors
Telephone service lines
9,272 queries addressed
Shareholder
mailbox
WhatsApp
and
investor 1,059 e-mails answered
12 queries addressed
3.5 2019 EGM
An extraordinary general meeting was held on 23 July 2019
(2019 EGM) to approve a capital increase for the purpose of
completing the public exchange offer for the acquisition of
shares of Banco Santander México that the Group did not
previously own (representing 24.95% of Santander Mexico’s
capital at the time).
The board of directors received shareholder authorisation to
increase that share capital by issuing and putting into
circulation new shares, that were to be fully subscribed and
paid-up through non-cash contributions consisting of
Santander Mexico shares, for up to €2,560 million.
The capital increase was executed in September 2019 as
part of the completion of the above mentioned exchange
offer. A total of 381,540,640 new shares were issued
representing 2.30% of the share capital at 31 December
2019.
Quorum and attendance
The quorum for the 2019 EGM was 59.22%.
Voting results and resolutions
All items in the agenda were approved. The average
percentage of votes in favour of proposals submitted by our
board was 99.72%.
The full text of the resolutions adopted at the 2019 EGM
can be viewed on the Group’s corporate website and on the
CNMV’s website, since they were filed as a significant event
on 23 July 2019.
3.6 Our coming 2020 AGM
The board of directors has agreed to call the 2020 annual
general shareholders’ meeting on 2 or 3 April, at first or
second call respectively, with the following proposed
resolutions.
• Annual accounts and corporate management. To
approve:
• The annual accounts and the directors reports of the
Bank and its consolidated Group for the financial year
ended 31 December 2019. For further information see
'Consolidated financial statements'.
• The consolidated non-financial statement for the
financial year ended 31 December 2019, forms part of
this consolidated directors' report. See 'Responsible
banking' chapter.
• The corporate management for the financial year
ended 31 December 2019.
• The application of results obtained during financial
year 2019. See section 3.3 'Dividend'.
• Appointment of directors.
• Set the number of directors at 15, within the maximum
and minimum limit established by the Bylaws.
• Appointment of Mr Luis Isasi as an external director and
of Mr Sergio Rial as an executive director, ratification of
Mrs Pamela Walkden as an independent director (see
section 1.1 'Renewing the Board') and re-election for a
three-year period of Ms Ana Botín-Sanz de Sautuola,
Mr Rodrigo Echenique, Ms Esther Giménez-Salinas and
Ms Sol Daurella. See section 4.1 'Our directors'.
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• External auditor. To re-elect the firm
PricewaterhouseCoopers Auditores, S.L. (PwC), as
external auditor for the financial year 2020. See 'External
auditor' in section 4.5.
• Authorisation to acquire treasury shares. See section 2.5
'Treasury shares' and section 3.3 'Dividends'.
• Increases in share capital via scrip dividend. See section
3.3 'Dividends'.
• Authority to issue shares. To delegate to the board of
directors the authority to increase the share capital on
one or more occasions and at any time, within a period of
three years. See section 2.2 'Authority to increase capital'.
• Authority to issue non-convertible securities. To
delegate to the board of directors the authority to issue
debentures, bonds, preferred interests and other fixed
income securities or debt instruments of a similar nature
that are convertible into shares of the Bank.
• Remuneration policy. To approve the Bank’s directors
remuneration policy for 2020, 2021 and 2022. For further
information see section 6.4 'Directors remuneration
policy for 2020, 2021 and 2022 that is submitted to a
binding vote of the shareholders'.
• Remuneration of directors. To approve the fixed annual
amount of remuneration for directors in their capacity as
such. For further information see section 6.4 'Directors
remuneration policy for 2020, 2021 and 2022 that is
submitted to a binding vote of the shareholders'.
• Variable remuneration. To approve a maximum ratio of
200% between the variable and fixed components of the
total remuneration for executive directors and certain
employees belonging to professional categories that have
a material impact on the Group’s risk profile. For further
information see section 6.4 'Directors remuneration
policy for 2020, 2021 and 2022 that is submitted to a
binding vote of the shareholders'.
• Remuneration plans. To approve the implementation of
remuneration plans involving the delivery of shares or
share options or referenced to the value of shares. For
further information see section 6.4 'Directors
remuneration policy for 2020, 2021 and 2022 that is
submitted to a binding vote of the shareholders'.
• Annual directors’ remuneration report. To provide a
consultative vote on the annual directors’ remuneration
report. For further information see section 6
'Remuneration'.
The related documents and information shall be available
for viewing on the Bank’s corporate website
(www.santander.com) as from the date of publication of the
announcement of the call to meeting. Likewise, the Bank
will provide a live broadcast of our 2020 AGM, as it did with
the 2019 AGM.
Given that attendance to the 2020 AGM is not remunerated,
it is not necessary to establish a general policy in this
respect. Notwithstanding the above, and as has been a
tradition for decades, the Bank offers attendees of the AGM
a commemorative courtesy gift.
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4. Board of directors
• A committed, balanced and diverse board
• Of the 15 directors, 13 are non-executive and two are executive
• Majority of independent directors
•
Balanced presence of both genders (40%-60%)
• Effective governance
•
•
•
Thematic committees supporting the board
The responsible banking, sustainability and culture committee shows the board's commitment to these matters
Complementary functions and power balance: executive chairman, CEO and lead independent director
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1. Ms Ana Botín-Sanz de Sautuola y O’Shea
9. Mr Henrique de Castro
Group Executive chairman. Executive director
Non-executive director (independent)
2. Mr José Antonio Álvarez Álvarez
10. Mr Guillermo de la Dehesa Romero
Vice chairman and chief executive officer (CEO).
Executive director
3. Mr Bruce Carnegie-Brown
Vice chairman and lead independent director. Non-
executive director (independent)
4. Ms Homaira Akbari
Non-executive director (independent)
5. Mr Ignacio Benjumea Cabeza de Vaca
Non-executive director
6. Mr Javier Botín-Sanz de Sautuola y O’Shea
Non-executive director
7. Mr Álvaro Cardoso de Souza
Non-executive director (independent)
8. Ms Sol Daurella Comadrán
Non-executive director (independent)
Non-executive director
11. Mr Rodrigo Echenique Gordillo
Non-executive director
12. Ms Esther Giménez-Salinas i Colomer
Non-executive director (independent)
13. Mr. Ramiro Mato García-Ansorena
Non-executive director (independent)
14. Ms Belén Romana García
Non-executive director (independent)
15. Mrs Pamela Walkden
Non-executive director (independent)
16. Mr Jaime Pérez Renovales
General secretary and secretary of the board
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4.1 Our directors
This information is presented as at 31 December 2019
Ms Ana
Botín-Sanz de Sautuola y O’Shea
GROUP EXECUTIVE CHAIRMAN
Executive director
Joined the board in 1989.
Nationality: Spanish. Born in 1960 in Santander, Spain.
Education: Degree in Economics from Bryn Mawr College
(Pennsylvania, United States).
Experience: She joined Banco Santander, S.A. after working
at JP Morgan (New York, 1980-1988). In 1992 she was
appointed senior executive vice president. Between 1992
and 1998 she led the expansion of Santander in Latin
America. In 2002, she was appointed executive chairman
of Banco Español de Crédito, S.A. Between 2010 and 2014
she was chief executive officer of Santander UK. In 2014
she was appointed executive chairman of Santander.
Mr José Antonio
Álvarez Álvarez
VICE CHAIRMAN &
CHIEF EXECUTIVE OFFICER
Executive director
Joined the board in 2015.
Nationality: Spanish. Born in 1960 in León, Spain.
Education: Graduate in Economics and Business
Administration. MBA from the University of Chicago.
Experience: He joined Santander in 2002 and was
appointed senior executive vice president of the Financial
Management and Investor Relations division in 2004
(Group chief financial officer). He served as director at SAM
Investments Holdings Limited, Santander Consumer
Mr Bruce
Carnegie-Brown
VICE CHAIRMAN &
LEAD INDEPENDENT DIRECTOR
Non-executive director (independent)
Joined the board in 2015.
Nationality: British. Born in 1959 in Freetown, Sierra
Leone.
Education: Master of Arts in English Language and
Literature from the University of Oxford.
Experience: He was non-executive chairman of
Moneysupermarket.com Group plc. (2014-2019), non
executive director of Jardine Lloyd Thompson Group plc
(2016-2017) and he held the non-executive chair of AON
UK Ltd (2012-2015). He was also the founder and
managing partner of the quoted private equity division of
3i Group plc., and president and chief executive officer of
Marsh Europe, S.A. He was also lead independent director
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Other positions of note: Member of the board of directors of The
Coca-Cola Company. She is also founder and chairman of the CyD
Foundation (which supports higher education) and of the
Empieza por Educar Foundation (the Spanish subsidiary of the
international NGO Teach for All) and she sits on the advisory
board of the Massachusetts Institute of Technology (MIT).
Positions in other Group companies:She is non-executive
director of Santander UK plc. and of Santander UK Group Holdings
plc.; non-executive chairman of Universia España Red de
Universidades, S.A.and of Universia Holding, S.L, and non-
executive director of Santander Holding USA, Inc. and of
Santander Bank, N.A.
Membership of board committees: Executive committee
(chairman), innovation and technology committee (chairman),
and responsible banking, sustainability and culture committee.
Skills and competencies: She has an extensive international
executive career in the banking sector, where she has held the
highest executive positions. She has also led the
transformational, strategic and cultural change in the Santander
Group. In addition, she has shown an ongoing commitment to
sustainable and inclusive growth, as reflected in her philanthropic
activities.
Finance, S.A. and Santander Holdings US, Inc. He also sat on the
supervisory boards of Santander Consumer AG, Santander
Consumer Bank GmbH and Santander Bank Polska, S.A. He was
also a board member of Bolsas y Mercados Españoles, S.A.
Other positions of note: None.
Positions in other Group companies: He is non-executive director
of Banco Santander (Brasil) S.A.
Membership of board committees: Executive committee and
innovation and technology committee.
Skills and competencies: With a distinguished career in the
banking sector, he is a highly qualified and talented leader. He
brings to the board significant strategic and international
management expertise, in particular in relation to financial
planning, asset management and consumer finance. He has a
strong experience with and reputation amongst key stakeholders,
such as regulators and investors.
at Close Brothers Group plc. (2006-2014) and at Catlin Group Ltd
(2010-2014). He previously worked at JP Morgan Chase for
eighteen years and at Bank of America for four years.
Other positions of note: He is the non-executive chairman of
Lloyd’s of London and of Cuvva Limited.
Positions in other Group companies: He is non-executive director
of Santander UK, Plc. and of Santander UK Group Holdings
Limited.
Membership of board committees: Executive committee,
appointments committee (chairman), remuneration committee
(chairman), and innovation and technology committee.
Skills and competencies: He has a strong and broad background
in the banking sector (in particular, in investment banking) and
also relevant experience in the insurance sector. He also
possesses significant international experience, having had
extensive exposure to Europe (UK), Middle East and Asia. His top
management experience brings to the board know how in
remuneration, appointments and risk-related matters. In
addition, as lead independent director, he has gained an excellent
understanding of investor expectations and experience in
managing relations with them and with financial communities.
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Ms Homaira
Akbari
Non-executive director (independent)
Joined the board in 2016.
Nationality: North-American and French. Born in 1961 in
Tehran, Iran.
Education: Doctorate in Experimental Particle Physics from
Tufts University and MBA from Carnegie Mellon University.
Experience: She was non-executive director of Gemalto NV
and of Veolia Environment, S.A. she was chairman and CEO
of SkyBitz, Inc., managing director of TruePosition Inc.,
non-executive director of Covisint Corporation and US Pack
Logistics LLC. and she has held various posts at Microsoft
Corporation and at Thales Group.
Other positions of note: She is chief executive officer of
AKnowledge Partners, LLC, non-executive chairman of
WorkFusion, Inc. and non-executive director of Landstar System,
Inc.
Positions in other Group companies: She is non-executive
director of Santander Consumer USA Holdings Inc
Membership of board committees: Audit committee, innovation
and technology committee and responsible banking,
sustainability and culture committee.
Skills and competencies: She brings significant executive
experience in technology-related companies. Her knowledge of
the digital transformation challenges is an asset to the board. In
addition, her insights, gained from her extensive international
experience in a diverse range of geographies and her knowledge
in the management and treatment of water, energy and waste
resources, are of particular value to our Group.
Mr Ignacio
Benjumea Cabeza de Vaca
Non-executive director
Joined the board in 2015.
Nationality: Spanish. Born in 1952 in Madrid, Spain.
Education: Degree in Law from Deusto University, ICADE
E-3 and State Attorney.
Experience: Former senior executive vice president, general
secretary and secretary of the board of Banco Santander,
S.A. and board member, senior executive vice president,
general secretary and secretary to the board of Banco
Santander de Negocios, S.A. and of Santander Investment,
S.A. He was also technical general secretary of the Ministry
of Employment and Social Security, general secretary of
Banco de Crédito Industrial, S.A. and director of
Dragados, S.A., Bolsas y Mercados Españoles, S.A. (BME) and of
the Governing Body of the Madrid Stock Exchange.
Other positions of note: He is vice chairman of the board of
trustees and member of the executive committee of the Financial
Studies Foundation and a member of the board of trustees and
the executive committee of the Banco Santander Foundation.
Positions in other Group companies: None.
Membership of board committees: Executive committee,
remuneration committee, risk supervision, regulation and
compliance committee, innovation and technology committee
and responsible banking, sustainability and culture committee.
Skills and competencies: He brings significant financial expertise
to the board, in particular in banking and capital markets. He also
has a wide experience in corporate governance and regulatory
matters, having served as general secretary and secretary of the
board of several banking institutions and held several positions in
the Spanish government. He also has a significant involvement in
several foundations.
Mr Javier
Botín-Sanz de Sautuola y O’Shea
Non-executive director
Joined the board in 2004.
Nationality: Spanish. Born in 1973 in Santander, Spain.
Education: Degree in Law from the Complutense University
of Madrid.
Experience: Since 2008, founder and executive chairman of
JB Capital Markets, Sociedad de Valores, S.A.U., co-founder
and executive director, equities division of M&B Capital
Advisers, S.V., S.A. (2000-2008). Previously he was legal advisor
to the International Legal Department of Banco Santander, S.A.
(1998-1999).
Other positions of note: In addition to his work in the financial
sector, he collaborates with several non-profit organizations.
Since 2014 he has been chairman of the Botín Foundation. He is
also a trustee of the Princess of Gerona Foundation.
Positions in other Group companies: None.
Membership of board committees: None.
Skills and competencies: He brings to the board international
and management experience, in particular in the financial and
banking sector. He also brings a deep knowledge of the
Santander Group and its operations and strategy, acquired
through his tenure as a non-executive director of the Bank.
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Mr Álvaro
Cardoso de Souza
Non-executive director (independent)
Joined the board in 2018.
Nationality: Portuguese. Born in 1948 in Guarda, Portugal.
Education: Degree in Economics and Business
Administration from Pontificia Universidade Católica de
Sao Paulo, Master of Business Administration (MBA-
Management Program for Executives) from the University
of Pittsburgh and a graduate of the Investment Banking
Marketing Program from Wharton Business School.
Experience: He has held various positions at the Citibank
Group, including CEO of Citibank Brazil and various senior
positions in the US with respect to the consumer finance,
private banking and Latin American businesses. He was a
member of the board of AMBEV. S.A., Gol Linhas Aéreas, S.A. and
of Duratex, S.A. He has been chairman of WorldWildlife Group
(WWF) Brazil, member of the board of WWF International and
chairman and member of the audit and asset management
committees of FUNBIO (Fundo Brasileiro para a Biodiversidade).
Other positions of note: None.
Positions in other Group companies: He is non-executive
chairman of Banco Santander (Brasil) S.A.
Membership of board committees: Risk supervision, regulation
and compliance committee (chairman) and responsible banking,
sustainability and culture committee.
Skills and competencies: He possesses a broad international
banking experience, particularly in Brazil. He has a solid
understanding of strategy and risk management-related matters,
acquired from his executive experience, which is key to his role as
chairman of our risk supervision, regulation and compliance
committee. In addition, he actively collaborates in several
environmental foundations and NGOs which brings him very
useful knowledge in sustainability matters.
Ms Sol
Daurella Comadrán
Non-executive director (independent)
Joined the board in 2015.
Nationality: Spanish. Born in 1966 in Barcelona, Spain.
Education: Degree in Business and MBA from ESADE.
Experience: She served on the board of the Círculo de
Economía and also as an independent non-executive
director at Banco Sabadell, S.A., Ebro Foods, S.A. and
Acciona, S.A. She has also been the honorary consul
general of Iceland in Barcelona since 1992.
Other positions of note: She is chairman of Coca Cola
European Partners, plc., executive chairman of Olive Partners.
S.A. and holds several positions at companies belonging to the
Cobega Group. She is also chairman of the board of trustees of
the FERO Oncology Research Foundation.
Positions in other Group companies: None.
Membership of board committees: Appointments committee,
remuneration committee and responsible banking, sustainability
and culture committee.
Skills and competencies: She brings to the board excellent skills
in strategy and high-level management, acquired through her
international top executive experience in listed and large privately
held entities, in particular in the distribution sector. She has a
wide experience in corporate governance, having chaired several
boards, and also in audit after having served as a member of
several audit committees. In addition, her experience as a trustee
of various Foundations oriented to health, education and
environmental matters brings the board responsible business and
sustainability insights.
Mr Henrique
de Castro
Non-executive director (independent)
Joined the board in 2019.
Nationality: Portuguese. Born in 1965 in Lisbon, Portugal.
Education: Degree in Business Administration from the
Lisbon School of Economics and Management (Portugal)
and Master’s Degree in Business Administration (MBA)
from the University of Lausanne (Switzerland).
Experience: He was independent director of First Data
Corporation and chief operating officer of Yahoo.
Previously, he was the manager of the worldwide devices, media
and platform business of Google, the sales and business
development manager for Europe of Dell Inc. and a consultant at
McKinsey & Company.
Other positions of note: He is independent director of Fiserv Inc.
and of Target Corporation.
Positions in other Group companies: None.
Membership of board committees: Audit committee,
remuneration committee and innovation and technology
committee.
Skills and competencies: Due to the executive positions he has
held in top technological companies worldwide, he brings to the
board valuable experience in and strategic insights about the
technological and digital industry as well as an outstanding
international experience in a wide range of geographies.
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Mr Guillermo
de la Dehesa Romero
Non-executive director
Joined the board in 2002.
Nationality: Spanish. Born in 1941 in Madrid, Spain.
Education: Government Economist and head of office of
the Bank of Spain.
Experience: Former secretary of state of Economy,
secretary general of Trade, chief executive officer of Banco
Pastor, S.A., international advisor to Goldman Sachs
International, chairman of Aviva Grupo Corporativo, S.L.
Mr Rodrigo
Echenique Gordillo
Non-executive director
Joined the board in 1988.
Nationality: Spanish. Born in 1946 in Madrid, Spain.
Education: Graduate in Law and State Attorney.
Experience: From 1973 to 1976 he held several positions in
the Spanish Public Administration (General Secretary of the
Post and Telecommunications Office, Technical Advisor in
the Office of the Spanish Prime Minister and other
positions in the Spanish Tax Authority offices in Pontevedra
and Madrid). Former chief executive officer of Banco
Santander, S.A. between 1988 and 1994. He served on the
board of directors of several industrial and financial
companies, including Ebro Azúcares y Alcoholes, S.A. and
Industrias Agrícola, S.A., and was chairman of advisory of
and non-executive chairman of Santa Lucía Vida y Pensiones, S.A.
Other positions of note: He is currently non-executive vice
chairman of Amadeus IT Group, S.A., honorary chairman of the
Centre for Economic Policy Research (CEPR) of London, member
of the Group of Thirty based in Washington and chairman of the
board of trustees of IE Business School.
Positions in other Group companies: None.
Membership of board committees: Executive committee,
appointments committee, remuneration committee, and
innovation and technology committee.
Skills and competencies: He has an extensive banking experience
(both executive and non-executive). In addition, due to his
experience and education, he brings to the board strategic
insights in the macroeconomic and regulatory environment and
on business management, after having held top management
positions as well as non-executive positions.
Accenture, S.A. He was also non-executive chairman of NH Hotels
Group, S.A., Vocento, S.A., Vallehermoso, S.A. and Merlin
Properties SOCIMI, S.A. He has also been non-executive chairman
of Banco Popular Español, S.A.
Other positions of note: He is non-executive director of Inditex,
S.A. and chairman of the board of trustees and the executive
committee of the Banco Santander Foundation.
Positions in other Group companies: He is non-executive director
of Universia Holding, S.L., of Banco Santander Chile, S.A. and of
Universia España, Red de Universidades, S.A. He is also non-
executive director and vicechairman of Banco Santander
International.
Membership of board committees: Appointments committee.
Skills and competencies: His extensive senior executive
experience in the banking sector and also other non-executive
roles in various industrial companies along with his deep
knowledge on the Santander Group are very valuable for the
board. In addition, his prior experience in the Spanish government
provides the board with strategic insights into regulations and
relations with the public sector.
Ms Esther
Giménez-Salinas i Colomer
Non-executive director (independent)
Other positions of note: Professor emeritus at Ramón Llull
University, director of the Chair of Restorative and Social Justice at
the Pere Tarrés Foundation, Special Chair of Restorative Justice
Nelson Mandela of the National Human Rights Commission of
Mexico, director of Aqu (quality assurance agency for the Catalan
university system), Member of the Bioethics Committee of the
Government of Catalonia and member of the advisory board of
the Arbitral Court of Barcelona.
Joined the board in 2012.
Positions in other Group companies: None.
Nationality: Spanish. Born in 1949 in Barcelona, Spain.
Education: PhD in Law and Psychologist by the University
of Barcelona.
Experience: She was chancellor of the Ramon Llull
University, member of the Conference of Rectors of Spanish
Universities (CRUE), member of the General Council of the
Judiciary of Spain, member of the scientific committee on
criminal policy of the Council of Europe, executive vice
president of the Centre for Legal Studies and Specialised
Training of the Justice Department of the Government of
Catalonia and member of the advisory board of Endesa-
Catalunya. She was director of Gawa Capital Partners, S.L.
Membership of board committees: Appointments committee,
risk supervision, regulation and compliance committee and
responsible banking, sustainability and culture committee.
Skills and competencies: Her relevant experience in senior
academic and governmental roles, for which she has a strong
reputation, enhances the oversight capacities of the board. Also
her career path brings to the board knowledge and experience in
legal matters, cultural transformation and in embedding an
ethical and responsible culture. In addition, she has gained
banking experience due to her tenure as non-executive director of
Banco Santander.
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Mr Ramiro
Mato García-Ansorena
Non-executive director (independent)
Joined the board in 2017.
Nationality: Spanish. Born in 1952 in Madrid, Spain.
Education: Degree in Economics from the Complutense
University of Madrid and Management Development
Programme of the Harvard Business School.
Experience: He has held several positions in Banque BNP
Paribas, including chairman of the BNP Paribas Group in
Spain. Previously, he held several significant positions in
Argentaria. He has been a member of the Spanish Banking
Association (AEB) and of Bolsas y Mercados Españoles, S.A.
(BME) and member of the board of trustees of the Fundación
Española de Banca para Estudios Financieros (FEBEF).
Other positions of note: None.
Positions in other Group companies: None.
Membership of board committees: Executive committee, audit
committee, risk supervision, regulation and compliance
committee and responsible banking, sustainability and culture
committee (chairman).
Skills and competencies: He has had an extensive career in
banking and capital markets, where he has held senior executive
and non-executive positions. He brings to the board significant
expertise in top management and also in audit, risk and strategy,
mainly related to the financial sector. In addition, he has been
actively participating in the boards of trustees of several
foundations aimed at enhancing education.
Ms Belén
Romana García
Non-executive director (independent)
Joined the board in 2015.
Nationality: Spanish. Born in 1965 in Madrid, Spain.
Education: Graduate in Economics and Business
Administration from Universidad Autónoma de Madrid and
Government Economist.
Experience: She was formerly senior executive vice
president of Economic Policy and senior executive vice
president of the Treasury of the Ministry of Economy of the
Spanish Government, as well as director of the Bank of
Spain and the CNMV. She also held the position of director
of the Instituto de Crédito Oficial and of other entities on
behalf of the Spanish Ministry of Economy. She served as
non-executive director of Banco Español de Crédito, S.A.
and executive chairman of Sociedad de Gestión de Activos
Procedentes de la Reestructuración Bancaria, S.A. (SAREB).
Other positions of note: Non-executive director of Aviva plc.
London and of Aviva Italia Holding SpA, member of the advisory
boards of GFI España and TribalData, member of the advisory
board of the Rafael del Pino Foundation and co-chair of the Global
Board of Trustees of the Digital Future Society.
Positions in other Group companies: None.
Membership of board committees: Executive committee, audit
committee (chairman), risk supervision, regulation and
compliance committee, innovation and technology committee
and responsible banking, sustainability and culture committee.
Skills and competencies: Her background as a government
economist and her overall, executive and non-executive,
experience in the financial sector (in particular, in the audit
committee of listed companies) support her recognition as
financial expert. In addition, the relevant positions held in Spanish
credit institutions and in the field of capital markets provide her
with strategic insights into banking, financial regulations and
Spanish government relations.
Mrs Pamela
Walkden
Non-executive director (independent)
Joined the board in 2019.
Officer, Group Treasurer, Group Head of Asset and Liability
Management and Regional Markets, Group Head of Internal
Audit, Group Head of Corporate Affairs and Group Manager of
Investor Relations. In addition, she served as an independent
member of the UK Prudential Regulation Authority (PRA)
Regulatory Reform Panel and as member of the European
Banking Authority Stakeholder Group.
Other positions of note: She is a lay member of the Welfare and
Ethics Committee of the Royal Veterinary College.
Nationality: British. Born in 1960 in Worcester, England.
Positions in other Group companies: None.
Education: Master's Degree on Economics from Cambridge
University.
Experience: She possesses an extensive career in the
banking sector. She has served in a number of senior
management positions at Standard Chartered Bank,
including as Group Head of Human Resources, Chief Risk
Membership of board committees: Audit committee.
Skills and competencies: She brings to the board a broad
experience in the banking industry along with a significant
international and audit experience, which support her recognition
as financial expert.
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Mr Jaime
Pérez Renovales
General Secretary and Secretary of the
board
He joined the Group in 2003.
Nationality: Spanish. Born in 1968 in Valladolid, Spain.
Education: Graduate in Law and Business Administration at
Universidad Pontificia de Comillas (ICADE E-3) and State
Attorney.
4.2 Board composition
Size
At 31 December 2019, the board of directors was made up
of the 15 members whose profile and background are
described in the section 4.1 'Our directors' above. Our
Bylaws allow for a board with a minimum of 12 and a
maximum of 17 members.
Composition by type of director
The composition of the board of directors is balanced
between executive and non-executive directors, most of
whom are independent. The status of each director has
been verified by the appointments committee and
submitted to the board.
Our board composition
Diversity
A diverse board is essential to ensure its effectiveness. The
combination of experiences and skills in the board provides
an environment where different views emerge and the
quality of decision-making is improved. Therefore, we seek
a solid balance of technical skills, experiences and
perspectives in the board.
As further detailed below, our policy governing the
selection, suitability assessment and succession of directors
promotes diversity within the board, including diversity of
gender, geography, experience and knowledge, with no
implicit bias that could lead to any form of discrimination on
the grounds of age, disability, race or ethnic origin. This
policy was amended in July 2018 in order to bring it into line
with recent European legislation on the disclosure of non-
financial and diversity information and with EBA and the
European Securities and Markets Authority (ESMA)
Experience: He was director of the office of the second vice
president of the Government for Economic Affairs and Minister of
Economy, deputy secretary of the Presidency of the Government,
chairman of the Spanish State Official Gazzete and of the
committee for the Public Administration Reform. Previously, he
was general vice secretary and vice secretary of the board and
head of legal of the Santander Group, general secretary and
secretary of the board of Banco Español de Crédito, S.A. and
deputy director of legal services at CNMV. He is a member of the
jury of the Princess of Asturias of Social Sciences awards and
chairman of the Icade Business Club.
Secretary of all board committees.
guidelines on suitability assessment of board members and
key functions holders. In 2019 the new gender equality
target, consisting in achieving a 40%-60% presence of
women on the board for 2021, was included. The Bank
applies this policy when selecting directors to fill any
vacancy or looking for candidates to add or replace board
members.
The selection policy promotes diversity in the board of
directors from different standpoints:
• Geographical provenance or international education:
The selection process takes into account the diversity of
cultural or international educational background,
especially in the main geographies where the Group is
present.
• Gender equality: Both the appointments committee and
the board of directors are aware of the importance of
fostering equal opportunities between men and women
and of the appropriateness of appointing women to the
board who meet the requirements of ability, suitability
and effective dedication to the position of director,
making a conscious effort to search for female candidates
who have the required profile. Our policy promotes a
selection of directors that includes a sufficient number of
female board members to have a balanced presence of
women and men.
On 26 February 2019 the board replaced the target set in
2016 by the appointments committee for the minority
gender (women) from 30% in 2020 to a gender equality
target in the board, which implies a presence of women in
the board of 40% to 60%, to be achieved by 2021. As of
November 2019 the board has already met this target,
and at year-end, women currently comprise 40% of the
board.
Female representation on the board is well above the
average for large listed companies in Europe. According to
a study conducted by the European Commission with
data at October 2018, the percentage of female board
members at large listed companies was 26.7% for all 28
countries in the European Union and 23.7% for Spain.
• Education and professional background: The selection of
candidates ensures that they are qualified and suitable
for the overall understanding of our Group, its businesses,
175
In line with last year, the skills matrix discloses the skills
and competencies of each board member showing our
commitment to transparency in this matter. Section 4.1 'Our
directors' includes a paragraph on skills and competencies
for each director, to more clearly identify the background for
this skills matrix.
We have added an additional chart (entitled 'Committees
skills and diversity matrix') which provides a clear view of
the balance of skills, not only at board level as a whole, but
in each board committee. This presentation enables the
overall effectiveness of the board committees to be
evaluated by reference to the significant presence of skills
more directly relevant to the scope of each committee.
Table of Contents
structure and the geographies in which it operates, both
individually and collectively; that they are aligned with
the Santander culture. The selection process ensures that
the candidates have skills and competencies in banking
and financial services and in other areas identified as
relevant in the board skills and diversity matrix. In this
regard, knowledge acquired in an academic environment
is taken into account, together with experience in the
professional performance of duties.
• The policy has no implicit bias that could lead to
discrimination by age, race, disability and/or ethnic
origin. With regard to age, there are no age limits for
directors or for any position on the board, including the
chairman and CEO.
In 2019, the Bank continued to place great emphasis on
ensuring a diverse composition in the board covering
aspects such as gender and geographical diversity but also
ensuring there is no discrimination on account of race, age
or disability. In line with the above, all proposed
appointments of new board members are now
accompanied by a diversity impact analysis as part of the
suitability assessment. We have also extended this
approach to the Group subsidiaries, to ensure that their
respective boards remain focused on diversity and promote
a gender balanced presence, in line with the Group's target.
The result of applying these diversity criteria in 2019 is
described in section 1.1 'Renewing the board'. In particular,
international diversity in the board as well as the need to
ensure it has a balanced and adequate composition at all
times was a priority in 2019, as indicated in section 1.3
'Achieving our 2019 priorities'.
Our strong and unbreakable commitment to broader
diversity will remain a focus for the appointments
committee in 2020 because, as we stated in section 1.5
'Priorities for 2020', diversity is not a box to be ticked but a
strategy for success.
Board skills and diversity matrix
The board composition provides the balance of knowledge,
capabilities, qualifications, diversity and experience
required to execute our long-term strategy in an ever
evolving market environment.
This balance is reflected in the board´s skills matrix that we
updated in 2018 in order to make it simpler, more
transparent and complete, with more information for our
investors and other stakeholders, who are demanding
greater visibility on certain skills within the board. In
addition, we took into account the recommendations of the
EBA and ESMA guidelines on the suitability assessment of
board members and key functions holders, which came into
effect in June 2018.
This year's matrix follows the structure introduced last year:
• We differentiate between two groups of skills or
competences: thematic and horizontal.
• We include a separate diversity section which includes
not only gender diversity but also diversity in
geographical provenance and/or training or education
abroad, and a board tenure section, reflecting the tenure
of each directorship.
176
2019 Annual Report
Responsible Corporate
banking
governance
Economic Risk management
and financial review
and control
Board skills and diversity matrix
SKILLS AND EXPERIENCE
THEMATIC SKILLS
Banking (86.7%)
Other financial services (66.7%)
Accounting, auditing & financial literacy (93.3%)
Retail (93.3%)
Digital & information technology (53.3%)
Risk management (86.7%)
Business strategy (93.3%)
Responsible business & sustainability (86.7%)
Human resources, culture, talent & remuneration (93.3%)
Legal & Regulatory (33.3%)
Governance & control (86.7%)
International experience
HORIZONTAL SKILLS
Top management (93.3%)
Government, regulatory & public policy (33.3%)
Academia & education (53.3%)
Significant directorship tenure (93.3%)
DIVERSITY
Female (40%)
Geographical provenance / international education
BOARD TENURE
0 to 3 years (26.7%)
4 to 11 years (46.6%)
12 years or more (26.7%)
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177
Table of Contents
Committees skills and diversity matrix
SKILLS AND EXPERIENCE
THEMATIC SKILLS
Banking
Other financial services
Accounting, auditing & financial literacy
Retail
Digital & information technology
Risk management
Business strategy
Responsible business & sustainability
Human resources, culture, talent & remuneration
Legal & Regulatory
Governance & control
International experience
HORIZONTAL SKILLS
Top management
Government, regulatory & public policy
Academia & education
Significant directorship tenure
DIVERSITY
Female
Geographical provenance / international education
BOARD TENURE
0 to 3 years
4 to 11 years
12 years or more
178
2019 Annual Report
Executive
committee
Audit committee
Appointments
committee
Remuneration
committee
Risk supervision,
regulation and
compliance
committee
Innovation and
technology
committee
Responsible banking,
sustainability and culture
committee
100%
100%
100%
100%
85.7%
100%
85.7%
100%
100%
42.9%
100%
100%
71.4%
42.9%
42.9%
100%
42.9%
57.1%
100%
28.6%
85.7%
71.4%
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Continental Europe
US/UK
Latam
Others
Continental Europe
US/UK
Latam
Others
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Executive directors
Other external directors
• Ms Ana Botín-Sanz de Sautuola y O’Shea, Group
• Mr Ignacio Benjumea Cabeza de Vaca.
• Mr Javier Botín-Sanz de Sautuola y O’Shea.
• Mr Guillermo de la Dehesa Romero.
• Mr Rodrigo Echenique Gordillo.
These directors cannot be classified as independent
directors for the followings reasons:
• Mr Botín and Mr de la Dehesa have both been directors
for over 12 years.
• In the case of Mr Benjumea, as a prudence criteria,
despite having elapsed the legal period required since his
professional relationship with the Bank ceased (other
than that derived from his position as director of the Bank
and Santander Spain)
• Mr Echenique was executive director until 1 May 2019
and has been a director for over 12 years.
executive chairman.
• Mr José Antonio Álvarez Álvarez, Group vice chairman and
CEO.
A more detailed description of their roles and duties is
included in 'Group executive chairman and chief executive
officer' in section 4.3.
Independent directors
• Mr Bruce Carnegie-Brown (lead independent director).
• Ms Homaira Akbari.
• Mr Álvaro Cardoso de Souza.
• Ms Sol Daurella Comadrán.
• Mr Henrique de Castro.
• Ms Esther Giménez-Salinas i Colomer.
• Mr Ramiro Mato García-Ansorena.
• Ms Belén Romana García.
• Mrs Pamela Walkden
On an annual basis, the appointments committee verifies
and informs the board about the category of the
independent directors, taking into account all the
circumstances of each case and, in particular, the existence
of any possible significant business relationships that could
affect their independence. This analysis is described further
in section 4.6 'Appointments committee activities in 2019'.
Independent non-executive directors account for 60% of the
board, following best practices in corporate governance and
complying with the Rules and regulations of the board that
require the board to be made up predominantly of non-
executive directors and have a number of independent
directors that represent at least 50% of the board.
At year-end 2019, the average length of service for
independent non-executive directors was 3.42 years.
Years of service of independent directors
179
Table of Contents
Tenure, committee membership and equity ownershipA
Board of directors
Committees
Tenure
Bank shareholdingC
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T
04/02/1989 04/07/2017 First six months of 2020
735,000
24,919,906
25,654,906
0.154%
c
c
25/11/2014 12/04/2019 First six months of 2022
22,443
25/11/2014 12/04/2019 First six months of 2022
1,331,602
27/09/2016 23/03/2018 First six months of 2021
30,000
44,000
30/06/2015 23/03/2018 First six months of 2021
3,576,405
1,331,602
0.008%
22,443
0.000%
74,000
0.000%
3,576,405
0.022%
25/07/2004 12/04/2019 First six months of 2022
5,272,830 18,655,736 122,468,000D 146,396,566 0.881%
c
1/04/2018
1/04/2018 First six months of 2021
0
0
25/11/2014 23/03/2018 First six months of 2021
143,255
456,970
24/06/2002 23/03/2018 First six months of 2021
173
0
17/07/2019 17/07/2019 First six months of 2022
2,982
07/10/1988 07/04/2017 First six months of 2020
1,231,529
14,591
30/03/2012 07/04/2017 First six months of 2020
6,062
c
28/11/2017 12/04/2019 First six months of 2022
40,325
22/12/2015 12/04/2019 First six months of 2022
167
29/10/2019 29/10/2019 First six months of 2020
2,500
0
0
3
0
c
0
0.000%
600,225
0.004%
173
0.000%
2,982
0.000%
1,246,120
0.007%
6,062
0.000%
40,325
0.000%
170
0.000%
2,500
0.000%
12,395,273 44,091,206 122,468,000 178,954,479 1.077%
Executive chairman
Vice chairman and
chief executive officer
Vice chairmen
Members
Ms Ana Botín-Sanz de
Sautuola y O’Shea
Mr José Antonio Álvarez
Álvarez
Mr Bruce Carnegie-Brown
Ms Homaira Akbari
Mr Ignacio Benjumea Cabeza
de Vaca
Mr Javier Botín-Sanz de
Sautuola y O’Shea
Mr Álvaro Cardoso de Souza
Ms Sol Daurella Comadrán
Mr Guillermo de la Dehesa
Romero
Mr Henrique de Castro
Mr Rodrigo Echenique Gordillo
Ms Esther Giménez-Salinas i
Colomer
Mr Ramiro Mato García-
Ansorena
Ms Belén Romana García
Mrs Pamela Walkden
Total
General secretary and Mr Jaime Pérez Renovales
secretary of the board
c Chairman
Note: The table details the attendance of directors whenever the latter have personally attended meetings of the board or its committees. For this purpose, absent directors who are represented are not counted as having attended.
A. Data at 31 December 2019 except where otherwise indicated. The changes in the membership of the committees during 2019 are shown in section 1.1 'Renewing the board'.
B. For further explanation, see 'Election, renewal and succession' in section 4.2. Indicated periods do not take into account the additional period that may apply under article 222 of the Spanish Companies Act.
C. The Bank has a share holding policy aimed at strengthening the alignment of executive directors with the long-term interests of shareholders. This policy includes the executive directors' commitment to maintain a significant individual investment in the
Bank's shares while they are performing executive duties, equivalent to twice the nett amount of the annual salary calculated on the annual gross salary and the marginal tax rate at the time this policy was first applied. To meet the level of investment
committed, they have a period of 5 years from their appointment as an executive director. The ratio resulting from the shareholding at 31 December 2019 shown in this table and the share value at 31 December 2019 is 34.8 times for Ms Ana Botín and
2.3 times for Mr José Antonio Álvarez.
D. Includes shares owned by Fundación Botín, of which Mr Javier Botín is the chairman, and syndicated shares, except those corresponding to Ms Ana Botín and Mr Javier Botín as they are already included within their direct or indirect shareholdings. In
subsection A.3 of section 9.2 'Statistical information on corporate governance required by the CNMV' we have adapted this information to the CNMV’s format, and have therefore added all the syndicated shares as shareholding of Mr Javier Botín. See 2.4
'Shareholders’ agreements'.
For further details see section 9.2 'Statistical information on corporate governance required by the CNMV'.
180
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Election, renewal and succession of directors
Election of directors
Our directors are appointed for three-year terms, and one-
third of the board is renewed each year, following the order
established by the length of the service on the board,
according to the date and order of the respective
appointment. Outgoing directors may be re-elected. Each
appointment, re-election and ratification is submitted to a
separate vote at the AGM.
Procedures for appointing, re-electing, evaluating and
removing directors
Our internal policy for the selection, suitability assessment
and succession of directors stipulates the criteria concerning
the quantitative and qualitative composition of the board of
directors, the process for reviewing its composition, the
process for identifying, selecting and appointing new
candidates.
The GSM appoints and re-elects directors. In the event that
directors vacate their office during the term for which they
were appointed, the board of directors may provisionally
designate another director, by co-option, until the
shareholders, at the earliest subsequent GSM, either
confirm or revoke this appointment.
The proposals for appointment, re-election and ratification
of directors, regardless of the status thereof, that the board
of directors submits to the shareholders and the decisions
adopted by the board itself in cases of co-option must be
preceded by the corresponding report and reasoned
proposal of the appointments committee.
The proposal must be accompanied by a duly substantiated
report prepared by the board containing an assessment of
the qualifications, experience and merits of the proposed
candidate. In cases of re-election or ratification of directors,
the proposal shall contain an assessment of the work and
effective dedication of the proposed director to the position
during the last period in which he/she occupied the post. If
the board disregards the proposal made by the
appointments committee, it must give the reasons for its
decision and place these reasons in the minutes for the
record.
Directors must meet the specific requirements set forth by
law for credit institutions and the provisions of our Bylaws,
and must formally undertake, upon taking office, to fulfil
the obligations and duties prescribed therein and in the
Rules and regulations of the board.
Our directors must be persons of renowned business and
professional integrity, and must have the knowledge and
experience needed to exercise their function and be in a
position to carry out a good governance. Candidates for the
position of director will also be selected on the basis of their
professional contribution to the board as a whole.
For further information see section 4.1 'Our directors' and
under 'Board skills and diversity matrix' within this section
4.2.
In all cases, the board of directors shall endeavour to ensure
that external or non-executive directors represent a
significant majority over executive directors and that the
number of independent directors represents at least half of
all directors.
Our directors shall cease to hold office when the term for
which they were appointed elapses, unless they are re-
elected; when the GSM so resolves; or when they resign
(explaining the reasons for this in a letter that shall be sent
to the other members of the board) or place their office at
the disposal of the board of directors.
Directors must tender their resignation to the board of
directors and formally resign from their position if the board
of directors, following a report from the appointments
committee, deems it fit, in those cases in which they may
adversely affect the operation of the board or the credit or
reputation of the Bank and, in particular, if they are involved
in any of the circumstances of incompatibility or prohibition
provided by law. The foregoing without prejudice to the
provisions of Royal Decree 84/2015, which implements Law
10/2014 on the organisation, supervision and solvency of
credit institutions, on the honorability requirements for
directors and the consequences of directors subsequently
failing to meet such requirements.
Directors must notify the board, as soon as possible, of
those circumstances affecting them that might prejudice the
credit or reputation of the Bank, and particularly the
criminal cases with which they are charged.
Furthermore, proprietary non-executive directors must
tender their resignation when the shareholder they
represent disposes of, or significantly reduces, its ownership
interest.
Finally, succession planning for the main directors is a key
element of the Bank’s good governance, ensuring an orderly
leadership transition and continuity and stability of the
board. Board succession planning continues to be an area of
focus for the appointment committee and the board, with
appropriated and robust plans in place that are regularly
revisited.
CEO succession
In application of these procedures, in September 2018 the
Bank resolved to appoint Mr Andrea Orcel as new CEO,
subject to obtaining the necessary regulatory fit and proper
authorization , the shareholders´meeting passing the
relevant resolutions on his future remuneration and to the
termination of the contractual relationship with his former
employer.
Subsequently, due to the change on the basis upon which
such decision was taken and the fact that the costs of
compensating Mr Orcel for past remuneration exceeded
those expected at the time of his appointment, the board
resolved in January 2019 to leave without effect to Mr
Orcel’s appointment. Such decision was possible, among
other reasons, as the contract that, in accordance to the
Spanish Companies Act, any executive director must enter
into, governing the services to be rendered had not been
executed nor approved by the Board and attached to the
relevant minutes, as requested. Such a contract was never
either approved nor executed and as the appointment had
not been submitted to our shareholders.
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Table of Contents
4.3 Board functioning and
effectiveness
The board is the highest decision-making body,
focusing on the supervisory function
Except in matters falling within the exclusive purview of the
GSM, the board of directors is the Bank’s highest decision-
making body and performs its duties with unity of purpose
and independent judgement.
The board’s stated policy is delegating the day-to-day
management of the Bank and the implementation of its
strategy to the executive bodies and the management team.
It focuses its activity on the general supervisory function
and those functions that it cannot delegate as provided by
law, the Bylaws, and the Rules and regulations of the board,
which in summary are the following:
• General policies and strategies (including capital and
liquidity, new products, activities and services; internal
culture and corporate values; risk control; remuneration
policy; and compliance).
• Financial information and general information reported to
shareholders, investors and the general public, and the
processes and controls that ensure the integrity of this
information.
• Policies for the provision of information to, and for,
communication with shareholders, markets and public
opinion, and supervision of the process of dissemination
of information and communications relating to the Bank.
• Internal audit plan and results.
• Selection, succession and remuneration of directors.
• Selection, succession and remuneration of senior
management and other key positions.
• Effectiveness of the Group’s corporate and internal
governance system.
• Significant corporate & investment transactions.
• Calling the general shareholders’ meeting.
• Governance-related matters in general, such as related
party transactions.
• Corporate and internal governance of the Bank and its
Group, including the group-subsidiary governance model,
corporate frameworks and relevant group internal
regulation.
Structure of the board
The board has implemented a governance structure to
ensure it discharges its duties effectively. Further details of
this structure are provided in the next pages of this section
and it can be split into four dimensions:
• Group executive chairman and chief executive officer
who, as further explained within this section 4.3, are the
most senior executives for the strategic and ordinary
management of the Bank, which the board is responsible
for overseeing, ensuring at the same time that their roles
are clearly separated and complementary.
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2019 Annual Report
• A lead independent director who, as further explained
within this section 4.3, is responsible for the effective
coordination of non-executive directors and generally
ensuring that they serve as an appropriate counter-
balance to executive directors.
• A board committee structure, which, as further described
within this section 4.3, supports the board in three main
areas:
• In the management of the Bank by exercising decision-
making powers through the executive committee.
• In defining strategy in key areas, through the
responsible banking, sustainability and culture
committee and the innovation and technology
committee.
• In its supervisory functions and significant decision-
making, through the audit, appointments,
remuneration and risk supervision, regulation and
compliance committees.
• A board secretary, who, as further described within this
section 4.3, supports the board, its committees and our
chairman, and is also the general secretary of the Group.
Rules and regulations of the board
The board is governed by the rules set out in the Bank's
Bylaws and the Rules and regulations of the board, both of
which are available at www.santander.com.
• Bylaws: Our Bylaws contain the basic rules and
regulations that apply to the composition and functioning
of the board of directors and its members' duties, which
are supplemented and developed by the Rules and
regulations of the board. They can be amended only by
our GSM, as described in 'Rules governing amendments
to our Bylaws' in section 3.2.
• Rules and regulations of the board: The Rules and
regulations of the board establish the rules of operation
and internal organisation of the board of directors and its
committees through the development of applicable legal
and Bylaw provisions. These set out the principles that
govern all action taken by the board and its committees
and the rules of behaviour to be observed by its
members.
The board amended its Rules and regulations on 26
February 2019 in order, among others:
• To establish the audit committee to be composed
entirely of independent directors and to strengthen its
supervision functions over the non-financial
information.
• To broaden the mandate of the appointments
committee in corporate governance matters taking up
functions previously fell with the risk supervision,
regulation and compliance committee.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
• To expressly provide that the lead independent director
must be a member of the appointments committee.
• To include other minor changes in the composition and
functioning of the appointments and remuneration
committees anticipating the recommendations and
good operating practices.
Our Rules and regulations of the board meet all legal
requirements and adhere to the main principles and
recommendations established in the Spanish Corporate
Governance Code for Listed Companies of the CNMV of
February 2015; the Corporate Governance Principles for
Banks of the Basel Committee on Banking Supervision of
July 2015; as well as the guidelines established by the EBA
in 'Guidelines on internal governance under Directive
2013/36/EU' that came into force on 30 June 2018.
Our rules on the audit committee also adhere to the
recommendations and good operating practices established
in Technical Guide 3/2017 of the CNMV, on Audit
Committees of Public Interest Entities, of 27 June 2017. This
committee also complies with the regulations applicable in
the US because of the listing of our shares as American
Depositary Shares on the New York Stock Exchange and
with Rule 10A-3 under the Securities Exchange Act
introduced by the Sarbanes-Oxley Act of 2002 (SOx), on
requirements for the audit committees of companies.
Our rules on the appointments and remuneration
committees also adhere to the recommendations and good
operating practices established in Technical Guide 1/2019 of
the CNMV, on Nomination and Remuneration Committees,
of 20 February 2019.
Group executive chairman and chief executive officer
The Group executive chairman is Ms Ana Botín-Sanz de
Sautuola y O’Shea and the chief executive officer is Mr José
Antonio Álvarez Álvarez.
The roles of our Group executive chairman and chief
executive officer are clearly separated, as follows:
Roles of the executive chairman and the CEO
Group executive chairman
Chief executive officer
• The chief executive officer is
entrusted with the day-to-
day management of the
business.
• Accordingly, the chief
executive officer’s direct
reports are the senior
managers in charge of the
businesses (heads of the
regional -Europe, North
America and South America-
and global businesses) and
of the functions supporting
the business (such as
Finance, Financial control
and IT & operations).
• The chairman is the highest-
ranking officer of the Bank
and the main Group
representative vis-à-vis the
regulators, authorities and
other major stakeholders.
• The chairman´s direct reports
are the CEO and the senior
managers in charge of long-
term strategy of the Bank
(such as Corporate
Development), the corporate
functions (such as
Communications and
General secretariat) and
control (including Risk and
Internal Audit) and those
areas not directly related to
the day-to-day management
of the business.
• The chairman also leads the
appointment and succession
planning of the senior
management of the Bank.
There is a clear separation of duties between those of the
Group executive chairman, the chief executive officer, the
board, and its committees, and various checks and balances
that assure proper equilibrium in the Bank’s corporate
governance structure, including the following:
• The board and its committees oversee and control the
activities of both the Group executive chairman and the
chief executive officer.
• The board of directors has delegated to each of the
executive chairman and the chief executive officer all the
powers of the board except those that cannot be
delegated pursuant to the law, the Bylaws and the Rules
and regulations of the board. The board directly exercises
those powers in the performance of its general
supervisory function.
• The role of the lead independent director, who leads the
appointment and succession planning for the Group
executive chairman and plays a key role in corporate
governance, as detailed below.
• The audit committee is chaired by an independent
director, considered to be a financial expert, as this term
is defined in Regulation S-K of the Securities and
Exchange Commission (SEC).
• The Group executive chairman may not hold
simultaneously the position of chief executive officer of
the Bank.
• The corporate risk, compliance and internal audit
functions, as independent units, report to a committee or
a member of the board of directors and have direct and
unfettered access to the board when they deem it
appropriate.
Lead independent director
The role of the lead independent director is key in our
governance structure, as he oversees the proper
coordination of non-executive directors and ensures that
they serve as an appropriate counter-balance to the
executive directors.
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Table of Contents
The following chart illustrates his functions and their application in 2019:
Duties of the lead independent director and activities during 2019
Duties
Activities during 2019
Facilitate discussion and open dialogue among the independent
directors, including by coordinating meetings of non-executive
directors and generally engaging with them to canvas their views.
Three meetings were held with non-executive directors, without
executive directors being present, where they were able to voice any
concerns or opinions. Furthermore, these meetings represented a
valuable opportunity to discuss other matters including board training
topics, performance of the executive directors and the functioning of
the board committees.
Direct the regular assessment of the chairman of the board of directors Leadership in the annual assessment of the chairman in order to
and coordinate her succession plan.
determine her variable remuneration.
Engagement with shareholders and other investors with the purpose
of gathering information on their concerns, in particular, with regard to
the Bank´s corporate governance.
Replace the chairman in the event of absence with key rights such as
the ability to call board meetings under the terms set down in the
Rules and regulations of the board of directors.
See section 3.1 'Shareholder engagement'.
The lead independent director chaired three meetings of the executive
committee due to such absence.
Request that a meeting of the board of directors be called or that new Whilst no such meetings where called by the lead independent director,
items be added to the agenda for a meeting of the board.
he remained fully engaged on board meeting content.
Board committee structure
The board currently has seven committees and one international advisory board.
For a description of the composition, functions, rules of operation and activities of:
• The executive committee, see section 4.4.
• The audit, appointments, remuneration, risk supervision, regulation and compliance, responsible banking, sustainability and culture, and
the innovation and technology committees, see their activities reports in sections 4.5, 4.6, 4.7, 4.8, 4.9 and 4.10 respectively.
Voluntary committees
(permitted under Bylaws)
Mandatory committees
(required by law and under Bylaws)
Decision-making
powers
Support and proposal
in strategic areas
Supervision, information advice and proposal
functions in risk, financial information and audit, nomination
and remuneration matters
Board
committees
Executive
committee
External
advisory
board
Responsible banking,
sustainability and
culture committee
Innovation and
technology committee
International
advisory board
(members are
non-directors)
Audit
committee
Risk supervision,
regulation and
compliance committee
Appointments
committee
Remuneration
committee
Secretary of the board
Proceedings of the board
Mr Jaime Pérez Renovales is the secretary of the board. He
assists the chairman in her duties and ensures the formal
and material legality of all action taken by the board. He
also ensures that good governance recommendations and
procedures are observed and regularly reviewed.
The secretary of our board is the general secretary of the
Bank, and also acts as secretary for all board committees;
he does not need to be a director in order to hold this
position.
A report from the appointments committee is required prior
to submission to the board of proposals for the appointment
or removal of the secretary.
Our board also has a deputy secretary to the board, Mr
Óscar García Maceiras, who also acts as deputy secretary for
all board committees and assists the secretary and replaces
him in the performance of his duties in the event of
absence, inability to act or illness.
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2019 Annual Report
The board of directors held 18 meetings in 2019, 10
ordinary meetings and 8 extraordinary meetings. The Rules
and regulations of the board provide that it shall hold no
less than nine annual ordinary meetings, and one meeting
at least quarterly.
The board holds its meetings in accordance with a calendar
established annually and an agenda of matters to be
discussed, without prejudice to any further items that may
be added or any additional meetings that need to be held
according to the business needs that may arise. Directors
may also propose the inclusion of items on the agenda.
Directors are duly informed of any modifications to the
calendar or the agenda of matters to be discussed.
Likewise, the board keeps a formal list of matters reserved
to it and will prepare a plan for the distribution of those
matters between the ordinary meetings established in the
provisional calendar approved by the board.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
The relevant documentation for each meeting of the board
of directors and of the different committees to which the
directors are members, is sent to the directors at least five
business days before the board meeting and three business
days before the corresponding committee meeting. The
information, which is provided to the directors via secure
electronic means, is specifically for the purpose of preparing
these meetings. In the opinion of the board, that
information is complete and is sent sufficiently in advance.
In addition, the Rules and regulations of the board of
directors expressly recognise the directors’ right to request
and obtain information regarding any aspect of the Bank
and its subsidiaries, whether domestic or foreign, as well as
the right to inspect, which allows them to examine the
books, files, documents and any other records of corporate
transactions, and to inspect the premises and facilities of
these companies. Furthermore, directors are also entitled to
request and obtain, through the secretary, such information
and advice deemed necessary for the performance of their
duties.
The board shall meet whenever the chairman so decides,
acting on her own initiative or at the request of not less than
three directors. Generally, the meeting must be called 15
days in advance by the board secretary.
Additionally, the lead independent director is authorised to
request that a meeting of the board of directors be called or
that new items be added to the agenda for a meeting that
has already been called.
Our directors must attend the meetings in person and shall
endeavour to ensure that absences are reduced to cases of
absolute necessity. In this regard, the appointments
committee supervises that the attendance of directors to
board of directors and committee meetings is not under
75%. For further information, see 'Board and committees
attendance' in this section 4.3. If directors are unable to
personally attend a meeting, they may grant a proxy to
another director, in writing and specifically for each
meeting, to represent them for all purposes therein. Proxy is
granted with instructions and non-executive directors may
only be represented by another non-executive director. A
director may hold more than one proxy.
The board may meet in various rooms at the same time,
provided that interactivity and communication among them
in real time is ensured by audiovisual means or by
telephone and the concurrent holding of the meeting is
thereby ensured.
Board meetings are validly convened when more than half
of its members are present in person or by proxy.
Resolutions are adopted by absolute majority of the
directors attending in person or by proxy. The chairman has
the casting vote in the event of a tie. The Bylaws and the
Rules and regulations of the board only provide for qualified
majorities for matters in which the law prescribes a
qualified majority.
The board secretary maintains the documentation relating
to the board of directors and maintains a record in the
minutes of the content of the meetings. The minutes of the
meetings held by the board of directors and its committees
include any statements made at meetings that are expressly
requested to be included in them.
The board may contract legal, accounting or financial
advisers or other experts, at the Bank´s expense, to assist in
the exercise of their functions.
The board is tasked with promoting and encouraging
communication between the various committees, especially
between the risk supervision, regulation and compliance
committee and the audit committee, and also between the
former and the remuneration committee and the
responsible banking, sustainability and culture committee.
In this regard, some committees hold joint meetings
throughout the year and any director may attend and
participate in, but not vote, at meetings of board
committees of which they are not a member, by invitation of
the chairman of the board and of the chairman of the
respective committee, after having requested attendance to
the chairman of the board. Furthermore, all members of the
board who are not also members of the executive
committee may attend the meetings of such executive
committee at least twice a year, for which purpose they
shall be called by the chairman.
During the year, directors that are not members of the
executive committee attended 12 of the total of 42
meetings held.
Comparison of number of meetings heldA
Santander
Average
Spain
US
average
UK
average
18
43
13
12
11
10.8
8.6
8.6
6.5
6.5
7.9
—
8.4
4.7
6.0
7.6
—
5.3
4.1
5.2
14
15
NA
5.8
Board
Executive committee
Audit committee
Appointments
committee
Remuneration
committee
Risk supervision,
regulation and
compliance
committee
A. Source: Spencer Stuart Board Index 2019 (Spain, United States and United
Kingdom).
NA: Not available.
The following chart shows the approximate allocation of
time devoted by the board to each function in 2019.
2019 Approximate allocation of time of the board
185
Table of Contents
Proceedings of the committees
The committees hold their meetings in accordance with a
calendar, which includes at least four meetings, and an
annual work plan established yearly. Each committee meets
as many times as it is required to fulfil its responsibilities.
Meetings of committees are validly held when more than
one-half of its members are present in person or by proxy.
The committee adopts its resolutions by majority vote of
those present in person or by proxy. In the event of a tie, the
chairman of the committee has the tie-breaking vote. The
committee members may grant a proxy to another member,
although non-executive directors may only be represented
by another non-executive director.
Committee members are provided with the relevant
documentation for each meeting sufficiently in advance of
the meeting date, thereby ensuring committee
effectiveness.
The committees have the power to require executives to
attend their meetings, by invitation from the chairman of
Board and committee attendance
the committee to attend under the terms established by the
committee. The audit, appointments, remuneration and risk
supervision, regulation and compliance committees may
contract legal, accounting or financial advisers or other
experts, at the Bank´s expense, to assist in the exercise of
their functions. The other committees may do so with Board
approval.
The post of secretary to all the committees corresponds, in a
non-voting capacity, to the general secretary and secretary
to the board, who is also head of the Group’s Human
Resources area, fostering a fluid and efficient relationship
with the different units that are expected to collaborate
with, or provide information to, each committee.
Each committee chairman reports to the board of directors
on the affairs discussed and the decisions made in the
course of each committee meeting and, in addition, a copy
of the minutes of each committee meeting and all the
documentation provided for each committee meeting is
made available to all directors.
The table below shows the high rate of attendance to board and committee meetings.
Attendance to the board and committee meetings in 2019
Committees
Directors
Average attendance
Individual attendance
Board Executive
Audit Appointments Remuneration
Risk
supervision,
regulation
and
compliance
Innovation
and
technology
Responsible
banking,
sustainability
and culture
97%
93%
98%
92%
98%
97%
97%
94%
_
_
13/13
11/11
Ms Ana Botín-Sanz de Sautuola y
O'Shea
18/18
38/42
Mr. Bruce Carnegie-Brown
17/18
34/42
Mr José Antonio Álvarez Álvarez
18/18
42/42
_
_
_
Ms. Homaira Akbari
18/18
_
13/13
Mr Ignacio Benjumea Cabeza de Vaca 18/18
42/42
Mr Javier Botín-Sanz de Sautuola y
O’Shea
Mr Henrique de CastroA
Ms Sol Daurella Comadrán
18/18
8/8
17/18
_
_
_
Mr Guillermo de la Dehesa Romero
18/18
42/42
Mr Rodrigo Echenique GordilloB
18/18
10/15
Ms Esther Giménez-Salinas i
ColomerC
18/18
_
Mr Ramiro Mato García-Ansorena
18/18
42/42
Ms Belén Romana García
18/18
38/42
Mr Álvaro Cardoso de Souza
Mrs Pamela WalkdenD
15/18
3/3
_
_
_
_
3/3
_
_
_
_
13/13
13/13
_
2/2
_
_
_
_
_
12/13
13/13
6/7
3/3
_
_
_
_
_
_
_
_
_
_
11/11
14/14
_
3/3
11/11
11/11
_
_
_
_
_
_
_
_
_
_
_
14/14
14/14
14/14
12/14
_
4/4
3/4
4/4
4/4
4/4
_
2/2
4/4
_
_
_
4/4
_
4/4
_
_
4/4
4/4
_
_
3/4
_
_
4/4
4/4
4/4
3/4
_
A. Member of the board since 17 July 2019; member of the innovation and technology committee since 23 July 2019, member of the audit committee since
21 October 2019 and member of the remuneration committee since 29 October 2019.
B. Left the executive committee on 1 May 2019 and is member of the appointments committee since that date.
C. Member of the appointments committee since 29 October 2019.
D. Member of the board and of the audit committee since 29 October 2019.
186
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
The following table shows the average dedication of our
directors to the board and committees:
Average dedication our directors to the board and
committes
Average of
hours per
meeting of the
membersA
Average of
hours per
meeting of the
chairB
Meetings
per year
Board
Executive
committee
Audit committee
Appointments
committee
Remuneration
Committee
Risk supervision,
regulation and
compliance
Committee
Responsible
banking,
sustainability and
culture Committee
Innovation and
technology
Committee
18
42
13
13
11
14
4
4
120B
210
130
52
44
240B
420
260
104
88
144
288
20
16
40
32
A. Includes the hours of preparation and attendance at meetings.
B. Of the 10 ordinary meetings held.
On average, each of our directors has dedicated
approximately 50 days per year to their role as director
(including their participation in the different committees),
and 5 days for each board meeting, working daily 8 hours.
Directors must inform the appointments committee of any
professional activity or position for which they are going to
be proposed, so that the time commitment to the Group can
be assessed on an ongoing basis, and any possible conflict
of interest derived from such position can be verified.
Additionally, the annual suitability reassessment made by
our appointments committee (see in section 4.6
'Appointments committee activities in 2019') allows us to
keep up to date all information relating to the estimated
time dedicated by directors to other positions and/or
professional activities and to confirm their capacity to
exercise good governance as directors of the Bank.
This allows the Bank to verify compliance with applicable
legal requirements regarding the maximum number of
company boards to which our directors may belong at the
same time (no more than one executive position and two
non-executive positions, or four non-executive positions,
including positions held in the same Group as a single
position and not including positions held at non-profit
organisations or entities that do not pursue commercial
activities).
Training of directors and induction programmes for
new directors
Given the board´s commitment to continuously improve its
functioning, an ongoing knowledge update and training
programme for the board is in place, which is prepared at
the beginning of each year and covers topical matters.
In 2019, seven training sessions were provided both by
internal and external speakers.
Among others, the training programme included items
relating to the publication of regulations concerning IFRS 16
(Leases) as well as IFRS 17 (Insurance Contracts) and their
impact on the Group; regulatory and economic capital, as
well as the Group's capital strategy; an explanation on the
Group's new reporting to the market structure; an
explanatory session on the Ebury investment opportunity
prior to its approval; the responsible banking agenda,
including a specific session on climate change; an update on
anti-money laundering; the Agile working methodology; a
review of the Risk Appetite Statement in 2019 and an
informative session on new ways of working.
In addition, the board has robust induction and
development programmes for new directors to develop
their understanding of the Group’s business, including
governance rules, where key members of the management
of the Group provide detailed information on their areas of
responsibility, while addressing any specific development
needs identified in the director's suitability assessment
process. In 2019 and in early 2020, Mr Henrique de Castro
and Mrs Pamela Walkden completed their induction
programmes, respectively. These programmes were
designed for them on the basis of their experience and the
specific induction needs identified during their assessment
processes.
In 2019, as a result of the annual assessment of the board
and its committees functioning, the board approved, among
others, the development of induction programmes that
incorporate visits to the Bank´s main subsidiaries, and that
cover training on country-specific macroeconomic
environment, business activities and regulation.
Assessment of the board
The board conducts a yearly assessment of its functioning
and the effectiveness of its work. At least once every three
years, the assessment process is conducted by an external
independent consultant, whose independence is assessed
by the appointments committee. The last external
assessment took place in 2017.
Action Plan following the 2018 assessment
In 2018, the board assessment was carried out internally
and the overall review was positive in terms of outcome and
key findings. The exercise resulted in an action plan for
further continuous improvement in board effectiveness,
which focused mainly on the composition and organisation
of the board, board dynamics and internal culture and the
functioning of board committees.
During 2019, the implementation of the action plan was
monitored by the appointments committee and the plan
was successfully completed and implemented, enhancing
the overall functioning and effectiveness of the board,
which was periodically informed of the status of these
actions.
2019 assessment
In 2019, the board conducted the assessment internally.
The scope of the assessment included the functioning of the
board and all of its committees, as well as individual
performance of the chairman of the board of directors, the
chief executive officer, the lead independent director, the
secretary and each individual director.
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Table of Contents
The process, coordinated by the chairman of the Board and
the lead independent director, followed the methodology
and structure of previous assessments, based on a
confidential, anonymous questionnaire that was fully
completed by all of our board members and focused on the
following aspects:
• In relation to the board as a whole: (i) structure (size and
composition; skills and competencies), (ii) organisation
and functioning (planning of meetings, quality of
reporting, training areas, reporting from committees) and
(iii) dynamics and internal culture (including formal and
informal engagement between the Board and the
Executive).
• In relation to the board committees: (i) leadership, size
and composition, (ii) responsibilities and (iii) quality of
reporting and timeliness.
• Individual performance of the chairman of the board, the
chief executive officer, the lead independent director and
the general secretary.
• In relation to the performance of each individual director:
(i) willingness to speak up at meetings, (ii) contribution
and receptiveness of the views of others, (iii)
constructively challenging fellow directors and
management, (iv) applying a strategic mindset to board
and committee discussions and (v) bringing their own
skills and experience to the board.
The results of the 2019 assessment process, the findings
and specific actions of which were debated by the board
and its committees, demonstrated directors´ overall
satisfaction with improved effectiveness, and in
particular revealed the following:
• The appropriate size and level of independence within the
board and committees, noting positive enhancements
to the depth and breadth of board skills through recent
appointments.
• The overall quality and timeliness of information
received, as well as the improvement made on agenda
planning and content, which helps directors to focus on
key strategic and business issues.
• The overall rigour and depth of induction programs for
new directors.
• The open and transparent discussions and constructive
challenge of senior management during meetings and
the importance of having visibility of emerging talent to
ensure effectiveness of the internal succession plans.
• The effective leadership and operation of committees in
supporting the board and the ongoing need to ensure
time is allowed to cover the topics scheduled.
• The positive overall performance of the chairman of the
board, CEO, lead independent director and general
secretary and the high degree of confidence in these
individual's competence to serve their roles to a high
standard.
As a result of the assessment, on 27 February 2020, the
board, with the prior report of the appointments committee,
approved an action plan with improvements in the
following areas:
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2019 Annual Report
1
• Structure of the board: As a part of any future Board
refreshment, consider strengthening board composition
to increase its experience in financial and auditing,
technology and coverage of Latam and Mexican markets.
• Organisation and functioning of the board:
• Continue to monitor the proper balance between the
mandatory regulatory agenda and business topics, the
continued quality of Board and Board Committee
papers covering material matters and associated
analysis, distributed -sufficiently in advance to
facilitate challenge. Ultimately this will continue to
help ensure that board time is used optimally given the
increasing demands and challenges faced given the
uncertain economic and geo-political environment.
• Continue to develop directors' ongoing training,
development and knowledge refreshment programs to
ensure that they include relevant matters, resulting in
the constant update of their knowledge and the proper
performance of their duties.
• Board dynamics and internal culture: continue to provide
dynamic and agile opportunities, inside and outside the
boardroom, for the board to develop its interaction with
senior executives and broader talent. This will include
engaging local teams during country visits, ultimately
ensuring confidence in internal succession plans.
• Board committees:
• Keep the current composition of the executive
committee under review, especially taking into account
the ongoing reform of the Spanish Corporate
Governance Code, where the recommendation to have
an executive committee aligned with the composition
of the board may change.
• Further optimise the role and -functioning of the board
innovation and technology committee- given the
complementary work of the International Advisory
Board and keep under review the coordination
mechanisms between their respective roles.
Other improvements in governance
Given the key importance of ensuring that changes in the
senior management are smooth, ensuring continuity and
stability, during 2019 the appointments committee
performed an overall review of the succession planning
process both for the directors and the key managerial roles
to identify areas of improvement. These improvements
were included in the updating of the succession policy for
managerial positions throughout the Group, approved by
the board on 27 February 2020, and will also be included in
the updating of the policy for the selection, suitability
assessment and succession of directors to be submitted to
the board for approval, based on the proposal of said
committee, in March 2020. The succession planning review
resulted in an improved process with a clear methodology
and responsibilities' allocation, as well as overall
effectiveness monitoring and controls. It also provides for
regular reporting to the board, with pre-defined risk-based
indicators to be analysed at an appropriate level of detail,
which will ensure supervision of the process effectiveness
and of the risks related to key roles succession.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
4.4 Executive committee activities
in 2019
Composition
Composition
Chairman
Ms Ana Botín-Sanz de Sautuola y
O’Shea
Category
Executive
Mr José Antonio Álvarez Álvarez
Executive
Mr Bruce Carnegie-Brown
Independent
Members
Mr Ignacio Benjumea Cabeza de Vaca Other external
Mr Guillermo de la Dehesa Romero
Other external
Mr Ramiro Mato Garcia-Ansorena
Independent
Ms Belén Romana Garcia
Independent
Secretary Mr Jaime Pérez Renovales
During 2019, Mr Rodrigo Echenique stepped down as a
member of the committee.
Functions
The executive committee is a basic instrument for the
corporate governance of the Bank and its Group. It exercises
by delegation all the powers of the board, except those
which cannot be delegated pursuant to the law, the Bylaws
or the Rules and regulations of the board. This allows the
board to focus on its general supervisory function. Oversight
of the executive committee is ensured through regular
reports submitted to the board on the principal matters
dealt with by the committee and by making available to all
directors the minutes of its meetings and all the supporting
documentation made available to it.
How the committee works
The board of directors determines the size and qualitative
composition of the executive committee, adjusting to
efficiency criteria and reflecting the guidelines for
determining the composition of the board. The executive
committee, although it does not exactly replicate the
qualitative composition of the board of directors, since the
presence of all executive directors must be combined with a
size that allows an agile development of their functions, is
aligned with having a majority of external directors,
including three independent directors. The secretary of the
board is also the secretary of the executive committee.
The executive committee meets as many times as it is
called to meet by its chairman or by the vice chairman in her
absence. It generally meets once a week.
'Proceedings of the committees' in section 4.3 above
contains further details on the general rules applicable to
the functioning of the board committees.
Main activities in 2019
During 2019 the executive committee took action relating
to business of the Group, the main subsidiaries, risk
matters, corporate transactions and the main matters that
are subsequently submitted to the full board:
• Earnings: The committee was kept up to date on Group
earnings, and their impact on investors and analysts.
• Business performance: The committee was kept
continuously and fully informed of the performance of
the Group’s various business areas, through management
reports or specific reports on determined subjects
submitted. It was also informed of various projects
relating to the transformation and development of the
Group’s culture (Simple, Personal and Fair).
• Information reported by the chairman: The chairman of
the board of directors, who also chairs the executive
committee, regularly reported on key aspects relating to
Group management, strategy and institutional issues.
• Corporate transactions: The committee analysed and,
where applicable, approved corporate transactions
carried out by the Group (investments and divestments,
joint ventures, capital transactions, etc.).
• Banco Popular: The committee continously monitored
Banco Popular integration process and its associated risks
and mitigating controls.
• Risks: The committee was regularly informed about the
risks facing the Group and, within the framework of the
risk governance model, made decisions about
transactions that had to be approved by it due to their
amount or relevance.
• Subsidiaries: The committee received reports on the
performance of the various units and, in line with current
internal procedures, authorised transactions and
appointments of directors and some key positions of
subsidiaries.
• Capital and liquidity: The committee received frequent
information on the performance of capital ratios and of
the measures being used to optimise these ratios, in
addition to reviewing regulatory plans.
• Talent and culture: The committee received ongoing
reports of the implementation of the corporate culture
and values within the Group, including the results of the
Annual Engagement Survey.
• Activities with supervisors and regulatory matters: The
committee was regularly informed of the initiatives and
activities of supervisors and regulators, in addition to
projects to ensure compliance with its recommendations
and regulatory changes.
• Governance models: The committee approved the
governance policy for factories and investees.
• Issuances by delegation from the board: Under the
delegation conferred by the 2019 AGM, and the
subsequent sub-delegation of the board of directors'
powers in its favour, the committee resolved to issue
preferred securities contingently convertible into newly
issued ordinary shares of the Bank and to make other
debt issuance.
In 2019, the executive committee held 42 meetings. 'Board
and committees attendance' in section 4.3 provides
information on the attendance of committee members at
189
Report on the independence of the external auditor
The audit committee has verified the independence of the
external auditor, at its meeting of 24 February 2020 and
prior to the issuance of the 2019 auditor’s report on the
financial statements. This verification was conducted in line
with the terms established under section 4.f) of article 529
quaterdecies of the Spanish Companies Act, and under
article 17.4.c)(iii) of the Rules and regulations of the board,
concluding that, in the committees’ opinion, there are no
objective reasons for doubting the independence of the
external auditor.
To evaluate the independence of the external auditor, the
committee has considered the information included under
section 'Duties and activities in 2019' below on the
remuneration of the auditor for audit services and any other
services and the written confirmation from the external
auditor itself confirming its independence with respect to
the Bank under the applicable European and Spanish
legislation, the SEC rules and the rules of the Public
Company Accounting Oversight Board (PCAOB).
Proposed re-election of the external auditor for 2020
As indicated in section 3.6 'Our coming 2020 AGM', the
board of directors, following the proposal of the audit
committee, has submitted to our 2020 AGM the re-election
of PwC as external auditor for 2020. In case that PwC is re-
elected, and Mr. Esnal continues as the lead partner in
auditing the accounts, this would be his last year as lead
partner of the auditor, according to the Spanish Law on
Auditing.
Table of Contents
those meetings and the average estimated time dedicated
by each member of the committee to prepare for, and
participate in, meetings held in 2019.
4.5 Audit committee activities in
2019
This section constitutes the audit committee activities
report prepared by the committee on 24 February 2020 and
approved by the board of directors on 27 February 2020.
Composition
Composition
Chairman Ms Belen Romana Garcia
Ms Homaira Akbari
Mr Henrique de Castro
Members
Category
Independent
Independent
Independent
Mr Ramiro Mato García-Ansorena
Independent
Mrs Pamela Walkden
Independent
Secretary Mr Jaime Pérez Renovales
The board of directors has appointed the members of the
committee bearing in mind their knowledge, aptitude and
experience in relation to the committee's scope and
responsibilities.
Specifically, Ms Belén Romana García, the committee’s
chairman, is considered to be a financial expert, as defined
in SEC Regulation S-K, based on her training and expertise
in accounting, auditing and risk management, and as a
result of having held various positions of responsibility at
entities in which knowledge of accounting and risk
management was essential.
For further information about the skills, knowledge and
experience of each of the committee members, see section
4.1 'Our directors' and 'Board skills and diversity matrix' and
'Committees skills and diversity matrix' in section 4.2.
During 2019, Mr Carlos Fernández stepped down as a
member of the committee. Mr Henrique de Castro and Mrs
Pamela Walkden were appointed new members of the
committee on 21 October 2019 and 29 October 2019,
respectively.
External auditor
Our external auditor is PricewaterhouseCoopers Auditores,
S.L. (PwC) with registered office in Madrid, Paseo de la
Castellana, no. 259 B, with Tax ID Code B-79031290 and
registered in the Official Registry of Auditors of Accounts
(Registro Oficial de Auditores de Cuentas) of the Accounting
and Audit Institute (Instituto de Contabilidad y Auditoría de
Cuentas, (ICAC)) of the Ministry for Economy with number
S0242.
The lead partner is Mr Alejandro Esnal. As an audit leader
for banking, he participates actively in committees and
working groups of the sector and collaborates proactively
with the financial regulation department, on matters such
as the restructuring of the sector or the strengthening of
banking practices.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Duties and activities in 2019
This section contains a summary of the audit committee’s activities in 2019, classified in accordance with the committee’s duties.
Duties
Actions taken
Financial statements and other financial and non-financial information
• Review the financial
• Reviewed the individual and consolidated financial statements and directors´ reports for 2019 and endorsed
statements and other
financial and non
financial information
their content, prior to their authorisation for issue by the board, and ensured compliance with legal
requirements and the proper application of generally accepted accounting principles and that the external
auditor issued the corresponding report with regard to the effectiveness of the Group’s system of internal
control of financial reporting (ICFR).
• Endorsed quarterly the financial information statements dated 31 December 2018, 31 March, 30 June and 30
September 2019, respectively, prior to their approval by the board and their disclosure to the markets and to
supervisory bodies.
• Reviewed other financial information such as: annual corporate governance report; DRA filed with CNMV; Form
20-F with the financial information of 2018, filed with SEC; the half-yearly financial information filed with
CNMV and with SEC in Form 6-K, and the Group’s interim consolidated financial statements specific to Brazil.
• Analysed the goodwill ascribed to Santander UK and determination of an accounting impairment as a result. To
do this, review of the change in the outlook for Santander UK as a result of a challenging regulatory
environment, including the various negative impacts of the Banking Reform Act (ring-fencing), the competitive
pressure in the country and the impact that uncertainty relating to Brexit has had on UK economic growth
• Reviewed the non-financial and diversity information that the Bank must disclose pursuant to applicable legal
provisions.
• Received information from the Group’s tax advisory unit regarding the tax policies applied, in compliance with
the Code of Good Tax Practices and submitted this information for the board of directors.
• Report to the board
about the tax policies
applied
Relationship with the external auditor
Auditing the financial statements
• Receive information on
the audit plan and its
implementation
• Obtained confirmation from the external auditor that it has had full access to all information, to conduct its
activity.
• Discussed improvements in the reporting of financial information resulting from changes to accounting
standards, and best international practices.
• Analysed the detailed information on the planning, progress and execution of the audit plan and its
implementation.
• Analysed the auditor’s reports for the annual financial statements prior to the external auditor’s report to the
board of directors.
• Relations with the
external auditor
• The external auditor attended 12 of 13 committee meetings held in 2019, serving as a channel of
communication between the external auditor and the board.
• The committee met two times with the external auditor without the presence of the Bank’s executives relating
to the audit work.
• Assessment of the
auditor’s performance
• Performed an evaluation of the external auditor and how it has contributed to the integrity of the financial
information considering, amongst others, its work and the opinion of the different units and divisions. In this
evaluation, the committee was informed by the auditor and also analysed the results of any inspections
carried out by the regulators on PwC.
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Table of Contents
Duties
Independence
• PwC’s remuneration for
audit and non- audit
services
• Non-audit services.
Assess threats to the
independence and the
safeguard measures
Actions taken
• Monitored the remuneration of PwC; the fees for the audit and non-audit services provided to the Group that
were as follows:
EUR million
2019
98.2
7.4
0.7
2.3
108.6
2018
92.1
6.8
0.9
3.4
103.2
Audits
Audit-related services
Tax advisory services
Other services
Total
The 'Audits' heading includes mainly, audit fees for the Banco Santander, S.A. individual and consolidated
financial statements, as the case may be, of the companies of the Group, the integrated audits prepared for the
annual report filling in the Form 20-F required by the U.S. Securities and Exchange Commission (SEC) for those
entities currently required to do so, the internal control audit (SOx) for those required entities, the audit of the
consolidated financial statements as of 30 June and, the regulatory reports required by the auditor corresponding
to the different locations of Santander Group.
The main fees included in 'Audit-related services' heading correspond to the issuance of comfort letters or other
reviews required by different regulations in relation to securitization and other matters.
2017
88.1
6.7
1.3
3.1
99.2
The amount of fees paid for non-audit works and the percentage they represent of all fees invoiced to the company
and/or its group a is as follows:
Amount of non-audit work (EUR thousand)
Amount of non-audit work as a % amount of audit work
In 2019, the Group commissioned services from audit firms other than PwC for an amount of EUR 227.6
million (173.9 and 115.6 EUR million in 2018 and 2017, respectively).
• Reviewed services rendered by PwC, and verified its independence. For these purposes:
199
0.2%
2.6%
Company
Group
companies
2,824
Total
3,023
2.8%
• Verified that all services rendered by the Group’s auditor, including audit and audit-related services, tax
advisory services and other services detailed in the section above, met the independence requirements set
out in the applicable regulation.
• Verified the ratio of fees received during the year for non-audit and audit-related services to total fees
received by the auditor for all services provided to the Group, with this ratio for 2019 standing at 2,8%
• Average fees paid to auditors in 2019 for non-audit and related services account for 12% of total fees paid as
a benchmark according to available information on the leading listed companies in Spain.
• Verified the ratio of fees paid for all items relating to the services provided to the Group to total fees
generated by PwC as a firm in 2019. Group’s total fees paid are less than 0,3% of PwC’s total revenue in the
world.
• Reviewed the banking transactions performed with companies related to PwC, concluding that no
transactions have been carried out that compromise PwC’s independence.
• External auditor
independence report
• After considering the information detailed above, the committee issued the 'Report on the independence of
the external auditor', which information is provided at the beginning of this section.
Re-election of the external auditor
• Re-election of the
external auditor
Internal audit function
• Assess the performance
of Internal audit
function
• Proposed to the board, for subsequent submission to the 2020 AGM, the re-election of PwC as the external
auditor of the Bank and its consolidated Group for 2020.
•
•
Supervised the internal audit function and ensured its independence and efficacy throughout 2019.
Reported on the progress of the internal audit plan, allowing the committee to have an exhaustive control on
Internal audit recommendations and ratings of the different units and corporate divisions. The chief audit
executives of the main units and corporate divisions have reported at least once to the committee during 2019
and the intention is to maintain this discipline for 2020.
• Representatives of the Internal Audit division attended 12 of 13 meetings held by the audit committee in 2019;
one of them with the chief audit executive without the presence of other executives or the external auditor.
• Proposed the budget of internal audit function for 2020, ensuring that it has the material and human resources
necessary to carry out its function.
• Reviewed the annual audit plan for 2020, based on a comprehensive risk assessment, and submitted it to the
board for approval.
• Received regular information of the internal audit activities carried out. In 2019, there was an improvement in
the overall distribution of audit ratings, in part due to continued focus on building a stronger control
environment. All audit reports issued were subject to additional scrutiny by the committee with the relevant
business areas required to present their action plans to it.
• Reviewed the application of the measures included in the strategic internal audit plan for the 2019-2022
period.
• Assessed the adequacy and effectiveness of the internal audit function when performing its mission, as well
as the chief audit executive’s performance in 2019, which was reported to the remuneration committee and to
the board in order to establish his variable remuneration.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Duties
Actions taken
Internal control systems
• Monitor the efficacy of
internal control systems
• Whistleblowing channel
• Received information on the process of evaluating and certifying the Group’s internal control model (ICM) for
2018 and assessed its effectiveness, in compliance applicable regulations with the CNMV ICFR and SEC
Sarbanes-Oxley Act (SOX). The main focus during the year was the reduction of risks associated with risk
control. To this end specific remediation plans are in force and regular updates are being provided to the
committee.
• Reviewed the effectiveness of the Bank’s internal controls on the generation of financial information contained
in the Group’s consolidated annual report filed in the US (Form 20-F) for 2018, as required by the SOX,
concluding that, in its opinion, the Group maintained effective internal control over said financial information,
in all material aspects.
• Received information from the Compliance & Conduct area about the activity of the whistleblowing channel
("Canal Abierto") specially in regard to issues relating to questionable financial and accounting practices and
the process of generating financial information, auditing and internal controls, verifying that in 2019 there was
no claim regarding these issues filed through this channel.
• Coordination with Risk
• Developed different activities to ensure that the internal audit plan is properly addressed towards the relevant
risks of the Group and joint meetings with board risk supervision, regulation and compliance committee in
order to share information regarding model risk, IT and obsolescence risk, whistleblowing, policy on
outsourcing of services, implementation of the EBA Guidelines and other matters.
• Other activities
• The committee was informed of the progress made on the Group's digital strategy and the Bank's policies of
Related-party and corporate transactions
third-party suppliers.
• Creation of entities in
countries considered tax
havens
• Endorsement of a criteria for the approval of the creation or acquisition of shareholdings in entities domiciled
in countries or territories which have the consideration of tax havens, in line with the Bank’s commitment to
limit and control the reputational, tax and legal risks arising from investments in entities domiciled in tax
havens.
• Approval of related
party transactions
• The committee was informed by the head of Tax unit about the activities of the of-shore entities of the Group
established according to current Spanish regulation. See note 3 c) in the 'Notes to the consolidated annual
accounts'.
• Reviewed that the transactions carried out by the Bank with related parties did not meet the terms envisaged
by law and in the Rules and regulations of the board and did not require approval from the governing bodies.
No member of the board of directors, direct or indirectly, has carried out any significant transactions or any
transaction on non-customary market conditions with the Bank. The committee has examined the information
regarding related party transactions in the financial statements. See section 4.12 'Related-party transactions
and conflicts of interest'.
• Reviewed, and with its favourable report, submitted to the board for its approval the update of the policy for
admission, authorisation and monitoring of financial transactions with directors and members of senior
management of the Bank.
• Transactions involving
structural or corporate
modifications
• Reviewed the transactions involving structural or corporate modifications planned by the Group during 2019
prior to the submission to the board of directors, analysing their economic conditions and the accounting and
internal audit impact.
Information for the general shareholders’ meeting and corporate documentation
• Shareholders
information
• Corporate
documentation for 2019
• At our 2019 AGM, Ms Belén Romana, acting as the committee’s chairman, reported to the shareholders on the
matters and activities within the purview of the audit committee.
• Drafted the report of the committee for the year 2019, which includes a section dedicated to the activities
carried out during the year, an analysis and assessment of the fulfilment of the functions entrusted to it, and
the priorities for 2020 identified following the assessment carried out by the board and its committees.
193
Table of Contents
Time devoted to each task
In 2019, the audit committee held 13 meetings. 'Board and
committees attendance' in section 4.3 provides information
on the attendance of committee members at those
meetings and on the estimated average time devoted by
them to preparing and participating in such meetings.
The chart below shows the distribution of the approximate
time dedicated to each task by the committee in 2019.
Annual assessment of the functioning of the
committee and fulfilment of the goals set for 2019
The committee’s effectiveness during 2019 was considered
as part of the overall internal assessment of board
effectiveness carried out internally this year. The committee
considered the findings and suggested actions resulting
from the review and related to the audit committee.
In 2019, the committee addressed all the challenges put
forward for the year and identified in the 2018 activities
report, especially regarding coordination with units and
divisions. Different activities have been conducted in order
to facilitate effective oversight, agree key matters and
sharing of Group expectations across the main geographies
of the Group with the participation of the Group audit
committee Chairman in different units’ audit committee
meetings held during 2019.
The second Santander audit committee Chairs convention
was held in May 2019 with a special focus on the following
key areas: Internal audit and the concept of the hub;
accounting and financial control and focus on internal
control environment; T&O with special attention to cyber
and obsolescence; the external auditor; the importance of
the internal control environment and risk assessment; and
the focus of supervisors on capital, models and governance
matters.
Also, the committee has strengthened its audit and financial
skills increasing its size (from four to five members). There
has been appropriate director training on financial and audit
topics, including amongst others, IRFS 16 and IRFS 17.
The self-assessment process positively rated both the
composition of the committee and the very high degree of
dedication among its members, as well as the chairman’s
leadership. The frequency of its meetings were also found
to be appropriate for its proper functioning and for the
performance of their duties of supporting, informing,
proposing and advising the board. Sufficient and accurate
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2019 Annual Report
documentation provided on the topics discussed
strengthened the quality of debate among members and
facilitated sound decision-making.
2020 priorities
The committee has identified the following priorities for
2020:
• The replacement of the committee Chair after four years
since her appointment (according to the Spanish
Companies Act and the Rules and regulations of the
board) and the ongoing effectiveness of the committee.
• Continue working on coordination with main units and
divisions developing mechanisms to share information on
a regular basis. Schedule the agenda of the committee to
ensure that key local topics and internal audit issues are
adequately covered.
• Continue working on the achievement of a cross view of
certain key topics by the so called ‘white books’, to ensure
a proper oversight and monitor units and divisions taking
into account the ratings provided by Internal Audit.
• Further strengthening of the internal control environment
risk assessment, digital transformation and relations with
third parties suppliers.
4.6 Appointments committee
activities in 2019
This section constitutes the appointments committee
activities report prepared by the committee on 24 February
2020 and approved by the board of directors on 27 February
2020.
Composition
Composition
Chairman Mr Bruce Carnegie-Brown
Ms Sol Daurella Comadrán
Category
Independent
Independent
Members
Mr Guillermo de la Dehesa Romero
Other external
Mr Rodrigo Echenique Gordillo
Other external
Ms Esther Giménez-Salinas i Colomer Independent
Secretary Mr Jaime Pérez Renovales
The board of directors has appointed the members of the
committee bearing in mind their knowledge, aptitude and
experience in relation to the committee's mission.
For further information about the skills, knowledge and
experience of each of the committee members, see section
4.1 'Our directors' and 'Board skills and diversity matrix' and
'Committees skills and diversity matrix' in section 4.2.
During 2019, Mr Carlos Fernández and Mr Ignacio
Benjumea stepped down as members of the committee.
Furthermore, Mr Rodrigo Echenique and Ms Esther
Giménez-Salinas i Colomer were appointed new members
of the committee on 1 May and 29 October 2019,
respectively.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Duties and activities in 2019
This section contains a summary of the appointments committee activities in 2019, classified in accordance with the committee’s
duties.
Duties
Actions taken
Appointments and removal of directors and committee members
• Selection, suitability
assessment and
succession policy and
renewal of the board and
its committees
• Updated the policy for the selection, suitability assessment and succession of directors to include the new
gender equality target for the board (presence of women of 40% to 60%).
• Ensured that the procedures for selecting board members guaranteed the individual and collective suitability
of directors, fostering diversity of gender, experience and knowledge, and conducted the relevant analysis of
the necessary competencies and skills for the position, and assessing the time and dedication required to
properly perform the role.
• Continued playing a leading role in the process on the appointment of both board members and top
management executives as well as succession planning, including the chairmanship of committees.
• Assessed the composition of the board committees to ensure continuity of appropriate skillset and experience,
overall stability and appropriate distribution for the continued development of their duties.
• Continued monitoring overall skills and competencies of the board of directors, including the need for
coverage of strategic markets for the Bank and ongoing need for technology, digital strategy, banking, finance
and regulatory experience and expertise.
• Performed continuous oversight on appointments of key positions and regular review of leadership succession
plans from a strategy perspective.
• Ensured that in any appointment proposal the selection of the candidate pool, associated interview process
and appointment decision actively took into account diversity.
• Appointment, re-
election, ratification and
removal of directors, and
committee members
• Examined the overall composition and skills of the board of directors and board committees to ensure that
they are appropriate and identified, utilising the skills matrix, the desired areas of expertise and experience
profiles for recruitment which informed the selection process.
• Analysed the candidates presented, as well as their credentials, and assessed their skills and suitability for the
position.
• Submitted a proposal to the board, for subsequent submission to the AGM, for the appointment of Mr
Henrique de Castro and the appointment by co-option of Mrs Pamela Walkden as new independent board
members, and the re-election of Mr Javier Botín, Mr Ramiro Mato, Mr Bruce Carnegie-Brown, Mr José Antonio
Álvarez and Ms Belén Romana.
• Took note of the resignation of Mr Carlos Fernández as director, before his tenure expired.
• Regarding the appointment of Mr Andrea Orcel as Group chief executive officer, in a joint appointment and
remuneration committee meeting held on January 2019, it was proposed to the board not to continue with
the appointment due to the reasons provided in the relevant material fact and other communications
published.
• Submitted proposals to the board regarding changes in the composition of the board committees, to further
strengthen their performance and support to the board in their respective areas, according to the best
international practices and our internal Rules and regulations of the board (see 'Board committees' in section
1.1).
• Submitted a proposal to the board for the appointment of Ms Nadia Schadlow as new member of the
international advisory board and, upon completion of one year of their term of office and in accordance with
the Bylaws, the re-election of the rest of its members (see section 4.11 'International advisory board').
• Analysed proposals for the updating and improvement of the selection, suitability assessment and succession
policy for directors, approved by the board on 27 February 2020.
• Continued the regular review and supervision of talent and succession plans from executive directors, senior
management and key positions throughout the Group. This helped to ensure that sufficiently qualified
personnel are available to allow for the execution of Group´s strategic plans without interruption, safe-guard
business continuity and avoid any relevant functions not being taken care of.
Succession planning
• Succession planning for
executive directors and
senior management
Verification of the status of directors
• Annual verification of
the status of directors
• Verified the classifications of each director (as executive, independent and other external) and submitted its
proposal to the board of directors for the purpose of its confirmation or review in the annual corporate
governance report and at the AGM. See section 4.2 'Board composition'.
• When assessing the independence of directors, the committee has verified that there is no significant business
relationship between the Group and the companies in which they are, or have previously been, significant
shareholders or directors and, in particular, with regard to the financing granted by the Group to these
companies. In all cases, the committee concluded that the existing relationships were not significant because,
among other reasons, the business relationships: (i) for business relationships consisting in financing: (a) do
not generate a situation of economic dependence in the relevant companies in view of the ability to substitute
such financing for other sources of funding, either bank-based financing or other, and (b)) are aligned with the
market share of Santander Group within the relevant market, and (ii) have not reached certain comparable
materiality thresholds used in other jurisdictions as reference: e.g. NYSE, Nasdaq and Canada’s Bank Act.
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Duties
Actions taken
Periodic assessment
• Annual suitability
• Assessed the suitability of the members of the board, the senior management, those responsible for internal
assessment of directors
and key function holders
• Potential conflicts of
interest and other
directors´professionals
activities
• Board self-assessment
process
Senior management
control functions and those holding key positions of the Group, ensuring that they have commercial and
professional integrity, and suitable knowledge and experience to perform their duties. In addition, the
committee concluded that the board members are capable of carrying out good governance of the Bank,
evaluating their attendance at the meetings of the board and of the committees of which they are members,
and having verified an average attendance of approximately 95.75%, without any of them presenting a level
of attendance at the board and the committees of which they are currently members below the minimum
threshold of 75%, so no further action by the committee was needed in this respect. They also have capacity
to make independent and autonomous decisions for the Group´s benefit.
• During 2019, the committee was not informed by any director of the Bank, and, to the best of its knowledge,
had no awareness, of any circumstance or situation that may harm the credit and reputation of the company,
that had to be considered by the committee.
• Examined the information provided by the directors regarding other professional activities or positions to
which they had been proposed concluding that such obligations did not interfere with the dedication required
as Bank directors and that they were not involved in potential conflicts of interest that could affect the
performance of their duties.
• In coordination with the executive chairman, the 2019 self-assessment was performed internally, without the
assistance of an external expert. The scope of the assessment included the board and all its committees, as
well as the Group executive chairman, the chief executive officer, the lead director, the secretary and each
director. See 'Self-assessment of the board' in section 4.3.
• Updated and submitted the board skills and diversity matrix to the board of directors for approval. See section
4.2 'Board skills and diversity matrix'.
• Assessment of senior
• The committee issued favourable opinions, among others, regarding the following appointments, agreed by
executive vice chairman
and other key positions
the board of directors:
• Mr Javier San Félix as head of the new global unit focused on payments services called Santander Global
Payments Service.
• Ms Marjolein van Hellemondt-Gerdingh as the new chief compliance officer (CCO) replacing Ms Mónica
López-Monís, appointed head of supervisory and regulatory relations.
• Mr José Luis de Mora as new head of Santander Consumer Finance, S.A. replacing Ms Magda Salarich.
In addition, the committee assessed favourably on the appointment of directors and members of senior
management of the main subsidiaries of the Group.
• Simplification and
• The committee issued a favourable opinion, regarding the creation of three new roles to manage the three
change management
structure. Simplified
organisational structure
geographies where the Bank operates. In order to improve co-operation and decision-taking in the execution
of the Group’s global strategy:
• Europe, led by Mr Gerry Byrne as head of Europe, with the country heads of Spain, Portugal, UK, Poland
and Consumer Finance reporting to him.
• South America, led by Mr Sergio Rial as head of South America, with the country heads of Chile, Argentina,
Uruguay and the Andean region reporting to him.
• North America, led by Mr Héctor Grisi with the country head of USA reporting to him.
Internal Governance
• Oversee internal
governance including
Group subsidiary
governance
• Assessed the suitability of a number of appointments and/or re-elections to Group’s subsidiaries subject to
the Group’s appointments and suitability procedure and oversee subsidiary Board composition to ensure that
they remain appropriately composed.
• Received periodic explanations of the new governance regulatory developments, and emerging governance
trends, and best governance practices and implications for the Group.
• Reviewed and submitted for board approval amendments to the Rules and regulations of the board of
directors, in line with the CNMV Technical Guide 1/2019 on Nomination and Remuneration committees of 20
February 2019.
• Reviewed a proposed approach for remunerating those Group board members who serve on subsidiary
boards in a non-executive capacity.
• Verified the monitoring of guidelines of the subsidiaries with the GSGM in relation to the board and board
committees of structure of the subsidiaries and their duties in line with best practices.
• Proposed and approved the appointment of lead Group-nominated directors sitting on subsidiary boards to
ensure that those persons representing the significant shareholder on subsidiary boards are suitable and fully
aware of their duties and responsibilities.
Information for the general shareholders’ meeting and corporate documentation
• Shareholders
information
• At our 2019 AGM, Mr Bruce Carnegie-Brown acting as the committee’s chairman, reported to the
shareholders on the matters and activities within the purview of the committee.
• Received an overview of the highlights and results from the 2019 AGM.
• Reviewed the work undertaken jointly by the Lead Independent Director and the Shareholders and Investor
Relations team, as well as feedback from the investors and shareholders regarding the Group's corporate
governance arrangements.
• Corporate
documentation for 2019
• Drafted the report of the committee for the year 2019, which includes a section dedicated to the activities
carried out during the year, an analysis and assessment of the fulfilment of the functions entrusted to it, and
the priorities for 2020 identified following the assessment carried out by the board and its committees.
• Reviewed the annual corporate governance report.
196
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Time devoted to each task
In 2019, the appointments committee held 13 meetings.
'Board and committees attendance' in section 4.3 provides
information on the attendance of committee members at
those meetings and on the estimated average time devoted
by them to preparing and participating in such meetings.
The chart below show the distribution of the approximate
time dedicated to each task by the committee in 2019.
Annual assessment of the functioning of the
committee and fulfilment of the goals set for 2019
The committee’s effectiveness during 2019 was considered
as part of the overall internal assessment of board
effectiveness carried out internally this year. The committee
considered the findings and suggested actions resulting
from the review.
In 2019, the committee addressed all the challenges put
forward for the year and identified in the 2018 activities
report.
Different activities have been conducted on the Bank’s
cultural transformation. The committee received
information about the Talent Development Programs and
Human Resources initiatives focused on training and
adapting the workforce of Santander to future needs.
In terms of diversity, we have moved to full gender equality
at board level (presence of women of 40% to 60%) and Mr
Henrique de Castro and Mrs Pamela Walkden have been
appointed as new independent board members bringing
broader diversity to the Board, in line with the best practice.
Following the aim to continuously improve the
effectiveness of the board and the committees, the
committee had an active role with the review and
discussion of the annual board and committees
effectiveness assessment, and subsequent follow-up of its
implementation plan. The committee continued driving
improvement of corporate governance across the Group,
focusing especially on the effective functioning of the board
and adequate oversight and control of its subsidiaries'
operations.
The committee continued with the regular review of
succession plans of members of the board and senior
management relating to current and future strategy and
potential challenges the business may face.
The self-assessment process positively rated the overall
effectiveness of the committee, including the chairman’s
leadership. Sufficient and accurate documentation provided
on the topics discussed strengthened the quality of the
debate among members and sound decision-making.
2020 priorities
The committee has identified the following priorities for
2020:
• Corporate governance and subsidiary governance:
driving continuous improvement of corporate governance
across the Group, focusing especially on the effective
composition and functioning of board of directors and
adequate oversight and control of its subsidiaries
operations. Follow up on governance developments
(trends, regulation, and best practices) and the
implications for the Group, and keep under continuous
review the emerging skill sets and experience required of
board members. The committee will continue receiving
feedback from investors and analysts provided to the
Chairman, to the head of Investors Relations and to the
head of Internal governance.
• Succession planning: continuous focus on succession
management and regular review of plans having regard
to current and future strategy and potential challenges
the business may face when identifying future leadership
needs and the development of internal succession.
• Diversity: the Bank will continue to strive toward gender
balance and broader diversity. Focus on subsidiaries
oversight in this respect.
4.7 Remuneration committee
activities in 2019
This section constitutes the remuneration committee
activities report prepared by the committee on 24 February
2020 and approved by the board of directors on 27 February
2020.
Composition
Composition
Category
Chairman Mr Bruce Carnegie-Brown
Independent
Members
Mr Ignacio Benjumea Cabeza de Vaca Other external
Ms Sol Daurella Comadrán
Independent
Mr Guillermo de la Dehesa Romero Other external
Mr Henrique de Castro
Independent
Secretary Mr Jaime Pérez Renovales
The board of directors has appointed the members of the
committee bearing in mind their knowledge, aptitude and
experience in relation to the committee's mission.
For further information about the skills, knowledge and
experience of each of the committee members, see section
4.1 'Our directors' and 'Board skills and diversity matrix' and
'Committees skills and diversity matrix' in section 4.2.
During 2019, Mr Carlos Fernández stepped down as a
member of the committee, and Mr Henrique de Castro was
appointed new member of the committee on 29 October
2019.
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Duties and activities in 2019
This section contains a summary of the remuneration committee’s activities in 2019, classified in accordance with the committee’s
duties.
Duties
Action taken
Remuneration of directors
• Individual remuneration
of directors in their
capacity as such
• Individual fixed
remuneration for
executive directors
• Individual variable
remuneration for
executive directors
• Analysed the individual remuneration of directors in their capacity as such based on the positions held by the
directors on the collective decision-making body, membership on, and attendance at, the various committees,
and any other objective circumstances evaluated by the board.
• Submitted a proposal to the board to keep unchanged all the remuneration components.
• Proposed to the board to maintain the gross annual salary for executive directors in 2020 as in the prior year.
• Submitted a proposal to the board, for subsequent submission to the 2019 AGM, for the approval of a
maximum level of variable remuneration up to 200% of the fixed component for executive directors and
persons belonging to categories of staff whose professional activities (excluding control functions) have a
material impact on the risk profile of the Group (the 'Identified Staff' or 'Material Risk Takers').
• Determined the annual variable remuneration for 2018 payable immediately and the deferred amounts, part
of which are established as a maximum and are conditioned to compliance with long term objectives
established for executive directors. These are approved by the board, taking into account the directors´
remuneration policy, based on the individual level of achievement of the annual performance targets and the
weightings previously established by the board.
• As part of the directors´ remuneration policy, the committee submitted a proposal for the annual performance
indicators and targets to be used for the calculation of the annual variable remuneration for 2020, to be
approved by the board. In addition, it established the achievement scales for annual and multi-year
performance targets and their associated weightings, for submission to the board.
• Director’s remuneration
and executives
compensation
agreements
• Regarding the appointment of Mr Andrea Orcel as Group chief executive officer, in a joint meeting of the
appointment and remuneration committees held in January 2019, it was proposed to the board not to
continue with the appointment due to the reasons provided in the relevant material fact and other
communications published.
• Share plans
• Submitted a proposal to the board, for subsequent submission to the 2019 AGM regarding the approval of the
application of remuneration plans involving the delivery of shares or share options (deferred multiyear
targets variable remuneration plan, deferred and conditional variable remuneration plan, application of the
Group’s buy-out policy and plan for employees of Santander UK Group Holdings plc. and other companies of
the Group in the UK. A proposal for first year was the Digital Transformation Award designed to provide the
Group with a tool to attract and retain resources that drive long term share value creation through the
achievement of key digital milestones).
• Propose the directors'
remuneration policy to
the board
• Submission of a proposal to the board, for subsequent submission to a binding vote at the 2019 AGM,
regarding the approval of the directors´ remuneration policy for 2019, 2020 and 2021, and the committee
issued the required explanatory report regarding the directors' remuneration policy.
• Propose the annual
• Submission of a proposal to the board, for subsequent submission to a consultative vote at the 2019 AGM,
directors' remuneration
Report to the board
regarding the annual directors’ remuneration report.
• The committee assisted the board of directors in supervising compliance with the director remuneration
policy.
• Remuneration policy for
senior executive vice
presidents and other
members of senior
management
• The committee was informed by the lead independent director about contact with key shareholders and proxy
advisors on remuneration issues for executive directors.
• Scheduled one joint session with the risk supervision, regulation and compliance committee in order to verify
that the remuneration schemes factor in risk, capital and liquidity and that no incentives are offered to assume
risk that exceeds the level tolerated by the Bank, therefore promoting and being compatible with adequate
and effective risk management.
• Established the remuneration for members of senior management in terms of their fixed and variable annual
remuneration, submitting to the board the corresponding proposals for approval.
• Established the global annual variable remuneration for 2018 payable immediately and the deferred
remuneration of the main executive segments, in accordance with the level of achievement of the
quantitative and qualitative targets previously defined, as well as the individual remuneration of members of
senior management, based on the individual level of achievement of the annual performance targets and their
weightings as previously established by the board.
• Established the annual performance indicators to be used for the calculation of variable remuneration for
2020 to be approved by the board, and with the cooperation of the human resources committee, and
establishment, for submission to the board, the achievement scales for the annual and multi-year
performance targets and weightings.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Duties
Action taken
Remuneration of other executives whose activities may have a significant impact on the Group’s assumption of risks
• Remuneration for other
• Reviewed and discussed the analysis on fixed and variable remuneration ratios for control functions to ensure
executives who,
although not members
of senior management,
are identified staff
alignment with regulation.
• Established the key elements of the remuneration of identified staff.
• Reviewed and updated the composition of the identified staff in order to identify the persons within the Group
who fall within the parameters established for being included in such group.
• Submitted a proposal to the board, for subsequent submission to the 2019 AGM, regarding the approval of a
maximum level of variable remuneration up to 200% of the fixed component for certain Group employees
belonging to categories of staff whose professional activities have a material impact on the risk profile of the
Bank or the Group.
• Assist the board of
directors in supervising
compliance with
remuneration policies
• Reviewed the directors´ remuneration programmes ensuring that are appropriate taking into account the
Bank’s results, culture and risk appetite; and that no incentives are offered to assume risk that exceeds the
level tolerated by the Bank, therefore promoting adequacy and being compatible with effective risk
management.
• Informed the board of the content of the report issued by an external consultant assessing the remuneration
policy, in application of the provisions of Law 10/2014, which establishes that the remuneration policy of
credit institutions will be subject, at least once a year, to a central and independent internal evaluation, in
order to verify whether the remuneration guidelines and procedures adopted by the board of directors in its
supervisory function have been complied with.
• Assisted the board in its supervision of compliance with the remuneration policy for directors and other
members of the identified staff, as well as with any other Group's remuneration policies.
• Verified the independence of the external consultants contracted to assist the committee in the performance
of its duties.
• Reviewed the information of gender and equal pay within the Group, comparing it to both prior year data and
the targets set, and focusing on the concepts of gender pay gap (average pay comparison between men and
women) and equal pay gap (comparison of pay for the same job, level, and/or area – “equal pay for equal
work”), and identified areas of improvement.
Gender pay
Internal governance
• Governance
• Reviewed the action plan aimed to improve its effectiveness, drafted in view of the results of the board's
effectiveness assessment during 2018.
• Informed the board of the changes proposed to the Rules and regulations of the board of directors derived
from international best practices and the Technical Guide 1/2019 of the CNMV, on Nomination and
Remuneration committees.
• Reviewed the definition, impact and expected timeline of the European Union agreement to review executive
remuneration rules (compensation chapter of Capital Requirement Directive “CRD V”, updating "CRD IV")
Information for the general shareholders’ meeting and corporate documentation
• Shareholders
information
• At our 2019 AGM, Mr Bruce Carnegie-Brown acting as the committee’s chairman, reported to the
shareholders on the matters and activities within the purview of the committee during 2018.
• Corporate
documentation for 2019
• Drafted the report of the committee for the year 2019, which includes a section dedicated to the activities
carried out during the year, an analysis and assessment of the fulfilment of the functions entrusted to it, and
the priorities for 2020 identified following the assessment carried out by the board and its committees.
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Table of Contents
Time devoted to each task
In 2019, the remuneration committee held 11 meetings.
'Board and committees attendance' in section 4.3 provides
information on the attendance of committee members at
those meetings and on the estimated average time devoted
by them to preparing and participating in such meetings.
The chart below shows the distribution of the approximate
time dedicated to each task by the committee in 2019.
Annual assessment of the functioning of the
committee and fulfilment of the
goals set for 2019
The committee’s effectiveness during 2019 was considered
as part of the overall internal assessment of board
effectiveness carried out internally this year. The committee
considered the findings and suggested actions resulting
from the review and related to the remuneration
committee.
The self-assessment process rated the overall effectiveness
of the committee and the chairman’s leadership. Sufficient
and accurate documentation provided on the topics
discussed strengthened the quality of the debates among
members and sound decision-making. In particular, the
committee noted the increasing complexity associated with
remuneration practices and reiterated the need for the
committee to continue to find appropriate time on such
matters.
In 2019, the committee successfully addressed all the
challenges put forward for the year and identified in the
2018 activities report. Different activities have been
conducted in order to facilitate intragroup coordination,
such as gender pay gap and effective compensation.
In order to comply with the Group Subsidiary Governance
Model, a review of Group-wide remuneration practices was
carried out by the committee to assess alignment with local
practices and peers, as well as with the standards used by
the Group regarding the remuneration received by the non-
executive directors of Group subsidiaries.
The committee reviewed all proposed of off-cycle
compensation adjustments for senior management
members.
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2019 Annual Report
The committee has continued to monitor the gender pay
reporting analysis and identify areas of improvement.
The committee reviewed certain compensation schemes to
support the attraction and retention of key talent to help
drive digitalization, and the level of achievement of the long
term incentive metrics for the 2016 - 2018 period.
The committee also reviewed group-level compensation
policies and practices and assessed their effectiveness in
line with article 19 of the Rules and regulations of the
board.
Report regarding the director remuneration policy
As provided for under section 2 of article 529 novodecies of
the Spanish Companies Act, the remuneration committee
issues this report regarding the director remuneration policy
for 2020, 2021 and 2022 that the board of directors intends
to submit to binding approval of the shareholders at the
forthcoming AGM as a separate item of the agenda and
which is an integral part of this report. See section 6.4
'Director remuneration policy for 2020, 2021 and 2022 that
is submitted to a binding vote of the shareholders'.
Considering the analysis made in the context of producing
the 2019 annual report on director remuneration and its
continuous supervision task on remuneration policies, the
remuneration committee is of the opinion that the director
remuneration policy for 2020, 2021 and 2022, which is
expected to be submitted to the shareholders vote and is
included in section 6.4 below, conforms to the principles of
the Bank’s remuneration policy and to the by-law mandated
remuneration system.
Starting in 2020, progress made on our commitments in
responsible banking will be a qualitative adjustment
criterion in the assessment of remuneration senior
management.
2020 Priorities
The committee has identified the following priorities for
2020:
• The coordination with the remuneration committees of
the Group subsidiaries is an area of ongoing focus.
Monitoring the implementation and application of the
corporate policies regarding remuneration to ensure a
consistent approach in this respect.
• Progressive reduction of the gender pay gap within the
Group.
• Continuous focus on shaping compensation schemes
consistent with the Bank’s culture, meritocracy and other
corporate values.
• Review the Bank’s remuneration policies to ensure that
they are aligned with international best practice,
including ESG and non-financial Key Performance
Indicators (KPI’s) part of remuneration structures, and
that they enable talent attraction and retention.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
4.8 Risk supervision, regulation
and compliance committee
activities in 2019
This section constitutes the risk supervision, regulation and
compliance committee activities report prepared by the
committee on 17 February 2020 and approved by the board
of directors on 27 February 2020.
Composition
Composition
Category
Chairman Mr Álvaro Cardoso de Souza
Independent
Mr Ignacio Benjumea Cabeza de Vaca Other external
Members
Ms Esther Giménez Salinas i Colomer
Independent
Mr Ramiro Mato García-Ansorena
Independent
Ms Belén Romana García
Independent
Secretary Mr Jaime Pérez Renovales
Duties and activities in 2019
The board of directors has appointed the members of the
committee bearing in mind their knowledge, aptitude and
experience in relation to the committee’s mission.
For further information about the skills, knowledge and
experience of each of the committee members, see section
4.1 'Our directors' and 'Board skills and diversity matrix' and
'Committees skills and diversity matrix' in section 4.2.
This section contains a summary of the risk supervision, regulation and compliance committee’s activities in 2019, classified in
accordance with the committee’s duties.
Duties
Risk
Actions taken
• Assist the board in (i)
• The committee carried out an overview of the Group’s risks, and specific analyses by unit and risk type, and
defining the Group’s risk
policies, (ii) determining
the risk appetite
strategy and culture and
(iii) supervising their
alignment with the
Group’s corporate values
• Risk Management and
Control
assessed proposals, issues and projects relating to risk management and control.
• Submitted to the board the approval of the risk appetite statement, including proposals for new metrics.
Reviewed compliance with the limits on a quarterly basis.
• Received information about matters relating to the proper management and control of risks within the Group,
most notably the Risk Identification and Assessment (RIA) and the Risk Control Self-Assessment (RCSA), two of
the main tools for controlling these risks.
• Monitored risks derived from technological obsolescence and related to cybersecurity, including data leakage,
incident and vulnerability detection, patch management, network security and access control, amongst others.
The committee was informed on the status of the main IT developments and projects. Oversight was
coordinated with the innovation and technology committee, with which one joint session was held.
• Supervised the risks associated with the main corporate transactions analysed by the Bank and the different
mitigating measures proposed to address them. In particular, it monitored the risks associated with the
strategic investment in Ebury, one of the biggest UK-based trade and foreign exchange facilitator for small and
medium-sized companies.
• The Group chief financial officer (CFO) submitted the 2019 recovery plan to the committee, assessing the
Group’s resilience in scenarios of severe stress. The plan was submitted to the board of directors for approval.
In addition, the status of the 2019 resolution plan and proposal for 2020 was also presented to the committee.
• Supervised the alignment of the risk strategy with the 3-year strategic financial plan, P-22 (from 2020 to
2022), which covers, in qualitative terms and for the entire Group, the priorities and projects for the next three
years and, in quantitative terms, a financial plan for that period.
• Received frequent updates on the identified top risks being managed and the adequacy of mitigating controls.
• Analysed the risks and opportunities associated with emerging risks and how they affect the different
geographies and areas of risk, and the sectors related to climate change in particular. A report was provided to
the committee on the extractive industries sector including oil and gas, mining and the steel industries, and
also on the existing policies and exposure.
• The committee has maintained ongoing focus on the Banco Popular integration process (completed on time
without any significant problems) and, in particular, on the minimisation of risks such as technological,
reputational, operational, and execution.
• Special analysis has been developed on the Non-Performing Loans & Non-Performing Assets during 2019 and
a specific report on Leveraged Finance was presented to the committee for its review and discussion.
• Supported and assisted the board in conducting stress tests of the Bank. In particular, it assessed the
scenarios and assumptions to be used in such tests, analysing the results and the measures proposed by the
Risk function as a result.
• Received and discussed periodic market and structural risk updates of the Bank and counterparty risk review.
• Non-financial risks including legal risk, remained a key area of focus. Reviewed a deep dive on vendor risk to
allow members to gain a deeper understanding of issues.
• Carried out a deep-dive in the extractive industry sector, that covers oil and gas, coal and steel subsectors.
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Duties
Actions taken
• Supervise the Risk
• Ensured the independence and efficacy of the risk function and that sufficient human resources were duly
function
provided.
• At the year end, assessed the risk function and the performance of the chief risk officer (CRO) and shared its
assessment with the remuneration committee and the board, in order to establish the variable remuneration
payable to him.
• Collaboration to
• Scheduled one joint session with the remuneration committee in order to verify that the remuneration
establish rational
remuneration policies
and practices
schemes factor in risk, capital and liquidity and that no incentives are offered to assume risk that exceeds the
level tolerated by the Bank, therefore promoting and being compatible with adequate and effective risk
management.
• Analysed in conjunction with the remuneration committee, the factors used to determine the ex-ante risk
adjustment of total variable remuneration assigned to the units, based on how previously assessed risks
actually materialised.
• Reviewed the 2019 bonus pool and results of the exercise carried out annually to identify employees whose
professional activities had a material impact on the Group´s risk profile.
Capital and liquidity
• Assist the board in
• Reviewed the annual capital self-assessment report (ICAAP) prepared by the Finance department and
approving the capital
and liquidity strategies
and supervise their
implementation
Compliance and conduct
• Supervise the
Compliance and conduct
function
challenged by the Risk function in accordance with industry best practices and supervisory guidelines and
submitted this report to the board for approval. Moreover, a capital plan was drawn up in accordance with the
scenarios envisaged over a three-year time frame.
• Endorsed the Pillar III disclosures report, which was submitted to and finally approved by the board. The
report describes various aspects of the Group’s management of capital and risk and provides an overview of
the function; base capital and prescribed capital requirements; policies for managing the various risks
undertaken by the Bank from the standpoint of capital consumption; composition of the Group’s portfolio and
its credit quality, measured in terms of capital and the roll-out of advanced internal models.
• Assessed the liquidity plan (ILAAP), developed in the context of the Group’s business model and submitted for
approval by the board.
• Performed continuous monitoring of the capital levels and capital management. In addition to that,
monitored the project “Capital Tools” to comprehensively improve its management, ensuring that the capital
allocation is appropriate for all the risks assumed.
• Oversaw the completion of the annual compliance program (ACP), that now is now more mature and one of
the key processes of the Compliance and conduct function. The compliance program is supervised by the
board and the management team of the respective subsidiary, as well as validated by the Group Compliance
and conduct function.
• Assessed the Compliance and conduct function (including the analysis of the function’s staffing to ensure that
has the physical and human resources needed for the performance of its work) and the performance of the
chief compliance officer (CCO) and shared it with to the remuneration committee and the board in order to
establish her variable remuneration.
• Endorsed the appointment of the new CCO prior to its final approval by the board of directors.
• Reviewed that the corporate centre has the necessary components to ensure ongoing control and oversight of
the compliance and conduct model, establishing robust systems of governance and systematic reporting and
interaction with the local units in accordance with the Group’s subsidiary governance model.
• Monthly reports on the compliance function were provided to the committee as part of the risk and
compliance monthly report. Particularly informed on regulatory issues, product governance and consumer
protection, reputational risk, internal and external events, notifications and inspections by supervisors,
treasury shares etc.
• Regulatory Compliance
• Monitored the compliance with regulatory requirements regarding:
• Financial Crime
Compliance (FCC)
• The General Data Protection Regulation (GDPR) and the consolidation of the control framework.
• The finalization and improvement of the MiFID control framework for each local unit in collaboration with
other units.
• The Dodd Frank Title VII Update.
• Volcker's compliance programme has been adapted to the recent amendments introduced to the Rule and
the oversight of this regulation has continued in 2019.
• Oversaw the group´s compliance with Financial Crime related regulation, and among other things :
• Provided annual update on key actions and relevant risk across the group.
• Communicated and addressed recommendations and observations stemming from the annual
Independent Expert Report regarding Banco Santander S.A. in accordance with Spanish the Spanish Law
10/2010 and Royal Decree 304/2014 (anti-money laundering and counterterrorism financing)
• A new global head of FCC was appointed in January 2019. Further, the FCC team has been restructured to
have a more specialised knowledge covering the FCC Topics.
• During 2019, the Group has placed a special focus on optimisation of systems, issuance of policy
implementation guides and a new Anti Money Laundering (AML) training module.
• Product governance and
consumer protection
• Received an update on the status of customers’ complaints in the first half of 2019, managing 28 countries,
36 business units and 9 SCIB branches and action plans in place to address identified deficiencies and mitigate
detriment to customers.
• In a joint session with the remuneration committee, the committee received information about the progress
of the local action plans regarding internal sales force remuneration in the Group and an overview of the
assessment of the external sales force regarding their potential conduct risk impact.
• Received information on the risk management and main conclusions reached from the activities carried out by
the product governance and consumer protection unit.
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Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Duties
Actions taken
• Supervise the
whistleblower channel
(Canal Abierto)
• Promote and oversee the use of the Canal Abierto model (a specific way to run whistleblowing channels in
the Group). Through Canal Abierto, employees can report, on a confidential and, if wished, anonymous basis,
violations to the General Code of Conduct and behaviours not aligned with or contrary to the values of Simple,
Personal and Fair. The Canal Abierto aims to contribute to the Group´s cultural transformation by increasing
the awareness on the importance of Speaking Up so that it is creating a working environment where
employees can talk straight and be truly listened to.
• Review and report the measures taken in the different countries as a result of the use of whistleblowing
Governance
channels.
• Corporate governance
and internal governance
• Supported the appointments committee in its function of advising the board in relation to the corporate
governance and internal governance policy of the Bank and its Group.
• Reviewed the modification of the Terms of reference of the risk control committee and executive risk
committee in order to enhance committee best practices and simplify decision making processes.
• In relation to data management and governance, the committee reviewed the two key priorities, namely to
extend the data governance model beyond the risk data aggregation and risk reporting structure and to
simplify that governance.
• Received quarterly updates on the matters discussed at the responsible banking, sustainability and culture
committee by the chairman of this committee.
• In a joint session with the audit committee, reviewed the status of the internal audit plan and of the main
recommendations of the Bank, and an update on the Internal audit works performed on the risk corporate
division.
• Continuous monitoring of regulatory interactions helped ensure that the committee remained well engaged
on the main areas of regulatory interest.
• Focus on ongoing interactions with the regulators, including the Supervisory Review and Evaluation Process
(SREP).
• The committee was informed about the updates in relation to the new Interbank Offered Rates (IBORs) based
on alternative risk-free rates, which are being developed by the supervisors of the main jurisdictions.
• Drafted the activities report of the committee for 2019, which includes a section dedicated to the activities
carried out during the year, an analysis and assessment of the fulfilment of the functions entrusted to it, and
the priorities for 2020 identified following the assessment carried out by the board and its committees.
Supervisors
• Relations with
supervisors
Corporate documentation
• Corporate
documentation for 2019
Time devoted to each task
In 2019, the risk, supervision regulation and compliance
committee held 14 meetings. 'Board and committees
attendance' in section 4.3 provides information on the
attendance of committee members at those meetings and
on the estimated average time devoted by them to
preparing and participating in such meetings.
The chart below show the distribution of the approximate
time dedicated to each task by the committee in 2019A.
A. All regulatory and supervisory relations topics discussed in 2019, are
embedded in each task described in the chart.
Annual assessment of the functioning of the
committee and fulfilment of the goals set for 2019
The committee’s effectiveness was considered as part of the
overall internal assessment of board effectiveness carried
out internally in 2019. The committee followed up on all
organisational actions and improvements that were
launched as a result of the assessment carried out in 2018
and in particular:
• Ongoing focus on material risks and the potential impact
of their outcomes and continuous analysis of the
macroeconomic environment and early warning
indicators.
• Ensuring the proper coordination with other board
committees. The committee has examined, in
conjunction with the remuneration committee, whether
the incentives policy envisaged in the remuneration
scheme takes into account risk. Also, in a joint session
with the audit committee, the committee reviewed the
status of the Internal Audit Plan and an update on the
Internal Audit works on the Risk Corporate Division.
• Oversight of transformational projects (regulatory and
non regulatory), including the supervisory review and
evaluation process (SREP) and the updates in relation to
the new interbank offered rates (IBORs) based on
alternative risk-free rate.
The self-assessment process positively rated the very high
degree of dedication among its members, as well as the
chairman’s leadership. The frequency and duration of its
meetings were also found to be appropriate for its proper
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functioning although the committee noted the growing list
of issues to be addressed and the consequent need to
ensure adequate time allocation to the most relevant topics.
Sufficient and accurate documentation provided on the
topics discussed strengthened the quality of the debates
among members and sound decision-making.
2020 Priorities
The committee has identified the following priorities for
2020:
• Continued focus on Group top risks, early warning
indicators, impacts and mitigation actions in order to
assure that risks are appropriately managed with risk
profiles remaining within the board risk appetite limits.
• To be very alert on emerging/non traditional risks to
enable us to anticipate key strategic changes in the
business environment.
• Continued close coordination with other board
committees, including, among others, the responsible
banking, sustainability and culture committee, the
remuneration committee, the innovation and technology
committee and particularly the audit committee, in order
to ensure they all know and leverage areas of mutual
interest.
• Continue working on the effectiveness of the committee
making sure that its role is discharged in the most
tangible and effective manner.
4.9 Responsible banking,
sustainability and culture
committee activities in 2019
This section constitutes the responsible banking,
sustainability and culture committee activities report
prepared by the committee on 3 February 2020 and
approved by the board of directors on 27 February 2020.
Composition
Composition
Category
Chairman Mr Ramiro Mato García-Ansorena
Independent
Ms Ana Botín Sanz de Sautuola y
O´Shea
Executive
Ms Homaira Akbari
Independent
Mr Ignacio Benjumea Cabeza de Vaca
Other external
Members
Mr Álvaro Cardoso de Souza
Ms Sol Daurella Comadrán
Independent
Independent
Ms Esther Giménez Salinas i Colomer
Independent
Ms Belén Romana García
Independent
Secretary
Mr Jaime Pérez Renovales
The board of directors has appointed the members of the
committee bearing in mind their knowledge, aptitude and
experience in relation to the committee's mission.
For further information about the skills, knowledge and
experience of each of the committee members, see section
4.1 'Our directors' and 'Board skills and diversity matrix' and
'Committees skills and diversity matrix' in section 4.2.
Duties and activities in 2019
This section contains a summary of the responsible banking, sustainability and culture committee’s activities in 2019, classified in
accordance with the committee’s duties.
Duties
Actions taken
Responsible banking strategy
• Initiatives and challenges
of responsible banking
• The committee was informed of the different initiatives for facing the challenges of the new banking
environment and an inclusive and sustainable growth.
• Considered the key priority actions with respect to employees, customers, shareholders and the communities.
• Reviewed new metrics and targets, the progress on priorities, the agenda ahead and proposed commitments
related to responsible banking and the level of public dissemination of that information.
• Assisted the Board in ensuring responsible banking targets, metrics and commitments were embedded across
the group and measured effectively.
• The committee was informed about the progress made in the year on the implementation plans for the
priorities approved for 2019 in responsible banking. It was also informed about the priorities defined in
coordination with the countries for the period 2020 to 2022.
• In general, the committee coordinated with other board committees in relation to issues concerning corporate
culture and values, responsible banking practices and sustainability. This ensured that adequate and effective
control processes are in place and that risks and opportunities relating to sustainability and responsibility are
identified and managed, according to the guiding principles of the responsible banking governance approved
by the board.
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Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Duties
• Governance
Actions taken
• The committee was informed about the creation of the new Environmental and social risk management
function within the Risk area to ensure adequate and effective control processes are in place and risks and
opportunities related to sustainability and responsible banking are adequately identified and managed.
• The reputational risk function informed the committee about its oversight of potential reputational impacts
arising from environmental and social matters.
• The committee received regular updates by the different units and different initiatives to drive the responsible
banking agenda, reinforcing continuous communication and sharing of best practices and concerns.
• The chair of the risk, supervision, regulation and compliance committee reported quarterly to the committee,
within its scope of action, ensuring a global overview of key risks and opportunities in relation to responsible
banking matters.
• Commitment on
Sustainability goals
• Approved public commitments on sustainability goals to adapt to the new business environment and to
support an inclusive and sustainable growth, including climate change objectives for 2021 - 2025.
• Policies and internal
regulations
• Reviewed the environmental and social policies: energy, mining and metal, financing for sensitive sectors, soft
commodities and defense, updating the criteria for financing activities related to coal, for their approval by the
board.
• Analysed the scope and sufficiency of the sensitive sector policies to determine whether a certain matter or a
new policy should be introduced.
• The committee addressed the review of human rights policy, sustainability policy and Corporate Culture
Policy.
• The committee determined the new criteria to be applied at Santander Group to clients operating in the
Corporate culture and values
cannabis sector.
• Corporate culture
• Reviewed, in coordination with the remuneration committee, the alignment of the remuneration programs
with the corporate culture and values.
• Reviewed, in coordination with the risk supervision, regulation and compliance committee, the alignment of
the risk appetite with the corporate culture and values and assessed non-financial risks.
• In general, assisted the board in embedding the corporate culture and values across the Group, monitoring its
level of adherence.
• Informed the board about the global simplification project as well as the appointment of a responsible
executive in each geography and defined the relevant KPIs.
•
•
Analysed the employees' opinions shown at the annual Global Engagement Survey launched in September
2019, as well as the 2020 plans and programs related to the workforce and culture.
The committee was informed of the key priorities and initiatives included in the Group´s diversity and
inclusion strategy, with a particular focus on the proposal for global minimum standards for maternity and
paternity and other benefits under consideration in order to implement the global family policy.
• The committee was informed about the Group´s ten consumer protection principles for fostering the Simple
Personal and Fair culture among customers and the methodology used to measure it, as well as the criteria
established for the treatment of vulnerable customers.
• SPF with employees
• SPF with customers
Sustainability
• Environmental and
climate change
• The committee was informed of a coordinated climate change strategy for the Santander Group aligned to the
external commitments, provided feedback and verified the plan and actions to carry out.
• The committee addressed climate related risks and opportunities and analysed new regulation with regard to
climate change, including the EBA consultation on integration of ESG principles including climate change, into
lending policies, or the ECB plans to include climate change into stress testing exercises in the next 2 years,
and the impacts that will arise from that.
• The committee was informed about the task force on Climate-related Financial Disclosures requirements set
by the Financial Stability Board, previously presented at the internal Inclusive & Sustainability Banking
Steering Group, within the overall climate strategy for the Group which contributes to Sustainable
Development Goals and The Paris Climate Agreement.
• Reviewed and discussed the current and emerging risks in the Extractive Industries (Oil & Gas and Mining &
Steel). The Committee was updated on latest trends, our exposure, policies and any actions we have taken.
• The committee considered the empowerment and financial inclusion initiatives developed by the Group, the
goals and the action plan to achieve them, as well as the metrics designed to measure their progress. The
objective is keep enhancing the proposal in Latam to make profit with a purpose, financially empowering
vulnerable people in mature markets, and achieve a higher external profile leveraging on the Group strength.
• Financial Inclusion
• Support for higher
education
• The committee was informed about the current and future contribution of Santander Universidades to the
Group´s Responsible Banking strategy. This represents one of the strategic areas of the Responsible Banking
strategy along with sustainability/green financial inclusion.
• Santander environmental
• Reviewed and discussed the direct environmental impact of the activity of Santander Group and the new
footprint
energy efficiency and sustainability plan of the Group to reduce Santander footprint implemented to date,
and the proposed new initiatives to be followed.
• Presented the alternatives for the Group to become a carbon neutral organization by offsetting the
atmospheric emissions caused by its own activity and reported favourably the objective to be carbon neutral
in 2020.
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Duties
Actions taken
• Sustainable finance
• The committee was informed about the new Santander’s global sustainable framework to issue green, social
and sustainable bonds, the rationale for Santander to issue sustainable bonds and the key features of the
framework.
• The committee was informed about Wealth Management and Insurance division’s plans in ESG and
Responsible Banking.
Stakeholders engagement
• Indexes and ratings
• Shareholders & Investors
• Partnership with
International Initiatives
Corporate documentation
• Corporate
documentation for 2019
• Analysed the global and local awards, rankings and sustainability indexes.
• Supervised and monitored the corporate reputation and engagement with stakeholders, facilitating the
measurement of initiatives implemented.
• Reviewed the key metrics being proposed to measure the progress in the Responsible Banking field, including
medium term targets, a wider set of metrics for each of the stakeholders and targets related to the Dow
Jones Sustainability Index and the Sustainalytics rating.
• The committee coordinated with the appointments committee, in its supervision and evaluation of the
strategy for communication and relations with shareholders and investors, including small and mid-sized
shareholders; and the process of communication and relations with other stakeholders.
• The committee was informed that Santander together with other 27 banks and UN Environment Finance
Initiative (UNEP FI) launched the Principles for Responsible Banking for global public consultation at the UNEP
FI Global Roundtable in Paris. The responsible banking agenda will incorporate all the requirements from the
UNEP FI Responsible Banking Principles, including setting metrics, adequate targets and transparency in
demonstrating progress.
• The committee was informed about the Collective Commitment on Climate signed by some of founding
banks of the UNEP FI Principles for Responsible Banking, including Santander.
• The committee was informed on the Cop 25 event that took place in Madrid and Santander's participation and
involvement in its promotion.
•
•
Reviewed the Group’s statement of non-financial information, including the independent expert´s report,
composed by the “Business model and strategy” and “Responsible banking” chapters included in the 2019
annual report. The referred Responsible banking chapter replaced the traditional sustainability report that the
Group published in previous years.
Drafted the activities report of the committee for 2019, which includes a section dedicated to the activities
carried out during the year, an analysis and assessment of the fulfilment of the functions entrusted to it, and
the priorities for 2020 identified following the assessment carried out by the board and its committees.
Time devoted to each task
In 2019, the responsible banking, sustainability and culture
committee held 4 meetings. 'Board and committees
attendance' in section 4.3 provides information on the
attendance of committee members at those meetings and
on the estimated average time devoted by them to
preparing and participating in such meetings.
The chart below show the distribution of the approximate
time dedicated to each task by the committee in 2019.
Annual assessment of the functioning of the
committee and fulfilment of the goals set for 2019
The committee’s effectiveness during 2019 was considered
as part of the overall internal assessment of board
effectiveness carried out internally this year.
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2019 Annual Report
The committee successfully addressed its challenges and
priorities put forward for 2019 and different activities have
been conducted in order to facilitate greater intragroup
coordination and establish guiding principles for
subsidiaries to ensure that the responsible banking agenda
and Group´s corporate culture is embedded across the
Group. Initiatives regarding financial and social inclusion,
and responsible and sustainable products offered have been
carried out by the committee in 2019.
The self-assessment process positively rated the committee
and its overall effectiveness acknowledging the relatively
short period that it has been established. The frequency and
duration of its meetings were also found to be broadly
appropriate for its proper functioning and for the
performance of their duties of supporting, informing,
proposing and advising the board. However, the committee
acknowledged the need to consider greater frequency and
establish greater coordination with the countries given the
emergence of new matters. Sufficient and accurate
documentation provided on the topics discussed facilitated
quality of debate among members and sound decision-
making.
2020 Priorities
The committee has identified the following priorities for
2020:
• Ongoing focus on embedding the responsible banking
agenda across the Group, and promoting initiatives in the
different units to meet these targets.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
• Key focus on communication and marketing of the
achievements of the Group to further develop the
reputation to continue to be recognized as one of the
most sustainable banks in the world.
• Drive to continue to assist the board in the management
of risks and opportunities related to climate change and
in becoming a carbon neutral organization in 2020,
embedding climate change into the group strategy and
corporate governance.
• Continue to monitor the initiatives, targets, and metrics
proposed to achieve the commitments for an inclusive
and sustainable banking.
4.10 Innovation and technology
committee activities in 2019
This section constitutes the innovation and technology
committee activities report prepared by the committee on
10 February 2020 and approved by the board of directors on
27 February 2020.
Composition
Composition
Category
Chairman Ms Ana Botín Sanz de Sautuloa y
Executive
O´Shea
Ms Homaira Akbari
Independent
Mr José Antonio Álvarez Álvarez
Executive
Mr Ignacio Benjumea Cabeza de Vaca Other external
Members Mr Bruce Carnegie-Brown
Mr Henrique de Castro
Independent
Independent
Mr Guillermo de la Dehesa Romero
Other external
Ms Belén Romana García
Independent
Secretary Mr Jaime Pérez Renovales
The board of directors has appointed the members of the
committee bearing in mind their knowledge, aptitude and
experience in relation to the committee's mission.
For further information about the skills, knowledge and
experience of each of the committee members, see section
4.1 'Our directors' and 'Board skills and diversity matrix' and
'Committees skills and diversity matrix' in section 4.2.
Duties and activities in 2019
This section contains a summary of the innovation and technology committee’s activities in 2019, classified in accordance with the
committee’s duties.
Duties
Actions taken
Innovation framework
Cybersecurity
• Reviewed the implementation of the Group strategic technology plan and the Group’s innovation agenda,
identifying the main challenges and building the Group's capabilities in innovation.
• Identified opportunities to accelerate innovation across the Group and increase the likelihood of success in the
identification of new business models, technologies, systems and platforms. This involved the definition of
priorities such as, among others, a better collaboration across local banks and with Santander Digital Division.
• Identified Group level initiatives to develop and launch, namely, coaching programs, increased access to start-
ups, labs, creation of a testing environment (sandbox) and establishment of local digital & innovation
committees, mirroring the corporate committee.
• Outlined the key stages in the innovation framework for the Group, leveraging an approach commonly used by
venture capital firms.
• Supervised defences to face the increasing threat environment, reviewed security controls and automated
security.
• Analyzed the high-profile incidents involving data loss affecting other very well-known companies.
• Monitored the Group cybersecurity threat level and followed-up the global cyber transformation plan for
2019.
• Shared information with the risk supervision, regulation and compliance committee regarding cybersecurity
risks (with special focus on public cloud infrastructure and platforms), Group IT strategy (Group’s future retail
banking platform) and financial crime compliance systems situation and strategy. Furthermore, assisted it in
its supervision of technological risks and cybersecurity.
• Reviewed the implementation of cybersecurity plan within the Group and the main risks and mitigating
controls.
• Analysed the systems currently supporting financial crime compliance core processes to comply with new
regulation and to align to Santander´s business strategy while taking into account best practices and standards
and new regulatory expectations.
• Received updated information about employee awareness of cybersecurity matters and identified key areas to
consider in future plans.
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Duties
Digital
Actions taken
• Received an update on Santander digital assets strategy, forward looking commitments for 2020 and
execution plans.
• Verified collaboration efforts between countries and business units in relation to digital initiatives, with a focus
on execution.
• Monitored metrics in connection with the Santander Digital evolution and associated transformation. Metrics
included return on investments, unit-cost evolution per product/service/data storage, time-to-market and
customer attraction.
• Reviewed the main digital strategies to transform the existing business, and accelerate the growth of new
Technology and operations
businesses.
• Reviewed the global technology strategy plan and reported to the board on plans and activities relating to
technology and innovation.
• The committee endorsed the main technology related strategic priorities for the Group, with a special focus on
cloud roadmap execution as part of the cloud strategy approved in 2018, IT retail architecture strategy as part
of the Group’s technology strategy and the description of the process of moving from strategy to execution
through a new operating model and a common architecture.
• Ensured that the technology and operations strategy was properly focused on the relevant issues and priorities
of the Group.
• The committee was informed about the discussions held by the international advisory board relating to
technological and innovation matters.
• Received updated information on the newly created data unit, resulting from the integration of the Data
management and intelligence teams, with the aim of increasing value for business.
• Assessed the adequacy of the resources of the data function and possible new regulations, without identifying
material weaknesses at Group level.
• Reviewed the policy on data and artificial intelligence (machine learning) and its potential impacts.
• Drafted the activities report of the committee for 2019, which includes a section dedicated to the activities
carried out during the year, an analysis and assessment of the fulfilment of the functions entrusted to it, and
the priorities for 2020 identified following the assessment carried out by the board and its committees.
Data management
Corporate documentation
Time devoted to each task
In 2019, the innovation and technology committee held 4
meetings. 'Board and committees attendance' in section 4.3
provides information on the attendance of committee
members at those meetings and on the estimated average
time devoted by them to preparing and participating in such
meetings.
The chart below shows the distribution of the approximate
time dedicated to each task by the committee in 2019.
Annual assessment of the functioning of the
committee and fulfilment of the goals set for 2019
The committee’s functioning during 2019 was considered as
part of the overall internal assessment of board
effectiveness carried out internally this year. The
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2019 Annual Report
assessment process positively rated the committee's
leadership and the accurate documentation provided on the
topics discussed that strengthened the quality of debate
among members and sound decision-making, recognising
also that continuous improvement in this regard should
continue.
2020 Priorities
The committee has identified the following priorities for
2020:
• The committee composition and size will continue to be
an area of focus as part of broader board committees’
composition review conducted alongside ongoing board
succession and recruitment planning.
• Focus on technology & operations transformation model
execution and cyber security monitoring.
• The digital strategy will continue to be a priority and the
committee will monitor and provide recommendations
regarding the initiatives, targets, commitments, KPI´s and
metrics proposed on cross projects for the Group.
• Support the board on the innovation strategy of the
Group as well as trends resulting from new business
models, technologies and products, in coordination with
the international advisory board.
• Supervise the effectiveness of data management, the
adequate functioning of the new data unit and the
appropriateness of its resources.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
4.11 International advisory board
Members
The members are all external and not members of the
board.
Composition
Positions
Chairman Mr Larry
Summers
Ms Sheila C. Bair
Mr Mike Rhodin
Ms Marjorie
Scardino
Mr Francisco
D’Souza
Mr James
Whitehurst
Members
Former Secretary of the US
Treasury and president emeritus
of Harvard University
Former chairman of the Federal
Deposit Insurance Corporation.
Former president of Washington
College
Board member of TomTom,
Syncsort and HzO. Former IBM
senior Vice President
Former CEO of Pearson and
director of Twitter
CEO of Cognizant and director of
General Electric
Chairman and CEO of Red Hat
Mr George Kurtz
CEO and co-founder of
CrowdStrike
Ms Blythe
Masters
Ms Nadia
Schadlow
Former CEO of Digital Asset
Holdings
Former deputy National Security
Advisor for Strategy and
Assistant to the President of the
United States
Secretary Mr Jaime Pérez Renovales
Functions
The Bank’s international advisory board was formally
established in 2016 in order to play a key role in providing
strategic insight advice on issues and matters related to the
challenges and opportunities for the future of the
businesses of the Group. In particular, the international
advisory board was scoped to focus on innovation, digital
transformation, cybersecurity and new technologies, capital
markets, corporate governance, brand and reputation and
regulation and compliance.
The members are all prominent and respected international
leaders with significant experience in strategic challenges
and opportunities, with a focus on innovation, digital
transformation and the US market.
Meetings
The international advisory board meets at least twice a year.
In 2019, the international advisory board met in the spring
and fall.
Rationale
The international advisory board allows the Group to
benefit from, and gain in a structured and recurrent manner,
the insights of international leaders who, due to their other
commitments, could not provide such support as members
of the board.
4.12 Related-party transactions
and conflicts of interest
Related-party transactions
Directors, senior management and significant
shareholders
This subsection includes the report on related-party
transactions referred to in recommendation six of the Good
Governance Code of Spanish Listed Companies.
In accordance with the Rules and Regulations of the board,
the board of directors shall examine any transactions that
the Bank or Group companies carry out with directors, with
shareholders that own, whether individually or together
with others, a significant interest, including shareholders
represented on the board of directors of the Bank or of other
Group companies, or with persons related to them.
These transactions require the authorisation of the board,
following a favourable report from the audit committee,
except where the law provides that the approval
corresponds to the GSM. Exceptionally, and for reasons of
urgency, related-party transactions may be authorised by
the executive committee, with subsequent ratification by
the board.
Such transactions shall be evaluated in light of the principle
of equal treatment and in view of market conditions.
However, authorisation of the board shall not be required
for transactions that simultaneously meet the following
three conditions:
• They are carried out under contracts with basic standard
terms that customarily apply to the customers
contracting for the type of product or service in question;
• They are entered into prices or rates generally established
by the party acting as supplier of the goods or service in
question or, if the transactions concern goods or services
for which no rates are established under arm’s length
conditions, similar to those applied to commercial
relationships with customers having similar
characteristics; and
• The amount does not exceed 1% of the Bank’s annual
income.
During 2019, following due enquiry, no member of the
board of directors, no person represented by a director, and
no company of which such persons, or persons acting in
concert with them or through nominees, are directors,
members of senior management or significant shareholders
has carried out with the Bank into any significant
transactions or under conditions which were not market
conditions.
The audit committee has verified that all transactions
completed with related parties during the year were fully
compliant with the abovementioned conditions in order not
to require approval from the governing bodies as mentioned
in the audit committee activities report in section 4.5 'Audit
committee activities in 2019'.
The Bank also has a policy for the admission, authorization
and monitoring of loans, credits and guarantees to directors
and members of senior management that contains the
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procedure established for risk transactions of which they or
their related parties are beneficiaries.
The policy includes general rules on maximum borrowing
levels, interest rates and other conditions applicable in
similar terms to those applicable to the rest of employees.
According to the mentioned policy and with the regulations
applicable to credit institutions, the loans, credits or
guarantees to be granted to directors and senior managers
of the Bank need to be authorised by the board and
subsequently by the ECB. There are two exceptions:
• Transactions subject to the conditions of a collective
agreement agreed by the Bank and whose conditions are
similar to the conditions of transactions granted to any
Bank employee.
• Transactions carried out under contracts whose
conditions are standardised and generally applied to a
large number of customers, provided that the amount
granted to the beneficiary or its related parties does not
exceed the amount of EUR 200,000.
Direct risks of the Group regarding the Bank's directors and
members of senior management as of 31 December 2019 in
the form of loans, credits and guarantees provided in the
ordinary course of business, are shown in note 5.f of the
'consolidated financial statements'. Their conditions are
equivalent to those made under market conditions or the
corresponding remuneration in kind has been attributed.
Intra-group transactions
With regard to intra-group transactions, identical rules,
approval bodies and procedures apply as to transactions
with customers, with mechanisms in place to monitor that
such transactions are under market prices and conditions.
The amounts of the transactions with other Group entities
(subsidiaries, associates and multigroup entities), as well as
with directors, senior management and their related parties
are included in note 53 ('Related parties') in the
'Consolidated financial statements' and note 47 ('Related
parties') in the individual financial statements.
Conflicts of interests
The Bank has approved standards and procedures that
establish the criteria for the prevention of conflicts of
interest that may arise as a result of the various activities
and functions carried out by the Bank, or between the
Bank's interests and those of its directors and senior
management.
The Bank has an internal policy on conflicts of interest that
provides the employees, directors and entities of the Group
with criteria to prevent and manage any conflict of interest
that may arise as a result of their activities.
Directors and senior management
Our directors must adopt the measures that are necessary
to prevent situations in which their interests, whether their
own or through another party, may enter into conflict with
the corporate interest and their duties towards the Bank.
The duty to avoid conflicts of interest requires directors to
fulfil certain obligations such as abstaining from using the
Bank’s name or their capacity as directors to unduly
210
2019 Annual Report
influence private transactions, using corporate assets,
including the confidential information of the Bank, for
private purposes, taking advantage of business
opportunities of the Bank, obtaining benefits or
remuneration from third parties in connection with the
holding of their position, except for those received merely as
a sign of courtesy, carrying out activities, on their own
behalf or on behalf of others, which actually or potentially
entail effective competition with the Bank or which
otherwise place them in a situation of permanent conflict
with the interests of the Bank.
In any case, they must inform the board of any direct or
indirect conflict of interest between their own interests or
those of their related parties and those of the Bank that will
be disclosed in the financial statements.
No director has communicated during 2019 any situation
that places him or her in a conflict of interest with the
Group. However, in 2019, there were 49 occasions in which
directors abstained from participating in discussions and
voting on matters at the meetings of the board of directors
or of its committees. The breakdown of the 49 cases is as
follows: on 28 occasions the abstention was due to
proposals to appoint, re-elect or remove directors, and their
appointment as members of board committees or as
members of other boards at Santander Group companies;
on 13 occasions the matter under consideration related to
remuneration or the granting of loans or credits; and on 8
occasions the abstention concerned the annual verification
of the status and the suitability of directors.
Further, the conflicts of interest policy and the Code of
Conduct in Securities Markets to which both, the directors
and the senior management of the Bank have adhered to,
establishes mechanisms to detect and address conflicts of
interest. These persons must present a statement to the
Compliance function of the Bank detailing any relations
they hold. This statement must be continuously updated.
They must also notify the Compliance function of any
situation in which a conflict of interest could occur owing to
their relations or due to any other reason or circumstance
and they shall abstain from deciding, or where applicable,
voting in situations where a conflict exists and shall inform
those who are to take the respective decision.
Conflicts of interest shall be resolved by the person holding
the highest responsibility for the area involved. If several
areas are affected, the resolution shall be made by the most
senior officer in all such areas or if none of the foregoing
rules are applicable, by the person appointed by the
Compliance function. In the event of any doubt, the
Compliance function should be consulted.
The control mechanisms and the bodies in charge of
resolving this type of situation are described in the Code of
Conduct in Securities Markets, which is available on the
Group’s corporate website. According to this code, and in
relation to the Group’s shares and securities, neither
directors, the senior management nor their related parties
may: (i) carry out counter-transactions on securities of the
Group within 30 days following each acquisition or sale; or
(ii) carry out transactions on Group securities in the one
month preceding the announcement of quarterly, six-
monthly or annual results until they are published.
Responsible Corporate
banking
Economic
and financial review
governance
Group companies
The Bank is the only Santander Group company listed in
Spain, so it is not necessary to have mechanisms in place to
resolve possible conflicts of interest with subsidiaries listed
in Spain.
Notwithstanding this, in case of conflicts of interest that
may arise between a subsidiary and the Bank, the latter as
the parent company must take into account the interests of
all its subsidiaries and the way such interests contribute to
the long term interest of the subsidiaries and the Group as a
whole. Furthermore, the Santander Group entities must
take into account the interests of the Santander Group as a
whole and, consequently, also examine how decisions
adopted at the subsidiary level may affect the Group.
The Bank, as the parent company of Santander Group,
structures the governance of the Santander Group through
a system of rules that guarantees the existence of rules of
governance and an adequate control system, as described in
section 7 'Group structure and internal governance'.
Risk management
and control
211
Table of Contents
5. Management team
The table below shows the profiles of the Bank’s senior management (other than the executive directors described in section 4.1
‘Our directors’) as of 31 December 2019.
Mr Rami Aboukhair
COUNTRY HEAD – SANTANDER SPAIN
Ms Lindsey Argalas
HEAD OF SANTANDER DIGITAL
Mr Juan Manuel Cendoya
GROUP HEAD OF COMMUNICATIONS,
CORPORATE MARKETING AND RESEARCH
Mr José Doncel
GROUP HEAD OF ACCOUNTING AND
FINANCIAL CONTROL
Mr Keiran Foad
GROUP CHIEF RISK OFFICER
Mr José Antonio García
Cantera
GROUP CHIEF FINANCIAL OFFICER
Mr Juan Guitard
GROUP CHIEF AUDIT EXECUTIVE
Mr José María Linares
GLOBAL HEAD OF CORPORATE &
INVESTMENT BANKING
Born in 1967. He joined the Group in 2008 as a director of Santander
Insurance and head of Products and Marketing. He also served as
managing director of Products, Marketing and Customers in Banco
Español de Crédito, S.A. (Banesto) and as managing director and
head of Retail Banking in Santander UK. In 2015 he was appointed
country head for Santander Spain and in 2017 he was named chief
executive officer of Banco Popular Español, S.A. until its merger with
Banco Santander, S.A. He is currently senior executive vice president
and country head of Santander Spain.
Born in 1974. In 2017 she joined the Group as senior executive vice
president and Group head of Santander Digital. She served as
principal of The Boston Consulting Group (BCG) (1998-2008). She
also served as senior vice president and chief of staff to the CEO of
Intuit Inc. (2008-2017).
Born in 1967. He joined the Bank in July 2001 as Group senior
executive vice president and head of the Communications, Corporate
Marketing and Research division. In 2016 he was appointed vice
chairman of the board of directors of Santander Spain and head of
Institutional and Media Relations of that unit, in addition to his
function as Group head of Communications, Corporate Marketing
and Research. He is also a member of the board of directors of
Universia España Red de Universidades, S.A.Formerly, he was head
of the Legal and Tax department of Bankinter, S.A. He is a State
Attorney. He is currently a non-executive director at Arena
Communications Network, S.L.
Born in 1961. He joined the Group in 1989 as head of Accounting. He
also served as head of Accounting and Financial Management at
Banco Español de Crédito, S.A. (Banesto) (1994-2013). In 2013 he
was appointed senior executive vice president and head of the
Internal Audit division. In 2014 he was appointed Group head of
Accounting and Financial Control. Currently he serves as Group chief
accounting officer.
Born in 1968. He joined the Group in 2012 as deputy chief risk
officer of Santander UK. He also served in various risk and corporate
leadership roles at Barclays Bank, plc. (1985-2011) and as chief risk
officer at Northern Rock, plc. In 2016 he was appointed senior
executive vice president and deputy chief risk officer of the Bank
until his appointment in 2018 as the Group chief risk officer.
Born in 1966. He joined the Group in 2003 as senior executive vice
president of Global wholesale banking of Banco Español de Crédito,
S.A. (Banesto). In 2006 he was appointed Banesto’s chief executive
officer. Formerly, he was member of the executive committee of
Citigroup EMEA and member of the board of directors of Citigroup
Capital Markets Int, Ltd. and Citigroup Capital Markets UK. In 2012
he was appointed senior executive vice president of Global Corporate
Banking. Currently he serves as Group chief financial officer.
Born in 1960. He joined the Group in 1997 as head of Human
Resources of Santander Investment, S.A. He was also General
counsel and secretary of the board of Santander Investment, S.A.
and Banco Santander de Negocios, S.A. In 2013 he was head of the
Bank’s Risk division. In November 2014 he was appointed head of
the Internal Audit division. Currently, he serves as Group chief audit
executive. Juan Guitard is a State attorney.
Born in 1971. He served as an equity analyst in Morgan Stanley &
Co. New York (1993-1994). He worked as senior vice president and
senior Latin America telecom equity analyst at Oppenheimer & Co.
New York (1994-1997). He also served as director senior Latin
America TMT equity analyst at Société Générale, New York & São
Paolo (1997-1999). In 1999 he joined J.P. Morgan and in 2011 was
appointed as managing director and head of Global Corporate
Banking at J.P. Morgan Chase & Co. (2011-2017). In 2017 he was
appointed senior executive vice president of the Group and Global
head of Corporate & Investment Banking.
212
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Ms Mónica López-Monís
GROUP HEAD OF SUPERVISORY AND
REGULATORY RELATIONS
Mr Javier Maldonado
GROUP HEAD OF COSTS
Mr Dirk Marzluf
GROUP HEAD OF TECHNOLOGY AND
OPERATIONS
Mr Víctor Matarranz
GLOBAL HEAD OF WEALTH
MANAGEMENT & INSURANCE
Mr José Luis de Mora
GROUP HEAD OF STRATEGY AND
CORPORATE DEVELOPMENT AND OF
CONSUMER FINANCE (SANTANDER
CONSUMER FINANCE)
Mr José María Nus
RISK ADVISER TO GROUP EXECUTIVE
CHAIRMAN
Born in 1969. She joined the Group in 2009 as general secretary and
board secretary of Banco Español de Crédito, S.A. (Banesto).
Formerly, she was general secretary of Aldeasa, S.A. She also served
as general secretary of Bankinter, S.A. and independent director of
Abertis Infraestructuras, S.A. In 2015 she was appointed senior
executive vice president of Santander and Group chief compliance
officer. Since September 2019, she is the Group head of Supervisory
and Regulatory Relations. She is a State Attorney.
Born in 1962. He joined the Group in 1995 as head of the
International Legal division of Banco Santander de Negocios, S.A. He
was in charge of several positions in Santander UK. He was
appointed senior executive vice president of Santander and head of
Coordination and Control of Regulatory Projects in 2014. He
currently serves as Group senior executive vice president and head
of Costs.
Born in 1970. He joined the Group in 2018 as Group senior executive
vice president and Group head of IT and Operations. Previously he
held several positions in AXA Group, where he served as group CIO
from 2013 leading the insurance group’s technology and
information security transformation and co- sponsor of its digital
strategy. His global roles include previous work at Accenture,
Daimler Chrysler and Winterthur Group.
Born in 1976. He joined the Group in 2012 as head of Strategy and
Innovation in Santander UK. In 2014 he was appointed senior
executive vice president and head of Executive chairman’s office and
strategy. Previously, he held several positions in McKinsey &
Company where he became partner. Currently, he serves as Global
head of Wealth Management.
Born in 1966. He joined the Group in 2003. Since 2003, he has been
in charge of developing the Group strategic plan and acquisitions. In
2015 he was appointed Group senior executive vice president and
Group head of Financial Planning and Corporate Development. Since
15 February 2019, the Strategy function has been integrated with
the Corporate Development function. Since 1 January 2020, he is
also head of Santander Consumer Finance.
Born in 1950. He joined the Group in 1996 as executive director and
chief risk officer of Banco Español de Crédito, S.A. (Banesto). In 2010
he was appointed executive director and chief risk officer of
Santander UK. He also served as Group chief risk officer until June
2018. Formerly, he served as senior executive vice president in
Argentaria, S.A. and Bankinter, S.A.. He currently serves as senior
executive vice president and risk advisor to Group executive
chairman.
Mr Jaime Pérez Renovales
GROUP HEAD OF GENERAL SECRETARIAT
AND HUMAN RESOURCES
See profile in section 4.1 'Our directors'.
Mr Javier San Félix García
HEAD OF SANTANDER GLOBAL PAYMENTS Born in 1967. He joined the Group in 2004 as head of Strategic
Ms Jennifer Scardino
HEAD OF GLOBAL COMMUNICATIONS.
GROUP DEPUTY HEAD OF
COMMUNICATIONS, CORPORATE
MARKETING AND RESEARCH
Ms Marjolien van
Hellemondt-Gerdingh
GROUP CHIEF COMPLIANCE OFFICER
Planning in the Consumer Finance division. In 2005 he was
appointed director and executive vice president of Santander
Consumer Finance in Spain and in 2006 he was appointed chief
operating officer of the Santander Consumer Finance division. From
2012 to 2013, he was the chief executive officer of Banco Español de
Crédito, S.A. (Banesto). In 2013 he was appointed senior executive
vice president of Banco Santander, S.A. and head of the Commercial
Banking division and from 2016 to 2018 he served as senior
executive vice president and head of Retail and Commercial Banking
in the UK. Currently, he serves as head of Santander Global
Payments.
Born in 1967. She joined the Group in 2011 as head of Corporate
Communications, Public Policy and Corporate Social Responsibility
for Santander UK. She also held several positions in the US Securities
and Exchange Commission (1993-2000). She was appointed
managing director of Citigroup (2000-2011). In 2016 she was
appointed senior executive vice president and head of Global
Communications and Group deputy head of Communications,
Corporate Marketing and Research.
Born in 1964. She joined the Group in 2019 as senior executive vice
president and Group chief compliance officer. Previously she was
chief compliance officer of several banking or financial entities like
NN Group, Zurich Insurance Company and De Lage Landen
International B.V.
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Table of Contents
6. Remuneration
The assistance of Willis Towers Watson was sought by the
remuneration committee and the board for the following
purposes:
• To compare the relevant data with that on the markets
and comparable entities, given the size, characteristics
and activities of the Group.
• To analyse and confirm the compliance of certain
quantitative metrics relevant to the assessment of certain
objectives.
• To estimate the fair value of the variable remuneration
linked to long-term objectives.
6.2 Remuneration of directors for
the performance of supervisory
and collective decision-making
duties: policy applied in 2019
A. Composition and limits
As set out in Banco Santander’s Bylaws, the remuneration of
directors in their condition as such consists of a fixed annual
amount determined at the general shareholders’ meeting.
This amount shall remain in effect until the shareholders
resolve to amend it, though the board may reduce its
amount in the years it considers such reduction appropriate.
The remuneration established at the general shareholders’
meeting for 2019 was EUR 6 million, with two components:
(a) annual allotment and (b) attendance fees.
In addition, the Bank contracts a civil liability insurance
policy for its directors upon customary terms that are
proportionate to the circumstances of the Bank. Directors
are also entitled to receive shares, share options or share-
linked compensation following the approval of the general
shareholders’ meeting.
Directors are also entitled to receive other compensation
following a proposal made by the remuneration committee
and upon resolution by the board of directors, as may be
deemed appropriate in consideration for the performance of
other duties in the Bank, whether they are the duties of an
executive director or otherwise, other than the supervisory
and collective decision-making duties that they discharge in
their capacity as members of the board.
None of the non-executive directors has the right to receive
any benefit on the occasion of their removal as such.
Sections 6.1, 6.2, 6.3, 6.4, 6.5, 6.7, 9.4 and 9.5 constitute
the annual report on directors’ remuneration that must be
prepared and submitted to the consultative vote of the
general shareholders’ meeting.
In addition, section 6.4 constitutes the directors'
remuneration policy for 2020, 2021 and 2022, which is to
be submitted to the vote of the general shareholders'
meeting.
The annual report on directors' remuneration and the
directors' remuneration policy for 2020, 2021 and 2022
have been approved by the board of directors of the Bank, in
its meeting held on 27 February 2020. None of the directors
voted against nor abstained in relation to their approval.
The text of the remuneration policy for directors in force at
the date of this report is available at our corporate website.
6.1 Principles of the remuneration
policy
Remuneration of directors in their capacity as such
The individual remuneration of directors, both executive and
otherwise, for the performance of supervisory and collective
decision-making duties, is determined by the board of
directors, within the amount set by the shareholders, based
on the positions held by the directors on the collective
decision-making body itself and their membership and
attendance of the various committees, as well as any other
objective circumstances that the board may take into
account.
Remuneration of directors for the performance of
executive duties
The most notable principles of the Bank’s remuneration
policy for the performance of executive duties are as
follows:
1. Remuneration must be aligned with the interests of
shareholders and be focused on long-term value
creation, while remaining compatible with rigorous risk
management and with the Bank’s long-term strategy,
values and interests.
2. Fixed remuneration must represent a significant
proportion of total compensation.
3. Variable remuneration must compensate for
performance in terms of the achievement of agreed
goals of the individual and within the framework of
prudent risk management.
4. The global remuneration package and the structure
thereof must be competitive, in order to attract and
retain professionals.
5. Conflicts of interest and discrimination must be
avoided in decisions regarding remuneration.
214
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
B. Annual allotment
C. Attendance fees
The amounts received individually by the directors during
the last two years based on the positions held on the board
and their membership on the various board committees
were as follows:
Amount per director in euros
2019
2018
Members of the board of directors
90,000
90,000
Members of the executive committee
170,000
170,000
Members of the audit committee
40,000
40,000
Members of the appointments committee
25,000
25,000
Members of the remuneration committee
25,000
25,000
By resolution of the board, at the proposal of the
remuneration committee, the amount of attendance fees
applicable to meetings of the board and its committees
(excluding the executive committee, for which no fees are
provided) during the last two years was as follows:
Attendance fees per director per meeting in euros
2019 2018
Board of directors
Audit committee and risk supervision,
regulation and compliance committee
Other committees (excluding executive
committee)
2,600 2,600
1,700
1,700
1,500
1,500
40,000
40,000
D. Breakdown of bylaw-stipulated emoluments
Members of the risk supervision,
regulation and compliance committee
Members of the responsible banking,
sustainability and culture committee
15,000
15,000
Chairman of the audit committee
70,000
70,000
Chairman of the appointments committee
50,000
50,000
Chairman of the remuneration committee
50,000
50,000
Chairman of the risk supervision,
regulation and compliance committee
Chairman of the responsible banking,
sustainability and culture committee
Lead director
Non-executive vice chairmen
70,000
70,000
50,000
50,000
110,000
110,000
30,000
30,000
A. Mr Bruce Carnegie-Brown, for duties performed as part of the board and
board committees, specifically as chairman of the appointments and
remuneration committees and as lead director, and for the time and
dedication required to perform these duties, has been allocated minimum
total annual remuneration of EUR 700,000 since 2015, including the
aforementioned annual allowances and attendance fees corresponding to
him.
The total amount accrued for bylaw-stipulated emoluments
and attendance fees was EUR 4.9 million in 2019 (EUR 4.6
million in 2018), which is 19% less than the amount
approved at the general shareholders’ meeting. The
individual amount accrued for each director for these items
is as follows:
215
Table of Contents
Amount in euros
2019
Annual allotment
2018
Board H
EC
AC
ASC
RC
RSRCC
RBSCC
Total
Total by-
law
stipulated
emolumen
ts and
attendanc
e fees
Board and
committee
attendanc
e fees
N
o
n
-
e
x
e
c
u
ti
v
e
E
x
e
c
u
ti
v
e
90,000
170,000
90,000
170,000
I
392,700
170,000
—
—
—
—
—
—
—
25,000
25,000
N
90,000
56,667
—
16,667
—
N
I
90,000
170,000
—
25,000
25,000
90,000
—
40,000
—
—
—
—
—
—
—
—
15,000
275,000
58,800
333,800
307,000
—
260,000
52,800
312,800
294,000
—
612,700
87,300
700,000
732,000
—
163,334
55,800
219,134
293,000
—
310,000
88,800
398,800
441,000
15,000
145,000
80,900
225,900
199,000
N
90,000
170,000
—
—
25,000
40,000
15,000
340,000
92,700
432,700
432,000
N
90,000
90,000
—
—
—
—
—
—
25,000
25,000
—
—
—
90,000
46,800
136,800
121,000
15,000
155,000
84,700
239,700
215,000
I
I
I
I
I
I
I
I
I
90,000
—
—
4,368
—
—
—
—
—
160,000
170,000
40,000
140,000
170,000
40,000
—
7,849
6,989
160,000
41,129
15,726
74,274
—
—
—
—
—
—
—
—
40,000
15,000
149,368
79,400
228,768
196,000
40,000
15,000
425,000
99,600
524,600
414,000
—
40,000
15,000
405,000
95,300
500,300
450,000
—
40,000
15,000
215,000
60,500
275,500
148,000
4,368
—
—
—
—
—
—
—
53,346
33,400
86,746
22,715
11,200
33,915
—
—
—
148,549
64,700
213,249
266,000
—
—
—
—
108,000
33,011
20,632
20,632
—
—
—
Directors
Ms Ana Botín-
Sanz de
Sautuola y
O’Shea
Mr José Antonio
Álvarez Álvarez
Mr Bruce
Carnegie-Brown
Mr Rodrigo
Echenique
Gordillo A
Mr Guillermo de
la Dehesa
Romero
Ms Homaira
Akbari
Mr Ignacio
Benjumea
Cabeza de Vaca
Mr Francisco
Javier Botín-
Sanz de
Sautuola y
O’Shea B
Ms Sol Daurella
Comadrán
Ms Esther
Giménez-
Salinas i
Colomer
Ms Belén
Romana García
Mr Ramiro Mato
García-
Ansorena
Mr Álvaro
Cardoso de
Souza C
Mr Henrique de
Castro D
Mrs Pamela
Ann Walkden E
Mr Carlos
Fernández
González f
Mr Juan Miguel
Villar Mir G
Total
1,793,829 1,246,667
167,849
116,667
125,000
200,000
120,000 3,770,012 1,092,700 4,862,712
4,616,000
A. Ceased to be an executive director on 30 April 2019. Non-executive director since 1 May 2019.
B. All amounts received were reimbursed to Fundación Botín.
C. Director since 1 April 2018.
D. Director since 17 July 2019.
E. Director since 29 October 2019.
F. Ceased to be a director on 28 October 2019
G. Ceased to be a director on 1 January 2019
H. Includes committees chairmanship and other role emoluments.
P: Proprietary I: Independent N: Non-external (neither proprietary nor independent).
EC: Executive committee AC: Audit committee ASC: Appointments committee RC: Remuneration committee RSRCC: Risk supervision, regulation and compliance
committee. RBSCC: Responsible Banking, sustainability and culture committee.
216
2019 Annual Report
Variable
remuneration
Variable
Fixed
Variable
Fixed
Benefit system
Other
remuneration
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
6.3 Remuneration of directors for
the performance of executive
duties
The policy applied to the remuneration of directors in 2019
for the performance of executive duties was approved by
the board of directors and submitted to a binding vote at the
general shareholders’ meeting of 12 April 2019, with
91,64% of the votes in favour. The table below summarises
the remuneration policy and its implementation.
Component
Type of
component
Policy
Gross annual
salary
Fixed
• Paid in cash on a monthly basis.
Implementation in 2019
• Ana Botin: EUR 3,176 thousand.
• José Antonio Álvarez: EUR 2,541 thousand.
• Rodrigo Echenique: EUR 600 thousand. Ceased
to be an executive director on 30 April 2019.
Figure includes his gross annual salary until he
ceased to be a director.
• See section 6.3 B ii) for details of annual metrics
and assessment.
• See section 6.3 B iv) for details of the long-term
metrics.
• See section 6.3 B iii) for details of the individual
awards.
•
•
Individual benchmark reference.
Calculated against a set of annual quantitative
metrics and a qualitative assessment with input
of individual performance.
• 50% of each payment is made in shares subject
to a one-year retention. The number of shares is
determined at the time of the award.
• 40% paid in 2020; 60% deferred in five years.
• 24% paid in equal parts in 2021 and 2022.
• 36% paid in equal parts in 2023, 2024 and
2025 subject to the compliance with a set of
long-term objectives (2019-2021).
• Annual contribution at 22% of base salary.
• Mr Echenique´s contract did not provide for any
pension benefit, without prejudice to his pension
rights before he was appointed executive
director.
• Annual contribution at 22% of the 30% of the
• See section 6.3 C for details of the annual
average of the last three-years variable
remuneration
contributions and pension balance.
• Includes life and accident and medical insurance,
• No change from 2018 for Ana Botín or José
including any tax due on benefits.
Antonio Álvarez.
• Includes a fixed remuneration supplement in
cash (not salary nor pensionable) as part of the
elimination of the death and disability
supplementary benefits.
• Payment for non-compete commitment
• Due to his termination as executive director on
30 April 2019 Rodrigo Echenique has received an
amount of € 1,800 thousand in compensation for
his two year non-compete commitment.
Shareholding
policy
N/A
• 200% of the net tax amount of the annual gross
• No change from 2018.
basic salary.
• Five years from 2016 to demonstrate the
shareholding.
A. Gross annual salary
The board resolved to maintain the same gross annual
salary for Ms Ana Botín and Mr José Antonio Álvarez for
2019 as in 2018.
As regards fixed pension contributions, the 22%
contribution of the gross annual salary agreed for 2018 has
been maintained for 2019.
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Table of Contents
In summary, the executive directors’ gross annual salary and fixed annual contribution to pension for 2019 and 2018 were as
follows:
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique GordilloA
Total
Gross annual
salary
3,176
2,541
600
6,317
2019
Fixed annual
pension
contribution
699
559
—
1,258
Total
3,875
3,100
600
7,575
Gross annual
salary
3,176
2,541
1,800
7,517
2018
Fixed annual
pension
contribution
699
559
—
1,258
Total
3,875
3,100
1,800
8,775
A. Ceased to be an executive director on 30 April 2019. Non-executive director since 1 May 2019. Figure includes his gross annual salary until he ceased to be an executive
director.
B. Variable remuneration
i) General policy for 2019
The board approved the variable remuneration of the
executive directors, at the proposal of the remuneration
committee, in consideration of the approved policy:
• The variable components1 of the total remuneration of
executive directors in 2019 amounts to less than 200% of
the fixed components, as established by resolution of the
general shareholders’ meeting of 12 April 2019.
• At the request of the remuneration committee, at the
beginning of 2020 the board approved the final amount
of the incentive for 2019, based on the agreed bonus
pool, in accordance with the following:
• A group of short-term quantitative metrics measured
against annual objectives.
• A qualitative assessment which cannot adjust the
quantitative result by more than 25 percentage points
upwards or downwards.
• Where applicable, an exceptional adjustment that will
be supported by the substantiated evidence.
• The individual reference variable remuneration is
fixed based on the individual benchmark variable
remuneration figure of the executive director, in
accordance with the current model and taking into
account (i) their individual objectives, which in general
terms coincide with those of the Group, covering
financial metrics, risk management metrics, client
satisfaction metrics and social impact related metrics,
such as being among the Top 10 companies to work
for in the main geographies were the Group is present
or financial empowerment objectives, as well (ii) as
how they are achieved, taking into account the
management of employees and the adherence to the
corporate behaviours.
A. Where applicable, an exceptional adjustment based on substantiated
evidence
The quantitative metrics and the elements of the qualitative
assessment are described below.
• The approved incentive is paid 50% in cash and 50% in
shares2, 40% shall be paid in 2020, once the final amount
has been determined, and the remaining 60% shall be
deferred in equal parts over five years and subject to long
term metrics , as follows:
• Payment of the amount deferred over the first two
years (24% of the total), payable in 2021 and 2022,
where applicable, shall be conditional on none of the
malus clauses described below being triggered.
• The amount deferred over the next three years (36% of
the total), payable in 2023, 2024 and 2025, where
applicable, shall be conditional not only on the malus
clauses not being triggered but also on the
achievement of the multi-year targets described below.
These objectives can only decrease the amounts and
the number of deferred shares.
• When the deferred amount is paid in cash, the
beneficiary may be paid the adjustment for inflation
through the date of payment.
• All payments in shares are subject to a one-year
retention period after being delivered.
• The hedging of Santander shares received during the
retention and deferral periods is expressly prohibited.
The sale of shares is also prohibited for one year from
the receipt thereof.
1
2
As stated in the initial table of this section 6.3, contributions to below of this section of the report, contributions to the benefits systems for two executive directors
include both fixed components and variable components, which become part of the total variable remuneration.
Since variable remuneration involves the delivery of shares of the Bank, the board of directors submitted to the shareholders at the 2019 annual general
shareholders’ meeting, which so approved, the application of the fourth cycle of the Deferred Variable Remuneration Plan Linked to Multi-Year Targets, through
which the aforementioned variable remuneration for executive directors is instrumented.
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The payment schedule of the incentive is illustrated below.
All deferred payments, whether or not subject to long-term
objectives, are subject to malus.
Similarly, the incentives already paid will be subject to
clawback by the Bank in the scenarios and for the period set
forth in the Group’s malus and clawback policy.
ii) Quantitative metrics and qualitative assessment for 2019
The variable remuneration for executive directors in 2019
factored in the quantitative metrics and qualitative factors
approved by the board at the beginning of 2019 at the
proposal of the remuneration committee3, which has taken
into account the policy referred to in the paragraphs above
and the work of the human resources committee4. The
result of aggregating the quantitative and qualitative
weighted results is as follows:
3
4
Before determining the variable remuneration of executive directors and other senior managers, the committee receives a joint report from the risk compliance,
audit and financial control functions of the Group identifying material errors which occurred during the year and satisfying itself that this has been appropiately
reflected in the compensation proposals for each of these executives.
This committee was aided by members of senior management who are also responsible for different functions in the Group, including risk, internal audit,
compliance, general secretariat and human resources, financial management, financial accounting and control. Their role in this committee consisted of analysing
quantitative metrics information, undertaking a qualitative analysis, and considering whether or not to apply exceptional adjustments. This analysis included
different matters related to risk, capital, liquidity, quality and recurrence of results, and other compliance and control matters.
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Category and
(weight)
Customers (20%)
Risks (10%)
Capital (20%)
Quantitative metrics
Qualitative
Metrics
Assessment
Weighted
assessmentA
Component
Assessment
Net Promoter
Score (NPS)C
Number of
loyal
customersD
Non-
performing
loans ratio
Cost of Credit
Ratio (IFRS9)
Capital ratio
(CET1)
105.2%
10.5%
101.3%
10.1%
Effective compliance with
the objectives of the rules
on risk conduct in respect
of customers.
+3% - Strengthened
management of conduct
risk, including internal
governance processes
108.0%
5.4%
106.2%
5.3%
Appropriate management
of risk appetite and
excesses recognised.
+1.3%. No relevant non-
compliance in risk
appetite. Improvement of
fundamental controls
147.5%
29.5% Efficient capital
management.
+3.6%- Exceeded capital
plan, with more
sustainable growth, while
complying with enhanced
regulatory capital
requirements
Total
weighted
scoreB
23.6%
12.0%
33.1%
Return (50%)
Ordinary net
profit (ONP)E
97.6%
19.5% Suitability of business
+3.1%
52.5%
growth compared to the
previous year, considering
the market environment
and competitors.
RoTE - Return
on Tangible
Equity
96.0%
28.8% Sustainability and solidity +1.1%
of results. Efficient cost
management and
achievement of efficiency
goals.
Exceptional
adjustment
Elements (non-exhaustive)
under consideration: macro-
economic environment, general
control environment,
compliance with internal and
external regulations, prudent
and efficient liquidity and
capital planning management.
Although the underlying business performance
resulted in a bonus calculus of 121.26%, there has
been a management proposal, supported by the
Remuneration Committee and approved by the Board
of Directors, to exercise downward discretion to the
2019 variable remuneration to better align with
challenging market environment and subsequent
attributable profit and shareholder returns.
(-14.5%)
This results in a 12% reduction of total variable
remuneration for the Chairwoman and the CEO in
2019.
TOTAL
106.7%
A. The weighted assessment is the result of multiplying the assessment of each objective by the weight of each objective. When there is more than one objective in the
category and save for Note E below, the weight of each objective in the category is the same.
B. Result of adding or substracting the qualitative assessment to the weighted assessment.
C. Net Promoter Core (NPS) measures the customers' willingness to recommend Santander. The assessment is based on the number of the Group's main markets were
Santander NPS scores in top 3. The objectives for this metric were exceeded in 2019, with top 3 NPS score in 8 of the 9 main markets of the Group.
D. The number of loyal clients at closing of 2019 has been 21,556 thousand, exceeding budget in 267 thousand.
E. For this purpose, ONP is attributed ordinary net profit, adjusted upwards or downwards for those transactions that, in the opinion of the board, have an impact outside
of the performance of the directors being evaluated, whereby extraordinary profit, corporate transactions, special allowances, or accounting or legal adjustments that
may occur during the year are evaluated for this purpose.
The specific weight of ONP in the total scorecard is 20% and RoTE is 30%.
The individual variable remuneration approved by the board
is set out in the section below.
It was also verified that none of the following circumstances
have occurred:
iii) Determination of the individual variable remuneration
for executive directors in 2019
The board approved the variable remuneration of the
executive directors, at the proposal of the remuneration
committee, taking into account the policy referred to in the
paragraphs above and the result of the quantitative metrics
and qualitative assessment set out in the section above.
• The Group’s ONP5 for 2019 was not less than 50% of that
for 2018. If this had occurred, the variable remuneration
would not have been greater than 50% of the benchmark
incentive.
• The Group’s ONP has not been negative. If this had
occurred, the incentive would have been zero.
For Ms Ana Botín and Mr José Antonio Álvarez the board
resolved to maintain in 2019 the same benchmark incentive
as in 2018.
5
For this purpose, ONP is attributed ordinary net profit, adjusted upwards or downwards for those transactions that, in the opinion of the board, have an impact
outside of the performance of the directors being evaluated, whereby extraordinary profit, corporate transactions, special allowances, or accounting or legal
adjustments that may occur during the year are evaluated for this purpose.
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Variable contributions to pensions have not been modified
in 2019, so the amounts are the 22% of the 30% of the last
three assigned bonus' average.
As a result of the aforementioned process, and following a
proposal by the remuneration committee, the board of
directors has approved a reduction in the variable
remuneration of the Chairman and CEO of 12% from 2018,
as shown in the following chart, which includes the
amounts of variable remuneration payable immediately and
deferred amounts not linked to long-term metrics, as well
as in the chart following the one below, which includes
variable remuneration deferred and linked to linked to long-
term objectives:
Immediately payable and deferred (not linked to long-term objectives) variable remuneration
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
2019
In cash
In shares
2,084
1,393
640
4,117
2,084
1,393
640
4,117
Total
4,168
2,786
1,280
8,234
2018
In cash
In shares
2,368
1,582
1,256
5,206
2,368
1,582
1,256
5,206
Total
4,736
3,164
2,512
10,412
A. Ceased to be an executive director on 30 April 2019. Non-executive director since 1 May 2019. Immediate and deferred variable remuneration (not linked to long-term
objectives) included until termination date as executive director.
B. The share amounts in the foregoing table correspond to a total of 1,122 thousand shares in Banco Santander (1,211 thousand shares in 2018).
The deferred portion of the variable remuneration, which
will only be received, in 2023, 2024 and 2025, if the
aforementioned long-term multi-year targets are met (see
section 6.3 B iv)), on condition that the beneficiaries
continue to be employed at the Group, in the terms agreed
by the Shareholders Meeting, and provided malus and
clawback clauses have not been triggered, is stated at its
fair value in the following chart6:
Deferred variable remuneration linked to long-term objectives
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
2019
In cash
In shares
821
548
252
821
548
252
1,621
1,621
Total
1,642
1,096
504
3,242
2018
In cash
In shares
932
623
495
932
623
495
2,050
2,050
Total
1,864
1,246
990
4,100
A. Ceased to be an executive director on 30 April 2019. Non-executive director since 1 May 2019. Immediate and deferred variable remuneration (not linked to long-term
objectives) included until termination date as an executive director.
B. The share amounts in the foregoing table correspond to a total of 442 thousand shares in Banco Santander (477 thousand shares in 2018).
6
Corresponding to the fair value of the maximum amount to be received over a total of 3 years, subject to continued service -with the exceptions envisaged-, non-
applicability of malus clauses and compliance with the defined goals. Fair value was estimated at the plan award date, taking into account various possible scenarios
for the different variables contained in the plan during the measurement periods.
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The fair value has been determined at the grant date based
on the valuation report of an independent expert, Willis
Towers Watson. According to the design of the plan for
2019 and the levels of achievement of similar plans in
comparable entities, the expert concluded that the
reasonable range for estimating the initial achievement
ratio is in the range of 60% - 80%. Accordingly, it has been
considered that the fair value is 70% of the maximum.
The maximum total number of shares relating to the plan
(1,753 shares without the fair value adjustment) is within
the maximum limit of 3,134 thousand shares authorised for
executive directors by the shareholders at the general
shareholders’ meeting of 12 April 2019, and has been
calculated on the basis of the average weighted daily
volume of the average weighted listing prices of Santander
shares for the 15 trading sessions prior to the Friday (not
inclusive) before 28 January 2020 (the date on which the
board approved the bonus for the executive directors for
2019), which was 3.67 euros per share.
iv) Multi-year targets linked to the payment of deferred
amounts in 2023, 2024 and 2025
The multi-year targets linked to the payment of the
deferred amounts payable in 2023, 2024 and 2025 are
summarised as follows:
A
B
C
Metrics
Earnings per share (EPS) growth in 2021
vs 2018
Relative Total Shareholder Return (TSR)A
in 2019-2021 within a peer group
Fully loaded target common equity Tier 1
ratio (CET1)B for 2021
Weight
33%
Target and compliance scales (metrics ratios)
If EPS growth 15%, then metric ratio is 1
If EPS growth 10% but < 15%, then metric ratio is 0 – 1C
If EPS growth < 10%, then metric ratio is 0
33%
33%
If ranking of Santander above percentile 66, then metric ratio is 1
If ranking of Santander between percentiles 33 and 66, then ratio is 0 – 1D
If ranking of Santander below percentile 33, then metric ratio is 0
If CET1 is
If CET1 is
If CET1 is < 11.5%, then metric ratio is 0
12%, then metric ratio is 1
11.50% but < 12%, then metric ratio is 0 – 1E
A. For this purpose, TSR refers to the difference (expressed as a percentage) between the final value of an investment in ordinary shares of Banco Santander and the initial
value of the same investment. This will be calculated factoring into the calculation of the final value the dividends or other similar instruments (such as the Santander
Scrip Dividend Programme) received by the shareholder in relation to this investment during the corresponding period of time, as if an investment had been made in
more shares of the same type at the first date on which the dividend or similar concept was payable to shareholders and the weighted average share price at that date.
To calculate TSR, the average weighted daily volume of the average weighted listing prices for the fifteen trading sessions prior to 1 January 2019 (exclusive) is taken
into consideration (to calculate the initial value) and that of the fifteen trading sessions prior to 1 January 2022 (exclusive) (to calculate the final value).
The peer group comprises the following 9 entities: BBVA, BNP Paribas, Citi, Credit Agricole, HSBC, ING, Itaú, Scotia Bank and Unicredit.
B. To verify compliance with this objective, possible increases in CET1 resulting from capital increases shall be disregarded (with the exception of those related to the
Santander Scrip Dividend programme). Further, the CET1 ratio as at 31 December 2021 could be adjusted to strip out the impact of any regulatory changes affecting its
calculation implemented until that date.
C. Linear increase in the EPS ratio based on the specific percentage that EPS growth in 2021 represents with respect to 2018 EPS within this bracket of the scale.
D. Proportional increase in the TSR ratio based on the number of positions moved up in the ranking.
E. Linear increase in the CET1 coefficient as a function of the CET1 ratio in 2021 within this bracket of the scale.
To determine the annual amount of the deferred portion
linked to objectives corresponding to each board member in
2023, 2024 and 2025, the following formula shall be
applied to each of these payments ('Final annuity') without
prejudice to any adjustment deriving from the malus
clauses:
• 'B' is the TSR ratio according to the scale in the table
above, according to the relative performance of the
Bank’s TSR within its peer group in 2019-2021.
• 'C' is the CET1 ratio according to compliance with the
CET1 target for 2021 described in the table above.
Final annuity = Amt. x (1/3 x A + 1/3 x B + 1/3 x C)
v) Malus and clawback
where:
• 'Amt.' is one third of the variable remuneration amount
deferred conditional on performance (i.e. Amt. will be
12% of the total variable remuneration set in early 2020).
• 'A' is the EPS ratio according to the scale in the table
above, based on EPS growth in 2021 vs 2018.
Accrual of the deferred amounts (whether or not linked to
multi-year targets) is also conditional upon the beneficiary’s
continued service in the Group7, as well as upon none of the
circumstances arising, in the period prior to each payment,
that give rise to the application of malus arrangements in
accordance with the section on malus and clawback clauses
in the Group’s remuneration policy. Similarly, the variable
7
When the relationship with Banco Santander or another Santander Group entity is terminated due to retirement, early retirement or pre-retirement of the beneficiary, a
dismissal considered by the courts to be improper, unilateral withdrawal for good cause by an employee (which includes, in any case, the situations set forth in article 10.3
of Royal Decree 1382/1985, of 1 August, governing the special relationship of senior management, for the persons subject to these rules), permanent disability or death,
or as a result of an employer other than Banco Santander ceasing to belong to the Santander Group, as well as in those cases of mandatory redundancy, the right to receive
shares and deferred amounts in cash and, where applicable, the amounts arising from the adjustment for inflation of the deferred amounts in cash shall remain under the
same conditions in force as if none of such circumstances had occurred. In the case of death, the right shall pass to the successors of the beneficiary.
In cases of justified temporary leave due to temporary disability, suspension of the contract due to maternity or paternity leave, or leave to care for children or a relative,
there shall be no change in the rights of the beneficiary. If the beneficiary goes to another Santander Group company (including through international assignment and/or
expatriation), there shall be no change in the rights thereof. If the relationship is terminated by mutual agreement or because the beneficiary obtains a leave not referred
to in any of the preceding paragraphs, the terms of the termination or temporary leave agreement shall apply.
None of the above circumstances shall give the right to receive the deferred amount in advance. If the beneficiary or the successors thereof maintain the right to receive
the deferred remuneration in shares and cash and, where applicable, the amounts arising from the adjustment for inflation of the deferred amounts in cash, it shall be
delivered within the periods and under the terms provided in the rules for the plans.
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remuneration already paid will be subject to clawback by
the Bank in the scenarios and for the period set forth in said
policy, all under the terms and conditions provided.
contributions to the system, and replaced their previous
right to receive a pension supplement in the event of
retirement.
The variable remuneration corresponding to 2019 is subject
to clawback until the beginning of 2026.
Malus and clawback clauses are triggered in situations in
which there is poor financial performance of the Bank as a
whole or a specific division or area thereof or of the
exposure generated by staff, taking into account at least the
following:
Category
Factors
Risk
Capital
Regulation and
internal codes
Conduct
Significant failures in risk management by
the Bank, or by a business or risk control
unit.
An increase in capital requirements at the
Bank or one of its business units not
planned at the time that exposure was
generated.
Regulatory penalties or legal convictions
for events that might be attributable to the
unit or staff responsible for them. In
addition, failure to comply with the Bank’s
internal codes of conduct.
Improper conduct, whether individual or
collective. Negative effects deriving from
the marketing of unsuitable products and
the liability of persons or bodies making
such decisions will be considered especially
significant.
The application of malus or clawback clauses for executive
directors shall be determined by the board of directors, at
the proposal of the remuneration committee, and cannot be
proposed once the retention period related to the final
payment in shares in accordance with the plan has elapsed
in the beginning of 2026. Consequently, the board of
directors, at the proposal of the remuneration committee
and depending on the level of compliance with the
aforementioned conditions regarding malus clauses, shall
determine the specific amount of the deferred incentive to
be paid and, where applicable, the amount that could be
subject to clawback.
C. Main features of the benefit plans
The executive directors other than Mr Rodrigo Echenique
participate in the defined benefit system created in 2012,
which covers the contingencies of retirement, disability and
death.
In the event of pre-retirement and up until the retirement
date, the executive directors other than Mr Rodrigo
Echenique have the right to receive an annual allotment. In
the case of Ms Ana Botín, this allotment is the sum of her
fixed remuneration and 30% of the average of the three
remunerations as a maximum. In the case of Mr José
Antonio Álvarez, this allotment is the fixed remuneration
paid as senior vice president.
According to the 2012 system, executive director contracts
(and of other members of the Bank’s senior management)
with defined benefit pension commitments were amended
to transform them into a defined contribution system, under
which the Bank makes annual contributions to the benefit
plans . The new system gives executive directors the right to
receive benefits upon retirement regardless of whether or
not they are active at the Bank at such time, based on
The initial balance for each of the executive directors in the
new defined benefits system corresponded to the market
value of the assets from which the provisions corresponding
to the respective accrued obligations had materialised on
the date on which the old pension commitments were
transferred into the new benefits system.
Since 2013, the Bank has made annual contributions to the
benefits system in favour of executive directors and senior
executives, in proportion to their respective pensionable
bases, until they leave the Group or until their retirement
within the Group, death, or disability (including, if
applicable, during pre-retirement). The pensionable base
for the purposes of the annual contributions for the
executive directors is the sum of fixed remuneration plus
30% of the average of their last three variable remuneration
amounts (or, in the event of Mr José Antonio Álvarez’s pre-
retirement, his fixed remuneration as a senior executive vice
president). The contributions will be 22% of the
pensionable bases in all cases.
Mr Rodrigo Echenique's contract does not provide for any
charge to Banco Santander regarding benefits, without
prejudice to the pension rights to which he was entitled
prior to his appointment as executive director.
Further to applicable remuneration regulations, the
contributions calculated on the basis of variable
remuneration are subject to the discretionary pension
benefits scheme. Under this scheme, these contributions
are subject to malus and clawback clauses in accordance
with the policy in place at any given time and during the
same period in which variable remuneration is deferred.
Furthermore, they must be invested in shares of the Bank
for a period of five years from the date that the executive
director leaves the Group, regardless of whether or not they
leave to retire. Once that period has elapsed, the amount
invested in shares will be reinvested, along with the
remainder of the cumulative balance corresponding to the
executive director, or it will be paid to the executive director
or to their beneficiaries in the event of a contingency
covered by the benefits system.
The benefit plan is outsourced to Santander Seguros y
Reaseguros, Compañía Aseguradora, S.A., and the economic
rights of the foregoing directors under this plan belong to
them regardless of whether or not they are active at the
Bank at the time of their retirement, death or disability. The
contracts of these directors do not provide for any severance
payment in the event of termination other than as may be
required by law, and, in the case of pre-retirement, to the
aforementioned annual allotment.
Until March 2018, the system also included a
supplementary benefits scheme for cases of death (death of
spouse and death of parent) and permanent disability of
serving directors envisaged in the contracts of Ms Ana Botín
and Mr José Antonio Álvarez.
As per the director's remuneration policy approved at the 23
March 2018 general shareholder´s meeting, the system
includes contributions at 22% of the respective pensionable
base (which consists in the sum of the fixed remuneration
223
Note 5 to the Group´s consolidated financial statements
provides more detailed information about other benefits
received by the executive directors.
E. Holding shares
Following a proposal submitted by the remuneration
committee, in 2016 the board of directors approved a share
holding policy aimed at strengthening the alignment of
executive directors with shareholders’ long-term interests.
According to this policy, each executive director active on 1
January 2016 would have five years in which to
demonstrate that their personal assets include an
investment in the Bank’s shares equivalent to twice the net
tax amount of their gross annual salary at the same date.
The shareholding policy also reflects the executive
directors’ commitment to maintaining a significant personal
investment in the Bank’s shares while they are actively
performing their duties within the Group.
F. Remuneration of board members as representatives of
the Bank
By resolution of the executive committee, all remuneration
received by the Bank’s directors who represent the Bank on
the boards of directors of companies in which it has an
interest and which relates to appointments made after 18
March 2002, will accrue to the Group. The executive
directors of the Bank received no remuneration from this
type of representation in 2019 or 2018.
On the other hand, Mr, Alvaro Cardoso de Souza, as non-
executive Chairman of Banco Santander (Brasil) S.A.,
received in 2019 a remuneration of 1.752 thousand
Brazilian reales (397 thousand euros), and Mr. Rodrigo
Echenique, received a remuneration of 666 thousand euros
for his role as Chairman of the board of the Santander Spain
business unit for the period from 1 May 2019 to 31
December 2019.
G. Individual remuneration of directors for all items in
2019
The detail, by Bank director, of salary remuneration payable
in the short term (or immediately) and of deferred
remuneration not linked to long-term goals for 2019 and
2018 is provided below. The Note 5 to the Group
consolidated financial statements contains disclosures on
the shares delivered in 2019 by virtue of the deferred
remuneration schemes in place in previous years, the
conditions for delivery of which were met in the related
years.
Table of Contents
plus 30% of the average of the last three variable
remuneration payments), and supplementary benefits
scheme were eliminated from 1 April 2018, increasing the
sum insured in the life accident insurance and setting a fixed
remuneration supplement in cash reflected in "Other
remuneration".
The provisions recognised in 2019 for retirement pensions a
amounted to 2,003 thousand euros (2,284 thousand euros
in 2018), as broken down below.
EUR thousand
2019
2018
Ms Ana Botín-Sanz de Sautuola y
O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
1,145
858
—
2,003
1,234
1,050
—
2,284
The balance in the benefits system corresponding to each of
the executive directors at 31 December 2018 and 2017 is as
follows:
EUR thousand
2019
2018
Ms Ana Botín-Sanz de Sautuola y
O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
48,104
17,404
13,268
78,776
46,093
16,630
13,614
76,337
A. Mr Rodrigo Echenique does not participate in the defined pensions scheme
described in the preceding paragraphs. However, as a previous executive
director and for informational purposes, this year’s table includes the rights
to which he was entitled prior to his designation as such. The payments
made to him in 2018 with respect to his participation in this plan amounted
to EUR 0.9 million euros (EUR 0.9 million euros in 2017).
D. Other remuneration
In addition to the above, the Group has insurance policies
for life, health and other contingencies for the executive
directors of the Bank. This other remuneration component
also includes the fixed supplement approved for Ms Ana
Botín and Mr José Antonio Álvarez to replace the
supplementary benefits in the benefit systems eliminated
in 2018, as well as the cost for insuring death or disability
until their retirement date. Similarly, the executive directors
are covered under the civil liability insurance policy
contracted by the Bank.
Mr. Rodrigo Echenique has received an amount of 1,800
thousand euros in compensation for his two year non-
compete commitment from the date he has ceased in his
role as executive director, 30 April 2019.
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Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
EUR thousand
2019
2018
Bylaw-stipulated
emoluments
Board and
board
committees
annual
allotment
Board and
committee
attendance
fees
Salary remuneration of executive directors
Immediat
e payment
(50% in
shares)
Deferred
payment
(50% in
shares)
Fixed
Pension
contribution
Other
remunerationH
Total
Total
Total
59
3,176
2,605
1,563
7,344
1,145
1,131
9,954
10,483
53
2,541
1,741
1,044
5,326
858
1,773
8,270
8,645
Directors
Ms Ana Botín-Sanz de
Sautuola y O’Shea
Mr José Antonio
Álvarez Álvarez
Mr Bruce Carnegie-
Brown
Mr Rodrigo Echenique
Gordillo (A)
Mr Guillermo de la
Dehesa Romero
Ms Homaira Akbari
Mr Ignacio Benjumea
Cabeza de Vaca
Mr Francisco Javier
Botín-Sanz de
Sautuola y O’Shea (B)
Ms Sol Daurella
Comadrán
Ms Esther Giménez-
Salinas i Colomer
Ms Belén Romana
García
Mr Ramiro Mato
García-Ansorena
Mr Álvaro Cardoso de
Souza (C)
Mr Henrique Manuel
Drummond Borges
Cirne de Castro (D)
Mrs Pamela Ann
Walkden (E)
Mr Carlos Fernández
González (F)
Mr Juan Miguel Villar
Mir (G)
Total 2019
Total 2018
275
260
613
163
310
145
340
90
155
149
425
405
215
53
23
149
0
3,770
3,744
87
0
0
0
0
56
600
800
480
1,880
89
81
93
47
85
79
100
95
61
33
11
65
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,094
6,317
872
7,517
5,146
6,508
3,087 14,550
3,904 17,929
2,003
2,284
A. Ceased to be an executive director on 30 April 2019. Non-executive director since 1 May 2019.
B. All amounts received were reimbursed to Fundación Botín.
C. Director since 23 March 2018.
D. Director since 17 July 2019.
E. Director since 29 October 2019.
F. Ceased to be a director on 28 October 2019
G. Ceased to be a director on 1 January 2019
H. Includes committee chairmanship and other role emoluments.
0
700
732
2,775
4,874
4,830
0
0
399
226
91
524
441
199
513
137
121
240
215
228
196
525
414
500
276
86
34
450
148
0
0
214
266
0
0
0
0
0
0
0
0
0
0
5,770 27,187
0
108
0
2,932
0
27,761
225
Table of Contents
In addition, the following table provides the individual detail
of the salary remuneration of executive directors linked to
multi-year targets, which will only be paid if the conditions
of continued service at the Group, non-applicability of the
malus clauses and compliance with the defined multi-year
targets are fulfilled (or, as applicable, of the minimum
thresholds of these, with the consequent reduction of the
agreed amount at the end of the year).
I. Summary of remuneration of executive directors and
underlying attributable profit
The following chart shows an overview of the compensation
(short-term remuneration, deferred variable remuneration
and/or deferred variable remuneration linked to multi-year
targets) of the directors performing executive duties as
compared with underlying attributable profit.
Executive directors’ total remuneration as % of underlying
attributable profit
The variable remuneration received by the executive
directors is also shown below as a percentage of the cash
dividends paid.
Variable remuneration for all executives directors as % of
cash dividends
J. Summary of link between risk, performance and reward
Banco Santander's remuneration policy and its
implementation in 2019 promote sound and effective risk
management while supporting business objectives. The key
elements of the remuneration policy for executive directors
making for alignment between risk, performance and
reward in 2019 were as follows:
Ms Ana Botín-Sanz de Sautuola y
O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
EUR thousand
2019
2018
(50% in shares)
(50% in shares)
1,641
1,097
504
3,242
1,864
1,246
990
4,100
A. Fair value of the maximum amount receivable over a total of 3 years (2023,
2024 and 2025), which was estimated at the plan award date, taking into
account various possible scenarios for the different variables contained in
the plan during the measurement periods.
B. Ceased to be an executive director on 30 April 2019. non-executive director
since 1 May 2019.
H. Ratio of variable to fixed components of remuneration
in 2019
Shareholders at the general shareholders’ meeting of 23
March 2018 approved a maximum ratio between variable
and fixed components of executive directors’ remuneration
of 200%.
The following table shows the percentage of the variable
components of total remuneration compared to the fixed
components for each executive director in 2019. As a result
of the 12% reduction in Ms. Ana Botín's and Mr. José
Antonio Álvarez's variable remuneration from 2018 detailed
in B.iii above, this ratio has been reduced from 2018 in 15%,
in the case of Ms. Ana Botín, and in 9% in the case of Mr.
José Antonio Álvarez.
Executive directors
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
For these purposes:
Variable Components /
fixed components (%)
130%
90%
112%
• The variable components of remuneration include all
items of this nature, including the portion of
contributions to the benefits system that are calculated
on the variable remuneration of the related director.
• The fixed components of remuneration include the other
items of remuneration that each director receives for the
performance of executive duties, including contributions
to the benefits systems calculated on the basis of fixed
remuneration and other benefits, as well as all bylaw-
stipulated emoluments that the director in question is
entitled to receive in his or her capacity as such.
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Responsible Corporate
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Economic
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governance
Risk management
and control
Key words
Metrics balance
Financial thresholds
Long-term objectives
Risk, performance and reward alignment element
The balance of quantitative metrics and qualitative assessment, including customer, risk, capital and risk
related profitability, used to determine the executive directors´ variable remuneration.
The adjustment to variable remuneration if certain financial thresholds are not reached, which may limit
the variable remuneration to 50% of the previous year´s amount or lead to it not being awarded at all.
The long-term objectives linked to the last three portions of the deferred variable remuneration. These
objectives are directly associated with return to shareholders relative to a peer group, earnings per share
and maintaining a sound capital base.
Individual performance
The discretion of the board to consider the performance of each executive director in the award of their
individual variable remuneration.
Variable remuneration cap
200% of fixed remuneration.
Control functions involvement
The work undertaken by the human resources committee aided by members of senior management
leading control functions in relation to the analysis of quantitative metrics information and undertaking
qualitative analysis.
Malus and clawback
Malus can be applied to unvested deferred awards and clawback can be applied to vested or paid awards
under the conditions and in situations set out in the Group´s remuneration policy.
Payment in shares
At least 50% of variable remuneration is paid in shares subject to a one-year retention period after delivery.
6.4 Directors remuneration policy
for 2020, 2021 and 2022 that is
submitted to a binding vote of the
shareholders
Principles of the remuneration policy and
remuneration system
A.Remuneration of directors in their capacity as such
The director remuneration system is regulated by article 58
of the Bylaws of Banco Santander and article 33 of the rules
and regulations of the board. No changes in the principles
or composition of the remuneration of directors for the
performance of supervisory and collective decision-making
duties are planned in 2020, 2021 and 2022 with respect to
those in 2019. They are set forth in sections 6.1 and 6.2.
B. Remuneration of executive directors
For the performance of executive duties, executive directors
shall be entitled to receive remuneration (including, if
applicable, salaries, incentives, bonuses, possible severance
payments for early termination from such duties, and
amounts to be paid by the Bank for insurance premiums or
contributions to savings schemes) which, following a
proposal from the remuneration committee and by
resolution of the board of directors, is deemed to be
appropriate, subject to the limits of applicable law. No
changes in the principles of the remuneration of executive
directors for the performance of executive duties are
planned in 2020, 2021 and 2022. They are set forth in
sections 6.1 and 6.3.
Banco Santander performs an annual comparative review of
the total compensation of executive directors and other
senior executives above. The 'peer group' will comprise in
2020 the following entities: BBVA, BNP Paribas, Citi, Credit
Agricole, HSBC, ING, Itaú, Scotia Bank and Unicredit.
Remuneration of directors for 2020
A. Remuneration of directors in their capacity as such
In 2020, the directors, in their capacity as such, shall
continue to receive remuneration for the performance of
supervisory and collective decision-making duties for a
collective amount of up to 6 million euros as authorised by
the shareholders at the 2019 annual general shareholders’
meeting (and again subject to approval by the shareholders
at the 2020 general shareholders’ meeting), with two
components:
• Annual allocation; and
• Attendance fees.
The specific amount payable for the above-mentioned items
to each of the directors and the form of payment thereof
shall be determined by the board of directors under the
terms set forth in section 6.2 above, bearing in mind the
specific circumstances of each case .
In addition, as stated in the description of the director
remuneration system, the Bank will pay in 2020 the
premium for the civil liability insurance for its directors,
obtained upon customary market terms and proportional to
the circumstances of the Bank.
B. Remuneration of directors for the performance of
executive duties
i) Fixed components of remuneration
A) Gross annual salary
At the proposal of the committee, the board resolved that
Ms Ana Botín and Mr José Antonio Álvarez would maintain
their same gross annual salaries in 2020 as in 2019.
In any event, their gross annual salary may be increased as
a consequence of a change in the mix of fixed components
of remuneration, based on the criteria approved at any
given time by the remuneration committee, provided that
modification does not entail an increase in costs for the
Bank.
227
The variable components of the executive directors’ total
remuneration for 2020 must not exceed the limit of 200% of
the fixed components which is submitted for approval by
the 2020 general shareholders meeting. Although the
European regulation on remuneration allows certain
variable components of an exceptional nature to be
excluded.
A) Benchmark incentive
Variable remuneration for executive directors in 2020 shall
be determined based on a standard benchmark incentive
conditional upon compliance with 100% of the established
targets. The board of directors, at the proposal of the
remuneration committee and based on market and internal
contribution criteria, may review the benchmark variable
remuneration.
B) Setting the final incentive based on results for the year
Based on the aforementioned benchmark standard, the
2020 variable remuneration for executive directors shall be
set on the basis of the following key factors:
• A group of short-term quantitative metrics measured
against annual objectives.
• A qualitative assessment which cannot adjust the
quantitative result by more than 25% upwards or
downwards.
• An exceptional adjustment that must be supported by
substantiated evidence and that may involve changes
prompted by deficiencies in control and/or risks, negative
assessments from supervisors or unexpected material
events.
Table of Contents
B) Other fixed components of remuneration
• Benefits systems: defined contribution plans8 as set out
in section 'Pre-retirement and benefit plans'.
• Fixed salary supplement: Ms Ana Botín will receive a
fixed salary supplement approved in 2018 when the
death and disability supplementary benefits systems was
eliminated for an amount of 525 thousand euros in 2020
and Mr José Antonio Álvarez will receive 710 thousand
euros in the same year.
• Social welfare benefits: executive directors will also
receive certain social welfare benefits such as life
insurance premiums, medical insurance and, if applicable,
the allocation of remuneration for employee loans, in
accordance with the customary policy established by the
Bank for senior management and in identical terms as the
rest of employees. Additional information is included in
the 'Pre-retirement and benefit plans' section.
ii) Variable components of remuneration
The variable remuneration policy for executive directors for
2020, which was approved by the board at the proposal of
the remuneration committee, is based on the principles of
the remuneration policy described in section 6.3.
The variable remuneration of executive directors consists of
a single incentive scheme9, linked to the achievement of
short-and long-term goals, structured as follows:
• The final amount of the variable remuneration shall be
determined at the start of the following year (2021)
based on the benchmark amount and subject to
compliance with the annual objectives described in
section B) below.
• 40% of the incentive shall be paid immediately once the
final amount has been determined and the remaining
60% shall be deferred in equal parts over five years, and
subject to long term metrics, as follows:
• The payment of the amount deferred over the first two
years (24% of the total), payable in the two following
years, 2022 and 2023, shall be conditional on none of
the malus clauses described in section 6.3 B vi) above
being triggered.
• The amount deferred over the next three years (36% of
the total), payable in 2024, 2025 and 2026, shall be
conditional not only on the malus clauses not being
triggered but also on the executive achieving the long-
term objectives described in section the D) below
(deferred incentive subject to long-term performance
objectives).
Similarly, the incentives already paid will be subject to
clawback by the Bank in the scenarios and for the period set
forth in the Group’s malus and clawback policy, to which
section 6.3 B vi) above refers.
Exceptionally, in the case of the hiring of a new director
with an executive role in Banco Santander, the variable
remuneration may include sign-on bonus and/or buyouts.
8
9
As stated in the section below, contributions to the benefits systems for the executive directors include both fixed components and variable components.
In addition, and as stated in section below, contributions to the benefits systems for the executive directors include both fixed components and variable
components, which become part of the total variable remuneration.
228
2019 Annual Report
Responsible Corporate
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and control
The detailed quantitative metrics, qualitative assessment
factors and weightings are indicated in the following
scorecard:
Category and
weighting
Quantitative
metrics
Customers
(20%)
Risks
(10%)
NPS/CSIA
Number of
loyal
customers
Non-
performing
loans ratio
Cost of credit
ratio (IFRS 9)
Qualitative assessment
Effective compliance with
the objectives of the rules on
risk conduct in respect of
customers.
Appropriate management of
risk appetite and excesses
recognised.
Adequate management of
operational risk.
Capital
(20%)
Capital ratio
(CET1) B
Efficient capital
management.
Return Ordinary net
profit (ONP)C
(50%)
(20%) RoTE:
return on
tangible
equityB (30%)
)
%
0
8
(
s
r
e
d
l
o
h
e
r
a
h
S
Suitability of business
growth compared to the
previous year, considering
the market environment and
competitors.
Sustainability and solidity of
results.
Progress against the 11
public commitments for
responsible banking included
in the 2019 Highlights
section of the responsible
banking report.
Efficient cost management
and achievement of
efficiency goals.
A. Net promoter score / customer satisfaction index.
B. For this purpose, the capital ratio (CET1) and the RoTE will be adjusted
upwards or downwards to reflect the adjustments made to the ONP
pursuant to note C.
C. For this purpose, ONP is attributed ordinary net profit, adjusted upwards or
downwards for those transactions that, in the opinion of the board, have an
impact outside of the performance of the directors being evaluated,
whereby extraordinary profit, corporate transactions, special allowances, or
accounting or legal adjustments that may occur during the year are
evaluated for this purpose.
Lastly, and as additional conditions, in determining the
incentive, verification is required on whether or not the
following circumstances have occurred:
• If the Group’s ONP for 2019 is less than 50% of the ONP
for 2018, the incentive would in no case exceed 50% of
the benchmark incentive for 2019.
• If the Group’s ONP is negative, the incentive would be
zero.
When determining individual bonuses, the board will also
take into account whether any restrictions to the dividend
policy have been imposed by supervisory authorities.
C) Form of payment of the incentive
Variable remuneration is paid 50% in cash and 50% in
shares, one portion in 2021 and the deferred portion over
five years and subject to long-term metrics, as follows:
a) 40% of the incentive is paid in 2021 net of taxes, half in
cash and half in shares.
b) 60% is paid, if applicable, in five equal parts in 2022,
2023, 2024, 2025 and 2026, net of taxes, half in cash
and half in shares, subject to the conditions stipulated
in section E) below.
The last three payments shall also be conditional upon the
long-term objectives described in section D) below.
The portion paid in shares may not be sold until one year
has elapsed from delivery thereof.
D) Deferred variable remuneration subject to long-term
objectives
As indicated above, the amounts deferred in 2024, 2025
and 2026 shall be conditional upon, in addition to the terms
described in section E) below, compliance with the Group’s
long-term objectives for 2020-2022. The long-term metrics
are as follows:
(a) Compliance with the consolidated EPS growth target of
Banco Santander in 2022 vs. 2019. The EPS ratio
relating to this target is obtained as shown in the table
below:
EPS growth in 2022
(% vs. 2019)
15%
10% but < 15%
< 5%
‘EPS Ratio'
1.5
1 – 1.5A
0 - 1A
0
A.
Straight-line increase in the EPS ratio based on the specific percentage
that EPS growth in 2022 represents with respect to 2019 EPS within this
bracket of the scale. In addition, total or partial compliance of this
objective requires that EPS growth in 2020 and 2021 is higher than 0%.
(b) Relative performance of the Bank’s total shareholder
return (TSR) in 2020-2022 compared to the weighted
TSR of a peer group comprising 9 credit institutions,
applying the appropriate TSR ratio according to the
Bank’s TSR within the peer group.
Ranking of Santander TSR
'TRS Ratio'
Above percentile 66
1
Between percentiles 33 and 66 (both 0 – 1A
inclusive)
Below percentile 33
0
A.
Proportional increase in the TSR ratio based on the number of positions
moved up in the ranking.
TSR10 measures the return on investment for shareholders
as a sum of the change in share price plus dividends and
other similar items (including the Santander Scrip Dividend
10
TSR is the difference (expressed as a percentage) between the end value of an investment in ordinary shares of Banco Santander and the initial value of the same
investment, factoring in to the calculation of the final value the dividends or other similar instruments (such as the Santander Scrip Dividend Programme) received
by the shareholder in relation to this investment during the corresponding period of time as if an investment had been made in more shares of the same type at the
first date on which the dividend or similar concept was payable to shareholders and the weighted average share price at that date. To calculate TSR, the average
weighted daily volume of the average weighted listing prices for the fifteen trading sessions prior to 1 January 2020 (exclusive) is taken into consideration (to
calculate the initial value) and that of the fifteen trading sessions prior to 1 January 2023 (exclusive) (to calculate the final value).
229
Table of Contents
programme) that shareholders may receive during the
period in question.
forth in said policy, all under the terms and conditions
provided.
The peer group comprises the following entities: BBVA, BNP
Paribas, Citi, Credit Agricole, HSBC, ING, Itaú, Scotiabank y
Unicredit.
(c) Compliance with the Santander Group’s consolidated
fully loaded target common equity tier 1 ratio (CET1)
for 2022. The CET1 ratio relating to this target is
obtained as described below:
CET1 in 2022
CET1 ratio
< 11%
1
0 - 1A
0
A. Linear increase in the CET1 ratio based on the CET1 ratio for 2022 within
this range of the scale.
To verify compliance with this objective, possible increases
in CET1 resulting from capital increases shall be disregarded
(with the exception of those related to the Santander Scrip
Dividend programme). Furthermore, the CET1 ratio at 31
December 2022 could be adjusted to strip out the impact of
any regulatory changes implemented until that date which
affect its calculation.
To determine the annual amount of the deferred variable
remuneration tied to corresponding performance , if
applicable, to each executive director in 2024, 2025 and
2026, the following formula shall be applied to each of
these payments ('Final annuity') without prejudice to any
adjustment derived from the application of the malus policy
described in section 6.3 B vi) above:
Final annuity = Amt. x (1/3 x A + 1/3 x B + 1/3 x C)
where:
• 'Amt.' is one third of the variable remuneration amount
deferred conditional on performance (i.e., Amt. will be
12% of the total incentive set in early 2020).
• 'A' is the EPS ratio according to the scale in section (a)
above, based on EPS growth in 2022 vs. 2019.
• 'B' is the TSR ratio according to the scale in section (b)
above, according to the relative performance of the TSR
within its peer group in 2020-2022.
• 'C' is the CET1 ratio according to compliance with the
CET1 target for 2021 described in section (c) above.
• Assuming in any event that if the result of (1/3 x A + 1/3 x
B + 1/3 x C) is greater than 1, the multiplier will be 1.
The estimated maximum amount to be delivered in shares
to executive directors is 11.5 million euros.
E) Other terms of the incentive
Accrual of the deferred amounts, including amounts linked
to long-term objectives, shall also be conditional upon the
beneficiary’s continued service in the Group and upon none
of the circumstances arising that give rise to the application
of malus arrangements in accordance with the section on
malus and clawback clauses in the Group’s remuneration
policy, all under terms similar to those indicated for 2019.
Similarly, the incentives already paid will be subject to
clawback by the Bank in the scenarios and for the period set
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2019 Annual Report
The hedging of Santander shares received during the
retention and deferral periods is expressly prohibited.
The effect of inflation on the deferred amounts in cash may
be offset.
The sale of shares is also prohibited for at least one year
from the receipt thereof.
The remuneration committee may propose to the board
adjustments in variable remuneration under exceptional
circumstances due to internal or external factors, such as
regulatory requirements or requests or recommendations
issued by regulatory or supervisory bodies. These
adjustments shall be described in detail in the
corresponding report of the remuneration committee and in
the annual report on director´s remuneration submitted
each year to an advisory vote of the shareholders at the
general shareholders’ meeting.
iii) Holding shares
No changes in the holding shares policy are planned with
respect to the terms in place for 2019 and set out in section
6.3 E.
Remuneration of directors for 2021 and 2022
A. Remuneration of directors in their capacity as such
No changes to the remuneration of directors in their
capacity as such for 2021 and 2022 with respect to the
remuneration described for 2020 are expected, without
prejudice to the fact that shareholders at the 2021 or 2022
annual general meeting may approve an amount higher
than the six million euros currently in force, or that the
board may determine, within such limit, a different
distribution thereof among directors.
B. Remuneration of directors for the performance of
executive duties
Remuneration of executive directors shall conform to
principles similar to those applied in 2020, with the
differences described below.
i) Fixed components of remuneration
A) Gross annual salary
The annual gross fixed remuneration may be revised each
year based on the criteria approved at any given time by the
remuneration committee, whereby the maximum increase
for 2021 and 2022 for each executive director may not
exceed 5% of their annual gross salary for the previous year.
In any event, the gross annual salary may be increased as a
consequence of a change in the mix of fixed components of
remuneration, provided that modification does not entail an
increase in costs for the Bank.
The 5% increase mentioned above may be higher for one or
several directors provided that, when applying the rules or
requirements or supervisory recommendations that may be
applicable, and if so proposed by the remuneration
committee, it is appropriate to adjust their remuneration
mix and, in particular, their variable remuneration in view of
the functions they perform.
Responsible Corporate
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Economic
and financial review
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Risk management
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Any such increase/s should not lead to an increase in the
total remuneration of these directors.
If this were to occur, it shall be described in detail in the
corresponding report of the remuneration committee and in
the annual report on director's remuneration submitted
each year to an advisory vote at the general shareholders’
meeting.
B) Other fixed components of remuneration
No changes planned with respect to the terms in place for
2020.
ii) Variable components of remuneration
The policy on variable remuneration for executive directors
for 2021 and 2022 will be based on much the same
principles as in 2020, following the same single-incentive
scheme described above, and subject to the same rules of
operation and limitations.
A) Setting the variable remuneration
Variable remuneration for 2021 and 2022 for executive
directors shall be determined based on a benchmark
incentive approved for each year which takes into account:
• A group of short-term quantitative metrics measured
against annual objectives. These metrics shall be aligned
with the Group strategic plan and include, at least,
shareholder return targets, risk objectives, capital and
customers. The metrics may be measured at Group level,
and where applicable, at division level if the executive
director is responsible for managing a specific business
division. The results of each metric may be compared to
both the budget established for the financial year as well
as to growth compared to the prior year.
• A qualitative assessment which cannot adjust the
quantitative result by more than 25% upwards or
downwards. The qualitative assessment shall be
performed on the same categories as the quantitative
metrics, including shareholder returns, risk and capital
management and customers.
• Potential exceptional adjustments that must be based on
substantiated evidence and that may involve changes
prompted by deficiencies in control and/or risks, negative
assessments from supervisors or unexpected material
events.
The quantitative metrics, qualitative assessment and
potential extraordinary adjustments will ensure that the
main objectives are considered from the perspective of
different stakeholders, and that the importance of risk and
capital management is factored in.
Lastly, in determining the incentive, verification is required
as to whether or not the following circumstances have
occurred:
• If the quantitative metrics linked to profit do not reach a
certain compliance threshold, the incentive may not be
greater than 50% of the benchmark incentive for a given
year.
• If the results of the metrics linked to profit are negative,
the incentive shall be zero.
• When determining individual bonuses, the board will also
take into account whether any restrictions to the
dividends policy have been imposed by supervisory
authorities.
B) Form of payment of the incentive
No changes in the form of payment are planned with
respect to the terms in place for 2020.
C) Deferred variable remuneration subject to long-term
objectives
The last three annual payments of the deferred amount of
each variable remuneration shall be conditional upon, in
addition to the terms described in section E) above,
compliance with the Group’s long-term objectives for at
least a three-year period, compliance with which may only
confirm or reduce the amounts and number of deferred
shares.
Long-term metrics shall at least include objectives relating
to value creation and return for shareholders and capital in a
multi-year period of at least three years. These metrics shall
be aligned with the Group’s strategic plan and reflect its
main priorities from its stakeholders’ perspective.
These metrics may be measured at the level of the Group or
of the country or business, when appropriate, and the
performance thereof may be compared against a peer
group.
The portion paid in shares of the incentives may not be sold
until at least one year has elapsed from delivery thereof.
D) Other terms of the incentive
No changes in form of payment are planned with respect to
the continuity, malus and clawback terms in place for 2020
and that are described in section E) of the remuneration
policy for 2020.
In addition, no changes are planned to the hedging
prohibition or the inflation-related adjustments on cash
deferred amounts terms set out in the same section.
iii) Holding shares
The share holding policy approved in 2016 shall apply in
2021 and 2022, unless the remuneration committee, under
exceptional circumstances such as regulatory requirements
or requests or recommendations issued by regulatory or
supervisory bodies, were to propose amendments to this
policy to the board. Any potential amendments would be
described in detail in the corresponding remuneration
committee report and in the annual report on director’s
remuneration submitted each year to an advisory vote at
the general shareholders’ meeting.
Terms and conditions of executive directors’ contracts
The terms for the provision of services by each of the
executive directors are governed by the contracts signed by
each of them with the Bank, as approved by the board of
directors.
The basic terms and conditions of the contracts of the
executive directors, besides those relating to the
remuneration mentioned above, are the following:
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A. Exclusivity and non-competition
Executive directors may not enter into contracts to provide
services to other companies or entities except where
expressly authorised by the board of directors. In all cases, a
duty of non-competition is established with respect to
companies and activities similar in nature to those of the
Bank and its consolidated Group.
In addition, executive director contracts provide for certain
prohibitions against competition and enticing of clients,
employees and suppliers that may be enforced for two
years after the termination in their executive duties for
reasons other than retirement or a breach by the Bank. The
compensation to be paid by the Bank for this duty of non-
competition is 80% of the fixed remuneration, 40% payable
on termination of the contract and 60% at the end of the
two-year period for Ms Ana Botín and Mr José Antonio
Álvarez.
B. Code of Conduct
There is an obligation to strictly observe the provisions of
the Group’s General Code and of the code of conduct in
securities markets, in particular with respect to rules of
confidentiality, professional ethics and conflicts of interest.
C. Termination
The executive directors' contracts are of indefinite duration
and do not provide for any severance payment in the case of
termination other than as may be required by law.
In the event of termination of her contract by the Bank, Ms
Ana Botín must remain available to the Bank for a period of
four months to ensure a proper transition, during which
period she would continue to receive her gross annual
salary.
D. Pre-retirement and benefit plans
The contracts of the following executive directors
acknowledge their right to pre-retire under the terms stated
below when they have not yet reached retirement age:
• Ms Ana Botín will be entitled to pre-retirement in the
event of leaving her post for reasons other than breach of
duty. In this case, she will be entitled to an annual
allotment equal to the sum of her fixed remuneration and
30% of the average amount of her last variable
remuneration, to a maximum of three. This allotment
shall be reduced by 8% in the event of voluntary
termination prior to the age of 60. This allotment is
subject to the malus and clawback provisions in place for
a period of five years.
• Mr José Antonio Álvarez will be entitled to pre-retire in
the event of leaving his post for reasons other than his
own free will or breach of duty. In that case, he will be
entitled to an annual allocation equivalent to the fixed
remuneration corresponding to him as senior executive
vice-president . This allotment is subject to the malus and
clawback provisions in place for a period of five years.
The executive directors participate in the defined
contribution system created in 2012, which covers the
contingencies of retirement, disability and death. The Bank
makes annual contributions to the benefit plans of the
executive directors who participate in the benefit system.
The annual contributions are calculated in proportion to the
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2019 Annual Report
respective pensionable bases of the executive directors, and
shall continue to be made until they leave the Group or until
their retirement within the Group, or their death or disability
(including, if applicable, during pre-retirement). The
pensionable base for the purposes of the annual
contributions for the executive directors is the sum of fixed
remuneration plus 30% of the average of their last three
variable remuneration amounts (or, in the event of Mr José
Antonio Álvarez’s pre-retirement, his fixed remuneration as
a senior executive vice president). The contributions will be
22% of the pensionable bases in all cases.
The pension amount corresponding to contributions linked
to variable remuneration will be invested in Santander
shares for a period of five years on the retirement date or, if
earlier, the cessation date, and shall be paid in cash after
five years have elapsed or, if subsequent, on the retirement
date. Moreover, the malus and clawback clauses
corresponding to contributions linked to variable
remuneration shall be applied for the same period as the
bonus or incentive upon which said contributions depend.
The benefit plan is outsourced to Santander Seguros y
Reaseguros, Compañía Aseguradora, S.A., and the economic
rights of the foregoing directors under this plan belong to
them regardless of whether or not they are active at the
Bank at the time of their retirement, death or disability. The
contracts of these directors do not provide for any severance
payment in the case of termination other than as may be
required by law, and, in the case of pre- retirement, the
aforementioned annual allotment.
E. Insurance and other remuneration and benefits in kind
Ms Ana Botín and Mr José Antonio Álvarez will receive the
fixed remuneration supplement approved as a result of the
elimination of the life and health supplementary benefitsin
2018. This supplement will be paid in 2020, 2021 and 2022
in the same amount as in 2019 and will continue to be paid
until their retirement age, even if the director is then still
active.
The Group has arranged life and health insurance policies
for the directors.
The premiums for 2020 corresponding to this insurance
include the standard life insurance and the life insurance
coverage for the aforementioned fixed remuneration
supplement. In 2021 and 2022, these premiums could vary
in the event of a change in the fixed remuneration of
directors or in their actuarial circumstances.
Similarly, executive directors are covered by the Bank’s civil
liability insurance policy.
Finally, executive directors may receive other benefits in
kind (such as employee loans) in accordance with the Bank’s
general policy and the corresponding tax treatment.
F. Confidentiality and return of documents
A strict duty of confidentiality is established during the
relationship and following termination , pursuant to which
executive directors must return to the Bank any documents
and items related to their activities that are in their
possession.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
G. Other terms and conditions
The advance notice periods contained in the contracts with
the executive directors are as follows:
By decision of the
Bank (months)
By decision of the
director (months)
Ms Ana Botin-Sanz de
Sautuola y O’Shea
Mr José Antonio
Álvarez Álvarez
—
—
4
—
Payment clauses in place of pre-notice periods are not
contemplated.
Appointment of new executive directors
The components of remuneration and basic structure of the
agreements described in this remunerations policy will
apply to any new director that is given executive functions
at Banco Santander, notwithstanding the possibility of
amending specific terms of agreements so that, overall,
they contain conditions similar to those previously
described.
In particular, the total remuneration of the director for
performing executive duties may not be greater than the
highest remuneration received by the current executive
directors of the Bank pursuant to the remuneration policy
approved by the shareholders. The same rules shall apply if
a director assumes new duties that said director did not
previously discharge or becomes an executive director.
If executive responsibilities are assumed with respect to a
specific division or country, the board of directors, at the
proposal of the remuneration committee, may adapt the
metrics used for the establishment and accrual of the
incentive in order to take into account not just the Group but
also the respective division or country.
Remuneration paid to directors in that capacity shall be
included within the maximum distributable amount set by
the shareholders and be distributed by the board of
directors as described above.
Additionally, if the new director comes from an entity that is
not part of the Santander Group, they could be the
beneficiary of a buyout to offset the loss of variable
remuneration corresponding to their prior post if they have
not accepted a contract with the Group or of a sign-on bonus
to attract them to join Banco Santander.
This compensation could be paid fully or partly in shares,
subject to the delivery limits approved at the general
shareholders’ meeting. Therefore, authorisation is expected
to be sought at the next general shareholders’ meeting to
deliver a specified maximum number of shares as part of
any hires of executive directors or other employees to which
the buyout regulation applies.
In addition, sign-on bonuses can only be paid once to new
executive directors, in cash or in shares, and in each case
they will not exceed the sum of the maximum variable
remuneration awarded for all executive directors the
preceding year.
6.5 Preparatory work and
decision-making process with a
description of the participation of
the remuneration committee
Section 4.7 'Remuneration committee activities for 2019',
which constitutes the remunerations committee's report,
details the following:
• Pursuant to the Bylaws and the Rules and regulations of
the board of the Bank, the duties relating to the
remuneration of directors performed by the
remuneration committee.
• The composition of the remuneration committee as at the
date of approving this report.
• The number of meetings with the risk supervision,
regulation and compliance committee held in 2019,
including those held jointly with the risk, compliance and
regulation supervision committee.
• The date of the meeting when this report was approved.
• The 2018 annual report on directors´ remuneration was
approved by the board of directors and submitted to a
binding vote at the general shareholders’ meeting of 12
April 2019, with 91.07% of the votes in favour. The detail
of vote was as follows:
Votes cast
10,740,924,312
Number
% of totalA
96,57%
Number
% of totalA
Votes against
Votes in favour
Abstentions
598,890,812
10,130,003,843
381,915,614
5.38%
91.07%
3.43%
A. Percentage on total valid votes and abstentions.
6.6 Remuneration of non-director
members of senior management
At its meeting of 27 January 2020, the remuneration
committee agreed to propose to the board of directors the
approval of the variable remuneration for 2019 of members
of senior management who are not directors. The
committee’s proposal was approved by the board at its
meeting of 28 January 2020.
The Bank’s general remuneration policy was applied in
order to determine this variable remuneration, as well as
the specificities corresponding to senior management. In
general, their variable remuneration packages were
calculated on the same balance of quantitative metrics and
qualitative assessment used for executive directors
described in section 6.3 B ii).
The contracts of some of the senior management were
modified in 2018 with the same purpose and with the same
amendments indicated in 6.3C and D in relation to Ms. Ana
Botín and Mr. José Antonio Alvarez, so that the system
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includes contributions at 22% of the respective pensionable
base, supplementary benefits scheme were eliminated
from 1 April 2018, the sum insured in the life accident
insurance was increased and a fixed remuneration
supplement in cash reflected in "Other remuneration" was
set.
The table below shows the amounts of short-term
remuneration (immediately payable) and deferred
remuneration (excluding that linked to multi-year targets)
for members of senior management as at 31 December
2019 and 2018, excluding remuneration corresponding to
the executive directors shown previously:
Short-term and deferred salary remuneration
EUR thousand
Year
2019
2018
Number of people
18
18
Fixed
22,904
22,475
Immediately
receivable
variable
remuneration
(50% in shares)A
15,337
16,748
Deferred variable
remuneration
(50% in shares)B
Pension
contributions
Other
remunerationC
6,673
7,582
6,282
6,193
7,491
7,263
TotalD
58,687
60,261
A. The amount of immediate payment in shares for 2019 was 2,091 thousand Santander shares (1,936 thousand Santander shares in 2017).
B. The amount of deferred shares for 2019 was 910 thousand Santander shares.
C. Includes other items of remuneration such as life insurance premiums, health insurance and relocation packages.
The following table shows a breakdown of the salary
remuneration linked to multi-year targets for members of
senior management at 31 December 2019 and 2018. This
remuneration will only be received if the terms of continued
service, non-applicability of malus clauses, and compliance
with long-term goals are met in the corresponding deferral
periods.
Thousands of euros
Year
Number of people
2019
2018
18
18
Deferred variable remuneration
subject to long-term
metricsA (50% in shares)B
7,007
7,962
A. In 2019, this corresponds to the fair value of the maximum annual
payments for 2023, 2024 and 2025 of the fourth cycle of the deferred
variable remuneration plan linked to multi-year targets. In 2018, this
corresponds to the estimated fair value of the maximum annual payments
for 2022, 2023 and 2024 of the third cycle of the deferred variable
remuneration plan linked to multi-year targets. The fair value has been
determined at the grant date based on the valuation report of an
independent expert, Willis Towers Watson. Depending on the design of the
plan for 2019 and the levels of achievement of similar plans in comparable
entities, the expert concluded that the reasonable range for estimating the
initial achievement ratio is around 60% - 80%. It has been determined that
the fair value is 70% of the maximum.
B. The amount of shares of the deferred variable remuneration subject to
long-term metrics shown in the table above is of 955 thousand Santander
shares in 2019 (921 thousand Santander shares in 2018).
The long-term goals are the same as those for executive
directors. They are described in section 6.3 B iv).
Senior executive vice presidents that ceased to carry out
their duties in 2019 and who were not members of senior
management at year-end, consolidated salary remuneration
and other remuneration relating to the cessation of their
duties for a total amount of 6,789 thousand euros during
the year (1,861 thousand euros for those leaving their posts
in 2018). Such senior managers also have the right to
receive variable remuneration subject to long-term
objectives for an amount of 922 thousand euros (this right
was not generated in respect of any senior manager who
ceased to carry out his/her duties during 2018).
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2019 Annual Report
In addition, the shareholders meeting of 12 April 2019
approved the 2019 Digital Transformation Incentive, which
is a variable compensation system that includes the delivery
of Santander shares and share options subject to meeting
certain important milestones of the Group's digital
roadmap.
Three senior executives are included within this plan, which
is aimed at a larger group of up to 250 employees whose
performance is considered essential to the growth and
digital transformation of Santander Group. The three
employees have been awarded a total overall amount of
2,100 thousand euro1, which will be provided to them in
thirds, on the third, fourth and fifth anniversary of the
granting date (2023, 2024 and 2025).
See Note 47 to the 2019 Group's consolidated financial
statements for further detail on the Digital Transformation
Incentive.
In 2019, the ratio between the variable components of
remuneration to the fixed components was 98% of the total
for senior managers, in all cases respecting the upper limit
of 200% set by the shareholders.
See note 5 of the Group’s 2019 consolidated financial
statements for further details.
1 The 2,100 thousand euro amount is implemented in 286,104 Santander
shares and 1,495,726 options over Santander shares, using for these
purposes the fair value of the options at the moment of their grant (0.702
euros).
6.7 Prudentially significant
disclosures document
The board of directors is responsible for approving, at the
proposal of the remuneration committee, the key elements
of the remuneration of managers or employees who, while
not belonging to senior management, take on risks, carry
out control functions (i.e. internal audit, risk management
and compliance) or who receive global remuneration that
places them in the same remuneration bracket as senior
management and employees who take on risk. These are
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
typically those whose professional activities may have an
important impact on the Group’s risk profile (all of these
together with the senior management and the Bank’s board
of directors form the so called identified staff or material
risk takers).
Every year, the remuneration committee reviews and, if
applicable, updates the composition of the identified staff
in order to identify the individuals in the organisation who
fall within the aforementioned parameters. The
Remuneration Policies chapter of the 2019 Pillar III
disclosures report11 of Banco Santander, S.A. describes the
criteria used for identifying staff and the applicable
regulation for the same purpose.
According to these criteria, at the 2019 year-end, this group
comprised 1,359 executives across the Group (including
executive directors and non-director senior managers)
(1,384 in 2018), accounting for 0.69% of total staff (0.68%
in 2018).
The directors that are identified staff other than executive
directors are subject to the same remuneration standards
applicable to the latter described in sections 6.1 and 6.3,
except for:
• The various deferral percentages and terms that apply
based on their category.
• The possibility that in 2019 certain categories of
managers do not have the deferred incentive subject to
long-term performance metrics, but only to malus and
clawback clauses.
• As occurred with the bonuses in previous years, the
variable remuneration amount that is paid or deferred in
shares to the executives of the Group in Brazil, Chile,
Mexico, Poland, and Santander Consumer US, can be
delivered in shares or similar instruments of their own
listed entities.
In the financial year 2020, the board of directors will
maintain its flexibility for agreeing total or partial payment
in shares or similar instruments of Banco Santander and/or
the respective subsidiary in the proportion it considers
appropriate in each case (subject, in any event, to the
maximum number of Santander shares to be delivered as
agreed by shareholders at the general meeting and any
regulatory restrictions applicable in each jurisdiction).
The aggregate amount of the 2019 variable remuneration
of identified staff, the amounts deferred in cash and in
instruments and the ratio between the variable components
of remuneration to the fixed components are detailed in the
remuneration policies chapter of the 2019 Pillar III
disclosures report mentioned above.
11
The 2019 Pillar III disclosures report is published at our corporate website.
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Table of Contents
7. Group structure and internal
governance
The structure of the Santander Group is a model of legally
independent subsidiaries whose parent is Banco Santander,
S.A. The registered address is in the city of Santander
(Cantabria, Spain) and the Corporate Centre is in Boadilla
del Monte (Madrid, Spain).
The Group has established a Group-Subsidiary Governance
Model (GSGM) and good governance practices for its main
subsidiaries. Any reference to subsidiaries in this section
refers to the Bank’s most significant subsidiaries.
The key features of the GSGM are as follows:
• The governing bodies of each subsidiary shall ensure that
their company is managed rigorously and prudently,
while ensuring their economic solvency and upholding
the interests of their shareholders and other
stakeholders.
• Management of the subsidiaries is a local matter carried
out by local management teams which provide extensive
knowledge and experience in relation to local customers
and markets, while also benefiting from the synergies
and advantages of belonging to the Santander Group.
• The subsidiaries are subject to the regulation and
supervision of their respective local authorities, without
prejudice to the global supervision of the Group by the
ECB.
• Customer funds are secured by virtue of the deposit
guarantee funds in place in the relevant country, in
accordance to the applicable laws.
Subsidiaries finance themselves autonomously when it
comes to both capital and liquidity. The Group’s capital and
liquidity positions are coordinated by the corporate
committees. Intra-group exposure is limited and
transparent and any such transactions are invariably
arranged under arm’s length conditions. Moreover, the
Group has listed subsidiaries in certain countries, in which it
always retains a controlling stake.
The subsidiaries’ autonomy limits the contagion risk
between the Group’s different units, which reduces systemic
risk. Each subsidiary has its own recovery plan.
7.1 Corporate centre
The GSGM of Banco Santander is further complemented
with a corporate centre that brings together Group control
and support units tasked with functions relating to strategy,
risk, auditing, technology, human resources, legal services,
communications and marketing, among others. The
corporate centre adds value to the Group by:
• Making its governance more robust, through corporate
frameworks, models, policies and procedures that allow a
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2019 Annual Report
corporate strategy to be implemented and ensure
effective supervision of the Group.
• Making the Group’s units more efficient by unlocking cost
management synergies, economies of scale and
achieving a common brand.
• Sharing the best commercial practices, focusing on global
connectivity, launching global commercial initiatives and
fostering digitalisation throughout the Group.
7.2 Internal governance of the
Group
Santander has an internal governance model that
establishes a set of principles that regulate relations and
the interaction that must exist between the Group and its
subsidiaries on three levels:
• On the governing bodies of the subsidiaries, where the
Group has devised rules and procedures regulating the
structure, composition, make-up and functioning of the
boards and their committees (audit, appointments,
remuneration and risk), in accordance with international
standards and good governance practices. In addition,
other rules and regulations concerning the appointment,
remuneration and succession planning of members of
governing bodies, in full compliance with the regulations
and local supervisory criteria, are embedded.
• Between the regional and country heads and the Group´s
CEO, and between the local and global heads of the key
control functions: chief risk officer (CRO); chief
compliance officer (CCO); chief audit executive (CAE);
chief financial officer (CFO); chief accounting officer (CAO)
and key support functions (IT, Operations, HR, General
Secretary’s office, Legal Services, Marketing,
Communications and Strategy) as well as business
functions (SCIB, Wealth Management and Digital and
Innovation).
The governance model establishes, among other aspects,
the relevant rules and regulations to be followed in relation
to their appointment, setting of targets, assessment, and
fixing of variable remuneration and succession planning. It
also explains how Group officers and their counterparts at
the subsidiaries should liaise and interact.
Santander also has thematic frameworks (corporate
frameworks) for matters considered to be important due to
their impact on the Group’s risk profile, which include areas
including risk, capital, liquidity, compliance, technology,
auditing, accounting, finance, strategy, human resources,
cybersecurity and communications brand. These
frameworks specify:
• The way the Group exercises oversight and control over
its subsidiaries.
Responsible Corporate
banking
Economic
and financial review
governance
• The Group’s involvement in certain of the subsidiaries’
important decisions, as well as the subsidiaries’
involvement in the Group’s decision-making processes.
The aforementioned governance model and corporate
frameworks effectively make up the internal governance
system and are approved by the board of directors of Banco
Santander, S.A. for subsequent adherence to it by the
governing bodies of the subsidiaries, with due regard to any
local requirements to which these subsidiaries may be
subject. Both the model and the frameworks are
maintained up to date on an ongoing basis through the
annual review of the Bank's board and the recurring
adoption of legislative changes and international best
practices. They are subject to annual review by the Group
board of directors.
Based on the corporate frameworks, the functions included
in the governance model prepare internal regulatory
documents that are given to the Group’s subsidiaries as
reference and development documentation, ensuring that
the frameworks are effectively implemented and
embedded at a local level, and in full compliance with local
law and supervisory expectations. This approach also drives
a consistent application throughout the Group.
An Internal Governance office at Group level and the
subsidiaries’ general secretaries are responsible for
promoting the effective embedding of the governance
model and corporate frameworks. The extent and
completeness of this activity is assessed by the Group on an
annual basis with associated reporting to relevant
governing bodies.
In 2019, a new policy for the governance of non-GSGM
subsidiaries and investees was approved. This policy
completes and enhances the governance and control system
that has been applied to these companies until now.
Risk management
and control
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Table of Contents
8. Internal control over financial
reporting (ICFR)
This section describes key aspects of the internal control
and risk management systems in place at Santander Group
with respect to the financial reporting process, specifically
addressing the following aspects:
• Control environment.
• Risk assessment in financial reporting.
• Control activities.
• Information and communication.
• Monitoring.
• External auditor report.
8.1 Control environment
Governance and responsible bodies
The board of directors approves the financial information
that, due to its status as a listed company, Banco Santander
must periodically make public and is responsible for
overseeing and guaranteeing the integrity of the internal
information and control systems, as well as the accounting
and financial information systems. This includes operational
and financial control and compliance with applicable
legislation.
The board of directors has set up an audit committee that
assists the board in supervising the financial reporting
process and internal control systems. See section 4.5 'Audit
committee activities in 2019'.
In addition, the audit committee discusses with the external
auditor any significant deficiencies in the internal control
system that may be detected in the course of the audit and
ensures that the external auditor issues a report regarding
the internal control system for financial information.
The existence of an adequate internal control over financial
reporting (ICFR), prepared and coordinated by the non-
financial risk control area, covers the entire organisational
structure with control relevance, through a direct scheme of
individually assigned responsibilities. In addition, the
financial accounting and management control units in each
of the countries in which the Group operates -each led by a
financial controller- have an important role in complying
with the standard. The section below includes more
information on the functions carried out by each
organisational structure, the controllers and the non-
financial risk control area.
Responsible functions, General Code of Conduct,
whistleblowing channel and training
Responsible functions
The Group, through the corporate organisation area and the
organisational units for each country/entity or business,
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2019 Annual Report
defines, implements and maintains the organisational
structures, catalogue of job positions and size of units.
Specifically, the corporate organisation function defines a
reference management and staff structure, which serves as
a manual across the Group.
The business and support areas channel any initiative
related to their structure through these organisational units.
These units are responsible for analysing, reviewing and,
where appropriate, incorporating any structural
modifications into the corporate technology tools. The
organisational units are responsible for identifying and
defining the main functions under the responsibility of each
structural unit.
Based on this assignment, each of the business/support
areas identify and document the necessary tasks and
controls in its area within the Internal Control Model (ICM),
based on its knowledge and understanding of its activities,
processes and potential risks.
Each unit thus detects the potential risks associated with
those processes, which are covered by the ICM. This
detection is based on the knowledge and understanding
that management has of the business and associated
process.
It also has to define those persons responsible for the
various controls, tasks and functions of the documented
processes, so that all the members of the division have
clearly assigned responsibilities.
The purpose of this is to try to ensure, among other things,
that the organisational structure provides a solid model of
ICFR.
With respect to the specific process of preparing its financial
information, the Group has defined clear lines of
responsibility and authority. The process entails exhaustive
planning, including, among other things, the distribution of
tasks and functions, the required timeline and the various
reviews to be performed by each manager. To this end, the
Group has financial accounting and control units in each of
its operating markets; these are headed up by a financial
controller whose duties include the following:
• Integrating the corporate policies defined at the Group
level into their management, adapting them to local
requirements as required.
• Ensuring that organisational structures in place are
conducive to performance of the tasks assigned,
including a suitable hierarchical-functional structure.
• Deploying critical procedures (control models), leveraging
the Group’s corporate IT tools to this end.
• Implementing the corporate accounting and
management information systems, adapting them to
each entity’s specific needs as required.
Responsible Corporate
banking
governance
Economic
and financial review
Risk management
and control
In order to preserve their independence, the controllers
report to their country heads and to the Group’s Financial
Accounting and Control division.
In addition, to support the existence of adequate
documentation for the Group’s ICM, the corporate non-
financial risk control department is responsible for
establishing and reporting the methodology governing the
process of documenting, evaluating and certifying the
internal control model that covers the ICFR system, among
other regulatory and legal requirements. It is also
responsible for keeping all necessary documentation fully
up to date including organizational and regulatory changes.
In addition, together with the Financial Accounting and
Control division and, if appropriate, the representatives of
the divisions and/or companies concerned, it is responsible
for presenting the conclusions of the ICM evaluation process
to the audit committee. There are similar functions at each
unit that report to the corporate non-financial risk control
department.
General Code of Conduct
The Group’s General Code of Conduct is approved by the
Bank’s board of directors, setting out behavioural guidelines
of ethical principles and rules of conduct that govern the
actions of all Santander Group employees and, therefore,
constitutes the central pillar of the Group compliance and
conduct function. It also establishes guidelines for conduct,
among other matters, in relation to accounting obligations
and financial information. The Code can be consulted on the
corporate website (www.santander.com).
This Code is binding for all members of the Group’s
governance bodies and all employees of Banco Santander,
S.A., who acknowledge so when they join the Group,
notwithstanding the fact that some of these individuals are
also bound by the Code of Conduct in Securities Markets
and other codes of conduct specific to the area or business
in which they work.
The Group provides all its employees with e-learning
courses on the aforementioned General Code of Conduct.
Moreover, the compliance and conduct function is available
to address any queries with respect to its application. The
General Code of Conduct sets out the functions of the
Group’s governance bodies, units and areas required to
implement the Code, in addition to the compliance function.
The Human Resources function is responsible for imposing
disciplinary measures for any breaches of the General Code
and proposing corrective actions, which may lead to labour-
offence sanctions, notwithstanding any administrative or
criminal sanctions that may also result from such a breach.
The function is assisted in this regard by a Human Resources
Committee comprise of representatives from various parts
of the Group.
Whistleblowing channel
Banco Santander has a whistleblowing channel, called
'Canal Abierto', through which employees can report,
confidentially and anonymously, any allegedly unlawful
acts or breaches of the General Code of Conduct as well as
behaviours not aligned with the corporate ones that comes
to their knowledge during the course of their professional
activities.
In addition, through this whistleblowing channel,
employees can confidentially and anonymously report
irregularities in accounting or auditing matters, in
accordance with SOX. When reports concerning accounting
or auditing matters are received, the compliance and
conduct function will report them to the audit committee to
adopt the appropriate measures.
To preserve the confidentiality of communications prior to
their examination by the audit committee, the procedure
does not require the inclusion of personal data from the
sender. In addition, only certain persons in the compliance
and conduct function review the content of the
communication in order to determine whether it is related
to accounting or auditing matters, and, if applicable, submit
it to the audit committee.
Training
Group employees involved in preparing and reviewing its
financial information participate in training programmes
and regular refresher courses which are specifically
designed to provide them with the knowledge required to
allow them to discharge their duties properly.
The training and refresher courses are mostly promoted by
the Financial Accounting and Control division itself and are
designed and overseen together with the corporate learning
and career development unit which is, in turn, part of the HR
department and is responsible for coordinating and
imparting training across the Group.
These training initiatives take the form of a mixture of e-
learning and on site sessions, all of which are monitored
and overseen by the aforementioned corporate unit in order
to guarantee they are duly taken and that the concepts
taught have been properly assimilated.
The training and periodic update programmes taught in
2019 have focused, among other subjects, on: risk analysis
and management, accounting and financial statement
analysis, the business, banking and financial environment,
financial management, costs and budgeting, numerical
skills, calculations and statistics and financial statement
auditing, among other matters directly and indirectly
related to the financial information process.
45,061 employees from the Group’s entities in the various
countries in which it operates were involved in these
training programmes, involving over 1,000,000 training
hours at the corporate centre in Spain and remotely (e-
learning). In addition, each country develops its own
training programme based on that developed by the parent.
8.2 Risk assessment in financial
reporting
Santander Group’s ICM is defined as the process carried out
by the board of directors, senior management and the rest
of the Group’s employees to provide reasonable assurance
that their targets will be attained.
The Group’s ICM complies with the most stringent
international standards and specifically complies with the
guidelines established by the Committee of Sponsoring
Organisations of the Tradeway Commission (COSO) in its
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most recent framework published in 2013, which addresses
control targets in terms of operations effectiveness and
efficiency, financial information reliability and compliance
with applicable rules and regulations.
ICM documentation is implemented in the main Group
companies using standard and uniform methodology to
ensure inclusion of appropriate controls and covers all
material financial information risk factors.
The risk identification process takes into account all classes
of risk. Its scope is greater than all of the risks directly
related to the preparation of the Group’s financial
information.
The identification of potential risks that must be covered by
the ICM is based on the knowledge and understanding that
management have of the business and its operating
processes, taking into account criteria associated with the
type, complexity or the structure of the business itself.
In addition, the Bank ensures the existence of controls
covering the potential risk of error or fraud in the issuance
of the financial information, i.e., potential errors in terms of:
i) the existence of the assets, liabilities and transactions as
at the corresponding date; ii) the fact that the assets are
Group goods or rights and the liabilities Group obligations;
iii) proper and timely recognition and correct measurement
of its assets, liabilities and transactions; and iv) the correct
application of the accounting rules and standards and
adequate disclosures.
The following aspects of the Group’s ICM model are worth
highlighting:
• It is a corporate model involving the whole organisational
structure through a direct scheme of responsibilities
assigned individually.
• The management of the ICM documentation is
decentralised, being delegated to the Group’s various
units, while its coordination and monitoring is the duty of
the non-financial risk control department. This
department issues general criteria and guidelines to
ensure uniformity and standardisation of the
documentation of procedures, control assessment tests,
criteria for the classification of potential weaknesses and
rule changes.
• It is an extensive model with a global scope of
application, which not only documents the activities
relating to generation of the consolidated financial
information, its core scope of application, but also other
procedures developed by each entity’s support areas.
These do not generate a direct impact on the accounting
process but could cause possible losses or contingencies
in the case of incidents, errors, regulatory breaches and/
or fraud.
• It is dynamic and updated continually to mirror the reality
of the Group’s business as it evolves, the risks to which it
is exposed and the controls in place to mitigate these
risks.
• It generates comprehensive documentation of all the
processes falling under its scope of application and
includes detailed descriptions of the transactions,
evaluation criteria and checks applied to the ICM.
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All of the Group companies’ ICM documentation is compiled
into a corporate IT application which is accessed by
employees of differing levels of responsibility in the
evaluation and certification process of Santander Group’s
internal control system.
The Group has a specific process for identifying the
companies that should be included within its scope of
consolidation. This is mainly monitored by the Financial
Accounting and Control division and the office of the general
secretary and human resources.
This procedure enables the identification of not just those
entities over which the Group has control through voting
rights from its direct or indirect holdings, but also those over
which it exercises control through other channels, such as
mutual funds, securitisations and other structured vehicles.
This procedure analyses whether the Group has control over
the entity, has rights over, or is exposed to, its variable
returns, and whether it has the capacity to use its power to
influence the amount of such variable returns. If the
procedure concludes that the Group has such control, the
entity is included in the scope of consolidation, and is fully
consolidated. If not, it is analysed to identify whether there
is significant influence or joint control. If this is the case, the
entity is included in the scope of consolidation, and
consolidated using the equity method.
Finally, the audit committee is responsible for supervising
the Bank and Group’s regulated financial information
process and internal control system.
In supervising this financial information, particular attention
is paid to its integrity, compliance with regulatory
requirements and accounting criteria, and the correct
definition of the scope of consolidation. The internal control
and risk management systems are regularly reviewed to
ensure their effectiveness and adequate identification,
management and reporting.
8.3 Control activities
Procedures for reviewing and authorising financial
information
The audit committee and the board of directors oversee the
process of preparing and presenting the mandatory
financial information regarding the Bank and the Group.an
assessment of its competences, compliance with regulatory
requirements and accounting standards which, together,
ensure its accuracy and timely update on the Bank’s
website.
The process of creating, reviewing and authorising the
financial information and the description of the ICFR is
documented in a corporate tool which integrates the control
model into risk management, including a description of the
activities, risks, tasks and the controls associated with all of
the transactions that may have a material effect on the
financial statements. This documentation covers recurrent
banking transactions and one-off transactions (stock
trading, property deals, etc.), as well as aspects related to
judgements and estimates, covering the registration,
assessment, presentation and disclosure of financial
information. The information in the tools is updated to
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reflect changes in the methodology for, reviewing and
authorising procedures for generating financial information.
The audit committee has the duty to report to the board,
prior to its adoption of the decisions, regarding the financial
information that the Group must periodically make public,
ensuring that such information is prepared in accordance
with the same principles and practices used to prepare the
financial statements with the same degree of reliability.
The most significant aspects of the accounting close process
and review of material judgements, estimates,
measurements and projections used are as follows:
• Impairment losses on certain assets;
• The assumptions used in the actuarial calculation of the
post-employment benefit liabilities and commitments
and other obligations;
• The useful life of the tangible and intangible assets;
• The measurement of goodwill arising on consolidation;
• The calculation of provisions and the consideration of
contingent liabilities;
• The fair value of certain unquoted assets and liabilities;
• The recoverability of tax assets; and
• The fair value of the identifiable assets acquired, and the
liabilities assumed, in business combinations.
Our Group chief accounting officer presents the Group’s
financial information to the audit committee for validation
on a quarterly basis, providing explanations of the main
criteria employed for estimates, valuations and value
judgements.
The information provided to directors prior to board
meetings, including information on value judgements,
estimates and forecasts relating to the financial
information, is prepared specifically for the purposes of
these meetings.
The Group has in place an assessment and certification
process which verifies that the ICM is working properly and
is effective in practice. This assessment starts with an
evaluation of the control activities by the staff responsible
for them. Depending on the conclusions drawn, the tasks
and functions related to the generation of financial
information are certified so that, having analysed all such
certifications, the chief executive officer, the chief financial
officer and the chief accounting officer/financial controller
certify the effectiveness of the ICM.
There is also a committee called accounting and financial
management information committee which is responsible
for the governance and supervision of matters relating to
accounting, financial management and control, and for
ensuring that the Bank makes appropriate and adequate
financial disclosures of these matters in accordance with
laws and regulations, ensuring that such disclosure is fair,
accurate and not misleading.
The annual process identifies and assesses the criticality of
risks and the effectiveness of the controls identified in the
Group.
The Non-Financial Risk Control unit prepares a report
detailing the conclusions reached as a result of the
certification process conducted by the units, taking the
following aspects into consideration:
• Detail of the certifications obtained at all levels.
• Any additional certifications considered necessary.
• Specific certification of all significant outsourced
services.
• Tests about the design and operation of ICM performed
by those responsible for its maintenance and/or by
independent experts.
This report also itemises the main deficiencies identified
throughout the certification process by any of the parties
involved, indicating whether these deficiencies have been
properly resolved or, if not, what remedition plans are in
place to correct them in a satisfactory manner.
The conclusions of these evaluation processes are presented
to the audit committee by the non-financial risk control
department, together with Financial Accounting and Control
division and, if appropriate, the sponsors of the divisions
and/or work companies concerned, after having been
presented to the risk control committee.
Lastly, based on this report, the Group’s chief accounting
officer / controller, chief financial officer and its chief
executive officer certify the effectiveness of the ICM in
terms of preventing or detecting errors which could have a
material impact on the consolidated financial information.
Since 2018, the Group has worked to strengthen the
identification and documentation of the most relevant
controls relating to the internal control over financial
reporting (special monitoring controls). This has included
the reinforcement of existing mechanisms within the
organization to promote a culture of preventive risk
identification and management in a more precise way.
Finally, during 2019, the Group defined within its
governance scheme a new meeting called 'Internal Control
Steering Meeting' where the main stakeholders of the
Group´s ICM monitor progress with the main control
deficiencies and the strategy and evolution of the Group´s
ICM.
Internal control policies and procedures for IT systems
The Technology and Operations Division draws up the
corporate policies relating to the Group's information
systems which, directly or indirectly, relate to the financial
statements, guarantee, at all times, through a specific
internal control system, the correct preparation and
publication of financial information.
For internal control purposes, are particularly relevant the
policies relating to the following aspects:
• Internal policies and procedures, updated and
disseminated, relating to system security and access to
applications and computer systems, based on roles and in
accordance with the functions and ratings assigned to
each unit/position, in order to ensure adequate
segregation of duties.
• The Group's methodology ensures that the development
of new applications and the modification or maintenance
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of existing applications is through a circuit of definition,
development and testing that ensures the reliable
processing of financial information.
• In this way, once the development of the applications
has been completed based on the standardised
definition of requirements (detailed documentation of
the processes to be implemented), comprehensive
tests are carried out by a specialist development
laboratory in this field.
• Subsequently, in a pre-production environment
(computer environment that simulates real situations)
and prior to their definitive implementation, a
complete software testing cycle is run, which includes:
technical and functional tests, performance tests, user
acceptance tests and pilot and prototype tests that are
defined by the entities, before making the applications
available to end users.
• Based on corporate methodology, the Group guarantees
the existence of continuity plans to ensure the
performance of key functions in the event of disasters or
events that may suspend or interrupt activity. To this end,
there are back-up systems with a high degree of
automation that guarantee the continuity of critical
systems with minimum human intervention, thanks to
redundant systems, high availability systems and
redundant communication lines.
Internal control policies and procedures over
outsourced activities and valuation services from
independent experts
The Group has established an action framework and specific
implementation policies and procedures to ensure the
adequate coverage of the risks associated with
subcontracting activities to third parties.
This framework is in line with the EBA's requirements for
outsourcing arrangements and risk management with third
parties, and must be complied within all companies of the
Group.
The relevant processes include:
• The performance of tasks relating to the initiation,
recording, processing, settlement, reporting and
accounting of asset valuations and transactions.
• The provision of IT support in its various manifestations:
software development, infrastructure maintenance,
incident management, IT security and IT processing.
• The provision of other material support services not
directly related to the generation of financial information:
supplier management, property management, HR
management, etc.
The main control procedures in place to ensure adequate
coverage of the risks intrinsic to these processes are:
• Relations among Group companies are documented in
contracts which detail exhaustively the type and level of
service provided.
• All of the Group’s service providers document and validate
the main processes and controls related to the services
they provide.
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• Entities to which activities are outsourced document and
validate their controls in order to ensure that the material
risks associated with the outsourced services are kept
within reasonable levels. Thus enables the identification
and implementation of inherent risk mitigation plans to
ensure that residual risk is within the entity's risk
appetite.
The Group assesses its evaluation internally according to
the control model guidelines mentioned. Whenever it
considers it advisable to hire the services of a third party to
help with specific matters, it does so having verified their
expertise and independence, for which procedures are in
place, and having validated their methods and the
reasonableness of the assumptions made.
Furthermore, the Group put in place controls to ensure the
integrity and quality of information for external suppliers
providing significant services that might impact the financial
statements and are detailed in the service level agreements
reflected in the respective contracts with third parties.
8.4 Information and
communication
Function in charge of accounting policies
The Financial Accounting and Control division includes the
accounting policies area, the head of which reports directly
to the financial controller and has the following exclusive
responsibilities:
• Defining the accounting treatment of the transactions
that constitute the Bank’s business in keeping with their
economic substance and the regulations governing the
financial system.
• Defining and updating the Group’s accounting policies
and resolving any questions or conflicts deriving from
their interpretation.
• Enhancing and standardising the Group’s accounting
practices.
• Assisting and advising the professionals responsible for
new IT developments with respect to accounting
requirements and ways of presenting information for
internal consumption and external distribution and on
how to maintain these systems as they relate to
accounting issues.
The Corporate Accounting, Financial Reporting and
Management Framework sets out the principles, guidelines
and procedures for accounting, financial reporting and
management that apply to all entities of the Santander
Group as a key pillar of good governance. The structure of
the Group calls for the application of consistent principles,
guidelines and procedures so that each Group entity can
rely on effective consolidation methods and apply uniform
accounting policies. The principles set out in this Framework
are appropriately implemented and specified in the Group’s
accounting policies.
Accounting policies must be treated as a supplement to the
financial and accounting standards that apply in the given
jurisdiction. Their overarching objectives are as follows: (i)
financial statements and other financial information made
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available to management bodies, regulators and third
parties must provide accurate and reliable information for
decision-making relating to the Group, and (ii) all Group
entities must be enabled to comply in a timely manner with
legal duties and obligations and regulatory requirements.
The Accounting Policies are subject to revision whenever the
reference regulations are modified and, at least, once a year.
Additionally, on a monthly basis, the accounting policies
area publishes an internal bulletin that contains relevant
news on accounting matters, including both new published
regulations and the most relevant guidance. These
documents are stored in an accounting standards library,
which is accessible to all Group units.
The Financial Accounting and Control division has put in
place procedures to ensure it has all the information it
needs to update the accounting plan to cover the issue of
new products and regulatory and accounting changes that
make it necessary to adapt the plan and accounting
principles and policies.
The Group entities, through the heads of their operations or
accounting units, maintain an on-going and fluid dialogue
with the financial regulation and accounting processes area
and with the other areas of the management control unit.
Mechanisms for the preparation of financial
information
The Group’s computer applications are configured into a
management model which, using an IT system structure
appropriate for a bank, is divided into several ‘layers’, which
supply different kinds of services, including:
• General information systems: these provide information
to division/business unit heads.
• Management systems: these produce information for
business monitoring and control purposes.
• Business systems: software encompassing the full
product-contract-customer life cycle.
• Structural systems: these support the data shared and are
used by all the applications and services. These systems
include all necessary accounting and financial
information.
All these systems are designed and developed in accordance
with the following IT architecture:
• General software architecture, which defines the design
patterns and principles for all systems.
• Technical architecture, including the mechanisms used in
the model for design outsourcing, tool encapsulation and
task automation.
One of the overriding purposes of this model is to provide
the Group’s IT systems with the right software
infrastructure to manage all the transactions performed and
their subsequent entry into the corresponding accounting
registers, with the resources needed to enable access to,
and consultation of, the various levels of supporting data.
The software applications do not generate accounting
entries per se; they are based on a model centred on the
transaction itself and a complementary model of accounting
templates that specifies the accounting entries and
movements to be made for the transaction. These
accounting entries and movements are designed,
authorised and maintained by the Financial Accounting and
Control division.
The applications execute all the transactions performed in a
given day across various distribution channels (branches,
internet, telephone banking, e-banking, etc.) into the ‘daily
transaction register’.
This register generates the transaction accounting entries
and movements on the basis of the information contained
in the accounting template, uploading it directly into the
accounting infrastructure application.
This application carries out other processes necessary to
generate financial information, including: capturing and
balancing the movements received, consolidating and
reconciling with application balances, cross-checking the
software and accounting information for accuracy,
complying with the accounting allocation structural model,
managing and storing auxiliary accounting data and making
accounting entries for retention in the accounting system
itself.
Some applications do not use this process. These rely
instead on their own account assistants who upload the
general accounting data directly by means of account
movements, so that the definition of these accounting
entries resides in the applications themselves.
In order to control this process, before inputting the
movements into the general accounting system, the
accounting information is uploaded into a verification
system which performs a number of controls and tests.
This accounting infrastructure and the aforementioned
structural systems generate the processes needed to
formulate, disclose and store all the financial information
required of a financial institution for regulatory and internal
purposes, all of which under the guidance, supervision and
control of the Financial Accounting and Control division.
To minimise the attendant operational risks and optimise
the quality of the information produced in the consolidation
process, the Group has developed two IT tools which it uses
in the financial statement consolidation process.
The first channels information flows between the units and
the Financial Accounting and Control division, while the
second performs the proper consolidation on the basis of
the information provided by the former.
Each month, all of the entities within the Group’s scope of
consolidation report their financial statements, in keeping
with the Group’s audit plan.
The Group’s audit plan, which is included in the
consolidation application, generally contains the disclosure
needed to comply with the disclosure requirements
imposed on the Group by Spanish and international
authorities.
The consolidation application includes a module that
standardises the accounting criteria applied so that the units
make the accounting adjustments needed to make their
financial statements consistent with the accounting criteria
followed by the Group.
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The next step, which is automated and standardised, is to
convert the financial statements of the entities that do not
operate in euros into the Group’s functional currency.
The financial statements of the entities comprising the
scope of consolidation are subsequently aggregated.
The consolidation process identifies intragroup items,
ensuring they are correctly eliminated. In addition, in order
to ensure the quality and comprehensiveness of the
information, the consolidation application is configured to
make investment-equity elimination adjustments and to
eliminate intragroup transactions, which are generated
automatically in keeping with the system settings and
checks.
Lastly, the consolidation application includes another
module (the annex module) which allows all units to upload
the accounting and non-accounting information not
specified in the aforementioned audit plan and which the
Group deems necessary for the purpose of complying with
applicable disclosure requirements.
This entire process is highly automated and includes
automatic controls to enable the detection of incidents in
the consolidation process. The Financial Accounting and
Control division also performs additional oversight and
analytical controls.
8.5 Monitoring
2019 ICFR monitoring activities and results
The board has approved a corporate internal audit
framework for the Santander Group, defining the global
function of internal audit and how it is to be carried out.
In accordance with this, internal audit is a permanent
function and independent from all other functions and
units. Its mission is to provide the board of directors and
senior management with independent assurances with
regard to the quality and efficacy of the systems and
processes of internal control, risk management (current and
emerging) and governance, thereby helping to safeguard
the organisation’s value, solvency and reputation. Internal
audit reports to the board audit committee and to the board
of directors on a regular basis and at least twice a year, as an
independent unit, has free and unfettered direct access to
the board whenever it deems it appropriate.
Internal audit evaluates:
• Separated assets (for example, mutual funds) managed
by the entities mentioned in the previous section; and
• All entities (or separated assets ) not included in the
previous points, for which there is an agreement for the
Group to provide internal audit functions.
This scope, subjectively defined, includes the activities,
businesses and processes carried out (either directly or
through outsourcing), the existing organisation and any
commercial networks. In addition, and also as part of its
mission, internal audit can undertake audits in other
subsidiaries not included among the points above, when the
Group has reserved this right as a shareholder, and in
outsourced activities pursuant to the agreements reached in
each case.
The board audit committee supervises the Group’s internal
audit function. See section 4.5 'Audit committee activities in
2019'.
As at the 2019 year-end, internal audit employed 1,268
people, all dedicated exclusively to this service. Of these,
268 were based at the Corporate Centre and 1,000 in local
units situated in the principal geographic areas in which the
Group is present, all of who work exclusively at those
locations.
Each year, Internal Audit prepares an audit plan based on a
self-assessment exercise of the risks to which the Group is
exposed. Internal Audit is solely responsible for executing
the plan. From the reviews carried out, audit
recommendations may be prepared. These are prioritised
according to their relative importance and are monitored
continuously until their complete implementation.
At its meeting on 24 February 2020, the audit committee
considered and approved the audit plan for 2020, which was
submitted to, and approved by, the board at the meeting
held on 27 February 2020.
The main objectives of the internal audit reviews were to:
• Verify compliance with sections 302, 404, 406, 407 and
806 of the Sarbanes-Oxley Act.
• Check the existing governance on information related to
the internal control system over financial information.
• Review the functions performed by the internal control
departments and other departments, areas or divisions
involved in compliance with the SOX Act.
• Check that the SOX support documentation is updated.
• The efficacy and efficiency of the processes and systems
• Verify the effectiveness of a sample of controls based on
cited above;
an Internal Audit risk assessment methodology.
• Compliance with applicable legislation and requirements
of supervisory bodies;
• The reliability and integrity of financial and operating
information; and
• The integrity of assets.
Internal audit is the third line of defence, independent of the
other two. The scope of its work encompasses:
• All Group entities over which it exercises effective control;
• Evaluate the accuracy of the certifications carried out by
the different units, especially their consistency with any
observations and recommendations set forward by
Internal audit, the auditors of the statutory accounts and
different supervisors.
• Verify the implementation of the recommendations
issued in the execution of the audit plan.
In 2019, the board audit committee and the board of
directors were kept informed of the work carried out by the
Internal Audit division on its annual plan and other issues
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related to the audit function. See section 4.5 'Audit
committee activities in 2019'.
Detection and management of deficiencies
The board audit committee is officially tasked with
overseeing the financial information process and the
internal control systems. It deals with any control
deficiencies that might affect the reliability and accuracy of
the financial statements. To this end, it can call in the
various areas of the Group involved to provide the necessary
information and clarifications. The committee also takes
stock of the potential impact of any flaws detected in the
financial information.
The board audit committee, as part of its remit to oversee
the financial reporting process and the internal control
systems, is responsible for discussing with the external
auditors any significant weaknesses detected in the course
of the audit.
As part of its supervision work, our board audit committee
assesses the results of the work of the Internal Audit
division, and can take action as necessary to correct any
deficiencies identified in the financial information.
In 2019, the board audit committee was informed about the
evaluation and certification of the ICM corresponding to
year 2018. See section 4.5 'Audit committee activities in
2019'.
8.6 External auditor report
The external auditor has issued an independent reasonable
assurance report on the design and effectiveness of the
ICFR and the description on the ICFR that is provided in this
section 8 of the annual corporate governance report.
This report is included in the next pages.
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9. Other corporate governance
information
As indicated in the introduction of this chapter 'Redesigned
corporate governance report', since 12 June 2018 (Circular
2/2018) the CNMV allows the annual corporate governance
and directors’ remuneration reports mandatory for Spanish
listed companies to be drafted in a free format. As in 2018,
we have opted for a free format for our 2019 corporate
governance directors’ remuneration reports.
The CNMV requires any issuer opting for a free format to
provide certain information in a format established by the
CNMV so that it can be aggregated for statistical purposes.
This information is included (i) for corporate governance
matters, under section 9.2 'Statistical information on
corporate governance required by the CNMV', which also
covers the section 'comply with the recommendations in the
Spanish Corporate Governance Code for Listed Companies or
explain', and (ii) for remuneration matters, under section 9.5
'Statistical information on remuneration required by the
CNMV'.
In addition, given some shareholders or other stakeholders
may be used to the formats of the corporate governance
and directors' remuneration reports set the by the CNMV,
sections 9.1 'Reconciliation with the CNMV’s corporate
governance report model' and 9.4 'Reconciliation to the
CNMV’s remuneration report model' include, for each
section of such formats, a cross reference to where this
information may be found in this 2019 annual corporate
governance report, drafted in a free format, or elsewhere in
this annual report.
Moreover, we have traditionally filled in the 'comply or
explain' section for all recommendations in the Spanish
Corporate Governance Code for Listed Companies to
establish where we comply and also the few instances
where we do not comply or we comply partially. Therefore,
we have included in section 9.3 'Table on compliance with,
and of, explanations of recommendations in corporate
governance' a chart with cross-references showing where
the information supporting each response can be found in
this 2019 corporate governance chapter or elsewhere in this
annual report.
9.1 Reconciliation with the CNMV’s corporate governance report model
Section in the CNMV
model
Included in
statistical report
Comments
A. OWNERSHIP STRUCTURE
A.1
A.2
A.3
A.4
A.5
A.6
A.7
A.8
A.9
A.10
A.11
A.12
A.13
A.14
Yes
Yes
Yes
No
No
No
Yes
Yes
Yes
No
Yes
No
No
Yes
See section 2.1.
See section 2.3 where we explain there are no significant shareholders on their own account.
See 'Tenure, committee membership and equity ownership' in section 4.2 and section 6.
See section 2.3 where we explain there are no significant shareholders on their own account so this
section does not apply.
See section 2.3 where we explain there are no significant shareholders on their own account so this
section does not apply.
See section 2.3 where we explain there are no significant shareholders on their own account so this
section does not apply.
See section 2.4.
Not applicable.
See section 2.5.
See section 2.5.
See section 2.1 and statistical information.
See section 3.2.
See section 3.2.
See section 2.6.
B. GENERAL SHAREHOLDERS’ MEETING
B.1
B.2
B.3
No
No
No
See 'Quorum and majorities required for passing resolutions at the GSM' in section 3.2.
See 'Quorum and majorities required for passing resolutions at the GSM' in section 3.2.
See 'Rules governing amendments to our Bylaws' in section 3.2.
248
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banking
Economic
and financial review
governance
Risk management
and control
Section in the CNMV
model
Included in
statistical report
Comments
B.4
B.5
B.6
B.7
B.8
Yes
Yes
Yes
No
No
C. MANAGEMENT STRUCTURE
C.1 Board of directors
See sections 3.4 and 3.5 in relation to 2019.
See sections 3.4 and 3.5.
See 'Participation of shareholders at the GSM' in section 3.2.
See 'Quorum and majorities required for passing resolutions at the GSM' in section 3.2.
See 'Corporate website' in section 3.1.
C.1.1
C.1.2
C.1.3
C.1.4
C.1.5
C.1.6
C.1.7
C.1.8
C.1.9
C.1.10
C.1.11
C.1.12
C.1.13
C.1.14
C.1.15
C.1.16
C.1.17
C.1.18
C.1.19
C.1.20
C.1.21
C.1.22
C.1.23
C.1.24
C.1.25
C.1.26
C.1.27
C.1.28
C.1.29
C.1.30
C.1.31
C.1.32
C.1.33
C.1.34
C.1.35
C.1.36
C.1.37
C.1.38
Yes
Yes
Yes
Yes
No
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
Yes
No
Yes
No
Yes
Yes
Yes
No
Yes
No
Yes
Yes
Yes
Yes
Yes
No
No
No
See 'Size' in section 4.2.
See 'Tenure, committee membership and equity ownership' in section 4.2.
See sections 2.4, 4.1 and 'Executive directors', 'Independent non-executive directors', 'Other
external directors' and 'Composition by type of director' in section 4.2.
See section 1.4 and 'Diversity' in section 4.2.
See 'Diversity' in section 4.2 and section 4.6 and regarding top executive positions, see 'Responsible
banking' chapter.
See 'Diversity' in section 4.2 and section 4.6.
See section 1.4 and 'Diversity' in section 4.2.
Not applicable.
See section 'Group executive chairman and chief executive officer' in section 4.3 and 'Executive
committee' in section 4.4.
See section 4.1.
See section 4.1.
See 'Board and committees attendance' in section 4.3.
See section 6 and, additionally, note 5 c) to our 'consolidated financial statements'.
See sections 5 and 6.
See 'Rules and regulations of the board' in section 4.3.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Assessment of the board' in section 4.3 and section 4.6.
See 'Assessment of the board' in section 4.3.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Proceedings of the board' in section 4.3.
Not applicable.
See 'Diversity' in section 4.2.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Proceedings of the board' in section 4.3.
See 'Lead independent director' and 'Board and committees attendance' in section 4.3 and sections
4.4, 4.5, 4.6, 4.7, 4.8, 4.9 and 4.10.
See 'Board and committees attendance' in section 4.3.
See statistical information.
See 'Duties and activities in 2019' in section 4.5.
See 'Secretary of the board' in section 4.3.
See sections 3.1, 'Duties and activities in 2019' in section 4.5, and section 9.6.
See 'External auditor' in section 4.5.
See 'Duties and activities in 2019' in section 4.5.
Not applicable.
See statistical information.
See 'Proceedings of the board' and 'Proceedings of the committees' in section 4.3.
See 'Election, renewal and succession of directors' in section 4.2.
Not applicable.
Not applicable.
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Section in the CNMV
model
Included in
statistical report
Comments
C.1.39
C.2 Board committees
C.2.1
C.2.2
C.2.3
Yes
Yes
Yes
No
See sections 6.4. and 6.7.
See 'Board committees structure' and 'Proceedings of the committees' in section 4.3 and sections
4.4, 4.5, 4.6, 4.7, 4.8, 4.9 and 4.10.
See statistical information.
See 'Board committees structure' in section 4.3 and sections 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 and 4.10.
D. RELATED PARTY AND INTRAGROUP TRANSACTIONS
D.1
D.2
D.3
D.4
D.5
D.6
D.7
No
Yes
Yes
Yes
Yes
No
Yes
See 'Related-party transactions' in section 4.12.
Not applicable.
See 'Related-party transactions' in section 4.12.
See statistical information.
See 'Related-party transactions' in section 4.12.
See 'Conflicts of interests' in section 4.12.
Not applicable.
E. CONTROL AND RISK MANAGEMENT SYSTEMS
E.1
E.2
E.3
E.4
E.5
E.6
F. ICFRS
F.1
F.2
F.3
F.4
F.5
F.6
F7
No
No
No
No
No
No
No
No
No
No
No
No
No
See chapter 'Risk management and control' of this annual report, in particular section 2 'Risk
management and control model' and sections 'Our strong corporate culture: The Santander Way'
and 'Tax contribution' in the 'Responsible banking' chapter.
See note 54 to our consolidated financial statements, in particular section Risk governance, and
sections 'Our strong corporate culture: The Santander Way' and 'Tax contribution' in the
'Responsible banking' chapter.
See chapter 'Risk management and control' of this annual report, in particular section 2.2 'Risk
factors',and the 'Responsible banking' chapter and for our capital needs, see also 'Economic capital'
in section 3.5 of the 'Economic and financial review' chapter.
See chapter 'Risk management and control' of this annual report, in particular section 2.4
'Management processes and tools' and sections 'Our strong corporate culture: The Santander Way'
and 'Tax contribution' in the 'Responsible banking' chapter.
See chapter 'Risk management and control' of this annual report, in particular sections 3, 4, 5, 6, 7,
8 and 9 of such chapter for each risk. Additionally, see note 25e.i to our consolidated financial
statements.
See chapter 'Risk management and control' of this annual report, in particular section 2 'Risk
management and control model', and sections 3, 4, 5, 6, 7, 8 and 9 of such chapter for each risk.
See section 8.1.
See section 8.2.
See section 8.3.
See section 8.4.
See section 8.5.
Not applicable.
See section 8.6.
G. DEGREE OF COMPLIANCE WITH CORPORATE GOVERNANCE RECOMMENDATIONS
G
Yes
See 'Degree of compliance with the corporate governance recommendations' in section 9.2 and
section 9.3.
H. OTHER INFORMATION OF INTEREST
H
No
See sections 'Tax Contribution' and 'Main international initiatives we support' in chapter
'Responsible Banking'
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banking
Economic
and financial review
governance
Risk management
and control
9.2 Statistical information on corporate governance required by the CNMV
Unless otherwise indicated all data as of 31 December 2019.
A. OWNERSHIP STRUCTURE
A.1 Complete the following table on the company’s share capital:
Date of last
modification
09/10/2019
Share capital
(euros)
Number of
shares
Number of
voting rights
8,309,057,291
16,618,114,582
16,618,114,582
Indicate whether different types of shares exist with different associated rights:
Yes
No
A.2 List the direct and indirect holders of significant ownership interests at year-end, excluding directors:
Name or corporate name of sharerholder
BlackRock Inc.
Details of the indirect shares:
% of voting rights
attributed to shares
% of voting rights through
financial instruments
Direct
Indirect
0
5.08%
Direct
0
Total % of
Indirect voting rights
3.46%
5.43%
Name or corporate name of
the indirect shareholder
Name or corporate name of the % of voting rights
direct shareholder
attributed to shares
% of voting rights through
financial instruments
Total % of
voting rights
BlackRock Inc.
Subsidiaries of BlackRock Inc.
5.08%
3.46%
5.43%
A.3 Complete the following tables on company directors holding voting rights through company shares:
Name or corporate name of director
Direct
Indirect
Direct
Indirect
% of voting rights
attributed to shares
% of voting rights
through financial
instruments
% of voting rights that
may be transferred
through financial
instruments
Direct
Indirect
Total %
of voting
rights
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Bruce Carnegie-Brown
Ms Homaira Akbari
Mr Ignacio Benjumea Cabeza de Vaca
Mr Javier Botín-Sanz de Sautuola y O’Shea
Mr Álvaro Cardoso de Souza
Ms Sol Daurella Comadrán
Mr Guillermo de la Dehesa Romero
Mr Henrique de Castro
Mr Rodrigo Echenique Gordillo
Ms Esther Giménez-Salinas i Colomer
Mr Ramiro Mato García Ansorena
Ms Belén Romana García
Mrs Pamela Walkden
0.00
0.01
0.00
0.00
0.02
0.03
0.00
0.00
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.15
0.00
0.00
0.00
0.00
0.53
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.15
0.01
0.00
0.00
0.02
0.56
0.00
0.00
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
% total voting rights held by the board of directors
0.75%
A.7 Indicate whether the company has been notified of any shareholders’ agreements pursuant to Articles 530 and 531 of the
Spanish Companies Act (LSC). Provide a brief description and list the shareholders bound by the agreement, as applicable:
Yes
No
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Parties to the shareholders’ agreement
Mr Francisco Javier Botín-Sanz de Sautuola y
O’Shea (directamente y a través de
Agropecuaria El Castaño, S.L.U.)
Mr Emilio Botín-Sanz de Sautuola y O’Shea,
Puente San Miguel, S.L.U.
Ms Ana Botín-Sanz de Sautuola y O’Shea,
CRONJE, S.L.U.
Nueva Azil, S.L.
Ms Carmen Botín-Sanz de Sautuola y O’Shea
Ms Paloma Botín-Sanz de Sautuola y O’Shea
Bright Sky 2012, S.L.
% of share
capital affected
Brief description of agreement
Expiry date, if
applicable
0.56%
Transfer restrictions and syndication of voting rights as
described under section 2.4 'Shareholders’ agreements' of
the Corporate governance chapter in the annual report. The
communications to CNMV relating to this shareholders'
agreement can be found in material facts with entry
numbers 64179, 171949, 177432, 194069, 211556,
218392, 223703, 226968 and 285567
filed in CNMV on 17 February 2006, 3 August 2012, 19
November 2012, 17 October, 2013, 3 October 2014, 6
February 2015, 29 May 2015, 29 July 2015 and 31
December 2019, respectively.
01/01/2056
Indicate whether the company is aware of the existence of any concerted actions among its shareholders. Give a brief description
as applicable:
Yes
No
Participants in the concerted action
D. Francisco Javier Botín-Sanz de Sautuola y
O’Shea (directamente y a través de
Agropecuaria El Castaño, S.L.U.)
Mr Emilio Botín-Sanz de Sautuola y O’Shea,
Puente San Miguel, S.L.U.
Ms Ana Botín-Sanz de Sautuola y O’Shea,
CRONJE, S.L.U.
Nueva Azil, S.L.
Ms Carmen Botín-Sanz de Sautuola y O’Shea
Ms Paloma Botín-Sanz de Sautuola y O’Shea
Bright Sky 2012, S.L.
% of share
capital affected
Brief description of concerted action
Expiry date, if
applicable
0.56%
Transfer restrictions and syndication of voting rights as
described under section 2.4 'Shareholders’ agreements' of
the Corporate governance chapter in the annual report. The
communications to CNMV relating to this shareholders'
agreement can be found in material facts with entry
numbers 64179, 171949, 177432, 194069, 211556,
218392, 223703, 226968 and 285567
filed in CNMV on 17 February 2006, 3 August 2012, 19
November 2012, 17 October, 2013, 3 October 2014, 6
February 2015, 29 May 2015, 29 July 2015 and 31
December 2019, respectively.
01/01/2056
A.8 Indicate whether any individual or entity currently exercises control or could exercise control over the company in accordance
with article 5 of the Spanish Securities Market Act. If so, identify them:
Yes
No
A.9 Complete the following tables on the company’s treasury shares:
At year end:
Number of shares held directly
Number of shares held indirectly*
% of total share capital
0
(*)Through:
8,430,425
0.05%
Name or corporate name of the direct shareholder
Number of shares held directly
Pereda Gestión, S.A.
Banco Santander Río, S.A.
Banco Santander México, S.A.
Total:
A.11 Estimated free float:
Estimated free float
6,500,000
849,652
1,080,773
8,430,425
%
93.77%
A.14 Indicate whether the company has issued securities not traded in a regulated market of the European Union.
Yes
No
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Economic
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Risk management
and control
B. GENERAL SHAREHOLDERS’ MEETING
B.4 Indicate the attendance figures for the general shareholders’ meetings held during the fiscal year to which this report relates
and in the two preceding fiscal years:
Date of General Meeting
04/07/2017
of which free float:
Date of General Meeting
03/23/2018
of which free float:
Date of General Meeting
04/12/2019
of which free float:
Date of General Meeting
07/23/2019
of which free float:
Attendance data
% attending in
person
% by proxy
% remote voting
Electronic means
0.90 %
0.26 %
47.48%
47.48%
0.37%
0.37%
Attendance data
% attending in
person
% by proxy
% remote voting
Electronic means
0.82%
0.18%
47.61%
47.61%
0.38%
0.38%
Attendance data
% attending in
person
% by proxy
% remote voting
Electronic means
0.77%
0.63%
65.30%
64.30%
0.57%
0.57%
Attendance data
% attending in
person
% by proxy
% remote voting
Electronic means
0.65%
0.58%
41.82%
41.82%
0.30%
0.30%
Other
15.27%
15.27%
Other
15.74%
15.74%
Other
1.86%
1.86%
Other
16.45%
16.45%
Total
64.02%
63.38%
Total
64.55%
63.91%
Total
68.49%
67.36%
Total
59.22%
58.15%
B.5 Indicate whether in the general shareholders’ meetings held during the fiscal year to which this report relate there has been
any matter submitted to them which, for any reason, has not been approved by the shareholders.
Yes
No
B.6 Indicate whether the bylaws require a minimum holding of shares to attend to or to vote remotely in the general shareholders’
meeting:
Yes
No
C. MANAGEMENT STRUCTURE
C.1 Board of directors
C.1.1 Maximum and minimum number of directors provided for in the Bylaws:
Maximum number of directors
Minimum number of directors
Number of directors fixed by GSM
17
12
15
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C.1.2 Complete the following table with the directors’ details:
Name or corporate
name of director
Representative
Ms Ana Botín-Sanz de Sautuola y
O’Shea
N/A
Category of
director
Executive
Position in
the board
Chairman
Date of first
appointment
Date of last
appointment Election procedure
04/02/1989 07/04/2017 Vote in general
Chief executive
officer
25/11/2014 12/04/2019 Vote in general
shareholders’
meeting
shareholders’
meeting
Mr José Antonio Álvarez Álvarez
N/A
Executive
Mr Bruce Carnegie-Brown
N/A
Non-executive
independent
Lead independent
director
25/11/2014 12/04/2019 Vote in general
shareholders’
meeting
Ms Homaira Akbari
N/A
Non-executive
independent
Director
27/09/2016 23/03/2018 Vote in general
shareholders’
meeting
Mr Ignacio Benjumea Cabeza de
Vaca
N/A
Mr Javier Botín-Sanz de Sautuola
y O’Shea
N/A
Mr Álvaro Cardoso de Souza
N/A
Ms Sol Daurella Comadrán
N/A
Mr Guillermo de la Dehesa
Romero
Mr Henrique de Castro
N/A
N/A
Other external
Director
30/06/2015 23/03/2018 Vote in general
shareholders’
meeting
Other external
Director
25/07/2004 12/04/2019 Vote in general
shareholders’
meeting
Non-executive
independent
Non-executive
independent
Director
01/04/2018 01/04/2018 Vote in general
shareholders’
meeting
Director
25/11/2014 23/03/2018 Vote in general
shareholders’
meeting
Other external
Director
24/06/2002 23/03/2018 Vote in general
shareholders’
meeting
Non-executive
independent
Director
07/07/2019 07/07/2019 Vote in general
shareholders’
meeting
Mr Rodrigo Echenique Gordillo
N/A
Other external
Director
07/10/1988 07/04/2017 Vote in general
Ms Esther Giménez- Salinas i
Colomer
N/A
Mr Ramiro Mato García-Ansorena N/A
Ms Belén Romana García
N/A
Mrs Pamela Walkden
N/A
shareholders’
meeting
Non-executive
independent
Non-executive
independent
Non-executive
independent
Non-executive
independent
Director
30/03/2012 07/04/2017 Vote in general
shareholders’
meeting
Director
28/11/2017 12/04/2019 Vote in general
shareholders´
meeting
Director
22/12/2015 12/04/2019 Vote in general
shareholders’
meeting
Director
29/10/2019 29/10/2019 Co-option
Total number of directors
15
Indicate any directors who have leftduring the fiscalyearto which this reportrelates, regardless of the reason (whetherforresignation,
removal or any other):
Name or corporate
name of director
Category of director at Date of last
the time he/her left
appointment
Date of leave
Indicate whether he or she
Board committees he or she has left before the expiry of
was a member of
his or her term
Mr Juan Miguel Villar
Mir
Non-executive
independent
27/03/2015
1/1/2019
N/A
Mr. Carlos Fernández
González
Non-executive
independent
23/03/2018
28/10/2019
Audit Committee,
Appointments Committee,
Remuneration Committee
NO
YES
254
2019 Annual Report
2
13.33%
Profile
N/A
0
0%
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
C.1.3 Complete the following tables for the directors in each relevant category:
Executive directors
Name or corporate name of director
Position held in the company
Profile
See section 4.1 'Our directors' in the Corporate governance
chapter in the annual report.
See section 4.1 'Our directors' in the Corporate governance
chapter in the annual report.
Ms Ana Botín-Sanz de Sautuola y O’Shea
Group executive chairman
Mr José Antonio Álvarez Álvarez
CEO
Total number of executive directors
% of the Board
Proprietary non-executive directors
Name or corporate name of director
Name or corporate name of significant shareholder represented or having proposed
his or her appointment
N/A
N/A
Total number of proprietary non-executive directors
% of the Board
Independent non-executive directors
Name or corporate name of director
Profile
Mr Bruce Carnegie-Brown
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Ms Homaira Akbari
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Mr Álvaro Cardoso de Souza
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Ms Sol Daurella Comadrán
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Mr Henrique de Castro
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Ms Esther Giménez-Salinas i Colomer
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Mr Ramiro Mato García-Ansorena
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Ms Belén Romana Garcia
Mrs Pamela Walkden
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Total number of independent directors
% of the Board
9
60%
Identify any independent director who receives from the company or its group any amount or perk other than his or her director
remuneration or who maintain or have maintained during the fiscal year covered in this report a business relationship with the
company or any group company, either in his or her own name or as a significant shareholder, director or senior manager of an
entity which maintains or has maintained such a business relationship.
In such a case, a reasoned statement from the Board on why the relevant director(s) is able to carry on their duties as independent
director(s) shall be included.
Name or
corporate name Description of the
of director
relationship
Ms Sol Daurella Financing
D. Henrique de
Castro
Reasoned statement
When assessing the annual verification of the independence of directors with this condition, the
appointments committee analysed the business relationships between Santander Group and the
companies in which they are or have previously been significant shareholders, directors or executives.
The committee concluded that the funding granted by Santander Group to companies in which Ms Sol
Daurella is or has been a significant shareholder or director in 2019, did not have the condition of
significant among other reasons because: (i) it does not generate a situation of economic dependence on
the companies involved in view of the substitutability of this funding by other sources, whether they are
banking or other types, (ii) it is aligned with the market share of the Santander Group in the corresponding
market, and (iii) have not reached certain comparable materiality thresholds used in other jurisdictions:
e.g. NYSE, Nasdaq and Canada’s Bank Act.
When assessing the annual verification of the independence of directors with this condition, the
appointments committee analysed the business relationships between Santander Group and the
companies in which they are or have previously been significant shareholders, directors or executives.
The committee concluded that business relationships between Santander Group with companies in which
Mr Henrique de Castro is or has been an administrator in 2019, were not significant among other reasons
becasuse they have not reached certain comparable materiality thresholds used in other jurisdictions: e.g.
NYSE and Nasdaq.
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Table of Contents
Ms Belén
Romana
Business
When assessing the annual verification of the independence of directors with this condition, the
appointments committee analysed the business relationships between Santander Group and the
companies in which they are or have previously been significant shareholders, directors or executives.
The committee concluded that business relationships between Santander Group with companies in which
Ms Belén Romana has been an administrator in 2019, were not significant among other reasons becasuse
they have not reached certain comparable materiality thresholds used in other jurisdictions: e.g. NYSE and
Nasdaq.
Other non-executive directors
Identify all other non-executive directors and explain why these cannot be considered proprietary or independent directors and
detail their relationships with the company, its executives or shareholders:
Name or corporate name of
director
Mr Ignacio Benjumea Cabeza
de Vaca
Mr Javier Botín-Sanz de
Sautuola y O’Shea
Reasons for not qualifying under other category
Because the requirements established in paragraph 3
of article 529 duodecies LSC are not met, and as a
prudence criteria, despite having elapsed the legal
period required since his professional relationship
with the Bank ceased (other than that derived from
his position as director of the Bank and Santander
Spain)
Because the requirements established in paragraph 3
of article 529 duodecies LSC are not met, and he has
held the position of director for more than 12 years.
Entity, executive or
shareholder with whom it
maintains a relationship
Banco Santander, S.A.
Banco Santander, S.A.
Mr Guillermo de la Dehesa
Romero
Because the requirements established in paragraph 3
of article 529 duodecies LSC are not met, and he has
held the position of director for more than 12 years.
Banco Santander, S.A.
Mr Rodrigo Echenique Gordillo Because the requirements established in paragraph 3
of article 529 duodecies LSC are not met, and he has
held the position of director for more than 12 years
and for not having elapsed the required term since he
ceased his executive functions.
Banco Santander, S.A.
Total number of other non-
executive directors
% of the Board
Profile
See section 4.1 'Our
directors' in the Corporate
governance chapter in the
annual report.
See section 4.1 'Our
directors' in the Corporate
governance chapter in the
annual report.
See section 4.1 'Our
directors' in the Corporate
governance chapter in the
annual report.
See section 4.1 'Our
directors' in the Corporate
governance chapter in the
annual report.
4
26.67%
List any changes in the category of a director which have occurred during the period covered in this report.
Name or corporate name of director
Mr Rodrigo Echenique Gordillo
Date of change
01/05/2019
Previous category
Executive director
Current category
Other external director
C.1.4 Complete the following table on the number of female directors at the end of each the past four years and their category:
Number of female directors
% of total directors of each category
Executive
Proprietary
Independent
Other external
Total:
FY 2019
FY 2018
FY 2017
FY 2016
FY 2019
FY 2018
FY 2017
FY 2016
1
0
5
0
6
1
0
4
0
5
1
0
4
0
5
1
0
5
0
6
50.00%
33.33%
33.33%
25.00%
0.00%
0.00%
0.00%
0.00%
55.55%
44.44%
50.00%
62.50%
0.00%
0.00%
0.00%
0.00%
40.00%
33.33%
35.71%
40.00%
256
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
C.1.11 Identify those directors (or individuals representing the director in the case of directors who are body corporates) who hold
a directorship of other non-group companies that are listed on official securities markets (or who are the individuals representing
a body corporate holding such a directorship), if communicated to the company:
Name or corporate name of director
Name of the listed company
Ms Ana Botín-Sanz de Sautuola y O’Shea
The Coca-Cola Company
Mr Rodrigo Echenique Gordillo
Industria de Diseño Textil, S.A. (Inditex)
Position
Director
Director
Mr Guillermo de la Dehesa Romero
Amadeus IT Group, S.A.
Vice Chairman
Ms Homaira Akbari
Ms Sol Daurella Comadrán
Mr Henrique de Castro
Ms Belén Romana García
Landstar System, Inc.
Coca-Cola European Partners plc.
Fiserv Inc.
Target Corporation
Aviva plc.
Director
Chairman
Director
Director
Director
C.1.12 Indicate and, if applicable explain, if the company has established rules on the maximum number of directorships its
directors may hold and, if so, where they are regulated:
Yes
No
The maximum number of directorships is established, as provided for in article 30 of the Rules and regulations of the board, in
article 26 of Spanish Law 10/2014 on the ordering, supervision and solvency of credit institutions. This rule is further developed
by articles 29 and subsequent of Royal Decree 84/2015 and by Rules 30 and subsequent of Bank of Spain Circular 2/2016.
C.1.13 Identify the following items of the total remuneration of the board of directors:
Board remuneration accrued in the fiscal year (EUR thousand)
Amount of accumulated pension rights of current directors (EUR thousand)
Amount of accumulated pension rights of former directors (EUR thousand)
27,187
78,776
65,694
C.1.14 Identify the members of the company’s senior management who are non executive directors and indicate total
remuneration they have accrued during the fiscal year:
Name or corporate name
Mr Rami Aboukhair Hurtado
Ms Lindsey Tyler Argalas
Position (s)
Country head - Santander Spain
Head of Santander Digital
Mr Juan Manuel Cendoya Méndez de Vigo
Group head of Communications, Corporate Marketing and Research
Mr José Fransisco Doncel Razola
Group head of Accounting and Financial Control
Mr Keiran Paul Foad
Mr José Antonio García Cantera
Mr Juan Guitard Marín
Group Chief Risk Officer
Group Chief Financial Officer
Group Chief Audit Executive
Mr José Maria Linares Perou
Global head of Corporate & Investment Banking
Ms Mónica Lopez-Mónís Gallego
Group head of Supervisory and Regulatory Relations
Mr Javier Maldonado Trinchant
Group head of Costs
Mr Dirk Marzluf
Group head of Technology and Operations
Mr Víctor Matarranz Sanz de Madrid
Global head of Wealth Management
Mr José Luis de Mora Gil-Gallardo
Group head of Strategy and Corporate Development and Head of Consumer Finance
(Santander Consumer Finance)
Mr José María Nus Badía
Mr Jaimé Pérez Renovales
Mr Javier San Félix García
Ms Jennifer Scardino
Risk adviser to Group executive chairman
Group head of General Secretariat and Human Resources
Head of Santander Global Payments Services
Head of Global communications. Group deputy head of Communications, Corporate
Marketing and Research
Ms Marjolien van Hellemondt-Gerdingh
Group Chief Compliance Officer
Total remuneration accrued by the senior
management (EUR thousand)
C.1.15 Indicate whether any changes have been made to the board Rules and regulations during the fiscal year:
Yes
No
60,787
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C.1.21 Indicate whether there are any specific requirements, other than those applying to directors generally, to be appointed
chairman.
Yes
No
C.1.23 Indicate whether the bylaws or the board Rules and regulations set a limited term of office (or other requirements which
are stricter than those provided for in the law) for independent directors different than the one provided for in the law.
Yes
No
C.1.25 Indicate the number of board meetings held during the fiscal year and how many times the board has met without the
chairman’s attendance. Attendance will also include proxies appointed with specific instructions.
Number of board meetings
Number of board meetings held without the chairman’s attendance
Indicate the number of meetings held by the lead independent director with the rest of directors without the attendance or
representation of any executive director.
Number of meetings
Indicate the number of meetings of the various board committees held during the fiscal year.
Number of meetings of the audit committee
Number of meetings of the responsible banking, sustainability and culture committee
Number of meetings of the innovation and technology committee
Number of meetings of the appointments committee
Number of meetings of the remuneration committee
Number of meetings of the risk supervision, regulation and compliance committee
Number of meetings of the executive committee
18
0
3
13
4
4
13
11
14
42
C.1.26 Indicate the number of board meetings held during the fiscal year and data about the attendance of the directors.
Number of meetings with at least 80% of directors being present
% of votes cast by members present over total votes in the fiscal year
Number of board meetings with all directors being present (or represented having given specific instructions)
% of votes cast by members present at the meeting or represented with specific instructions over total votes in the fiscal
year
18
96.92%
17
99.61%
C.1.27 Indicate whether the company´s consolidated and individual financial statements are certified before they are submitted to
the board for their formulation.
Yes
No
Identify, where applicable, the person(s) who certified the company’s individual and consolidated financial statements prior to
their formulation by the board:
Name
Position
Mr José Francisco Doncel Razola
Group head of Accounting and Financial Control
C.1.29 Is the secretary of the board also a director?
Yes
No
If the secretary of the board is not a director fill in the following table:
Name or corporate name of the secretary
Mr Jaime Pérez Renovales
Representative
N/A
C.1.31 Indicate whether the company has changed its external audit firm during the fiscal year. If so, identify the incoming audit
firm and the outgoing audit firm:
Yes
No
258
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
C.1.32 Indicate whether the audit firm performs non-audit work for the company and/or its group. If so, state the amount of fees
paid for such work and the percentage they represent of all fees invoiced to the company and/or its group.
Yes
No
Amount of non-audit work (EUR thousand)
Amount of non-audit work as a % of amount of audit work
Company
0.199
0.2%
Group
companies
2,824
2.6%
Total
3,023
2.8%
C.1.33 Indicate whether the audit report on the previous year’s financial statements is qualified or includes reservations. Indicate
the reasons given by the chairman of the audit committee to the shareholders in the general shareholders meeting to explain the
content and scope of those reservations or qualifications.
Yes
No
C.1.34 Indicate the number of consecutive years during which the current audit firm has been auditing the financial statements of
the company and/or its group. Likewise, indicate for how many years the current firm has been auditing the financial statements
as a percentage of the total number of years over which the financial statements have been audited:
Number of consecutive years
Number of years audited by current audit firm/Number of years the company’s or its Group
financial statements have been audited (%)
Individual financial
statements
Consolidated
financial statements
4
4
Company
Group
10.81%
10.81%
C.1.35 Indicate and if applicable explain whether there are procedures for directors to receive the information they need in
sufficient time to prepare for meetings of the governing bodies:
Yes
No
Procedures
Our Rules and regulations of the board stipulate that members of the board and committees are provided with the relevant documentation for
each meeting sufficiently in advance of the meeting date, thereby ensuring the confidentiality of the information.
C.1.39 Identify, individually in the case of directors, and in the aggregate in all other cases, and provide detailed information on,
agreements between the company and its directors, executives and employees that provide indemnification, guarantee or golder
parachute clause in the event of resignation, unfair dismissal or termination as a result of a takeover bid or other type of
transaction.
Number of beneficiaries
18
Type of beneficiary
Description of the agreement:
Employees
The Bank has no commitments to provide severance pay to directors.
A number of employees have a right to compensation equivalent to one to two years of their basic salary in the
event of their contracts being terminated by the Bank in the first two years of their contract in the event of
dismissal on grounds other than their own will, retirement, disability or serious dereliction of duties.
In addition, for the purposes of legal compensation, in the event of redundancy a number of employees are
entitled to recognition of length of service including services provided prior to being contracted by the Bank; this
would entitle them to higher compensation than they would be due based on their actual length of service with
the Bank itself.
Indicate whether these agreements must be reported to and/or authorised by the governing bodies of the company or its group
beyond the procedures provided for in applicable law. If applicable, specify the process applied, the situations in which they apply,
and the bodies responsible for approving or communicating those agreements:
Body authorising clauses
Is the general shareholders’ meeting informed of such clauses?
Board of directors
General Shareholders’
Meeting
YES
NO
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Table of Contents
C.2 Board committees
C.2.1 Give details of all the board committees, their members and the proportion of executive, independent and other external
directors.
Executive committee
Name
Position
Type
Ms Ana Botín-Sanz de Sautuola y O’Shea
Chairman
Member
Member
Member
Member
Member
Member
Member
Member
Position
Chairman
Member
Member
Member
Member
Mr José Antonio Álvarez Álvarez
Mr Ignacio Benjumea Cabeza de Vaca
Mr Bruce Carnegie-Brown
Mr Guillermo de la Dehesa Romero
Mr Ramiro Mato García-Ansorena
Ms Belén Romana García
% of executive directors
% of proprietary directors
% of independent directors
% of other non-executive directors
Audit committee
Name
Ms Belén Romana García
Ms Homaira Akbari
Mr Henrique de Castro
Mr Ramiro Mato García-Ansorena
Mrs Pamela Walkden
% of executive directors
% of proprietary directors
% of independent directors
% of other non-executive directors
Executive director
Executive director
Other external director
External independent director
Other external director
External independent director
External independent director
Type
External independent director
External independent director
External independent director
External independent director
External independent director
28.57%
0%
42.86%
28.57%
0%
0%
100%
0%
Identify those directors in the audit committee who have been appointed on the basis of their knowledge and experience in
accounting, audit or both and indicate the date of appointment of the committee chairman.
Name of directors with accounting or audit experience
Ms Belén Romana García
Ms Homaira Akbari
Mr Ramiro Mato García-Ansorena
Mr Henrique de Castro
Mrs Pamela Walkden
Date of appointment of the committee Chairman for that position
26 April 2016
Appointments committee
Name
Mr Bruce Carnegie-Brown
Mr Guillermo de la Dehesa Romero
Ms Sol Daurella Comádran
Mr Rodrigo Echenique Gordillo
Ms Esther Giménez-Salinas i Colomer
% of executive directors
% of proprietary directors
% of independent directors
% of other executive directors
260
2019 Annual Report
Position
Chairman
Member
Member
Member
Member
Type
External independent director
Other external director
External independent director
Other external director
External independent director
0%
0%
60.00%
40.00%
Responsible Corporate
banking
Economic
and financial review
governance
Remuneration committee
Name
Mr Bruce Carnegie-Brown
Mr Ignacio Benjumea Cabeza de Vaca
Mr Guillermo de la Dehesa Romero
Ms Sol Daurella Comadrán
Mr Henrique de Castro
Position
Chairman
Member
Member
Member
Member
Type
External independent director
Other external director
Other external director
External independent director
External independent director
% of executive directors
% of proprietary directors
% of independent directors
% of other external directors
Risk supervision, regulation and compliance committee
Name
Position
Mr Álvaro Cardoso de Souza
Mr Ignacio Benjumea Cabeza de Vaca
Ms Esther Giménez- Salinas i Colomer
Mr Ramiro Mato García-Ansorena
Ms Belén Romana García
Chairman
Member
Member
Member
Member
Type
External independent director
Other external director
External independent director
External independent director
External independent director
% of executive directors
% of proprietary directors
% of independent directors
% of other external directors
Responsible banking, sustainability and culture committee
Name
Position
Type
Mr Ramiro Mato García-Ansorena
Chairman
External independent director
Ms Ana Botín-Sanz de Sautuola y O’Shea
Ms Homaira Akbari
Mr Ignacio Benjumea Cabeza de Vaca
Mr Álvaro Cardoso de Souza
Ms Sol Daurella Comadrán
Ms Esther Giménez-Salinas i Colomer
Ms Belén Romana García
Member
Member
Member
Member
Member
Member
Member
Executive director
External independent director
Other external director
External independent director
External independent director
External independent director
External independent director
% of executive directors
% of proprietary directors
% of independent directors
% of other external directors
Innovation and technology committee
Name
Position
Type
Ms Ana Botin-Sanz de Sautuola y O’Shea
Chairman
Mr José Antonio Álvarez Álvarez
Mr Bruce Carnegie-Brown
Ms Homaira Akbari
Mr Ignacio Benjumea Cabeza de Vaca
Mr Guillermo de la Dehesa Romero
Ms Belén Romana García
Member
Member
Member
Member
Member
Member
Executive director
Executive director
External independent director
External independent director
Other external director
Other external director
External independent director
Risk management
and control
0%
0%
60.00%
40.00%
0%
0%
80.00%
20.00%
12.50%
0%
75%
12.50%
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Table of Contents
Mr Henrique de Castro
Member
External independent director
% of executive directors
% of proprietary directors
% of independent directors
% of other external directors
25.00%
0%
50.00%
25.00%
C.2.2 Complete the following table on the number of female directors on the various board committees over the past four years.
Number of female directors
FY 2019
FY 2018
FY 2017
FY 2016
Number
%
Number
%
Number
%
Number
%
Audit committee
Responsible banking, sustainability and culture
committee
Innovation and technology committee
Appointments committee
Remuneration committee
Risk supervision, regulation and compliance
committee
Executive committee
3
5
3
2
1
2
2
60.00%
62.50%
37.50%
40.00%
20.00%
40.00%
28.50%
D. RELATED-PARTY AND INTRAGROUP TRANSACTIONS
2
5
3
1
1
2
2
50.00%
62.50%
42.85%
25.00%
20.00%
33.30%
25.00%
2
—
50.00%
—
2
—
50.00%
—
4
1
1
2
1
44.40%
20.00%
20.00%
33.30%
14.29%
3
1
2
2
2
33.33%
20.00%
40.00%
28.57%
25.00%
D.2 List any significant transactions, by virtue of their amount or relevance, between the company or its group of companies and
the company’s significant shareholders:
Not applicable.
D.3 List any significant transactions, by virtue of their amount or relevance, between the company or its group of companies and
the company’s directors or executives:
Not applicable.
D.4 List any significant transactions undertaken by the company with other companies in its group that are not eliminated in the
process of drawing up the consolidated financial statements and whose subject matter and terms set them apart from the
company’s ordinary trading activities.
In any case, list any intragroup transactions carried out with entities in countries or territories considered to be tax havens.
Corporate name of the
group company
Banco Santander
(Brasil) S.A.
(Cayman Islands
Branch)
Brief description of the transaction
This chart shows the transactions and the results obtained by the Bank at 31 December 2019 with
Group entities resident in countries or territories that were considered tax havens Pursuant to
Spanish legislation, at such date.
These results, and the balances indicated below, were eliminated in the consolidation process. See
note 3 to the 2019 Consolidated financial statements for more information on off-shore entities.
The amount shown on the right corresponds to positive results relating to contracting of derivatives
(includes branches in New York and London of Banco Santander, S.A.)
The referred derivatives had a net positive market value of EUR 226 million in the Bank and covered
the following transactions:
- 91 Non Delivery Forwards.
- 167 Swaps.
- 165 Cross Currency Swaps.
- 102 Forex.
The amount shown on the right corresponds to negative results relating to deposits with the New
York branch of Banco Santander, S.A. (liability). These deposits had a principal of EUR 908 million at
31 December 2019.
The amount shown on the right corresponds to positive results relating to deposits with the London
branch of Banco Santander, S.A. (asset). These deposits had a principal of EUR 118 million at 31
December 2019.
The amount shown on the right corresponds to positive results relating to fixed income securities -
subordinated instruments (asset). This relates to the investment in November 2018 in two
subordinated instruments (Tier I Subordinated Perpetual Notes and Tier II Subordinated Notes due
2028) with an amortised cost of EUR 2.247 million as at 31 December 2019.
The amount shown on the right corresponds to negative results relating to interests and
commissions concerning correspondent accounts (includes Hong Kong branch of Banco Santander,
S.A.) (liability). This relates to correspondent accounts with a credit balance of EUR 42 million at 31
December 2019.
Amount (EUR
thousand)
56,353
20,892
3,779
148,862
463
262
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
D.5 List any significant transactions, by virtue of their amount or relevance, between the company or its group and other related
parties, not reported in the previous sections.
Not applicable.
D.7 Is more than one group company listed in Spain?
Yes
No
G. DEGREE OF COMPLIANCE WITH THE CORPORATE GOVERNANCE RECOMMENDATIONS
Indicate the degree of the company’s compliance with the recommendations of the good governance code for listed companies.
Should the company not comply with any of the recommendations or comply only in part, include a detailed explanation of the
reasons so that shareholders, investors and the market in general have enough information to assess the company’s behaviour.
General explanations are not acceptable.
1. The bylaws of listed companies should not place an upper limit on the votes that can be cast by a single shareholder, or impose
other obstacles to the takeover of the company by means of share purchases on the market.
Complies
Explain
2. When a parent company and a subsidiary are both listed, the two provide detailed disclosure on:
a) The activity they engage in and any business dealings between them, as well as between the subsidiary and other group
companies.
b) The mechanisms in place to resolve possible conflicts of interest.
Complies
Partially complies
Explain
Not applicable
3. During the AGM the chairman of the board should verbally inform shareholders in sufficient detail of the most relevant aspects
of the company’s corporate governance, supplementing the written information circulated in the annual corporate governance
report. In particular:
a) Changes taking place since the previous annual general meeting.
b) The specific reasons for the company not following a given Good Governance Code recommendation, and any alternative
procedures followed in its stead.
Complies
Partially complies
Explain
4. The company should draw up and implement a policy of communication and contacts with shareholders, institutional investors
and proxy advisers that complies in full with market abuse regulations and accords equitable treatment to shareholders in the
same position.
This policy should be disclosed on the company’s website, complete with details of how it has been put into practice and the
identities of the relevant interlocutors or those charged with its implementation.
Complies
Partially complies
Explain
5. The board of directors should not make a proposal to the general meeting for the delegation of powers to issue shares or
convertible securities without pre-emptive subscription rights for an amount exceeding 20% of capital at the time of such
delegation.
And that whenever the board of directors approves an issuance of shares or convertible securities without pre-emptive rights the
company immediately publishes reports on its web page regarding said exclusions as referenced in applicable mercantile law.
Complies
Partially complies
Explain
Our 2018 AGM authorised the board to increase share capital with the authority to exclude pre-emptive rights for shareholders,
with a limit of 20% of the share capital. This limit is further reduced to 10% of the share capital in connection with capital
increases to convert bonds or other convertible securities or instruments. As an exception, these limits for the issuance without
pre-emptive rights do not apply to capital increases to allow the potential conversion of contingent convertible preferred
securities (which can only be converted into newly-issued shares when the CET1 ratio falls below a pre-established threshold).
The board of directors is proposing to have this authority renewed at our 2020 AGM as it may expire before we hold our 2021
AGM. The Bank publishes in its website the reports relating to the exclusion of pre-emptive rights when it makes use of this
authority in the terms established in the recommendation. See section 2.2 'Authority to increase capital'.
6. Listed companies drawing up the following reports on a voluntary or compulsory basis should publish them on their website
well in advance of the AGM, even if their distribution is not obligatory:
a) Report on auditor independence.
b) Reviews of the operation of the audit committee and the appointments and remuneration committee.
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c) Audit committee report on third-party transactions.
d) Report on corporate social responsibility policy.
Complies
Partially complies
Explain
7. The company should broadcast its general meetings live on the corporate website.
Complies
Explain
8. The audit committee should strive to ensure that the board of directors can present the Company’s accounts to the general
meeting without limitations or qualifications in the auditor’s
report. In the exceptional case that qualifications exist, both the chairman of the audit committee and the auditors should give a
clear account to shareholders of their scope and content.
Complies
Partially complies
Explain
9. The company should disclose its conditions and procedures for admitting share ownership, the right to attend general meetings
and the exercise or delegation of voting rights, and display them permanently on its website.
Such conditions and procedures should encourage shareholders to attend and exercise their rights and be applied in a non-
discriminatory manner.
Complies
Partially complies
Explain
10. When a shareholder so entitled exercises the right to supplement the agenda or submit new proposals prior to the general
meeting, the company should:
a) Immediately circulate the supplementary items and new proposals.
b) Disclose the standard attendance card or proxy appointment or remote voting form, duly modified so that new agenda items
and alternative proposals can be voted on in the same terms as those submitted by the board of directors.
c) Put all these items or alternative proposals to the vote applying the same voting rules as for those submitted by the board of
directors, with particular regard to presumptions or deductions about the direction of votes.
d) After the general meeting, disclose the breakdown of votes on such supplementary items or alternative proposals.
Complies
Partially complies
Explain
Not applicable
11. In the event that a company plans to pay for attendance at the general meeting, it should first establish a general, long-term
policy in this respect.
Complies
Partially complies
Explain
Not applicable
12. The board of directors should perform its duties with unity of purpose and independent judgement, according the same
treatment to all shareholders in the same position. It should be guided at all times by the company’s best interest, understood as
the creation of a profitable business that promotes its sustainable success over time, while maximising its economic value.
In pursuing the corporate interest, it should not only abide by laws and regulations and conduct itself according to principles of
good faith, ethics and respect for commonly accepted customs and good practices, but also strive to reconcile its own interests
with the legitimate interests of its employees, suppliers, clients and other stakeholders, as well as with the impact of its activities
on the broader community and the natural environment.
Complies
Partially complies
Explain
13. The board of directors should have an optimal size to promote its efficient functioning and maximise participation. The
recommended range is accordingly between five and fifteen members.
Complies
Explain
14. The board of directors should approve a director selection policy that:
a) Is concrete and verifiable.
b) Ensures that appointment or re-election proposals are based on a prior analysis of the board’s needs.
c) Favors a diversity of knowledge, experience and gender.
The results of the prior analysis of board needs should be written up in the appointments committee’s explanatory report, to be
published when the general meeting is convened that will ratify the appointment and re-election of each director.
The director selection policy should pursue the goal of having at least 30% of total board places occupied by women directors
before the year 2020.
The appointments committee should carry an annual verification on compliance with the director selection policy and set out its
findings in the annual corporate governance report.
264
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Complies
Partially complies
Explain
15. Proprietary and independent directors should constitute an ample majority on the board of directors, while the number of
executive directors should be the minimum practical bearing in mind the complexity of the corporate group and the ownership
interests they control.
Complies
Partially complies
Explain
16. The percentage of proprietary directors out of all non-executive directors should be no greater than the proportion between
the ownership stake of the shareholders they represent and the remainder of the company’s capital.
This criterion can be relaxed:
a) In large cap companies where few or no equity stakes attain the legal threshold for significant shareholdings.
b) In companies with a plurality of shareholders represented on the board but not otherwise related.
Complies
Explain
17. Independent directors should be at least half of all board members.
However, when the company does not have a large market capitalisation, or when a large cap company has shareholders
individually or concertedly controlling over 30 percent of capital, independent directors should occupy, at least, a third of board
places.
Complies
Explain
18. Companies should disclose the following director particulars on their websites and keep them regularly updated:
a) Background and professional experience.
b) Directorships held in other companies, listed or otherwise, and other paid activities they engage in, of whatever nature.
c) Statement of the director class to which they belong, in the case of proprietary directors indicating the shareholder they
represent or have links with.
d) Dates of their first appointment as a board member and subsequent re-elections.
e) Shares held in the company, and any options on the same.
Complies
Partially complies
Explain
19. Following verification by the appointments committee, the annual corporate governance report should disclose the reasons
for the appointment of proprietary directors at the urging of shareholders controlling less than 3 percent of capital; and explain
any rejection of a formal request for a board place from shareholders whose equity stake is equal to or greater than that of others
applying successfully for a proprietary directorship.
Complies
Partially complies
Explain
Not applicable
20. Proprietary directors should resign when the shareholders they represent dispose of their ownership interest in its entirety. If
such shareholders reduce their stakes, thereby losing some of their entitlement to proprietary directors, the number of the latter
should be reduced accordingly.
Complies
Partially complies
Explain
Not applicable
21. The board of directors should not propose the removal of independent directors before the expiry of their tenure as mandated
by the bylaws, except where they find just cause, based on a proposal from the appointments committee. In particular, just cause
will be presumed when directors take up new posts or responsibilities that prevent them allocating sufficient time to the work of
a board member, or are in breach of their fiduciary duties or come under one of the disqualifying grounds for classification as
independent enumerated in the applicable legislation.
The removal of independent directors may also be proposed when a takeover bid, merger or similar corporate transaction alters
the company’s capital structure, provided the changes in board membership ensue from the proportionality criterion set out in
recommendation 16.
Complies
Explain
22. Companies should establish rules obliging directors to disclose any circumstance that might harm the organisation’s name or
reputation, tendering their resignation as the case may be, and, in particular, to inform the board of any criminal charges brought
against them and the progress of any subsequent trial.
The moment a director is indicted or tried for any of the offences stated in company legislation, the board of directors should open
an investigation and, in light of the particular circumstances, decide whether or not he or she should be called on to resign. The
board should give a reasoned account of all such determinations in the annual corporate governance report.
Complies
Partially complies
Explain
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23. Directors should express their clear opposition when they feel a proposal submitted for the board’s approval might damage
the corporate interest. In particular, independents and other directors not subject to potential conflicts of interest should
strenuously challenge any decision that could harm the interests of shareholders lacking board representation.
When the board makes material or reiterated decisions about which a director has expressed serious reservations, then he or she
must draw the pertinent conclusions. Directors resigning for such causes should set out their reasons in the letter referred to in the
next recommendation.
The terms of this recommendation also apply to the secretary of the board, even if he or she is not a director.
Complies
Partially complies
Explain
Not applicable
24. Directors who leave before their tenure expires, through resignation or otherwise, should state their reasons in a letter to be
sent to all members of the board. Whether or not such resignation is disclosed as a material event, the motivating factors should
be explained in the annual corporate governance report.
Complies
Partially complies
Explain
Not applicable
25. The appointments committee should ensure that non-executive directors have sufficient time available to discharge their
responsibilities effectively.
The board rules and regulations should lay down the maximum number of company boards on which directors can serve.
Complies
Partially complies
Explain
26. The board should meet with the necessary frequency to properly perform its functions, eight times a year at least, in
accordance with a calendar and agendas set at the start of the year, to which each director may propose the addition of initially
unscheduled items.
Complies
Partially complies
Explain
27. Director absences should be kept to a strict minimum and quantified in the annual corporate governance report. In the event of
absence, directors should delegate their powers of representation with the appropriate instructions.
Complies
Partially complies
Explain
28. When directors or the secretary express concerns about some proposal or, in the case of directors, about the company’s
performance, and such concerns are not resolved at the meeting, they should be recorded in the minutes book if the person
expressing them so requests.
Complies
Partially complies
Explain
Not applicable
29. The company should provide suitable channels for directors to obtain the advice they need to carry out their duties, extending
if necessary to external assistance at the company’s expense.
Complies
Partially complies
Explain
30. Regardless of the knowledge directors must possess to carry out their duties, they should also be offered refresher
programmes when circumstances so advise.
Complies
Explain
Not applicable
31. The agendas of board meetings should clearly indicate on which points directors must arrive at a decision, so they can study
the matter beforehand or obtain the information they consider appropriate.
For reasons of urgency, the chairman may wish to present decisions or resolutions for board approval that were not on the
meeting agenda. In such exceptional circumstances, their inclusion will require the express prior consent, duly minuted, of the
majority of directors present.
Complies
Partially complies
Explain
32. Directors should be regularly informed of movements in share ownership and of the views of major shareholders, investors
and rating agencies on the company and its group.
Complies
Partially complies
Explain
33. The chairman, as the person responsible for the efficient functioning of the board of directors, in addition to the functions
assigned by law and the company’s bylaws, should prepare and submit to the board a schedule of meeting dates and agendas;
organise and coordinate regular evaluations of the board and, where appropriate, of the company’s chief executive officer;
exercise leadership of the board and be accountable for its proper functioning; ensure that sufficient time is given to the
discussion of strategic issues, and approve and review refresher courses for each director, when circumstances so advise.
Complies
Partially complies
Explain
34. When a lead independent director has been appointed, the bylaws or the Rules and regulations of the board of directors
should grant him or her the following powers over and above those conferred by law: to chair the board of directors in the absence
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of the chairman or vice chairman; to give voice to the concerns of non-executive directors; to maintain contact with investors and
shareholders to hear their views and develop a balanced understanding of their concerns, especially those to do with the
company’s corporate governance; and to coordinate the chairman’s succession plan.
Complies
Partially complies
Explain
Not applicable
35. The board secretary should strive to ensure that the board’s actions and decisions are informed by the governance
recommendations of the Good Governance Code of relevance to the company.
Complies
Explain
36. The board in full should conduct an annual evaluation, adopting, where necessary, an action plan to correct weakness detected
in:
a) The quality and efficiency of the board’s operation.
b) The performance and membership of its committees.
c) The diversity of board membership and competencies.
d) The performance of the chairman of the board of directors and the company’s chief executive.
e) The performance and contribution of individual directors, with particular attention to the chairmen of board committees.
The evaluation of board committees should start from the reports they send to the board of directors, while that of the board itself
should start from the report of the appointments committee.
Every three years, the board of directors should engage an external facilitator to aid in the evaluation process. This facilitator’s
independence should be verified by the appointments committee.
Any business dealings that the facilitator or members of its corporate group maintain with the company or members of its
corporate group should be detailed in the annual corporate governance report.
The process followed and areas evaluated should be detailed in the annual corporate governance report.
Complies
Partially complies
Explain
37. When an executive committee exists, its membership mix by director class should resemble that of the board. The secretary of
the board should also act as secretary to the executive committee.
Complies
Partially complies
Explain
Not applicable
The secretary of the executive committee is the secretary of the board. While the distribution of categories of directors in the
executive committee is not exactly the same as in the board, the Bank considers it complies with the spirit of the recommendation
since the current composition reflects all categories of directors, including a majority of external directors and three independent
directors, but retaining all executive directors to maintain the efficiency in the discharge of the executive functions of the
committee. Moreover, based on said reasons of efficiency and adequate functioning of the executive committee, the CNMV has
proposed to amend this recommendation so that the committee is composed of at least two external directors, at least one of
which should be independent. If this proposal had been already approved, we would be fully complying with this
recommendation.
38. The board should be kept fully informed of the matters discussed and decisions made by the executive committee. To this end,
all board members should receive a copy of the committee’s minutes.
Complies
Partially complies
Explain
Not applicable
39. All members of the audit committee, particularly its chairman, should be appointed with regard to their knowledge and
experience in accounting, auditing and risk management matters. A majority of committee seats should be held by independent
directors.
Complies
Partially complies
Explain
40. Listed companies should have a unit in charge of the internal audit function, under the supervision of the audit committee, to
monitor the effectiveness of reporting and control systems. This unit should report functionally to the board’s non-executive
chairman or the chairman of the audit committee.
Complies
Partially complies
Explain
41. The head of the unit handling the internal audit function should present an annual work programme to the audit committee,
inform it directly of any incidents arising during its implementation and submit an activities report at the end of each year.
Complies
Partially complies
Explain
Not applicable
42. The audit committee should have the following functions over and above those legally assigned:
1. With respect to internal control and reporting systems:
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a) Monitor the preparation and the integrity of the financial information of the company and, where appropriate, the Group,
checking for compliance with legal provisions, the accurate demarcation of the consolidation perimeter, and the correct
application of accounting principles.
b) Monitor the independence of the unit handling the internal audit function; propose the selection, appointment, re-election and
removal of the head of the internal audit service; propose the service’s budget; approve its priorities and work programmes,
ensuring that it focuses primarily on the main risks the company is exposed to; receive regular report-backs on its activities; and
verify that senior management are acting on the findings and recommendations of its reports.
c) Establish and supervise a mechanism whereby staff can report, confidentially and, if appropriate and feasible, anonymously,
any significant irregularities that they detect in the course of their duties, in particular financial or accounting irregularities.
2. With regard to the external auditor:
a) Investigate the issues giving rise to the resignation of the external auditor, should this come about.
b) Ensure that the remuneration of the external auditor, does not compromise its quality or independence.
c) Ensure that the company notifies any change of external auditor to the CNMV as a material fact, accompanied by a statement of
any disagreements arising with the outgoing auditor and if applicablen, the contents thereof.
d) Ensure that the external auditor has a yearly meeting with the board in full to inform it of the work undertaken and
developments in the company’s risk and accounting positions.
e) Ensure that the company and the external auditor adhere to current regulations on the provisions of non-audit services, limits
on the concentration of the auditor’s business and other requirements concerning auditor independence.
Complies
Partially complies
Explain
43. The audit committee should be empowered to meet with any company employee or manager, even ordering their appearance
without the presence of another manager.
Complies
Partially complies
Explain
44. The audit committee should be informed of any structural changes or corporate transactions the company is planning, so the
committee can analyse the operation and report to the board beforehand on its economic conditions and accounting impact and,
when applicable, the exchange ratio proposed.
Complies
Partially complies
Explain
Not applicable
45. The risk control and management policy should identify at least:
a) The different types of risk, financial and non-financial (including operational, technological, legal, social, environmental,
political and reputational risks), the company is exposed to, with the inclusion under financial or economic, risks of contingent
liabilities and other off-balance-sheet risks.
b) The setting of the risk level that the company deems acceptable.
c) Measures in place to mitigate the impact of risk events should they occur.
d) The internal reporting and control systems to be used to control and manage the above risks, including contingent liabilities and
off-balance-sheet risks.
Complies
Partially complies
Explain
46. Companies should establish a risk control and management function in the charge of one of the company’s internal
department or units and under the direct supervision of the audit committee or some other specialised board committee. This
internal department or unit should be expressly charged with the following responsibilities:
a) Ensure that risk control and management systems are functioning correctly and, specifically, that major risks the company is
exposed to are correctly identified, managed and quantified.
b) Participate actively in the preparation of risk strategies and in key decisions about their management.
c) Ensure that risk control and management systems are mitigating risks effectively in the frame of the policy drawn up by the
board of directors.
Complies
Partially complies
Explain
47. Members of the appointments and remuneration committee-or of the appointments committee and remuneration
committee, if separately constituted - should be chosen procuring they have the right balance of knowledge, skills and experience
for the functions they are called on to discharge. The majority of their members should be independent directors.
Complies
Partially complies
Explain
48. Large cap companies should have formed separate appointments and remuneration committees.
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Complies
Explain
Not applicable
49. The appointments committee should consult with the company’s chairman and chief executive, especially on matters relating
to executive directors.
When there are vacancies on the board, any director may approach the appointments committee to propose candidates that it
might consider suitable.
Complies
Partially complies
Explain
50. The remuneration committee should operate independently and have the following functions in addition to those assigned by
law:
a) Propose to the board the standard conditions for senior officer contracts.
b) Monitor compliance with the remuneration policy set by the company.
c) Periodically review the remuneration policy for directors and senior officers, including share-based remuneration systems and
their application, and ensure that their individual compensation is proportionate to the amounts paid to other directors and senior
officers in the company.
d) Ensure that conflicts of interest do not undermine the independence of any external advice the committee engages.
e) Verify the information on director and senior officers’ pay contained in corporate documents, including the annual directors’
remuneration statement.
Complies
Partially complies
Explain
51. The remuneration committee should consult with the company’s chairman and chief executive, especially on matters relating
to executive directors and senior officers.
Complies
Partially complies
Explain
52. The rules regarding composition and functioning of supervision and control committees should be set out in the regulations of
the board of directors and aligned with those governing legally mandatory board committees as specified in the preceding sets of
recommendations. They should include at least the following terms:
a) Committees should be formed exclusively by non-executive directors, with a majority of independents.
b) They should be chaired by independent directors.
c) The board should appoint the members of such committees with regard to the knowledge, skills and experience of its directors
and each committee’s terms of reference; discuss their proposals and reports; and provide report-backs on their activities and
work at the first board plenary following each committee meeting.
d) They may engage external advice, when they feel it necessary for the discharge of their functions.
e) Meeting proceedings should be minuted and a copy made available to all board members.
Complies
Partially complies
Explain
Not applicable
53. The task of supervising compliance with corporate governance rules, internal codes of conduct and corporate social
responsibility policy should be assigned to one board committee or split between several, which could be the audit committee,
the appointments committee, the corporate social responsibility committee, where one exists, or a special committee established
ad hoc by the board under its powers of self-organisation, with at the least the following functions:
a) Monitor compliance with the company’s internal codes of conduct and corporate governance rules.
b) Oversee the communication and relations strategy with shareholders and investors, including small and medium-sized
shareholders.
c) Periodically evaluate the effectiveness of the company’s corporate governance system, to confirm that it is fulfilling its mission
to promote the corporate interest and catering, as appropriate, to the legitimate interests of other stakeholders.
d) Review the company’s corporate social responsibility policy, ensuring that it is geared to value creation.
e) Monitor corporate social responsibility strategy and practices and assess compliance in this respect.
f) Monitor and evaluate the company’s interaction with its stakeholders.
g) Evaluate all aspects of the non-financial risks the company is exposed to, including operational, technological, legal, social,
environmental, political and reputational risks.
h) Coordinate non-financial and diversity reporting processes in accordance with applicable legislation and international
benchmarks.
Complies
Partially complies
Explain
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54. The corporate social responsibility policy should state the principles or commitments the company will voluntarily adhere to in
its dealings with stakeholder groups, specifying at least:
a) The goals of its corporate social responsibility policy and the support instruments to be deployed.
b) The corporate strategy with regard to sustainability, the environment and social issues.
c) Concrete practices in matters relating to: shareholders, employees, clients, suppliers, social welfare issues, the environment,
diversity, fiscal responsibility, respect for human rights and the prevention of illegal conduct.
d) The methods or systems for monitoring the results of the practices referred to above and identifying and managing related
risks.
e) The mechanisms for supervising non-financial risk, ethics and business conduct.
f) Channels for stakeholder communication, participation and dialogue.
g) Responsible communication practices that prevent the manipulation of information and protect the company’s honour and
integrity.
Complies
Partially complies
Explain
55. The company should report on corporate social responsibility developments in its management’s report or in a separate
document, using an internationally accepted methodology.
Complies
Partially complies
Explain
56. Director remuneration should be sufficient to attract and retain directors with the desired profile and compensate the
commitment, abilities and responsibility that the post demands, but not so high as to compromise the independent judgement of
non-executive directors.
Complies
Explain
57. Variable remuneration linked to the company and the director’s performance, the award of shares, options or any other right to
acquire shares or to be remunerated on the basis of share price movements, and membership of long-term savings schemes such
as pension plans, retirement accounts or any other retirement plan should be confined to executive directors.
The company may consider the share-based remuneration of non-executive directors provided they retain such shares until the
end of their mandate. The above condition will not apply to any shares that the director must dispose of to defray costs related to
their acquisition.
Complies
Partially complies
Explain
58. In the case of variable awards, remuneration policies should include limits and technical safeguards to ensure they reflect the
professional performance of the beneficiaries and not simply the general progress of the markets or the company’s sector, or
circumstances of that kind.
In particular, variable remuneration items should meet the following conditions:
a) Be subject to predetermined and measurable performance criteria that factor the risk assumed to obtain a given outcome.
b) Promote the long-term sustainability of the company and include non-financial criteria that are relevant for the company’s
long-term value, such as compliance with its internal rules and procedures and its risk control and management policies.
c) Be focused on achieving a balance between the achivement of short, medium and long-term targets, such that performance-
related pay rewards ongoing achievement, maintained over sufficient time to appreciate its contribution to long-term value
creation. This will ensure that performance measurement is not based solely on one off, occasional or extraordinary events.
Complies
Partially complies
Explain
Not applicable
59. A major part of variable remuneration components should be deferred for a long enough period to ensure that predetermined
performance criteria have effectively been met.
Complies
Partially complies
Explain
Not applicable
60. Remuneration linked to company earnings should bear in mind any qualifications stated in the external auditor’s report that
reduce their amount.
Complies
Partially complies
Explain
Not applicable
61. A major part of executive directors’ variable remuneration should be linked to the award of shares or financial instruments
whose value is linked to the share price.
Complies
Partially complies
Explain
Not applicable
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62. Following the award of shares, share options or other rights on shares derived from the remuneration system, directors
should not be allowed to transfer a number of shares equivalent to twice their annual fixed remuneration, or to exercise the share
options or other rights on shares for at least three years after their award.
The above condition will not apply to any shares that the director must dispose of to defray costs related to their acquisition.
Complies
Partially complies
Explain
Not applicable
63. Contractual arrangements should include provisions that permit the company to reclaim variable components of remuneration
when payment was out of step with the director’s actual performance or based on data subsequently found to be misstated.
Complies
Partially complies
Explain
Not applicable
64. Termination payments should not exceed a fixed amount equivalent to two years of the director’s total annual remuneration,
and should not be paid until the company confirms that he or she has met the predetermined performance criteria.
Complies
Partially complies
Explain
Not applicable
List whether any directors voted against or abstained from voting on the approval of this Report.
Yes
No
I declare that the information included in this statistical annex are the same and are consistent with the descriptions and
information included in the annual corporate governance report published by the company.
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9.3 Table on compliance with or explanations of recommendations on
corporate governance
Recommendation
Comply / Explain
Information
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Comply
See section 3.2.
Not applicable
See 'Group companies' in section 4.12.
Comply
Comply
See section 3.1.
See section 3.1.
Partially comply
Comply
Comply
Comply
Comply
Comply
Our 2018 AGM, authorised the board to increase share capital with the authority to exclude pre-
emptive rights for shareholders, with a limit of 20% of the share capital. This limit is further reduced to
10% of the share capital in connection with capital increases to convert bonds or other convertible
securities or instruments. As an exception, these limits for the issuance without pre-emptive rights do
not apply to capital increases to allow the potential conversion of contingent convertible preferred
securities (which can only be converted into newly-issued shares when the CET1 ratio falls below a
pre-established threshold).
The board of directors is proposing to have this authority renewed at our 2020 AGM as it may expire
before we hold our 2021 AGM. The Bank publishes in its website the reports relating to the exclusion
of pre-emptive rights when it makes use of this authority in the terms established in the
recommendation. See section 2.2.
See sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.12 and 'Responsible Banking'chapter.
See section 3.6.
See section 4.5.
See 'Participation of shareholders at the GSM' in section 3.2.
See section 3.2.
Not applicable
See section 3.6.
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
See section 4.3.
See 'Size' in section 4.2.
See 'Election, renewal and succession of directors' and 'Diversity' in section 4.2.
See 'Composition by type of director'; 'Independent non-executive directors'
and 'Election, renewal and succession of directors' in section 4.2.
See 'Composition by type of director' in section 4.2.
See 'Composition by type of director'; 'Independent non-executive directors'
and 'Election, renewal and succession of directors' in section 4.2.
See 'Corporate website' in section 3.1 and section 4.1.
See 'Composition by type of director' and 'Tenure, committee membership and equity ownership' in
section 4.2.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Board and committees attendance' in section 4.3 and in section 4.6.
See 'Proceedings of the board' and 'Board and committees attendance' in section 4.3.
See 'Proceedings of the board' and 'Board and committees attendance' in section 4.3.
See 'Proceedings of the board' in section 4.3.
See 'Proceedings of the board' in section 4.3.
See 'Training of directors and induction programme for new directors' in section 4.3.
See 'Rules and regulations of the board' and 'Board and committees attendance' in section 4.3.
See section 3.1.
See 'Proceedings of the board', 'Training of director and induction program for new directors' and
'Assessment of the board' in section 4.3.
See 'Lead independent director' in section 4.3.
See 'Secretary of the board' in section 4.3.
See 'Assessment of the board' in section 4.3.
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Recommendation
Comply / Explain
Information
37
Partially comply
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
The secretary of the executive committee is the secretary of the board. While the distribution of
categories of directors in the executive committee is not exactly the same as in the board, the Bank
considers it complies with the spirit of the recommendation since the current composition reflects all
categories of directors, including a majority of external directors and three independent directors, but
retaining all executive directors to maintain the efficiency in the discharge of the executive functions of
the committee. Moreover, based on said reasons of efficiency and adequate functioning of the
executive committee, the CNMV has proposed to amend this recommendation so that the committee
is composed of at least two external directors, at least one of which should be independent. If this
proposal is approved, we will fully comply with this recommendation. See section 4.4.
See section 4.4.
See 'Composition' and 'Duties and activities in 2019' in section 4.5.
See 'Duties and activities in 2019' in section 4.5.
See 'Duties and activities in 2019' in section 4.5.
See 'Duties and activities in 2019' in section 4.5.
See 'How the committee works' in section 4.3.
See 'Duties and activities in 2019' in section 4.5.
See 'Duties and activities in 2019' in section 4.5. and 'Duties and activities in 2019' in section 4.8.
See 'Duties and activities in 2019' in section 4.5. and 'Duties and activities in 2019' in section 4.8.
See 'Composition' in section 4.6 and 'Composition' in section 4.7.
See 'Board committees structure' in section 4.3.
See 'Duties and activities in 2019' in section 4.6.
See 'Duties and activities in 2019' in section 4.7.
See 'Duties and activities in 2019' in section 4.7.
See 'Rules and regulations of the board' in section 4.3 and sections 4.5, and 4.8.
See 'Duties and activities in 2019' in section 4.6 and 'Duties and activities in 2019' in section 4.9.
See section 4.9 and 'Responsible Banking'chapter.
See section 4.9 and 'Responsible Banking'chapter.
See sections 6.2 and 6.3.
See sections 6.2 and 6.3.
See section 6.3.
See section 6.3.
See section 6.3.
See section 6.3.
See section 6.3.
See section 6.3.
See sections 6.1 and 6.3.
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9.4 Reconciliation to the CNMV’s remuneration report model
Section in the
CNMV model
Included
in
statistic
A. Remuneration policy for the present fiscal year
Further information elsewhere and comments
A.1
A.2
A.3
A.4
No
No
No
No
• See section 6.4.
• See sections 4.7 and 6.5.
• See 'Summary of link between risk, performance and reward' in section 6.3.
See section 6.4.
See section 6.4.
See section 6.5.
B. Overall summary of application of the remuneration policy over the last fiscal year
B.1
B.2
B.3
B.4
B.5
B.6
B.7
B.8
B.9
B.10
B.11
B.12
B.13
B.14
B.15
B.16
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
See sections 6.1, 6.2. and 6.3.
See 'Summary of link between risk, performance and reward' in section 6.3.
See sections 6.2 and 6.3.
See section 6.5.
See section 6.2 and 6.3
See 'Gross annual salary' in section 6.3.
See 'Variable remuneration' in section 6.3.
Not applicable.
See 'Main features of the benefit plans' in section 6.3.
See 'Other remuneration' in section 6.3.
See 'Terms and conditions of executive directors´ contracts' in section 6.4.
No remuneration for this component.
See note 5 to the consolidated financial statements.
See 'Insurance and other remuneration and benefits in kind' in section 6.4.
See 'Remuneration of board members as representatives of the Bank' in section 6.3.
No remuneration for this component.
C. Breakdown of the individual remuneration of directors
C
C.1 a) i)
C.1 a) ii)
C.1 a) iii)
C.1 a) iii)
C.1 b) i)
C.1 b) ii)
C.1 b) iii)
C.1 b) iv)
C.1 c)
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
Yes
See section 9.5.
See section 9.5.
See section 9.5.
See section 9.5.
See section 9.5.
See section 9.5.
Not awarded.
Not awarded.
Not awarded.
See section 9.5.
D. Other information of interest
D
No
See section 4.7
274
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Economic
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Risk management
and control
9.5 Statistical information on remuneration required by the CNMV
B. OVERALL SUMMARY OF HOW REMUNERATION POLICY WAS APPLIED DURING THE YEAR ENDED
B.4 Report on the result of consultative vote at General Shareholders´ Meeting on annual report on remuneration from
previous year, indicating the number of votes against, as the case may be.
Votes cast
10,740,924,312
Number
% of total
96,57%
Number
% of total
Votes against
598,890,812
Votes in favour
10,130,003,843
Abstentions
381,915,614
5.38%
91.07%
3.43%
C. ITEMISED INDIVIDUAL REMUNERATION ACCRUED BY EACH DIRECTOR
Directors
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Bruce Carnegie-Brown
Mr Rodrigo Echenique Gordillo
Type
Executive
Executive
Period of accrual in year 2019
From 01/01/2019 to 31/12/2019
From 01/01/2019 to 31/12/2019
Independent
From 01/01/2019 to 31/12/2019
Executive
Independent
From 01/01/2019 to 30/04/2019
From 01/05/2019 to 31/12/2019
Mr Guillermo de la Dehesa Romero
Other external
From 01/01/2019 to 31/12/2019
Ms Homaira Akbari
Independent
From 01/01/2019 to 31/12/2019
Mr Ignacio Benjumea Cabeza de Vaca
Other external
From 01/01/2019 to 31/12/2019
Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea
Other external
From 01/01/2019 to 31/12/2019
Ms Sol Daurella Comadrán
Ms Esther Giménez-Salinas i Colomer
Ms Belén Romana García
Mr Ramiro Mato García-Ansorena
Mr Álvaro Cardoso de Souza
Independent
Independent
Independent
Independent
Independent
From 01/01/2019 to 31/12/2019
From 01/01/2019 to 31/12/2019
From 01/01/2019 to 31/12/2019
From 01/01/2019 to 31/12/2019
From 01/01/2019 to 31/12/2019
Mr Henrique Manuel Drummond Borges Cirne de Castro
Independent
From 17/07/2019 to 31/12/2019
Mrs Pamela Ann Walkden
Mr Carlos Fernández González
Independent
Independent
From 29/10/2019 to 31/12/2019
From 01/01/2019 to 28/10/2019
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Table of Contents
C.1 Complete the following tables on individual remuneration of each director (including the remuneration for exercising
executive functions) accrued during the year.
a) Remuneration from the reporting company:
I) Remuneration in cash (thousand euros)
Fixed
remune
ration
Per diem
allowances
Remuneration
for
membership
of Board's
committees
Short-term
variable
remuneration
Long-term
variable
remuneration
Salary
Severance
pay
Other
grounds
Total
year
2019
Total
year
2018
90
90
393
90
90
90
90
90
90
90
160
140
160
41
16
74
—
59
53
87
56
89
81
93
47
85
79
100
95
61
33
11
65
—
185
3,176
2,084
170
2,541
1,393
220
—
73
600
—
640
220
55
250
—
65
59
265
265
55
12
7
75
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
525
6,119
6,245
710
4,957
4,949
—
700
732
1,800
667
3,926
3,349
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
399
226
441
199
91
524
513
—
—
—
—
—
—
—
—
—
—
137
121
240
215
228
196
525
414
500
450
276
148
86
34
—
—
214
266
—
108
Name
Ms Ana Botín-Sanz
de Sautuola y O’Shea
Mr José Antonio
Álvarez Álvarez
Mr Bruce Carnegie-
Brown
Mr Rodrigo
Echenique Gordillo
Mr Guillermo de la
Dehesa Romero
Ms Homaira Akbari
Mr Ignacio Benjumea
Cabeza de Vaca
Mr Francisco Javier
Botín-Sanz de
Sautuola y O’Shea
Ms Sol Daurella
Comadrán
Ms Esther Giménez-
Salinas i Colomer
Ms Belén Romana
García
Mr Ramiro Mato
García-Ansorena
Mr Álvaro Cardoso de
Souza
Mr Henrique Manuel
Drummond Borges
Cirne de Castro
Mrs Pamela Ann
Walkden
Mr Carlos Fernández
González
Mr Juan Miguel Villar
Mir
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Economic Risk management
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and control
II) Table of changes in share-based remuneration schemes and gross profit from consolidated shares or financial instruments
Financial instruments
at start of year 2019
Financial instruments
granted
at start of year 2019
Financial instruments consolidated during 2019
Instruments
matured but
not
exercised
Financial instruments
at end of year 2019
Name
Name of Plan
No. of
instruments
No. of
equivalent
shares
No. of
instruments
No. of
equivalent
shares
No. of
instruments
No. of
equivalent
shares /
handed over
Price of the
consolidated
shares
Net proft
from shares
handed over
or
consolidated
fnancial
instruments
(EUR
thousand)
Ms Ana
Botín-
Sanz de
Sautuola
y O’Shea
1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)
216,309
216,309
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)
206,775
206,775
3rd cycle of deferred variable remuneration
plan linked to multi-year targets (2018)
4th cycle of deferred variable remuneration
plan linked to multi-year targets (2019)
309,911
309,911
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
887,193
887,193
567,803
567,803
3.670
2,084
No. of
instruments
No. of
instruments
No of
equivalent
shares
—
—
—
—
216,309
216,309
206,775
206,775
309,911
309,911
319,390
319,390
Financial instruments
at start of year 2019
Financial instruments
granted
at start of year 2019
Financial instruments consolidated during 2019
Instruments
matured but
not
exercised
Financial instruments
at end of year 2019
Name
Name of Plan
No. of
instruments
No. of
equivalent
shares
No. of
instruments
No. of
equivalent
shares
No. of
instruments
No. of
equivalent
shares /
handed over
Price of the
consolidated
shares
Net proft
from shares
handed over
or
consolidated
fnancial
instruments
(EUR
thousand)
Mr José
Antonio
Álvarez
Álvarez
1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)
145,998
145,998
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)
138,283
138,283
3rd cycle of deferred variable remuneration
plan linked to multi-year targets (2018)
4th cycle of deferred variable remuneration
plan linked to multi-year targets (2019)
207,097
207,097
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
592,915
592,915
379,464
379,464
3.670
1,393
No. of
instruments
No. of
instruments
No of
equivalent
shares
—
—
—
—
145,998
145,998
138,283
138,283
207,097
207,097
213,451
213,451
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Table of Contents
Financial instruments
at start of year 2019
Financial instruments
granted
at start of year 2019
Financial instruments consolidated during 2019
Instruments
matured but
not
exercised
Financial instruments
at end of year 2019
Name
Name of Plan
No. of
instruments
No. of
equivalent
shares
No. of
instruments
No. of
equivalent
shares
No. of
instruments
No. of
equivalent
shares /
handed over
Price of the
consolidated
shares
Net proft
from shares
handed over
or
consolidated
fnancial
instruments
(EUR
thousand)
1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)
108,134
108,134
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)
107,764
107,764
3rd cycle of deferred variable remuneration
plan linked to multi-year targets (2018)
4th cycle of deferred variable remuneration
plan linked to multi-year targets (2019)
164,462
164,462
Mr
Rodrigo
Echenique
Gordillo
Comments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
272,480
272,480
174,386
174,386
3.670
640
No. of
instruments
No. of
instruments
No of
equivalent
shares
—
—
—
—
108,134
108,134
107,764
107,764
164,462
164,462
98,094
98,094
The amount corresponding to the 1st cycle of deferred variable remuneration plan linked to multi-year targets (2016) includes the maximum amount of shares that may be delivered at end of year 2019. The final
amount of consolidated shares to be delivered, after approval by the board of directors of January 2020 of the degree of compliance with metrics linked to this plan, will be included, as consolidated shares, in the
Consolidated Annual Report at 31 December 2020. These shares shall be delivered in thirds, in 2020, 2021 and 2022.
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III) Long-term saving systems
Name
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Remuneration
from
consolidation of
rights to savings
system
1,145
858
—
Contribution over the year from the company (EUR thousand)
Savings systems with
unconsolidated
economic rights
Amount of accumulated funds (EUR thousand)
2019
2018
Name
Ms Ana Botín-Sanz de
Sautuola y O’Shea
Mr José Antonio
Álvarez Álvarez
Mr Rodrigo Echenique
Gordillo
2019
1,145
2018
1,234
858
1,050
—
—
iv) Details of other items (EUR thousand)
Name
Item
Ms Ana Botín-
Sanz de
Sautuola y
O’Shea
Life and accident insurance and fixed
remuneration supplement insurance
Other remuneration
Name
Item
Mr José Antonio
Álvarez Álvarez
Life and accident insurance and fixed
remuneration supplement insurance
Other remuneration
Name
Item
Mr Rodrigo
Echenique
Gordillo
Life and accident insurance
Other remuneration
2019
2018
Systems with Systems with
consolidated unconsolidat
ed economic
rights
economic
rights
Systems with Systems with
consolidated unconsolidat
ed economic
rights
economic
rights
—
—
—
—
—
—
48,104
17,404
13,268
—
—
—
46,093
16,630
13,614
—
—
—
Amount
remunerated
323
283
Amount
remunerated
579
483
Amount
remunerated
167
141
b) Remuneration of the company directors for seats on the boards of other group companies:
i) Remuneration in cash (EUR thousand)
Name
Mr Álvaro
Cardoso de
Souza
Remuneration
for
Per diem membership of
Board's
remuneration
Fixed allowanc
es
committees Salary
Short-term
variable
remuneratio
n
Long-term
variable
remuneratio Severance
pay
n
Other
grounds
Total
year
2019
Total
year
2018
372
24
—
—
—
—
—
1
397
354
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Table of Contents
ii) Table of changes in share/based remunerations schemes and gross profit from consolidated shares of financial
instruments
Not applicable
iii) Long term saving systems
Not applicable
iv) Detail of other items (EUR thousand)
Not applicable
c) Summary of remuneration (EUR thousand)
The summary should include the amounts corresponding to all the items of remuneration included in this report that have been
accrued by the director, in thousand euros.
Remuneration accrued in the company
Remuneration accrued in group companies
Gross
profit on
consolid
ated
shares
or
financial
instrum
ents
Contrib
utions
to the
long-
term
savings
plan
Total
cash
remuner
ation
Remune
ration
for other
items
Total
2019
Total
2018
Total
cash
remuner
ation
Gross
profit on
consolid
Contrib
ated utions to
the
long-
term
savings
plan
shares
or
financial
instrum
ents
Name
Ms Ana Botín-Sanz de Sautuola y
O’Shea
6,119
2,084
1,145
606
9,954
11,011
Mr José Antonio Álvarez Álvarez
4,957
1,393
858
1,062
8,270
9,001
Mr Bruce Carnegie-Brown
Mr Rodrigo Echenique Gordillo
700
3,926
—
640
Mr Guillermo de la Dehesa Romero
Ms Homaira Akbari
Mr Ignacio Benjumea Cabeza de
Vaca
Mr Francisco Javier Botín-Sanz de
Sautuola y O’Shea
Ms Sol Daurella Comadrán
Ms Esther Giménez-Salinas i
Colomer
Ms Belén Romana García
Mr Ramiro Mato García-Ansorena
Mr Álvaro Cardoso de Souza
Mr Henrique Manuel Drummond
Borges Cirne de Castro
Mrs Pamela Ann Walkden
Mr Carlos Fernández González
Mr Juan Miguel Villar Mir
399
226
524
137
240
228
525
500
276
86
34
214
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
700
732
308
4,874
5,095
—
—
—
—
—
—
—
—
—
—
—
—
—
399
226
441
199
524
513
137
240
228
525
500
276
86
34
214
—
121
215
196
414
450
148
—
—
266
108
—
—
—
—
—
—
—
—
—
—
—
—
397
—
—
—
—
Total
19,091
4,117
2,003
1,976
27,187
28,910
397
Remune
ration
for other
items
Total
2019
Total
2018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
397
—
—
—
—
397
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
This annual report on remuneration has been approved by the board of directors of the company, at its meeting on 27 February
2020.
State if any directors have voted against or abstained from approving this report.
Sí No
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2019 Annual Report
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Economic
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governance
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Risk management
and control
281
Economic and
financial review
a
a
1. Economic, regulatory and competitive context
2. Group selected data
3. Group financial performance
3.1 Situation of Santander
3.2 Results
3.3 Balance sheet
3.4 Liquidity and funding management
3.5 Capital management and adequacy. Solvency ratios
4. Financial information by segments
4.1 Description of segments
4.2 Summary income statement of the Group's main business areas
4.3 Primary segments
4.4 Corporate Centre
4.5 Secondary segments
5. Research, development and innovation (R&D&I)
6. Significant events since year end
7. Trend information 2020
8. Alternative performance measures (APM)
284
286
288
288
290
303
307
315
328
328
330
332
360
362
372
374
375
381
Table of Contents
1. Economic, regulatory and
competitive context
• United States (GDP: +2.3% in 2019 vs. +2.9% in 2018). GDP
decelerated by sixty basis points in the year due to lower
global growth, geopolitical uncertainty and the dilution of
fiscal stimuli. Unemployment remained low and inflation
below target. The Fed made an adjustment by cutting
interest rate by 75 bps to 1.50-1.75%.
• Mexico (GDP: 0.1% estimated in 2019 vs +2.1% in 2018).
Economic growth was stagnant in 2019 due to a fall in
investment and fiscal adjustment. Inflation moderated to
2.8%, below the central bank's target, which began to cut
its key rate in August, until it ended 2019 at 7.25% (-100
bps in the year). The process for the ratification of the trade
agreement between Mexico, the US and Canada is at an
advanced stage, ending the uncertainty about the economic
relationship between the three countries.
• Brazil (GDP: +1.2% estimated in 2019 vs +1.3% in 2018).
The recovery gained momentum as the year progressed,
driven by private consumption and investment. Inflation
picked up (4.31% in December and below the target of
4.25%) but underlying inflation fell (3.4%). The central bank
cut its benchmark rate by 200 bps to 4.5%. S&P improved
the outlook for sovereign rating (at BB-) to positive from
stable, given the progress in fiscal consolidation measures.
• Chile (GDP: +1.2% estimated in 2019 vs. +4% in 2018). The
economy was impacted by the social protests that began in
mid-October, although it recovered in the last months of the
year. Inflation rose to 3.0% in line with the central bank's
target, which cut the official rate to 1.75% (2.75% in late
2018) and established an exchange rate intervention
programme to control the peso's volatility.
• Argentina (GDP: -2.3% estimated in 2019 vs. -2.4% in
2018). GDP shrank as a result of financial volatility since
August, which dampened consumption and investment and
caused inflation to rise. The central bank introduced capital
controls, which allowed it to cut interest rates in the final
few months of the year, reversing the previous rise.
Santander carried out its business in 2019 in a slowing
economic environment (3% estimated in 2019 vs. 3.6% in
2018) due to trade tensions between the US and China and
the uncertainty regarding the manner in which the UK would
leave the EU. Uncertainty reduced at year end: the US and
China reached a trade agreement and the result of the UK
elections confirmed its exit from the European Union on 31
January 2020. This reduction in uncertainty, together with the
expansionary monetary policy measures, allowed activity to
stabilise.
The evolution by geographic area was:
• Eurozone (GDP: +1.2% in 2019 vs. +1.9% in 2018). The
negative impact from the external environment weakened
GDP, driven by cyclical depletion. Inflation remained
stagnant at around 1%. The European Central Bank (ECB)
reacted with another set of monetary easing measures,
including a cut in interest rates and the resumption of the
asset purchase programme.
• Spain (GDP: +2.0% in 2019 vs. +2.4% in 2018). Economic
expansion continued, although at more moderate rates. The
unemployment rate fell to 13.8% in Q4'19. The economy is
not showing inflationary pressures due to the fall in energy
prices and a compression of business margins which have
offset wage rises.
• United Kingdom (GDP: +1.2% estimated in 2019 vs +1.4%
in 2018). Economic performance was very volatile
throughout the year, influenced by the attempts to exit the
EU. The main element supporting growth was private
consumption backed by real wage increases, which were
higher as inflation fell (1.3% in December). The
unemployment rate (3.8% in Q3'19) remained at historical
lows. The base rate stood at 0.75%.
• Portugal (GDP: +1.9% estimated in 2019 vs. +2.4% in
2018). The economy moderated its growth supported by
private consumption and investment, whose momentum
generated an increase in imports that reduced the
contribution of the external sector to GDP. The jobless rate
continued to fall (6.1%) and inflation stood at just 0.4% in
December.
• Poland (GDP: +4.0% estimated in 2019 vs. +5.1% in 2018).
The economy continued to grow at a good pace, although at
more modest rates, backed by domestic demand. The
unemployment rate was at a historic low (close to 3%).
Inflation rose sharply in December to 3.4% although it is
expected to moderate, so the central bank held its key
interest rate at 1.5%.
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2019 Annual Report
Responsible Corporate
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and control
The following table shows the exchange rates against the euro
of the main currencies in which we operate in 2019 and 2018:
Exchange rates: 1 euro / currency parity
Average
Period-end
2019
2018
2019
2018
US dollar
Pound sterling
Brazilian real
1.119
0.877
4.410
1.180
0.885
4.294
1.123
0.851
4.516
1.145
0.895
4.444
Mexican peso
21.549
22.688
21.220
22.492
Chilean peso
785.558
756.661
845.673
794.630
Argentine peso
52.572
31.164
67.258
43.121
Polish zloty
4.297
4.261
4.257
4.301
In this environment, financial markets registered several
episodes of risk aversion, but closed 2019 on a more positive
note.
The US market's development was shaped by geopolitical
tensions, increased uncertainty and slower growth. The Fed's
rate cuts and the reduction in commercial risks led to a steeper
yield curve at the end of the year and a return to record highs
in the stock market.
In the Eurozone, the ECB adopted a comprehensive set of
expansive monetary measures in response to weakening
economic growth and the fact that inflation (and the inflation
outlook) has been persistently deviating from its target. The
most notable measures were a cut in interest rates (the
interest rate on the deposit facility was reduced to -0.50%
from -0.40%), the resumption of the asset purchase
programme and a new set of long-term liquidity auctions for
banks.
In the United Kingdom (UK), markets supported the reduction
of uncertainty following the general election results, which
confirmed the UK's exit from the European Union on 31
January 2020, with rises in stock markets and the appreciation
of the pound.
Latin American currencies had a heterogeneous evolution
during 2019, mostly depreciations but with appreciation
recorded in the last few months of the year, reflecting the
improved international climate.
The international banking environment continued to be
marked by the strengthening of balance sheets by improving
solvency and liquidity and reducing non-performing assets,
which resulted in a sector better prepared to confront an
eventual economic downturn, such as that demonstrated by
the stress tests conducted by the various supervisory bodies.
Profitability had an uneven performance across geographical
areas, although it was generally affected by the deteriorating
economic outlook and the easing of monetary policies.
Increasing profitability continues to be one of the sector’s
main challenges, particularly in Europe, where institutional
development and structural reforms are necessary in order to
bolster profitability and market valuation of the banking
sector.
In emerging markets profitability remains high and was able
to withstand the deterioration of the economic environment
and the episodes of instability during the year.
The digital challenge is changing the way customers interact
with banks. Competition and efficiency processes continue to
demand high levels of investment. The banking sector must
adapt itself to the ageing of mature economies and make the
most of new technology to increase the growing middle
classes' access to banking services in developing economies.
Regarding the regulatory agenda in 2019, the most
noteworthy milestone of the year was the approval of the
revision of capital regulations and resolution in Europe after
more than two years of intense debate, while work continued
on the implementation of Basel III.
Europe continued to make progress on the implementation of
the crisis management framework, including the approval of
the reform of the European Stability Mechanism (ESM), as
well as in the discussions on the creation of a European
Deposit Guarantee Scheme, the treatment of sovereign debt,
harmonisation of insolvency laws and the need for an
instrument that provides liquidity in case of resolution.
In the digital field, the fintech phenomenon and the need to
review the regulatory and supervisory framework are
increasingly present on the international authorities' agenda.
During 2019, the most relevant reports published by the
different authorities (FSB, BIS) were on the consequences that
the entry of bigtechs could have on financial services. They put
forward ideas such as the need to review the suitability of the
regulatory and supervisory framework, and the potential risks
to financial stability arising from the use of the cloud by
financial institutions and the small number of dominant
players worldwide.
Taxes: in the context of a digital economy, there is an
international debate as to how tax systems should ensure a
fair contribution to society from all companies.
Significant progress is being made on sustainable funding,
especially in Europe where the key elements of the European
Commission's 2018 Action Plan are being implemented. The
Regulation on disclosure requirements for sustainable
investments and sustainability risks in the financial service
sector has been adopted. This is expected to remain a priority
in Europe, and will intensify following the Commission's
announcement of the European Green Deal, which sets out
how to make Europe the first climate neutral continent by
2050.
Finally, both at international and European level, the
authorities strengthened the message on the need to enhance
the framework for the prevention of money laundering and
terrorist financing, and the relevance of its connection with the
prudential area.
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2. Group selected data
2019
2018 % 2019/2018
2017
1,522,695
1,459,271
942,218
824,365
1,050,765
110,659
882,921
780,496
980,562
107,361
4.3
6.7
5.6
7.2
3.1
1,444,305
848,915
777,730
985,702
106,832
2019
35,283
49,229
25,949
12,543
6,515
2019
35,283
49,494
26,214
14,929
8,252
2019
0.362
0.468
6.62
9.31
11.79
0.54
1.33
1.61
47.0
2018 % 2019/2018 B
34,341
48,424
25,645
14,201
7,810
2.7
1.7
1.2
(11.7)
(16.6)
2018 % 2019/2018 D
34,341
48,424
25,645
14,776
8,064
2.7
2.2
2.2
1.0
2.3
2018 % 2019/2018
(19.4)
0.7
0.449
0.465
8.21
11.70
12.08
0.64
1.55
1.59
47.0
2017
34,296
48,355
25,362
12,091
6,619
2017
34,296
48,392
25,473
13,550
7,516
2017
0.404
0.463
7.14
10.41
11.82
0.58
1.35
1.48
47.4
BALANCE SHEET (EUR million)
Total assets
Loans and advances to customers
Customer deposits
Total funds A
Total equity
INCOME STATEMENT (EUR million)
Net interest income
Total income
Net operating income
Profit before tax
Attributable profit to the parent
UNDERLYING INCOME STATEMENT C (EUR million)
Net interest income
Total income
Net operating income
Profit before tax
Attributable profit to the parent
EPS, PROFITABILITY AND EFFICIENCY (%)
EPS (euros)
Underlying EPS (euros) C
RoE
RoTE
Underlying RoTE C
RoA
RoRWA
Underlying RoRWA C
Efficiency ratio C
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SOLVENCY AND NPLs (%)
Fully loaded CET1 E
Fully loaded total capital ratio E
NPL ratio
Coverage ratio
2019
11.65
15.02
3.32
68
2018
11.30
14.77
3.73
67
2017
10.84
14.48
4.08
65
THE SHARE, MARKET CAPITALISATION AND DIVIDEND
2019
2018 % 2019/2018
2017
Number of shareholders
Shares (millions)
Share price (euros)
Market capitalisation (EUR million)
Dividend per share (euros) F
Tangible book value per share (euros)
Price / Tangible book value per share (X)
CUSTOMERS (thousands)
Total customers
Loyal customers G
Loyal retail customers
Loyal SME & corporate customers
Digital customers H
3,986,093
4,131,489
16,618
3.730
61,986
0.23
4.36
0.86
16,237
3.973
64,508
0.23
4.19
0.95
(3.5)
2.3
(6.1)
(3.9)
0.2
4,029,630
16,136
5.479
88,410
0.22
4.15
1.32
2019
2018 % 2019/2018
144,795
139,450
21,556
19,762
1,794
36,817
19,832
18,095
1,736
32,014
3.8
8.7
9.2
3.3
15.0
2017
133,252
17,254
15,759
1,494
25,391
OPERATING DATA
Number of employees
Number of branches
2019
196,419
11,952
2018 % 2019/2018
202,713
13,217
(3.1)
(9.6)
2017
202,251
13,697
A. Includes customer deposits, mutual funds, pension funds and managed portfolios.
B. In constant euros: Net interest income: +3.5%; Total income: +2.6%; Net operating income: +1.9%; Attributable profit: -15.9%.
C. In addition to IFRS measures, we present non-IFRS measures including those which we refer to as underlying measures. These underlying measures in our view allow,
among other reasons, a better year-on-year comparability as they exclude items outside the ordinary course performance of our business which are grouped in the
‘management adjustment’ line and are further detailed at the end of section 3.2 and in section 8 – Alternative Performance Measures – of this chapter.
D. In constant euros: Net interest income: +3.5%; Total income: +3.2%; Net operating income: +3.0%; Attributable profit: +3.2%.
E. 2019 and 2018 data applying the IFRS 9 transitional arrangements.
F. Total dividend charged against the year. The dividend charged to 2019 results is subject to 2020 AGM approval.
G. Active customers who receive most of their financial services from the Group according to the commercial segment to which they belong. Various engaged customer
levels have been defined taking profitability into account.
H. Every physical or legal person, that, being part of a commercial bank, has logged in its personal area of internet banking or mobile phone or both in the last 30 days.
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3. Group financial performance
As described in note 1.b to the consolidated financial
statements, our reported results are prepared in accordance
with IFRS and the analysis of our financial situation and
performance in this consolidated directors’ report is mainly
based on those IFRS results. However, to measure our
performance we also use non-IFRS measures and APMs or
Alternative Performance Measures. While section 8 –
Alternative Performance Measures of this chapter provides a
more detailed view of all those measures, the following are
the main adjustments we make to our IFRS results when
providing non-IFRS measures:
– Underlying results measures. We present what we call
underlying results measures which, in our view, allow
better year-on-year comparisons as they exclude items
outside the ordinary course performance of our business
which are grouped in the management adjustments line,
and are further detailed at the end of section 3.2 of this
chapter.
In addition, the results by business areas in section 4 below
are presented only on an underlying basis in accordance
with IFRS 8, and reconciled on an aggregate basis to our
IFRS consolidated results in note 52.c to the consolidated
financial statements.
– Local currency measures. We make use of certain financial
measures in local currency to help in the assessment of our
ongoing operating performance. These non-IFRS financial
measures include the results of operations of our subsidiary
banks located outside the Eurozone, excluding the impact of
foreign exchange. Because changes in foreign currency
exchange rates have a non-operating impact on the results,
we believe that evaluating their performance on a local
currency basis provides an additional and meaningful
assessment of performance to both management and the
company’s investors. Section 8 – Alternative Performance
Measures of this chapter explains how we exclude the
exchange rate impact from financial measures in local
currency.
On the other hand, certain figures contained in this
consolidated directors’ report, including financial information,
have been subject to rounding to enhance their presentation.
Accordingly, in certain instances, the sum of the numbers in a
column or a row in tables contained in this consolidated
directors’ report may not conform exactly to the total figure
given for that column or row.
3.1 Situation of Santander
Santander is one of the largest banks in the Eurozone. As at
end December 2019, our market capitalisation was EUR
61,986 million, and had approximately four million
shareholders. We have a EUR 1,522,695 million of assets on
our balance sheet and control EUR 1,050,765 million of total
funds.
Our main purpose is to help people and businesses prosper.
We do not merely meet our legal and regulatory obligations,
but we aspire to exceed people's expectations. As such, we
focus on the areas where, as a Group, our activity can have the
greatest impact, helping more people and businesses prosper,
in an inclusive and sustainable way.
This means that the Group engages in all types of activities,
operations and services that are typical of the banking
business in general. Our scale, business model and
diversification enable us to aim to be the best open digital
financial services platform, acting responsibly and earning the
lasting loyalty of our stakeholders (customers, shareholders,
people and communities).
We have close to 200,000 employees who serve more than
145 million customers worldwide, including individuals,
private banking clients, SMEs, businesses and large
corporates, whenever, wherever and however the customer
needs. To do this, our strategy focuses on continuing to
strengthen loyalty and digitalisation.
We interact with our customers through a global network of
11,952 branches, the largest branch network among
international banks. The distribution network has both
universal offices as well as specialised ones aimed at certain
customer segments and new collaborative spaces with
increased digital capabilities. Examples of these are the Work
Café branches, SmartBank and Ágil branches.
As well as the branch network, we have contact centres which
have received various awards for their quality of service.
In addition, our progress in the digitalisation process which
combines our commercial network strength with that of our
technology, is key to increasing our number of customers and
improving their experience.
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As a result, our loyal and digital customers continued to grow
this year. The number of loyal customers reached 21.6 million
(+9% in the year), with an increase in both individuals and
corporates. Digital customers rose 15% in the year to close to
37 million.
The focus is to accelerate profitable growth and lead the retail
financial industry. To this end, we have a strategy that seeks to
strengthen a more connected regional network and facilitate
the expansion of successful businesses to other countries in
the region.
On average, our customers accessed digital touchpoints five
times per week and digital sales increased to 36% of total sales.
We also aim to be one of the top three banks for customer
satisfaction in our main countries.
In April 2019, we presented our strategic plan for the medium
term to drive growth and increase profitability by accelerating
digitalisation, improving operational performance and
continuing to improve capital allocation. We will invest over
EUR 20 billion in digital transformation and technology over
the next four years with the aim of improving and
personalising customer experience and, as a consequence,
increasing trust and loyalty while at the same time reducing
costs.
Finally, with the creation of SGP we are taking another step
forward in our digital transformation, which combines our
experience in banking and technology. Our goal is to extend
the benefits of the talent and scale of the Group to the
payments and digital businesses with the highest growth
potential. We are building platforms only once to be used by
all countries, which will allow us to be best-in-class, and
provide faster and better digital banking and global payment
solutions to individuals and SMEs.
In addition, we have two transversal global businesses which
add value to our local businesses: Santander Corporate and
Investment Banking (SCIB) and Wealth Management and
Insurance (WM&I).
In this strategic plan, we laid out a new organisational
structure, three geographical regions and a new reporting unit
segment, Santander Global Platform (SGP), which will enable
us to accelerate our commercial and digital transformation,
while making progress towards our financial and non-financial
objectives.
SCIB is the global business division for corporate and
institutional customers who require a tailored service and
value-added wholesale products suited to their complexity
and sophistication. It is a business with high levels of
profitability and with resilient returns through the economic
cycle.
WM&I includes the asset management, private banking and
insurance businesses. It is a very capital efficient business with
significant growth potential and high returns.
This new simplified management structure for Europe, North
America and South America, together with a management
committee with increased business focus will allow better and
more agile execution throughout the Group.
Europe primarily includes Spain, the UK, Portugal, Poland and
Santander Consumer Finance (SCF). The latter also plays a
significant role in consumer finance in 15 European countries.
Given the current environment characterised by lower for
longer interest rates, we are progressing toward a common
organisational structure under which we can take advantage
of the strengths, innovation and leadership of each market,
applying what we learn in one country to the rest and avoiding
overlaps.
North America includes the US and Mexico. Both countries are
increasing coordination with each other and capturing new
opportunities, reducing cost duplication and improving
efficiency.
South America includes Brazil, Chile, Argentina, Uruguay and
Andean Region (Peru and Colombia).
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3.2 Results
2019 Highlights
• Attributable profit to the parent of EUR 6,515 million, down 17% from 2018, affected by EUR 1,737 million of net results that
are outside the ordinary course performance of our business (EUR -254 million in 2018). Excluding these, underlying
attributable profit amounted to EUR 8,252 million 2% higher year-on-year, up 3% excluding the exchange rate impact, as
follows:
– Total income reached a record high and increased yet again (+3%) backed by net interest income (+4%) and net fee income
(+5%). This performance reflected our greater loyal and digital customer base, the increased activity and an active
management of spreads.
– Operating expenses rose 3% due to higher investments in transformation and digitalisation. We continued to improve our
operational capacity while optimising our cost base, which, in real terms (excluding inflation and perimeter impacts1), fell
slightly (-0.4%). We continued to be one of the most efficient global banks in the world, with an efficiency ratio of 47%.
– Loan-loss provisions rose in line with volumes and the cost of credit remained near historic lows.
• Nine of our ten core markets grew their underlying profit year-on-year in local currency terms, five of them at double-digit
rates.
• RoTE stood at 9.3% and RoRWA at 1.33% (11.7% and 1.55%, respectively in 2018). Earnings per share (EPS) was EUR 0.362,
compared to EUR 0.449 in 2018.
• On an underlying basis, RoTE was 11.8%, RoRWA 1.61% and EPS was EUR 0.468 (12.1%, 1.59% and EUR 0.465, respectively, in
2018).
Summarised income statement
EUR million
2019
2018
Absolute
% % excl. FX
2017
Change
Net interest income
Net fee income (commission income minus commission expense)
Gains or losses on financial assets and liabilities and exchange
differences (net)
Dividend income
Share of results of entities accounted for using the equity method
Other operating income / expenses
Total income
Operating expenses
Administrative expenses
Staff costs
Other general administrative expenses
Depreciation and amortisation
35,283
11,779
34,341
11,485
1,531
1,797
533
324
370
737
(221)
(306)
49,229
48,424
(23,280)
(22,779)
(20,279)
(12,141)
(8,138)
(3,001)
(20,354)
(11,865)
(8,489)
(2,425)
942
294
(266)
163
(413)
85
805
(501)
75
(276)
351
(576)
Impairment or reversal of impairment of financial assets not measured
at fair value through profit or loss (net)
(9,352)
(8,986)
(366)
3.5
4.6
34,296
11,597
(11.0)
1,665
44.0
(55.2)
22.5
2.6
384
704
(291)
48,355
3.4
(22,993)
0.7
3.2
(2.8)
25.5
(20,400)
(12,047)
(8,353)
(2,593)
2.7
2.6
(14.8)
44.1
(56.0)
(27.8)
1.7
2.2
(0.4)
2.3
(4.1)
23.8
4.1
5.0
684.1
57.0
—
4.3
5.3
677.2
68.8
—
(9,321)
(1,623)
(3,490)
1,291
—
(8,873)
(207)
(2,223)
28
67
(448)
(1,416)
(1,267)
1,263
(67)
(100.0)
(100.0)
(232)
(123)
(109)
12,543
14,201
(1,658)
(4,427)
8,116
—
8,116
(1,601)
6,515
(4,886)
9,315
—
9,315
(1,505)
7,810
459
(1,199)
—
(1,199)
(96)
(1,295)
88.6
(11.7)
(9.4)
(12.9)
—
(12.9)
6.4
(16.6)
84.2
(10.7)
(7.8)
(12.3)
—
(12.3)
6.3
(15.9)
(9,259)
(9,111)
(1,273)
(3,058)
522
—
(203)
12,091
(3,884)
8,207
—
8,207
(1,588)
6,619
o/w: net loan-loss provisions
Impairment on other assets (net)
Provisions or reversal of provisions
Gain or losses on non-financial assets and investments (net)
Negative goodwill recognised in results
Gains or losses on non-current assets held for sale not classified as
discontinued operations
Profit or loss before tax from continuing operations
Tax expense or income from continuing operations
Profit from the period from continuing operations
Profit or loss after tax from discontinued operations
Profit for the period
Attributable profit to non-controlling interests
Attributable profit to the parent
1. Integration of the retail and SME business acquired from Deutsche Bank Polska.
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Detail of the main income statement items
Total income
Total income reached a record high of EUR 49,229 million, 2%
higher than in 2018. Excluding the exchange rate impact it
rose 3%. Net interest income and net fee income accounted for
95% of total income, well above the average of our
competitors, enabling consistent and recurrent growth while
limiting the impact that periods of high volatility can have on
gains on financial transactions.
Net interest income
Net interest income amounted to EUR 35,283 million, up 3%
compared to 2018. The following tables show the average
balances for each year, obtained as the average of the months
in the period, which in our opinion, should not materially differ
from those obtained using daily balances, as well as the
interest generated.
They also include, by domicile of the Group entity at which the
relevant assets or liabilities are accounted for, our average
balances and average interest rates obtained in 2019 and
2018. Domestic balances are those of Group entities
domiciled in Spain, which reflect our domestic activity, and
international balances are those of Group entities domiciled
outside of Spain, which reflect our foreign activity. Within the
latter, mature markets include Europe (except Spain and
Poland) and the US. On the other hand, developing markets
include South America, Mexico and Poland.
The average balance of interest-earning assets was EUR
1,304,264 million in 2019, 5% higher year-on-year (EUR
1,246,189 million in 2018). The increase was due to the 7%
growth in the international activity of our entities in both
mature markets (mainly lending activity in the UK, the US and
SCF) and emerging markets (also due to lending activity, with
overall growth in all countries).
Average balance sheet - assets and interest income
EUR million
Assets
2019
2018
Average
balance
Interest
Average
rate
Average
balance
Interest
Average
rate
Cash and deposits on demand and loans and advances to central
banks and credit institutions
203,809
3,920
1.92%
192,669
4,051
Domestic
International - Mature markets
International - Developing markets
Loans and advances to customers
Domestic
International - Mature markets
International - Developing markets
Debt securities
Domestic
International - Mature markets
International - Developing markets
Hedging income
Domestic
International - Mature markets
International - Developing markets
Other interest
Domestic
International - Mature markets
International - Developing markets
Total interest-earning assets
Domestic
International - Mature markets
International - Developing markets
Other assets
Assets from discontinued operations
Average total assets
84,412
66,093
53,304
598
910
2,412
0.71%
1.38%
4.52%
75,250
66,326
51,093
2.10%
1.04 %
1.11 %
784
733
2,534
4.96 %
910,327
46,180
5.07%
861,327
43,489
236,132
5,420
2.30%
240,845
5,366
491,479
18,426
3.75%
451,034
17,287
5.05%
2.23 %
3.83 %
182,716
22,334
12.22%
169,448
20,836
12.30 %
190,128
6,378
3.35%
192,193
61,498
56,935
71,695
599
829
4,950
0.97%
1.46%
6.90%
70,746
55,173
66,274
6,429
1,007
792
3.35%
1.42 %
1.44 %
4,630
6.99 %
232
59
161
12
75
23
31
21
305
(37)
(37)
379
51
21
16
14
1,304,264
56,785
4.35% 1,246,189
54,325
382,042
6,699
1.75%
386,841
7,141
614,507
20,357
3.31%
572,533
18,791
4.36%
1.85 %
3.28 %
307,715
29,729
9.66%
286,815
28,393
9.90 %
203,903
—
196,672
—
1,508,167
56,785
1,442,861
54,325
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Domestic activity fell 1%, affected by the sector’s
deleveraging.
The average return on total interest-earning assets remained
virtually stable at 4.35% (4.36% in 2018), as the rise in
profitability in international mature markets (+3 bps to 3.31%,
mainly driven by higher profitability on cash and deposits on
demand and loans and advances to central banks and credit
institutions) was offset by lower domestic market activity (-10
bps at 1.75% due to lower debt securities profitability) and
international activity in developing markets (-24 bps to 9.66%,
with lower profitability in all lines).
Average balance sheet - liabilities and interest expense
EUR million
Liabilities and stockholders’ equity
Deposits from central banks and credit institutions
Domestic
International - Mature markets
International - Developing markets
Customer deposits
Domestic
International - Mature markets
International - Developing markets
Marketable debt securities
Domestic
International - Mature markets
International - Developing markets
Other interest-bearing liabilities
Domestic
International - Mature markets
International - Developing markets
Hedging expenses
Domestic
International - Mature markets
International - Developing markets
Other interest
Domestic
International - Mature markets
International - Developing markets
Total interest-bearing liabilities
Domestic
International - Mature markets
International - Developing markets
Other liabilities
Non-controlling interests
Shareholders´ equity
Liabilities from discontinued operations
Average total liabilities and equity
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2019 Annual Report
The average balance of interest-bearing liabilities was EUR
1,252,228 million in 2019, a 5% increase year-on-year (EUR
1,193,108 million in 2018). Widespread growth (domestic:
+2%, mature international: +6% and developing international:
+8%) was driven by the performance of customer deposits,
with increases in most geographic areas in which we operate,
and marketable debt securities.
Average
balance
181,651
86,635
59,155
35,861
2019
Interest
3,248
496
884
1,868
811,151
10,137
263,016
366,003
182,132
246,133
84,217
125,022
36,894
13,293
8,774
2,131
2,388
665
2,659
6,813
6,679
1,580
3,011
2,088
418
213
25
180
0
(21)
25
(4)
1,020
222
150
648
1,252,228
21,502
442,642
552,311
3,155
6,754
257,275
11,593
146,386
11,096
98,457
—
Average
rate
1.79%
0.57 %
1.49 %
5.21 %
1.25%
0.25 %
0.73 %
3.74 %
2.71%
1.88 %
2.41 %
5.66 %
3.14%
2.43 %
1.17 %
7.54 %
Average
balance
191,073
101,728
57,768
31,577
773,578
250,470
351,873
171,235
221,196
75,752
111,863
33,581
7,261
5,470
799
992
1.72% 1,193,108
433,420
0.71%
1.22%
4.51%
2018
Interest
3,218
Average
rate
1.68%
691
677
1,850
9,062
882
2,085
6,095
6,073
1,555
2,550
1,968
186
91
5
90
24
(83)
(108)
215
1,421
304
109
1,008
19,984
3,440
5,318
0.68 %
1.17 %
5.86 %
1.17%
0.35 %
0.59 %
3.56 %
2.75%
2.05 %
2.28 %
5.86 %
2.56%
1.66 %
0.63 %
9.07 %
1.67%
0.79%
1.02%
4.73%
522,303
237,385
11,226
143,798
10,884
95,071
—
1,508,167
21,502
1,442,861
19,984
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
The average cost of interest-bearing liabilities was 5 bps
higher to 1.72% due to growth in international mature
markets (costs rose 20 bps to 1.22% and rises in all lines). On
the other hand, there was a reduction in costs in the domestic
market (-8 bps to 0.71%) and international developing
markets (-22 bps to 4.51%).
The change in interest income / (expense) shown in the table
below was calculated as follows:
• The change in volumes is obtained by applying the previous
period’s interest rates to the difference between the average
balances of the current and previous periods.
• The change in interest rate is obtained by applying the
difference between the rates of the current and previous
periods to the average balance for the previous year.
In 2019, the performance of interest income and interest was
the following:
• Interest income increased EUR 2,460 million due to higher
volumes, as the exchange rate impact was negative. Growth
in mature and developing markets (EUR 2,902 million), was
slightly offset by domestic activity (EUR -442 million).
• Interest expense rose EUR 1,518 million, driven by both
interest rates and volumes. As was the case with interest
income, growth was recorded in mature and developing
markets (EUR 1,803 million), with decreases in the
domestic component (EUR -285 million), the latter driven by
reduced costs stemming from lower interest rates.
• As a result, net interest income was EUR 942 million higher
primarily due to developing markets, and to a lesser extent,
mature markets, both underpinned by greater volumes, as
the interest rate impact was negative in an environment of
low interest rates in many countries and rates were still
negative in Europe.
• Finally, it is important to remember that the application of
IRFS 16 had a negative impact (EUR -265 million) on net
interest income.
Volume and profitability analysis
EUR million
Interest income
Cash and deposits on demand and loans and advances to central banks and credit institutions
Domestic
International - Mature markets
International - Developing markets
Loans and advances to customers
Domestic
International - Mature markets
International - Developing markets
Debt securities
Domestic
International - Mature markets
International - Developing markets
Hedging income
Domestic
International - Mature markets
International - Developing markets
Other interest
Domestic
International - Mature markets
International - Developing markets
Total interest-earning assets
Domestic
International - Mature markets
International - Developing markets
2019/2018
Increase (decrease) due to changes in
Volume
142
87
(51)
106
3,150
(106)
1,634
1,622
204
(119)
(52)
375
(73)
96
198
(367)
24
2
15
7
3,447
(40)
1,744
1,743
Rate
(273)
(273)
228
(228)
(459)
160
(495)
(124)
(255)
(289)
89
(55)
—
—
—
—
—
—
—
—
(987)
(402)
(178)
(407)
Net change
(131)
(186)
177
(122)
2,691
54
1,139
1,498
(51)
(408)
37
320
(73)
96
198
(367)
24
2
15
7
2,460
(442)
1,566
1,336
293
2019/2018
Increase (decrease) due to changes in
Volume
68
(95)
(73)
236
446
42
5
399
683
165
329
189
195
69
18
108
(24)
62
133
(219)
(401)
(82)
41
(360)
967
161
453
353
Rate
(38)
(100)
280
(218)
629
(259)
569
319
(77)
(140)
132
(69)
37
53
2
(18)
—
—
—
—
—
—
—
—
551
(446)
983
14
Net change
30
(195)
207
18
1,075
(217)
574
718
606
25
461
120
232
122
20
90
(24)
62
133
(219)
(401)
(82)
41
(360)
1,518
(285)
1,436
367
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Volume and cost analysis
EUR million
Interest expense
Deposits from central banks and credit institutions
Domestic
International - Mature markets
International - Developing markets
Customer deposits
Domestic
International - Mature markets
International - Developing markets
Marketable debt securities
Domestic
International - Mature markets
International - Developing markets
Other interest-bearing liabilities
Domestic
International - Mature markets
International - Developing markets
Hedging expenses
Domestic
International - Mature markets
International - Developing markets
Other interest
Domestic
International - Mature markets
International - Developing markets
Total interest-bearing liabilities
Domestic
International - Mature markets
International - Developing markets
294
2019 Annual Report
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Net interest income. Summary of volume, profitability and cost analysis
EUR million
Interest income
Domestic
International - Mature markets
International - Developing markets
Interest expense
Domestic
International - Mature markets
International - Developing markets
Net interest income
Domestic
International - Mature markets
International - Developing markets
Risk management
and control
2019/2018
Increase (decrease) due to changes in
Volume
3,447
(40)
1,744
1,743
967
161
453
353
2,480
(201)
1,291
1,390
Rate
(987)
(402)
(178)
(407)
551
(446)
983
14
(1,538)
44
(1,161)
(421)
Net change
2,460
(442)
1,566
1,336
1,518
(285)
1,436
367
942
(157)
130
969
Excluding the exchange rate impact, net interest income rose
4%. By geographic areas, growth was recorded in six of the
ten core markets, as follows:
• Additionally, Mexico (+9%), Brazil (+6%), SCF (+4%) and the
US (+2%) also increased. Portugal and Chile remained
virtually unchanged.
• Of note was growth in Argentina (+127%), driven by high
• There were falls in the UK (-8%), affected by the pressure
interest rates and greater central bank note volumes and in
Poland (+19%) grew supported by the improvement in the
cost of deposits and lending dynamics.
on mortgage spreads and the attrition of Standard Variable
Rate (SVR ) balances and in Spain (-4%) due to low interest
rates, reduced ALCO portfolio, lower institution volumes and
the impact of IFRS 16.
Net interest income
EUR million
Net fee income
EUR million
A
+3%
2019 vs 2018
A
+3%
2019 vs 2018
A. Excluding exchange rate impact: +4%.
A. Excluding exchange rate impact: +5%.
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Net fee income
EUR million
Asset management business, funds and insurance
Credit and debit cards
Securities and custody services
Account management and availability fees
Cheques and payment orders
Foreign exchange
Charges for past-due/unpaid balances and guarantees
Bill discounting
Other
Net fee income
Net fee income
Net fee income amounted to EUR 11,779 million, 3% more
than in 2018. Excluding the exchange rate impact, net fee
income was 5% higher, reflecting greater customer loyalty, as
well as the strategy of growth in services and higher value-
added products.
Of note was the growth in the most transactional businesses
from payments, insurance, foreign currency, cheques and
transfers. Also, there were increases in fees from securities
and custody services. On the other hand, there was a decline
in net fee income from guarantees and overdrafts, in part
affected by regulatory impacts.
By global businesses, excluding the exchange rate impact, the
total fee income generated by WM&I, including those
transferred to the branch network, rose 6% in the year
(representing 30% of the Group's total). Fee income from SCIB
increased 1% in 2019, reflecting a clear trend of improvement
during the year, as shown by the fact that fee income in the
second half of the year was 12% higher than in the first half.
By region, the increase in net fee income was backed mainly
by South America, which grew at double-digit rates. Of note
was Brazil (+12%) with growth in almost all lines, especially in
cards and insurance, and Argentina (+84%), driven by greater
foreign currency transactions and fee income from accounts
and cash deposits. Net fee income also rose in North America,
with a positive trend in both the US and Mexico. On the other
hand, falls in Europe driven by Spain (due to lower activity at
SCIB) and in the UK (due to overdrafts and mutual funds).
Gains / (losses) on financial assets and liabilities and
exchange differences (net)
Gains / (losses) on financial assets and liabilities and exchange
differences (net), which account for 3% of total income,
decreased 15% (-11% excluding the exchange rate impact) to
EUR 1,531 million compared to 2018 mainly due to the higher
cost of foreign currency hedging in 2019, combined with the
positive performance of markets in the first half of 2018.
In this line item, gains and losses on financial assets and
liabilities are due to the following: trading portfolio and
marked-to-market derivative instruments, including spot
296
2019 Annual Report
Change
2018
Absolute
% % excl. FX
2019
3,815
2,242
931
1,675
633
612
522
316
3,654
2,156
794
1,662
613
546
672
323
1,033
1,066
11,779
11,485
161
86
138
13
20
66
(150)
(7)
(33)
294
4.4
4.0
17.3
0.8
3.3
12.0
(22.4)
(2.1)
(3.1)
2.6
5.4
5.5
18.3
5.5
10.2
24.8
(20.9)
(0.8)
(7.0)
4.6
2017
3,406
2,124
841
1,773
603
471
801
357
1,221
11,597
market foreign exchange transactions, sales of investment
securities and liquidation of our hedging or other derivative
positions.
For further details, see note 44 to the consolidated financial
statements.
Exchange rate differences primarily show the gains / (losses)
on currency dealings, the differences that arise in the
conversion of monetary items in foreign currencies to the
functional currency, and those disclosed on non-monetary
assets in foreign currency at the time of their disposal. The
Group manages the currencies to which it is exposed together
with the arrangement of derivative instruments and,
accordingly, the changes in this line item should be analysed
together with those recognised under Gains / (losses) on
financial assets and liabilities.
For further details, see note 45 to the consolidated financial
statements.
Dividend income
Dividend income was EUR 533 million in 2019, 44% more
than in 2018 (EUR 370 million) mainly due to higher dividends
from the trading portfolio.
Share of results of entities accounted for by the equity
method
The share of results of entities accounted for by the equity
method was EUR 324 million in 2019, 56% lower than in 2018
(EUR 737 million) mainly driven by the sale of Testa and
WiZink as well as losses in real estate equity.
For further information, see note 13 and note 41 to the
consolidated financial statements.
Other operating income / (expenses)
Losses on net other operating income in 2019 of EUR 221
million (losses of EUR 306 million in 2018). Included in this
item are income and expenses from insurance activity, non-
financial services and other fees and contributions to the
Deposit Guarantee Fund and the Single Resolution Fund.
For further information, see note 46 to the consolidated
financial statements.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Operating expenses
EUR million
Staff costs
Other administrative expenses
Information technology
Communications
Advertising
Buildings and premises
Printed and office material
Taxes (other than tax on profits)
Other expenses
Administrative expenses
Depreciation and amortisation
Operating expenses
2019
2018
Absolute
% % excl. FX
2017
Change
12,141
11,865
8,138
2,161
518
685
859
116
522
8,489
1,550
527
646
122
557
3,277
3,240
20,279
20,354
3,001
2,425
23,280
22,779
276
(351)
611
(9)
39
(6)
(35)
37
(75)
576
501
2.3
(4.1)
39.4
(1.6)
6.0
(53.5)
(5.0)
(6.3)
1.1
(0.4)
23.8
2.2
3.3
12,047
(2.8)
41.3
1.6
6.9
(53.0)
(4.3)
(3.6)
2.3
0.7
25.5
3.4
8,353
1,257
529
757
1,798
133
583
3,296
20,400
2,593
22,993
1,846
(987)
Operating expenses
Operating expenses totalled EUR 23,280 million, 2% higher
year-on-year. Administrative expenses remained fairly stable,
and depreciation and amortisation increased 24%.
Excluding the exchange rate impact, operating expenses rose
3% as a result of higher investments in transformation and
digitalisation, together with the improvements made to the
distribution networks, the slight impact from the integration
of the retail and SME business acquired from Deutsche Bank
Polska and the impact in Argentina of high inflation.
In real terms (excluding inflation and acquisitions), costs fell
slightly, the third year running in which they fell or remained
flat thanks to our cost management (-0.4% in 2019, -0.5% in
2018 and +0.3% in 2017).
The Group’s aim is to improve our operational capacity and at
the same time manage our costs more efficiently and adapted
to each region, via an exemplary execution of the integrations
and fostering the use of shared services.
In 2019, we continued to be one of the world's most efficient
global banks, maintaining our efficiency ratio at 47.0%.
Efficiency ratio (cost to income)
EUR million
0.0 pp
2019 vs 2018
For a better comparison, the trends by region and market are
detailed below, excluding the exchange rate impact:
•In Europe, costs are beginning to reflect the synergies of
integrations, and fell 1% in nominal terms and 2.4% in real
terms. Of note were the decreases in Spain (-8%) and
Portugal (-4%), due to the efficiencies resulting from the
integration of Banco Popular and the optimisation efforts,
and in the UK (-3%) reflecting the cost savings from our
transformation programme.
The main increases were in Poland (+7%), impacted by the
previously mentioned integration of Deutsche Bank Polska's
retail and SME business. Excluding this impact, costs rose
very slightly, with a relatively good performance in an
environment with high single-digit wage pressure at the
national level.
In SCF, costs rose 2%, although at a slower pace than
business growth, benefiting from the efficiency projects
carried out in the year.
The efficiency ratio in the region was practically stable.
•In North America, costs were 5% higher in nominal terms
affected by inflation. In real terms, they rose 3% mainly
driven by Mexico (+4%), spurred by the three-year
investment plan, while in the US they rose 2%. The increase
in revenue is enabling us to maintain the efficiency ratio in
the region.
•Lastly, in South America, the increase in costs was
significantly distorted by the very high inflation in Argentina.
Excluding it, the increase was 4.6% in nominal terms and 1%
in real terms, with Brazil and Chile performing well,
combining investments to improve distribution capacity with
close to zero growth in costs.
We believe this management by region will enable us to
continue to optimise costs, which should be reflected in
further improvements in the cost-to-income ratio, and at the
same time improve customer experience.
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Impairment or reversal of impairment of financial assets not
measured at fair value through profit or loss (net)
Impairment or reversal of impairment of financial assets not
measured at fair value through profit or loss (net) was EUR
9,352 million in 2019, a 4% increase compared to 2018 both
in euros and excluding the exchange rate impact.
In this item, net loan-loss provisions were 5% higher at EUR
9,321 million. Excluding the exchange rate impact, they also
rose 5%, with the following detail by country:
• The largest increase was recorded in Europe, while in North
and South America, the increases were more moderate,
both below the rise in lending volumes.
• Credit quality ratios performed well in the year. The NPL
ratio improved to 3.32% from 3.73% in 2018, the coverage
ratio increased to 68% from 67% a year earlier, while the
cost of credit stood at 1.00%, the same as in 2018.
• By country, the NPL ratio remained stable or improved in the
three main regions, with declines in most units, except for
Brazil and Argentina. The cost of credit fell in North and
South America and increased slightly in Europe, although it
remained near record lows (0.28% compared to 0.24% in
2018).
For further details, see the ‘Credit risk’ section in the Risk
Management and control chapter.
Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss (net)
EUR million
Financial assets at fair value through other comprehensive income
Financial assets at amortised cost
Financial assets measured at cost
Financial assets available-for-sale
Loans and receivables
2019
12
9,340
2018
1
8,985
Held-to-maturity investments
Impairment or reversal of impairment of financial assets not measured at fair value
through profit or loss and net gains and losses from changes
9,352
8,986
Impairment on other assets (net)
EUR million
Impairment of investments in subsidiaries, joint ventures and associates, net
Impairment on non-financial assets, net
Tangible assets
Intangible assets
Others
Impairment on other assets (net)
2019
—
1,623
45
1,564
14
1,623
2018
17
190
83
117
(10)
207
Cost of credit
%
Net loan-loss provisions
EUR million
2017
8
10
9,241
—
9,259
2017
13
1,260
72
1,073
115
1,273
0.00 pp
2019 vs 2018
A
+5%
2019 vs 2018
A. Excluding exchange rate impact: +5%.
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2019 Annual Report
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Economic
and financial review
governance
Risk management
and control
Impairment on other assets (net)
Impairment on other assets in 2019 was EUR 1,623 million
after recording the impairment of goodwill ascribed to the UK
of EUR 1,491 million. In 2018, this item amounted to EUR 207
million.
Provisions or reversal of provisions
Provisions (net of reversal provisions) rose 57% in 2019, to
EUR 3,490 million (EUR 2,223 million in 2018). Excluding the
exchange rate impact, 69% increase primarily due to
restructuring charges mainly in Spain and the UK and higher
provisions for legal claims in Brazil.
For further details, see note 25 to the consolidated financial
statements.
Gains or losses on non-financial assets and investments
(net)
Net gains on non-financial assets and investments were EUR
1,291 million in 2019, compared to EUR 28 million in 2018.
The increase was mainly due to the recording of capital gains
from the agreement with Crédit Agricole S.A. for the
integration of the custody businesses and from the sale of
51% of our stake in Prisma Medios de Pago S.A. and the
revaluation of the rest of the stake (49%).
For further details, see note 49 to the consolidated financial
statements.
Negative goodwill recognised in results
In 2019, EUR 0 million compared to the EUR 67 million
recorded in 2018 due to the difference between the fair value
of the net assets acquired with the acquisition of Deutsche
Bank Polska's retail and SME business in Poland and the
transaction value.
Gains or losses on non-current assets held for sale not
classified as discontinued operations
This item, which mainly includes the impairment of foreclosed
assets recorded and the sale of properties acquired upon
foreclosure, were EUR -232 million in 2019, compared to EUR
-123 million in 2018.
Profit before tax
Profit before tax was 12% lower than in 2018, at EUR 12,543
million. Excluding the exchange rate impact, it dropped 11%,
conditioned by the aforementioned results that are outside
the ordinary course performance of our business.
Income tax
Corporate income tax was EUR 4,427 million in 2019, a 9%
decrease year-on-year. The effective tax rate for the Group as
a whole rose to 35.3% from 34.4% in 2018.
Attributable profit to non-controlling interests
The attributable profit to non-controlling interests was EUR
1,601 million, 6% higher than in 2018. Excluding the
exchange rate impact, it also rose 6%.
For further details, see note 28 to the consolidated financial
statements.
Attributable profit to the parent
Attributable profit to the parent of EUR 6,515 million, 17%
less compared to 2018. Excluding the exchange rate impact,
attributable profit was 16% lower year-on-year.
RoE was 6.6%, RoTE 9.3% and RoRWA 1.33% (8.2%, 11.7% y
1.55%, respectively in 2018).
Earnings per share was EUR 0.362, EUR 0.449 in 2018.
Attributable profit to the parent
EUR million
Earnings per share
EUR
A
-17%
2019 vs 2018
A. Excluding exchange rate impact: -16%.
-19%
2019 vs 2018
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RoTE
%
RoRWA
%
Underlying attributable profit to the parent
The attributable profit to the parent recorded in 2019 and
2018 were affected by the following results (net of tax), that
are outside the ordinary course performance of our business
and distort the year-on-year comparison:
1. Results recorded in 2019 for EUR -1,737 million, net of
tax, as follows:
• As part of our annual planning and in accordance with
accounting rules, we reviewed the goodwill ascribed to
Santander UK, which resulted in the recording of an
impairment of EUR 1,491 million in the Corporate
Centre.
• Net charge of EUR 183 million for payment protection
insurance (PPI) provisions in the UK.
• Restructuring costs related to integration and
optimisation processes in the branch network (mainly
Banco Popular in Spain), for a net amount of EUR -864
million, detailed by countries in the table below.
• Losses related to real estate assets and stakes in Spain,
with a net impact of EUR -405 million.
• Net charge of EUR 174 million for intangible assets,
Swiss franc denominated mortgages and other
provisions.
• Capital gains from the sale of 51% of our stake in the
Argentinian entity Prisma Medios de Pago S.A. and the
revaluation of the remaining 49%, generating a capital
gain of EUR 136 million in the year.
• Net capital gains of EUR 693 million related to the
agreement with Crédit Agricole S.A. to integrate the
custody businesses.
• Net positive results of EUR 551 million in Brazil related
to DTA recoveries due to changes in tax regulation.
2. These results in 2018 had a net impact of EUR -254 million
on profit, as follows:
• Restructuring costs: EUR -280 million in Spain and EUR
-40 million at the Corporate Centre, both related to the
integration of Banco Popular.
• Positive results for the integration in Portugal (EUR 20
million) and the negative goodwill adjustment in Poland
(EUR 45 million).
For further details, see note 52.c to the consolidated financial
statements.
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2019 Annual Report
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Economic
and financial review
governance
Risk management
and control
Detail of management adjustments
EUR million
2019 (net of tax)
2018 (net of tax)
• Restructuring costs
– Spain .......................................................
– United Kingdom ......................................
– Brazil
........................................................
– Poland ......................................................
– Consumer .................................................
– United States ............................................
-600
-127
-90
-23
-16
-8
• Real Estate assets and stakes (Spain)
• PPI United Kingdom
• Intangibles and other
• Capital gains Prisma - Argentina
• Custody
• Tax reform Brazil
Subtotal
-864
• Restructuring costs
-320
– Spain ........................................................
-280
– Corporate Centre .....................................
-40
-405
-183
-174
136
693
551
-246
• Portugal integration
• Badwill Poland
20
45
• Goodwill United Kingdom
-1,491
NET: EUR -1,737 million
NET: EUR -254 million
Excluding these results from the different P&L lines where
they are recorded, and including them separately in the
management adjustments line, underlying attributable profit
to the parent rose 2% to EUR 8,252 million in 2019 (EUR
8,064 million in 2018). Excluding the exchange rate impact,
it was 3% higher.
By region, and excluding the exchange rate impact, of note
was double-digit growth in North America (+21%) and South
America (+18%), while in Europe, in a more complicated
business environment, there was a 3% decline.
By market, nine of the ten core markets increased in their local
currency, and at double-digit rates in Poland, the US, Mexico,
Brazil, Poland and Argentina. The only decrease was in the UK,
mainly because of competitive pressure on revenue.
In 2019, the Group’s underlying RoTE was 11.8% (12.1% in
2018), the underlying RoRWA rose to 1.61% from 1.59% in
2018, and underlying earnings per share EUR 0.468, 1%
higher than in 2018.
Underlying attributable profit to the parentA
EUR million
Underlying earnings per shareA
EUR
B
+2%
2019 vs 2018
A. Excluding management adjustments.
B. Excluding exchange rate impact: +3%.
A. Excluding management adjustments.
+1%
2019 vs 2018
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Underlying RoTEA
%
Underlying RoRWAA
%
A. Excluding management adjustments.
A. Excluding management adjustments.
Below is the summarised income statement adjusted to the
items outside the ordinary course performance of our business
(included in the management adjustments line) as detailed in
note 52.c of the consolidated financial statements, where the
reconciliation of the aggregate underlying consolidated
results of our segments to the statutory consolidated results is
presented.
Summarised underlying income statement
EUR million
Net interest income
Net fee income
Gains (losses) on financial transactions and exchange differences
Other operating income
Total income
Administrative expenses and amortisations
Net operating income
Net loan-loss provisions
Other gains (losses) and provisions
Profit before tax
Tax on profit
Profit from continuing operations
Net profit from discontinued operations
Consolidated profit
Non-controlling interests
Underlying attributable profit to the parent
Management adjustments
Attributable profit to the parent
2019
2018
Absolute
%
% excl. FX
2017
Change
35,283
11,779
1,531
901
34,341
11,485
1,797
801
49,494
48,424
(23,280)
(22,779)
26,214
25,645
(9,321)
(1,964)
(8,873)
(1,996)
14,929
14,776
(5,103)
9,826
—
9,826
(1,574)
8,252
(1,737)
6,515
(5,230)
9,546
—
9,546
(1,482)
8,064
(254)
7,810
942
294
2.7
2.6
(266)
(14.8)
100
1,070
(501)
569
(448)
32
153
127
280
—
280
(92)
188
12.5
2.2
2.2
2.2
5.0
(1.6)
1.0
(2.4)
2.9
—
2.9
6.2
2.3
3.5
4.6
(11.0)
(1.4)
3.2
3.4
3.0
5.3
(0.5)
2.0
(0.9)
3.6
—
3.6
6.0
3.2
(1,483)
(1,295)
583.9
(16.6)
582.8
(15.9)
34,296
11,597
1,703
796
48,392
(22,918)
25,473
(9,111)
(2,812)
13,550
(4,587)
8,963
—
8,963
1,447
7,516
(897)
6,619
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
3.3 Balance sheet
Balance sheet A
EUR million
Assets
2019
2018
Absolute
%
2017
Change
Cash, cash balances at central banks and other deposits on demand
101,067
113,663
(12,596)
(11.1)
110,995
Financial assets held for trading
Non-trading financial assets mandatorily at fair value through profit or loss
Financial assets designated at fair value through profit or loss
108,230
4,911
62,069
92,879
10,730
57,460
Financial assets at fair value through other comprehensive income
125,708
121,091
(5,819)
(54.2)
4,609
4,617
8.0
3.8
15,351
16.5
125,458
Financial assets available-for-sale
Financial assets at amortised cost
Loans and receivables
Investments held-to-maturity
Hedging derivatives
Changes in the fair value of hedged items in portfolio hedges of interest risk
Investments
Assets under insurance or reinsurance contracts
Tangible assets
Intangible assets
Tax assets
Other assets
Non-current assets held for sale
Total assets
Liabilities and equity
Financial liabilities held for trading
Financial liabilities designated at fair value through profit or loss
Financial liabilities at amortised cost
Hedging derivatives
Changes in the fair value of hedged items in portfolio hedges of interest rate risk
Liabilities under insurance or reinsurance contracts
Provisions
Tax liabilities
Other liabilities
34,782
133,271
903,013
13,491
8,537
1,287
6,184
341
22,974
28,683
30,243
9,766
995,482
946,099
49,383
5.2
7,216
1,702
8,772
292
35,235
27,687
29,585
10,138
4,601
8,607
1,088
7,588
324
26,157
28,560
30,251
9,348
5,426
(1,391)
(16.2)
614
1,184
(32)
9,078
(873)
(666)
790
(825)
56.4
15.6
(9.9)
34.7
(3.1)
(2.2)
8.5
1,522,695 1,459,271
63,424
(15.2)
15,280
4.3 1,444,305
77,139
60,995
70,343
68,058
6,796
9.7
107,624
(7,063)
(10.4)
59,616
1,230,745
1,171,630
59,115
5.0
1,126,069
6,048
6,363
(315)
(5.0)
8,044
269
739
303
765
13,987
13,225
(34)
(26)
762
9,322
8,135
1,187
(11.2)
(3.4)
5.8
14.6
330
1,117
14,489
7,592
12,792
13,088
(296)
(2.3)
12,591
Liabilities associated with non-current assets held for sale
—
—
—
—
—
Total liabilities
Shareholders' equity
Other comprehensive income
Minority interests
Total equity
Total liabilities and equity
1,412,036 1,351,910
60,126
4.4 1,337,472
122,103
118,613
3,490
2.9
116,265
(22,032)
(22,141)
10,588
10,889
109
(301)
(0.5)
(2.8)
(21,776)
12,344
110,659
107,361
3,298
3.1
106,833
1,522,695 1,459,271
63,424
4.3 1,444,305
A.
Due to the application of IFRS 9 from 1 January 2018 and the decision to not restate the financial statements, as permitted in the regulation, the balance sheet of
December 2017 is not comparable with 2018-2019. Note 1.d to the consolidated financial statements includes a reconciliation of balances as of 31 December 2017
under IAS 39 and the corresponding balances as of 1 January 2018 under IFRS 9 where the effect of the first application of the rule is broken down.
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Table of Contents
2019 Highlights
• Loans and advances to customers increased 7% year-on-year. The Group uses gross loans excluding reverse repurchase
agreements (repos) for the purpose of analysing the traditional retail banking loans.
– The latter, excluding the exchange rate impact, grew 4% and in eight of the ten core units, particularly in North and South
America, which grew 10% and 9%, respectively.
– The loan portfolio maintained a balanced structure: individuals (47%), consumer credit (17%), SMEs and corporates (24%)
and SCIB (12%).
• Customer deposits were 6% higher year-on-year. The Group uses customer deposits, excluding repos, and mutual funds, for the
purpose of analysing the traditional retail banking funds:
– Customer funds, excluding the exchange rate impact, rose 6%, with nine of the ten core markets growing. There were
increases in demand deposits as well as mutual funds.
– The customer funds mix is also well diversified by product: demand deposits (61%), time deposits (20%) and investment
funds (19%).
• The net loan-to-deposit ratio was 114% (113% in 2018) reflecting the retail nature of our balance sheet.
Loans and advances to customers totalled EUR 942,218
million in December 2019, a 7% increase compared to EUR
882,921 million at the end of 2018.
Gross loans and advances to customers, excluding the
exchange rate impact and reverse repos, increased 4%,
explained by:
The Group uses gross loans excluding reverse repurchase
agreements for the purpose of analysing traditional
commercial banking loans. In order to facilitate the evaluation
of the Group management over the review period, the
comments below do not take into account exchange rates, as
usual.
– In Europe, moderate growth (+2%), with different
performance by units. Increases in SCF (+7%, with all
countries growing), Poland (+5%) and the UK (+4%), where
the increase in mortgages and other retail loans was
partially offset by lower exposure to commercial real estate.
On the other hand, there were declines in Spain (-6%), due
to lower wholesale balances and with institutions, and in
Portugal (-1%), affected by the sale of non-productive
portfolios.
Loans and advances to customers
EUR million
Commercial bills
Secured loans
Other term loans
Finance leases
Receivable on demand
Credit cards receivable
Impaired assets
Gross loans and advances to customers (excl. reverse repos)
Reverse repos
Gross loans and advances to customers
Loan-loss allowances
Net loans and advances to customers
Change
2019
2018
Absolute
%
2017
37,753
33,301
4,452
13.4
29,287
513,929
478,068
35,861
7.5
473,936
267,138
35,788
265,696
30,758
1,442
5,030
0.5
16.4
257,441
28,511
7,714
8,794
(1,080)
(12.3)
6,721
23,876
23,083
793
32,559
918,757
45,703
964,460
22,242
942,218
34,218
873,918
32,310
906,228
23,307
882,921
(1,659)
44,839
13,393
58,232
(1,065)
59,297
3.4
(4.8)
5.1
41.5
6.4
(4.6)
6.7
21,809
36,280
853,985
18,864
872,849
23,934
848,915
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Gross loans and advances to customers (excluding reverse
repos)
EUR billion
Gross loans and advances to customers (excluding reverse
repos)
% of operating areas. December 2019
+5% A
2019 vs 2018
A. Excluding exchange rate impact: +4%.
– In North America, the increase was 10%, mainly driven by
the 12% increase in the US, with growth in Santander
Consumer USA (SC USA) and Santander Bank (SBNA).
Mexico also grew 5%.
– Growth in South America was 9%, with Brazil and Chile
growing 8% and Argentina 40%, the latter driven by peso
balances and the impact of the currency's depreciation on
dollar balances.
Loans and advances to customers excluding reverse repos
maintained a balanced structure: individuals (47%), consumer
credit (17%), SMEs and corporates (24%) and SCIB (12%).
At 2019 year-end, 51% of total loans and advances to
customers maturing in more than a year were linked to
floating interest rates, while the remaining 49% to fixed rates,
with the following detail by country:
• In Spain, 68% of loans and advances to customers are linked
to floating rates and 32% are fixed.
• Internationally, 46% of loans and advances to customers
are at floating rates and 54% at fixed rates.
For further information on the distribution of customer loans
and advances by business line, see note 10.b to the
consolidated financial statements.
Tangible assets amounted to EUR 35,235 million in December
2019, increasing EUR 9,078 million and 35% from December
2018 (EUR 26,157 million), mainly driven by the impact of the
first application of IFRS 16 and, to a lesser extent, by the
increase recorded in the US from assets associated with
leasing business.
Intangible assets rose to EUR 27,687 million, of which EUR
24,246 million corresponds to goodwill, which decreased EUR
1,220 million in the year (-5%) as a net result of the
deterioration of the goodwill impairment ascribed to
Santander UK and the increase from exchange differences.
Loans and advances to customers facilities with maturities exceeding one year at year-end of 2019
EUR million
Fixed
Variable
TOTAL
Domestic
International
TOTAL
Amount
49,531
105,129
154,660
Weight over
the total
32%
68%
100%
Amount
291,703
244,777
536,480
Weight over
the total
54%
46%
100%
Amount
341,234
349,906
691,140
Weight over
the total
49%
51%
100%
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Table of Contents
Total customer funds
EUR million
EUR million
Demand deposits
Time deposits
Mutual funds A
Customer funds
Pension funds A
Managed portfolios A
Repos
Total funds
A. Including managed and marketed funds.
On the liabilities side, customer deposits amounted to EUR
824,365 million in December 2019, 6% higher than December
2018 (EUR 780,496 million).
The Group uses customer deposits, excluding repos, and
including mutual funds (customer funds) for the purposes of
analysing the traditional retail banking funds.
Customer funds, excluding the effect of exchange rate
movements, rose 6%. The main highlights, in constant euros,
were as follows:
– The strategy to increase loyalty was reflected in demand
deposits (+6%), which increased in all units except Mexico.
Time deposits remained overall virtually unchanged overall.
Mutual funds rose 15%, with growth in all core markets.
Change
2019
588,534
196,920
180,405
965,859
15,878
30,117
38,911
1,050,765
2018
548,711
199,025
157,888
905,624
15,393
26,785
32,760
980,562
Absolute
39,823
(2,105)
22,517
60,235
485
3,332
6,151
70,203
%
7.3
(1.1)
14.3
6.7
3.2
12.4
18.8
7.2
2017
525,072
199,649
165,413
890,134
16,166
26,393
53,009
985,702
– By markets, customer funds rose in all of them except
Mexico, which remained stable. Of note were Argentina
(+24%), Brazil and Chile (+12% in both) and the US (+11%).
There was more moderate growth in Portugal and
Santander Consumer Finance (+8% in both), Poland (+6%)
and Spain (+3%).
The mix of customer funds is also well diversified by product:
61% corresponds to demand deposits, 20% to time deposits
and 19% to mutual funds.
The net loan-to-deposit ratio stands at 114%, compared to
113% in December 2018.
In addition to attracting customer deposits, the Group applies
a strategy of maintaining a selective issuance policy in
international fixed-income markets, striving to adapt the
frequency and volume of market operations to both the
structural liquidity requirements of each unit and market
demand.
For more information on debt issuances and maturities, see
the following section on liquidity and funding management.
Customer funds (excluding repos)
EUR billion
Customer funds (excluding repos)
% of operating areas. December 2019
+7% A
+14%
+5%
Total
Mutual
funds B
Deposits
excl.
repos
2019 vs 2018
A. Excluding exchange rate impact: +6%.
B. Including managed and marketed funds.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
3.4 Liquidity and funding management
• The Group’s liquidity remains at comfortable levels, well above regulatory requirements.
• Recovery in lending in most countries where the Group operates.
• Medium- and long-term funding activity prioritised diversification and cost optimisation.
• The Group’s moderate encumbrance of assets continued in the structural funding sources of the balance sheet.
First, we present the Group’s liquidity management, the
principles on which it is based and the framework in which it is
included.
We then look at the funding strategy developed by the Group
and its subsidiaries, with particular attention on the liquidity
evolution in 2019. We examine changes in the liquidity
management ratios and the business and market trends that
gave rise to these over the last year.
The section ends with a qualitative description of the outlook
for funding in 2020 for the Group and its main countries.
Liquidity management in Grupo Santander
Structural liquidity management aims to fund the Group’s
recurring activity optimising maturities and costs, while
avoiding taking on undesired liquidity risks.
Santander’s liquidity management is based on the following
principles:
• Decentralised liquidity model.
• Medium- and long-term (M/LT) funding needs must be
covered 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 short-term funding.
• Availability of sufficient liquidity reserves, including
standing facilities/discount windows at central banks to be
used in adverse situations.
• Compliance with regulatory liquidity requirements both at
Group and subsidiary level, as a new factor conditioning
management.
The effective application of these principles by all institutions
comprising the Group required the development of a unique
management framework built upon three fundamental
pillars:
• A solid organisational and governance model that ensures
the involvement of the subsidiaries’ senior management in
decision-taking and its integration into the Group’s global
strategy. The decision-making process for all structural
risks, including liquidity and funding risk, is carried out by
local Asset and Liability Committees (ALCOs) in coordination
with the global ALCO, which is the body empowered by the
Bank's board in accordance with the corporate Asset and
Liability Management (ALM) framework.
This governance model has been reinforced as it has been
included within Santander's Risk Appetite Framework. This
framework meets demands from regulators and market
players emanating from the financial crisis to strengthen
banks’ risk management and control systems.
• In-depth balance sheet analysis and measurement of
liquidity risk, supporting decision-taking and its control.
The objective is to ensure the Group maintains adequate
liquidity levels necessary to cover its short- and long-term
needs with stable funding sources, optimising the impact of
their costs on the income statement.
The Group’s liquidity risk management processes are
contained within a conservative risk appetite framework
established in each geographic area in accordance with its
commercial strategy. This risk appetite establishes the
limits within which the subsidiaries can operate in order to
achieve their strategic objectives.
• Management adapted in practice to the liquidity needs of
each business. Every year, based on business needs, a
liquidity plan is developed which seeks to achieve:
• a solid balance sheet structure, with a diversified
presence in the wholesale markets;
• the use of liquidity buffers and limited encumbrance of
assets;
• compliance with both regulatory metrics and other
metrics included in each entity’s risk appetite statement.
Over the course of the year, all dimensions of the plan are
monitored.
The Group continues to develop the ILAAP (Internal Liquidity
Adequacy Assessment Process), an internal self-assessment of
liquidity adequacy which must be integrated into the Group’s
other risk management and strategic processes. It focuses on
both quantitative and qualitative matters and is used as an
input to the SREP (Supervisory Review and Evaluation
Process). The ILAAP evaluates the liquidity position both in
ordinary and stressed scenarios.
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Table of Contents
As a result of the aforementioned process, a regulatory
requirement is that once a year the Group must send the
supervisor a document, approved by the board of directors,
that concludes that the Group’s funding and liquidity structure
remains solid in all scenarios and that the internal processes
are suitable to ensure sufficient liquidity. This conclusion is the
result of analysis carried out by each of the subsidiaries,
following the Group’s autonomous liquidity management
model.
The Group has a robust governance structure suited to the
identification, management, monitoring and control of
liquidity risks, established through common frameworks,
conservative principles, clearly defined roles and
responsibilities, a consistent committee structure, effective
local lines of defence and a well-coordinated corporate
supervision.
Additionally, frequent and detailed liquidity monitoring
reports are generated for management, control, informational
and steering purposes. The most relevant information is
periodically sent to senior management, the executive
committee and the board of directors.
Over the last few years, the Group and each of its subsidiaries
have developed a comprehensive special situations
management framework which centralises the Group’s
governance in these scenarios. Contingency funding plans are
integrated within this governance model, detailing a series of
actions which are feasible, pre-assessed, with an established
execution timeline, categorised, prioritised and sufficient both
in terms of volumes as well as time frames to mitigate stress
scenarios.
Funding strategy and liquidity evolution in 2019
Funding strategy and structure
Our funding activity over the last few years has focused on
extending our management model to all Group subsidiaries,
including new incorporations.
We have developed a funding model based on autonomous
subsidiaries responsible for covering their own liquidity needs.
This structure has made it possible for us to take advantage of
our solid retail banking business model in order to maintain
comfortable liquidity positions at Group level and in our main
units, even during periods of market stress.
Over the last few years, it has been necessary to adapt funding
strategies to reflect commercial business trends, market
conditions and new regulatory requirements.
In 2019, we continued to improve in specific aspects, with no
significant changes in liquidity management or funding
policies or practices. All of this enables us to face 2020 from a
strong starting point, with no growth restrictions.
In general terms, the funding strategies and liquidity
management approaches implemented by our subsidiaries
remain:
308
2019 Annual Report
• Maintain adequate and stable medium- and long-term
wholesale funding levels.
• Ensure a sufficient volume of assets which can be
discounted in central banks as part of the liquidity buffer.
• Generate liquidity from the commercial business.
All these developments, enable us to enjoy a very robust
funding structure today. The basic features of this are:
• Customer deposits are the Group’s main source of funding,
representing just over two-thirds of the Group’s net
liabilities (i.e. of the liquidity balance sheet) and slightly
more than 87% of loans and advances to customers as of
end-2019. Moreover, these deposits are highly stable due to
the fact that they mainly arise from retail client activity.
Their weight as a percentage of loans and advances to
customers remained in line with end-2018. Further detail
can be found in the section on ‘Evolution of liquidity in
2019’.
Santander liquidity balance sheet
%. December 2019
Loans and
advances to
customers
Fixed assets
& other
Financial
assets
Customer
deposits
Securitisations
and others
M/LT debt
issuance
Equity and
other
ST funding
• Medium- and long-term funding accounts for over 19% of
the Group’s net liabilities as at end-2019, a similar level to
2018, and amply covers the loans and advances to
customers not funded by customer deposits (commercial
gap).
The outstanding balance of M/LT debt placed in the market
(non-Group third parties) as at end-2019 was EUR 180,064
million, with a comfortable maturity profile, well balanced by
instruments and markets and a weighted average maturity of
4.4 years, slightly below the weighted average maturity at the
end of 2018 of 4.6 years.
The distribution of this funding by instrument over the last
three years and maturity profile are as follows:
Responsible Corporate
banking
Economic
and financial review
governance
Medium- and long-term debt issuance. Santander Group A
EUR million
Preferred
Subordinated
Senior debt
Covered bonds
Total
A.
Placed in markets. Excluding securitisations, agribusiness notes and real estate credit notes.
Distribution by contractual maturity. December 2019. Santander Group A
Risk management
and control
2019
9,411
12,640
107,166
50,847
180,064
2018
11,508
13,218
98,827
46,272
169,825
2017
10,365
12,049
85,962
45,585
153,961
EUR million
Preferred
Subordinated
Senior debt
Covered bonds
Total
0-1
month
1-3
months
3-6
months
6-9
months
9-12
months
12-24
months
2-5 more than
5 years
years
—
—
—
—
3,056
9,286
—
—
3,056
9,286
—
—
2,893
3,694
6,587
—
—
4,495
1,282
5,777
—
—
6,144
1,912
8,056
—
—
—
9,411
1,428
11,213
12,640
15,795
44,196
21,301
107,166
8,505
17,184
18,270
50,847
24,300
62,808
60,194
180,064
Total
9,411
A.
If an issuance has a put option in favour of the holder, the maturity of the put is considered rather than the contractual maturity.
Note: there are no additional guarantees for any of the debt issued by the Group’s subsidiaries.
In addition to the debt issuances of the medium- and long-
term wholesale funding, the Bank has securitisations placed
in the market, collateralised funding and other specialist
funding amounting to a total of EUR 56,082 million (which
includes EUR 8,418 million of debt placed with private
banking clients in Brazil). The average maturity was 1.4 years.
The following charts show the similarity of the geographic
distribution of the Group’s loans and advances to customers
and its medium- and long-term wholesale funding. This
remained largely unchanged compared to 2018, with the
exception of a slight decrease in the UK's M/LT wholesale
funding weight and an increase in the weight of the Eurozone.
Wholesale funding stemming from short-term issuance
programmes is a residual part of the Group’s funding
structure, related to treasury activities and comfortably
covered by liquid assets.
The outstanding balance at the end of December 2019 was
EUR 33,413 million, distributed as follows: European
Commercial Paper, US Commercial Paper and domestic
programmes issued by the parent bank, 44%; various
certificates of deposit and commercial paper programmes in
the UK, 20%; Santander Consumer Finance commercial paper
programmes, 23%; and issuance programmes in other units,
13%.
Loans and advances to customers
%. December 2019
M/LT wholesale funding
%. December 2019
Evolution of liquidity in 2019
The main aspects of liquidity in 2019 can be summarised as
follows:
i. Basic liquidity ratios remain at comfortable levels.
ii. We continue to meet regulatory ratios ahead of schedule.
iii.Moderate use of encumbered assets in funding operations.
i. Basic liquidity ratios at comfortable levels
As at end-2019, Santander recorded:
• A stable credit to net assets ratio (total assets minus trading
derivatives and inter-bank balances) of 77%, similar to
recent years. This high level in comparison with European
competitors reflects the retail nature of the Group's balance
sheet.
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Table of Contents
• Net loan-to-deposit ratio (LTD) of 114%, at a very
comfortable level (below 120%). This stability shows a
balanced growth between assets and liabilities.
Having covered the principal liquidity ratios at Group level, the
following table sets out the ratios for Santander’s main units as
at end-December 2019:
• The ratio of customer deposits plus M/LT funding to net
loans and advances was stable at 113%.
• Limited recourse to short-term wholesale funding. The
weight was slightly under 3%, in line with previous years.
• Lastly, the Group’s structural surplus (i.e. the excess of
structural funding sources - deposits, M/LT funding and
capital - as a percentage of structural liquidity needs - fixed
assets and loans-) averaged EUR 163,933 million in the
year.
As at 31 December 2019, the consolidated structural surplus
stood at EUR 156,346 million. This consists of fixed-income
assets (EUR 172,853 million) and equities (EUR 17,866
million), partly offset by short-term wholesale funding (EUR
-33,413 million) and net interbank deposits (EUR -961
million). In relative terms, the total volume was equivalent to
around 13% of the Group’s net liabilities, similar to 2018 year-
end.
Main units’ liquidity metrics
%. December 2019
Parent bank
Santander Consumer Finance
United Kingdom
Portugal
Poland
United States
Mexico
Brazil
Chile
Argentina
Group
The table shows the evolution of the basic liquidity monitoring
metrics at the Group level over the last few years:
A. Loans and advances to customers.
Deposits + M/
LT funding /
Loans A
LTD ratio
77%
258%
119%
90%
90%
156%
99%
101%
141%
68%
114%
170%
69%
105%
121%
118%
104%
109%
118%
97%
148%
113%
Group’s liquidity monitoring metrics
%
Loans A / Total assets
2019
2018
2017
77%
76%
75%
Loans A to Deposit ratio (LTD)
114%
113%
109%
Customer deposits and medium
and long term funding / Loans A
Short term wholesale funding / Net
liabilities
Structural liquidity surplus (% / Net
liabilities)
A. Loans and advances to customers.
113%
114%
115%
3%
2%
2%
13%
13%
15%
The key drivers behind the evolution of the Group’s liquidity
and that of its subsidiaries in 2019 (excluding the fx effect)
were:
• Recovery in credit in the majority of countries where the
Group is present and generalised increases in customer
deposits, with the exception of Mexico. The combination of
these two, excluding repurchase agreements, resulted in a
commercial gap that scarcely generates liquidity needs.
• Debt issuance continued at a strong pace, particularly in
Europe. Of note, was the lower weight of new issuances in
the UK as a percentage of the Group's total compared to
previous years. This is due to the fact that the UK front
loaded some of its 2019 issuance activity in 2018 due to the
anticipated capital market turbulence related to the UK’s
exit from the European Union, at the time expected in 2019.
In 2019, the Group as a whole issued EUR 52,039 million,
calculated using year-average exchange rates. Additionally,
the contractual maturity of EUR 1,200 million of
securitisations was extended.
By instrument, the stock of medium- and long-term fixed
income (covered bonds, senior debt, subordinated debt and
capital hybrid instruments) decreased by around 13% to EUR
32,847 million at the end of the year. Fewer issuances of TLAC
eligible senior debt and of subordinated and capital hybrid
instruments, were offset by increased activity in the issuance
of covered bonds and senior preferred debt. Securitisation and
structured finance activity totalled EUR 19,191 million in
2019, a 7% decrease compared to 2018.
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By country, the main issuers of medium- and long-term fixed
income (excluding securitisations) were Spain and Santander
Consumer Finance, followed by the UK. In the year, Spain and
Santander Consumer Finance had the greatest increase in
absolute terms. The main decreases were in the UK, for the
aforementioned reasons, and in Brazil due to commercial
dynamics and tightly managed liquidity metrics. In relative
terms, of note was the US which more than doubled its
volume of issuances in 2018.
The main issuers of securitisations were SCF and SC USA.
The charts below set out in greater detail their distribution by
instruments and region:
Distribution by instrument and region
%. December 2019
The increased relative weight of instruments purely for
funding purposes in 2019 is consistent with the information
communicated to the market, taking into account
diversification and cost optimisation criteria.
In summary, Santander retained its comfortable access to the
different markets in which it operates. In 2019, there were
debt and securitisation issuances in 16 different currencies,
involving 23 relevant issuers from 13 countries, with an
average maturity of 4.2 years, slightly higher than last year.
ii. Compliance with regulatory ratios ahead of schedule
Under its liquidity management model, over the last few years
Santander has been managing the implementation,
monitoring and compliance with the new liquidity
requirements established under international financial
regulations ahead of schedule.
LCR (Liquidity Coverage Ratio)
The regulatory requirement for this metric has been at the
maximum level, established at 100%, since 2018. As a result,
the Group, both at the consolidated and subsidiary level, has
its risk appetite level set at 110%.
The strong short-term liquidity starting position, combined
with autonomous management in all major markets, enabled
compliance levels of more than 100% to be maintained
throughout the year, at both the consolidated and individual
levels. As at end-2019, the Group’s LCR ratio was 147%,
comfortably exceeding regulatory requirements. The
following table provides detail of the LCR ratio by market
which shows a considerable excess over requirements in each
one, as well as the evolution over the last year. The UK’s 2018
ratio includes activities that are excluded from the Ring-
Fenced Bank according to the Financial Services and Markets
Act 2000.
The weight of covered bonds issued in 2019 was 17% of total
issuance, considerably higher than the 11% last year. As in
2018, the main issuers of this instrument were Spain and the
UK. In the case of senior debt, in total its weight was 44%
compared to 48% in 2018. In qualitative terms, it is worth
mentioning that in 2019 the weight of senior preferred,
compared with TLAC eligible senior, is greater than in 2018.
In 2019, the Group issued EUR 3,850 million of subordinated
instruments (at year-average exchange rates), of which EUR
2,778 million was senior issued from the holding in the US
and EUR 1,072 million was AT1 eligible hybrid instruments
issued by the parent bank. There were no issuances of
subordinated debt.
Liquidity Coverage Ratio (LCR)
%
Parent bank
Santander Consumer Finance
United Kingdom
Portugal
Poland
United States
Mexico
Brazil
Chile
Argentina
Group
December 2019 December 2018
143%
248%
145%
134%
149%
133%
133%
122%
143%
196%
147%
153%
269%
164%
152%
151%
135%
174%
133%
152%
308%
158%
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NSFR (Net Stable Funding Ratio)
Although the final definition of the net stable funding ratio
(NSFR) was approved by the Basel Committee in October
2014, as at end 2019, the Basel requirement still had not been
transposed into the Capital Requirements Regulation (CRR).
On 7 June 2019, in the Official Journal of the European Union
the Regulation (EU) 2019/876 of the European Parliament and
of the Council of 20 May 2019 amending Regulation (EU) No
575/2013 as regards the leverage ratio, the net stable funding
ratio, requirements for own funds and eligible
liabilities,counterparty risk, market risk, exposures to central
counterparties, exposures to collective investment
undertakings, large exposures, reporting and disclosure
requirements, and Regulation (EU) No 648/2012 was
published.
The new Regulation states that entities must have a net stable
funding ratio, as defined in the same document, greater than
100% from June 2021.
The NSFR constitutes a structural measure that aims at
fostering longer-term stability by incentivising banks to
adequately manage their maturity mismatches by funding
long-term assets with long-term liabilities.
The ratio is defined as the quotient of Available Stable Funding
(ASF) and Required Stable Funding (RSF).
The Available Stable Funding comprises those sources of
funding - capital and other liabilities - which can be deemed
stable over a period of time of one year. The Required Stable
Funding primarily encompasses those assets than can be
considered illiquid over the above-mentioned period of time,
thus needing to be matched with stable sources of funding.
In 2019, the Group had a defined management limit of 100%
both at the consolidated and subsidiary level.
With regards to this ratio, Santander benefits from a high
weight of customer deposits, which are more stable,
permanent liquidity needs deriving from commercial activity
funded by medium- and long-term instruments and limited
recourse to short-term funding. Taken together, this has
enabled us to maintain a balanced liquidity structure, reflected
in NSFR ratios higher than 100%, both at Group and individual
levels as at end 2019.
The following table provides detail by country as well as the
evolution over the year, as defined by the Basel framework.
The UK’s 2018 ratio includes activities that are excluded from
the Ring-Fenced Bank according to the Financial Services and
Markets Act 2000.
Net Stable Funding Ratio
%
Parent bank
Santander Consumer Finance
United Kingdom
Portugal
Poland
United States
Mexico
Brazil
Chile
Argentina
Group
December 2019 December 2018
103%
106%
124%
104%
130%
111%
121%
112%
108%
154%
112%
105%
107%
128%
108%
131%
114%
130%
109%
110%
141%
114%
III. Asset Encumbrance
Lastly, it is worth highlighting Santander’s moderate use of
assets as collateral in the structural funding sources of the
balance sheet.
In line with the 2014 European Banking Authority (EBA)
guidelines on disclosure of encumbered and unencumbered
assets, the concept of asset encumbrance includes both on-
balance sheet assets pledged as collateral in operations to
obtain liquidity as well as those off-balance sheet assets
received and re-used for a similar purpose, in addition to other
assets associated with liabilities other than for funding
reasons.
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The following tables present the asset encumbrance data the Group is required to report to the EBA as at end 2019:
Group. Disclosure on asset encumbrance as at December 2019
EUR billion
Assets
Loans and advances
Equity instruments
Debt instruments
Other assets
Carrying amount of
encumbered assets
Fair value of
encumbered assets
Carrying amount of
unencumbered assets
Fair value of
unencumbered assets
321.5
215.9
6.5
64.7
34.4
—
—
6.5
64.8
—
1,201.2
906.2
12.1
119.9
163.0
—
—
12.1
119.6
—
Group. Collateral received as at December 2019
EUR billion
Collateral received
Loans and advances
Equity instruments
Debt instruments
Other collateral received
Own debt securities issued other than own
covered bonds or ABSs
Fair value of Fair value of collateral
received or own debt
encumbered
securities issued
collateral received or
available for
own debt securities
encumbrance
issued
77.0
0.8
5.6
70.6
—
—
55.8
—
8.2
47.6
—
1.2
Group. Encumbered assets / collateral received and associated liabilities
EUR billion
Matching liabilities,
contingent liabilities
or securities lent
Assets, collateral
received and own
debt securities
issued other than
covered bonds and
ABSs encumbered
Total sources of encumbrance (carrying
amount)
302.5
398.6
On-balance sheet encumbered asset amounted to EUR 321.5
billion, of which 67% are loans and advances (mortgages,
corporate loans, etc.). Off-balance sheet encumbrance stood
at EUR 77.0 billion and mainly corresponds to debt securities
received as collateral in reverse repurchase agreements and
rehypothecated.
As at end 2019, total asset encumbrance in funding operations
represented 24.1% of the Group’s extended balance sheet
under EBA criteria (total asset plus guarantees received: EUR
1,655.6 billion). This is less than the 24.8% in 2018. This
reduction is due in part to the repayment of funding from the
European Central Bank via the TLTRO-II programme.
The total for both types is EUR 398.6 billion of encumbered
assets, giving rise to a volume of associated liabilities of EUR
302.5 billion.
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Rating agencies
Funding outlook for 2020
The Group’s access to wholesale financing markets, as well as
the cost of its issuances, depends in part on the ratings
granted by rating agencies.
These agencies regularly review the Group’s ratings. The
rating of its debt depends on a series of factors that are
endogenous to the institution (business model, strategy,
capital, income generation capacity, liquidity, etc.) and on
other exogenous factors related to the overall economic
environment, the situation in the sector and sovereign risk in
the geographic areas in which it operates.
In certain cases, the methodology applied by these agencies
limits the rating a bank can receive to the sovereign rating
assigned to the country in which it is headquartered.
Santander’s rating remained above the sovereign debt rating
for the country in which it is headquartered by DBRS and
Moody’s and in line with it by Fitch and S&P. These ratings
above sovereign debt reflect the financial strength and
diversification of the Group.
At the end of 2019, the ratings with the main agencies were
as follows:
Rating agencies
DBRS
Fitch Ratings
Moody's
Standard & Poor's
Scope
JCR Japan
Long term
Short term
Outlook
A (High)
R-1 (Middle)
A-(SeniorA) F2 (Senior F1)
A2
A
AA-
A+
P-1
A-1
S-1+
—
Stable
Stable
Stable
Stable
Stable
Stable
During 2019, there were no modifications to ratings and the
above ratings were confirmed by Fitch, Moody’s, S&P, Scope
and JCR Japan.
Santander begins 2020 with a comfortable liquidity position
and good prospects for the year. However, some uncertainties
remain, namely those related to geopolitics and financial
regulation.
As a whole, the Group expects similar credit growth to
previous years, in an environment in which customer deposits
are expected to increase somewhat less. The combination of
both factors is expected to result in increased liquidity needs
from commercial banking than in previous years. The greatest
liquidity needs will come from the largest units: Spain, the UK,
Brazil and Santander Consumer Finance.
The Group’s focus in the next few years will be on repaying the
ECB and Bank of England’s long term funding programmes.
With manageable maturities in the coming quarters, aided by
limited recourse to short term funding and the necessary
medium- and long-term issuances which, for the
aforementioned reasons, is expected to be of greater intensity
than last year but in line with other years, the Group will
manage each country, optimising liquidity in a way that
maintains a solid balance sheet structure in all the units and at
the Group level.
In its issuance plan, the Group takes into account costs as well
as diversification by instrument, country, market, as well as
the construction of liability buffers with the ability to absorb
losses in resolution, regardless of whether they are capital
eligible.
The Group’s funding plans ensure that we meet regulatory
requirements as well as those stemming from its risk appetite
framework at all times.
For example, Banco Santander, S.A.’s 2020-2021 funding plan
incorporates the build-up of the stock of TLAC eligible
issuances to manage increasing requirements and pre-finance
issuances which lose TLAC eligibility in 2021, as well as
ensure AT1 and T2 buffers are fulfilled subject to risk
weighted assets (RWA) growth. Furthermore, the plan covers
balance sheet growth, repayment of ECB funds (TLTRO) and
replacing maturing debt issuances.
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3.5 Capital management and adequacy. Solvency ratios1
• At year-end, the CET1 ratio reached 11.65% after increasing 35 bps in the year. In the year, record gross generation of 97 bps
partially offset by regulatory impacts (-62 bps).
• The fully loaded total capital ratio was 15.02% (+25 bps in the year).
• We continued to strengthen our active capital management culture at all levels of the organisation.
Santander’s capital management and adequacy seeks to
guarantee solvency and maximise profitability, ensuring
compliance with the Group’s internal objectives as well as
regulatory requirements.
Active capital management includes strategies to use and
assign capital efficiently to businesses as well as
securitisations, asset sales and issuances of capital
instruments (capital hybrids and subordinated debt).
It is a key strategic tool for taking decisions at the local and
corporate levels and enables us to set a common framework
of actions, defining and standardising capital management
criteria, policies, functions, metrics and processes.
The function of the Group’s capital is carried out at two levels:
• Regulatory capital: regulatory management stems from an
analysis of the capital base, the solvency ratios under the
prevailing regulatory criteria and the scenarios used for
capital planning. The objective is to make the capital
structure as efficient as possible both in terms of cost as
well as compliance with the regulatory requirements.
• Economic capital: the economic capital model aims to
guarantee that the Group adequately assigns its capital to
all risks to which it is exposed as a result of its activity and
risk appetite. Its purpose is to optimise value creation for
the Group and its business units.
The real economic measurement of capital needed for an
activity, together with its return, promotes value creation
optimisation by selecting those activities that maximise the
return on capital. This is carried out under different economic
scenarios, both expected as well as unlikely but plausible, and
with the solvency level decided by the Group.
The Group considers the following magnitudes related to the capital concept:
Regulatory capital
Return on risk adjusted capital (RoRAC)
• Capital requirements: the minimum volume of own funds
required by the regulator to ensure the solvency of the entity,
depending on its credit, market and operational risks.
• Eligible capital: the volume of own funds considered eligible by
the regulator to meet capital requirements. The main elements
are accounting capital and reserves.
Economic capital
• Self-imposed capital requirement: the minimum volume of
own funds required by the Group to absorb unexpected losses
resulting from current exposure to the risks assumed by the
entity at a particular level of probability (this may include other
risks in addition to those considered in regulatory capital).
• Available capital: the volume of own funds considered eligible
by the entity under its management criteria to meet its capital
needs.
This is the return (net of tax) on economic capital required
internally. Therefore, an increase in economic capital decreases
the RoRAC. For this reason, the Group requires transactions or
business involving higher capital consumption to deliver higher
returns.
This considers the risk of the investment, and is therefore a risk
adjusted measurement of returns.
Using the RoRAC enables the Group to manage its business more
effectively, assess the real returns on its business - adjusted for
the risk assumed - and to be more efficient in its business
decisions.
Return on risk-weighted assets (RoRWA)
This is the return (net of tax) on risk-weighted assets for a
particular business.
The Group uses RoRWA to establish regulatory capital allocation
strategies, while seeking maximum return.
Cost of capital
Value creation
The minimum return required by investors (shareholders) as
remuneration for the opportunity cost and risk assumed by
investing capital in the entity. The cost of capital represents a 'cut-
off rate' or 'minimum return' to be achieved, enabling analysis of
the activity of business units and evaluation of their efficiency.
The profit generated in excess of the cost of economic capital. The
Group creates value when the RoRAC exceeds its cost of capital,
and destroys value when the reverse occurs. This measures risk
adjusted returns in absolute terms (monetary units),
complementing the RoRAC approach.
Leverage ratio
Expected loss
This is a regulatory metric that monitors the soundness and
robustness of a financial institution by comparing the size of the
entity to its capital. This ratio is calculated dividing Tier 1 capital
by the leverage exposure, taking into account the size of the
balance sheet with adjustments for derivatives, funding of
securities operations and off-balance sheet items.
This is the loss due to insolvency that the entity will suffer on
average over an economic cycle. Expected loss considers
insolvencies to be a cost that can be reduced by appropriate
selection of loans.
1. 2018 and 2019 data calculated using the IFRS 9 transitional arrangements, unless otherwise indicated. Had the IFRS 9 transitional arrangement not been
applied, the total impact on the fully loaded CET1 at 2019 year end would have been -24 bps.
315
Strengthen active capital management culture
The continuous improvement in the capital ratios reflects the
Group’s profitable growth strategy and a culture of active
management of capital at all levels of the organisation.
Of note:
• The strengthening of dedicated capital management teams
and greater coordination between the Corporate Centre and
local teams.
• All countries and business units developed their individual
capital plans focused on having businesses that maximise
the return on capital.
• A greater weight of capital in incentives. To this end, certain
aspects related to capital management and its profitability
are taken into account in the variable pay of senior
management:
– Among the metrics taken into account are the Group’s
fully loaded CET1, the contribution of the countries to the
Group's capital ratio and the return on equity (RoTE) and
assets (RoRWA).
– Among the qualitative aspects are adequate
management of regulatory changes in capital, effective
capital management in business decisions, generation of
sustainable capital and effective capital allocation.
At the same time, we are developing a programme to
continuously improve the infrastructure, processes and
methodologies that support all aspects related to capital in
order to further strengthen active capital management,
respond more agilely to the numerous and increasing
regulatory requirements and conduct all activities associated
with this sphere more efficiently.
Fully loaded CET1
%
Table of Contents
Priorities and main activities in the Group’s capital
management
The Group’s most notable capital management activities are:
• Establishing solvency objectives and the capital
contributions aligned with the minimum regulatory
requirements and internal policies, in order to guarantee a
solid level of capital, coherent with the Group’s risk profile,
and an efficient use of capital to maximise shareholder
value.
• Developing a capital plan to meet the objectives coherent
with the strategic plan. Capital planning is an essential part
of executing the three-year strategic plan.
• Assessing capital adequacy in order to ensure that the
capital plan is coherent with the Group’s risk profile and
with its risk appetite framework also in stress scenarios.
• Developing the annual capital budget as part of the Group’s
budgetary process.
• Monitoring and controlling budget execution at the Group
and country level and drawing up action plans to correct any
deviation from the budget.
• Calculating capital metrics.
• Drawing up internal capital reports, as well as reports for
the supervisory authorities and for the market.
The main measures taken in 2019 are set out below:
Issuances of capital hybrid instruments
In February 2019, Banco Santander, S.A. issued a USD 1.2
billion contingent convertible bond (CoCo) to replace the early
amortisation of a similarly sized USD issuance from 2014.
There is no longer a requirement to obtain pre-approval to
compute third-country issuances (Spanish Royal Decree
309/2019). As such, EUR 800 million of T2 issuances from
Chile and Mexico are now eligible and have been included in
the total capital calculation.
Dividend policy
In February 2019, the board of directors announced that its
intention was:
• to set a pay-out ratio of 40-50% of the underlying profit in
the medium-term, increasing it from a pay-out ratio of
30-40%,
• that the proportion of dividend paid in cash would not be
lower than that of 2018;
• and, as was announced in the 2018 AGM, to make two
payments against the 2019 results.
Greater detail in section 3.3 ‘Dividends’ on the Corporate
governance chapter.
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Evolution of capital ratios in 2019
The phased-in ratios are calculated by applying the CRR
transitory schedules, while the fully-loaded ratios are
calculated without applying any schedule (i.e. with the final
regulations).
On 1 January 2018, IFRS 9 came into force, which implied
several accounting changes affecting the capital ratios.
Santander chose to apply the phase-in using transitional
arrangements, which means a five-year transition period.
Applying this criteria, the fully-loaded CET1 was 11.65% as at
end-December. The 35 basis point increase in the year was
mainly due to underlying profit generation and proactive RWA
management, resulting in an organic generation of 79 bps.
Additionally, there was a favourable evolution from markets
(+22 bps) due to recovery in the Held to Collect & Sell
portfolios (driven by falls in interest rates) and a positive 11
basis point perimeter impact (mainly related to increased
minority interests in Mexico and the incorporation of the
custody business), in part offset by the negative impact from
restructuring costs (-15 bps).
As a result, there was a 97 basis point increase in the year,
bringing the fully-loaded CET1 ratio to 12.27% in December
before accounting and regulatory impacts (-62 bps, primarily
due to IFRS 16 and TRIM (Targeted Review of Internal Models).
FL CET1 performance in 2019
%
Main capital and solvency ratios
EUR million
Fully loaded
Phased-in
2019
2018
2019
2018
Common equity
(CET1)
Tier1
70,497
66,904
70,497
67,962
78,964
75,838
79,536
77,716
Eligible capital
90,937
87,506
91,067
88,725
Risk-weighted
assets
CET1 capital ratio
605,244
592,319
605,244
592,319
11.65%
11.30%
11.65%
11.47%
T1 capital ratio
13.05%
12.80%
13.14%
13.12%
Total capital ratio
15.02%
14.77%
15.05%
14.98%
Leverage ratio
5.11%
5.10%
5.15%
5.22%
Regulatory capital (phased-in). Flow statement
EUR million
Capital Core Tier 1
Starting amount (31/12/2018)
Shares issued in the year and share premium
Treasury shares and own shares financed
Reserves
Attributable profit net of dividends
Other retained earnings
Minority interests
Decrease/(increase) in goodwilland other intangible
assets
Other deductions
Ending amount (31/12/2019)
Additional Capital Tier 1
Starting amount (31/12/2018)
AT1 eligible instruments
T1 excesses - subsidiaries
Residual value of intangible assets
Deductions
Ending amount (31/12/2019)
Capital Tier 2
Starting amount (31/12/2018)
T2 eligible instruments
2019
67,962
1,644
1
(2,185)
3,092
89
(540)
166
269
70,497
9,754
(457)
(258)
—
—
9,039
11,009
1,054
—
(532)
—
11,531
—
91,067
317
Generic funds and surplus loan-loss provisions-IRB
The fully-loaded total capital ratio was 15.02%, up 25 bps
during the year.
The fully loaded leverage ratio stood at 5.1% in December
(5.1% in 2018).
T2 excesses - subsidiaries
Deductions
Ending amount (31/12/2019)
Deductions from total capital
The phased-in eligible capital was EUR 91,067 million as at 31
December 2019. This represents a total capital ratio of 15.05%
and phased-in common equity tier 1 (CET1) of 11.65%.
Total capital ending amount (31/12/2019)
Table of Contents
Total risk weighted assets comprising the denominator of capital requirements based on risk, are set out below, as well as their
distribution by geographic segment.
Risk weighted assets
EUR million
Credit risk (excluding CCR)
Of which standardised approach (SA)
Of which the foundation IRB (FIRB) approach A
Of which the advanced IRB (AIRB) approach
Of which Equity IRB under the Simple risk-weight or the IMA
Counterparty Risk (CCR)
Of which IRB approach
Of which standardised approach
Of which risk exposure from contributions to default fund or central counterparties (CCP)
Of which credit valuation adjustment (CVA)
Settlement risk
Securitisation exposure in banking book (after cap)
Of which IRB approach
Of which IRB supervisory formula approach (SFA)
Of which SEC-IRBA approach
Of which SEC-SA approach
Of which SEC-ERBA approach
Of which standardised approach (SA)
Market risk
Of which standardised approach
Of which internal model approach (IMA)
Operational risk
Of which standardised approach
Amounts below the thresholds for deduction (subject to 250% risk weight)
Floor adjustment
Total
A. Includes equity under the PD/LGD approach.
RWAs
Minimum
capital
requirements
2019
483,341
283,385
35,583
161,548
2,825
11,070
7,549
2,274
259
988
2
6,629
2,374
932
2,030
1,014
866
346
21,807
7,596
14,211
59,661
59,661
22,734
—
2018
469,074
277,394
37,479
150,373
3,828
11,987
7,867
1,795
233
2,092
1
5,014
4,276
1,915
—
—
—
738
25,012
11,858
13,154
60,043
60,043
21,188
—
2019
38,667
22,671
2,847
12,924
226
886
604
182
21
79
—
530
190
75
162
81
69
28
1,745
608
1,137
4,773
4,773
1,819
—
605,244
592,319
48,420
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Capital requirements by geographical distribution
EUR million
Credit risk
Of which internal rating-based (IRB) approach A
Central governments and central banks
Institutions
Corporates – SME
Corporates - Specialised Lending
Corporates – Other
Retail - Secured by real estate SME
Retail - Secured by real estate non-SME
Retail - Qualifying revolving
Retail - Other SME
Retail - Other non-SME
Other non-credit-obligation assets
Of which standardised approach (SA)
Central governments and central banks
Regional governments or local authorities
Public sector entities
Multilateral Development Banks
International Organisations
Institutions
Corporates
Retail
Secured by mortgages on immovable property
Exposures in default
Items associated with particular high risk
Covered bonds
Claims on institutions and corporates with a short-term
credit assessment
Collective investments undertakings (CIU)
Equity exposures
Other items
Of which Equity IRB
Under the PD/LGD method
Under simple method
Counterparty credit risk
Of which mark to market method (Standardised)
Of which: Risk exposure amount for contributions to the
default fund of a CCP
Of which: CVA
Settlement risk
Market risk
Of which standardised approach (SA)
Of which internal model approaches (IMA)
Operational risk
Of which Standardised Approach
Amounts below the thresholds for deduction and
other non-deducted investments (subject to 250% risk
weight)
Floor adjustment
Total
A. Including counterparty credit risk.
TOTAL
EUROPE
o/w:
Spain
o/w:
United
Kingdom
NORTH
AMERICA
o/w: US
SOUTH
AMERICA
39,271 23,317 10,523
6,340
15,644 13,014
1
402
6,827
1,158
5,669
84
3,462
333
355
1,549
—
9,396
594
10
4
—
—
160
2,081
3,147
958
215
36
17
67
666
8,954
1,485
7,469
86
3,477
334
356
1,704
—
22,671
1,116
25
33
—
—
451
4,943
8,611
3,135
607
175
17
—
15
26
—
15
19
1
124
4,036
437
3,599
84
1,170
129
239
555
—
3,277
579
6
1
—
—
80
418
421
204
64
—
—
—
6
—
3,517
2,139
1,497
956
226
730
282
182
21
79
—
906
176
730
174
97
20
57
—
906
176
730
85
19
16
50
—
1,745
1,083
1,053
608
1,137
324
759
4,773
2,443
4,773
2,443
294
759
729
729
5,271
3,820
—
123
1,305
428
877
—
2,039
181
—
172
—
1,450
—
—
—
—
—
12
477
535
50
14
16
14
—
1
—
331
—
—
—
53
44
4
5
—
63
15
15
—
6,920
1,176
—
131
1,040
195
845
1
3
—
—
1
—
5,744
89
—
19
—
—
135
867
2,611
1,033
125
8
—
—
—
—
858
—
—
—
45
39
1
5
—
41
170
11
159
656
656
1,198
1,198
o/w:
Brazil
5,494
587
5
9
573
1
572
—
1
—
—
—
—
4,859
393
8
—
—
—
126
1,298
2,154
309
157
39
—
—
—
—
374
48
48
—
41
33
—
8
—
—
259
259
—
649
649
348
—
Rest of
the
world
672
586
55
77
289
66
224
—
11
—
—
153
—
86
—
—
—
—
—
3
1
81
—
1
—
—
—
—
—
1
—
—
—
1
1
—
—
—
—
5
5
—
11
11
3
—
5,290
434
—
63
367
33
334
1
2
—
—
—
—
4,856
—
—
18
—
—
107
850
2,198
844
94
8
—
—
—
—
736
—
—
—
31
31
—
—
—
41
9
9
—
913
913
140
—
8,362
868
11
57
797
67
730
—
2
—
—
1
—
7,445
433
15
11
—
—
153
1,994
2,772
1,144
266
131
—
—
—
7
519
50
50
—
62
45
—
17
—
27
487
267
219
1,121
1,121
424
—
1,819
1,161
1,017
—
—
—
17
—
231
—
48,420 28,640 13,591
6,075
8,605
6,425 10,483
6,791
692
319
Securitisation exposures in banking book (after cap)
530
462
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Table of Contents
The following table presents the main changes to the capital
requirements by credit risk:
Credit risk capital movements A
EUR million
Starting amount (31/12/2018)
Asset size
Model updates
Methodology and policy
Acquisitions and disposals
Foreign exchange movements
Other
Ending amount (31/12/2019)
RWAs
504,619
10,487
(1,499)
15,209
399
2,665
(9,353)
522,527
Capital
requirements
40,370
839
(120)
1,217
32
213
(748)
41,802
A. Includes capital requirements of equity, securitisations and counterparty risk
(excluding CVA and CCP).
The increase in RWAs in the year (EUR 17,908 million) is
mainly due to regulatory impacts (TRIM and the application of
IFRS 16) and IRB model changes in Spain. Additionally, there
were greater RWAs stemming from business growth, in
particular in Brazil, the US and SCF in part mitigated by
decreased business in Spain.
These variations were partially offset by the origination of
securitisations and the recalibration of IRB regulatory
parameters.
With regards to regulatory ratios, Santander exceeds the 2019
minimum regulatory requirements by 186 bps, taking into
account the shortfalls in AT1 and T2.
A. Countercyclical buffer.
B. Global systemically important banks (G-SIB) buffer.
C. Capital conservation buffer.
In short, from a qualitative point of view, Santander has solid
capital ratios, aligned with its business model, balance sheet
structure and risk profile.
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2019 Annual Report
Economic capital
Economic capital is the capital needed to support all the risks
of our activity with a certain level of solvency. It is measured
using an internally developed model. In our case, the solvency
level is determined by the objective long-term rating of
'A' (above the Kingdom of Spain rating), which represents a
confidence level of 99.95% (higher than the regulatory level of
99.90%) to calculate the necessary capital.
Santander’s economic capital model incorporates in its
measurement all significant risks incurred by the Group in its
activity (concentration risk, structural interest rate risk,
business risk, pensions risk and others that are beyond the
scope of regulatory Pillar 1). Furthermore, economic capital
incorporates the diversification effect which in Santander’s
case is key, due to the multinational nature of its activity
covering many businesses, in order to appropriately determine
and understand the risk profile and solvency of a group with
global activity.
The fact that Santander’s business activity is spread across
various countries via a structure of separate legal entities,
with a variety of customer and product segments, exposed to
different types of risks, means that the Group results are less
vulnerable to adverse situations in one of the particular
markets, portfolios, customer types and risks. The economic
cycles, despite the current high level of economic
globalisation, are not the same nor are the different countries
affected with the same intensity. In this way, groups with a
global presence have more stable results and are more
resistant to the eventual market or portfolio crises, which
translate to lower risk. In other words, the risk and the
associated economic capital of the Group as a whole are less
than the sum of the individual parts.
Unlike with regulatory criteria, the Group considers certain
intangible assets, such as deferred taxes, goodwill and
software, to retain value, even in the hypothetical case of
resolution given the geographic structure of the Group’s
subsidiaries. As such, the asset is valued and its unexpected
loss and capital impact are estimated.
Economic capital is a key tool for internal management and
development of the Group’s strategy, both from the standpoint
of assessing solvency as well as risk management of
portfolios and businesses.
From the solvency standpoint, Santander uses its economic
model, in the context of the Basel Pillar 2, for the internal
capital adequacy assessment process (ICAAP). The business
evolution and capital needs are planned under a central
scenario and alternative stress scenarios. This ensures the
Group meets its solvency objectives even in adverse scenarios.
The metrics derived from economic capital enable the risk-
return objectives to be assessed, the price of operations to be
set based on risk and the economic viability of projects, units
and business lines to be evaluated, with the overriding
objective of maximising the generation of shareholder value.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
As a homogeneous risk measure, economic capital can be
used to explain the distribution of risk throughout the Group,
reflecting comparable activities and different types of risk in a
single metric.
The main difference compared to regulatory CET1 lies in the
treatment of goodwill, other intangible assets and deferred
tax assets, which we consider as additional capital
requirements rather than a deduction from available capital.
The chart below sums up the Group’s economic capital needs
as at 31 December 2019, by geographic regions and risk type.
The distribution of economic capital among the main business
areas reflects the diversified nature of the Group’s business
and risk. Europe represents 60% of the capital, North America
21% and South America 19%.
Excluding the operating areas, the main risks taken on by the
Corporate Centre are goodwill and the risk derived from the
exposure to structural exchange rate risk (risk stemming from
maintaining stakes in subsidiaries abroad denominated in
currencies other than the euro).
The benefit of diversification included in the economic capital
model, including both the intra-risk diversification (similar to
geographic diversification) as well as inter-risks, amounted to
approximately 30%.
Distribution of economic capital needs by type of risk
%
Given its relevance in internal management, the Group
includes several metrics derived from economic capital, both
from the standpoint of capital needs and risk-return, within a
conservative risk appetite framework established for the
Group and for the various countries.
The requirement for economic capital as of December 2019
amounts to EUR 71,253 million, which, compared to the
available economic capital base of EUR 99,598 million, imply
the existence of a capital surplus of EUR 28,345 million.
Reconciliation of economic and regulatory capital
EUR million
Net capital and issuance premiums
Reserves and retained profits
2019
60,692
59,016
2018
59,046
57,939
Valuation adjustments
(23,249)
(23,606)
Minority interests
Prudential filters
Other A
Base economic capital available
Deductions
Goodwill
Other intangible assets
DTAs
Other
Base regulatory (FL CET1) capital
available B
Base economic capital available
Economic capital required C
Capital surplus
6,441
(639)
(2,662)
99,598
(31,398)
(25,068)
(3,410)
(2,920)
2,298
6,981
(706)
(1,742)
97,912
(32,398)
(25,630)
(3,014)
(3,754)
1,390
70,497
66,904
99,598
71,253
28,345
97,912
71,269
26,643
A. Includes: Deficit of provisions over economic expected loss, Pension assets and other adjustments. Calculations using 2019 economic capital methodology.
B. Including IFRS 9 transitional arrangements.
C. In order to enhance the comparison with regulatory capital, the differences in goodwill due to fx changes are included in the required economic capital. Calculations
using 2019 economic capital methodology.
Distribution of economic capital needs by geographic area and type of risk
EUR million. December 2019
Santander Group. Total requirements: 71,253
Corporate Centre A
25,644
Europe
27,261
North America
9,475
South America
8,873
All risks:
71%
15%
13%
1%
Goodwill
DTAs
Market
Other
A. Including Santander Global Platform.
All risks:
56%
9%
8%
8%
20%
Credit
ALM
Pensions
Market
Others
Credit
Fixed Assets
Business
Operational
Others
All risks:
63%
11%
10%
6%
11%
Credit
ALM
Operational
Business
Others
All risks:
66%
8%
7%
6%
13%
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Table of Contents
RoRAC and value creation
Santander has been using RoRAC methodology since 1993 in
order to:
• Calculate the consumption of economic capital and the
return on it of the Group’s business units, as well as for
segments, portfolios and customers, in order to facilitate
optimum allocation of capital.
• Measure management of the Group’s units through
budgetary monitoring of capital consumption and RoRAC.
• Analyse and set prices for making decisions on operations
(admission) and customers (monitoring).
The RoRAC methodology enables the return on operations,
customers, portfolios and businesses to be compared on a
like-for-like basis, identifying those that obtain a risk-adjusted
return higher than the cost of the Group’s capital, thus aligning
risk and business management in order to maximise value
creation, which is the ultimate goal of the Group’s senior
management.
Santander also regularly assesses the level and evolution of
value creation (VC) and the risk-adjusted return (RoRAC) of the
Group and its main business units. The VC is the profit
generated above the cost of economic capital (EC) employed,
and is calculated as follows:
Value creation = consolidated profit – (average economic
capital x cost of capital)
The profit used is obtained by making the necessary
adjustments in the consolidated profit to eliminate those
factors that are outside the ordinary course performance of
our business, and obtain the ordinary result that each unit
obtains for its activity in the year.
The minimum return on capital that a transaction must obtain
is determined by the cost of capital, which is the minimum
remuneration required by shareholders. This is calculated by
adding to the risk-free return the premium that shareholders
require to invest in Santander. This premium depends
essentially on the degree of volatility in the Bank's share price
with respect to the market’s performance. The Group’s cost of
capital in 2019 was 8.30% (compared to 8.86% in 2018).
As well as reviewing the cost of capital annually, the Group’s
internal management also estimates a cost of capital for each
business unit, taking into account each market’s specific
features, under the philosophy of subsidiaries autonomous in
capital and liquidity, in order to evaluate whether each
business is capable of generating value individually.
If an operation or portfolio obtains a positive return, it
contributes to the Group’s profits, but it only creates
shareholder value when that return exceeds the cost of
capital.
The following chart shows the value creation and RoRAC at the
end of 2019 of the Group’s main segments:
Value creation A and RoRAC
EUR million
Main segments
Europe
North America
South America
Total Group
2019
2018
RoRAC
17.8%
20.3%
36.6%
12.5%
Value
creation
2,698
1,019
2,658
3,231
RoRAC
17.9%
18.3%
33.9%
12.6%
Value
creation
2,745
709
2,235
2,835
A. The value creation is calculated with the cost of capital of each unit. The Group’s
total RoRAC includes the operating areas, the Corporate Centre and SGP,
reflecting the Group's total economic capital and its return.
Capital planning and stress tests
Capital stress test exercises are a key tool in the dynamic
evaluation of risks and the solvency of banks.
It is a forward-looking evaluation based on macroeconomic as
well as idiosyncratic scenarios that are unlikely but plausible.
Thus, robust planning models are required, capable of
transferring the effects defined in the projected scenarios to
different elements that influence the Bank’s solvency.
The ultimate aim of capital stress exercises is to make a
complete assessment of the risks and solvency of banks,
which enables possible capital requirements to be determined
in the event they are needed because of banks’ failure to meet
their regulatory and internal capital objectives.
Internally, Santander has a defined capital stress and planning
process not only to respond to various regulatory exercises but
also as a key tool integrated into the Group’s management and
strategy.
The objective of the internal capital stress and planning
process is to ensure sufficient current and future capital,
including in unlikely but plausible economic scenarios. Based
on the Group’s initial situation (defined by its financial
statements, its capital base, risk parameters and regulatory as
well as economic ratios), the envisaged results are estimated
for different business environments (including severe
recessions as well as expected macroeconomic environments),
and the Group’s solvency ratios are obtained, usually projected
over a three-year period.
The planning process offers a comprehensive view of the
Group’s capital for the analysed time period and in each of the
defined scenarios. The analysis incorporates the regulatory
capital and economic capital metrics.
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2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
The structure in place is detailed in the following chart:
1
2
3
4
5
Macroeconomic
scenario
Balance sheet
and income statement forecasts
Capital requirements
forecasts
Solvency analysis
• Central and recession
• Idiosyncratic: based on specific risks facing the entity
• Multi-year horizon
• Reverse stress tests
• Projection of volumes. Business strategy
• Margins and funding costs
• Fees and operating expenses
• Market shocks and operational losses
• Credit losses and provisions. PIT LGD and PD models
• IFRS 9 models and migration among stages
• Consistent with projected balance sheet
• Risk parameters (PD, LGD and EAD)
• Available capital base. Profits and dividends
• Regulatory and legislative impacts
• Capital and solvency ratios
• Compliance with capital objectives
Action plan
• In the event of failure to comply with internal objectives or regulatory
requirements
The structure presented facilitates the attainment of the
ultimate objective of capital planning, by turning it into an
important strategic element for Santander which:
• Ensures current and future solvency, including in adverse
economic scenarios.
• Ensures comprehensive capital management and
incorporates an analysis of specific effects, facilitating their
integration into the Group’s strategic planning.
• Enables a more efficient use of capital.
• Supports the design of the Group’s capital management
strategy.
• Facilitates communication with the market and supervisors.
In addition, the whole process is developed with the
maximum involvement of senior management and their close
supervision, under a framework that ensures that the
governance is suitable and that all the elements that configure
it are subject to adequate levels of questioning, review and
analysis.
One of the key elements in capital planning and stress
analysis exercises, due to its particular importance in
projecting the income statement under defined adverse
scenarios, consists of calculating the provisions that will be
needed under these scenarios, mainly those that are produced
to cover losses on credit portfolios.
Specifically, in order to calculate loan-loss provisions of the
credit portfolio, Santander uses a methodology that ensures
the level of provisions covers all loan losses projected by its
internal models of expected loss, based on exposure at default
(EAD), probability of default (PD) and loss given default (LGD
parameters), at all times.
This methodology is widely accepted and is similar to that
used in the 2018 EBA stress test, as well as in 2011, 2014 and
2016, and in the stress test on the Spanish banking industry in
2012.
In 2018, this methodology was adapted in order to incorporate
the changes of the entry into force of the international
financial information IFRS 9 regulation. The Group has models
to calculate balances by stages (S1, S2, S3) as well as the
migration among them and the loan-loss provisions in
accordance with the new standards.
323
Table of Contents
Lastly, the capital planning and stress analysis process
culminates with the analysis of solvency under different
scenarios and over a defined time period, in order to assess
capital sufficiency and ensure the Group meets its internally
defined capital objectives as well as all regulatory
requirements.
Two of the most important objectives are to test: the
feasibility, effectiveness and credibility of the recovery
measures identified and the degree of suitability of the
recovery indicators and their respective thresholds that if
surpassed entail activating the scaling of decision-making in
order to cope with stress situations.
To this end, the corporate recovery plan sets out different
macroeconomic and/or financial crisis scenarios in which
idiosyncratic and/or systemic events important for the Group
which could entail activating the Plan are envisaged.
Moreover, the Plan has been designed with the premise that,
if activated, there would be no extraordinary public aid, in
accordance with article 5.3 of the BRRD.
It is important to point out that the Plan should not be
interpreted as an instrument independent of the rest of the
structural mechanisms established to measure, manage and
supervise the risk assumed by the Group. The Plan is
integrated with the following tools, among others: the risk
appetite framework (RAF); the risk appetite statement (RAS);
the risk identification assessment (RIA), the business
continuity management system (BCMS) and the internal
processes for assessing the sufficiency of capital and liquidity
(ICAAP and ILAAP). The Plan is also integrated into the Group’s
strategic plans.
Evolution in 2019. We continued the improvement work in
line with the European regulator’s requirements and
expectations and the industry’s best practices. Specifically, the
following were included:
(i) Improvements to the special situations framework to
include all preventative measures and better coordination
between subsidiaries.
(ii) Simplification of the decision-making process during a
crisis, including new tools such as the Playbook.
(iii) New methodology to estimate the feasibility and real
recovery ability under different scenarios.
In the event that the capital objectives set are not met, an
action plan will be drawn up which sets out the necessary
measures to be able to attain the desired minimum capital.
These measures are analysed and quantified as part of the
internal exercises although it is not necessary to utilise them
as the minimum capital thresholds are exceeded.
This internal process of stress and capital planning is carried
out transversally throughout the Group, not only at the
consolidated level, but also locally in the different units that
comprise the Group, and which use the stress process and
capital planning as an internal management tool and in
response to their local regulatory requirements.
Since the beginning of the economic crisis in 2008 until
December 2019, Santander underwent seven stress tests, in
which its strength and solvency were demonstrated in the
most extreme and severe macroeconomic scenarios. All of
them showed that, thanks mainly to its business model and
geographic diversification, Santander would still be capable of
generating profit for its shareholders and meeting the most
demanding regulatory requirements.
As well as the regulatory stress tests, Santander has
conducted internal stress tests every year since 2008, within
its capital self-evaluation process (Pillar 2). In all of them, the
Group’s capacity to confront the most difficult exercises, both
at the global level as well as in the countries in which it
operates, has been demonstrated.
Recovery and Resolution Plans and Special Situations
Management Framework
This section summarises the main advances in the sphere of
the Group’s crisis management. Specifically, the main
principles developed regarding Recovery Plans, Resolution
Plans and the management framework governing special
situations.
Recovery plans
Context. The tenth version of the corporate recovery plan was
prepared in 2019. The most important part sets out the
measures that Santander would have at its disposal to survive
a very severe crisis on its own.
324
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
The main conclusions extracted from analysing the contents
of the 2019 corporate plan confirm that:
• There are no material interdependencies between the
Group’s different countries.
Resolution plans
Santander continues to cooperate with the relevant authorities
in preparing resolution plans, providing all the information
they request.
• The measures available ensure an ample recovery capacity
in all the scenarios raised in the plan. Moreover, the Group’s
geographic diversification model is a point in its favour from
the recovery perspective.
The authorities that form part of the Crisis Management Group
(CMG) maintained their decision on the strategy to follow for
the resolution of the Group: the Multiple Point of Entry
(MPE)2.
• Each subsidiary has sufficient capacity to emerge by its own
means from a recovery situation, which increases the
strength of the Group’s model, based on subsidiaries that
are autonomous in terms of capital and liquidity.
This strategy is based on the legal and business structure with
which Santander operates, organised into nine “Resolution
Groups” which can be resolved independently without
involving other parts of the Group.
• None of the subsidiaries, in the event of serious financial or
solvency problems, can be considered as sufficiently
relevant to surpass the severest levels established for the
recovery indicators and which could result in activating the
corporate plan.
• The Group has sufficient mitigation mechanisms to
minimise the negative economic impact from potential
damage to its reputation in different stress scenarios.
All of these factors underscore that the Group’s model and
geographic diversification strategy, based on a model of
subsidiaries autonomous in liquidity and capital, continues to
be strong from a recovery perspective.
Regulation and governance. The plan was developed in
accordance with the current EU regulation. The plan also
follows the non-binding recommendations made by
international bodies such as the Financial Stability Board
(FSB).
As in previous years, the Group’s Plan was presented in
September 2019 to the Single Supervisory Mechanism. As of
then, the EBA has six months to make formal considerations.
The Group’s Plan comprises both the corporate plan (which
corresponds to Banco Santander, S.A.) as well as local plans for
its main countries (the UK, Brazil, Mexico, the US, Germany,
Argentina, Chile, Poland and Portugal), which are annexed to
the corporate plan. It is important to mention that, except for
Chile, all countries have to draw up a local plan as a local
regulatory requirement as well as the corporate requirement
to do so.
The board of Banco Santander, S.A. approved the corporate
plan, though the content and relevant figures were previously
presented and discussed in the Group’s main management
and control committees (capital committee, global ALCO and
the risk supervision, regulation and compliance committee).
The local plans are approved by the corresponding local bodies
and always in coordination with Santander, as they must form
part of the Group’s plan (as they are annexed to the corporate
plan).
In November 2019, the Single Resolution Board (SRB)
communicated the preferred resolution strategy as well as the
priorities of work for improving the Group’s resolvability.
Regarding this, the Group continued to advance in the projects
to improve its resolvability, defining the following lines of
action:
1) Ensure the Group has a sufficient buffer of instruments
with loss absorption capacity.
In 2019, the Bank issued debt instruments that meet the
MREL eligibility requirements.
In order to avoid legal uncertainty in the execution of the bail-
in power by the resolution authority, all issuances of the Bank
that are governed by other than the Spanish law, include a
contractual recognition clause by which the creditor
recognises that the liability may be subject to the write-down
and conversion powers and agrees to be bound by any
reduction of the principal or outstanding amount due,
conversion or cancellation that is effected by the
aforementioned exercise of the bail-in power by a resolution
authority.
2) Ensure that there are information systems that can
quickly provide high quality necessary information in the
event of resolution.
We continue to work on the systematisation and
reinforcement of the governance of the information submitted
to the resolution authority used to draw up the resolution
plan.
Further progress was made in the ongoing projects to create
data repositories on:
1. Legal entities that belong to the Group.
2. Critical suppliers.
3. Critical infrastructure.
4. Financial contracts in accordance with article 71.7 of the
BRRD.
2. With the exception of the United States whose resolution plans correspond to the individual entities.
325
Table of Contents
3) Guarantee operational continuity in resolution situations.
1. Santander has continued to actively engage with the
Operational continuity is being reinforced via the inclusion of
clauses in contracts, with both internal and external suppliers,
which stipulate that resolution is not considered an event
which would trigger termination of services.
With this end, a corporate contract template has been drawn
up so that any new contracts or renewals include this clause.
Group’s main subsidiaries to promote the performance of
Training Sessions and execution of Crisis Simulation
Exercises. The scenarios tested are generally based on the
result of a severe non-financial event (e.g. cyber-attack),
though increasingly both financial and communications
implications are being taken into consideration in their
design and execution.
With regards to services provided by market infrastructure, an
analysis has been done on the main contracts to confirm the
continuity of services in a resolution scenario as well as
understand their policies in the case of a financial
deterioration prior to entering into resolution.
2. Consolidating a robust and reliable crisis management
technological infrastructure that ensures swift and prompt
activation of Special Situations protocols and procedures,
and the effective management of such situations, constitute
a priority for the Group.
This analysis was carried out in conjunction with the Legal
Services of the given entities.
Additionally, contingency plans are being developed for cases
where a main market infrastructure ceases to provide service
due to the resolution of the entity. These plans will include
actions that will be taken to mitigate the risk associated with
said infrastructure via (i) the identification and justification of
possible substitutes/alternatives and (ii) the evaluation of
possible financial or operative measures which would
mitigated the risk associated with the loss of the service.
4) Foster a culture of resolvability in the Group.
Regarding this point, progress continued to be made in
involving senior management by raising questions
regarding the resolvability of Santander to the board and
the periodic meetings of the steering committee
specialised in resolution issues.
Special situations management framework
1. Santander has overhauled the Special Situations
framework to expand its scope of internal regulation to
cover two additional key stages to the Management of
Special Situations: (i) Special Situations Preparation in
BAU and (ii) Facilitating Resolution. The Framework is
hereinafter referred to as the Comprehensive Special
Situations Framework (CSSF), consistent with its more
holistic and broad nature relative to its predecessor.
This comprehensive approach in the Framework ensures a
clear allocation of roles and responsibilities for each of the
“Three Lines of Defence” in the Corporation, and of those
referring to the Subsidiaries in their relation with the
Corporation.
Total Loss Absorbing Capacity (TLAC) and Minimum
Required Eligible Liabilities (MREL)
In November 2015, the FSB published the TLAC term sheet
based on the previously published principles regarding the
crisis management framework. The objective of the TLAC term
sheet is to ensure that global systemically important banks (G-
SIBs) have the capacity to absorb losses and the required
recapitalisation ability to guarantee that, in resolution
proceedings and immediately following, they are able to
maintain critical functions without putting at risk depositors’
money, public funds or financial stability.
The TLAC term sheet requires a minimum TLAC level to be
determined individually for each G-SIB as the greater of (a)
16% of risk weighted assets as of 1 January 2019 and 18% as
of 1 January 2022, and (b) 6% of the Basel III Tier 1 leverage
ratio exposure measure as of 1 January 2019, and 6.75% as of
1 January 2022.
Some jurisdictions have already transposed the TLAC term
sheet into legislations (as is the case in Europe via the CRR 2
and BRRD 2, and in the US). Other jurisdictions where the
Bank is present, such as Brazil and Mexico, this requirement
has not yet been implemented.
The phase in calendar for developing countries allows for a
longer time horizon and is not required until 2025. In Europe,
the final texts which modify the resolution framework were
published in June: CRR 2 and BRRD 2. One of the main
objectives of this revision is to implement the TLAC
requirement in Europe. The CRR 2 also came into force in June
2019, while the BRRD2 is required to be transposed into
Member States’ legislation no later than December 2020.
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For G-SIBs, the CRR 2 establishes the minimum requirement in
the TLAC term sheet (16%/18%), which must be made up of
subordinated liabilities, with the exception of a percentage of
senior debt (2.5%/3.5%). For large banks (with total assets
exceeding EUR 100 billion) the subordination requirement will
be set at 13.5% of RWAs or 5% of the tier 1 Basel III leverage
ratio exposure, whichever is greater. For non-systematically
important entities, the subordination requirement will be
determined on a case-by-case basis by the resolution
authority.
In November 2019, the Bank of Spain formally communicated
the (binding) minimum MREL requirement for the Banco
Santander, S.A. Resolution Group (subconsolidated level)
which needs to be met from 1 January 2020. The requirement
was set at 16.81% of total liabilities and own funds based on
December 2017 data, equivalent to 28.60% of the Resolution
Group’s RWAs. Of this MREL requirement, 11.48% of the total
liabilities and own funds must be met by subordinated
instruments, taking into account a concession of 2.5% of total
RWAs.
For G-SIBs, an additional requirement (Pillar 2) is added to the
minimum CRR requirement, which is the result of applying the
MREL methodology to the BRRD 2. In other words, the Bank
will still be subject to an entity specific MREL requirement (i.e.
MREL Pillar 2 add-on), which could be greater than the
standard TLAC requirement (which would be implemented as
a Pillar 1 MREL requirement for G-SIBs).
As of 31 December 2019, Banco Santander, S.A. meets its
MREL requirements following the MREL eligible issuances
over the last two years.
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4. Financial information by
segments
4.1 Description of segments
The reporting by segments is based on financial information
presented to the chief operating decision maker, which
excludes certain items included in the statutory results that
distort year-on-year comparisons and are not considered for
management reporting purposes. This financial information
(underlying basis) is computed by adjusting reported results
for the effects of certain gains and losses (e.g.: capital gains,
write-downs, impairment of goodwill, etc.). These gains and
losses are items that management and investors ordinarily
identify and consider separately to better understand the
underlying trends in the business (see also note 52.c to the
Group financial statements).
The Group has aligned the information in this operating
segment section in a manner consistent with the underlying
information used internally for management reporting
purposes and with that presented throughout the Group’s
other public documents.
The Group executive committee has been determined to be
the chief operating decision maker for the Group. The Group’s
operating segments reflect the organisational and
management structures. The Group executive committee
reviews the internal reporting based on these segments in
order to assess performance and allocate resources.
The segments are differentiated by the geographical area
where profits are earned and by type of business. The financial
information of each reportable segment is prepared by
aggregating the figures for the Group’s various geographical
areas and business units. The information relates to both the
accounting data of the units integrated in each segment and
that provided by management information systems. In all
cases, the same general principles as those used in the Group
are applied.
In 2019, we made a change to our reported segments to
reflect our current organisational and management structure.
This change in our reported segments aims to align the
segment information to how segments and units are managed
and has no impact on accounting figures at the Group level.
The main changes, which have been applied to segment
information for all periods included in the consolidated
financial statements, are the following:
Primary segments
The businesses excluded are now incorporated in the Rest
of Europe.
– Spain now includes the Real Estate Activity Spain unit,
previously included in the Rest of Europe, and it excludes
some treasury businesses now reported in the Rest of
Europe, and the online bank Openbank is now
incorporated in the new digital segment Santander Global
Platform (SGP).
– Rest of Europe, included within the Europe segment,
comprises mainly (i) SCIB businesses such as Banco
Santander, S.A. branches outside of Spain (including the
businesses excluded from the UK as a result of ring-
fencing) as well as Spain’s treasury business and (ii)
Private Banking’s WM&I businesses in Switzerland,
mutual funds in Luxemburg and Insurance in Zurich.
2. Creation of the new geographical segment North America
that comprises the existing units under the previous US
segment plus Mexico.
3. Creation of the new geographical segment South America
that comprises the existing units under the previous Latin
America segment except for Mexico.
4. Creation of a new reporting unit segment, Santander Global
Platform (SGP), which includes our global digital services
under a single unit:
– Our fully digital native bank Openbank and Open Digital
Services.
– Global Payments Services: payments platform to better
serve our customers with value propositions developed
globally, including Superdigital, Pago FX and our recently
launched global businesses (Global Merchant Services
and Global Trade Services).
– Digital Assets: common digital assets and Centres of
Digital Expertise which help our banks in their digital
transformation.
Secondary segments
5. The Real Estate Activity Spain unit, that was previously a
segment reported on its own, is now included in Retail
Banking.
6. The insurance business, previously included in Retail
Banking, is now included in the Wealth Management
segment, which has been renamed to Wealth Management
& Insurance.
1. Creation of the new geographical segment Europe that
7. The new digital segment (SGP) is also incorporated as a
includes the existing units under the previous Continental
Europe segment (Spain, Portugal, Poland and SCF) plus the
UK (that was previously a segment on its own).
– The UK is aligned with the ring-fencing structure,
including products and services distributed to our retail
customers and the majority of our business customers.
secondary segment.
8. Finally, the change in reported segments also includes
adjustments to the clients of the Global Customer
Relationship Model between Retail Banking and SCIB and
between Retail Banking and WM&I.
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The changes in the secondary segments have no impact on the
primary segments.
The Group restated the corresponding information of earlier
periods considering the changes aforementioned in this
section.
As a result, the operating business areas are structured in two
levels:
Primary segments
This primary level of segmentation, which is based on the
Group’s management structure, comprises five reportable
segments: four operating areas plus the Corporate Centre. The
operating areas are:
Europe: which comprises all the business activities carried out
in the region. Detailed financial information is provided on
Spain, Portugal, Poland, SCF (which incorporates the region’s
business, including the three aforementioned countries) and
the UK.
North America: which comprises all the business activities
carried out in Mexico and the US, which includes the holding
company (SHUSA) and the businesses of SBNA, SC USA, Banco
Santander Puerto Rico, the specialised unit Banco Santander
International and the New York branch.
South America: includes all the financial activities carried out
by the Group through its banks and subsidiary banks in the
region. Detailed information is provided on Brazil, Chile,
Argentina, Uruguay, Peru and Colombia.
Santander Global Platform: includes Global Payments Services
(Global Trade Services, Global Merchant Services, Superdigital,
Pago FX), our fully digital bank Openbank and Open Digital
Services, and Digital Assets (centres of digital expertise,
InnoVentures and digital assets).
Secondary segments
At this secondary level of segment reporting, the Group is
structured into Retail Banking, SCIB, WM&I and SGP.
Retail Banking: this covers all customer banking businesses,
including consumer finance, except those of corporate
banking, which are managed through SCIB, and asset
management, private banking and insurance, which are
managed by Wealth Management & Insurance. The results of
the hedging positions in each country are also included,
conducted within the sphere of each one’s assets and
liabilities committee.
Santander Corporate & Investment Banking (SCIB): this
business reflects revenue from global corporate banking,
investment banking and markets worldwide including
treasuries managed globally (always after the appropriate
distribution with Retail Banking customers), as well as equity
business.
Wealth Management & Insurance: includes Global Payments
Services (Global Trade Services, Global Merchant Services,
Superdigital, Pago FX), our fully digital bank Openbank and
Open Digital Services, and Digital Assets (centres of digital
expertise, InnoVentures and digital assets).
Santander Global Platform: includes Global Payments Services
(Global Trade Services, Global Merchant Services, Superdigital,
Pago FX), our fully digital bank Openbank and Open Digital
Services, and Digital Assets (Centres of Digital Expertise,
InnoVentures and Digital Assets).
In addition to these operating units, which report by
geographic area and businesses, the Group continues to
maintain the Corporate Centre area that includes the
centralised activities relating to equity stakes in financial
companies, financial management of the structural exchange
rate position, assumed within the sphere of the Group’s assets
and liabilities committee, as well as management of liquidity
and of shareholders’ equity via issuances. As the Group’s
holding entity, this area manages all capital and reserves and
allocations of capital and liquidity with the other businesses. It
also incorporates amortisation of goodwill but not the costs
related to the Group’s central services (charged to the areas),
except for corporate and institutional expenses related to the
Group’s functioning.
The businesses included in each of the primary segments in this report and the accounting principles under which their results are
presented here may differ from the businesses included and accounting principles applied in the financial information separately
prepared and disclosed by our subsidiaries (some of which are publicly listed) which in name or geographical description may seem to
correspond to the business areas covered in this report. Accordingly, the results of operations and trends shown for our business areas
in this document may differ materially from those of such subsidiaries.
As described in section 3 above, the results of our business areas presented below are provided on the basis of underlying results only
and generally including the impact of foreign exchange rate fluctuations. However, for a better understanding of the changes in the
performance of our business areas, we also provide and discuss the year-on-year changes to our results excluding such exchange rate
impacts.
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4.2 Summary income statement of the Group’s main business areas
2019
Main items of the underlying income statement
EUR million
Primary segments
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
Other
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
Other
SANTANDER GLOBAL PLATFORM
CORPORATE CENTRE
TOTAL GROUP
Secondary segments
RETAIL BANKING
CORPORATE & INVESTMENT BANKING
WEALTH MANAGEMENT & INSURANCE
SANTANDER GLOBAL PLATFORM
CORPORATE CENTRE
TOTAL GROUP
Net interest
income
14,201
3,919
3,848
3,788
856
1,171
620
8,926
5,769
3,157
13,316
10,072
1,867
940
437
92
(1,252)
35,283
33,157
2,721
565
92
(1,252)
35,283
Net fee
income
5,260
2,481
823
866
390
467
234
1,776
947
829
4,787
3,798
404
446
138
6
(50)
11,779
9,094
1,528
1,201
6
(50)
11,779
Total
income
Net operating
income
Profit before
tax
21,001
7,506
4,710
4,727
1,375
1,717
966
11,604
7,605
3,998
18,425
13,951
2,539
1,316
619
81
(1,617)
49,494
43,523
5,284
2,223
81
(1,617)
49,494
9,957
3,485
2,672
1,892
751
1,024
133
6,636
4,309
2,327
11,769
9,345
1,508
554
362
(159)
(1,990)
26,214
24,042
3,008
1,312
(159)
(1,990)
26,214
7,350
2,174
2,215
1,455
750
681
76
2,776
1,317
1,459
7,232
5,606
1,129
217
280
(166)
(2,262)
14,929
13,265
2,767
1,325
(166)
(2,262)
14,929
Underlying
attributable
profit to the
parent
4,878
1,585
1,314
1,077
525
349
28
1,667
717
950
3,924
2,939
630
144
212
(120)
(2,096)
8,252
7,748
1,761
960
(120)
(2,096)
8,252
Underlying attributable profit to the parent by primary
segment distribution A
2019
Underlying attributable profit to the parent 2019. Core markets
EUR million. % change YoY in constant euros
A. As a % of operating areas. Excluding Corporate Centre and Santander Global
Platform.
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Main items of the underlying income statement
EUR million
Primary segments
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
Other
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
Other
SANTANDER GLOBAL PLATFORM
CORPORATE CENTRE
TOTAL GROUP
Secondary segments
RETAIL BANKING
CORPORATE & INVESTMENT BANKING
WEALTH MANAGEMENT & INSURANCE
SANTANDER GLOBAL PLATFORM
CORPORATE CENTRE
TOTAL GROUP
Net interest
income
14,204
4,093
3,723
4,078
858
996
456
8,154
5,391
2,763
12,891
9,758
1,944
768
421
79
(987)
34,341
32,262
2,461
526
79
(987)
34,341
Net fee
income
5,435
2,624
798
912
377
453
272
1,615
859
756
4,497
3,497
424
448
128
7
(69)
11,485
8,870
1,534
1,142
7
(69)
11,485
Total
income
Net operating
income
Profit before
tax
21,257
7,615
4,610
5,132
1,344
1,488
1,068
10,476
6,949
3,527
17,674
13,345
2,535
1,209
585
74
(1,057)
48,424
42,231
5,077
2,099
74
(1,057)
48,424
10,091
3,277
2,622
2,295
700
848
350
5,988
3,930
2,058
11,117
8,845
1,488
458
326
(68)
(1,483)
25,645
22,994
2,975
1,226
(68)
(1,483)
25,645
7,491
2,063
2,137
1,803
686
552
251
2,337
1,113
1,224
6,717
5,185
1,118
183
231
(70)
(1,699)
14,776
12,654
2,680
1,211
(70)
(1,699)
14,776
Underlying
attributable
profit to the
parent
5,048
1,554
1,293
1,272
479
296
154
1,304
549
755
3,451
2,592
612
82
165
(54)
(1,686)
8,064
7,238
1,691
875
(54)
(1,686)
8,064
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4.3 Primary segments
EUROPE
2019 Highlights
• Given the current macroeconomic environment, characterised by lower for longer interest rates,
we are working on our franchises to simplify our business and structures and adapt our technology
platforms.
• In terms of volumes, in an environment of lower economic growth, gross loans and advances to
customers (excluding reverse repos) rose 2% year-on-year and customer funds 4%.
Underlying
attributable profit
EUR 4,878 Mn
• Underlying attributable profit amounted to EUR 4,878 million, down 3% compared to 2018, due
to lower gains on financial transactions (markets) and net fee income (mainly SCIB) and higher
provisions (Spain and SCF). Conversely, net interest income increased and costs fell 2.4% in real
terms, reflecting the optimisation measures.
Strategy
In Europe our subsidiaries are managed according to our local
priorities. At the same time, in an environment of low demand
for credit and low interest rates, we are developing initiatives to
enable the simplification of our business model, shared
services and cost saving measures. For example:
• Simplification of our business, reducing the number of
products to gain efficiency and agility but maintaining a full
value proposition that is capable of meeting the daily needs
of our individual customers and offering tailored solutions for
SMEs and large corporates.
All of this, with the medium-term objective of obtaining EUR 1
billion of savings, based on our global capabilities to
strengthen operational efficiency in the region.
Of note by countries:
• In Spain, the commitment to maintain leadership in the
market, strengthening customer loyalty and experience
through digital transformation, while obtaining synergies.
• In Portugal and Poland, improved profitability and efficiency
as a result of the successful integrations.
• Adaptation of the technological platforms and acceleration of
our digital transformation, to help improve customer
experience and expand distribution channels for our products
and services.
• In the UK, focus on volume growth in core mortgage
market, the first phase of our multi-year transformation
programme which is starting to be reflected in savings, and
improving capital allocation.
• Continued achievement of synergies from the ongoing
integration processes, such as Banco Popular in Spain and
Portugal and the retail and SME business of Deutsche Bank
Polska in Poland.
• In SCF, leverage our position as a specialised entity,
strengthening relationships with manufacturers and the
perimeter of the agreements.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
9,891
13,830
36% /active
customers
+9% YoY
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Business performance
Loans and advances to customers rose 6%. In gross terms,
excluding reverse repurchase agreements and the exchange
rate impact, they rose 2% in the year, reflecting deleveraging
in wholesale banking in Spain, but boosted by SCF (driven by
the increase in new lending), the UK (by growth in mortgages)
and Poland.
Customer deposits increased by 5% compared to 2018.
Excluding repurchase agreements and the FX impact, they
were up 2% with rises in all countries. Demand deposits grew
4% absorbing the 5% fall in time deposits resulting from the
strategy to reduce the cost of funds in Spain and Poland.
Mutual funds (+15%) grew at double digit rates in Poland
(+10%), Portugal (+59%) and the rest of Europe (+64%),
boosting customer funds (+4%).
Results
Underlying attributable profit in 2019 was EUR 4,878
million (47% of the Group's total operating areas), and
underlying RoTE was 10.0%.
Compared to 2018, excluding the exchange rate impact,
underlying attributable profit decreased 3% affected mainly
by lower revenue in the UK, as follows:
• Total income decreased slightly (-1%). Net interest income
remained unchanged due to the positive performance of
volumes in SCF and Poland and the higher revenue in SCIB,
which offset the competitive pressures, the fall in SVR
volumes in the UK and the impact of low interest rates in
Spain, smaller ALCO portfolio and the impact of IFRS 16. Net
fee income was down 3%, particularly in Spain, because of
lower activity in SCIB. Gains on financial transactions were
7% lower year-on-year due to a very good performance in
the markets in the first quarter of 2018.
• Administrative expenses and amortisations decreased 1%
(-2.4% in real terms) because of the efficiencies generated
by the integration of Banco Popular in Spain and Portugal
and by the efforts made in the different optimisation
processes.
• Net loan-loss provisions rose 17%, however, the cost of
credit remained low (0.28%) rising only 4 basis points in the
year.
• Other gains (losses) and provisions reduced their loss
during the year, due to the releases of other provisions in
SCF and the UK.
EUROPE
EUR million
Underlying income
statement
2019
2018
%
% excl. FX
Net interest income
14,201
14,204
0.0
Net fee income
Gains (losses) on financial
transactions A
Other operating income
5,260
1,035
505
(0.1)
(3.3)
5,435
(3.2)
1,115
(7.1)
(7.5)
503
0.2
0.0
Total income
21,001
21,257
(1.2)
(1.3)
Administrative expenses
and amortisations
Net operating income
(11,044)
(11,165)
(1.1)
(1.3)
9,957
10,091
(1.3)
(1.4)
Net loan-loss provisions
(1,839)
(1,572) 17.0
16.9
(768)
(1,028) (25.2)
(25.3)
7,350
7,491
(1.9)
(1,979)
(2,020)
(2.0)
(1.9)
(2.1)
5,371
5,472
(1.8)
(1.9)
—
—
—
—
5,371
(493)
5,472
(1.8)
(1.9)
(424) 16.4
16.7
4,878
5,048
(3.4)
(3.4)
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from
discontinued operations
Consolidated profit
Non-controlling interests
Underlying attributable
profit to the parent
Balance sheet
Loans and advances to
customers
Cash, central banks and
credit institutions
Debt instruments
Other financial assets
Other asset accounts
676,904
639,966
5.8
180,389
172,298
4.7
104,382
118,221
(11.7)
53,893
41,471
49,263
40,989
3.6
3.5
(12.8)
9.3
(0.1)
1.8
3.0
9.4
1.2
3.6
5.0
Total assets
1,057,038 1,020,737
Customer deposits
600,380
571,834
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
Gross loans and advances
to customers B
Customer funds
Customer deposits C
Mutual funds
Ratios (%) and operating
data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
189,792
192,685
(1.5)
(2.3)
133,544
129,574
3.1
0.3
60,807
16,383
53,687
13.3
18,947
(13.5)
1,000,906
966,727
56,133
54,010
650,552
626,205
671,032
634,893
581,395
557,122
3.5
3.9
3.9
5.7
4.4
13.0
(14.6)
1.8
2.2
1.9
3.9
2.4
89,637
77,771
15.3
14.6
10.00
10.86
(0.86)
52.6
3.25
49.8
86,574
5,336
52.5
0.1
3.67
(0.42)
50.1
93,021
(0.3)
(6.9)
6,753
(21.0)
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Spain
2019 Highlights
• We successfully completed the integration of Banco Popular, with the migration of all branches
and customers, and the execution of the branch network optimisation process, obtaining greater
costs synergies than expected.
• We completed the reorganisation of the strategic insurance business with the end of the
agreement with Allianz and the creation of the new joint ventures with Aegon and MAPFRE.
Underlying
attributable profit
EUR 1,585 Mn
• Strong growth in SMEs and corporates, leveraging our strengths as a Group, with focus in value-
added products, boosting international business 15% year-on-year.
• Underlying attributable profitincreased 2% in 2019, 5% higher before tax, mainly due to sustained
revenue and lower costs, reflected in an improvement of 3.4 percentage points in the efficiency ratio.
• We continued to develop Santander Personal, our tailored
remote management service, which is now available for
SMEs and Private Banking customers.
• We are working on tailored solutions for key segments,
offering attractive value propositions that favour customer
acquisition, loyalty and commercial dynamism (Generation
81 for women, SmartBank for young people and Santander
Senior project for the over 65s). In April, we launched the
Smith Plan vying to become the leader in the non-resident
segment, via a differentiated value proposition focused
mainly on covering the needs of those who are purchasing a
house in Spain.
• In SCIB, we remained market leaders in the main league
tables, strengthening our capital optimisation and
originate to distribute models.
Lastly, the digital transformation process has enabled us to
increase the number of digital customers by 10% in the year
and the weight of sales made through digital channels to
around 29% in the year. We continued to promote our
Digilosofía concept, helping our customers through our
network in their digital transformation process.
These measures were recognised by The Banker with the
award of Bank of the Year in Spain.
Strategy
We successfully completed the integration of Banco Popular,
with the migration of all branches and customers to
Santander, and the execution of the branch network
optimisation process, resulting in greater than expected cost
synergies. We closed around 1,150 branches and unified the
central services and regional teams.
We continued to update the distribution network.
Accordingly, we already have close to 600 Smart Red
branches and 6 Work Café branches, where we are
maximising digitalisation and exploring new customer
relationship formats.
As regards the main loyalty drivers and performance by
segment:
• Increased customer transactions, with growth of 4% in
card turnover (after growing 22% in the last two years)
and 8% in point-of-sale terminals. Consumer credit
increased 24% year-on-year, driven by pre-concession and
digital loans, which enabled us to increase market share by
151 bps.
• Growth in value added businesses, such as insurance
(gross written premiums: +11%) and mutual funds (AuM
increased EUR 5,500 million).
• In SMEs, we launched Tresmares Capital, a new
independent alternative financing platform for this
segment.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
2,540
4,721
32% /active
customers
+10% YoY
334
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers fell 6%. In gross terms,
excluding reverse repurchase agreements, they also fell 6%
in the year, impacted by wholesale banking and institutions
deleveraging due to the market environment and the
progress towards a more capital efficient model.
Additionally, new mortgage lending does not yet offset
maturities, however, consumer stock increased in the last 12
months.
Customer deposits increased 1% compared to 2018.
Excluding repos growth was also 1%. Demand deposits rose
4%, which offset the decrease in time deposits (-12%) as a
result of a low interest rate environment. The cost of deposits
fell from 34 bps in the fourth quarter of 2018 to 13 bps in the
fourth quarter of 2019.
Customer funds rose 3% including the 12% increase in
mutual funds. In addition, EUR 14,424 million are managed
in pension plans, which grew 2% in the year.
Results
Underlying attributable profit amounted to EUR 1,585
million (15% of the Group’s total operating areas) with an
underlying RoTE of 10.5%.
Compared to 2018, underlying attributable profit was 2%
higher. Profit before tax rose 5%, as follows:
• Total income fell slightly (-1%). Net interest income
dropped 4%, due to lower wholesale and ALCO volumes,
lower institution volumes and the impact of IFRS 16,
partially offset by improved customer spreads. Excluding
the IFRS 16 impact, it fell 2%.
Net fee income was down 5%, mainly due to lower activity
at SCIB. Gains on financial transactions rose 49%, driven
by active portfolio management, taking advantage of
market movements. Other operating income was lower
mainly due to lower equity method results driven by the
sale of Testa and WiZink.
• Administrative expenses and amortisations fell 7% due
to the efficiencies resulting from the Banco Popular
integration and the optimisation efforts. The efficiency
ratio stood at 53.6%, 3.4 pp better than in 2018.
• Net loan-loss provisions rose 9%. Nevertheless, the NPL
ratio improved (-38 bps in the year), cost of credit stood at
low levels (43 bps) and the stock of NPLs fell by more than
EUR 1,800 million.
• Other gains (losses) and provisions increased their losses
in the year, partly due to provisions related to foreclosed
assets and increased operational risk.
Spain
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
2019
3,919
2,481
1,046
61
2018
4,093
2,624
703
195
Total income
7,506
7,615
%
(4.3)
(5.5)
48.8
(68.9)
(1.4)
Administrative expenses and
amortisations
Net operating income
Net loan-loss provisions
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
Non-controlling interests
Underlying attributable
profit to the parent
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
(4,021)
(4,338)
(7.3)
3,485
(856)
(455)
2,174
(589)
3,277
(789)
(425)
2,063
(508)
1,585
1,555
—
—
6.4
8.5
7.1
5.4
15.9
1.9
—
1,585
1,555
0
(1)
1.9
(89.7)
1,585
1,554
2.0
185,179
196,101
(5.6)
78,334
34,288
1,393
79,100
48,849
2,515
23,908
22,436
323,102
349,001
240,427
238,372
25,231
26,855
8,971
5,222
56,062
24,628
6,216
8,916
306,706
334,193
16,396
14,807
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
191,280
203,288
308,747
298,860
240,126
237,821
68,621
61,039
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
10.48
10.42
53.6
6.94
41.1
57.0
7.32
43.7
27,630
31,229
3,235
4,365
(1.0)
(29.8)
(44.6)
6.6
(7.4)
0.9
(55.0)
9.0
44.3
(41.4)
(8.2)
10.7
(5.9)
3.3
1.0
12.4
0.06
(3.4)
(0.38)
(2.6)
(11.5)
(25.9)
335
Table of Contents
Santander Consumer Finance
2019 Highlights
• SCF continues to be the European consumer finance leader, with critical mass and a Top 3
position in the markets in which it operates.
• Two strategic deals were carried out this year to strengthen presence in Europe: the agreement
with Hyundai Kia in Germany to acquire 51% of its auto financing company, and the agreement
with Ford Motor Company to acquire Forso AB (Fords' financial entity) in the Nordic countries.
Underlying
attributable profit
EUR 1,314 Mn
• Underlying attributable profit rose 2% both in euros and excluding the exchange rate impact.
High profitability, with a RoTE of more than 15%, RoRWA of 2.3% and a cost of credit which is
low for this type of business.
• The agreement with Ford Motor Company to acquire Forso
AB in the fourth quarter, their captive finance company in
the Nordic countries, to reinforce its position in this market.
In 2019 management focused on:
• Remaining among the Top 3 in auto finance in the main
markets while optimising capital consumption and
strengthening pan-European relationships with 15 brands
and more than 70,000 vehicle points of sale.
• Maximising capital efficiency, in a competitive environment
characterised by the entry of new competitors, an excess of
market liquidity and moderate GDP growth.
• Accelerating progress toward a more digital and analytical
consumer finance business model, with more innovative
solutions and excellent customer experience.
Of note, SCF was once again recognised as Top Employer
Europe 2019 in Austria, Belgium, Germany, Italy, the
Netherlands and Poland.
Strategy
SCF is Europe's consumer finance leader, with a presence in
15 countries and more than 130,000 associated points of sale
(auto dealers and shops). It also has a significant number of
finance agreements with auto and motorcycle manufacturers
and retail distribution groups.
In 2019, SCF continued to gain market share, underpinned by
a solid business model: highly diversified by countries with a
critical mass in key products, greater efficiency than
competitors and a risk control and recovery system that
enables it to maintain better credit quality indicators than our
competitors.
Additionally, we continued to sign and develop new
agreements, both with retail distributors as well as
manufacturers, seeking to help them in their commercial
transformation processes and thus increase the value
proposition for the final customer.
Two strategic deals were carried out this year to strengthen
presence in Europe and improve the product offering and
services:
• An agreement with Hyundai Kia in Germany to acquire 51%
of its auto financing company, strengthening SCF's position
in the country.
Loans and advances to customers by geographic area
December 2019
Germany
Spain
Italy
France
Nordic countries
Poland
Other
336
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
The stock of loans and advances to customers rose 7%
compared to 2018. Gross loans excluding reverse repurchase
agreements and the impact of exchange rates, also grew 7%.
Almost all countries grew their business, more than 70% of
lending is in countries with the highest ratings and Germany
and the Nordics account for 50% of the portfolio.
New lending increased 5% compared to 2018 (significantly
better than the performance of new car sales in the European
market), with growth in almost all countries driven by
commercial agreements in several of them. Of note were the
rises in Germany, France and Italy.
Customer deposits amounted to EUR 39,602 million and
continue to be a product that sets us apart from our
competitors, remaining stable in the previous quarters
because of the different initiatives carried out to complete the
digital transformation plan.
Recourse to wholesale funding increased strongly, with EUR
19,826 million issued in the year, once again demonstrating
our capacity to access the wholesale funding markets and
investor confidence in its business.
Results
Underlying attributable profit was EUR 1,314 million in
2019 (13% of the Group’s total operating areas) and
underlying RoTE was 15.3%.
Compared to 2018, underlying attributable profit was 2%
higher in euros excluding the exchange rate impact, by lines:
• Total income rose 3%, driven by net interest income (+4%)
due to higher volumes. Net fee income increased 3%,
notably in Germany.
• Administrative expenses and amortisations increased 3%,
impacted by the acquisition of Hyundai Kia’s joint venture in
Germany, but below business volume growth, benefiting
from the efficiency projects carried out in several units.
• Net loan-loss provisions increased 32%, mainly due to
lending growth, change of product mix in Spain and lower
written-off portfolio sales in the Nordic countries. The cost
of credit remained low for this type of business (0.48%),
highlighting the good performance of portfolios. The NPL
ratio and the coverage ratio stood at 2.30% and 106%,
respectively, with no material change compared to
December 2018.
• Other gains (losses) and provisions amounted to EUR +20
million compared to EUR -125 million in 2018, partly due to
lower impairment losses on other assets and
transformation costs.
• The largest contribution to the underlying attributable profit
came from Germany (EUR 361 million), the Nordic countries
(EUR 291 million) and Spain (EUR 235 million).
Santander Consumer Finance
EUR million
Underlying income statement
2019
2018
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
Total income
3,848
3,723
823
798
(8)
47
55
34
4,710
4,610
Administrative expenses and
amortisations
Net operating income
(2,038)
(1,989)
2,672
2,622
%
% excl. FX
3.4
3.1
—
35.7
2.2
2.5
1.9
3.9
3.2
—
35.2
2.6
2.9
2.3
Net loan-loss provisions
(477)
(360) 32.5
32.4
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
20
(125)
2,215
2,137
(598)
(576)
—
3.7
3.8
1,618
1,561
3.6
—
—
1,618
1,561
—
3.6
Non-controlling interests
(303)
(268) 13.4
—
4.2
4.3
4.1
—
4.1
13.5
Underlying attributable
profit to the parent
1,314
1,293
1.6
2.2
Balance sheet
Loans and advances to
customers
Cash, central banks and
credit institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
102,262
95,366
7.2
7.0
8,258
3,197
33
6,096
35.5
35.2
3,325
(3.8)
(4.2)
31
5.6
4,001
2,890
38.4
117,750 107,708
39,602
36,579
25,159
24,968
36,776
31,281
1,413
3,865
771
3,520
9.3
8.3
0.8
17.6
83.2
9.8
106,815
97,120
10.0
10,935
10,588
3.3
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
104,783
97,707
39,602
36,531
39,602
36,531
—
—
7.2
8.4
8.4
—
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
15.26
15.83
(0.57)
43.3
2.30
43.1
2.29
106.1
106.4
14,448
416
14,865
438
0.1
0.01
(0.3)
(2.8)
(5.0)
5.4
38.2
9.1
8.1
0.6
17.4
83.1
9.7
9.8
2.9
7.0
8.2
8.2
—
337
Table of Contents
United Kingdom
2019 Highlights
• Good business evolution: strongest mortgage growth in a decade in a highly competitive
market, and increases in our retail deposits, both important loyalty drivers.
• We remained focused on improving customer service and retention, digital transformation and
organisation simplification.
• The results reflect ongoing competitive income pressure, however we are delivering savings
from the strategic transformation programme and maintaining a prudent approach to risk.
Underlying
attributable profit
EUR 1,077 Mn
• For our business customers, we continue to support
customers in realising their ambitions by our unique
international proposition and expertise. We are continuing
to develop our international proposition, with 100 trade
events in the year and increased the number of trade
corridors by 7 to 17.
We are further developing our digital proposition through
2019 to deliver excellent customer experience. The number
of digital customers reached 5.8 million, up 6% year-on-year.
In 2019 we retained 60% of refinanced mortgage loans
online, an increase of 5 pp year-on-year. We also opened
52% of current accounts and 62% of credit cards through
digital channels.
In addition to the focus on digitalisation, we have taken
decisive steps to improve customer experience, efficiency
and competitiveness. This year, we outlined a significant
restructure to optimise our branch network for the future and
we announced plans to reshape our Corporate & Commercial
business in order to stay fit for the future and deepen the
relationships with SME and mid-sized customers.
We believe that our strategy leaves us strongly positioned to
deliver on our medium-term targets.
Strategy
We are further developing our strategy, with a focus on our
core business and customer loyalty. We are investing to
improve our technology and operations as well as a
relentless focus on simplification, efficiency and improved
returns.
We launched a multi-year transformation programme which
aims to simplify, digitalise and automate the business by
focusing on our operating model, structures and productivity.
We have already taken a number of decisive actions and plan
to invest GBP 400 million in the medium-term with a 2-3
year payback. Subject to further strategic transformation
opportunities, we expect to invest an additional GBP 100
million with a similar payback.
With regards to commercial activity:
• We continue to focus on our core mortgage business. In
2019, we helped 37,000 first time buyers purchase their
home (+37%) through regular in-branch events to help
people access information about the home-buying
process. Held in branches across the UK, the events are
free of charge.
We backed a new fintech, Mortgage Engine, which is
designed to redefine the mortgage process. The platform,
which was built and financed by Santander, is the first fully
functioning multi-decision in principle technology available
in the UK mortgage market.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
4,562
5,824
32% /active
customers
+6% YoY
338
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers increased 9% in euros
compared to 2018. In gross terms, excluding reverse
repurchase agreements and the exchange rate impact, they
rose 4%, with the strongest mortgage growth in a decade,
underpinned by our focus on pricing, customer retention and
service, partially offset by managed reductions in commercial
real estate exposure.
Customer deposits rose 10% year-on-year in euros and were
2% higher excluding repurchase agreements and the
exchange rate impact. Demand deposits increased 2% and
time deposits remained stable. Mutual funds grew 3%.
Results
Underlying attributable profit amounted to EUR 1,077
million in 2019 (11% of the Group’s total operating areas),
and underlying RoTE was 7.3%.
Compared to 2018, underlying attributable profit was 15%
lower in euros and 16% excluding the exchange rate impact,
as follows:
• Total income declined 9% due to lower net interest income
(-8%) affected by competitive pressure on mortgage
spreads and continued SVR (Standard Variable Rate)
attrition.
Net fee income fell 6%, partly due to lower income from
mutual funds and regulatory changes in overdrafts. Gains
on financial transactions also fell in the year.
• Administrative expenses and amortisations declined 1%
(-2.7% in real terms), with delivery of efficiency savings
from our strategic transformation programme.
• Net loan-loss provisions were 46% higher, however from
very low levels, mainly driven by some single name cases
and lower releases. Cost of credit remained at low levels
(10 bps).
The NPL ratio improved to 1.01%, backed by our prudent
approach to risk and the resilience of the UK economy. The
coverage ratio rose to 37% (33% in 2018).
• Other gains (losses) and provisions decreased 43% due to
the non-repeat of charges related to retail credit business
operations and to historical probate and bereavement
practices in 2018.
United Kingdom
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
3,788
4,078
866
912
(7.1)
(5.1)
(7.9)
(5.9)
12
62
88
53
(86.9)
(87.0)
16.1
15.1
Total income
4,727
5,132
(7.9)
(8.7)
Administrative expenses and
amortisations
Net operating income
(2,835)
(2,837)
0.0
(0.9)
1,892
2,295
(17.6)
(18.3)
Net loan-loss provisions
(253)
(171) 47.5
46.2
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
(184)
(321) (42.7)
(43.1)
1,455
1,803
(19.3)
(355)
(506) (29.8)
(20.0)
(30.4)
1,100
1,296
(15.2)
(15.9)
—
—
—
—
1,100
1,296
(15.2)
(15.9)
(10.5)
Non-controlling interests
(22)
(25)
(9.7)
Underlying attributable
profit to the parent
1,077
1,272
(15.3)
(16.0)
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
273,528
249,991
9.4
39,314
37,246
5.6
20,187
26,517
(23.9)
943
594
58.8
8,498
9,431
(9.9)
342,470 323,779
229,361
208,179
5.8
10.2
4.1
0.4
(27.6)
51.1
(14.3)
0.6
4.8
25,075
25,821
64,340
67,556
(2.9)
(4.8)
(7.6)
(9.4)
2,097
27.4
21.2
2,671
4,409
4,126
325,856 307,779
16,614
16,000
6.8
5.9
3.8
9.0
7.1
7.1
8.5
1.6
0.7
(1.2)
3.7
1.9
1.8
3.2
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
249,214
228,548
218,944
204,424
210,727
196,848
8,218
7,576
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
7.28
60.0
1.01
36.5
9.33
(2.05)
55.3
4.7
1.08
(0.07)
32.9
3.6
Number of employees
Number of branches
24,490
616
25,534
755
(4.1)
(18.4)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
339
Table of Contents
Portugal
Underlying
attributable profit
EUR 525 Mn
Strategy
2019 Highlights
• The Bank continued its commercial and digital transformation and making processes and the
commercial offering simpler, which has been reflected in greater sales and customer loyalty.
• We strengthened our position as the country’s largest privately-owned bank in terms of assets
and domestic loans and advances to customers, with market shares in new lending to
companies and mortgages at around 20%.
• Underlying attributable profit increased 10% year-on-year due to improved efficiency and low
cost of credit.
The commercial and digital transformation strategy focused
on simplifying processes and the product offering continued in
2019, and spurred growth in loyal and digital customers:
As a result, as at December 2019, we had 778,000 loyal
customers and 775,000 digital customers (up 3% and 6%,
respectively, in the year).
We continued to be recognised as the best bank in Portugal
and were named the best bank in the country in 2019 by The
Banker, Euromoney and Global Finance and Best Retail Bank
in 2019 by World Finance.
Private Banking activity was the leader in Portugal in 2019
according to Euromoney and Global Finance.
Lastly, we were named the Best Bank and the second best
company to work for in Portugal, by the Great Place to Work
Institute.
We maintained the best risk ratings by the rating agencies,
aligned with or above the sovereign’s. S&P upgraded the long-
term debt rating to BBB in March, and Moody’s upgraded the
deposit rating to Baa1 in July.
• Following the commercial transformation strategy, two
Work Café branches were opened in Lisbon and Coimbra in
2019, together with a new Smart Red office at Lisbon’s
airport. In the corporate segment, we strengthened our
presence in the agri-food and tourism segments.
• The digital offering was expanded with a number of new
initiatives. Of note are the updated santander.pt website,
the review of mortgage origination processes aimed at
reducing concession times and increasing customer
satisfaction, and the launch of CrediSimples Negocios,
which allows companies to take out loans online.
Sales through digital channels accounted for 35% of the total
sales, and CrediSimples accounted for 21% of new personal
loans in 2019.
In customer loyalty we remained focused on simplifying
processes and the product offering, and spurred growth in
loyal and digital customers, through various commercial
initiatives.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
778
775
46% /active
customers
+6% YoY
340
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers activity remained strong in
the year. New lending to companies and mortgages
remained very dynamic, with market shares of around 20%.
Despite this strong activity, the stock of loans and advances
to customers remained stable. Excluding reverse repurchase
agreements, they fell 1%, impacted by a market that is still
deleveraging.
Customer deposits were up 5% year on year, driven largely
by demand deposits (+14%), which more than offset the
decrease in time deposits (-1%). This produced growth in
deposits, while the cost of deposits continued to decrease.
Mutual funds also rose and, consequently, customer funds
increased 8%.
In addition, EUR 1,357 million is managed in pension funds,
18% more than in 2018.
Results
Underlying attributable profit amounted to EUR 525 million
in the year (5% of the Group’s total operating areas), and
underlying RoTE was 12.8%.
Compared to 2018, underlying attributable profit rose 10%,
as follows:
• Total income increased 2%, driven by net fee income
(+4%) and gains on financial transactions from ALCO
portfolio sales, while net interest income remained stable,
dampened by the reduction in the stock of loans and low
interest rates.
• Administrative expenses and amortisations fell 3%, due
to efficiencies generated from the integration of Banco
Popular and the impacts related to the digital
transformation: on the one hand, reviewing and
simplifying internal processes and on the other hand,
optimising the branch network in a more digital customer
environment. As a result, the net margin was up 7% and
the efficiency ratio improved to 45% (48% in 2018).
• Net loan-loss provisions were slightly positive due to
higher recoveries, mainly in the first quarter of the year,
resulting in a cost of credit practically at zero.
The NPL ratio was 4.83%, after sharply falling during the
year (-111 bps) due to the strategy followed after the
acquisition of Banco Popular. Coverage was 53%.
• Other gains (losses) and provisions remained at
insignificant levels.
Portugal
EUR million
Underlying income statement
2019
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
856
390
111
17
2018
858
377
75
34
Total income
1,375
1,344
Administrative expenses and
amortisations
Net operating income
Net loan-loss provisions
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
Non-controlling interests
Underlying attributable
profit to the parent
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
%
(0.2)
3.6
47.5
(49.0)
2.3
(3.2)
7.4
—
—
9.3
9.0
9.4
—
9.4
(21.5)
9.6
(623)
751
8
(9)
750
(223)
527
—
527
(2)
525
(644)
700
(32)
18
686
(205)
481
—
481
(2)
479
35,406
35,470
(0.2)
4,675
3,454
35.4
12,580
12,303
1,695
1,769
56,125
39,258
8,003
3,384
276
1,516
52,438
3,688
36,321
42,324
39,258
3,066
1,877
1,904
55,007
37,217
8,009
4,259
257
1,197
50,938
4,069
36,568
39,143
37,217
1,926
12.80
12.02
45.3
4.83
52.8
6,582
542
47.9
5.94
50.5
6,705
572
2.3
(9.7)
(7.1)
2.0
5.5
(0.1)
(20.5)
7.7
26.7
2.9
(9.4)
(0.7)
8.1
5.5
59.2
0.77
(2.6)
(1.11)
2.3
(1.8)
(5.2)
341
Table of Contents
Poland
Underlying
attributable profit
EUR 349 Mn
Strategy
2019 Highlights
• The Group continued to strengthen its position as the second largest bank in Poland in terms of
assets and continues to be recognised as one of the leaders in the industry, both in traditional
and digital banking.
• The main management focus is on customer relationships, maximising business income and
obtaining synergies from the acquisition of Deutsche Bank Polska's retail and SME businesses.
• Underlying attributable profit rose 18% in euros and 19% excluding the exchange rate impact.
Net interest income and efficiency improved.
In November 2018, the retail and SMEs businesses were
successfully acquired from Deutsche Bank Polska. During
2019, there was ongoing focus on integration of the customer
base and achievement of synergies related to acquisition.
We maintained our strategy to become the bank of first
choice, anticipating and responding to customer expectations.
As part of this strategy, we continued to expand and
modernise our omni-channel strategy:
• The digital transformation continued during the year with
the launch of the new services such as a single login for
individual and business services, a facility to customise
customer login settings for internet and mobile banking,
and SCA (Strong Customer Authentication).
• The credit card and loan after-sale services were digitalised.
• We now offer six cashless payment methods.
• In September, the first Work Café in Poland was opened.
As a result, we continued to see growth in the number of loyal
and digital customers, up 12% and 14%, respectively in the
year, and we once again were named one of the best banks
across several categories by different publications including:
first position in the Newsweek’s Friendly Bank ranking in the
Traditional Banking category and the second in the Internet
Banking category; second best institution in Forbes Best
Business Bank ranking; and Best Investment Bank in Poland in
Euromoney Awards for Excellence 2019.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
2,010
2,510
53% /active
customers
+14% YoY
342
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers were up 7% in euros
compared to December 2018. In gross terms and excluding
reverse repurchase agreements and the exchange rate
impact, loans grew 5%, backed by the target segments:
SMEs, individuals (driven by mortgages and cash loans) and
SCIB.
Customer deposits increased 6% year-on-year in euros.
Excluding repurchase agreements and at constant exchange
rates, deposits rose 5%. Time deposits declined 13% due to
active liquidity management and the reduction of the cost of
deposits, which fell from 0.89% in the fourth quarter of 2018
to 0.74% in the same period of 2019. Demand deposits
increased 15%.
Total customer funds, including mutual funds, were 6%
higher.
Results
Underlying attributable profit in 2019 amounted to EUR
349 million (3% of the Group's total operating areas), and
underlying RoTE was 11.2%.
Compared to 2018, underlying profit rose 18% in euros and
19% excluding the exchange rate impact. The year-on-year
comparison is favoured by the acquisition of Deutsche Bank
Polska's retail and SME businesses (2 months of earnings in
2018 vs full year in 2019). By lines:
• Total income increased 16%, driven largely by net interest
income (+19%), underpinned by the Bank's key segments
and net fee income (+4%) from lending and foreign
currencies.
Gains on financial transactions rose 115% (though from a
low base, as it only totals EUR 93 million) and other
operating income recorded greater losses impacted by the
higher Deposit Guarantee Fund (BFG in Polish)
contributions.
• Administrative expenses and amortisations grew 9%,
less than growth in revenue, despite the domestic wage
pressures, improving efficiency to 40% (-3 pp in the year).
• Net loan-loss provisions were 36% higher mainly due to
the larger size of the loan portfolio after the acquisition
(the average loan portfolio rose 23%). The cost of credit
stood at 0.72% (0.65% in 2018), while the NPL ratio stood
around 4.30% and coverage increased to 67%.
• Other gains (losses) and provisions were 5% lower
despite an increase in Banking Tax in the year.
Poland
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
2019
1,171
467
93
(13)
2018
996
453
%
% excl. FX
17.6
3.1
18.6
4.0
44 112.9
114.7
(4) 218.9
221.6
Total income
1,717
1,488
15.4
16.4
Administrative expenses and
amortisations
Net operating income
(693)
(640)
8.4
1,024
848
20.7
Net loan-loss provisions
(217)
(161) 34.5
9.3
21.7
35.6
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
Non-controlling interests
Underlying attributable
profit to the parent
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
(127)
681
(170)
(135)
(6.2)
(5.4)
552
23.3
(131) 30.1
24.3
31.2
511
422
21.2
22.2
—
511
(162)
—
—
422
21.2
(126) 28.8
—
22.2
29.9
349
296
17.9
18.9
30,034
28,164
6.6
3,398
3,260
4.2
9,285
10,570
(12.2)
630
534
1,341
1,140
44,688
43,669
33,485
33,417
2,319
2,171
762
923
2,165
1,789
558
809
39,659
38,738
5,029
4,930
17.9
17.6
2.3
0.2
7.1
21.3
36.5
14.0
2.4
2.0
5.5
3.1
(13.1)
16.7
16.4
1.3
(0.8)
6.0
20.1
35.1
12.9
1.3
0.9
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
30,925
29,033
37,929
35,554
33,485
31,542
6.5
6.7
6.2
4,444
4,012
10.8
5.4
5.6
5.1
9.6
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
11.23
10.22
1.00
40.4
4.31
66.8
43.0
4.28
67.1
(2.6)
0.03
(0.3)
11,049
515
12,515
611
(11.7)
(15.7)
343
Table of Contents
NORTH AMERICA
2019 Highlights
• The US and Mexico are managed according to their local strategic priorities, while increasing
coordination and cooperation between the two units.
• In volumes, there was strong year-on-year volume growth, both in gross loans and advances to
customers and in customer funds.
• In results, underlying attributable profit increased 28% in euros and 21% excluding the
exchange rate impact, driven mainly by positive revenue performance, improved cost of credit
and reduced non-controlling interests, reflecting increased stakes in both countries.
Underlying
attributable profit
EUR 1,667 Mn
In addition, the US and Mexico maintain their own strategic
local priorities:
• In the US, our retail bank Santander Bank's (SBNA) strategy
is focused on improving profitability reducing costs and
continuing to improve customer satisfaction through digital
channels and branches, while strengthening commercial
banking and SCIB development.
In SC USA, focus is on managing origination growth while
optimising profitability and promoting collaboration
opportunities across the Group.
• In Mexico, we remained focused on strengthening the
distribution network and developing digital channels
through the investment plan carried out over the last three
years, with the aim to attract new customers and increase
loyalty.
Strategy
As part of the Group’s strategy to increase the weight of the
most profitable areas, in 2019 we increased our stake in
Mexico, following the acquisition offer, from 74.96% to
91.65%, as well as in SC USA, where we began a new stock
repurchase programme.
Regarding the regional strategy, coordination between the
units has increased as we continue to pursue join initiatives,
such as:
• Continued development of the USMX trade corridor. SCIB
and Commercial Banking are working to deepen
relationships with existing customers and increase
customer acquisition in both countries, which is reflected in
corridor revenue growth (SCIB: +41%; Commercial Banking:
+23%).
• Launch of a commission-free same-day remittance service
from Santander US branches to beneficiaries in Mexico.
• Cooperation between the technology teams in Mexico and
the US to assess areas of improvement in governance, and
joint initiatives to reduce duplication and optimise costs.
• Joint programmes between the local Human Resources,
Legal and Audit areas to support growth initiatives and align
policies.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
3,499
5,180
31% /active
customers
+35% YoY
344
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers in North America increased
15%, with double-digit growth in both the US and Mexico.
Gross loans and advances to customers excluding reverse
repurchase agreements and the exchange rate impact rose
10% mainly due to growth in the US (+12%) driven by new
lending volumes in SBNA and SC USA. Mexico increased by 5%
driven by rises in both loans to individuals and corporates,
where companies and government were partially offset by
decreases in large corporates.
Solid trend in customer deposits, increasing 8% year-on-year.
Excluding repurchase agreements and the exchange rate
impact, 5% higher reflecting growth in SBNA and the New
York branch. Mexico dropped slightly, with a strong
performance in deposits from individuals while corporate
deposits contracted, reflecting the focus on reducing the cost
of deposits.
Mutual funds rose 12%, boosting customer funds by 7%.
Results
Underlying attributable profit in 2019 was EUR 1,667
million (16% of the Group's total operating areas), and
underlying RoTE of 8.5% (13% excluding the excess of
capital).
Underlying attributable profit increased 28% in euros.
Excluding the exchange rate impact, it rose 21%, with strong
growth in the US and in Mexico. By lines:
• Total income rose 5% reflecting the positive performance in
Mexico (+8%) and the US (+4%), with all P&L lines growing.
In absolute terms, of note was net interest income and
leasing income in SC USA.
• Administrative expenses and amortisations were 5%
higher affected by the final stage of the investment plan in
Mexico. Efficiency remained stable slightly below 43%.
• Net loan-loss provisions rose 1% well below volume
growth. The NPL ratio improved to 2.20% (-59 bps in the
year) and the cost of credit to 2.76% (-36 bps in the year)
due to the positive performance in both countries. Coverage
was relatively stable at high levels (153%).
• Other income and provisions fell 4%.
• Lastly, non-controlling interests were lower due to the
Group's increased equity stake in Mexico and SC USA.
NORTH AMERICA
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
2019
8,926
1,776
230
672
2018
%
% excl. FX
8,154
9.5
1,615
10.0
173
534
33.0
25.8
10.8
3.9
4.4
26.3
19.3
5.1
5.1
5.2
0.6
Total income
11,604
10,476
Administrative expenses and
amortisations
Net operating income
(4,968)
(4,488)
10.7
6,636
5,988
10.8
Net loan-loss provisions
(3,656)
(3,449)
6.0
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
(205)
(202)
1.2
(4.0)
2,776
2,337
18.8
(683)
(599) 14.1
12.8
8.3
2,092
1,738
20.4
14.3
—
—
—
—
2,092
1,738
20.4
14.3
Non-controlling interests
(426)
(433)
(1.8)
(6.8)
Underlying attributable
profit to the parent
1,667
1,304
27.8
21.3
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
133,726
116,196
15.1
11.7
22,885
28,845
(20.7)
(23.5)
33,746
27,302
23.6
10,759
9,974
22,741
18,602
223,856 200,919
98,915
91,896
7.9
22.3
11.4
7.6
18.8
3.5
19.2
7.9
4.1
38,942
26,048
49.5
44.6
44,097
43,758
Other financial liabilities
11,763
11,379
Other liabilities accounts
6,237
5,966
Total liabilities
Total equity
Pro memoria:
199,954 179,046
11.7
23,902
21,872
9.3
0.8
3.4
4.5
(1.7)
(1.4)
1.1
8.1
6.2
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
130,592
114,888
13.7
10.3
113,407
102,869
10.2
92,231
84,769
8.8
6.6
5.3
21,175
18,100
17.0
12.3
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
8.52
42.8
2.20
7.62
42.8
0.91
0.0
2.79
(0.59)
153.0
137.4
15.6
37,866
2,043
37,168
2,078
1.9
(1.7)
345
Table of Contents
United States
2019 Highlights
• SBNA’s strategy remains focused on improving profitability and customer experience while SC
USA is focused on deepening relationships with auto manufacturers and dealer groups to
improve originations.
• In volumes, the improved year-on-year trend in gross loans and advances to customers,
excluding reverse repos, continued to drive higher revenue to help offset the impact of rate
decreases.
Underlying
attributable profit
EUR 717 Mn
• Underlying attributable profit increased 31% in euros, +24% excluding the exchange rate
impact, due to a solid top line performance, a better cost of credit and lower weight of non-
controlling interests.
Strategy
Santander US includes Santander Holdings USA (SHUSA, our
intermediate holding company) and its subsidiaries:
Santander Bank (SBNA), which is one of the largest banks in
the north-eastern US, Santander Consumer USA (SC USA), an
auto finance business based in Dallas, Texas, the
international private banking unit in Miami, the Bank's
branch in New York and the retail and commercial bank in
Puerto Rico (the sale of which was agreed in H2 2019 and is
expected to close mid-2020).
In 2019, Santander US continued to strengthen its regulatory
foundation, improved its financial performance driven
principally by SC USA profitability and continued to
demonstrate its commitment to the communities in which it
operates.
By main businesses, Santander US focused on the following
strategic priorities:
Santander Bank:
• Focus on digital and branch transformation initiatives
centred on customer experience and deepening
relationships with commercial clients by leveraging
international value proposition.
• In addition, SBNA aims to improve profitability through
disciplined expense management and simplification of
processes and organisational structure.
• SBNA’s partnership with SC USA in auto finance was very
successful in 2019, originating over USD 7 billion of prime
auto loans in the year.
Santander Consumer USA:
• Improve profitability by managing origination growth while
optimising spreads and promoting collaboration
opportunities across the Group.
• SC USA originated USD 31.3 billion in 2019, helping to
strengthen SC USA’s partnership with Fiat Chrysler.
• As part of the share repurchase programme announced in
June 2019, SC USA announced a tender offer to purchase up
to USD 1 billion of shares of its common stock, at a range of
USD 23 and USD 26 per share. The maximum number of
shares proposed to be repurchased represents
approximately 13% of its outstanding common stock (at
time of announcement assuming a USD 23 per share
purchase price). The offer runs from 30 January 2020 to 27
February 2020.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
332
1,010
19% /active
customers
+6% YoY
346
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
After another positive year in terms of growth, loans and
advances to customers at Santander US increased 15% in
euros. Excluding the exchange rate impact and reverse
repurchase agreements, gross loans and advances to
customers were 12% higher, due to:
• Robust auto origination volumes at SC USA and
commercial lending in SCIB.
• New lending which includes the continuation of the
aforementioned auto finance lending programme of SC
USA and SBNA.
Customer deposits rose 10% in euros year-on-year.
Excluding repurchase agreements and the exchange rate
impact, customer deposits were also 10% higher, boosted by
the strong growth in corporate deposits, particularly time
deposits, in the New York branch and the good performance
of SBNA.
Mutual funds increased 20% excluding the exchange rate
impact.
As a result, customer funds rose 13% (+11% excluding the
exchange rate impact).
Results
Underlying attributable profit in the year was EUR 717
million (7% of the Group’s total operating areas), and
underlying RoTE was 4.8% (9% adjusting for the excess of
capital).
Underlying attributable profit was 31% higher in euros.
Excluding the exchange rate impact, growth was 24%,
underpinned largely by SC USA. By line items:
• Total income increased 4% due to net interest income
(+2%, benefiting from higher volumes, more than
offsetting the impact of lower interest rates), net fee
income (+5% growth in SCIB customer activity), gains on
financial transactions (+73%) and other operating income
(+15%, due to higher income from leasing).
• Administrative expenses and amortisations increased 4%
due to higher technology and origination costs due to
greater volumes. In real terms, growth was 1.8%.
• Net loan-loss provisions rose 1%, well below volume
growth, significantly improving asset quality ratios in the
year: cost of credit improved to 2.85% (compared to 3.27%
in 2018), NPL ratio of 2.20% (72 bps better than in 2018)
and coverage at 162% (143% in 2018).
• Other gains (losses) and provisions fell 5% in 2019 versus
2018.
• Non-controlling interests remained flat compared to the
17% growth on profit from continuing operations.
United States
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
5,769
5,391
7.0
947
131
759
859
10.2
72
82.1
628
20.9
Total income
7,605
6,949
9.4
Administrative expenses and
amortisations
Net operating income
(3,297)
(3,019)
4,309
3,930
Net loan-loss provisions
(2,792)
(2,618)
9.2
9.6
6.6
1.5
4.6
72.8
14.7
3.8
3.6
4.0
1.2
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
Non-controlling interests
Underlying attributable
profit to the parent
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
(200)
(199)
0.3
(4.8)
1,317
1,113
18.3
(370)
(346)
6.9
12.2
1.4
947
767
23.4
17.1
—
947
(230)
—
—
767
23.4
(218)
5.4
—
17.1
0.0
717
549
30.6
23.9
98,707
85,564
15.4
13.2
12,829
16,442
(22.0)
(23.4)
16,677
13,160
26.7
24.3
4,320
4,291
18,882
15,585
151,415 135,043
63,371
57,568
0.7
21.2
12.1
10.1
(1.2)
18.9
10.0
8.0
25,126
16,507
52.2
49.3
37,132
37,564
(1.1)
(3.0)
4,146
4,093
3,098
33.9
3,798
7.8
133,868 118,535
12.9
17,547
16,508
6.3
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
95,742
83,696
14.4
72,604
64,239
62,608
56,064
9,996
8,176
13.0
11.7
22.3
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
4.78
43.3
2.20
4.10
43.4
0.69
(0.1)
2.92
(0.72)
161.8
142.8
19.0
17,372
621
17,309
660
0.4
(5.9)
31.3
5.7
10.8
4.3
12.2
10.9
9.6
20.0
347
Table of Contents
Mexico
2019 Highlights
• Our multichannel innovation and the focus on our digital channels have enhanced our value
proposition with new products and services and is reflected in greater customer attraction and
loyalty.
• Following the completion of the optional share buy-back offer of Santander Mexico from
minority interests, Santander’s stake in Santander México increased from 74.96% to 91.65%.
Underlying
attributable profit
EUR 950 Mn
• Positive profit performance. Underlying attributable profit rose 26% year-on-year. Excluding the
exchange rate impact, it was 19% higher, driven by the solid performance of net interest
income, net fee income and loan-loss provisions.
Strategy
As regards the commercial transformation strategy, we
completed the three-year investment plan carried out to
improve multichannel offering, renew infrastructure and
systems, strengthen the distribution model and launch new
commercial initiatives to attract new customers and increase
loyalty with more products and services.
We are developing different projects regarding the
distribution model as a part of the strategy of being closer to
our customers and improving their experience, such as:
• The transformation of 541 branches and the number of
latest generation full function ATMs reaching 1,093 (12%
of total ATMs).
• The opening of the first Work Café branch, following the
Group’s strategy in other countries.
• We inaugurated in partnership with FUNO, one of the
main developers in the country, Isla Financiera Santander
in several shopping centres, an innovative proposal that
combines digital banking with personal advice.
In digital strategy, SuperMóvil continued to add new
functionalities. Of note:
• Cardless cash withdrawals from ATMs simply, safely and
free from commissions.
• Santander Tap, an instant messaging transfer system for
transactions between our customers and for sending
money to customers of other banks, with no business
hours restriction and commission free.
• Mis Metas, a tool to help customers meet their savings
goals.
Also of note is the strategic alliance with CONTAQi and
InnoHub, fintech developers specialised in the SME segment,
in order to boost out value offering and strengthen our
leadership in this segment.
In addition, our commercial strategy was complemented
with new products and services, such as:
• Santander Plus, our main loyalty programme, continued its
positive trend and added customer benefits related to
loans, insurance and commercial alliances. At year-end,
more than 7 million customers, 53% of whom are new,
had registered.
• Hipoteca Plus, a programme in which customers benefit
from one of the lowest rates in the market.
• Launch of the Legacy credit card for Private Banking
customers, where we are the country's first and only bank
to have an alliance with American Express.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
3,168
4,170
33% /active
customers
+45% YoY
348
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
• The Tuiio programme, our financial inclusion initiative,
offers products and services specially designed for low-
income and unbanked population. At the end of the year, it
had 85 branches in 18 states, more than 100,000
customers and a portfolio exceeding MXN 261 million,
with more than MXN 1 billion of originations since its
release, being the first company of this type in the country
to achieve this scale in less than two years.
These measures resulted in the strong increase in loyal and
digital customers, notably mobile banking.
Business performance
Loans and advances to customers increased 14% in euros,
compared to 2018. Gross loans and advances to customers,
excluding reverse repurchase agreements and the exchange
rate impact, rose 5% with focus on profitability and growth
in loans to individuals (consumer credit +6%, credit cards
+6% and mortgage loans +7%) as well as companies and
government, offsetting the decrease in large corporates.
Customer deposits rose 4% in euros. Excluding repurchase
agreements and the exchange rate impact, they decreased
3% reflecting the focus on reducing the cost of deposits.
Mutual funds rose 6%, and customer funds remained
virtually stable.
Results
Underlying attributable profit amounted to EUR 950
million in the year (9% of the Group’s total operating areas),
with an underlying RoTE was 20.6%.
Compared to 2018, underlying attributable profit was 26%
higher. Excluding the exchange rate impact underlying
attributable profit rose 19%, as follows:
• Total income increased 8%, driven by net interest income
(+9%), backed by greater volumes and higher interest
rates. Net fee income grew 4%, largely due to credit cards
and insurance. Gains on financial transactions were 7%
lower due to market performance.
• Administrative expenses and amortisations were up 8%,
in line with the last stage of the three-year investment
plan.
• Net loan-loss provisions dropped 1%, providing a
significant improvement in cost of credit to 2.49% compared
to 2.75% a year ago. The NPL ratio was also lower at 2.19%
(2.43% in 2018).
Lastly, our extraordinary general meeting of shareholders on
23 July approved the capital increase to acquire shares of
Santander México from minority interests. The acquisition
offer was subscribed by 67% of the targeted shares. As a
result, our stake in Santander México increased from 74.96%
to 91.65%, which has already had a positive impact in
attributable profit of more than EUR 60 million.
Mexico
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
3,157
2,763
14.2
829
756
9.7
8.5
4.2
99
(87)
101
(1.7)
(6.7)
(94)
(7.1)
Total income
3,998
3,527
13.4
Administrative expenses and
amortisations
Net operating income
(1,671)
(1,469)
13.8
2,327
2,058
13.1
Net loan-loss provisions
(863)
(830)
3.9
(1.3)
(11.8)
7.7
8.1
7.4
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
(5)
(3) 49.9
1,459
1,224
19.2
(314)
(253) 23.8
42.4
13.2
17.6
1,145
971
18.0
12.1
—
—
—
—
1,145
971
18.0
12.1
(13.7)
Non-controlling interests
(196)
(215)
(9.1)
Underlying attributable
profit to the parent
950
755
25.7
19.4
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
35,019
30,632
14.3
7.9
10,056
12,403
(18.9)
(23.5)
17,069
14,142
6,439
3,859
72,441
35,544
5,683
3,016
65,876
34,327
20.7
13.3
27.9
10.0
3.5
13.9
6.9
20.7
3.7
(2.3)
13,816
9,541
44.8
36.6
6,965
7,617
2,144
6,194
12.4
8,281
2,168
(8.0)
(1.1)
9.2
66,086
60,512
6,355
5,364
18.5
6.1
(13.2)
(6.7)
3.0
11.8
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
34,850
31,192
11.7
40,803
38,630
29,624
28,705
5.6
3.2
11,179
9,925
12.6
5.4
(0.3)
(2.6)
6.3
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
20.61
20.24
0.37
41.8
2.19
41.7
0.1
2.43
(0.24)
128.3
119.7
20,494
1,422
19,859
1,418
8.6
3.2
0.3
349
Table of Contents
SOUTH AMERICA
2019 Highlights
• We are focusing on leveraging our products and services with strong expected medium-term growth.
The strategy is focused on the generation profitable growth, risk control and covering customer
needs and demands. Exporting positive experiences (payments and consumer financing) is key to
success.
• In business volumes, there was a notable growth in the last 12 months with increases in all
countries, where we are capturing new business opportunities.
• Regarding results, underlying attributable profit increased by 14% year-on-year, 18% excluding the
exchange rate impact, boosted by the main revenue lines, improved efficiency and cost of credit.
Underlying
attributable profit
EUR 3,924 Mn
Strategy
South America is a region with great growth potential. It is
made up of large economies with high levels of development
forecasted, with a still under-banked population and with an
expected increase in its middle class in the coming years,
according to the estimates of the Inter-American
Development Bank (IDB).
We have extensive experience in the region, which gives us a
unique growth opportunity. To this end, in the year we focused
on identifying initiatives that will enable businesses to expand
further, based on positive experiences in other markets, which
can be exported to others, for example:
• In auto financing, we are leveraging our leadership and
experience of our business in Brazil to boost growth in other
countries. In Colombia, for example, we have signed two
alliances with digital vehicle platforms to strengthen our
position in this market.
• In terms of financing goods and services, following the
good performance in Uruguay, with record sales in
insurance and consumer credit, we plan to export the model
developed in this country to other regions.
• Prospera, our micro-credit programme in Brazil, is also
being exported to other regions.
• In payments, we continued to be one of the largest credit
card issuers and merchant acquirers in the region. During
the year, we explored e-commerce strategies and instant
domestic and international transfers. We also worked in the
roll-out of Getnet, our acquiring business in Brazil, to the
rest of South America. On the other hand, within the
strategy of establishing Superdigital in all the countries in
the region, we completed the preliminary launch in Chile.
• We further developed the retail franchise through the
branch network transformation and boosting the multi-
channel offering:
– Regarding the transformation process, the Work Café
experience is being developed further, with the opening
of new branches in Brazil, Chile and Argentina.
– Within the multi-channel offering, sales through digital
channels already account for a high percentage of the
total in Brazil and Argentina and continued to grow in
Chile, driven by the new offerings launched in the Life
model.
As a result, the number of loyal and digital customers
increased strongly in the year (+7% and +15%, respectively).
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
7,919
17,287
26% /active
customers
+15% YoY
350
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers increased 4%. Excluding
reverse repos and the exchange rate impact, gross loans
were 9% higher, with rises in all units: Uruguay +15%, Brazil
and Chile grew 8% each.
Customer deposits grew 6% in euros compared to 2018.
Excluding repurchase agreements and exchange rate impact,
they rose 11% and increased across all units, mainly due to
the strong performance of demand deposits (+21%). Mutual
funds increased 15% enabling customer funds to increase
13%.
Results
Underlying attributable profit in the year amounted to EUR
3,924 million (37% of the Group's total operating areas), with
an underlying RoTE of 20.6%.
Compared to 2018, underlying attributable profit increased
14% in euros. Excluding the exchange rate impact, it was up
18%, with growth in all countries, as follows:
• Total income increased 11%, underpinned by the sound
customer revenue performance, driven by greater volumes,
spreads management and increased loyalty. Net interest
income rose 9% and net fee income increased by 15%.
• Administrative expenses and amortisations reflect
commercial transformation plans, greater digitalisation of
the retail network, reviews of collective wage agreements
and high inflation in Argentina. The efficiency ratio
improved 98 basis points to 36.1%.
• Net loan-loss provisions grew by 7%, at a slower pace than
credit (+9%), enabling the cost of credit to improve by 8 bps
in the year to 2.92%. In credit quality, the NPL ratio was
4.86% and coverage was 88%.
• Other income and provisions increased its negative impact
19%, after a greater charge for potential legal contingencies
in Argentina and Brazil and lower reversals of provisions in
Chile.
9.3
14.6
38.1
87.4
10.7
10.2
11.0
7.4
19.2
12.2
4.6
—
17.1
9.8
SOUTH AMERICA
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
Total income
13,316
12,891
4,787
4,497
3.3
6.4
565
498
13.3
(243)
(212) 14.4
18,425
17,674
4.2
Administrative expenses and
amortisations
Net operating income
(6,656)
(6,558)
11,769
11,117
Net loan-loss provisions
(3,789)
(3,736)
1.5
5.9
1.4
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
(748)
(663) 12.9
7,232
6,717
(2,644)
(2,642)
7.7
0.1
4,588
4,076
12.6
17.1
—
—
—
4,588
4,076
12.6
Non-controlling interests
(664)
(624)
6.4
Underlying attributable
profit to the parent
3,924
3,451
13.7
18.4
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
125,122
119,912
4.3
9.4
51,360
48,318
45,619
45,225
14,802
9,311
16,901
14,715
253,804
114,817
237,480
108,248
6.3
0.9
59.0
14.9
6.9
6.1
12.9
3.6
64.1
19.8
11.8
12.5
41,989
38,584
8.8
12.0
29,840
31,504
(5.3)
(1.9)
Other financial liabilities
34,062
28,570
Other liabilities accounts
10,613
8,699
Total liabilities
Total equity
Pro memoria:
231,321
215,605
22,483
21,875
19.2
22.0
7.3
2.8
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
131,048
125,830
170,707
158,968
101,575
97,325
4.1
7.4
4.4
69,131
61,643
12.1
23.0
26.3
12.3
7.2
9.2
12.9
11.3
15.5
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
20.58
18.79
1.79
36.1
4.86
88.4
37.1
4.81
94.6
69,508
4,572
70,337
4,385
(1.0)
0.05
(6.2)
(1.2)
4.3
351
Table of Contents
Brazil
2019 Highlights
• In 2019, the strategic focus on customer service was reflected in sustainable revenue growth,
which, combined with cost control, resulted in the best efficiency ratio of recent years.
• The accuracy of our risk models enabled us to maintain credit indicators at controlled levels and
to achieve a profitable increase in market share.
• Underlying attributable profit rose 13%, up 16% excluding the exchange rate impact, and
profitability improved (underlying RoTE of 21.2%) reflecting greater productivity and improved
efficiency.
Underlying
attributable profit
EUR 2,939 Mn
Strategy
We ended 2019 with a positive performance of volumes and
results, with a strategy focused on customer service,
combined with an effective and profitable model that has
enabled us to continue growing sustainably. As a result, we
reached 26 million active customers and recorded high
customer satisfaction levels.
The year’s main initiatives by segments included:
• We continued to expand to strategic regions in the country.
In Agribusiness, we reached 34 specialised shops and in
Prospera Microfinance, we remained leaders amongst
privately-owned banks, with more than 510,000 customers.
• In individuals, new payroll lending increased 26% year-on-
year, reaching a market share of 11%. In mortgages, we
launched a joint campaign with a large retailer and we
joined the largest group of real estate web portals.
• In auto finance, we began Santander Auto transactions and
started selling LOOP vehicles. In Webmotors, Cockpit
enabled us to enhance the Bank and Santander
Financiamentos’ offer.
• In acquiring, we were pioneers in launching an
interoperability solution that enables PoS users to take
advantage of Getnet. We launched SuperGet and
strengthened our e-commerce range.
• In cards, we increased credit turnover 18% year-on-year.
The Santander Way app reached around 6.5 million active
users, who accessed it 57 million times per month, and
expanded its features, strengthening our payment platform.
• In SMEs, we launched Santander Duo, an offering linking
the legal entity and natural person under a single manager.
We have also carried out some actions aimed at sole
traders. In SCIB, we increased activity and trading volumes,
diversifying our income, and we were named leaders in
some of the sector’s most relevant rankings.
• As regards new activities with high growth potential, in
Ben, we implemented food and transport vouchers, in Pi
Investimentos, we increased the product portfolio, both in
fixed income and mutual funds. In credit, we launched Sim,
a multi-product platform focused on personal loans, and
emDia, a debt renegotiation and financial education
platform.
• Aligned with the digital strategy, we held the Black Week
Santander Vem que Volta, a pioneer strategy where we offer
our customers commercial benefits through strategic
alliances.
• In addition, we launched Santander On in the app and
opened some branches on weekends to offer financial
advice.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
5,743
13,450
22% /active
customers
+18% YoY
352
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
We were named Best Bank in Brazil and Best Bank in Latin
America by Euromoney, the Bank that most changes the World
by the Fortune Magazine and the Most Sustainable Bank in
Brazil by Guia Exame de Sustentabilidade.
Brazil
EUR million
Underlying income statement
2019
In 2019, we continued to strengthen our culture: we carried
out one of the largest corporate events in Brazil and have
intensified brand promotion. Regarding our people we were
named one of the best companies to work for by The Great
Place to Work (GPTW) ranking, for the fourth year running.
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
%
% excl. FX
10,072
3,798
2018
9,758
3,497
3.2
8.6
167
(86)
136
22.7
(46) 85.7
Business performance
Loans and advances to customers increased 7% in euros year-
on-year. In gross terms, excluding reverse repos and excluding
the exchange rate impact, they rose 8%. By segments, of note
were individuals and consumer finance.
Customer deposits grew 9% in euros with respect to 2018,
also 9% excluding repos and the exchange rate impact, driven
by a sharp increase in both demand deposits (+24%) and time
deposits (+4%). On the other hand, letras financeiras
decreased.
This was reflected in an increase in customer funds market
share.
Results
Underlying attributable profit of EUR 2,939 million in 2019
(28% of the Group's total operating areas), with an underlying
RoTE of 21.2%.
Compared to 2018, underlying attributable profit rose 13% in
euros. Excluding the exchange rate impact, it was 16% higher,
with good performance in the main lines, as follows:
• Total income increased 7%, supported by net interest
income (+6%) due to larger volumes which offset some
spread pressures and net fee income (+12%) with positive
performance in almost all lines. Of note was growth in
cards (11%), insurance (13%) and mutual funds (+16%).
Gains on financial transactions rose 26% compared to a
weak 2018.
• Administrative expenses and amortisations rose 5%, in
line with business growth. This increase, less than that of
total income, produced the best efficiency ratio of the last
six years, at 33.0% (-0.7 pp in the year).
• Net loan-loss provisions increased 5%, below loan
growth, which was reflected in an improvement in the cost
of credit (3.93%, from 4.06% in 2018). The NPL ratio
remained at around 5.3% and the coverage ratio stood at
100% (107% in 2018).
• The negative impact of other gains (losses) and
provisions increased 4%, due to higher provisions for legal
claims.
6.0
11.5
26.0
90.8
7.4
5.1
8.5
5.2
3.6
11.0
4.4
—
16.2
14.1
2.3
5.7
2.5
0.9
8.1
1.6
Total income
13,951
13,345
4.5
Administrative expenses and
amortisations
Net operating income
(4,606)
(4,500)
9,345
8,845
Net loan-loss provisions
(3,036)
(2,963)
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
(704)
(697)
5,606
5,185
(2,295)
(2,258)
3,311
2,927
13.1
16.2
—
—
—
3,311
2,927
13.1
Non-controlling interests
(373)
(335) 11.1
Underlying attributable
profit to the parent
2,939
2,592
13.4
16.4
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
75,618
70,850
6.7
37,470
37,015
1.2
8.5
2.9
39,611
40,718
(2.7)
(1.1)
Other financial assets
Other asset accounts
Total assets
Customer deposits
6,790
6,133
12,545
11,320
172,033 166,036
74,745
68,306
10.7
10.8
3.6
9.4
Central banks and credit
institutions
Marketable debt securities
30,334
29,771
1.9
18,952
21,218
(10.7)
Other financial liabilities
23,589
24,241
(2.7)
12.5
12.6
5.3
11.2
3.5
(9.2)
(1.1)
Other liabilities accounts
8,631
7,237
19.3
21.2
Total liabilities
Total equity
Pro memoria:
156,251 150,773
15,264
15,782
3.6
3.4
5.3
5.1
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
80,150
75,282
6.5
121,752
110,243
10.4
61,789
57,432
7.6
59,964
52,811
13.5
8.2
12.2
9.3
15.4
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
21.16
19.68
1.47
33.0
5.32
99.8
46,682
3,656
33.7
5.25
106.9
46,914
3,438
(0.7)
0.07
(7.1)
(0.5)
6.3
353
Table of Contents
Chile
2019 Highlights
• Santander remains the leading privately-owned bank by assets and customers in the country
and continued to focus on enhancing the quality of service, enabling us to improve to second
position in NPS and achieve a record rise in account openings.
• Business growth with acceleration in some segments, mainly mortgages, consumer finance and
corporates.
Underlying
attributable profit
EUR 630 Mn
• Underlying attributable profit increased 3% year-on-year, 7% excluding the exchange rate
impact, driven by gains on financial transactions, cost control and improved cost of credit. In the
second half of the year, of note was net interest income and net fee income.
Strategy
Santander is the largest privately-owned bank in Chile by
assets and customers, with a marked retail (individuals and
SMEs) and transactional focus. In 2019, we continued to
develop our strategy to become the best bank for our
customers, boosting loyalty, leading digitalisation and
enhancing customer experience. To this end, several measures
were launched in the year:
• Under the branch network transformation strategy, we
continued to open more Work Café branches and pilot
branches of Work Café 2.0, with positive initial results in
efficiency and productivity. We ended the year with 53
Work Café branches (almost 14% of our total branch
network).
• As regards loyalty and customer attraction, we boosted the
Santander Life programme, focused on promoting solid
credit performance and deepening financial education. We
launched new products this year, such as Plan Life Latam,
which allows accumulation of MéritosLife and Latam air
miles, and Cuenta Life, a demand account without a credit
facility which rewards good savings behaviour. In 2019,
Santander Life achieved a record rise in new customers.
We also launched Superhipoteca 40 años, a product aimed
at people under the age of 35.
In digitalisation, we announced the creation of Klare, the
first digital open platform for insurance sales in Chile, which
will allow our customers to take out policies in a simple,
secure, personalised and transparent way.
Under our strategy of developing global payment platforms,
we completed the soft launch of the Superdigital app, our
fully digital financial inclusion proposition, now publicly
available and awaiting the hard launch.
• Enhancing the customer service quality remained one of
our priorities, which is reflected in a significant increase in
customer satisfaction. In 2019, we ranked second both in
NPS and net satisfaction.
These initiatives led to a record rise in account openings,
capturing over 26% of new account openings in the country.
We also continued to improve customer loyalty and
digitalisation (5% and 15% year-on-year growth,
respectively).
Santander Chile is continuously striving to become the best
bank for customers. Euromoney, The Banker and Latin Finance
recognised these efforts naming Santander as the Best Bank in
Chile.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
704
1,247
46% /active
customers
+15% YoY
354
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers increased 2% year-on-year
in euros. Excluding reverse repurchase agreements and the
exchange rate impact, gross loans and advances to customers
rose 8%, underpinned by mortgages, consumer finance and
corporates.
Customer deposits grew 6% year-on-year, and rose 11%
excluding repurchase agreements and the exchange rate
impact, reflecting the positive performance of demand
deposits (+19%). Mutual funds rose 15% in a low interest rate
environment.
Results
Underlying attributable profit of EUR 630 million in 2019
(6% of the Group’s total operating areas), with an underlying
RoTE of 18.1%.
Compared to 2018, underlying attributable profit rose 3% in
euros. Excluding the exchange rate impact it was 7% higher, as
follows:
• Total income rose 4%, driven by the 85% rise in gains on
financial transactions due to higher income from customer
treasury. Net interest income was affected by lower inflation
and historically low interest rates. Net fee income fell 1%,
partly due to wholesale business in the first half of the year.
• Administrative expenses and amortisations increased 2%,
driven by investments in technology and branches. The
efficiency ratio improved 71 bps to 40.6%.
• Net loan-loss provisions were 3% lower, with an
improvement in cost of credit of 11 bps to 1.08% in the year.
The NPL ratio dropped to 4.64% and the coverage ratio was
56%.
• Other gains (losses) and provisions decreased by 36%
primarily from reversals of provisions.
Chile
EUR million
Underlying income statement
2019
2018
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
%
% excl. FX
(4.0)
(4.6)
(0.3)
(0.9)
1,867
1,944
424
404
266
2
149
78.4
85.2
19
(87.8)
(87.3)
4.0
2.2
5.2
Total income
2,539
2,535
0.2
Administrative expenses and
amortisations
Net operating income
(1,031)
(1,047)
(1.6)
1,508
1,488
1.4
Net loan-loss provisions
(443)
(473)
(6.3)
(2.8)
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
Non-controlling interests
Underlying attributable
profit to the parent
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
63
103
(38.5)
(36.1)
1,129
1,118
0.9
4.8
(210)
(219)
(4.1)
(0.5)
919
899
2.2
—
919
(289)
—
899
(287)
—
2.2
0.7
630
612
2.9
6.1
—
6.1
4.6
6.8
38,584
37,908
1.8
8.3
7,557
5,062
7,856
3,091
62,151
27,344
4,247
78.0
3,106
63.0
89.4
73.4
3,164
148.3
164.2
2,486
50,911
25,908
24.3
22.1
5.5
8,224
5,869
40.1
10,722
9,806
9.3
3,535
173.3
190.9
9,662
1,294
919
57,246
46,037
4,905
4,874
40.8
24.3
0.6
49.8
32.3
7.1
32.3
29.9
12.3
49.1
16.4
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
39,640
39,019
35,095
33,279
27,060
25,860
8,035
7,419
1.6
5.5
4.6
8.3
8.1
12.2
11.4
15.3
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
18.08
18.34
(0.26)
40.6
4.64
56.0
11,580
375
41.3
(0.7)
4.66
(0.02)
60.6
12,008
381
(4.6)
(3.6)
(1.6)
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Table of Contents
Argentina
2019 Highlights
• In 2019, the Bank announced the change of its commercial brand from Santander Río to
Santander.
• We continued to focus on our four strategic pillars: selective growth, customer experience,
efficiency and transformation.
Underlying
attributable profit
EUR 144 Mn
• In an environment of macroeconomic downturn, underlying attributable profit was EUR 144
million. Strong grow across all P&L lines due to the high inflation and interest rates, combined
with efficiency improvements.
Strategy
Since August 2019, the Argentinian economy has been
suffering from a relative weakening of the local currency and
an increase in the risk premium, against a backdrop of a
downward revision to the macroeconomic outlook, with high
interest rates and inflation. In this context, we have decided to
prioritise liquidity and capital, maintaining excess liquidity
well above the required reserves at the Central Bank and high
capitalisation.
The commercial strategy is focused on transactional business
and customer service improvements, together with the digital
transformation of the main processes and products. Our goal
is to fully digitalise our platforms and incorporate cutting-
edge technology in order to better know our customers and
anticipate their needs. We have also redefined the value
proposition, particularly in the priority segments.
This commercial strategy has led to the launch of various
initiatives:
• Banca VIP: a subsegment for our high-income commercial
banking customers in order to offer them a tailored
customer care model and exclusive experiences.
• iU: dedicated proposition for 18 to 31-year-olds which
includes financial and non-financial benefits, such as
mentoring, scholarships and an online platform for distance
learning, among others.
• Women, a comprehensive proposition for financial and non-
financial services, which focuses on female entrepreneurs,
owners of SMEs and professionals.
• The institutional campaign Queremos ayudarte whose aim
is to strengthen the Bank's relationship with customers.
As for digital transformation, we launched the signing-up for
digital accounts and packages in branches, a new credit card
marketing model and a virtual assistant serving digital
customers. Thanks to all these initiatives, the publication
Global Finance Magazine once again named Santander as the
Best Digital Bank in Argentina.
In 2020, Openbank is expected to be launched in the country.
As a result of all the above, loyal customers accounted for 47%
of active customers and digital customers rose 5%.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
1,363
2,196
47% /active
customers
+5% YoY
356
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Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Business performance
Loans and advances to customers fell 10% year-on-year in
euros. Excluding reverse repurchase agreements and the
exchange rate impact, gross loans and advances to customers
were 40% higher. The peso denominated portfolio increased,
driven by inflation-adjusted products (mortgages, auto
finance) and by cards, while dollar balances declined in the
currency of origin.
Customer deposits declined 21% compared to 2018 in euros.
Excluding repurchase agreements and the exchange rate
impact, deposits rose 24%. Local currency deposits grew 58%
(backed by demand and time deposits) and foreign currency
ones declined.
Santander maintained a high dollar liquidity ratio and the
excess liquidity in pesos was placed in central bank notes.
Results
Underlying attributable profit amounted to EUR 144 million
in the year (1% of the Group’s total operating areas), with an
underlying RoTE of 22.2%.
Compared to 2018, underlying attributable profit was 75%
lower in euros. Excluding the exchange rate impact, growth
was 224%. Both year’s results are affected by the high
inflation adjustment, lower in 2019:
As regards business activity:
• Total income doubled, growing above inflation. Net interest
income rose 127%, underpinned by higher interest rates
and higher volumes of central bank notes. Net fee income
rose 84%, driven by greater foreign currency transactions
and income from cash deposits. Gains on financial
transactions fell 12%.
• Administrative expenses and amortisations increased 88%
hit by the inflationary environment and the peso’s
depreciation.
• Net loan-loss provisions were higher (+89%), mainly driven
by the individuals segment and the aforementioned high
inflation impact. The cost of credit was 5.09% (3.45% in
2018). The NPL ratio stood at 3.39% (3.17% in 2018), and
the coverage ratio at 124%. Credit quality ratios were
affected by the country's situation.
• Other gains (losses) and provisions which includes greater
charges for potential legal contingencies.
Argentina
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
Total income
Administrative expenses and
amortisations
Net operating income
Net loan-loss provisions
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
940
446
80
768
448
22.4
126.7
(0.5)
84.3
170
(52.7)
(12.3)
(150)
(177) (15.0)
57.4
1,316
1,209
8.8
101.6
(762)
554
(235)
(101)
217
(72)
145
—
145
(751)
1.4
87.9
458
21.0
124.1
(231)
2.0
88.9
(45) 127.3
321.2
183
19.1
120.6
(100) (27.6)
34.1
83
75.3
224.8
—
—
—
83
75.3
224.8
Non-controlling interests
(2)
(1) 150.8
364.8
Underlying attributable
profit to the parent
144
82
74.7
223.7
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
Ratios (%) and operating data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
4,792
5,334
(10.2)
40.1
3,911
5,096
(23.3)
19.7
429
87
836
825
(48.0)
6
—
742
12.7
10,054
12,003
(16.2)
7,002
8,809
(20.5)
(18.9)
—
75.8
30.7
24.0
1,033
849
21.6
89.6
71
747
392
422
(83.2)
743
307
0.4
27.6
9,244
11,132
(17.0)
810
871
(7.0)
(73.9)
56.6
99.0
29.5
45.1
4,993
5,574
(10.4)
8,099
10,191
(20.5)
7,002
1,097
8,809
(20.5)
1,382
(20.6)
39.7
24.0
24.0
23.8
22.20
11.62
10.58
57.9
3.39
124.0
9,178
438
62.1
3.17
(4.2)
0.22
135.0
(11.0)
9,324
468
(1.6)
(6.4)
357
Table of Contents
Uruguay
Underlying
attributable profit
EUR 150 Mn
Strategy
2019 Highlights
• Santander Uruguay is the country’s leading privately-owned bank, with a strategy focused on
improving efficiency and enhancing the quality of service, through digital transformation and
commitment to the community.
• Loans and advances to customers grew in our target segments, products and currencies. Of
note were commercial activity and the growth in the retail portfolio.
• Underlying attributable profit rose 14%, 24% excluding the exchange rate impact, spurred by
customer revenue and improved efficiency. RoTE of 29.5%.
In a worse economic environment, we achieved our financial
targets, while improving our market reputation and customer
satisfaction. We continued to progress in our technological
transformation plan, offering improved products and services,
helping our customers and the community in a responsible
way.
In line with our strategy of innovation and contributing to
people’s progress, we launched Prosperá, which satisfies the
demand for microcredits to small businesses and Santander
Locker, a proposal that simplifies the delivery of our products.
In addition, the consolidation of our strategy enabled us,
both the bank and our financial entities, to gain market share
this year, and to continue to grow customer loyalty, which
increased 20% in the year.
Business performance
Loans and advances to customers grew 3% year-on-year in
euros. Excluding reverse repurchase agreements and the
exchange rate impact, gross loans and advances to
customers rose 15% driven by growth in the local currency
portfolio (+15%) and the target segments and products:
consumer credit and cards (+12%).
Customer deposits were 8% higher in euros compared to
2018. Excluding the exchange rate impact and repurchase
agreements, they increased 22%. Peso deposits grew 14%
and foreign currency ones 8%.
Results
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
109
394
26% /active
customers
+7% YoY
Uruguay
EUR million
Underlying income statement
2019
2018
Net interest income
Total income
Administrative expenses and
amortisations
Net operating income
Net loan-loss provisions
Profit before tax
Underlying attributable
profit to the parent
333
447
311
419
%
% excl. FX
16.5
7.1
6.6
16.0
(188)
(187)
0.2
9.0
259
(63)
189
232
11.8
21.6
(69)
(8.6)
(0.6)
159
18.8
29.3
150
131 14.2
24.3
5,051
4,605
9.7
23.9
2,804
4,197
4,162
36
2,743
3,893
3,861
2.2
7.8
7.8
32
12.8
15.4
21.8
21.7
27.3
In 2019, underlying attributable profit was EUR 150 million
with an underlying RoTE of 29.5%.
Balance sheet
Total assets
Compared to 2018, underlying attributable profit increased
14% in euros and 24% excluding the exchange rate impact. By
line items:
• Total income grew 16% mainly driven by net interest
income (+16%) and net fee income (+17%).
• Administrative expenses and amortisations rose 9%, at a
slower pace than total income, improving the efficiency
ratio to 42.0% (-269 bps year-on-year).
• Net loan-loss provisions fell slightly (-1%), the cost of
credit improved to 2.31% and coverage was high (98%).
Gross loans and advances to
customers A
Customer funds
Customer deposits B
Mutual funds
A. Excluding reverse repos.
B. Excluding repos.
358
2019 Annual Report
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Peru
2019 Highlights
Colombia
2019 Highlights
• We continued to develop our activity focused on the
• The strategy is focused on corporates, large corporates and
corporate segment, the country’s large companies and the
Group’s global customers.
• Underlying attributable profit rose 15% year-on-year, or
11% excluding the exchange rate impact, spurred by
revenue.
SCIB customers.
• New alliances in auto finance to strengthen our position in
this market with digital propositions.
• Underlying attributable profit of EUR 16 million in the year,
72% more than in 2018, 81% higher excluding the
exchange rate impact.
Underlying
attributable profit
EUR 48 Mn
Underlying
attributable profit
EUR 16 Mn
Strategy
Strategy
The strategy remained focused on the corporate segment, the
country’s large companies and the Group’s global customers.
The auto loan financial entity continued to expand its business
within the Group’s strategy of increasing its presence in this
sector.
Business performance
Loans and advances to customers increased 11% year-on-
year in euros (+7% on a gross basis, excluding the exchange
rate impact), and customer deposits remained largely
unchanged (-4% excluding the exchange rate impact).
Results
Underlying attributable profit of EUR 48 million in euros in
2019 was 15% higher year-on-year, equivalent to an RoTE of
21.4%.
Excluding the exchange rate impact, underlying attributable
profit increased 11%:
• Total income grew 14% driven by good performance of net
interest income and gains on financial transactions.
• The efficiency ratio improved to 32.9% (-0.2 pp year-on-
year).
• Net loan-loss provisions remained low, with a cost of credit
of just 0.12%.
The NPL ratio was 0.78% and coverage was very high.
We remained focused on SCIB clients, large companies and
corporates, contributing solutions in treasury, risk hedging,
foreign trade, confirming, custody and development of
investment banking products supporting the country’s
infrastructure plan. In 2019, we ranked first in project finance
both in terms of volumes and number of transactions,
outperforming all local banks and international peers.
We are also working to increase the profitability of auto
finance and consolidate our position in this market with
digital propositions. We have signed two alliances: the first
with Chekar.co, a fully digital platform for buying and selling
vehicles, and the second with Tucarro.com of Mercado Libre,
where the user can request and have a loan approved in six
minutes.
Business performance
Loans and advances to customers rose 1% year-on-year in
euros. In gross terms and excluding the exchange rate impact
they also rose 1%, of note was the rise in auto finance.
Customer deposits rose 56% in euros and 54% excluding the
exchange rate impact, driven by time deposits.
Results
Underlying attributable profit of EUR 16 million in the year
compared to EUR 9 million in 2018. Underlying RoTE of
11.8%.
Excluding the exchange rate impact, underlying attributable
profit rose 81%, backed by total income (+63%) spurred by
growth in net fee income (+92%), net interest income (+52%)
and gains on financial transactions (+53%).
Administrative costs and expenses grew less than total
income, enabling the efficiency ratio to improve 4.6 pp to
50%.
Cost of credit was 0.74%.
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Table of Contents
4.4 CORPORATE CENTRE
2019 Highlights
• The Corporate Centre’s objective is to aid the operating units by adding value and carrying out
the corporate function of oversight and control. It also carries out functions related to
financial and capital management.
• The underlying attributable loss was higher compared to 2018, mainly due to higher costs
related to foreign currency hedging and the increased stock of issuances.
Underlying
attributable profit
EUR -2,096 Mn
Strategy and functions
The Corporate Centre contributes value to the Group in various
ways:
• It makes our governance more solid, through global control
frameworks and supervision.
• It fosters the exchange of best practices in management of
costs and generating economies of scale. This enables us to
be one of the most efficient banks.
• It contributes to the launch of projects that will be
developed by global business areas, including digitalisation
processes.
It also coordinates the relationship with European regulators
and develops functions related to financial and capital
management, as follows:
• Financial Management functions:
– Structural management of liquidity risk associated with
funding our recurring activity, stakes of a financial nature
and management of net liquidity related to the needs of
some business units.
– This activity is carried out by the different funding sources
(issuances and other), always maintaining an adequate
profile in volumes, maturities and costs. The price at
which these operations are made with other Group units
is the market rate plus a premium, which in liquidity
terms, we support by immobilising funds during the term
of the operation.
– Interest rate risk is also actively managed in order to
soften the impact of interest rate changes on net interest
income, conducted via high credit quality, very liquid and
low capital consumption derivatives.
– Strategic management of the exposure to exchange rates
in equity and dynamic in the countervalue of the units’
annual results in euros. At year-end, net investments in
equity are currently hedged by EUR 26,060 million
(mainly Brazil, the UK, Mexico, Chile, the US, Poland and
Norway) of various instruments (spot, fx, forwards).
• Management of total capital and reserves: efficient capital
allocation to each of the units in order to maximise
shareholder return.
Global Headquarters. Boadilla del Monte
Global Headquarters. Boadilla del Monte
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banking
Economic
and financial review
governance
Risk management
and control
Results
In 2019, underlying attributable loss of EUR 2,096 million,
24% greater than in 2018, driven by:
• Higher negative impact of net interest income, from EUR
-987 million in 2018 to EUR -1,252 million in 2019, mainly
due to the higher stock of wholesale market debt issuances
and, to a lesser extent, IFRS 16.
• Lower gains on financial transactions (EUR 307 million less),
driven by the greater cost of foreign currency hedging, the
counterpart of which is in the conversion of results to euros
in certain countries.
• Administrative expenses and amortisations improved 12%
driven by ongoing streamlining and simplification
measures, continuing actions taken in previous years, which
have resulted in a reduction in the cost base of around 35%
over the last five years.
• Lower net loan-loss provisions, down from EUR 115 million
in 2018 to EUR 36 million in 2019.
• Other gains (losses) and provisions include very diverse
charges: provisions, intangible assets, cost of the state
guarantee on deferred tax assets, pensions, litigation,
impairment of investments, etc. The net impact went from
EUR -101 million in 2018 to EUR -237 million in 2019.
CORPORATE CENTRE
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
2019
(1,252)
(50)
(297)
(18)
2018
%
(987)
26.9
(69)
(27.8)
11
—
(12)
49.5
Total income
(1,617)
(1,057)
53.0
Administrative expenses and
amortisations
(373)
(426)
(12.5)
Net operating income
(1,990)
(1,483)
34.2
Net loan-loss provisions
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
(36)
(115)
(68.8)
(237)
(101) 135.3
(2,262)
(1,699)
33.2
157
14
—
(2,105)
(1,685)
24.9
—
—
—
(2,105)
(1,685)
24.9
Non-controlling interests
9
(1)
—
Underlying attributable profit
to the parent
(2,096)
(1,686)
24.4
Balance sheet
Loans and advances to
customers
Cash, central banks and credit
institutions
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Operating data
5,764
6,509
(11.4)
32,803
39,840
(17.7)
840
2,406
377
122.5
2,113
13.8
126,539
121,775
3.9
168,352
170,614
(1.3)
793
235
238.2
12,254
54,495
636
9,810
77,989
90,362
30,879
(60.3)
41,783
30.4
1,334
(52.3)
8,208
19.5
82,439
(5.4)
88,175
2.5
Pereda building. Global Headquarters in Boadilla del Monte (Madrid)
A. Includes exchange differences.
Number of employees
1,651
1,700
(2.9)
361
Table of Contents
4.5 Secondary segments
RETAIL BANKING
2019 Highlights
• We continued to focus on enhancing customer satisfaction, covering their needs and boosting
loyalty. At the end of December 2019, we had 145 million customers, of which more than 21
million are loyal.
• Underlying attributable profit of EUR 7,748 million in the year, 7% higher than in the same
period of 2018 due to customer revenue and improved efficiency.
• We were named the Best Bank in Latin America and the Best SME Bank in Western Europe by
Euromoney and Best Bank in the Americas and Best Bank in Western Europe by The Banker.
Underlying
attributable profit
EUR 7,748 Mn
Commercial activity
We want to be the reference bank for customers of all income
levels, offering services and products that best meet their
needs. Furthermore, we are fostering entrepreneurship,
helping SMEs and other companies via loans and non-financial
support. We launched various commercial initiatives in the
year, which have been described in the corresponding primary
segments and are summarised below:
• In individuals, we continued to strengthen our business
with new differentiated products. In Chile, for example, we
launched new proposals for the mass market segment
within the Life strategy, enabling us to significantly increase
the number of new customers. In Argentina we launched
Banca VIP, a new customer care model for our high-income
commercial banking customers. In Spain we launched the
Smith Plan in order to be the leader in the non-resident
segment, via a differentiated value proposition focused
mainly on covering the needs of those who are purchasing a
house in Spain. In Mexico, we launched the Legacy credit
card for private banking customers, being the first and only
bank in the country to have an alliance with American
Express.
Loyal customers
Digital customers
December 2019. Thousands
December 2019. Thousands
21,556
36,817
31% /active
customers
+15% YoY
• In auto finance we continued to expand the business in
certain countries. For example, SCF closed a deal with
Hyundai Kia for the acquisition of 51% of the financial entity
that both companies own in Germany, bolstering our
leadership in this market. The agreement with Fiat Chrysler
in the US was amended strengthening our partnership and
new alliances were also made in Colombia to boost our
position in the market.
• In the SME segment, we continued to move forward with
products such as Prospera in Brazil, a microfinance and loan
programme for entrepreneurs which now has more than
twice as many customers as last year. This programme was
also launched in Uruguay to satisfy the demand of small
businesses. In Brazil, we also announced Santander Duo, a
new product with a differentiated offering for small
entrepreneurs, which combines accounts of legal and
natural persons. In Argentina we launched Women, a
comprehensive proposition for financial and non-financial
services, which focuses on female entrepreneurs, owners of
SMEs and professionals.
• Of note in corporates were strategies such as those
implemented in the US with the Lead Bank project to
strengthen our relationships with American companies. In
Poland, we have introduced pre-limits for selected
corporate customers, improving customer relationships
shortening the decision-making process and anticipating
and accommodating their basic needs better. We also
formed part of the financing of one of the most important
road infrastructure projects in Colombia and we led the
consortium of banks for the loan to one of the main state
energy companies in Poland. In addition, we contributed
non-financial solutions, such as Santander Advance
Empresas in Portugal, offering management courses for
executives and a scholarship programme.
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Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Smart Red branch, Spain
Regarding our branch network, we have 11,952 branches,
making us the international bank with the largest branch
network.
For years, we have been committed to boosting our multi-
channel offering. The branches continue to be a very relevant
channel, focusing on improving the customer experience and
offering advice on everything they need.
In order to better adapt to their needs, we continue to have
branches that offer specialised customer care to certain
segments. In addition, we continued with the conversion of
traditional bank branches into new collaborative spaces
focused on customer experience and digital capabilities, such
as the Work Café branches (Chile, Spain, Brazil, the UK,
Portugal, Mexico and Argentina), Smart Red branches (Spain,
the UK and Portugal) or Santander Ágil in Mexico.
All of these measures helped to boost the total number of
customers to 145 million, as well as increase the number of
loyal customers (+9% individuals and +3% corporates year-
on-year).
Business performance
Loans and advances to customers increased 5% compared to
2018 in euros. Excluding reverse repurchase agreements and
the exchange rate impact, gross loans rose 3%.
Customer deposits rose 7% in euros compared to the same
period of 2018. Excluding repurchase agreements and the
exchange rate impact, they were 4% higher, driven by growth
in demand deposits (+5%).
Results
Underlying attributable profit amounted to EUR 7,748
million in 2019 (74% of the Group’s operating areas).
Compared to 2018, underlying attributable profit rose 7% in
euros. Excluding the exchange rate impact, profit also
delivered a 7% increase, as follows:
• Total income increased 4%, driven by the main P&L lines:
net interest income increased 3%, net fee income 5% and
gains on financial transactions 31%.
• Administrative expenses and amortisations were 3%
higher, improving the efficiency ratio by 79 basis points to
44.8%.
• Net loan-loss provisions increased 7%, primarily due to
higher volumes, maintaining good credit quality.
• Other gains (losses) and provisions improved 8%
primarily driven by SCF and the UK.
RETAIL BANKING
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
33,157
32,262
9,094
8,870
2.8
2.5
3.3
4.9
975
298
757
343
28.9
31.5
(13.1)
(35.3)
Total income
43,523 42,231
3.1
Administrative expenses and
amortisations
(19,481) (19,236)
Net operating income
24,042 22,994
Net loan-loss provisions
(9,154)
(8,549)
1.3
4.6
7.1
3.8
2.6
4.7
7.4
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
(1,624)
(1,791)
(9.4)
(8.2)
13,265 12,654
(4,156)
(4,144)
4.8
0.3
9,109
8,510
7.0
—
—
—
7.0
7.0
4.7
1.1
6.5
—
6.5
6.4
Consolidated profit
9,109
8,510
Non-controlling interests
(1,361)
(1,272)
Underlying attributable
profit to the parent
A. Includes exchange differences.
7,748
7,238
7.0
6.5
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SANTANDER CORPORATE & INVESTMENT BANKING
2019 Highlights
• SCIB maintains its long-term strategy focused on optimising the use of capital, increasing
revenue, and disciplined cost management.
• Good performance of the Global Transaction Banking (GTB) and Global Debt Financing (GDF)
businesses and market activities in the Americas.
• We continued with the execution of strategic projects focused on improving internal systems,
cost control and talent management.
• Underlying attributable profit was 4% higher in euros, 10% higher excluding the exchange rate
impact, driven by 7% growth in total income and lower loan-loss provisions.
Underlying
attributable profit
EUR 1,761 Mn
– As for the diversification of our customer base, we are
increasing our business with institutional and financial
entities, offering a wide range of products throughout
our markets, thus complying with the strategy of being
a global bank with presence in more than 12 countries.
– Continuing to expand the range of products to
customers of the retail banking network, supporting
collaboration revenues growth, +17% compared to
2018.
• Continuing to strengthen our commitment to sustainability,
leading the Project Finance rankings and expanding the
range of green products for our customers.
Business performance
Main actions performed in the year by business line:
• Cash management: strong increase in the transactional
business as well as in customer funds in our core markets
(Europe and Latin America), as a result of the strengthening
of our product capabilities in the region, innovating in the
digitalisation of the business both in origination and in the
development of our products.
Strategy
SCIB is our global business for corporate clients and
institutions that require tailored services and wholesale
value-added products adapted to their complexity and
sophistication.
Our long-term strategy remains focused on:
• Increasing the rotation and efficiency of capital,
maximising the return on risk-weighted assets (1.8%). To
this end, SCIB has strengthened the Private Debt
Mobilisation teams in Europe and the UK, to increase the
distribution of assets in the secondary market. The
increase in rotation and the earlier detection of risks
reduced provisions in the year.
• Increasing diversification, both by countries and by
customers and products:
– By countries, through the promotion of business in
Continental Europe and the Andean Region, as well as in
the UK and the US, having completed the reforms
required by the regulators.
Total income breakdown
Constant EUR million
TOTAL*
Capital & Other
+7%
-13 %
Global Markets
+12 %
Global Debt
Financing
Global Transaction
Banking
+6 %
+11 %
(*) In euros: +4%
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• Export finance & agency finance: double-digit growth in
the year, especially in the US and Latin America,
consolidating our world leadership position in export
financing backed by export credit agencies (ECA).
• Trade & working capital solutions: robust growth in
Receivables Finance in the Americas and Europe, and Trade
Funding, especially in the Americas, as a result of the
continuous improvement of our product offering and the
digitalisation of receivables and confirming platforms. In
2019, we were named best bank worldwide for Supply
Chain Finance.
• Debt capital markets: significant growth in the year, backed
by good performance in Europe, Brazil and the US. We
issued the first end-to-end blockchain bond, an example of
our innovation in the capital markets and the first step
towards a potential market for mainstream security tokens1.
We continued to focus on activities related to sustainable
financing, being a reference for the issuance of green bonds,
while maintaining its leadership in Latin America and
significant positions in the European corporate market.
• Corporate Finance: in merger and acquisitions (M&A) we
strengthened our position as the leader in advising the
renewable energy sector, with noteworthy operations in the
year in wind farms in Spain and the UK. Double-digit growth
in advisory for share issuances in the primary market,
particularly in Brazil.
• Syndicated corporate loans: we continued to play a
significant role, although with a reduced volume of
acquisitions during the year due to low M&A activity. In line
with our responsible banking strategy, we increased our
range of sustainable finance products via green loans or
loans linked to sustainable indices.
• Structured financing: we maintained our global leadership
position in Project Finance, having more issuances globally
than any other bank and were the fifth by volumes. The
focus on the renewable energy sector needs to be
highlighted, with more than 66 project financings during
2019. We also maintained our leadership in Latin America
in financial advisory and improved our positioning in
Europe.
• Global Markets: the positive evolution of market activity,
with significant growth in the Americas, compensating
lower (albeit growing) activity in Europe. Good sales
performance, both corporate and institutional, with double-
digit growth, particularly in Brazil, the UK, Mexico and Chile.
The books have also recorded significant growth, with
outstanding results in the UK, Chile, Argentina and the US.
Loans and advances to customers rose 21% in euros compared
to 2018. Excluding reverse repurchase agreements and the
exchange rate impact, gross loans and advances to customers
increased 12%.
Customer deposits were down 4% in euros in 2019. Excluding
repurchase agreements and the exchange rate impact, they
grew 1%.
Ranking 2019
Award / ranking
Best Trade Finance bank in Chile, Argentina and Spain
Best Supply Chain Finance Provider in Latin America
Best Trade Finance Provider in Latam
Deal of the year Europe 2019: Infrastructure & Project Finance - Hornsea Offshore
Wind Project GBP 3.6 bn financing
Deal of the year Asia 2019: Bonds Corporate - ChemChina USD 4.95 bn multi-tranche
and EUR 1.2 bn senior unsecured bond
Best Overall ECA Finance Deal of the Year. Winner: DUQM Refinery
Best Americas ECA Finance Deal of the Year. Winner: Petroperu/Talara Refinery
Best ECA-backed Renewables Finance Deal of the Year. Winner: Hornsea
Best Supply Chain Bank Award
Best Trade Finance Bank in Latam
Best Supply Chain Finance Bank
Best Investment Bank in Spain and Poland
Financial Advisor of the Year: Latin America
Most innovative investment bank of the year for structured finance 2019
Capital Relief Issuer of the Year award
Best Liquidity Provider
Source
GLOBAL FINANCE
GLOBAL FINANCE
GLOBAL FINANCE
The Banker
The Banker
TXF
TXF
TXF
GTR
GTR
Trade Finance
Euromoney
Latin Finance
The Banker
SCI Capital Relief Trades Awards 2019
Global Capital Covered Bond Awards 2019
Area
GTB
GTB
GTB
GDF
GDF
GTB
GTB
GTB
GTB
GTB
GTB
Global
GDF
GDF
GDF
GDF
Best bank for emerging LatAm currencies 2019
FX Week Best Banks Awards 2019
Markets
#1 Global / Americas / EMEA Renewable Energy Project Finance by deal count in 2019 Dealogic
#1 Global Project Finance - Financial Adviser by deal count in 2019
#1 Santander Global, Europe, Latin America and Middle East ECA financing by volume
and deal count in 2019
Dealogic
Dealogic
1. Mainstream security tokens: Financial instruments subject to securities market regulation, which are issued and traded using blockchain.
GDF
GDF
GTB
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SANTANDER CORPORATE & INVESTMENT BANKING
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
2,721
2,461
10.6
Net fee income
1,528
1,534
(0.4)
14.0
1.0
Gains (losses) on financial
transactions A
Other operating income
Total income
739
295
898
184
5,284
5,077
Administrative expenses and
amortisations
Net operating income
(2,276)
(2,101)
3,008
2,975
(17.7)
(11.7)
60.7
4.1
8.3
1.1
61.5
7.4
9.4
5.9
Net loan-loss provisions
(155)
(198)
(21.9)
(23.0)
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
(86)
(97)
(11.1)
(11.4)
2,767
2,680
(838)
(832)
3.2
0.6
8.9
6.4
1,929
1,848
4.4
10.0
—
—
1,929
1,848
—
4.4
7.6
—
10.0
9.5
Non-controlling interests
(169)
(157)
Underlying attributable
profit to the parent
A. Includes exchange differences.
1,761
1,691
4.1
10.0
Table of Contents
Results
Underlying attributable profit in 2019 of EUR 1,761 million
(17% of the Groups’ total operating areas), driven by the
strength and diversification of SCIB's customer revenue (89%
of total revenue).
Compared to 2018, underlying attributable profit increased
4%. Excluding the exchange rate impact, it rose 10%, as
follows:
• Total income grew because of the 14% rise in net interest
income. Net fee income increased 1%, with a better
performance in the second half of the year, as it was 12%
higher than in the first half of 2019.
Gains on financial transactions dropped 12%, despite an
excellent first quarter which partially offset the worse
relative performance in the second and third quarters of
the year.
• Higher administrative expenses and amortisations
associated with transformation projects.
• Net loan-loss provisions were significantly lower, mainly
in Mexico and Brazil.
By segments, better results from Global Transaction Banking
and Global Debt Financing.
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WEALTH MANAGEMENT & INSURANCE
2019 Highlights
• Assets under management in the Private Banking and Asset Management businesses reached
EUR 395 billion, 13% more than last year. Total insurance gross written premiums increased
also 13%. This consolidated Santander's position in these businesses in its ten core markets.
• The total fee income generated, including those transferred to the branch network, rose 6% to
EUR 3,493 million (30% of the Group's total).
• Total contribution (net profit + fee income) amounted to EUR 2,494 million, +8% year-on-year.
Underlying
attributable profit
EUR 960 Mn
Strategy
We continued to progress in our plan to make us the best and
most responsible wealth manager in Europe and Latin
America, with the following notable initiatives:
• In 2019, we created two regional hubs (Europe and Latin
America) in Santander Asset Management (SAM) and
strengthened the institutional and alternative products
teams.
• In Santander Private Banking (SPB) we continued to
strengthen our teams with the best professionals and
launched the Global Value Proposition, an international
platform of products and services to cover the worldwide
needs of our clients, facilitating their recognition as such in
the geographies where they want to operate and making a
wide range of products, services and benefits available.
We completed our product offering with the launch of
Santander GO, a range of international products offering
strategies developed jointly with management companies
such as Morgan Stanley, PIMCO, Robecco, JPM and Amundi,
and which has already reached more than EUR 700 million.
We also re-launched the Global Multi-Asset Strategy team
to improve the range of client-focused investment solutions
and provide a better service to our institutional clients.
In addition, we are expanding the ESG product offering in
our main markets and developing our own ESG rating
methodology, which will be ready in 2020. Also of note was
the effort made to redefine the operating model in order to
improve efficiency and the implementation of the Aladdin
investment platform, in alliance with Blackrock.
In addition, we are strengthening the business across our
different markets, which is reflected in an increase in
collaboration volumes of 36%, up to EUR 5,350 million.
Additionally, we continue to develop the Private Wealth
segment, whose business contribution grew by 18% with
respect to 2018, with a global offer for high net worth
clients.
In 2019 we received numerous awards, notably from The
Banker (Best Private Banking in Latin America), Euromoney
(Best Private Banking in Latin America, Spain, Portugal,
Mexico, Chile and Argentina) and Global Finance (Best
Private Banking in Spain and Portugal).
Business performance: SAM and Private Banking
Insurance gross written premiums
December 2019. EUR billion and % change in constant euros
Change in constant euros
+13%
/ 2018
Dec-18
+13%
+11%
+11%
+11%
+22%
+5%
+5%
Note: Total asset marketed and/or managed in 2019 and 2018.
(*) Total adjusted customer funds of private banking managed by SAM. Pro forma
including Banco Popular asset management joint ventures. The repurchase of
the remaining 60% of their stakes was pending regulatory authorisations and
other customary conditions on 31 December 2019 and was completed in
January 2020.
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WEALTH MANAGEMENT & INSURANCE
EUR million
Underlying income statement
2019
2018
%
% excl. FX
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
Total income
565
526
1,201
1,142
7.4
5.1
7.8
5.2
116
341
132
299
2,223
2,099
(11.7)
(11.1)
14.0
5.9
15.5
6.3
Administrative expenses and
amortisations
Net operating income
(911)
(873)
1,312
1,226
Net loan-loss provisions
25
(10)
4.3
7.0
—
3.3
8.5
—
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
Consolidated profit
Non-controlling interests
Underlying attributable
profit to the parent
A. Includes exchange differences.
(12)
(5) 142.9
136.8
1,325
1,211
9.4
(312)
(284)
10.0
11.0
11.9
1,013
927
9.2
10.7
—
1,013
(53)
—
927
(53)
—
9.2
1.3
—
10.7
4.0
960
875
9.7
11.1
Total profit contribution A
EUR million and % change in
constant euros
2,494
+8% / 2018
A. Including net profit and total fee income generated by this business
Table of Contents
• In insurance, our aim is to become the leader in
bancassurance in all our markets and in all branches and
segments, and to this end we have defined a strategic plan
that will enable us to capture our potential in the medium
term.
We are completing the value offering in all our countries
together with our main partners. Of note was the creation
of a company with MAPFRE to offer car insurance in Spain,
the alliance with HDI in car insurance in Brazil and specific
products for SMEs.
Another focus during 2019 was the development of the
digital offering, particularly in Chile (Klare) and in Brazil and
Mexico (Autocompara).
Business performance
Total assets under management amounted to EUR 395 billion,
13% higher than in 2018, supported by new sales and the
market's performance:
• Strong growth in net sales at SAM in 2019 (EUR 5,700
million), increasing market share in most of our countries,
particularly in Spain, Portugal, Chile and Poland.
• Of note in Private Banking was growth in Brazil and Spain.
Loans and advances to customers grew by 5%.
In Insurance, with 20 million total protected customers, the
volume of total insurance gross written premiums increased
13% year-on-year, especially in Brazil, Chile and Poland.
Results
Underlying attributable profit was EUR 960 million in 2019,
10% growth year-on-year. Excluding the exchange rate impact
growth was 11%, by lines:
• Total income rose 6% mainly driven by net interest income
(+8%), backed by higher lending, and net fee income (+5%).
Total fee income generated, including those transferred to
the branch network for the distribution of products,
increased 6% and represented 30% of the Group's total.
• Also of note was the greater contribution of the insurance
business, recorded in other operating income (+15%).
• Administrative expenses and amortisations were 3%
higher, due to our investments in platforms.
• Recovery in net loan-loss provisions, due to lower doubtful
loan positions in Spain and Portugal.
The total contribution to the Group (including net profit and
total fees generated net of taxes) was EUR 2,494 million, 8%
growth year-on-year.
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SANTANDER GLOBAL PLATFORM (SGP)
Highlights
• With the creation of Santander Global Platform we are accelerating our digitalisation process by developing
global digital banking solutions with payments at the core for SMEs and individuals.
• SGP leverages the Group’s scale, footprint and expertise in payments, financial services and in scaling fintech
solutions to build best-in-class services in key, high-growth and large addressable markets in which we already
have a strong presence.
•
In 2019 we made relevant progress on various initiatives under SGP such as the development of the GMS and
GTS platforms, the strategic partnership with Ebury, the launch of Superdigital in Chile and Openbank began to
open accounts to customers in Germany, the Netherlands and Portugal.
Strategy
SGP offers digital services based on payment solutions as the
main driver of loyalty. The services are being developed based
on global platforms to leverage our scale and improve
efficiency and customer experience.
By collaborating across our regions and leveraging our scale,
footprint and expertise in payments and financial services, we
can build our own digital assets and fintech solutions once and
then scale them across the Group, significantly lowering
development costs and time to market.
It should be noted that SGP does not just offer products and
solutions to our banks (B2C) but also to third parties that lack
the scale to build best in class payments and digital banking
solutions in the open market (B2B2C). We believe that this will
allow us to expand our addressable market to non-customers
and new geographies, generating relevant new revenue
opportunities.
The area continued to advance according to the envisaged
schedule.
Bringing best-in-class banking solutions to SMEs:
• Global Merchant Services (GMS), our global acquiring
solution built on the back of Brazil's Getnet and provides
online and offline retailers the ability to accept various
forms of payment, helping them better manage and grow
their businesses.
We are already a Top 10 global acquirer by turnover volume,
with more than one million active merchants (local and
global) and significant market shares in revenue (Brazil,
Mexico and Portugal) and customers (Spain). In Brazil, the
market share has doubled in the last five years following
Getnet's success with high customer engagement. It is also
delivering very high growth, with transaction volumes
increasing c.30% annually since 2013.
This platform will first be rolled out in Mexico in Q1 2020,
followed by the rest of Latin America and will be able to
provide service to the 4 million merchants that are already
Group customers.
(1) EMEA + the Americas' revenue pools in merchant acquiring services incl. net MDR &
rental terminals.
(2) CAGR 2018-2023.
• Global Trade Services (GTS), our single global platform to
serve companies that want to trade internationally using
international payments and FX, trade finance and multi-
country accounts. The revenue pool for global transaction
banking services is around USD 200 billion.
(3) 50.1% stake; Transaction closing expected in mid-2020 subject to regulatory
approvals.
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To accelerate the development of this opportunity, we
announced a strategic investment in Ebury to acquire a
50.1% stake which will shortly be incorporated once the
regulatory approvals are obtained. Ebury brings best-in-
class international business and FX platform for SMEs and,
more importantly, a top-notch team.
• Openbank, our global, full-service digital bank with over
115,000 payroll accounts. Openbank offers a superior
experience compared to neobanks with a full suite of
products that go beyond those associated with traditional
digital current accounts.
As a consequence, Openbank customers are more engaged
and more loyal, using 4.4 products on average. We are
seeing positive growth trends both in deposits and on the
asset side, with mortgage sales growing at 134% over the
last 12 months.
Openbank is in Spain and in the fourth quarter, began to
open accounts to customers in Germany, the Netherlands
and Portugal, and over the medium term we plan to
expand into 10 markets, including countries in the
Americas.
Ebury currently has more than 43,000 active companies,
covering 17 countries and more than 140 currencies and
generates high growth transactions (+20% per customer in
the last two years) and revenues (+45% in 2019). By
combining the strengths and assets of Santander with those
of Ebury we will become the leading proposition for
international SMEs in Europe and the Americas. We plan to
extend GTS to 20 markets in the medium term.
Bringing best-in-class digital banking solutions to individuals:
• Superdigital, our financial inclusion platform for individuals
that require a simple, flexible pre-banking service. It enables
us to meet the financial needs of the underserved, providing
them with basic financial products and a path to access
credit, thus serving them responsibly and profitably.
Superdigital also integrates with GMS for small merchants.
With a special focus on Latin America, where there are
around 300 million unbanked and underbanked
consumers.
As of today, Superdigital operates in Brazil, Mexico and
Chile and active customers grew at 59% annually and
transactions doubled. Our goal is to scale the business to
reach over 5 million active customers across 7 markets in
the medium term.
Other activities
• The Centres of Digital Expertise leverage the Group’s scale
and ensure all countries and businesses have access to the
most innovative technology (our Globile project for mobile
platforms, end-to-end blockchain, artificial intelligence and
machine learning to foster customer and operational
excellence and improve risk management).
•
InnoVentures, our venture capital investments in the fintech
ecosystem, continued to grow. As at end-December, it had
invested more than USD 140 million in 30 companies in 8
countries.
(1) Including 200 mn+ unbanked and 100 mn+ underbanked.
(2) USD 10-50 per capita daily income (PPP); Source: Interamerican Development
Bank, 2016.
(3) Active customers (30 days).
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Economic
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Results
The costs associated with the building of the platforms of
Santander Global Platform were reflected in 2019 in an
underlying attributable loss of EUR 120 million.
The revenue included in this segment corresponds almost
entirely to Openbank. Compared to 2019, of note is the 16%
growth in NII, a result of increased volumes.
On the balance sheet, the vast majority of the business is from
Openbank, which had a strong growth in customer volumes,
reflecting greater activity over the year. Customer deposits
exceeded EUR 9 billion, having increased 14% in the year. On
the assets side, loans and advances to customers doubled,
driven by mortgage business.
Looking at SGP's activity in 2019 in a broad sense, i.e. if, in
addition to considering the results generated by the digital
platforms, 50% of the results generated by the countries on
the products related with the platform (e.g. merchant
acquiring, trade finance products, etc.) are also included,
estimated pro forma revenue is close to EUR 1 billion in 2019
and pro forma underlying attributable profit is positive at EUR
142 million.
This is the net result of two components: on the one hand, the
investment in building the platforms and, on the other hand,
50% of the profit obtained from commercial relationships with
our customers:
• The construction of platforms is where most of the
investments and costs are concentrated. We are progressing
in the development of Technology and Operations (T&O), in
the improvement of processes, in the addition of new
services to the platform and in the roll-out to the countries.
This has a negative impact of EUR 178 million on the
income statement for 2019.
• Profit obtained from commercial relationships with our
customers linked to the global SGP platforms, and
according to the criteria for allocating the aforementioned
results, profit amounted to EUR 320 million in 2019.
We regularly assess the market valuations of the businesses
included in SGP, based on multiples of comparable companies,
to ensure our investments in digital are creating value.
SANTANDER GLOBAL PLATFORM
EUR million
Underlying results
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
Total income
Administrative expenses and
amortisations
Net operating income
Net loan-loss provisions
Other gains (losses) and
provisions
Profit before tax
Tax on profit
Profit from continuing
operations
Net profit from discontinued
operations
2019
2018
92
6
(3)
(14)
81
(240)
(159)
(1)
(6)
(166)
46
79
7
—
(12)
74
(142)
(68)
—
(2)
(70)
17
%
16.3
(11.8)
—
21.2
8.8
68.4
133.8
312.2
165.8
135.5
178.0
(120)
(54)
122.4
—
—
—
Consolidated profit
(120)
(54)
122.4
Non-controlling interests
—
—
—
Underlying attributable profit
to the parent
(120)
(54)
122.4
Balance sheet
Loans and advances to
customers
702
337
108.4
Cash, central banks and credit
institutions
9,063
8,168
Debt instruments
Other financial assets
Other asset accounts
Total assets
Customer deposits
Central banks and credit
institutions
Marketable debt securities
Other financial liabilities
Other liabilities accounts
Total liabilities
Total equity
Pro memoria:
Gross loans and advances to
customers B
Customer funds
Customer deposits C
Mutual funds
Operating data
10
187
272
10,234
9,460
82
—
105
112
—
146
130
8,781
8,284
—
38
59
9,760
8,492
474
289
11.0
—
27.6
109.8
16.5
14.2
—
179.0
90.0
14.9
63.8
111
(26.1)
706
9,910
9,460
450
340
107.5
8,650
8,284
367
14.6
14.2
22.8
Number of employees
820
487
68.4
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
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5. Research, development and
innovation (R&D&I)
Technological strategy
In order to respond to business and customer needs,
Santander must integrate new digital capabilities, such as the
agile methodologies, public- and private-Cloud-based
products and the evolution of core systems, as well as develop
data and technological capabilities (APIs - Application
Programming Interface, artificial intelligence, robotics,
blockchain, etc.).
The Group’s technological strategy is aligned with Santander
Global Platform, global businesses and our banks in the
different geographic areas. It is a solid strategy, flexible in the
face of new trends and open to the changes that may be
required. To this effect, we are supported by a committed
organisation experienced in relationships with countries, a
robust and reliable technological infrastructure and, lastly, a
governance model that articulates projects and initiatives that
help to crystallise this strategy in all the countries in which we
operate.
In order to supervise the strategy’s correct implementation,
the governance model includes an inter-organisational forum
known as SARB (Strategic Architecture Review Board). It is
responsible for sharing local and global innovation
collaboratively and efficiently, as well as reviewing the
Group’s architecture. This forum guarantees consistent
architectures, strengthens the re-use of components and
bolsters the use of new technologies to meet changing
business needs.
The evolution of our T&O model will help us to develop new
business capabilities in the Group, focusing on developing
global products and digital services. Almost 2,000 Santander
Global Tech professionals in Spain, the UK, Portugal, the US,
Mexico, Brazil and Chile are gradually incorporating the global
product portfolio agreed by countries, Santander Global
Platform and the T&O division, guaranteeing not only the
quality of digital services and products but also their security.
Research, development and innovation activities
Innovation and technological development are strategic
pillars of the Group. Our objective is to respond to the
new challenges that emanate from digital
transformation, focusing on operational excellence and
customer experience.
Moreover, the information that we obtain from our new
technological platforms will help us to better understand the
customer journey of our clients and will allow us to design a
more accurate digital profile that will enable us to generate
more confidence and increase customer loyalty.
As well as competition from other banks, financial entities
must watch out for the new competitors that have entered the
financial system, whose differentiating factor, and thus
competitive advantage, is their use of new technology.
Consequently, developing an adequate strategic technology
plan must allow for:
• Stronger capacity to adapt to customers’ needs
(customised products and services, full availability
and excellent service across all channels).
• Enhanced processes, which ensure that the Group’s
professionals attain greater reliability and
productivity in their functions.
• And lastly, proper risk management, supplying
teams with the necessary infrastructures to provide
support for identifying and assessing all risks, be
they business, operational and reputational risks, or
regulatory and compliance ones.
Santander, as a global systemically important bank, as well as
its individual subsidiaries, are subjected to increasing
regulatory demands that impact system models and their
underlying technology. This requires additional investments in
order to guarantee their compliance and legal security.
As a result, the latest ranking by the European Commission
(the 2019 EU Industrial R&D Investment Scoreboard, based on
2018 data) recognises, as did previous rankings, Santander’s
technological effort, placing it first among Spanish companies
(ranking 102nd in the study) and the second global bank on the
basis of investment in R&D.
In total EUR 1,374 million was invested in R&D&I in 2019.
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Technological infrastructure
Cybersecurity
The Group has a network of connected, high-quality data
centres, interconnected by a redundant communications
system. This data centre network is distributed across
strategic countries to support and develop the Group’s activity.
These centres combine traditional IT systems together with
the capabilities supplied by an on-premise private Cloud,
which facilitates integrated management of the technology of
the various business areas and accelerates the digital
transformation and adoption of new technologies.
The gradual implementation of the Cloud strategy will enable
the public Cloud to support other strategic projects developed
in Santander Global Platform (Superdigital, Payments Hub,
Santander Merchant Platform Solutions-SMPS, Santander
Global Trade Platform Solutions-SGTPS, etc.). In 2019, we
signed several agreements with key market companies to
provide this service. Regarding the private Cloud (Optimised
Hosting Environment- OHE), the migration of virtual machines
is progressing at a fast and consistent pace, which brings
significant savings to the Group.
Santander views cybersecurity as one of the Group’s main
priorities and as a crucial element for supporting the Bank’s
mission of ‘helping people and businesses prosper’, as well as
offering excellent digital services to our customers.
Cybersecurity attacks and defence technologies continue to
evolve rapidly. Santander continually develops its defences to
address current and emerging cybersecurity threats. In 2019,
Santander inaugurated its new Global Cyber Security Centre in
Madrid. The centre provides defence services to all entities of
the Group, bringing state-of-the-art cyber defence
technologies and hosting more than 350 cyber professionals.
The risk management report details the various actions for
measuring, monitoring and controlling cybersecurity risks,
and their respective mitigation plans.
Digitalisation and fintech ecosystem
In addition to the aforementioned technological strategy, the
evolution of infrastructures and the initiatives in cybersecurity,
and with the aim to progress in the Group's digital
transformation, in July 2019 we announced the creation of
Santander Global Platform, which is described in section 4 of
this chapter. Additionally, examples of digital and innovative
products and services for individuals and corporates, as well as
references to cybersecurity policies are given in the ‘inclusive
and sustainable growth’ section of the Responsible Banking
chapter.
Data centre Cantabria
Alhambra building. Boadilla del Monte
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6. Significant events since year
end
The following significant events occurred between 1 January
2020 and the date of preparation of this consolidated
directors’ report:
• On 9 January, 2020, the Group announced that it has
completed the placement of preferred shares contingently
convertible (“CCPS”) into newly issued ordinary shares of
the Bank, excluding pre-emptive subscription rights and for
a nominal value of EUR 1,500,000,000.
This issuance was carried out at par and the remuneration of
the shares, whose payment is subject to certain conditions
and to the discretion of the Bank, was set at 4.375% on an
annual basis for the first six years, being reviewed every five
years by applying a margin of 453.4 basis points on the 5-
year Mid-Swap Rate.
On the same date, the Group announces its irrevocable
decision to carry out the optional early redemption of the
CCPS with a nominal amount of EUR 1,500,000,000 on 12
March 2014.
• On 29 January, 2020 the Group announced that the board of
directors of the Bank, agreed to propose to the next annual
general meeting (AGM) that the second payment of the
remuneration from the results of the year 2019 is paid for a
total of EUR 0.13 per share by means of :
– The payment in cash of a final dividend of EUR 0.10 per
share and
– A scrip dividend (in the form of the Santander Dividendo
Elección programme) which will allow shareholders to
receive it in cash, for those who choose this option, EUR
0.03 per share.
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7. Trend information 2020
On the other hand, the global economy is expected to sustain
growth similar to that of 2019, at around 3%, as emerging
economies are expected to pick-up from the 4% estimated for
2019. China's mildly slowing trend will be more than offset by
an improved tone in India and the rest of emerging Asia.
Latin America is expected to see a clear improvement overall,
although still at a relatively modest pace, if the reform
processes undertaken in Brazil and Argentina remain on
course and Mexico benefits from the ratification of the new
North American Free Trade Agreement and the expected
improvement in the US manufacturing sector, as well as from
the central bank's expansionary policies. The region's
progress, in a complex international environment, now more
than ever, depends on its willingness and ability to implement
reforms.
The balance of risk balance is on the downside, although less
than in recent quarters. The consolidation of the improved
confidence and the absence of significant imbalances in most
of the relevant economies may provide positive results.
The director’s report contains certain prospective information
reflecting the plans, forecasts or estimates of the directors,
based on assumptions that the latter consider reasonable.
Users of this report should, however, take into account that
such prospective information is not to be considered a
guarantee of the future performance of the entity, inasmuch
as said plans, forecasts or estimates are subject to numerous
risks and uncertainties that mean that the entity’s future
performance may not match the performance initially
expected. These risks and uncertainties are described in the
Risk management chapter of this report and in note 54 of the
consolidated financial statements.
2019 was a year of ups and downs. The beginning was
favourable, but, starting in summer, expectations of a slight
global slowdown, towards growth rates in line with medium-
term trends, gave way to considerable pessimism. Unlike
other more or less recent bouts of instability, the economic
fundamentals did not show any major imbalances.
However, uncertainties reduced in the last few weeks of the
year, which, together with the boosts from monetary policies
in 2019 - especially in the US and in emerging economies - we
believe will tend to stabilise global growth at the beginning of
2020. We believe that the improvement in confidence
indicators, which is beginning to show in some areas, should
tend to favour a certain revitalisation of investment and
domestic demand, while international trade has somewhat
improved.
In 2020, the US, which is no longer supported by fiscal
policies, is expected to grow at a slightly slower pace than last
year (1.7% vs. 2.3% in 2019), the Eurozone may also
moderate its expansion (to 1%) where Germany's GDP is
expected to grow 0.7% (0.6% in 2019 but affected by a series
of disturbances) and Spain's economic growth is forecasted to
slow to 1.7% (2.0% in 2019). Overall, the GDP of mature
economies is expected to slow from 1.9% in 2019 to around
1.5%.
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The macroeconomic forecast for 2020 by country is as follows:
Eurozone
United States
After the slowdown in 2019, economic growth is expected to
settle in 2020 and may even gain some pace over the year,
driven by a strong labour market, some reduction in
geopolitical risks and easing financial conditions, favouring a
rise in underlying inflation. In any case, growth is expected to
be moderate, lower than the average in 2019 (1.7% vs. 2.3%
in 2019).
Mexico
We expect the economy to accelerate in 2020, due to
improved household income and the commercial momentum
of the agreement between the US and Canada.
Brazil
After the boost to reforms in the second half of 2019, the
economy is expected to accelerate, driven by increased
business and household confidence, growing at rates above
2% and with stable inflation.
Chile
Economic growth is expected to be supported by the fiscal
stimulus programmes approved at the end of 2019 and
expansive monetary policy, with interest rates at low levels.
Argentina
The economy is expected to remain in recession but to start
laying the groundwork for a return to growth in 2021 once
relationships with international suppliers normalise.
In the Eurozone, GDP growth in 2020 is expected to be close
to 1%. Growth will be hampered by external factors, mainly by
the fall in global exports and the threat of trade tariffs by the
US. These risks have already affected the manufacturing
sector, especially the automotive industry.
Spain
Growth is expected to moderate to 1.7% in 2020, above the
growth forecast for the Eurozone, and inflation will remain
low.
United Kingdom
The economy in 2020 is expected to continue with moderate
growth, estimated around 1.2%, supported by the increased
purchasing power of families and a more flexible fiscal
position. We believe that uncertainties related to the
negotiations of the new trade relationship with the EU will set
the pace for investments. We believe that the Bank of England
will adjust monetary policy according to the balance of the
impact of Brexit negotiations, although we expect it to keep
interest rates at 0.75% for the entire year.
Portugal
GDP growth is expected to slow in 2020 to 1.2%, below what
we believe to be its potential. Domestic demand, favoured by
lower fiscal pressure and exports will support this growth. The
progress in deleveraging public finances should continue
thanks to the ECB's accommodative policies and will make the
country more resilient in the event of a slower external
environment.
Poland
Economic growth is forecasted to slow to almost 3% in 2020,
from the estimated 4% in 2019 and 5% in 2018. Private
consumption is expected to be the key driver of growth, while
investment is expected to stagnate and net exports to
contribute positively due to lower domestic demand.
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The management priorities of the principal geographic areas
for 2020 are set out below:
EUROPE
Spain
In a macroeconomic environment characterised by lower for
longer interest rates, the priorities for 2020 will be:
After the successful integration of Banco Popular, Santander
Spain's 2020 priorities are the following:
• Defend margins, control costs and improve efficiency while
maintaining a full value proposition.
• Continue to work on simplifying products and structures.
• Accelerate the digital transformation process and adaptation
of technology platforms.
• Manage regulatory impacts on revenue and costs.
• Increase customer loyalty and deepen relationships in order to
give customers the best experience, simplifying products and
optimising processes, and accelerate the digital transformation
to provide a better service and develop new ways of interacting
with the customer.
• Boost revenue by promoting value-added products, especially
for SMEs and corporates, but also for insurance and mutual
funds while reducing the cost of deposits.
• Continue to improve the cost base by seeking additional
efficiencies and synergies.
• Continue to reduce doubtful and foreclosed assets, improving
the main risk metrics.
• Develop a sustainable profit and profitability model with
optimal capital allocation and a special focus on higher
profitability segments and products.
Santander Consumer Finance (SCF)
United Kingdom
Thanks to its positioning in the European consumer market, SCF is
seeking to exploit its growth potential. The main priorities are to:
• Strengthen leadership position in the retail auto finance
market, while optimising capital consumption and driving
growth in consumer finance through SCF's new digital business
model.
• Help our partners with the digitalisation of their transformation
plans.
• Proactively manage brand agreements and develop digital
projects in all business lines.
• Execute the strategic operations carried out in 2019 as a key
element to maintain high profitability and best-in-class
efficiency in the sector.
In an environment of continued uncertainty regarding the UK's
future trading relationship with the EU and in a market expected
to remain very competitive with margin pressures, Santander UK's
priorities are to:
• Grow customer loyalty by providing an outstanding customer
experience.
• Simplify and digitalise the business for improved returns.
• Invest in our people to ensure they have the skills and
knowledge to thrive.
• Embed greater sustainability across our business.
Portugal
Poland
The priorities for the year are to:
The Bank's priorities for 2020 are the following:
• Increase customer loyalty to continue growing organically in
terms of profitable market share and leveraging our position in
the corporate segment.
• Progress in our digital transformation to simplify processes and
increase efficiency.
• Simplify the commercial offering for value-added products and
services that are suitable for meeting the customer's needs to
improve their experience.
• Increase customer funds, particularly off-balance sheet funds,
and lending in segments with an appropriate risk-return
profile, while maintaining a low cost of credit.
• Focus on increasing net fee income and reducing costs.
• Continuation of the digitalisation and automation strategy and
to become the best open platform for financial services.
• Optimisation of the network of channels and maintain the
position of the best traditional, private banking and investment
bank in Poland.
• Selective growth in volumes (mainly in consumer finance and
SMEs) as part of the capital optimisation strategy.
• Margin management, with improved asset profitability and
lower cost of deposits.
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NORTH AMERICA
United States
While focusing on further developing the USMX trade corridor,
the priorities in the region will be to:
Management will remain focused on improving profitability, as
follows:
• Accelerate execution of regional strategy, increase
profitability and contribute to efficiency objectives.
• Consolidation of IT function for the North America region
under a single leadership.
• Eliminate duplicates in the operating model, platform and
architecture.
• Optimise spends, in part through third party cost
optimisation.
• Promote expedited wire service as a means to drive new
customer acquisition.
• Digital and branch transformation initiatives to improve
customer experience and loyalty while growing digital
customers.
• Adapting business strategy to mitigate revenue impact from
lower rates.
• Cost management in order to continue improving efficiency.
• Completing legacy regulatory remediation programmes.
• Completing the sale of business in Puerto Rico.
Mexico
A strategic agenda has been developed with the aim of becoming
the best bank for our customers, with the following objectives:
• Improve customer experience by leveraging both the new tools
and methodologies as well as improving operating processes.
• Maintain strong growth rates in loyal customers (through
initiatives to attract payrolls and collectives) and digital
customers (by promoting new platforms, channels and
customer care models, as well as our new payment platforms).
• To strengthen our corporate businesses to continue to be the
reference in the market in value-added products.
• Increase revenue through greater volumes and lower cost of
deposits.
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SOUTH AMERICA
Brazil
The Group’s priorities in the region are to:
Santander Brasil’s priorities aim to maintain high levels of
profitability, capturing new market opportunities:
• Accelerate profitable growth, with a strategy that seeks to
strengthen a more connected regional network.
• Strengthen our robust business model by expanding our
presence through new activities with high growth potential.
• Develop digital platforms.
• Continue growing the number of loyal and digital customers
strongly.
• Managing regulatory impacts on revenue.
• Increase our customer base and improve the relationship with
our customers, offering a tailored service.
• Maximise transactionality between businesses and segments.
• Manage regulatory changes.
Chile
Argentina
In a scenario of macroeconomic and political uncertainties, the
strategy will focus on:
In order to be the country's best open financial services platform,
the strategy will focus on:
• Maintaining our leadership position in local banking in a less
dynamic economic environment.
• Increasing our customer base, focusing on customer experience
and maintaining loyalty ratios.
• Continuing to expand our digital platforms and continuing with
the digital transformation E2E and other technological
developments for our SME and corporate customers, including
the launch of our new value-added offering in acquiring.
• Boosting the digitalisation of our core business while
developing new businesses.
• Gaining profitable market share, making optimum use of
capital and controlling provisions.
• Increasing the number of loyal and digital customers while
improving our service quality indicators.
• Growing volumes, management of spreads and higher fee
income to boost revenue.
• Remaining best in class in terms of efficiency.
• Focusing on margin management and transactional business in
a probable environment of falling interest rates.
• Continuing with our efficiency and simplification process.
Uruguay
Andean Region
The Bank's strategy will focus on:
The Bank's strategy will focus on:
• Expanding our businesses, combined with risk control and in a
responsible way with the community in which we operate.
• Achieving greater customer loyalty, increasing market share.
• Accelerating our digital capabilities and modernise our digital
offering.
• The digital transformation of Peru and Colombia.
• In Peru, expand our customer base, increase customer loyalty
and maintain credit quality.
• In Colombia, significant profit growth focused on most
segments.
• Continuing to improve operational efficiency.
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Santander Corporate & Investment Banking
Wealth Management & Insurance
In 2020 we expect to generate growth, including the investments
needed to continue improving our value offering globally and
reinforce our commitment to digital channels. The key
management drivers will be:
• Consolidating our global Private Banking model and continuing
to foster collaboration between our private banks and other
Bank segments by offering customers a global experience and
value proposition.
• Continuing to improve and expand the product rage in SAM and
complete our methodology and ESG product offering, while
improving efficiency by transforming our operating model into
a more global and integrated manager.
• In Insurance, completing the product range and beginning to
capture its identified potential, aiming for double-digit growth.
In addition, developing Pensions by increasing our product
offering, adapting to the customer's life cycle.
Continuing digitalisation through Global Spirit tools for our Private
Banking managers, the new front (Virginia) for our Private
Banking customers, a Private Wealth aggregator (Masttro), the
implementation of the Aladdin investment platform in SAM and
the development of end-to-end digital tools in Insurance.
In 2020, we will continue to focus on:
• Increasing capital rotation and efficiency, maximising returns
on risk-weighted assets.
• Continuing to work on geographic, product and customer
diversification.
• Continuing to expand the range of products to customers of the
retail banking network.
• Further strengthening our commitment to sustainability,
expanding the range of green products for our customers.
• Continuing to enhance our business environment and control
mechanisms.
Santander Global Platform
In 2020, we will continue to develop our global platforms to
accelerate progress in our digital transformation, improve
efficiency and customer experience, with tailored objectives in the
medium term:
• In GMS, we plan to expand our markets from 1 to 8. It will be
rolled out in Latin America in 2020, firstly in Mexico.
• In GTS, our priority will be to complete the acquisition of Ebury.
Following its integration, combined with the strengths and
assets of Santander, we aim to become the leading proposition
for international SMEs in Europe and Latin America in the
medium term, by extending GTS to 20 markets.
• As of today, Superdigital operates in three markets and our goal
is to reach over 5 million active customers across 7 markets.
• Openbank carries out its activity in four markets and we plan to
expand into 10 markets in Europe and Latin America.
• The Centres of Digital Expertise will continue to work to ensure
all countries have access to the most innovative technology,
while avoiding duplications and continuing to invest in
attractive fintechs through our venture capital InnoVentures.
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8. Alternative performance
measures (APMs)
In addition to the financial information prepared under IFRS,
this consolidated directors’ report contains financial measures
that constitute alternative performance measures (‘APMs’) to
comply with the guidelines on alternative performance
measures issued by the European Securities and Markets
Authority on 5 October 2015 and non-IFRS measures.
The financial measures contained in this consolidated
directors’ report that qualify as APMs and non-IFRS measures
have been calculated using our financial information but are
not defined or detailed in the applicable financial information
framework or under IFRS and have neither been audited nor
reviewed by our auditors.
We use these APMs and non-IFRS measures when planning,
monitoring and evaluating our performance. We consider
these APMs and non-IFRS financial measures to be useful
metrics for management and investors to facilitate operating
performance comparisons from period to period. While we
believe that these APMs and non-IFRS financial measures are
useful in evaluating our business, this information should be
considered as supplemental in nature and is not meant as a
substitute of IFRS measures. In addition, the way in which
Santander defines and calculates these APMs and non-IFRS
measures may differ from the calculations used by other
companies with similar measures and, therefore, may not be
comparable.
The APMs and non-IFRS measures we use in this document
can be categorised as follows:
Underlying results
In addition to IFRS results measures, we present some results
measures which are non-IFRS measures and which we refer to
as underlying measures. These underlying measures allow in
our view a better year-on-year comparability as they exclude
items outside the ordinary course performance of our business
which are grouped in the non-IFRS line management
adjustments and are further detailed at the end of section 3.2
of this chapter.
In addition, the results by business areas in section 4 are
presented only on an underlying basis in accordance with IFRS
8. The use of this information by the Group’s Governance
bodies and reconciled on an aggregate basis to our IFRS
consolidated results can be found in note 52.c to our
consolidated financial statements.
Profitability and efficiency ratios
The purpose of the profitability and efficiency ratios is to
measure the ratio of profit to capital, to tangible capital, to
assets and to risk weighted assets, while the efficiency ratio
measures how much general administrative expenses
(personnel and other) and amortisation costs are needed to
generate revenue.
Ratio
Formula
Relevance of the metric
RoE
(Return on equity)
Attributable profit to the parent
Average stockholders’ equity A (excl. minority interests)
This ratio measures the return that shareholders
obtain on the funds invested in the Bank and as such
measures the Bank’s ability to pay shareholders.
RoTE
(Return on tangible
equity)
Attributable profit to the parent
Average stockholders’ equityA (excl. minority interests) -
intangible assets
Underlying RoTE
RoA
(Return on assets)
RoRWA
(Return on risk
weighted assets)
Underlying RoRWA
Efficiency
(Cost-to-income)
Underlying attributable profit to the parent
Average stockholders’ equityA (excl. minority interests) -
intangible assets
Consolidated profit
Average total assets
Consolidated profit
Average risk weighted assets
Underlying consolidated profit
Average risk weighted assets
Operating expenses B
Total income
This is a very common indicator, used to evaluate
the profitability of the company as a percentage of a
its tangible equity. It’s measured as the return that
shareholders receive as a percentage of the funds
invested in the Bank less intangible assets.
This indicator measures the profitability of the
tangible equity of a company arising from ordinary
activities, i.e. excluding results from operations
outside the ordinary course performance of our
business.
This metric, commonly used by analysts, measures
the profitability of a company as a percentage of its
total assets. It is an indicator that reflects the
efficiency of the Bank’s total funds in generating
profit over a given period.
The return adjusted for risk is an derivative of the
RoA metric. The difference is that RoRWA measures
profit in relation to the Group’s risk weighted assets.
This relates the underlying consolidated profit
(excluding management adjustments) to the
Group’s risk weighted assets.
One of the most commonly used indicators when
comparing productivity of different financial entities.
It measures the amount of resources used to
generate the Bank’s operating income.
A.
B.
Stockholders’ equity = Capital and Reserves + Accumulated other comprehensive income + Attributable profit to the parent + Dividends.
Operating expenses = Administrative expenses + amortisations.
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Profitability and efficiency A B (EUR million and %)
RoE
Attributable profit to the parent
Average stockholders' equity (excluding minority interests)
RoTE
Attributable profit to the parent
Average stockholders' equity (excluding minority interests)
(-) Average intangible assets
Average stockholders' equity (excl. minority interests) - intangible assets
Underlying RoTE
Attributable profit to the parent
(-) Management adjustments
Underlying attributable profit to the parent
Average stockholders' equity (excl. minority interests) - intangible assets
RoA
Consolidated profit
Average total assets
RoRWA
Consolidated profit
Average risk weighted assets
Underlying RoRWA
Consolidated profit
(-) Management adjustments
Underlying consolidated profit
Average risk weighted assets
Efficiency ratio (Cost-to-income)
Underlying operating expenses
Operating expenses
Management adjustments impact C
Underlying total income
Total income
Management adjustments impact C
2019
6.62%
6,515
98,457
9.31%
6,515
98,457
28,484
69,973
11.79%
6,515
(1,737)
8,252
69,973
2018
8.21%
7,810
95,071
11.70%
7,810
95,071
28,331
66,740
12.08%
7,810
(254)
8,064
66,740
2017
7.14%
6,619
92,638
10.41%
6,619
92,638
29,044
63,594
11.82%
6,619
(897)
7,516
63,594
0.54%
0.64%
0.58%
8,116
1,508,167
9,315
1,442,861
8,207
1,407,681
1.33%
1.55%
1.35%
8,116
609,170
9,315
598,741
8,207
606,308
1.61%
1.59%
1.48%
8,116
(1,710)
9,826
609,170
9,315
(231)
9,546
598,741
8,207
(756)
8,963
606,308
47.0%
47.0%
47.4%
23,280
23,280
—
49,494
49,229
265
22,779
22,779
—
48,424
48,424
—
22,918
22,993
(75)
48,392
48,355
37
A.
B.
C.
Averages included in the RoE, RoTE, RoA and RoRWA denominators are calculated using 13 months (from December to December).
The risk weighted assets included in the denominator of the RoRWA metric are calculated in line with the criteria laid out in the CRR (Capital Requirements
Regulation).
Following the adjustments in note 52.c to the consolidated financial statements.
Efficiency ratio by business areas (EUR million and %)
2019
Underlying
total income
21,001
7,506
4,710
4,727
1,375
1,717
11,604
7,605
3,998
18,425
13,951
2,539
1,316
%
52.6
53.6
43.3
60.0
45.3
40.4
42.8
43.3
41.8
36.1
33.0
40.6
57.9
Underlying
operating
expenses
11,044
4,021
2,038
2,835
623
693
4,968
3,297
1,671
6,656
4,606
1,031
762
2018
Underlying
total income
21,257
Underlying
operating
expenses
11,165
7,615
4,610
5,132
1,344
1,488
10,476
6,949
3,527
17,674
13,345
2,535
1,209
4,338
1,989
2,837
644
640
4,488
3,019
1,469
6,558
4,500
1,047
751
%
52.5
57.0
43.1
55.3
47.9
43.0
42.8
43.4
41.7
37.1
33.7
41.3
62.1
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
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Underlying RoTE by business areas (EUR million and %)
2019
2018
Average
stockholders'
equity (excl.
minority
interests) -
intangible
assets
Underlying
attributable
profit to the
parent
4,878
1,585
1,314
1,077
525
349
1,667
717
950
3,924
2,939
630
144
48,793
15,124
8,611
14,795
4,101
3,104
19,556
14,997
4,607
19,065
13,888
3,485
647
%
10.00
10.48
15.26
7.28
12.80
11.23
8.52
4.78
20.61
20.58
21.16
18.08
22.20
Average
stockholders'
equity (excl.
minority
interests) -
intangible
assets
Underlying
attributable
profit to the
parent
5,048
1,554
1,293
1,272
479
296
1,304
549
755
3,451
2,592
612
82
46,487
14,918
8,168
13,624
3,982
2,891
17,127
13,403
3,731
18,371
13,167
3,339
707
%
10.86
10.42
15.83
9.33
12.02
10.22
7.62
4.10
20.24
18.79
19.68
18.34
11.62
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
Credit risk indicators
The credit risk indicators measure the quality of the credit portfolio and the percentage of non-performing loans covered by
provisions.
Ratio
Formula
Relevance of the metric
NPL ratio
(Non-performing loans
ratio)
Non-performing loans and advances to customers,
customer guarantees and customer commitments granted
Total Risk A
Coverage ratio
Cost of Credit
Provisions to cover impairment losses on loans and
advances to customers, customer guarantees and customer
commitments granted
Non-performing loans and advances to customers,
customer guarantees and customer commitments granted
Allowances for loan-loss provisions over the last 12 months
Average loans and advances to customers over the last 12
months
The NPL ratio is an important variable regarding
financial institutions’ activity since it gives an
indication of the level of risk the entities are
exposed to. It calculates risks that are, in accounting
terms, declared to be non-performing as a
percentage of the total outstanding amount of
customer credit and contingent liabilities.
The coverage ratio is a fundamental metric in the
financial sector. It reflects the level of provisions as a
percentage of the non-performing assets (credit
risk). Therefore it is a good indicator of the entity’s
solvency against client defaults both present and
future.
This ratio quantifies loan-loss provisions arising
from credit risk over a defined period of time for a
given loan portfolio. As such, it acts as an indicator
of credit quality.
A.
Total risk = Total loans & advances and guarantees to customers (performing and non-performing) + non-performing contingent liabilities.
Credit risk (EUR million and %)
NPL ratio
Non-performing loans and advances to customers, customer guarantees and customer
commitments granted
Total risk
Coverage ratio
Provisions to cover impairment losses on loans and advances to customers, customer
guarantees and customer commitments granted
Non-performing loans and advances to customers, customer guarantees and customer
commitments granted
Cost of credit
Net loan-loss provisions
Average loans and advances to customers
2019
3.32%
2018
3.73%
2017
4.08%
33,799
1,016,507
35,692
958,153
37,596
920,968
68%
67%
65%
22,965
24,061
24,529
33,799
35,692
37,596
1.00%
9,321
1.00%
8,873
1.07%
9,111
935,488
887,028
853,479
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NPL ratio by business areas (EUR million and %)
2019
Non-
performing
loans and
advances to
customers,
customer
guarantees and
customer
commitments
granted
23,519
14,824
2,416
2,786
1,834
1,447
3,165
2,331
834
6,972
4,727
1,947
171
%
3.25
6.94
2.30
1.01
4.83
4.31
2.20
2.20
2.19
4.86
5.32
4.64
3.39
Total risk
722,661
213,668
105,048
275,941
37,978
33,566
143,839
105,792
38,047
143,428
88,893
42,000
5,044
2018
Non-
performing
loans and
advances to
customers,
customer
guarantees and
customer
commitments
granted
25,287
16,651
2,244
2,739
2,279
1,317
3,510
2,688
822
6,639
4,418
1,925
179
%
3.67
7.32
2.29
1.08
5.94
4.28
2.79
2.92
2.43
4.81
5.25
4.66
3.17
Total risk
688,810
227,401
97,922
252,919
38,340
30,783
125,916
92,152
33,764
138,134
84,212
41,268
5,631
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
Coverage ratio by business areas (EUR million and %)
2019
Provisions to
cover
impairment
losses on loans
and advances
to customers,
customer
guarantees and
customer
commitments
granted
11,714
6,098
2,563
1,018
969
967
4,842
3,773
1,069
6,164
4,717
1,090
212
Non-
performing
loans and
advances to
customers,
customer
guarantees and
customer
commitments
granted
23,519
14,824
2,416
2,786
1,834
1,447
3,165
2,331
834
6,972
4,727
1,947
171
%
49.8
41.1
106.1
36.5
52.8
66.8
153.0
161.8
128.3
88.4
99.8
56.0
124.0
2018
Provisions to
cover
impairment
losses on loans
and advances
to customers,
customer
guarantees and
customer
commitments
granted
12,659
7,279
2,387
902
1,151
883
4,822
3,838
984
6,278
4,724
1,166
241
Non-
performing
loans and
advances to
customers,
customer
guarantees and
customer
commitments
granted
25,287
16,651
2,244
2,739
2,279
1,317
3,510
2,688
822
6,639
4,418
1,925
179
%
50.1
43.7
106.4
32.9
50.5
67.1
137.4
142.8
119.7
94.6
106.9
60.6
135.0
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
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Other indicators
The market capitalisation indicator provides information on
the volume of tangible equity per share. The loan-to-deposit
ratio (LTD) identifies the relationship between net customer
loans and advances and customer deposits, assessing the
proportion of loans and advances granted by the Group that
are funded by customer deposits.
The Group also uses gross customer loan magnitudes
excluding reverse repurchase agreements (repos) and
customer deposits excluding repos. In order to analyse the
evolution of the traditional commercial banking business of
granting loans and capturing deposits, repos and reverse
repos are excluded, as they are mainly treasury business
products and highly volatile.
Ratio
Formula
Relevance of the metric
TNAV per share
(Tangible net asset
value per share)
Tangible book value A
Number of shares excluding treasury stock
Price / tangible book
value per share (X)
LtD
(Loan-to-deposit)
Share price
TNAV per share
Net loans and advances to customers
Customer deposits
Loans and advances
(excl. reverse repos)
Gross loans and advances to customers excluding reverse
repos
Deposits (excl. repos)
Customer deposits excluding repos
This is a very commonly used ratio used to measure
the company’s accounting value per share having
deducted the intangible assets. It is useful in
evaluating the amount each shareholder would
receive if the company were to enter into liquidation
and had to sell all the company’s tangible assets.
Is one of the most commonly used ratios by market
participants for the valuation of listed companies
both in absolute terms and relative to other entities.
This ratio measures the relationship between the
price paid for a company and its accounting equity
value.
This is an indicator of the Bank’s liquidity. It measures
the total (net) loans and advances to customers as a
percentage of customer funds.
In order to aid analysis of the commercial banking
activity, reverse repos are excluded as they are highly
volatile treasury products.
In order to aid analysis of the commercial banking
activity, repos are excluded as they are highly volatile
treasury products.
PAT + After tax fees
paid to SAN (in Wealth
Management &
Insurance)
Net profit + Fees paid from Santander Asset Management to
Santander, net of taxes, excluding Private Banking customers
Metric to assess Wealth Management’s total
contribution to Group’s profits
A
Tangible book value = Stockholders’ equity - intangible assets.
Other indicators (EUR million and %)
TNAV (tangible book value) per share
Tangible book value
Number of shares excl. treasury stock (million)
Price / tangible book value per share (X)
Share price (euros)
TNAV (tangible book value) per share
Loan-to-deposit ratio
Net loans and advances to customers
Customer deposits
PAT + After tax fees paid to SAN (in WM&I) (Constant EUR million)
Profit after taxes
Net fee income net of tax
2019
4.36
72,384
16,610
0.86
3.730
4.36
2018
4.19
67,912
16,224
0.95
3.973
4.19
2017
4.15
66,985
16,132
1.32
5.479
4.15
114%
113%
109%
942,218
824,365
2,494
1,013
1,481
882,921
780,496
2,313
915
1,398
848,914
777,730
n.a.
n.a.
n.a.
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Impact of exchange rate movements on profit and loss accounts
Impact of exchange rate movements on the balance sheet
The Group presents, at both the Group level as well as the
business unit level, the real changes in the income statement
as well as the changes excluding the exchange rate effect, as it
considers the latter facilitates analysis, since it enables
businesses movements to be identified without taking into
account the impact of converting each local currency into
euros.
Said variations, excluding the impact of exchange rate
movements, are calculated by converting P&L lines for the
different business units comprising the Group into our
presentation currency, the euro, applying the average
exchange rate for 2019 to all periods contemplated in the
analysis. The average exchange rates for the main currencies
in which the Group operates are set out on section 'Economic,
regulatory and competitive context' of this chapter.
The Group presents, at both the Group level as well as the
business unit level, the real changes in the balance sheet as
well as the changes excluding the exchange rate effect for
loans and advances to customers excluding reverse repos and
customer funds (which comprise deposits and mutual funds)
excluding repos. As with the income statement, the reason is
to facilitate analysis by isolating the changes in the balance
sheet that are not caused by converting each local currency
into euros.
These changes excluding the impact of exchange rate
movements are calculated by converting loans and advances
to customers excluding reverse repos and customer funds
excluding repos, into our presentation currency, the euro,
applying the closing exchange rate on the last working day of
2019 to all periods contemplated in the analysis. The end-of-
period exchange rates for the main currencies in which the
Group operates are set out on section 'Economic, regulatory
and competitive context'.
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Risk management
and control
387
Risk management
and control
a
1. Risk management and control overview
1.1 Executive summary and 2019 highlights
1.2 Santander top and emerging risks
2. Risk management and control model
2.1 Risk principles and culture
2.2 Risk factors
2.3 Risk governance
2.4 Management processes and tools
2.5 Environmental and social risk
3. Credit risk
3.1 Introduction
3.2 Credit risk management
3.3 Key metrics
3.4 Details of main geographies
3.5 Other credit risk aspects
390
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392
394
394
394
395
397
400
402
402
402
405
411
417
4. Trading market risk, structural and liquidity risk 423
4.1 Introduction
4.2 Trading market risk management
4.3 Trading market risk key metrics
4.4 Structural balance sheet risks management
4.5 Structural balance sheet risks key metrics
4.6 Liquidity risk management
4.7 Liquidity risk key metrics
4.8 Pension and actuarial risk management
423
424
426
433
434
437
438
438
5. Capital risk
5.1 Introduction
5.2 Capital risk management
5.3 Key metrics
6. Operational risk
6.1 Introduction
6.2 Operational risk management
6.3 Key metrics
7. Compliance and conduct risk
7.1 Introduction
7.2 Governance
7.3 Compliance and conduct risk management
8. Model risk
8.1 Introduction
8.2 Model risk management
9. Strategic risk
9.1 Introduction
9.2 Strategic risk management
a
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Table of Contents
1. Risk management and
control overview
Risk management and control is a fundamental part of the culture in Santander
One of our core priorities is to continuously strengthen our risk management and control strategy. This enables us to maintain our
medium-low risk profile in the face of an ever-changing economic, social and regulatory environment.
1.1 Executive summary and 2019
highlights
This section provides an overview of the main risk factors,
including quantitative and qualitative indicators that help
explain the Group's overall risk profile and its evolution
throughout 2019.
Further details on each factor are found in the following
sections of this chapter, which can be accessed using the
links provided, as well as our top and emerging risks.
Credit risk
Credit risk with customersA by country
Section 3
– The geographic diversification of our loan
portfolio between mature and emerging
markets is a key driver of our through the
cycle resilience.
– The main credit quality indicators continue to
improve in 2019.
Excludes geographies with an exposure lower than 1%
A. Includes gross lending to customers, guarantees and documentary credits.
B. Cost of credit calculated as the percentage of last twelve months loan- loss provisions over average lending
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Trading market risk, structural and liquidity risk
Section 4
VaR 2019 evolution
Capital risk
RWAA by risk type
A. Risk Weighted Assets.
B. 2019 data calculated using IFRS9 transitional arrangements.
C. Includes counterparty risk, securitisations and amounts below deduction thresholds.
Operational risk
Net Losses by Basel risk category
– Average VaR remained low in SCIB trading
activity despite market volatility. We continue
our customer focus and geographic
diversification.
– Ample liquidity, based on our commercial
banking and autonomous subsidiaries model
with a high proportion of customer deposits in
addition to robust and diversified liquidity
buffers.
– Our prudent balance sheet structure mitigates
the impact of changes in interest rates on net
interest income and equity.
Section 5
– The distribution of RWA reflects our focus on
credit risk, which remains the Group's core
business.
– Santander has lower capital requirements than
the average of the Single Supervisory
Mechanism(SSM) banks as shown in our 2018
Supervisory Review and Evaluation Process
(SREP) published in April 2019.
Section 6
– The operational risk profile remained stable in
2019 despite the increase in claims related to
legacy payment protection insurance (PPI)
cases in the UK, as the claim period ended in
August.
– Specific risk-monitoring frameworks
continued to be enhanced such as those for
third party vendors, change-management
processes, including digitalisation, coupled
with additional fraud mitigation actions,
mainly in Mexico, the UK and Brazil.
– We maintained our focus also on
cybersecurity and our transformation
programme which continues to strengthen
detection, response and protection
mechanisms.
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Compliance and conduct risk
Section 7
Several initiatives were launched and completed
throughout 2019, such as:
– Reinforced consumer protection on digital initiatives
and simplification of the product/service approval
process through the enhancement of the digital
platform and the standardization of product
approval frameworks at subsidiaries’ level.
– Strengthened financial crime compliance
management policies and internal regulations with
focus on subsidiary oversight and collaboration.
– Enhanced best practices guidelines on vulnerable
customers treatment and prevention of over
indebtedness, sales force training and retail banking
incentive models, providing a Group wide consistent
approach.
– Approval of an updated Group reputational risk
operating model as well as Defence and sensitive
sectors financing policies.
Model risk
Section 8
Strategic risk
Section 9
Significant progress has been made in our Model Risk
Management strategic plan - MRM 2.0:
– Main initiatives are related to model governance,
risk appetite, coverage risk policies.
– Additionally, processes, infrastructure, tools and
resources have been further strengthened.
– Strategic risk is considered a transversal risk. It has a
specific management and control model to ensure
robust monitoring across the Group.
– Potential threats that may affect strategic objectives
are identified and assessed in order to take
necessary mitigation actions.
The Group's risk profile could be affected by the
macroeconomic, regulatory and competitive environment in
which the Group operates.
The provided financial information is prepared by
aggregating the figures for the Group's various geographic
areas and business units. This information relates to both
the accounting data and that provided by management
information systems. In all cases, the same general
principles as those used in the Group are applied.
The information included in each of the business areas in
this report and the accounting principles under which their
results are presented here may differ from those used in the
financial information separately prepared and disclosed by
our subsidiaries (some of which are publicly listed), which in
name or geographic description may seem to correspond to
the business areas covered in this report. Accordingly, the
results and trends shown for our business areas in this
document may differ from those of such subsidiaries.
The notes to the consolidated financial statements contain
additional information regarding the Group’s risks and other
relevant information regarding provisions, legal proceedings
and other matters, including tax related risks and litigation.
For further detail regarding changes
in segmentation, see section 4.1
'Description of business' on the
Economic and Financial review
chapter.
1.2 Santander top and emerging
risks
In line with the Group´s forward-looking risk management
and control practices, potential threats that may affect the
development of our strategic plan are identified, assessed
and monitored through regular analysis of our top risks
under different scenarios.
The main strategic risks identified by the Group are
regularly monitored by senior management, including any
mitigating actions. The main strategic risks are:
Economic slowdown: potential macroeconomic
deterioration in key markets alongside political instability,
global protectionism impacting the world economy. Also,
Eurozone instability in a context of prolonged low interest
rates, potential implications of Brexit and uncertainty in
Latin American markets.
Santander's inherent diversification makes us more resilient
to macroeconomic risks. This is reflected in our balanced
distribution between mature and developing markets as
well as in our product mix. Additionally, mitigating actions
have been defined to reduce the severity of these risks’
potential impact.
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Key mitigation actions:
• Robust risk policies and procedures across the Group,
coupled with proactive risk management, ensures that
our risk profile is within the predefined parameters
established through our risk appetite statement.
• Continuous monitoring of the macro and geopolitical
outlook.
Regulatory capital headwinds: increasing and intense
regulatory activities, reflected in the new Basel IV
guidelines or the Targeted Reviews on Internal Models
(TRIM), aimed at improving the capitalisation of financial
institutions and their resilience to shocks in the economy,
with a greater impact on those institutions that are
considered systemic.
Key mitigation actions:
• Maintain the focus on capital allocation in strategic
planning.
• Risk models enhancement to address upcoming
regulatory requirements.
Increasing cyber-risk exposure: growing significance of
risks arising from an increasingly digital environment, not
only in the financial sector but in the economy as a whole.
This considers events related to espionage, data leaks or
systems availability, among others.
Key mitigation actions:
• The Group continues to develop our protection controls
based on the highest international standards and
preventive measures to prepare for incidents we may
face.
• Strengthening digital defences through an integrated
cyber transformation plan, a new global monitoring
centre and increasing cyber risk culture within the
organization through new RAS metrics, training,
awareness, among others.
Digital transformation and new competitive environment:
the new digital environment in which we now operate
implies increased competition from existing players and
new entrants. This is redefining the way business is
conducted as well as the customer experience and market
expectations.
In this respect, regulation plays a fundamental role,
sometimes generating asymmetries amongst new and
traditional competitors.
Key mitigation actions:
• Digitalising our existing business while transforming the
current Bank into a global platform is key to competing in
this new environment. Our partnerships and joint
ventures also play a key role in this transformation.
Climate change related implications: focus on the impact
of climate-change related risks on the financial industry and
social awareness as well as on actively supporting the
transition to a low-carbon economy.
Key mitigation actions:
• Santander is committed to the progress of society
supporting inclusive and sustainable growth. Several
initiatives have been launched such as those related to
green funds and active portfolio management to reduce
exposure to brown assets.
• We are actively involved in international fora and working
groups, ensuring that we contribute to the energy
transition scheme.
• Santander also participates in the United Nations
Environment Programme Finance Initiative (UNEP FI)
pilot. Its objective is to develop scenarios, models and
metrics that enable a forward-looking assessment of
climate-related risks and opportunities.
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2. Risk management and control
model
Our risk management and control model is underpinned by a set of common principles together
with a risk culture embedded throughout the Group, a solid governance structure and advanced
risk management processes and tools
2.1 Risk principles and culture
Our risk principles are mandatory and must be followed at
all times. They take into account regulatory requirements
and market best practices. They are the following:
1. A strong risk culture (Risk Pro), as part of ‘The
Santander Way’, which is followed by all employees,
covers all risks and promotes socially responsible
management that contributes to Santander’s long-term
sustainability.
2. All employees are responsible for managing risk. They
must be aware of, and understand, the risks generated
in their day-to-day activities, avoiding risks where the
impacts are unknown or exceed the Group’s risk appetite
limits.
3. Engagement of senior management, ensuring
consistent management and control of risk through their
conduct, actions and communication. They also promote
our risk culture and assess its degree of
implementation, overseeing that the risk profile is kept
within the levels defined by our risk appetite.
4. Independence of the risk management and control
functions, consistent with our three lines of defence
model, which is further explained in section 2.3 'Risk
governance' of this chapter.
5. A forward-looking and comprehensive approach to risk
management and control across all businesses and risk
types.
6. Complete and timely information management,
enabling risks to be appropriately identified, assessed,
managed and reported to the corresponding level.
These principles, combined with a series of tools and
processes that are embedded in the Group’s strategic
planning, such as our risk appetite statement, risk profile
assessment, scenario analysis and our risk reporting
structure, annual planning and budget process, provide a
holistic control structure for the entire Group.
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Risk culture - Risk Pro
Santander has a strong risk culture implemented across the
Group known as Risk Pro, which defines the way in which
we understand and manage risks on a day-to-day basis. It is
based on the principle that all employees are responsible
for risk management.
Further information is available in the
'Risk pro: our risk culture' section of
the Responsible Banking chapter.
2.2 Risk factors
Santander has established the following key risk types in its
risk framework:
Credit Risk: is the risk of financial loss arising from the
1 default or credit quality deterioration of a customer or
other third party, to which Santander has either directly
provided credit or for which it has assumed a contractual
obligation.
Market Risk: is the risk incurred as a result of changes in
2 market factors that affect the value of positions in the
trading book.
3 Liquidity Risk: is the risk that Santander does not have the
liquid financial resources to meet its obligations when
they fall due, or can only obtain them at high cost.
Structural Risk: is the risk arising from the management of
4 different balance sheet items, not only in the banking book
but also in relation to insurance and pension activities. It
includes the risk of Santander not having an adequate
amount or quality of capital to meet its internal business
objectives, regulatory requirements or market
expectations.
Operational Risk: is defined as the risk of loss resulting
5 from inadequate or failed internal processes, people and
systems or from external events, including conduct risk.
Regulatory Compliance Risk: risk of non-compliance with
6 legal and regulatory requirements as well as supervisors
expectations, which may result in legal or regulatory
sanctions, including fines or other financial implications.
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Model Risk: is the risk of loss arising from inaccurate
7 predictions, causing a sub-optimal decision, or from a
model being implemented or used inappropriately.
Reputational Risk: the risk of current or potential negative
8 economic impact to the bank due to damage to its
perception on the part of employees, customers,
shareholders/investors and the wider community.
Strategic Risk: is the risk of loss or damage arising from
9 strategic decisions or their poor implementation that
impact the medium and long term interests of our key
stakeholders, or from an inability to adapt to external
developments.
In addition, climate-change related risk drivers - whether
physical or transition-led, have been identified as factors
that could aggravate the existing risks in the medium and
long term.
The classification of risks is critical to ensure an effective
risk management and control. All identified risks should be
therefore referenced to the aforementioned risk categories
in order to organise their management, control and related
information.
2.3 Risk governance
The Group has a robust risk governance structure, aimed at
ensuring the effective control of its risk profile in accordance
with the risk appetite defined by the board of directors.
This governance structure is underpinned by the
distribution of roles among the three lines of defence, a
robust structure of committees and a strong relationship
between the Group and its subsidiaries. All supported by
our Group-wide risk culture, Risk Pro.
Lines of defence
At Santander, we follow a three lines of defence model to
ensure effective risk management and control:
First line
Second line
Third line
Businesses and all other functions that
originate risks make up the first line of
defence.
These functions must ensure that these
risks are aligned with the approved risk
appetite and associated limits. Any unit
that originates risk has primary
responsibility for the management of that
risk.
Risk and Compliance & Conduct functions.
Their role is to provide independent
oversight and challenge to the risk
management activities performed by the
first line of defence.
These functions ensure that risks are
managed in accordance with the risk
appetite defined by the board and
promote a strong risk culture throughout
the organisation.
The Internal Audit function, which
regularly assesses policies, methodologies
and procedures to ensure they are
appropriate and effectively implemented
for the management and control of all
risks.
The Risk, Compliance and Conduct and Internal Audit
functions are separate and independent and have direct
access to the board of directors and its committees.
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Risk committees structure
The board of directors is responsible for risk management
and control and, in particular, for approving and periodically
reviewing the risk appetite and the risk framework, as well
as for promoting a strong risk culture across the whole
organisation. In order to conduct these tasks, the board has
the support of different committees, this is the case of the
risk supervision, regulation and compliance committee
and the Group’s executive committee, which have specific
risk related responsibilities.
For further information see section
4.8 ‘Risk supervision, regulation and
compliance committee activities in
2019’ of the chapter on Corporate
governance.
The Group Chief Risk Officer (Group CRO) is responsible for
the oversight of all risks and for challenging and advising
the business lines on how they manage risks, with direct
access and reporting to the board risk committee as well as
to the board of directors.
Other bodies that make up the highest level of risk
governance, with authority delegated by the board of
directors, are the executive risk committee and the risk
control committee, details of which are provided below:
• Executive risk committee (ERC)
This committee is responsible for risk management,
within the authorities delegated by the board. The
committee makes risk taking decisions at the highest
level, ensuring that they are within the established risk
appetite limits for the Group.
Chair: CEO.
Composition: nominated executive directors and other
Group senior management. Risk, Finance and Compliance
& Conduct functions, among others, are represented. The
Group CRO has the power of veto over the committee’s
decisions.
• Risk control committee (RCC)
This committee is responsible for risk control,
determining whether the risks originated by the business
lines are managed within our risk appetite limits and
providing a holistic view of all risks. This includes the
identification and monitoring of both current and
emerging risks, and evaluating their impact on the
Group's risk profile.
Chair: Group CRO.
Composition: senior management members from the
Risk, Compliance & Conduct, Finance, Accounting and
Management Control functions are represented among
others. Senior members of the Risk function (CROs) from
the Group’s subsidiaries regularly take part to report their
own risk profiles.
Additionally, each risk factor has its own fora and/or regular
meetings to manage and control the risks under their scope.
Among others, they have the following responsibilities:
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• Advise the Group CRO and the risk control committee that
risks are being managed in accordance with the Group’s
risk appetite.
• Carry out regular monitoring of each risk factor.
• Oversee the measures adopted to comply with the
expectations of the supervisors and internal and external
auditors.
For certain matters, the Group may establish specific
additional governance. For example:
• Following the UK’s decision to leave the EU, the Group
and Santander UK set up steering committees and
separate working groups to: i) monitor the Brexit process;
ii) develop contingency plans; and iii) escalate and take
decisions to minimise potential impacts on our business
and customers.
• In order to steer and supervise the review process of the
interest rate benchmarks (which include among others
EONIA, LIBOR and EURIBOR, with specific solutions for
each of them: EONIA will be discontinued on January
2022, LIBOR is likely to cease in December 2021, while
EURIBOR will remain as a compliant benchmark), the
Group established the IBOR steering group. This group is
responsible for driving the project's strategic direction
and take the required decisions to ensure a correct
transition across all Santander businesses and entities.
The IBOR steering group operates in accordance with the
methodology defined by the Group's Execution Project
Office and is chaired by the project's global sponsor, the
global head of SCIB, with the additional support of eight
senior executives.
The Group’s relationship with its subsidiaries with
regards to risk management and control
In all our subsidiaries, the risk management and control
model is aligned with the frameworks established by the
Group’s board of directors. The local units adhere to them
through their respective boards and adapt them to their
own market conditions and regulation.
In order to conduct the review of the aggregated oversight
of all risks, the Group exercises a validation and challenge
role with regard to the policies of the subsidiaries and their
transactions.
This creates a common risk management and control model
across the Group.
The ‘Group-subsidiary governance model and good
governance practices for subsidiaries’ sets up regular
interaction and functional reporting by each local CRO to the
Group CRO, as well as the latter’s participation in the
appointments process, target setting and local CRO’s
evaluation and remuneration, in order to ensure that risks
are adequately controlled.
To strengthen the relationship between the Group and its
subsidiaries, various initiatives have been implemented in
order to develop an advanced risk management model
across the Group:
• Promoting collaboration to accelerate the sharing of best
practices, strengthen existing processes and stimulating
innovation.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
• Talent identification in the risk teams, developing
Business model and risk appetite fundamentals
international mobility through the global risk talent
programme.
• Risk Subject Matter Experts: leveraging on our “best in
class” experts across the Group.
• Peer review: constructive review of specific matters
within the risk function, performed by experts from
different subsidiaries in these competencies.
For further details regarding the
subsidiaries committees’ structure
see section 7 ‘Group structure and
internal governance’ of the chapter on
Corporate Governance.
2.4 Management processes and
tools
To ensure effective risk management and control, the Group
has various key processes and tools, which are described as
follows:
Risk appetite and structure of limits
At Santander, we define risk appetite as the amount and
type of risks that are considered prudent to assume for
implementing our business strategy, so that the Group can
maintain its ordinary activity in the event of unexpected
circumstances. When establishing the risk appetite, adverse
scenarios that could have a negative impact on capital and
liquidity levels, profitability and/or the share price are taken
into account.
The risk appetite statement (RAS) is annually set by the
board for the entire Group. Additionally, the boards of our
subsidiaries also set their own risk appetite on an annual
basis, aligned and embedded within the Group’s
consolidated statement. Each subsidiary's statement is then
further cascaded down in the form of management limits
and policies by risk type, portfolio and activity segment,
within the common standards defined by the Group.
The risk appetite is consistent with our risk culture and
business model. The main elements that define the
business model and underpin our risk appetite are:
• Medium-low and predictable risk profile based on a
diversified business model, focused on retail and
commercial banking with internationally diversified
activities and strong market share, with a wholesale
business model that is centred on customer relationships
in the Group’s main markets.
• Stable and recurrent earnings and shareholder
remuneration, underpinned by sound capital and
liquidity, as well as diversified sources of funding.
• Autonomous subsidiaries that are self-sufficient in terms
of capital and liquidity, ensuring that no subsidiary has a
risk profile that could jeopardise the Group’s solvency.
• An independent Risk function with the active involvement
of senior management to reinforce a strong risk culture
and a sustainable return on capital.
• Global and holistic view of all risks, through extensive
control and monitoring: All risks, all businesses and all
countries.
• Focus on products that the Group knows sufficiently well
and has the capacity to manage (systems, processes and
resources).
• A conduct model that protects our stakeholders.
• Remuneration policy that aligns the individual interests of
employees and executives with the risk appetite, and is
consistent with the Group’s long-term results
performance.
Santander risk appetite principles
The following principles govern the Group’s risk appetite in
all its subsidiaries:
• Responsibility of the board and of senior management.
The board is responsible for setting the risk appetite and
for monitoring compliance with its requirements.
• Holistic risk view (enterprise wide risk), risk profile
backtesting and challenge. The risk appetite must
consider all significant risks and facilitate an aggregate
view of the risk profile through the use of quantitative
metrics and qualitative indicators.
• Forward-looking view. The risk appetite must consider
the desirable risk profile for the short and medium term,
taking into account both the most plausible
circumstances and adverse/stress scenarios.
• Embedding and alignment with strategic and business
plans. The risk appetite is an integral part of the strategic
and business planning, which is embedded in the daily
management by cascading down the aggregated limits to
those set at portfolio level, subsidiary or business line, as
well as through the key risk appetite processes.
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• Common principles and language across our
subsidiaries and throughout the Group. Each
subsidiary's risk appetite is aligned with the Group.
• Periodic review, backtesting and adoption of best
practices and regulatory requirements. Monitoring and
control mechanisms to ensure the risk profile is
maintained, and the necessary corrective and mitigating
actions are taken in the event of non-compliance.
Limits structure, monitoring and control
Risk appetite is expressed through qualitative statements
and quantitative limits structured around 5 main axes:
Results volatility
1 Maximum loss that the Group is willing to accept under an
acute stress scenario.
Solvency
2 • Minimum capital position that the Group is willing to
accept under an acute stress scenario.
• Maximum leverage the Group is willing to accept under
an acute scenario.
Liquidity
3 • Minimum structural liquidity position.
• Minimum liquidity horizon that the Group is willing to
accept under an acute stress scenario.
• Minimum liquidity coverage position.
Concentration
4 • Concentration in single names, sectors and portfolios.
• Concentration in non-investment grade counterparties.
• Concentration in large exposures.
Non-financial risks
5 • Qualitative non-financial risk indicators:
• Fraud
• Technological
• Security and cyber-risk
• Reputational
• Others
• Maximum operational risk losses.
• Maximum risk profile.
Risk appetite limits compliance is regularly monitored.
Specialised control functions report the risk profile to the
board and its committees on a monthly basis.
Linkage between the risk appetite limits and the business
units and portfolios is a key element for embedding the risk
appetite as an effective risk management tool. The
management policies and limits used to manage the
different categories and types of risk are directly related to
the principles and limits defined in the the risk appetite
statement. These are described in greater detail in sections
3.2 ‘Credit risk management’, 4.2 ‘Trading market risk
management’ and 4.4 ‘Structural balance sheet risk
management’ of this chapter.
Risk profile assessment (RPA)
The Group carries out identification and assessment tests
on the different risks that it is exposed to, involving all the
lines of defence, establishing management standards that
meet regulatory requirements and reflect best practices in
the market and reinforce our risk culture.
The results of the risk identification and assessment (RIA)
exercises are integrated to evaluate the Group risk profile
through the risk profile assessment (RPA). This exercise
analyses the development of risks and identifies areas for
improvement:
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• Risk performance, enabling the understanding of
residual risk by risk type through a set of metrics and
indicators calibrated using international standards.
• Control environment assessment, measuring the degree
of implementation of the target operating model, as part
of our advanced risk management.
• Forward-looking analysis, based on stress metrics and
identification and/or assessment of the main threats to
the strategic plan (Top risks), enabling specific action
plans to be put in place to mitigate potential impacts.
Based on the identification and assessment exercises for the
different risks, as of December 2019 the Group maintains a
solid medium-low risk profile.
In 2019, improvements were centred on three main areas: i)
reviewing and enhancing the control environment standards
ii) risk performance indicators and their alignment with risk
appetite metrics, and iii) enhancing the perimeter by
integrating reputational risk across the risk profile
assessment and enriching our capital metrics.
Scenario analysis
Another fundamental tool that is used by the Group to
ensure robust risk management and control is the analysis
of potential impacts triggered by different scenarios related
to the environment in which the Group operates. These
scenarios are expressed both in terms of macroeconomic
variables, as well as other variables that may affect our risk
profile.
This “scenario analysis” is a robust and useful tool for risk
management at all levels. It enables the Group to assess its
resilience under stressed conditions and the identification of
possible mitigating actions to be implemented in case the
projected scenarios start to materialise. The objective is to
reinforce the stability of income, capital and liquidity.
In this respect, the role of our Research and Public Policy
team in terms of the generation of the different scenarios as
well as the governance and control processes around these
exercises, including the review by senior management as
well as the three lines of defence are fundamental.
The robustness and consistency of the scenario analysis
exercises are based on the following pillars:
• Development and integration of models that estimate the
future performance of metrics, such as credit losses.
• Challenge and backtesting of model results.
• Inclusion of expert judgement and expert knowledge of
our portfolios.
• Robust governance covering models, scenarios,
assumptions and results, as well as management
mitigation actions.
The application of these pillars in the European Banking
Authority (EBA) stress test exercise, has enabled Santander
to comfortably meet the defined quantitative and
qualitative requirements, contributing to the excellent
results obtained by the Group.
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Application of scenario analysis
Risk reporting structure (RRS)
Scenario analysis is included in the Group’s risk framework,
ensuring that any impact affecting solvency or liquidity can
be rapidly identified and addressed. This includes a
systematic review of exposure to different types of risks
under the baseline scenario and under various adverse
scenarios.
Scenario analysis forms an integral part of several key Group
processes:
• Regulatory exercises conducted under the European
regulatory guidelines or those of local supervisors.
• Internal capital adequacy assessment (ICAAP) and
liquidity assessment (ILAAP): the Group develops its own
methodology to assess its capital and liquidity levels
under different stress scenarios to support planning and
management of these two critical aspects.
• Risk appetite. This includes stressed metrics for which
the Group defines maximum levels of risk that should not
be exceeded. These exercises are related to those
conducted for capital and liquidity, although they have
different frequencies and different granularity. For further
details, see 'Risk appetite and structure of limits'
aforementioned in this section and section 4.6 'Liquidity
risk management' in this report.
• Climate change scenario analysis: the objective is to
provide a scenario-based assessment of those risks and
opportunities related to climate change. We are currently
focused on the wholesale portfolio as a pilot.
Our reporting model continues to evolve and we continue to
simplify and optimise our processes, controls and the
communication to senior management. The enterprise wide
view of all risks is regularly consolidated allowing the
Group’s senior management to assess the risk profile and
take actions needed.
Our risk reporting taxonomy contains three types of reports
that are released on a monthly basis: the Group risk report
(which is distributed to senior management), the
subsidiaries risk reports, and the reports on each of the risk
factors identified in the Group’s risk framework.
This taxonomy is characterised by the following:
• All risk factors included in the Group’s risk framework are
covered.
• Balance between data, analysis and qualitative
comments is maintained throughout the reports,
including forward-looking measures, risk appetite
information, limits and emerging risks.
• The holistic view is combined with a deeperanalysis of each
risk factor and geographic area and region.
• A homogenous structure and criteria. A consolidated view
is provided to enable the analysis of all risks based on
common definitions
• All the metrics reported follow RDA criteria, ensuring the
quality and consistency of the data included in all risk
reports.
• Recurrent risk management in different processes/
Santander Analytics
exercises:
Budget and strategic planning process, in the
development of commercial risk approval policies, in
the global risk assessment for senior management or
in specific analysis regarding activity profiles or
portfolios.
Identification of Top risks on the basis of a systematic
process to identify and assess all risks which the
Group is exposed to. These Top risks are selected and
a macroeconomic or idiosyncratic scenario is
associated with each one, to assess their potential
impact on the Group.
Recovery plan, which is drawn up annually to
establish the tools available to the Group to survive in
the event of an extremely severe financial crisis. The
plan sets out a series of financial and macroeconomic
stress scenarios, with differing degrees of severity
that include idiosyncratic and/or systemic events.
IFRS 9. Since 1 January 2018, the processes, models
and scenario analysis methodologies have been
included in the regulatory provision requirements.
For more details on scenario analysis see sections 3.2
‘Credit risk management', 4.2 ‘Trading market risk
management’ and 4.6.’Liquidity risk management’.
Santander Analytics is a Risk function responsible for the
development and independent validation of cutting-edge
and robust quantitative models, in order to help the Group
measure all types of risks, both financial and non-financial,
while at the same time meeting regulatory requirement.
In recent years, Santander Analytics has been analysing and
leading the change into a new paradigm: artificial
intelligence (AI). Drawing on the definition from the
Financial Stability Board (FSB, 2017), AI is the set of theories
and algorithms that allows computer systems to perform
tasks which typically require human intelligence (e.g. visual
perception, voice recognition, or interpretation of a text
taking into account its context).
The escalation of AI tools in all the sectors of the economy
has been made possible by the growing volume of digital
data and higher computational capacity. To evolve to this
new environment, Santander Analytics has fostered a
culture of intelligent data analysis in the development of
quantitative models within the Risk function: the origin of
intelligent data analysis lies in statistics and machine
learning.
In recent years, the increase in computational power and
heightened popularity of machine learning techniques has
enabled financial and non-financial risks to be described,
prescribed and predicted with a high degree of precision.
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In addition, at Santander we are developing machine
learning models for consumer loans, income inference and
fraud detection; deep learning algorithms for the
measurement of reputation risk ratings, backward
rebuilding of financial time series and rating models with
reputational features, contributing to improve credit access
and financial inclusion.
In order to share the know-how relating to these new
techniques across the Group, Santander Analytics has
promoted the Research Day initiative, which is a biannual
workshop to discuss and share knowledge of cutting-edge
research initiatives on quantitative modelling for decision-
making processes in all the Group’s subsidiaries and
businesses.
These new techniques also pose a series of risks and
limitations that must be identified and managed in order to
correctly unlock all of their potential. These risks and
limitations are common, in most cases, to the techniques
used and services provided not only by financial institutions,
but by many other participants in the industry. It is very
important that the principle that the activities that generate
the same risks are subject to the same regulations and
equivalent supervisory mechanisms is fulfilled, in order to
maintain a level playing field.
Models that include AI techniques can also be used in
addition to the more traditional statistical approaches,
contributing in this case to the process of strengthening and
validating the decisions taken.
In summary, Santander Analytics develops advanced
models for the management of all types of risks and also for
decision-making processes outside the scope of the Risk
function. This is performed by using different quantitative
approaches, intelligent data analysis, sharing knowledge
through the Research Day workshop and attracting and
retaining STEM (science, technology, engineering and
mathematics) talent.
The aim is to use advanced analytics to help people and
businesses prosper by being more agile and efficient
(Simple), focusing on customers through user experience,
innovation and satisfaction (Personal), as well as deploying
advanced technology to protect our customers (Fair).
2.5 Environmental and social risk
Our risk management and control model is also a key driver
of Santander’s contribution to sustainable economic
growth. This is achieved by promoting the conservation of
the environment and the protection of human rights.
This principle of environmental and social responsibility is
reflected in the board approved environmental and social
risk policies on energy, covering the oil, gas and energy
generation sectors, mining and metals, including coal
mining and steel production, as well as soft commodities.
The policies set out the activities where the Group will not
provide products and/or services and those where an in-
depth analyses to assess their environmental, social and
reputational impacts is necessary.
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Updates to the policies are proposed annually to the board
by the Global Environmental and Social Risk Management
(ESRM) function in consultation with other functions such
as Credit Risk, Responsible Banking, Reputational Risk and
the business areas, to ensure they remain in line with the
best international practices and standards and their
alignment to the Group’s sustainability approach. The 2019
update includes a new prohibition relating to the
development, construction or expansion of oil and gas
drilling projects north of the Arctic Circle.
The application of the policies across the Group is
supported by the environmental and social (E&S) risk
assessments that Santander carries out on its customers
and transactions as part of its decision-making processes. In
2019 the existing procedure was updated with enhanced
questionnaires tailored to Santander’s Corporate and
Investment Banking (SCIB) division. The review of
customers is initiated by the business areas with dedicated
E&S Champions, within the Credit Risk function, providing
the environmental and social assessments.
This information is held on a global platform accessible to
SCIB bankers and credit analysts and is incorporated into the
limits proposals for our customers and their annual reviews.
The aforementioned update to the procedure was backed by
face-to-face training of over 440 staff members, from
business originating teams to supporting functions, across
all countries where SCIB operates.
During 2019, 88% of global customers, representing 90%
of the exposure to the sectors under the policies, have been
subject to the E&S assessment.
The environmental and social policies
of Santander Group can be found at
www.santander.com
In addition to the above and since 2009, the Group has
applied the Equator Principles to all project finance
transactions, and continues to contribute to the
development of the Principles through direct participation in
the Equator Principles Association working groups. The
Group will be implementing Equator Principles IV approved
in November 2019 and due to come into full effect on 1 July
2020.
Equator Principles reporting from
Santander is available in section
‘Analysis of environmental and social
risks’ of the Responsible Banking
chapter.
Climate change and risk management
The E&S sector policies mentioned above are also designed
to support Santander´s commitment to finance the
transition to a low-carbon economy and positively
contribute to climate change mitigation.
The Risk division contributes to Santander’s public
commitments on climate change through a number of
internal projects and external initiatives.
Regarding the recommendations issued by the Task Force
on Climate-related Financial Disclosures (TCFD) of the FSB,
the Risk division actively participates in the execution of the
Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
Group’s TCFD implementation plan in collaboration with the
Responsible Banking function and other areas.
Actions undertaken in 2019 included climate change
training provided to the board and to over 150 staff at Group
headquarters, this training will be launched globally across
all business units in 2020.
A first approach to incorporate climate change in the Risk
appetite statement was approved and its physical and
transition risk drivers have been included in the Group’s risk
framework as factors that could aggravate the existing risks
in the medium and long term.
In addition, deep-dives into the oil, gas, mining and steel
sectors were presented to the board's risk supervision,
regulation and compliance committee and the board's
responsible, sustainability and culture committee in a joint
session, with particular focus on the risks and opportunities
that arise from climate change.
The board's responsible banking sustainability and culture
committee was also informed of the analysis conducted by
Risk in collaboration with SCIB on the European Union
power portfolio. Applying expert judgement, the exercise
measured the potential impact on the portfolio of a number
of financial drivers linked to the International Energy
Agency scenarios. The results obtained showed the
portfolio to be positively positioned with regards to climate
change transition risks with a high proportion of the
exposure in low emission power generation sectors.
Santander Group is one of the 17 banks participating in the
Paris Agreement Capital Transition Assessment (PACTA)
Bank Pilot led by 2 Degrees investing initiative (2Dii), the
purpose of which is to provide information on the alignment
of selected portfolios with regard to climate scenarios as
proxies to the Paris Agreement. The Credit Risk area has
worked alongside the SCIB and Responsible Banking teams
providing data for the project, and is actively collaborating
with SCIB to use the results in a forward-looking
assessment of climate-related risks and opportunities in
wholesale portfolios.
Further information on the output of
the PACTA pilot is available in section
‘Sustainable finance’ in the
Responsible Banking chapter.
Santander continues to participate in the United Nations
Environmental Program Financial Initiative (UNEP FI) to
implement the TCFD requirements. The initiative´s objective
is to develop scenarios, models and metrics to enable a
scenario-based, forward-looking assessment of climate-
related risks and opportunities.
In the first phase which ended in 2018, 16 leading banks
from four continents, published a methodology to increase
the understanding of the climate change impacts on their
business. Santander specifically focused on the calculation
of direct and indirect transition risks and their impact on the
transportation sector in the wholesale portfolio as a pilot.
The key conclusion from the exercise was the customers'
resilience to the stress test, including climate-related
transition impacts, due to their capacity to adapt to
technological change requirements. This resulted in a
limited impact on their credit quality.
In 2019 and into 2020 Santander was and is participating in
the UNEP FI second phase, along with 35 global and local
banks. The objective of this new phase is to enhance the
“toolkit” with the core modules of climate scenarios, data &
methodology, reporting & governance to allow risks and
climate related impacts to be measured, in addition to
developing approaches to standardised disclosures.
Santander is actively participating in various working groups
addressing climate scenarios and methodology, specifically
focusing on pilot exercises involving physical risks in the
mortgage book, a material sector for the Group.
The UNEP FI project continues to bring notable progress to
climate risk assessment, with lessons learnt from the first
pilot enriching the work being undertaken in this second
round. Phase II is due to end in the second quarter of 2020,
covering and developing all the aspects required to define
the risk calculation and impacts of climate risks.
Finally, and in coordination with the Public Policy team, Risk
provides continuous input, directly and by participating in
sector working groups, to the climate change and
Environmental, Social & Governance (ESG) regulatory
consultations that are taking place across the EU and other
countries where the Group is present.
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3. Credit risk
3.1 Introduction
Credit risk is the risk that a financial loss will be incurred
arising from the default or credit quality deterioration of a
customer or other third party, with whom the Group has
assumed a contractual obligation, including providing
credit, that may therefore not be fulfilled.
Credit risk is the most relevant risk for the Group, both by
exposure and capital consumption, it also includes
counterparty risk, country risk and sovereign risk.
3.2 Credit risk management
Our credit risk management process consists of identifying,
analysing, controlling and decisioning on the credit risk
incurred by the Group. It considers a holistic view of the
credit risk cycle including the transaction, customer and
portfolio views. Both business and risk areas, together with
senior management participate in the management and
control process.
Credit risk identification is a key component for the active
management and effective control of our portfolios. The
identification and classification of external and internal risks
in each business allows corrective and mitigating measures
to be adopted in the event they are needed. This is achieved
through the following processes:
Planning
Planning allows business targets to be set and specific
action plans defined, within the risk appetite framework
established by the Group.
Strategic commercial plans (SCPs) are one of our
management and control tools for the Group’s credit
portfolios. SCPs are prepared jointly by the business and
risk areas, and define the commercial strategies, risk
policies, measures and infrastructure required. These
factors are considered as a whole, ensuring a holistic view
of the portfolios.
The integration of SCPs at management level provides an
updated view of the credit portfolio quality, enabling credit
risk to be measured, and internal controls executed
alongside the periodic monitoring of strategy, the early
detection of deviations and significant changes in the risk
and potential impact, as well as defining corrective actions
where necessary.
SCPs are approved and monitored by senior management in
each entity before review and validation at Group level.
The SCPs are aligned with the Group´s risk appetite and the
capital objectives of the subsidiaries.
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Risk assessment and credit rating process
In order to analyse a customer’s capacity to meet their
contractual commitments with the Bank, the Group uses
valuation and parameter estimation models in each of the
segments where it operates.
The credit quality valuation models applied are based on
credit rating drivers, which are monitored and controlled to
calibrate and adjust the decisions and ratings they assign.
Depending on the segment, drivers may be:
1
Rating: resulting from the application of mathematical
algorithms incorporating a quantitative model based on
balance sheet ratios or macroeconomic variables, and a
qualitative module supplemented by the credit analyst’s
expert judgement. Used for the SCIB, commercial banking,
institutions and SMEs (those who are treated on an
individual basis) segments.
2
Scoring: an automatic assessment system for credit
applications. It automatically assigns an individual score to
the customer for subsequent decision-making, generally
in the retail and smaller SMEs segments.
Parameter estimation models are obtained through internal
econometric models based on the portfolios’ historical
defaults and losses for which they are developed. They are
also used to calculate economic and regulatory capital and
the portfolio’s IFRS 9 provision.
Periodic model monitoring and evaluation is carried out,
assessing among other factors, the appropriateness of
usage, predictive capacity, performance and granularity. In
addition, policy compliance is also monitored.
The resulting ratings are regularly reviewed, incorporating
the latest available financial information as well as other
relevant data. The depth and frequency of the reviews are
increased in the case of customers who require a more
detailed monitoring or have automatic warnings in the risk
management systems.
Credit risk mitigation techniques
Generally, from a risk acceptance standpoint, the criteria are
linked to the borrower’s payment capacity for the financial
obligations - although this does not inhibit imply an
impediment to requiring collateral or personal guarantees in
addition.
Payment capacity is assessed based on the funds or net
cash flows from the customer´s businesses or income,
excluding guarantors or assets pledged as collateral. These
guarantors or assets are always to be considered, when
evaluating the approval of the transaction, as a secondary
method of recovery in the event the first channel fails.
In general, a guarantee is defined as a reinforcement
measure added to a credit transaction with the purpose of
mitigating the loss due to a breach of the payment
obligation.
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At Santander, we apply several credit risk mitigation
techniques on the basis, among other factors, of the type of
customer and product. Some are inherent to specific
transactions (e.g. real estate guarantees) while others apply
to a series of transactions (e.g. derivatives netting and
collateral). The different mitigation techniques can be
grouped into personal guarantees, guarantees in the form
of credit derivatives or collateral.
Definition of limits, pre-classifications and pre-
approvals
The connection between the Group’s credit risk appetite and
credit portfolios management and control is implemented
through the SCPs, which define the portfolio and origination
limits to predict the portfolio’s risk profile. The cascading
down of the Group’s risk appetite, strengthens the controls
over our credit portfolios.
We have processes that determine the risk that the Group is
able to assume with each customer. These limits are jointly
set by the business and risk areas and have to be approved
by the executive risk committee (or delegated committees)
and reflect the expected results of the business in terms of
risk-return.
There are different limit models depending on the segment:
• Large corporate groups: we use a pre-classification
model based on a system for measuring and monitoring
economic capital. The result is the level of risk that the
Group is willing to assume with a customer/group, in
terms of capital at risk, nominal cap, and maximum
tenors according to the type of transaction, in the case of
financial entities, limits are managed through credit
equivalent risk (CER). It includes the actual and expected
risk with a customer within the limits defined in the risk
appetite statement and credit policies.
• Corporates and institutions that meet certain
requirements (strong relationships, rating, etc.): a more
simplified pre-classification model is used, with an
internal limit that establishes a reference point in the
level of risk to be assumed with the customer. The criteria
will include, among others, repayment capacity, overall
indebtedness, and the distribution of the banking pool.
In both cases, transactions over certain thresholds or with
specific characteristics might require the approval of a
senior credit analyst or committee.
• For individual customers and SMEs with low turnover,
large volumes of credit transactions are managed with
the use of automatic decision models to classify the
customer/transaction.
Scenario analysis
In line with the description in section 2.4 ‘Management
processes and tools’ of this chapter, scenario analysis is
used in credit portfolio management as an evolution of the
portfolio analysis. It enriches the understanding of the
portfolio performance under different macroeconomic
conditions, and allows management strategies to be
anticipated and defined in order to avoid future deviations
from the established plans and targets.
The approach taken with regard to scenario analysis
consists of simulating the impact of alternative scenarios in
the portfolio credit parameters (PD, LGD) and the associated
expected credit losses. The results of this analysis are
compared with the portfolio’s credit profile indicators to
identify the most appropriate measures that could be
developed to guide the required management actions.
Scenario analysis is integrated into credit management
portfolio activities and in the SCPs.
Monitoring
Business performance is monitored on a regular basis by
comparing performance with established plans. This is a
key risk management activity.
All customers are monitored on an ongoing, holistic manner
that enables the early detection of events that may have an
impact on the customer’s credit rating. Monitoring is carried
out through an ongoing review of all customers, assigning a
monitoring classification, establishing pre-defined actions
associated to each classification and executing specific
measures (pre-defined or ad-hoc) to correct any deviations
that could have a negative effect for the Group.
This monitoring process takes into consideration the
transaction forecasts and characteristics throughout its
entire life. It also takes into consideration any variations that
may have occurred in the classification and suitability since
the time of the review.
Monitoring is carried out by local and global Risk teams,
backed up by Internal audit. It is based on customer
segmentation:
• In the SCIB segment, monitoring, in the first instance, is a
direct function of both the business manager and the risk
analyst, who maintain direct relationship with the
customer and manage the portfolio. This guarantees an
up-to- date view of the customer’s credit quality is always
available and allows us to anticipate situations of concern
and take the necessary actions.
• For commercial banking, institutions and SMEs with a
credit analyst assigned, the function consists of
identifying and tracking customers that require closer
monitoring, reviewing ratings and continuously analysing
relevant indicators.
• For individual customers, businesses and smaller SMEs
monitoring is carried out through automatic alerts, in
order to detect shifts in the performance of the portfolio.
The Group performs the monitoring process through the
Santander Customer Assessment Note (SCAN), which was
implemented in the Group’s subsidiaries in 2019.
The Group’s SCAN system aims to establish the level of
monitoring, policies and specific actions for all individual
customers, based on their credit quality and particular
circumstances. Each customer is assigned a level of
monitoring, and specific risk management actions, on a
dynamic basis, with a specific manager appointed and
agreed monitoring frequency.
In addition to customer credit quality monitoring, Santander
establishes the control procedures needed to analyse
portfolios and performance, as well as any possible
deviations regarding planning or approved alert levels.
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Portfolio analysis systematically controls the evolution of
credit risk with regard to budgets, limits and benchmarks,
assessing the impacts of future situations, both exogenous
and resulting from strategic decisions, to establish actions
to keep the risk portfolio profile and volumes within the
parameters set by the Group within its risk appetite.
Recovery and collections management
Recovery activity is a significant component in the Group’s
risk management and control. This function is carried out by
the Recoveries area, which define a global strategy and an
enterprise-wide focus for recovery management.
The Group has a recovery management operating model
that sets the guidelines and general policies of action to be
applied, taking into account the local environment.
In 2019, this model was updated to incorporate new
regulatory requirements set down in the EBA Guidelines on
the management of non-performing and forborne
exposures.
The Recoveries area directly manages customers, where
value creation is based on effective and efficient collection
management. New digital channels are becoming
increasingly important in recovery management.
The diverse features of Santander´s customers make
segmentation necessary in order to manage recoveries
effectively. Mass management of large groups of customers
with similar profiles and products is conducted through
processes with a high technological and digital component,
while personalised management focuses on customers
who, because of their profile, require a specific manager
and more customised management.
Recovery management is divided into four phases: in
arrears, non-performing loans recoveries, write-offs
recoveries and management of foreclosed assets.
The management scope for the Recovery function includes
non-productive assets (NPAs), corresponding to the
forborne portfolios, NPLs, written-off loans and foreclosed
assets, where the Group may use mechanisms to rapidly
reduce the volume of these assets, such as the sale of
portfolios or foreclosed assets.
In the written-off loans category, debt instruments are
included (past due or otherwise) the recovery of which, after
an individualised analysis, is considered remote, due to the
severe and unrecoverable impairment of the solvency of the
transaction or the customer. Classification in this category
involves the full or partial cancellation of the gross carrying
amount of the loan and its derecognition. This does not
mean that the Group will suspend negotiations or legal
proceedings to recover the amounts.
In those geographies with a significant exposure to real
estate risk, the Group has efficient sales management
instruments to maximise recovery and optimise the existing
stock in the balance sheet.
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2019 Annual Report
Forborne portfolio
The Group has an internal forbearance policy, which acts as
a reference for the different transpositions in all local
subsidiaries and shares the principles established by the
regulation and the applicable supervisory expectations. This
year, the policy was updated to include the EBA Guidelines
on the management of non-performing and forborne
exposures
This policy defines forbearance as the modification of the
payment conditions of a transaction to allow a customer
who is experiencing financial difficulties (current or
foreseeable), to fulfil their payment obligations.
In addition, this policy sets rigorous criteria for the
evaluation, classification and monitoring of such
transactions, ensuring the strictest possible care and
diligence in their approval and monitoring. Therefore, the
forborne transaction must be focused on recovery of the
amounts due and the payment obligations adapted to the
customer’s current position and, in addition, losses must be
recognised as soon as possible if any amounts are deemed
irrecoverable.
Forbearance may never be used to delay the immediate
recognition of losses or to hinder the appropriate
recognition of risk of default.
Further, the policy defines the classification criteria for
forborne transactions in order to ensure that any risks are
suitably recognised, bearing in mind that they must remain
classified as non-performing or watchlist for an appropriate
period to ensure reasonable certainty that repayment
capacity can be recovered.
The forborne portfolio stood at 32,475 million euros at the
end of December 2019. In terms of credit quality, 53% of
the loans are classified as non-performing, with average
coverage of 52% (28% of the total portfolio).
Key figures of forborne portfolio
EUR million
Performing
Non-performing
Total Forborne
% CoverageA
2019
15,199
17,276
32,475
28%
2018
20,877
20,357
41,234
26%
2017
27,661
20,044
47,705
24%
A. Total loan-loss allowances/total forborne portfolio.
The Group’s forborne portfolio decreased by 21% in 2019, in
line with the trend observed in previous years.
Credit management evolution
Santander launched in 2019 a strategic initiative to enhance
credit risk management across the Group as part of the Risk
Strategy program: ATOMiC - Advanced Target Operating
Model in Collaboration-.
ATOMiC defines our credit risk expectations over a3-year
horizon by identifying best practices in the group and across
the industry. Existing best practices set a realistic target
aspiration and serve as a reference and driver for our units.
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Specific key performance indicators (KPI) are also identified
for better assessment and monitoring. Planning and
implementation also leverage on existing expertise in the
units (local experts), with the support of the Group.
Prioritization is focused on strategic initiatives that require
special attention, particularly initiatives oriented to process
automation and digitalisation. The work streams are fully
customised and landed in each segment and unit and
approved at local level.
3.3 Key metrics
Changes in perimeter
In 2019, we made a change to our reported segments to
reflect our current organisational and management structure.
For further detail see section 4.1
'Description of segments' of the
Economic and financial review
chapter.
2019 general performance
Credit risk is diversified among the main regions where the
Group operates (excluding geographies with exposures lower
than 1%): Europe (71%), South America (14%) and North
America (14%), with a suitable balance between mature and
emerging markets.
As at December 2019, the performance can be summarised
as follows: credit risk with customers increased by 6.1% vs.
2018, based on the same perimeter, mainly due to the United
Kingdom, the United States, SCF and Mexico. Growth in local
currency was seen across all subsidiaries with the exception
of Spain.
Exposures, together with lower non-performing loans (NPLs)
of 33,799 million euros (-5.3% vs. year end 2018) reduced
the Group’s NPL ratio to 3.32% (-41 bps vs. 2018).
In order to cover potential losses arising from NPLs, and in
accordance with IFRS 9 guidelines, the Group recorded loan-
loss provisions of 9,321 million euros (+5% vs. December
2018), after deducting post write-off recoveries. The cost of
credit remains stable at 1.00%.
Total loan-loss allowances amounted to 22,965 million
euros, bringing the Group’s NPL coverage ratio to 68%,
recognising that 66% of the Group's net customer loans are
secured. The coverage ratio is affected downwards by the
weight of mortgage portfolios (particularly in the UK and
Spain), as lower provisions are needed due to the held
collateral.
Risk management
and control
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Table of Contents
The tables below show the performance of the main metrics
related to credit risk derived from activity with customers:
Main credit risk performance metrics from activity with customers
Dec. 2019 data
Credit risk with customersA
(EUR million)
Non-performing loans
(EUR million)
NPL ratio
(%)
2019
2018
2017
2019
2018
2017
2019
2018
2017
South America
143,428
138,134
138,577
Europe
Spain
UK
S. Consumer Finance
Portugal
Poland
North America
US
SBNA
SC USA
Mexico
Brazil
Chile
Argentina
Santander Global Platform
Corporate Centre
Total Group
Europe
Spain
UK
S. Consumer Finance
Portugal
Poland
North America
US
SBNA
SC USA
Mexico
South America
Brazil
Chile
Argentina
Santander Global Platform
Corporate Centre
Total Group
722,661
688,810
671,776
23,519
25,287
27,964
237,327
14,824
16,651
18,270
213,668
275,941
105,048
37,978
33,566
143,839
105,792
56,640
29,021
38,047
227,401
252,919
97,922
38,340
30,783
242,993
92,589
39,394
24,391
125,916
106,129
92,152
51,049
26,424
33,764
77,190
44,237
24,079
28,939
88,893
42,000
5,044
706
5,872
84,212
41,268
5,631
340
4,953
83,076
40,406
8,085
96
5,369
2,786
2,416
1,834
1,447
3,165
2,331
389
2,739
2,244
2,279
1,317
3,510
2,688
450
3,210
2,319
2,959
1,114
2,935
2,156
536
1,787
2,043
1,410
834
6,972
4,727
1,947
171
4
138
822
6,639
4,418
1,925
179
4
252
779
6,685
4,391
2,004
202
4
8
1,016,507
958,153
920,968
33,799
35,692
37,596
3.25
6.94
1.01
2.30
4.83
4.31
2.20
2.20
0.69
6.16
2.19
4.86
5.32
4.64
3.39
0.63
2.34
3.32
3.67
7.32
1.08
2.29
5.94
4.28
2.79
2.92
0.88
7.73
2.43
4.81
5.25
4.66
3.17
1.21
5.09
3.73
4.16
7.70
1.32
2.50
7.51
4.57
2.77
2.79
1.21
5.86
2.69
4.82
5.29
4.96
2.50
4.56
0.15
4.08
Coverage ratio
(%)
Net ASRB provisions
(EUR million)
Cost of credit
(%/risk)c
2019
2018
2017
2019
2018
2017
2019
2018
2017
49.8
41.1
36.5
106.1
52.8
66.8
153.0
161.8
140.6
175.0
128.3
88.4
99.8
56.0
124.0
85.3
174.5
67.9
50.1
43.7
32.9
106.4
50.5
67.1
137.4
142.8
122.1
154.6
119.7
94.6
106.9
60.6
135.0
78.9
118.4
67.4
51.8
46.1
32.3
101.4
62.1
68.2
150.9
170.2
102.2
212.9
97.5
83.5
92.6
58.2
100.1
85.1
—
65.2
1,839
1,572
1,313
856
253
477
(8)
217
3,656
2,792
186
2,614
863
3,789
3,036
443
235
1
36
789
171
360
32
161
3,449
2,618
108
691
209
266
12
137
3,685
2,780
116
2,501
2,590
830
3,736
2,963
473
231
—
115
905
4,067
3,395
462
159
—
45
9,321
8,873
9,111
0.28
0.43
0.10
0.48
(0.02)
0.72
2.76
2.85
0.35
9.42
2.49
2.92
3.93
1.08
5.09
0.22
0.57
1.00
0.24
0.38
0.07
0.38
0.09
0.65
3.12
3.27
0.24
10.01
2.75
2.99
4.06
1.19
3.45
0.14
1.65
1.00
0.22
0.37
0.09
0.30
0.04
0.62
3.35
3.42
0.25
9.84
3.08
3.16
4.36
1.21
1.85
0.00
0.86
1.07
A. Includes gross loans and advances to customers, guarantees and documentary credits.
B. Recovered write-off assets (1,586 million euros).
C. Cost of credit = loan-loss provisions twelve months/average lending.
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2019 Annual Report
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Reconciliation of key figures
The 2019 consolidated financial statements provide details
of the customer loan portfolio, both gross and net of
provision allowances. Credit risk also includes off-balance
sheet risk. The following table shows the relationship
between these concepts:
A. Includes gross loans and advances to customers, guarantees and documentary credits.
B. Before loan-loss allowances.
Geographical distribution and segmentation
The Group’s risk function is organised around three types of
customers groups:
• Individuals: Individuals, except those with a business
activity. This segment is divided into sub-segments by
income level, enabling risk management and control by
customer type.
Mortgages to individuals represent approximately 36% of
the Group net customer loans. These mortgages are
focused in Spain and the UK, and are mainly residential
mortgages with a low risk profile, low NPL ratios and
robust coverage ratios. This low risk profile produces low
losses.
• SMEs, commercial banking and institutions: includes
companies and individuals with business activity, as well
as public sector activities and private sector non-profit
entities.
• Santander Corporate & Investment Banking (SCIB):
consists of corporate customers, financial institutions and
sovereigns, comprising a closed list that is revised
annually. This list is determined based on a full analysis of
the company (business type, level of geographic
diversification, product types, volume of revenues it
represents for the Group, among others).
The following chart shows the distribution of credit risk
based on the management model, including gross loans and
advances to customers, guarantees and documentary credits:
Credit risk distribution
Taking into consideration the segmentation, the portfolios’
geographical distribution and performance is shown in the
following charts:
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Table of Contents
Total
Individuals
SMEs, Commercial Banking and Institutions
SCIB
A. Proxies applied for 2017 data.
B. 'Others' include mainly foreign branches wholesale exposure
408
2019 Annual Report
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Key figures by geographic region are described below:
• Europe: NPL ratio decreased to 3.25% (-42 bp compared to
2018), due to the significant decrease of non-performing
loans in Spain and Portugal; and the slight increase in the
UK and SCF, offset by a proportionally higher increase in
total loans.
• North America: NPL ratio down to 2.20% (-59 bp vs 2018)
due to the good performance of the region, especially in
the US which fell by 72 bp, compared to 2018.
• South America: NPL ratio stands at 4.86%, increasing in
Brazil and Argentina (+7 bp and +22 bp compared to 2018,
respectively); and decreasing in Chile (-2 bp vs to 2018).
Further details are provided in section 3.4 'Details of main
geographies'.
Amounts past due (performing loans)
Amounts past due by three months or less represented
0.29% of total credit risk with customers. The following table
shows the breakdown of these loans as at 31 December
2019, according to the first missed payment:
Amounts past due. Maturity detail
EUR million
Loans and advances to credit
institutions
Loans and advances to
customers
Public administrations
Other private sector
Debt instruments
Total
Less than
1 to 2
1 month months
2 to 3
months
10
1,739
1
1,738
—
1,749
—
894
—
894
—
894
—
351
—
351
—
351
Impairment of financial assets
The IFRS 9 impairment model applies to financial assets
valued at amortised cost, debt instruments valued at fair
value with changes in other comprehensive income, lease
receivables, and commitments and guarantees given not
valued at fair value. The portfolio of financial instruments
subject to IFRS 9 is divided into three categories, or stages,
depending on the status of each instrument in relation to its
level of credit risk.
• Stage 1: financial instruments for which no significant
increase in risk is identified since its initial recognition. In
this case, the impairment provision reflects expected credit
losses arising from defaults over twelve months from the
reporting date.
• Stage 2: if there has been a significant increase in credit
risk since the date of initial recognition but the impairment
event has not materialised, the financial instrument is
classified as Stage 2. In this case, the impairment provision
reflects the expected losses from defaults over the residual
life of the financial instrument.
• Stage 3: a financial instrument is catalogued in this stage
when it shows effective signs of impairment as a result of
one or more events that have already occurred resulting in
a loss. In this case, the amount of the impairment provision
reflects the expected losses for credit risk over the
expected residual life of the financial instrument.
The following table shows the credit risk exposure for each of
these stages and by geography:
Exposure by stage and by geography
EUR million
Europe
Spain
UK
SCF
Portugal
Poland
Stage 1
Stage 2
Stage 3
TotalA
644,229
31,650
23,513 699,392
176,162
10,876
14,824
201,862
258,902
13,635
2,786
275,323
98,854
34,037
30,604
3,703
2,107
1,329
2,413
104,970
1,834
37,978
1,442
33,375
North America
120,186
12,366
3,160 135,712
85,447
11,080
2,327
98,854
US
SBNA
SC USA
Mexico
51,622
20,925
34,739
South America
127,778
Brazil
Chile
Argentina
Santander Global
Platform
78,466
37,627
4,537
702
Corporate Centre
4,935
4,373
6,291
1,286
8,673
5,700
2,426
337
—
705
389
56,384
1,787
29,003
834
36,859
6,972 143,423
4,727
88,893
1,947
42,000
171
5,045
4
706
133
5,773
Total Group
897,830
53,394
33,782 985,006
A. Excluding 31,501 million euros from balance not subject to impairment
accounting.
In addition, the impairment provision amount includes the
expected credit risk losses over the expected residual life in
financial instruments Purchased or Originated Impaired
(POCI).
The performance of financial instruments with effective
signs of impairment (stage 3) are shown below:
Non-performing loans evolution according to constituentitem
EUR million
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Table of Contents
2017 - 2019 NPL evolution
EUR million
2017
2018
2019
NPL (start of period)
33,643
Stage 3
NPL not subject to
impairment accounting
Net entries
Perimeter
FX and others
Write-off
37,596
37,571
35,692
35,670
25
22
8,269
10,910
10,544
10,032
(826)
177
(318)
—
156
(13,522)
(12,673)
(12,593)
NPL (End of period)
37,596
35,692
33,799
Stage 3
37,571
35,670
33,782
NPL not subject to
impairment accounting
25
22
17
Allowances evolution according to constituent item
EUR million
2017 - 2019 allowances evolution
EUR million
2017
2018
2019
Allowances (start of period)
24,835
24,529
24,061
For impairment assets
15,466
16,459
For other assets
Stage 1 and 2
Stage 3
9,369
8,070
8,913
15,148
Gross provision for impaired
assets and write-downs
11,607
10,300
10,905
Provision for other assets
(881)
121
FX and other
Write-off
2,490
1,784
(13,522)
(12,673)
(12,593)
6
586
Allowances (end of period)
24,529
24,061
22,965
Stage 1 and 2
Stage 3
8,913
8,872
15,148
14,093
The methodology used to quantify expected losses due to
credit events is based on an unbiased and weighted
consideration of the occurrence of up to five possible future
scenarios that could impact the collection of contractual cash
flows. These scenarios take into account the time-value of
money, all available information relevant to past events, and
current conditions and projections of macroeconomic factors
410
2019 Annual Report
deemed relevant to the estimation of this amount (e.g. GDP,
house pricing, unemployment rate, among others.).
In estimating the parameters used for the calculation of
impairment provisions (EAD, PD, LGD and discount rate), the
Group leverages its experience in developing internal models
for calculating parameters for regulatory and internal
management purposes. The Group is aware of the
differences between these models and regulatory
requirements for provisions. As a result, it has focused on
adapting the development of its IFRS 9 impairment
provisions models to reflect these requirements.
• Establishing a significant increase in credit risk:
proceeding with the classification of the financial
instrument under stage 2, the Group considers the
following criteria:
Quantitative criteria: changes in the risk of a default
occurring throughout the expected life of the financial
instrument are analysed and quantified with respect to
its credit level on initial recognition.
For the purpose of determining whether such changes
should be considered significant, with their consequent
classification as stage 2, each subsidiary has defined
the quantitative thresholds to consider in each of its
portfolios taking into account the Group’s guidelines
and ensuring a consistent interpretation across all
geographies.
Qualitative criteria: in addition to the quantitative
criteria mentioned above, the Group considers several
indicators that are aligned with those used in ordinary
credit risk management (e.g. over 30 days past due,
forbearance, among others). Each subsidiary has
defined these criteria for its portfolios.
The use of these qualitative criteria is supplemented
with the application of expert judgement.
• Definition of default: the definition considered for
impairment provisioning purposes is consistent with that
used in the development of advanced models for
regulatory capital requirements calculations. The Group is
currently working to adapt the definition of default to the
new EBA Guidelines on the application of the definition of
default under Article 178 of the CRR, according to the
scheduled plan
• Use of present, past and future information: the
estimation of expected losses requires a high degree of
expert judgement and it must be supported by historic,
current and future data and expectations. Therefore,
expected loss estimates take into consideration multiple
macroeconomic scenarios for which the probability is
measured considering past events, current situation and
future trends and macroeconomic indicators, such as GDP
or unemployment rate.
The Group uses forward-looking information in internal
management and regulatory processes, incorporating
several scenarios. The Group has leveraged its experience
in the management of such information, which ensures
consistency across our processes.
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• Expected life of the financial instrument: to estimate this
figure all the contractual terms are taken into account (e.g.
pre-payments, duration, purchase options, among others),
where the contractual period (including extension options)
is the maximum period for measuring the expected credit
loss. In the case of financial instruments with an uncertain
maturity period and an undrawn commitment component
(e.g. credit cards), expected life is estimated on the basis of
the period for which the entity is exposed to credit risk and
the effectiveness of management practices to mitigate
exposure.
• Impairment recognition: the main change with respect to
the current standard relates to assets measured at fair
value with changes recognised through other
comprehensive income in regard to the portion of the
changes in fair value due to expected credit losses that will
be recognised under current profit or loss account while
the rest will be recorded under other comprehensive
income.
3.4 Details of main geographies
Regarding Brexit, action plans have been developed and
enhanced in the event of a ‘No deal’ scenario. The Brexit
Response Group meets regularly at Santander UK to provide
assurance of readiness. Continuous monitoring for the
secured portfolio remains critical given the exceptional
macroeconomic context.
Santander UK portfolio is divided into the following
segments:
United Kingdom
Portfolio overview
Portfolio segmentationA
Dec.19 data
Credit risk with customers in the UK, including Santander
Consumer UK, amounted to 275,941 million euros as of
December 2019, an increase of 9.1% compared to year-end
2018 (+3.8% in local currency), representing 27% of the
Group’s total loan portfolio.
The NPL ratio decreased to 1.01% as of December 2019 (-7
bp vs. year-end 2018), despite macroeconomic uncertainty
and thanks to the application of prudent policies, within the
risk appetite framework. The amount of non-performing
loans increased by 1.7%, below the credit portfolio growth,
supported by the continued strong performance of the
mortgage portfolio.
A. Excluding SCF UK and London Branch
Mortgage portfolio performance
Due to its size, not only for Santander UK, but also for the
Group, the UK mortgage portfolio is closely monitored.
This portfolio, as at December 2019, amounted to 194,354
million euros growing, in local currency, by 4.7% in the year.
It consists of residential mortgages granted to new and
existing customers, all of which are first lien mortgages. No
transactions entail second or successive liens on mortgaged
properties.
The real estate market has shown strong resilience with
over 4.0% price growth in the year and a stable number of
transactions.
All properties are valued independently before each new
transaction approval, in accordance with the Group’s risk
management principles.
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The value of the property used as collateral for mortgages
that have been granted is updated quarterly by an
independent agency, using an automatic valuation system
in accordance with market practices and applicable
legislation.
Geographically, credit exposures are predominantly situated
in the southeast of the UK and the London metropolitan
area.
Geographical distribution
Dec.19 data
London
Midlands and East Anglia
North
Northern Ireland
Scotland
South East (excl. London)
South West, Wales and
Other
The distribution of the portfolio by type of borrower is shown
in the chart below:
the UK market for which Santander UK applies restrictive
policies in order to mitigate inherent risks. For example, a
maximum loan to value (LTV) of 50%, more stringent
approval criteria and assessment of payment capacity,
simulating the repayment of capital and interest rather
than solely interest.
• Flexible loans (7%): the contract for this type of loan
enables the customer to modify their monthly payments
or make additional drawdowns of funds up to a
previously pre-established limit, under various
conditions.
• Buy to let (6%): buy to let mortgages (purchase of a
property to be rented) account for a small percentage of
the total portfolio, with approval subject to strict risk
policies.
The strong performance of the mortgage portfolio is
reflected in the NPL ratio, which fell to 1.04% as of
December 2019 (-16 bp vs. year-end 2018).
The implementation of prudent approval policies has put
the simple average LTV of the portfolio at 43%. The
proportion of the portfolio with an LTV of between 85% and
100% is low, standing at around 5%. New business
performance does not show any sign of risk quality
deterioration.
The following charts show the LTV structure for the stock of
residential mortgages as of December 2019:
Mortgage portfolio loan type
EUR million
Loan to value
Dec.19 data
<50%
50-75%
75-85%
85-100%
>100%
Loan to value: relation between the amount of the loan and the appraised value
of the property. Based on indices.
The existing credit risk policies that are used explicitly forbid
loans regarded as high risk (subprime mortgages) and
establish strict requirements for credit quality, both for
transactions and customers.
Spain
A. First time buyer: customers who purchase a home for the first time.
B. Home mover: customers who change houses, with or without changing the
bank granting the loan.
C. Remortgage: customers who switch the mortgage from another financial
General overview
entity.
D. Buy to let: houses bought for renting out.
Santander UK offers a wide range of mortgage products
aligned with its policies and risk limits. The characteristics
of some of these products are described below:
• Interest only loans (23%): customer pays interest every
month and repays the capital at maturity. An appropriate
repayment vehicle such as a pension plan, mutual fund,
among others is required. This is a common product in
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Total credit risk at Santander Spain, including the real estate
unit, amounted to 213,668 million euros, 21% of the Group
total, with an appropriate level of diversification by both
product and customer segment.
In a context of lower economic and credit growth, new
business continues to increase in the segments of consumer
loans, SMEs and Corporates. Total credit risk decreased by
6.0% compared to December 2018, mainly due to lower
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financing extended to public administrations, wholesale
banking which also amortises faster than the growth of new
business in the individuals segment.
The NPL ratio for the total portfolio was 6.94% (6.58%
excluding the real estate unit), -38 bp less than in 2018.
This is the result of lower NPLs, which reduced the ratio by
-80 bp due to overall better performance, the cure of several
restructured positions and portfolio sales. However, this
positive effect was partially offset by the decrease observed
in the loan portfolio, which had an increasing effect on the
ratio of +47 bp.
This credit quality improvement, together with proactive
portfolio management, has resulted in a slight decrease in
the coverage ratio, standing at 41% at year-end 2019 (-3 pp
vs. 2018) as the NPL reduction is focused on those loans
with higher expected loss.
The evolution of cost of credit follows the reduction in total
loans and a slight increase in provisions.
The Santander Spain portfolio is divided into the following
segments:
Portfolio segmentation
Dec.19 data
Residential mortgages performance
Residential mortgages at Santander Spain amounted to
60,557 million euros, representing 28% of total credit risk,
99.5% of which have a mortgage guarantee.
Residential mortgagesA
EUR million
Gross Amount
2019
2018
2017
60,557
61,453
62,571
Without mortgage guarantee
306
545
532
With mortgage guarantee
60,251
60,908
62,039
of which non-performing
loans
2,581
2,425
2,511
Without mortgage guarantee
14
54
With mortgage guarantee
2,567
2,371
147
2,364
A. Excluding SC Spain mortgage portfolio (1,679 million euros in December
2019 with doubtful debt of 68 million euros).
The NPL ratio for mortgages granted to households to
acquire a home was 4.26%, increasing 37 bp compared to
2018.
* Includes B. Popular and the real estate unit
The mortgage portfolio for the acquisition of homes in Spain
is characterised by its medium-low risk profile, limiting
expectations of potential additional impairment:
• Principal is repaid on all mortgages from the start.
• Early repayment is common so the average life of the
transaction is below that of the contract.
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• High quality of collateral, concentrated almost exclusively
United States
in financing for first homes.
• The average affordability rate stood at 26%.
• 85% of the portfolio has an LTV of below 80%, calculated
as total risk/latest available home appraisal.
• All customers applying for a residential mortgage are
subject to a rigorous assessment of credit risk and
affordability. In evaluating the payment capacity or
affordability of a potential customer, the credit analyst
must determine if the income of the customer is
sufficient to meet the payment of the loan instalments
taking into consideration other income that the customer
may receive. In addition, the analyst must assess whether
the customer’s income will be stable over the term of the
loan.
General Overview
Creditrisk at Santander US increased to 105,792 million euros
at the end of December representing 10% of the Group total.
It comprises the following business units:
Business units segmentation
Dec.19 data
SBNA: Santander Bank N.A
SC USA: Santander Consumer USA
NYB - SIS: Santander Investment Securities
BSPR: Banco Santander Puerto Rico
BSI: Banco Santander International
In 2019, credit lending at Santander US continued to grow
(+15% vs. year end 2018). The most significant increases
were seen in the consumer portfolio (auto loans) of SBNA
and SC USA, as well as in the wholesale banking business of
SBNA and the New York branch (NYB).
The NPL ratio and cost of credit remain at moderate levels,
2.20% (-72 bp in the year) and 2.85% (-42 bp in the year),
respectively. The performance details of Santander US' main
units are described below.
Business units performance
Santander Bank N.A.
Santander Bank N.A. business is focused on retail and
commercial banking, representing 82% of total Santander
US), of which 41% is with individuals and approximately
59% with corporates. One of the main strategic goals is to
continue to encourage the further development of the
wholesale banking business, which represents 17% of the
business.
Lending increased by 11% over 2019, with the wholesale
banking and consumer (auto) segments showing the
highest growth.
The NPL ratio decreased standing at 0.69% (-20 bp in the
year) in December. This reduction can be explained by the
proactive management of certain exposures and the
favourable macro trends reflected in the improvement of
customer credit risk profiles in the Corporates and
Individuals portfolios. The cost of credit increased to 0.35%
due to the normalisation of provisions in the Corporates
segment and the increase in auto loans.
DI < 30%
30% < DI < 40%
DI > 40%
Average 26%
LTV < 40%
40% - 60%
60% - 80%
80% - 100%
> 100%
(*) Debt to income: relation between the annual instalments and the
customer’s net income.
(**) Loan to value: percentage indicating the total risk/latest available home
appraisal.
Businesses portfolio
Credit risk assumed directly with SMEs and Corporates
amounts to 134,508 million euros, representing the main
lending segment at Santander Spain with 63% of the total.
Most of the portfolio corresponds to customers who have
been assigned a credit analyst to monitor them
continuously throughout the risk cycle.
The portfolio is highly diversified, with no significant
concentrations by sector of activity.
The NPL ratio for this portfolio stood at 7.31% in December
2019. Despite the reduction in total risk, the NPL ratio fell
by 21 bp compared to December 2018, due to a better
performance, the normalisation of several restructured
positions in corporates and portfolio sales.
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ratio grew to 175% (+20 pp in the year) on the back of the
reduction in NPLs.
The lease portfolio (a business carried out exclusively under
the FCA agreement and focused on customers with high
quality credit profiles) increased by 21% in the year, to
14,779 million euros, providing stable and recurring
earnings. The management and mitigation of residual value
remains a priority. At the end of December the mark-to-
market value of these vehicles was in line with the balance
sheet value.
Santander Consumer USA
Risk indicators for SC USA are higher than those of the other
United States units and of the Group, due to the nature of its
business, which focuses on auto financing through loans
and leases (97%), seeking to optimise the returns
associated with the risk assumed. SC USA´s lending also has
a smaller personal lending portfolio (3%).
In 2019, new loan production grew by 20% compared to
year-end 2018, maintaining quality standards. This growth
is supported mainly by the commercial relationship with the
Fiat Chrysler Automobiles (FCA) Group, which dates back to
2013, and reinforced in July 2019.
In the same period, new leases contracted by 12% returning
to normal levels.
The NPL ratio dropped to 6.16% (-158 bp in the year),
mainly due to the positive performance of the business and
higher used vehicle prices. Cost of credit, at the end of
December, stood at 9.42% (-59 bp in the year). An increase
that was partially mitigated by efficiency in recoveries and
the positive performance in vehicle prices. The coverage
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Brazil
General overview
Overall, Brazil´s economic growth slowed in 2019, but an
recovery is expected in 2020. The approved pension reform,
along with better prospects on structural reforms are lifting
confidence and supporting investment. Monetary policy is
expected to remain accommodative, in order to support
economic growth, provided that inflation expectations
remain anchored.
Credit risk in Brazil amounts to 88,893 million euros,
representing an increase of 5.6% compared to 2018.
Excluding the exchange rate effect, growth was 7%.
Santander Brazil accounts for 9% of the Group’s lending.
Growth was more pronounced in the retail segments with a
more conservative risk profile, based on customer
relationship and loyalty, as well as business attracted
through digital channels, where a significant increase was
recorded during the past year.
The NPL ratio stood at 5.32% as of December 2019 (+7 bp
compared to year-end 2018). This performance was due to
higher NPLs in the individuals and consumer portfolios.
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2019 Annual Report
Taking into account the performance seen in recent years,
the downward trend in the cost of credit continues, standing
at 3.93% at the end of December (-13 bp compared to year-
end 2018), thanks to proactive risk management and strong
performance in the portfolios.
The coverage ratio stands at 100% (-7 pp vs. year-end
2018).
Santander Brazil´s loan portfolio is divided into the
following segments:
Portfolio segmentation
Dec.19 data
The loan portfolio is diversified and has an increasing
marked retail profile, with a 75% of loans extended to
individuals, consumer financing and companies.
Portfolio performance
In the Individuals loan segment, strong growth was
observed in all products. The market share of payroll loans
and mortgages increased (products with lower risk).
The increase in market share in the SME segment, is
noteworthy, especially in terms of foreign currency loans
and agricultural loans.
In order to monitor the credit quality of our loan portfolio
and prevent deterioration, one of the main credit risk
performance indicators tracked is the impairment ratio on
the lending portfolio, known as the ‘Over 90 ratio’.
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When comparing the ‘Over 90 ratio’, Santander continues to
show better performance than its local peers. This ratio
stood at 2.9% at the end of December 2019 (-20 pb vs.
year-end 2018), below the average of its competitors.
Over 90 total (%)
Dec.19 data
3.5 Other credit risk aspects
Credit risk by activity in the financial markets
This section covers credit risk generated in treasury activities
with customers, mainly with credit institutions. Transactions
are undertaken through money market financial products
with different financial institutions and through counterparty
risk products, which serve the Group’s customer needs.
According to regulation (EU) 575/2013, counterparty credit
risk is the risk that a client in a transaction could default
before the definitive settlement of the cash flows of the
transaction. It includes the following types of transactions:
derivative instruments, transactions with repurchase
commitment, stock and commodities lending, transactions
with deferred settlement and financing of guarantees.
There are two methodologies for measuring this exposure:
(i) mark-to-market (MtM) methodology (replacement value
of derivatives) plus potential future exposure (add-on) and
(ii) the calculation of exposure using Montecarlo simulation
for some countries and products. The capital at risk or
unexpected loss is also calculated, i.e. the loss which, once
the expected loss has been subtracted, constitutes the
economic capital, net of guarantees and recoveries.
After the markets close, exposures are re-calculated by
adjusting all transactions to their new time frame, adapting
the potential future exposure and applying mitigation
measures (netting, collateral, etc.), so that the exposures
can be controlled directly against the limits approved by
senior management. Risk control is performed through an
integrated system in real time, enabling the exposure limit
available with any counterparty, product and maturity and in
any of Santander’s subsidiaries to be known at any time.
Exposures to counterparty risk: over the counter (OTC)
transactions and organised markets (OM)
As of December 2019, total exposure on the basis of
management criteria in regard to the positive market value
after applying netting agreements and collateral for
counterparty risk activities was 7,265 million euros (net
exposure of 32,552 million euros).
Counterparty risk: exposure in terms of market value and
credit risk equivalent, including the mitigation effectA
EUR million
2019
2018
2017
Market value, netting effectB
37,365
29,626
31,162
Collateral receivedC
30,100
19,885
16,293
Market value with netting
effect and collateralD
Netting effectE
7,265
9,741
14,869
32,552
33,289
32,876
A. Figures under internal risk management criteria. Listed derivatives have a
market value of zero. No collateral is received for these types of transactions.
B. Market value used to include the effects of mitigation agreements to
calculate exposure for counterparty risk.
C. Included variation margin, initial margin and secured finance transactions
collateral.
D. Including the mitigation of netting agreements and deducting the collateral
received.
E. CRE (credit risk equivalent): net value of replacement plus the maximum
potential value, less collateral received.
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In the following table, the distribution is shown, both in
nominal and market value terms, of the Group’s products
that generate counterparty credit risk. This risk, is mainly
concentrated in interest and exchange rate hedging
instruments:
Counterparty risk: Distribution by nominal risk and gross market valueA
EUR million
2019
2018
2017
Nominal
Market value
Nominal
Market value
Nominal
Market value
Positive Negative
Positive Negative
Positive Negative
Credit derivativesB
Equity derivatives
Fixed income derivatives
29,805
27,887
23,136
312
2,481
119
1,357
1,836
177
22,464
62,802
6,766
130
875
30,231
303
95
2,951
1,840
62,657
1,633
3,395
110
45
8,660
89
13
Exchange rate derivatives
893,489
21,053
23,270
781,641
21,743
20,098
657,092
21,147
20,122
Interest rate derivatives
4,970,019
112,128
108,651
5,000,406
86,079
86,411
4,126,570
78,900
81,255
Commodity derivatives
641
55
27
2
—
—
345
—
—
Total OTC derivatives
5,944,977
136,148
135,318
5,874,081 111,014
109,268
4,885,555 102,071
104,880
Derivatives organised
marketsC
Repos
Securities lending
Total counterparty riskD
167,803
955
917
109,695
902
1,129
154,904
—
—
143,163
4,334
2,722
149,006
2,352
2,466
165,082
48,786
17,490
23,652
43,675
12,425
22,272
54,923
2,374
9,449
2,435
4,124
6,304,729
158,927
162,609
6,176,457 126,693
135,136
5,260,464 113,893
111,439
A. Figures under internal risk management criteria.
B. Credit derivatives acquired including hedging of loans.
C. Refers to transactions involving listed derivatives (proprietary portfolio). Listed derivatives have a market value of zero. No collateral is received for these types of
transactions.
D. Spot transaction not included.
The Group’s derivatives transactions focus on terms of less
than five years, repos and securities loans maturing in less
than one year, as the following chart shows:
Counterparty risk: Distribution of nominal risk by maturityA
EUR million. Dec.19 data
Up to 1
year
Up to 5
years
Up to 10
years
More than
10 years
Credit derivativesB
Equity derivatives
Fixed income derivatives
Exchange rate derivatives
Interest rate derivatives
Commodity derivatives
Total OTC derivatives
Derivatives organised marketsC
Repos
Securities lending
Total counterparty risk
41%
73%
77%
56%
32%
74%
36%
67%
93%
98%
38%
51%
25%
23%
26%
40%
26%
38%
31%
7%
2%
4%
2%
—
13%
18%
—
18%
2%
—
—
TOTAL
29,805
27,887
23,136
893,489
4,970,019
641
4%
—
—
5%
9%
—
9%
5,944,977
—
—
—
167,803
143,163
48,786
37%
17%
8%
6,304,729
A. Figures under internal risk management criteria.
B. Credit derivatives acquired including hedging of loans.
C. Refers to transactions involving listed derivatives (proprietary portfolio). Listed derivatives have a market value of zero. No collateral is received for these types of
transactions.
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Counterparty credit risk exposure is concentrated in
customers with high credit quality (90.8% of counterparty
risk with a rating equal to or higher than A), and mainly with
financial institutions (24%) and clearing houses (69%).
Distribution of counterparty risk by customer rating (in
nominal terms)A
Dec.19 data
Rating
AAA
AA
A
BBB
BB
B
Other
%
0.84%
15.63%
74.37%
8.62%
0.49%
0.04%
—
A. Ratings based on internally defined equivalences between internal ratings
and credit agency ratings.
Transactions with clearing houses and financial institutions
are carried out under netting and collateral agreements, and
constant efforts are made to ensure that all other
transactions are covered under this type of agreement. The
collateral agreements that the Group signs are bilateral with
few exceptions, mainly with multilateral institutions and
securitisation funds, in which case agreements are unilateral
in favour of the customer.
Counterparty risk by customer segment
Dec.19 data
Clearing houses
Financial Institutions
Corporates/Project
Finance
Sovereign/supranational
Commercial banking/
Individuals
Collateral is used for reducing counterparty risk. These are a
series of instruments with a certain economic value and high
liquidity that are deposited/transferred by a counterparty in
favour of another, in order to guarantee/reduce the credit
risk of the counterparty that could result from portfolios of
derivatives with cross-risk.
The transactions subject to the collateral agreement are
regularly valued (normally daily) applying the parameters
defined in the contract so that a collateral amount is
obtained (usually cash or securities), which is to be paid to or
received from the counterparty.
The collateral received by the Group under the different
types of collateral agreements (CSA, OSLA, ISMA, GMRA,
etc.) amounted to 30,100 million euros of which 14,409
million euros related to collateral received for derivatives,
mostly cash (40.6%). The rest of the collateral types are
subject to strict quality policies regarding the issuer type and
its rating, debt seniority and haircuts applied.
In geographical terms, the collateral received is distributed
as shown in the following chart:
Collateral received. Geographic distribution
Dec.19 data
Spain
UK
Mexico
Brazil
Chile
As a result of the risk associated with the credit exposure
with each counterparty, the Group includes a valuation
adjustment for over the counter (OTC) derivatives. This is a
result of the risk associated with credit exposure assumed
with each counterparty (i.e. a Credit Valuation Adjustment -
CVA) and a valuation adjustment due to the risk relating to
the Group itself assumed by counterparties on OTC
derivatives (i.e. Debt Valuation Adjustment -DVA).
As at December 2019, there were CVAs of 272.1 million
euros (-22.4% compared to December 2018) and DVAs of
171.0 million euros (-34.6% compared with 2018). The
decrease is mainly due improvements in the credit quality of
the counterparties, which has led to the fall of credit spreads
by approximately 40% in the most liquid terms.
The definition and methodology for calculating the CVA and
DVA are set out in the section 4.2 ‘Trading market risk
management' - Credit Valuation Adjustment (CVA) and Debt
Valuation Adjustment (DVA)’ in this chapter.
Counterparty risk, organised markets and clearing houses
The Group’s policies seek to anticipate, whenever possible,
the implementation of measures resulting from new
regulations regarding transactions with OTC derivatives,
repos and securities lending, whether settled through
clearing houses or traded bilaterally. In recent years, there
has been a gradual standardisation of OTC transactions in
order to conduct clearing and settlement of all new trading
transactions through clearing houses, as required by the
recent regulation and to foster internal use of electronic
execution systems.
At Santander, we actively manage transactions not settled
through clearing houses and seek to optimise volumes,
given the spread and capital requirements under new
regulations.
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Regarding organised markets, regulatory credit exposure
has been calculated for such transactions since 2014 and the
entry into force of the new CRD IV (Capital Requirements
Directive) and CRR, transposing the Basel III principles for
calculating capital, even though counterparty risk
management does not consider credit risk on such
transactions.
The following tables show the weighting of trades settled
through clearing houses as a portion of total counterparty
risk at December 2019:
Distribution of counterparty risk by settlement channel and product typeA
Nominal in EUR million
Credit derivatives
Equity derivatives
Fixed income derivatives
Exchange rate derivatives
Interest rate derivatives
Commodity derivatives
Repos
Securities lending
Total
Bilateral
CCPB
Organised marketsC
%
Nominal
%
Nominal
Nominal
18,249
27,518
23,136
850,130
882,764
641
119,231
61.2%
38.5%
100.0%
11,556
370
—
94.7%
43,358
38.8%
0.5%
—
4.8%
17.3%
4,087,255
80.3%
119,798
87.2%
83.3%
—
—
23,933
16.7%
—
—
4,397
94
—
—
48,786
100.0%
—
—
1,970,455
4,166,472
167,803
%
—
—
0.5%
2.4%
12.8%
—
—
Total
29,805
71,401
23,136
897,886
5,089,817
735
143,163
48,786
6,304,729
43,514
60.9%
A. Figures under internal risk management criteria.
B. Central counterparties (CCP).
C. Refers to transactions involving listed derivatives (proprietary portfolio). Listed derivatives have a market value of zero. No collateral is received for these types of
transactions.
Distribution of risk settled by CCP and organised markets,
by productA
Nominal in EUR million
Credit derivatives
Equity derivatives
Fixed income derivatives
2019
11,556
370
—
2018
4,231
2017
2,524
32,229
26,088
—
—
Exchange rate derivatives
43,358
36,928
1,592
Interest rate derivatives
4,087,255 4,025,674 2,950,796
Commodity derivatives
—
2
124
Repos
23,933
41,492
64,086
Securities lending
—
—
—
Total
4,166,472 4,140,556 3,045,210
A. Figures under internal risk management criteria.
Credit derivatives activity
The Group uses credit derivatives to cover loans, our
customers’ business in the financial markets and in its
trading activities. The volume of this activity is small in
terms of the notional (0.5% of total counterparty risk
notional) and, is subject to a solid set of internal controls and
procedures to minimise operational risk.
Concentration risk
Concentration risk control is a vital part of our management.
The Group continuously monitors the degree of
concentration of its credit risk portfolios using various
criteria: geographic areas and countries, economic sectors
and groups of customers.
The board, via the risk appetite framework, determines the
maximum levels of concentration, as described in the risk
appetite framework and structure of limits in section 2.4
‘Management processes and tools’.
In line with these maximum levels and limits, the executive
risk committee establishes the risk policies and reviews the
appropriate exposure levels for the effective management of
the degree of concentration in Santander’s credit risk
portfolios.
As indicated in the key metrics section of this chapter, in
geographical terms, credit risk with customers is diversified
in the main markets where the Group operates (United
Kingdom 27%, Spain 21%, United States 10%, Brazil 9%,
etc.).
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In terms of diversification by sector, approximately 56% of
the Group’s credit risk corresponds to individual customers,
who, due to their inherent nature, are highly diverse. In
addition, the lending portfolio is well distributed, with no
significant concentrations in specific sectors. The following
chart shows the distribution at December 2019:
The Group’s Risk division works closely with the Financial
division to actively manage credit portfolios. Its activities
include reducing the concentration of exposures through
various techniques, such as using credit derivatives and
securitisations to optimise the risk-return relationship of the
entire portfolio.
Diversification by economic sectorA
Agriculture, livestock,
forestry and fishing
Extractive industries
Information and
communications
Financial and insurance
activities
Manufacturing industry
Real estate activities
Electricity, gas and water
production and distribution
Professional, scientific and
technical activities
Construction
Administrative activities
Trade and repairs
Public administration
Transport and storage
Other social services
Hotels and restaurants
Other services
A. Excluding individuals and reverse repos.
The Group must adhere to the regulation on large risks
contained in the CRR, according to which the exposure
contracted by an entity with a customer or group of
associated customers will be considered a large exposure
when its value is equal to or greater than 10% of eligible
capital. In addition, in order to limit large exposures, no
entity may assume exposures exceeding 25% of its eligible
capital with a single customer or group of associated
customers, having factored in the credit risk reduction effect
contained in the regulation.
The application of risk mitigation techniques, resulted in no
groups triggering these thresholds at the end of September.
Regulatory credit exposure with the 20 largest groups within
the scope of large risks represented 4.65% of the
outstanding credit risk with customers (lending to
customers and off-balance sheet risks) as of December
2019.
1. Countries that are not considered low risk by Banco de España.
Country risk
Country risk is a component of credit risk in all cross-border
credit transactions arising from circumstances other than
usual business risks. The main elements involved are
sovereign risk, transfer risk and other risks that affect
international financial activity (wars, natural disasters,
balance of payments crises, among others).
The Group takes into account these three elements of
country risk in the calculation of provisions, through its loss
forecasting models and considering the additional risk
arising from cross-border transactions.
As at 31 December 2019, the provisionable exposure due to
country risk stood at similar levels compared to the previous
year, amounting to 296 million euros (285 million euros in
2018). Total provisions at year-end 2019 stood at EUR 21
million compared to 25 million euros at the end of 2018.
The principles of country risk management continued to
follow criteria of maximum prudence; country risk is
assumed very selectively in transactions that are clearly
profitable for the Group, and which enhance the global
relationship with our customers.
Sovereign risk including risk vis-à-vis the rest of public
administrations
Sovereign risk is the risk contracted in transactions with a
central bank, including the regulatory cash reserve
requirement, issuer risk with the Treasury (public debt
portfolio) and the risk arising from transactions with public
institutions with the following features: their funds only
come from the state’s budget income and activities are of a
non-commercial nature.
These historic Group criteria, differ in some respects from
those applied by the European Banking Authority (EBA) in its
regular stress test exercises. The main differences are that
the EBA’s criterion does not include deposits with central
banks, exposures with insurance companies, indirect
exposures via guarantees and other instruments. On the
other hand, the EBA does include public administrations in
general, including regional and local bodies, not only the
central state sector.
According to the Group’s management criteria, local
sovereign exposure in currencies other than the official
currency of the country of issuance is not significant (12,187
million euros, 5.3% of total sovereign risk), and exposure to
non-local sovereign issuers involving cross-border1 risk is
even less significant (4,269 million euros, 1.8% of total
sovereign risk).
Sovereign exposure in Latin America is mostly in local
currency and recognised in the local accounts with
predominantly short-term maturities.
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Over the past few years, total exposure to sovereign risk has
remained aligned with the regulatory requirements and
strategic reasons that support the management of this
portfolio.
The movements observed in the different countries exposure
is therefore explained by the Group's liquidity management
strategy and the hedging of interest and exchange rates
risks. Santander has a diversified international exposure
among different countries with diverse macroeconomic
perspectives and thus, dissimilar growth, interest and
exchange rates scenarios.
The investment strategy for sovereign risk also takes into
account the credit quality of each country when setting the
maximum exposure limits. The following table shows the
percentage of exposure by rating levels2:
AAA
AA
A
BBB
Lower than BBB
2019
20%
24%
18%
15%
23%
2018
11%
20%
31%
13%
25%
2017
14%
21%
27%
12%
27%
Sovereign Exposure at the end of December 2019 is shown
in the table below (million euros):
2019
Portfolio
2018
Financial assets held for
trading and Financial
assets designated as FV
with changes in results
Financial assets
at fair value
through other
comprehensive
income
Financial
assets at
amortised cost
Non-
trading financial assets
mandatorily at fair value
through profit or loss
Total net direct
exposure
Total net direct
exposure
Spain
Portugal
Italy
Greece
Ireland
Rest Eurozone
UK
Poland
Rest of Europe
US
Brazil
Mexico
Chile
Rest of America
Rest of the World
Total
5,204
(746)
643
—
—
(313)
740
22
(2)
794
3,483
4,366
320
9
—
19,961
5,450
1,631
—
—
1,679
1,402
8,313
120
10,463
21,250
8,350
2,759
249
3,832
10,201
3,985
461
—
—
443
8,221
31
659
5,042
4,265
957
381
771
981
14,520
85,459
36,398
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35,366
8,689
2,735
—
—
1,809
10,363
8,366
777
16,299
28,998
13,673
3,460
1,029
4,813
49,640
8,753
261
—
—
2,778
10,869
11,229
329
8,682
27,054
10,415
1,776
893
6,222
136,377
138,901
2. Internal ratings are applied.
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4. Trading market risk,
structural and liquidity risk
4.1 Introduction
This section provides information about the risk
management and control activities related to market risk as
well as the evolution of the Group’s market risk profile in
2019, distinguishing between trading activity, structural
risks and liquidity risks. It also briefly describes the main
methodologies and metrics used by Santander Group in this
regard.
The perimeter of activities subject to market risk
encompasses those transactions where risk is assumed as a
consequence of potential variations in market factors -
interest rates, inflation rates, exchange rates, stock prices,
credit spreads, commodity prices and the volatility of each
of these elements -, as well as liquidity risk from the
various products and markets in which the Group operates
and balance sheet liquidity risk. Therefore, they include
trading risks and structural risks, as both are affected by
market shifts.
• Interest rate risk arises from the possibility that changes
in interest rates could adversely affect the value of a
financial instrument, a portfolio or the Group as a whole.
It affects loans, deposits, debt securities, most assets and
liabilities in the trading books and derivatives, among
others.
• Inflation rate risk originates from potential changes in
inflation rates that could adversely affect the value of a
financial instrument, a portfolio or the Group as a whole.
It affects instruments such as loans, debt securities and
derivatives, where the return is linked to future inflation
values or to a change in the current rate.
• Exchange rate risk is defined as the sensitivity to
potential movements in exchange rates of a position’s
value that is denominated in a different currency than the
base currency. Hence, a long or open position in a foreign
currency may produce a loss if that currency depreciates
against the base currency. Among the exposures affected
by this risk are the Group’s investments in subsidiaries in
non-euro currencies, as well as any transactions in
foreign currency.
• Equity risk is the sensitivity of the value of open positions
in equities to adverse movements in their market prices
or future dividend expectations. Among others, this
affects positions in shares, stock market indices,
convertible bonds and derivatives with shares as the
underlying asset (put, call, equity swaps, among others).
• Credit spread risk is the risk or sensitivity of the value of
open positions in fixed income securities or in credit
derivatives to movements in credit spread curves or
recovery rates associated with specific issuers and types
of debt. The spread is the difference between financial
instruments with a quoted margin over other benchmark
instruments, mainly the internal rate of return (IRR) of
government bonds and interbank interest rates.
• Commodities price risk is the risk derived from the effect
of potential changes in commodities prices. The Group’s
exposure to this risk is not significant and mainly comes
from our customers’ derivative transactions on
commodities.
• Volatility risk is the risk or sensitivity of the value of a
portfolio to changes in the volatility of risk factors:
interest rates, exchange rates, shares and credit spreads.
This risk is incurred by all financial instruments where
volatility is a variable in the valuation model. The most
significant case is the financial options portfolio.
All these market risks can be partly or fully mitigated by
using derivatives such as options, futures, forwards and
swaps.
In addition, there are other types of market risk that
require more complex hedging. For example:
• Correlation risk. Sensitivity of the portfolio to changes in
the relationship between risk factors (correlation), either
of the same type (for example, two exchange rates) or
different types (e.g. an interest rate and the price of a
commodity).
• Market liquidity risk. This risk arises when a Group
subsidiary or the Group as a whole cannot reverse or
close a position in time without having an impact on the
market price or the transaction cost. Market liquidity risk
can be caused by a reduction in the number of market
makers or institutional investors, the execution of a large
volume of transactions, or market instability. Additionally,
this risk could increase depending on how the different
exposures are distributed among certain products and
currencies.
• Pre-payment or cancellation risk. Some on-balance-
sheet instruments (such as mortgages or deposits) may
have associated options that allow the holder to buy, sell
it or otherwise alter its future cash flows. This may result
in mismatches arising in the balance sheet, which may
pose a risk since cash flows may have to be reinvested at
an interest rate that is potentially lower (assets) or higher
(liabilities).
• Underwriting risk. This is the consequence of an entity’s
involvement in the underwriting or placement of
securities or other types of debt, when the entity
assumes the risk of having to partially acquire the issued
securities when the placement has not been taken up in
full by potential buyers.
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In addition to the above market risks, balance sheet liquidity
risk must also be considered. Unlike market liquidity risk,
balance sheet liquidity risk is defined as the possibility of
not meeting payment obligations on time, or doing so at an
excessive cost. Among the losses caused by this risk are
losses due to forced sales of assets or margin impacts due
to the mismatch between expected cash inflows and
outflows.
Pension and actuarial risks also depend on potential shifts
in market factors. Further details are provided at the end of
this section.
The Group has several projects underway to ensure
compliance with the obligations related to the Basel
Committee’s Fundamental Review of the Trading Book, and
the EBA guidelines on balance sheet interest rate risk. The
goal of these projects is to have the best tools for
controlling and managing market risks available for both,
managers and control units, all within a governance
framework that is appropriate for the models used and the
reporting of risk metrics. These projects allow the
requirements related to regulatory demands for these risk
factors to be met.
4.2 Trading market risk
management
Limits management and control system
Market risk functions monitor market risk positions on a
daily basis to ensure that they remain within the approved
management limits. In addition, daily monitoring is
performed to assess the performance of market risk metrics
and any major changes. Periodic reports are produced and
distributed based on this assessment to ensure the proper
monitoring of market risk activities within the Group and to
inform the senior management and other internal and
external stakeholders.
Setting the aforementioned trading market risk limits is a
dynamic process, which is determined by the Group’s
predefined risk appetite levels (as described in the 'Risk
appetite and structure of limits' paragraph in section 2.4
‘Management processes and tools’). This process is part of
the annual limits plan that is fostered by the Group’s senior
management and includes all of our subsidiaries.
The market risk limits are established based on different
metrics and are intended to cover all activities subject to
market risk from many perspectives, applying a prudent
approach. These are:
• Value at Risk (VaR) and Stressed VaR limits.
• Limits of equivalent and/or nominal positions.
• Interest rate sensitivity limits.
• Vega limits.
• Delivery risk limits for short positions in securities (fixed
income and securities).
• Limits to constrain the volume of effective losses or
protect results generated during the period:
Loss trigger.
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Stop loss.
• Credit limits:
Total exposure limit.
Jump to default by issuer limit.
Others.
• Limits for origination transactions.
These general limits are complemented by other sub-limits
to establish a sufficiently granular structure that allows for
effective control of the market risk factors to which the
Group is exposed in its trading activities. Positions are
monitored on a daily basis for each subsidiary and also at
the trading desk level, as well as globally with an
exhaustive control of those changes observed in both
portfolios and trading desks, so as to identify any potential
events that might need immediate correction, and thus
comply with the Volcker Rule.
Three categories of limits are established based on the
scope of approval and control: global approval and control
limits, global approval limits with local control, and local
approval and local control limits. The limits are requested by
the business executive of each country/entity, considering
the particular nature of the business and the established
budget targets, seeking consistency between the limits and
the risk/return ratio. The limits are approved by the
corresponding risk bodies as defined in their governance
process.
Business units must comply with the approved limits at all
times. In the event of a limit being breached, the local
business executives have to explain, in writing and on the
same day, the reasons for the excess and the action plan to
correct the situation, which in general could consist of
reducing the position until it reaches the defined limits or
setting out the strategy that justifies a limit increase.
Methodologies
a) Value at Risk (VaR)
The standard methodology applied in the Group for risk
management and control purposes related to its trading
activities is Value at Risk (VaR), which measures the
maximum expected loss with a certain confidence level and
time frame.
The standard for historic simulation is a confidence level of
99% and a one day time frame. Statistical adjustments are
applied enabling the most recent developments affecting
the levels of risk assumed to be incorporated efficiently and
on a timely manner. A time frame of two years or at least
520 days from the reference date of the VaR calculation is
used. Two figures are calculated every day: one applying an
exponential decay factor that allocates less weight to the
observations furthest away in time and another with the
same weight for all observations. The higher of the two is
reported.
Simultaneously the Value at Earnings (VaE) is calculated,
which measures the maximum potential gain with a certain
level of confidence and specific time frame, applying the
same methodology as for VaR.
VaR by historic simulation has many advantages as a risk
metric, it sums up in a single number the portfolio’s market
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risk, it is based on market movements that really occurred
without the need to make assumptions of functions forms
or correlations between market factors, but it also has its
limitations.
Some limitations are intrinsic to the VaR metric, regardless
of the methodology used in its calculation. For example:
• The VaR calculation is calibrated at a certain level of
confidence, which does not indicate the levels of potential
losses beyond it.
• There are some products in the portfolio with a liquidity
horizon greater than that specified in the VaR model.
• VaR is a static analysis of the portfolio risk, and the
situation could change significantly during the following
day, although the likelihood of this occurring is very low.
Using the historic simulation methodology also has its
limitations:
• High sensitivity to the historic window used.
• Inability to capture plausible events that would have
significant impact, if these do not occur in the historic
window used.
• The existence of valuation parameters with no market
input (such as correlations, dividend and recovery rate).
• Slow adjustment to new volatilities and correlations, if
the most recent data receives the same weight as the
oldest data.
Some of these limitations are overcome by using Stressed
VaR and Expected Shortfall, calculating VaR with
exponential decay and applying conservative valuation
adjustments. Furthermore, as previously stated, the Group
regularly conducts analyses and backtesting to assess the
accuracy of the VaR calculation model.
b) Stressed VaR (sVaR) and Expected Shortfall (ES)
In addition to standard VaR, Stressed VaR is calculated daily
for the main portfolios. The calculation methodology is the
same as for VaR, with the two following exceptions:
• The historical observation period for the factors: when
calculating stressed VaR a window of 260 observations is
used over a continuous period of stress for the portfolio in
question, rather than 520 for VaR. However, this is not the
most recent data: instead, the data used is from a
continuous period of stress for the portfolio in question.
This is calculated for each major portfolio by analysing
the history of a subset of market risk factors selected
based on expert judgement and the most significant
positions in the books.
• Unlike VaR, stressed VaR is obtained using the percentile
with uniform weighting, not the higher of the percentiles
with exponential and uniform weightings.
Moreover, the Expected Shortfall is also calculated by
estimating the expected value of the potential loss when
this is higher than the level set by VaR. Unlike VaR, ES has
the advantage of capturing the risk of large losses with a
low probability (tail risk) and being a sub-additive metric.
The Basel Committee considers that ES with a 97.5%
confidence interval delivers a similar level of risk to VaR at a
99% confidence interval. ES is calculated by applying
uniform weights to all observations.
c) Scenario analysis
The Group uses other metrics and tools in addition to VaR,
to provide greater control over the risks it faces in the
markets where it is active. These include scenario analysis,
which consists in defining alternative behaviours for various
financial variables to obtain the impact on results of
applying these scenarios. These scenarios may replicate
events that occurred in the past (such as a crisis) or
determine plausible alternatives that are unrelated to past
events.
The potential impact on earnings under different stress
scenarios is regularly calculated and analysed, particularly
for trading portfolios, considering the same risk factor
assumptions. A minimum of three scenarios are defined:
plausible, severe and extreme. Taken together with VaR,
these reveal a much more complete spectrum of the risk
profile.
d) Gauging and backtesting measures
Regulation establishes that the VaR model should
accurately capture all material risks. Given that Value at Risk
uses statistical techniques under normal conditions, for a
certain confidence level and for a defined time horizon, the
maximum potential loss estimated can differ from real
losses. Therefore, the Group regularly analyses and
contrasts the accuracy of the VaR calculation model to
confirm its reliability.
To assess the accuracy of the VaR model, internal
backtesting, VaR contrast measures, and hypothetical
portfolio analysis for subsidiaries covered by the internal
market risk model are conducted by market risk functions,
among other tests. In addition, for those subsidiaries with
an approved internal model, regulatory backtesting is
performed in order to identify the number of overshootings
(when the daily loss or profit exceeds VaR or VaE), that will
impact the calculation of market risk regulatory capital
requirements.
Backtesting is designed to assess the general quality or
effectiveness of the risk measurement model by comparing
the VaR (Value at Risk) measures with P&L results. The
Group performs back testing analysis by comparing the
daily VaR/VaE obtained on D-1 with the following P&L
obtained on D:
• Economic P&L: refers to the P&L calculated on the basis
of end-of-day mark-to-market or mark-to-model values.
This test is used to check, whether the VaR/VaE
methodology used by the entity to measure and
aggregate risk is adequate.
• Actual P&L: refers to the daily P&L calculated based on a
comparison between the portfolio's end-of-day value and
its actual value at the end of the subsequent day, includes
the profit and loss stemming from intraday activities,
excluding fees, commissions, and net interest income.
This P&L is used for regulatory purposes, to count
regulatory overshootings.
• Hypothetical P&L: refers to the daily P&L calculated by
comparing the portfolio's end- of-day value and its value
at the end of subsequent day, assuming unchanged
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positions. In this case, the time effect is not considered,
so that it is consistent with VaR. This backtesting is used
to check whether the portfolios are regularly subjected to
an intra-day risk which is not reflected in the closing
positions, and, therefore, not reflected in VaR. This
backtesting is also used for regulatory purposes to count
regulatory overshootings.
• Theoretical P&L: calculated using the market risk
calculation engine, without taking into account intra-day
results, changes in portfolio positions or the passage of
time (Theta). This P&L is used exclusively to test the
quality of the internal VaR model.
Regulatory backtesting is performed on a daily basis at least
at the overall portfolio unit level and one portfolio level
below. Internal (not regulatory) backtesting exercises are
performed daily, weekly or monthly based on its granularity
of the portfolio level considered.
The number (or proportion) of overshootings registered is
one of the most intuitive indicators in order to establish the
goodness of fit of a model. Regulatory backtesting is
calculated for a historic period of one year (250 days) and at
a VaR confidence level of 99%. Between two and three
overshootings per year are expected. For the calculation of
market risk regulatory capital, the regulatory K3 is obtained
depending on the maximum number of overshootings
between actual and hypothetical backtestings.
e) Analysis of positions, sensitivities and results
At Santander, positions are used to quantify the net volume
of market securities for the transactions in the portfolio,
grouped by main risk factor, considering the delta value of
any futures or options. All risk positions can be expressed in
the base currency of the local unit and the currency used for
standardising information. Daily monitoring of changes in
positions is carried out to detect any incidents so that they
can be corrected immediately.
Measurements of market risk sensitivity estimate the
variation (sensitivity) of the market value of an instrument
or portfolio to any change in a risk factor. The sensitivity of
the value of an instrument to changes in market factors can
be obtained using analytical approximations through partial
derivatives or through a complete revaluation of the
portfolio.
Furthermore, the daily formulation of the income statement
by the Risk area is an excellent indicator of existing risks, as
it allows the impact of changes in financial variables on
portfolios to be identified.
f) Derivatives activities and credit management
The control of derivative activities and credit management is
also noteworthy, which due to its atypical nature, are
conducted daily with specific measures. Firstly, the Group
controls and monitors the sensitivity to price movements of
the underlying asset (Delta and Gamma), volatility (Vega4)
and time (Theta). Secondly, measures such as sensitivity to
the spread, jump-to-default, concentrations of positions by
level of rating, among others are reviewed systematically.
For credit risk inherent to trading portfolios, and in
accordance with the recommendations of the Basel
Committee and prevailing regulations, an additional metric
is also calculated: incremental risk charge (IRC).
IRC seeks to cover default risks and ratings migration that
are not adequately captured in VaR, through variations in
the corresponding credit spreads. This metric is essentially
applied to fixed-income bonds, both public and private,
derivatives on bonds (forwards, options, etc.) and credit
derivatives (credit default swaps, asset backed securities,
etc.). IRC is calculated using direct measurements of loss
distribution tails at an appropriate percentile (99.9%), over
a one-year horizon. Montecarlo methodology is used,
applying one million simulations.
g) Credit valuation adjustment (CVA) and debit valuation
adjustment (DVA)
The Group incorporates CVA and DVA when calculating the
trading portfolio results. The CVA is a valuation adjustment
for over the-counter (OTC) derivatives, resulting from the
risk associated with the credit exposure assumed with each
counterparty.
It is calculated taking into account the potential exposures
with each counterparty at each future maturity. The CVA for
a particular counterparty is the sum of the CVA for all its
maturities. To calculate this metric, the following inputs are
considered: expected exposure, loss given default,
probability of default and a discount factor curve.
Debit valuation adjustment (DVA) is a valuation adjustment
similar to the CVA, but in this case as a result of the Group
risk that our counterparties assume in OTC derivatives.
4.3 Trading market risk key
metrics
Risk levels in trading activity remained at low levels in
2019, in a complex environment marked by uncertainty
arising from trade disputes, low interest rates, Brexit, and
other geopolitical risks in several units. The exposure levels
in trading portfolios are low compared to previous years in
all risk factors.
Risks of trading activities arise mainly from activities with
customers in non-complex instruments, concentrated in
hedging of interest rate and exchange rate risks.
Contribution to overall risk of proprietary positions in
trading portfolios is substantially lower than in previous
years.
3. K: Parameter used for calculating the consumption of regulatory capital due to market risk.
4. Vega, a Greek term, is the sensitivity of the value of a portfolio to changes in the price of market volatility
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In 2019, in general, there was a low level of consumption of
the limits established for trading activities, which are set in
accordance with the risk appetite defined in the Group for
this type of activity. Lower risk levels are also evident even
under stressed scenarios, as seen in the loss results in the
stress tests regularly carried out to assess any risks not
reflected in the usual metrics to control and monitor trading
risks.
Capital requirements for market risk
Capital requirements for market risk are determined
through both internal and standardised models.
At year-end 2019 Santander Group received authorisation
from the ECB to use the internal market risk model for the
calculation of regulatory capital in the trading books of
Spain, Chile and Mexico as well as approval to extend
Spain’s internal model to Santander London Branch. The
Group aims to gradually extend this approval to the rest of
our subsidiaries and is closely working with the ECB to
achieve this goal, as well as in the analysis of new
requirements described in the recently published Basel
Committee documentation aimed to strengthen the capital
position of financial institutions.
In this respect, Santander has launched a global initiative,
the Market Risk Advanced Platform (MRAP), to transform
and strengthen our current market risk infrastructure in line
with the new market risk regulatory framework (FRTB)
requirements and to adapt our market risk internal models
to the latest TRIM (Targeted Review of Internal Models)
guidelines and supervisory expectations.
This program follows a multi-disciplinary and multi-
geographical approach, with the involvement of all our
VaR 2017-2019
EUR million. VaR at 99% over a one day horizon
entities with market risk activities and the participation of
all relevant stakeholders, including Market Risk, IT, Front
Office, Finance and Regulatory Affairs.
MRAP program comprises significant enhancements in
functional & IT architecture and operating models across
the Group, generating synergies between all initiatives and
resources.
The Group's consolidated regulatory capital under the
internal market risk model is therefore computed as the
sum of the regulatory capital of those subsidiaries that have
the necessary approval from the ECB. This is a conservative
criterion when consolidating the Group’s capital, as it takes
no account of the capital savings arising from the
geographic diversification effect.
As a result of this approval, trading activity regulatory
capital for the perimeter concerned is calculated with
advanced approaches, using VaR, Stressed VaR and IRC
(incremental risk charge) as the fundamental metrics, in
line with the new requirements under the Basel Accords
and, specifically, the CRR.
VaR analysis
During the year, the Group continued its strategy of
focusing its trading activity on customer business,
minimising, where possible, exposure to directional risk in
net terms and maintaining its diversification by geography
and risk factor. This is reflected in the VaR of the SCIB
trading book, which, despite the volatility in the markets,
particularly in terms of interest rates and exchange rates,
was mostly below its average trend in the last three years,
ending December at 10.3 million euros.
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In 2019, VaR fluctuated between 21.6 million euros and 7.1
million euros. The most significant changes were related to
variations in exchange and interest rate exposures and also
market volatility.
The average VaR in 2019 was 12.1 million euros, slightly
above 2018 but lower than in 2017 (9.7 million euros in
2018 and 21.5 million euros in 2017).
Risk per factor
The following table displays the latest and average VaR
values at 99% by risk factor over the last three years, the
lowest and highest values in 2019 and the ES at 97.5% as of
the end of December 2019:
VaR statistics and Expected Shortfall by risk factorA
EUR million. VaR at 99% and ES at 97.5% with one day time horizon
2019
VaR (99%)
ES (97.5%)
2018
VaR
2017
VaR
Min
Average
Max
Latest
Latest
Average
Latest
Average
Latest
7.1
(4.3)
6.6
1.0
1.8
2.1
—
4.2
(2.9)
3.6
0.4
1.0
2.1
—
1.5
(0.4)
1.5
0.1
0.4
5.5
(0.4)
4.9
0.4
0.6
12.1
(8.2)
10.0
2.9
3.9
3.4
—
6.3
(6.9)
6.0
1.9
1.9
3.4
—
3.5
(1.3)
2.6
0.2
2.0
9.5
(2.9)
7.8
2.0
2.6
21.6
(24.6)
17.6
15.3
8.4
4.8
0.1
11.6
(15.2)
12.8
5.1
3.8
5.1
—
5.1
(3.6)
4.0
0.6
4.1
20.7
(13.4)
19.6
7.0
7.6
10.3
(9.9)
9.2
4.8
2.6
3.5
—
10.1
(8.3)
8.2
4.9
1.9
3.5
—
3.8
(2.1)
3.4
0.1
2.4
6.0
(3.8)
5.9
1.7
2.1
9.5
(8.8)
7.6
4.6
2.8
3.2
—
6.8
(8.8)
6.5
4.4
1.4
3.2
—
4.0
(1.2)
2.6
0.1
2.4
6.1
(2.6)
5.4
1.6
1.7
9.7
(9.3)
9.4
2.4
3.9
3.4
—
5.0
(6.7)
5.0
1.1
1.7
3.9
—
7.2
(4.8)
6.4
0.1
5.5
7.2
(3.5)
6.4
2.5
1.9
11.3
(11.5)
9.7
2.8
6.2
4.1
—
5.5
(8.2)
5.8
1.2
2.1
4.6
—
8.3
(2.7)
7.7
—
3.3
10.0
(2.3)
6.6
2.9
2.9
21.5
(8.0)
16.2
3.0
6.6
3.6
—
6.8
(6.1)
6.1
1.1
2.0
3.7
—
7.6
(4.7)
7.6
0.4
4.2
18.7
(2.9)
14.8
3.2
3.5
10.2
(7.6)
7.9
1.9
3.3
4.6
—
6.3
(6.1)
5.7
0.5
1.4
4.7
—
4.3
(3.5)
4.6
0.0
3.3
7.8
(3.4)
7.4
1.9
2.0
Total Trading
Diversification effect
Interest rate
Equities
Exchange rate
Credit spread
Commodities
Total Europe
Diversification effect
Interest rate
Equities
Exchange rate
Credit spread
Commodities
Total North America
Diversification effect
Interest rate
Equities
Exchange rate
Total South America
Diversification effect
Interest rate
Equities
Exchange rate
A. In South America and North America, VaR levels of credit spreads and commodities are not shown separately due to their low or null materiality.
As of the end of December, VaR decreased slightly by 0.8
million euros compared to year-end 2018, while average
VaR increased by 2.4 million euros. By risk factor, average
VaR increased slightly in interest rates and equities, due to
higher market volatility. By geographic area, VaR rose in
Europe and South America although it remained at low
levels.
The evolution of VaR by risk factor has generally been stable
over the last few years. The temporary rises in VaR for
various factors are due more to temporary increases in the
volatility of market prices than to significant changes in
positions.
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Backtesting
Actual losses can differ from those forecast by VaR for
various reasons related to the limitations of this metric. The
Group regularly analyses and contrasts the accuracy of the
VaR calculation model in order to confirm its reliability as
explained in the Methodologies section 4.2 ‘Trading market
risk management’. The most important tests consist of
backtesting exercises:
For hypothetical P&L backtesting and for the total portfolio,
there were two overshootings in VaR at 99%, on August 5th
and on September 2nd, due to the increase in market
volatility caused by US/China trade disputes and political
uncertainty in Argentina.
There were no overshootings in Value at Earnings (VaE) at
99% in 2019. The number of observed overshootings in
2019 is consistent with the assumptions specified in the
VaR calculation model.
Backtesting of trading portfolios: daily results vs. VaR for previous day
EUR million
Derivatives risk management
Our derivatives activity is mainly focused on the sale of
investment products and hedging risks for our customers.
Risk management is focused on ensuring that the net open
risk is the lowest possible.
These transactions include options on equities, fixed income
and exchange rates. The units where this activity mainly
takes place are: Spain, Brazil, UK and Mexico.
The following chart shows the VaR Vega performance of the
structured derivatives business over the last three years. It
fluctuated at around an average of 2 million euros. In
general, the periods with higher VaR levels are related to
episodes of significant rises in volatility in the markets, for
example due to US trade disputes with China and Europe,
and periods of political uncertainty in some geographies
where Group operates.
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Change in risk over time (VaR) of structure derivatives
EUR million. VaR Vega at a 99% over a one day horizon
With regards to VaR by risk factor, average exposure was
mainly to: interest rates, equities and exchange rates, with
an average risk in 2019 (1.5 million euros) that was slightly
lower than in 2018 and 2017.
This is depicted in the table below:
Financial derivatives. Risk (VaR) by risk factor
EUR million. VaR at a 99% over a one day horizon
c
2019
2018
2017
Minimum
Average
Maximum
Latest
Average
Latest
Average
Latest
Total VaR Vega
Diversification effect
VaR interest rate
VaR equities
VaR exchange rate
VaR commodities
0.8
(0.4)
0.4
0.5
0.3
—
1.5
(1.1)
1.1
0.8
0.6
—
3.1
(4.3)
3.9
2.0
1.5
—
2.6
(1.3)
2.7
0.8
0.4
—
1.8
(1.4)
0.9
1.2
1.1
—
1.1
(1.4)
0.9
1.0
0.6
—
2.3
(1.5)
1.3
1.5
0.9
—
2.5
(0.6)
0.7
1.4
1.0
—
The Group continues to have very limited exposure to
complex structured instruments or assets. This is a
reflection of our risk culture with prudence in risk
management as one of its hallmarks. As at the end of
December 2019, the Group had the following exposures in
this area:
• Hedge funds: exposure was 90 million euros, all indirect,
acting as counterparty in derivatives transactions. The
risk related to this type of counterparty is analysed on a
case by case basis, establishing percentages of
collateralisation on the basis of the features and assets of
each fund.
• Monolines: no exposure at the end of December 2019.
The Group’s policy for approving new transactions related to
these products is still extremely prudent and conservative. It
is subject to strict supervision by the Group’s senior
management.
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Scenario analysis
Various stress scenarios were calculated and analysed
regularly in 2019 (at least monthly) at the subsidiaries and
Group levels for all the trading portfolios and using the
same risk factor assumptions.
Maximum volatility scenario (Worst case)
This scenario is given particular attention as it combines
historic movements of risk factors with an ad-hoc analysis
in order to reject very unlikely combinations of variations
(for example, sharp falls in stock markets together with a
decline in volatility). A historic volatility equivalent to six
standard deviations is applied. The scenario is defined by
taking for each risk factor the movement which represents
the largest potential loss in the portfolio, rejecting the most
unlikely combinations in economic-financial terms.
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As of the end of December 2019, for the global portfolio,
this scenario implied interest rate rises in South American
markets and European markets with decreases in North
American markets, stock market falls, depreciation of all
currencies against the euro, and increases in credit spreads.
The results for this scenario as of the end of December 2019
are shown in the following table:
Stress scenario: maximum volatility (worst case)
EUR million. Dec. 2019 data
Total trading
Europe
North America
South America
Interest rate
Equities Exchange rate
Credit spread
Commodities
(34.7)
(2.6)
(6.1)
(26.0)
(26.6)
(18.7)
(0.1)
(7.8)
(16.6)
(7.5)
(4.8)
(4.3)
(9.2)
(9.2)
—
—
—
—
—
—
Total
(87.1)
(38.0)
(11.0)
(38.1)
The stress test shows that the economic loss suffered by the
Group in its trading portfolios, in terms of the mark-to-
market (MtM) result, would be EUR 87.1 million, if the
stress movements defined in the worst case scenario were
materialised in the market. The loss would mainly affect
Europe (in the following order: equities, credit spread,
exchange rates and interest rates) and South America (in the
following order: interest rates, equities and exchange rates).
in terms of the capital consumed by the portfolio in
question, the relevant business executive is informed.
The results, in terms of the mark-to-market (MtM) variation,
of these monthly global scenarios for the last three years are
shown in the following table:
Stress test results. Comparison of 2017-2019 scenarios
(annual averages)
Other global stress scenarios
EUR million
‘Abrupt crisis’: an ad-hoc scenario with sharp market
movements. Rise in interest rate curves, sharp falls in stock
markets, strong appreciation of the dollar against other
currencies, rise in volatility and increased credit spreads.
‘Subprime crisis’: US mortgage crisis historic scenario. The
objective of the analysis was to capture the impact on
results of the reduction in liquidity in the markets. Two time
horizons were used (one day and 10 days), and both cases
showed stock markets falls and lower interest rates in core
markets and rises in emerging markets, in addition to the
appreciation of the US dollar against other currencies.
‘Plausible Forward Looking Scenario’: a hypothetical
plausible scenario defined at local level in market risk units,
based on the portfolio positions and expert judgement
regarding short-term changes in market variables which
may have a negative impact on such positions.
‘EBA adverse scenario’: scenario proposed by the EBA as
part of its stress test exercise. This scenario reflects the
systemic threats considered to be the most serious to the
stability of the banking sector in the European Union.
Analysis of reverse stress tests, which are based on
establishing a predefined result (non-feasibility of a
business model or possible insolvency) and subsequently
the risk factor scenarios and movements that could cause
the situation to materialise.
A stress test assessment report is produced and distributed
on a monthly basis, containing explanations of the main
variations in results for the different scenarios and units. An
early warning mechanism has also been established so that
when the loss for a scenario is high in historic terms and/or
Further stress scenarios are assessed on a quarterly basis,
such as the reverse stress test, illiquidity and concentration
scenarios with regards to Additional valuation adjustments
(AVAs) and IRC.
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Association with balance sheet items
The balance sheet items in the Group’s consolidated
position that are subject to market risk are shown below,
distinguishing those positions for which the main risk
metric is VaR from those for which risk monitoring is carried
out using other metrics.
Relation of risk metrics with balances in Group’s consolidated position
Million euros. Dec. 2019 data
Assets subject to market risk
Balance
sheet amount
Cash, cash balances at central banks and other deposits on demand
101,067
Main market
risk metrics
VaR
Other
101,067
Main risk factors for
'Other' balance
Interest rate
Financial assets held for trading
108,230
107,522
708
Interest rate, spread
Non-trading financial assets mandatorily at fair value through profit or
loss
4,911
3,310
1,601
Interest rate, Equity
market
Financial assets designated at fair value through profit or loss
62,069
61,405
664
Interest rate
Financial assets at fair value through other comprehensive income
Financial assets measured at amortised cost
Hedging derivatives
Changes in the fair value of hedged items in portfolio hedges of interest
risk
Other assets
Total assets
Liabilities subject to market risk
Financial liabilities held for trading
Financial liabilities designated at fair value through profit or loss
Financial liabilities at amortised cost
Hedging derivatives
Changes in the fair value hedged items in portfolio hedges of interest
rate risk
Other liabilities
Total liabilities
Total equity
125,708
995,482
7,216
1,702
116,310
1,522,695
77,139
60,995
1,230,745
125,708
Interest rate, spread
995,482
Interest rate
7,216
—
Interest rate, exchange
1,702
Interest rate
76,849
60,211
290
784
Interest rate, spread
Interest rate
1,230,745
Interest rate, spread
6,048
6,048
—
Interest rate, exchange
269
Interest rate
269
36,840
1,412,036
110,659
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4.4 Structural balance sheet risk
management
Limits management and control systems
The structural risk control and oversight mechanisms are
defined in the policies set by the management body, taking
into account the requirements established by regulators and
the Group’s risk appetite statement. These control
mechanisms consider the different structural risk sub-types,
as well as the implications, contingencies and interrelations
among them.
The main function of structural risk in the second line of
defence is the measurement, analysis and control of metrics
to ensure that the level of balance sheet structural risk is
aligned with approved policies, limits and the Group’s risk
appetite. In particular:
• Monthly calculation, analysis and monitoring of the
position, performance and trends of structural risks
through the different axes and levels defined, reporting
regularly to senior management to provide a general
view of the risk profile and if necessary, request action
measures to the lines of business.
• Acceptance of structural risk limits and risk appetite,
products and transactions.
• Definition and monitoring of models and policies.
As already described for trading market risk, under the
annual limits plan framework, limits are also set for balance
sheet structural risks, responding to the Group’s risk
appetite level.
The main limits used by Santander are the following:
• Balance sheet structural interest rate risk:
Limit on the sensitivity of net interest income over a 1
year horizon.
Limit on the sensitivity of the value of equity.
• Structural exchange rate risk:
Net position in each currency (for results hedging
positions).
In the event that one of these limits or sub-limits is
breached, the risk management executives from the lines of
business must explain the reasons for this and provide an
action plan to correct it.
Methodologies
a) Structural interest rate risk
The Group analyses the sensitivity of its equity value and
net interest income to changes in interest rates as well as its
different sources and sub-types of risk. These sensitivities
measure the impact of changes in interest rates on the value
of a financial instrument, a portfolio or the Group as a
whole, as well as the impact on the profitability structure
over the given time horizon for which NII is calculated.
Taking into consideration the balance-sheet interest rate
position and the market situation and outlook, the
necessary financial actions are adopted to align this position
with that defined by the Group. These measures can range
from opening positions in markets to the definition of the
interest rate characteristics of our commercialized products.
The metrics used by the Group to control interest rate risk in
these activities are the repricing gap, sensitivity of net
interest margin and market value of equity to changes in
interest rates, the duration of capital and value at risk (VaR)
for economic capital calculation purposes.
b) Interest rate gap on assets and liabilities
This is the basic concept for identifying the Group’s interest
rate risk profile and it measures the difference between the
volume of sensitive assets and liabilities on and off balance
sheet that re-price (i.e. that mature or are subject to rate
revisions) at certain times (called, buckets). This provides an
immediate approximation of the sensitivity of the entity’s
balance sheet and its net interest income and equity value to
changes in interest rates.
c) Net interest income (NII) sensitivity
NII is calculated as the difference between income from
interest on assets and the interest cost of liabilities in the
banking book over a given time horizon of 1 year. NII
sensitivity is the difference between the NII calculated
under a selected scenario and the NII calculated under a
base scenario. Therefore there may be as many NII
sensitivities as there are scenarios considered. This metric
allows for the identification of short-term risks, and it is
complementary to the EVE sensitivity.
d) Economic value of equity (EVE) sensitivity
This measures the interest rate risk implicit in equity value,
which for the purposes of interest rate risk is defined as the
difference between the net current value of assets and the
net current value of outstanding liabilities, based on the
impact that a change in interest rates would have on those
current values. EVE sensitivity, is obtained as the difference
between the EVE calculated under a selected scenario and
the one calculated under a base scenario. Therefore there
may be as many EVE sensitivities as there are scenarios
considered. This metric allows for the identification of long-
term risks and it is complementary to NII.
e) Treatment of liabilities with no defined maturity
Under the Group´s model, the total volume of account
balances with no maturity is divided between stable and
unstable balances, which are obtained from a model based
on the relationship between balances and their own moving
averages.
From this simplified model, the monthly cash flows are
obtained and used to calculate NII and EVE sensitivities.
f) Pre-payment treatment for certain assets
The potential pre-payment risk mainly affects fixed-rate
mortgages in those subsidiaries where contractual rates for
these portfolios are at low levels compared to market
levels. This risk is modelled in these units and included in
the metrics used to monitor the risk appetite.
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g) Value at Risk (VaR)
For balance sheet activity and investment portfolios, this is
defined as the 99% percentile of the distribution function of
losses in equity value, calculated based on the current
market value of positions and returns over the last two
years, at a particular level of statistical confidence over a
certain time horizon. As with trading portfolios, a time
frame of two years or at least 520 days from the reference
date of the VaR calculation is used.
h) Structural foreign exchange rate risk/hedging of results
These activities are monitored via position measurements,
VaR and results, on a daily basis.
i) Structural equity risk
These activities are monitored via position measurements,
VaR and results, on a monthly basis.
4.5 Structural balance sheet risks
key metrics
The market risk profile inherent to the Group’s balance
sheet, in relation to its asset volumes and shareholders’
equity, as well as the budgeted net interest income margin,
remained moderate in 2019, in line with previous years.
The interest rate risk originated by commercial banking in
each subsidiary is transferred for management purposes -
through an internal risk transfer system - to the local
Financial division, which is responsible for the subsidiary’s
structural risk management generated by interest rate
fluctuations.
The Group’s usual practice is to measure interest rate risk by
using statistical models, relying on mitigation strategies for
structural risk using interest rate instruments, such as fixed
income bond portfolios and derivative instruments to
maintain the risk profile at levels that are appropriate to the
risk appetite approved by the board of directors.
Structural interest rate risk
Europe
The main balance sheets, those of the Parent and Santander
UK, in mature markets and in a low interest rate
environment, usually show positive sensitivities to interest
rates in economic value of equity and net interest income.
Exposure levels in all countries were moderate in relation to
the annual budget and capital levels in 2019.
At the end of December 2019, risk on net interest income
over a one year horizon, measured as the sensitivity to
parallel changes in the worst-case scenario of ±100 basis
points, was concentrated in the Euro, at 479 million euros,
the British pound yield curve at EUR 69 million, the Polish
zloty, at 60 million euros, and the US dollar, at 13 million
euros, all related to risks of rate cuts.
Net interest income (NII) sensitivity
% of total
* Other: Portugal and SCF.
As of the same date, the most relevant risk in economic value
of equity, measured as the sensitivity to parallel changes in
the worst-case scenario of ±100 basis points, was in the Euro
interest rate curve, at 5,178 million euros, followed by the
British pound at 377 million euros, the USD dollar at 301
million euros and the Polish zloty at 41 million euros, all
related to risks of rate cuts.
Economic value of equity (EVE) sensitivity
% of total
* Other: Poland, Portugal and SCF.
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North America
South America
North American balance sheets usually show positive
sensitivities to interest rates in economic value of equity and
net interest income, except for economic value of equity in
Mexico.
Exposure levels in all countries were moderate in relation to
the annual budget and capital levels in 2019.
As of the end of December, risk on net interest income over
a one year horizon, measured as the sensitivity to parallel
changes in the worst case scenario of ±100 basis points,
was mainly located in the USA (65 million euros) as shown
in the chart below.
Net interest income (NII) sensitivity
% of total
South American balance sheets are usually positioned for
interest rate cuts in terms of both economic value and net
interest income.
In 2019, exposure levels in all countries were moderate in
relation to the annual budget and capital levels.
As of the end of December, risk on net interest income over
a one year horizon, measured as the sensitivity to parallel
changes in the worst case scenario of ±100 basis points,
was mainly found in two countries, Brazil (74 million euros)
as shown in the chart below.
Net interest income (NII) sensitivity
% of total
Risk to the economic value of equity over a one year horizon,
measured as the sensitivity to parallel changes in the worst
case scenario of ±100 basis points, was also in the US (536
million euros).
Economic value of equity (EVE) sensitivity
% of total
* Other: Argentina, Peru and Uruguay.
Risk to the economic value of equity over a one year
horizon, measured as the sensitivity to parallel changes in
the worst case scenario of ±100 basis points, was also
mainly in Brazil (456 million euros).
Economic value of equity (EVE) sensitivity
% of total
* Other: Argentina, Peru and Uruguay.
Structural foreign exchange rate risk/results hedging
Structural exchange rate risk arises from Group transactions
in foreign currencies, mainly related to permanent financial
investments, their results and the hedging of both.
The management of this risk is dynamic and seeks to limit
the impact on the core capital ratio of foreign exchange rate
movements. In 2019, hedging of the core capital ratio for
foreign exchange rate risk were kept close to 100%.
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In December 2019, the largest exposures of permanent
investments (with their potential impact on equity) were, in
the following order, in Brazilian reais,US dollars, UK pounds
sterling, Chilean pesos, Mexican pesos and Polish zlotys.
The Group hedges some of these positions, which are
permanent in nature, with foreign exchange-rate
derivatives.
In addition, the Financial area is responsible for managing
foreign exchange rate risk for the Group’s expected results
and dividends in subsidiaries where the base currency is not
the euro.
Structural equity risk
The Group maintains equity positions in its banking book in
addition to those of the trading portfolio. These positions
are maintained as equity instruments or as equity stakes,
depending on the percentage owned or control.
The equity portfolio in the banking book at the end of
December 2019 was diversified between securities in
various countries, e.g. Spain, China, Morocco and Poland.
Most of the portfolio is invested in financial activities and
insurance sectors. Other sectors with lower exposure
allocations include real estate activities and public
administrations.
Structural equity positions are exposed to market risk. VaR
is calculated for these positions using market price data
series or proxies. As of the end of December 2019, the VaR
at 99% over a one day time horizon was 170 million euros
(180 million euros and 262 million euros at the end of 2018
and 2017, respectively).
Structural VaR
A standardised metric such as VaR can be used for
monitoring total market risk for the banking book, excluding
the trading activity of SCIB (VaR for this activity is described
in section 4.3 ‘Trading market risk key metrics’),
distinguishing between fixed income (considering both
interest rates and credit spreads on ALCO portfolios),
exchange rates and equities.
In general, structural VaR is not material in terms of the
Group’s volume of assets or equity.
Structural VaR
EUR million. VaR at a 99% over a one day horizon
2019
2018
2017
Structural VaR
438.2
511.4
729.1
Minimum
Average Maximum
Latest
729.1
Average
568.5
Latest
556.8
Average
878.0
Latest
815.7
Diversification effect
(225.5)
(304.2)
(404.3)
(402.0)
(325.0)
(267.7)
(337.3)
(376.8)
VaR Interest RateA
VaR Exchange Rate
VaR Equities
224.7
283.5
155.5
345.6
308.1
161.9
629.7
332.1
171.7
629.7
331.7
169.8
337.1
338.9
217.6
319.5
324.9
180.1
373.9
546.9
294.5
459.6
471.2
261.6
A. Includes credit spread VaR on ALCO portfolios.
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4.6 Liquidity risk management
d) Net stable funding ratio (NSFR)
The responsibilities of the liquidity risk function in the
second line of defence are to:
• Provide oversight of liquidity risk management, as carried
out by the first line of defence.
• Verify compliance with established liquidity risk policies
and limits, and assess whether businesses remain within
our risk appetite limits. Report, as necessary, on risk, risk
appetite and potential breaches thereof, to the
appropriate governance bodies.
• Express an opinion and challenge business proposals.
Provide senior management and the business units with
the elements required to understand the liquidity risk of
the different businesses and activities.
• Provide a consolidated view of liquidity risk exposures;
including the liquidity risk profile.
• Provide detailed assessments of material liquidity risks
and closely monitor emerging risks.
• Define metrics to be used in liquidity risk measurement,
review and challenge liquidity risk appetite and lower-
level limits proposals from the first line of defence.
• Confirm whether adequate liquidity procedures are in
place for managing the business within risk appetite
limits.
Methodologies
The Group measures liquidity risk using a range of tools and
metrics that account for the risk factors identified within this
risk.
a) Liquidity buffer
The buffer is a portion of the total liquidity available to an
entity to deal with potential withdrawals of funds (liquidity
outflows) that may arise as a result of periods of stress.
Specifically, a buffer consists of a set of unencumbered
liquid resources that are available for immediate use and
capable of generating liquidity promptly, without incurring
any loss or excessive discount. The Group uses the liquidity
buffer as a tool that forms part of the calculation of most
liquidity metrics and is also a metric in its own right, with
specified limits for each subsidiary.
b) Liquidity coverage ratio (LCR)
LCR has a regulatory definition and is intended to reinforce
the short-term resistance of banks’ liquidity risk profile by
ensuring that they have available sufficient high-quality
liquid assets to withstand a stress scenario (idiosyncratic
stress or market stress) of considerable severity for thirty
calendar days.
c) Wholesale gap metric
This metric measures the number of days the Group would
survive using its liquid assets to cover the liquidity losses
assuming non-renewable wholesale financing outflows for
a determined liquidity horizon. In addition, it is also used as
an internal short-term liquidity metric helping to reduce the
risk of dependence on wholesale funding.
NSFR is one of the metrics used by the Group to measure
long-term liquidity risk. It is a regulatory metric defined as
the coefficient of the available amount of stable funding
and the required amount of stable funding. This metric
requires banks to maintain a solid balance sheet where
assets and off-balance sheet activities are funded with
stable liabilities.
e) Asset encumbrance metrics
The Group uses at least two types of metrics to measure
asset encumbrance risk. The first is the asset encumbrance
ratio, which calculates the proportion of total encumbered
assets to the entity’s total assets. The second, the structural
asset encumbrance ratio, which measures the proportion of
encumbered assets deriving from structural funding
transactions (mainly long-term collateralised issuances and
funding from central banks).
f) Other liquidity indicators
Aside from traditional liquidity risk measurement tools for
short- term risk and long-term or funding risk, the Group
has constructed a range of additional liquidity indicators
that supplement the conventional toolset and measure
other liquidity risk factors not otherwise covered. These
indicators include concentration metrics, such as top one
and five funding providers, or distribution of funding by
maturity date.
g) Liquidity scenario analysis
The Group uses four standard scenarios as liquidity stress
tests:
i.
An idiosyncratic scenario featuring events that
adversely affect the Group alone;
ii. A local market scenario, which considers events that
have serious adverse effects on the financial system or
real economy of the Group’s base country;
iii. A global market scenario, which considers events that
have serious adverse effects on the global financial
system; and
iv. A combined scenario, coupling idiosyncratic events
with severe (local and global) market events arising
simultaneously and interactively.
At Santander, we use the outcomes of the stress scenarios
in combination with other tools to determine risk appetite
and support business decision-making.
h) Liquidity early warning indicators (EWI)
The system of liquidity EWI comprises quantitative and
qualitative indicators that enable us to foresee liquidity
stress situations and potential weaknesses in the Group
entities’ funding and liquidity structure. EWI are both
external (environmental) and internal, respectively relating
to market financial variables and to the Group’s own actions.
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The Group annually estimates the combined losses in assets
and liabilities under a defined stress scenario including
changes in interest rates exchange rates, inflation, stock
markets and real estate prices, as well as credit and
operational risk.
Due to the interest rate evolution, the defined benefit
pension obligation has increased during 2019.
Actuarial risk
Actuarial risk arises due to biometric changes in the life
expectancy of the defined benefit commitments
beneficiaries, life insurance policy holders, unexpected
increases of compensations envisaged in non-life defined
benefit commitments insurance and from unexpected
behavioural changes of insurance policyholders in the
exercise of the options included in the insurance contracts.
We distinguish the following actuarial risks:
Life liability risk: risk of a loss in the value of pension
obligation liabilities caused by fluctuations in the risk
factors affecting these liabilities:
• Mortality/longevity risk: risk of loss due to changes in the
value of liabilities due to changes in the estimated
probability of death/survival of the insured parties.
• Morbidity risk: risk of loss due to changes in the value of
liabilities resulting from changes in the estimated
probability of disability/incapacity of the insured parties.
• Surrender/lapse risk: risk of loss due to changes in the
value of liabilities because of the early termination of the
contract or changes in the policyholders’ exercise of rights
with regard to surrender, extraordinary contributions and/
or paid up options.
• Expense risk: risk of loss due to changes in the value of
liabilities arising from adverse variances in expected
expenses.
• Catastrophe risk: losses caused by the occurrence of
catastrophic events that increase the entity’s life liabilities.
Non-life liability risk: risk of a loss due to changes in the
value of non-life benefit liabilities acquired by Santander
with its employees, caused by fluctuations in the risk
factors affecting these liabilities:
• Premium risk: loss derived from the insufficiency of
premiums to cover any disasters that may occur.
• Reserve risk: loss derived from the insufficiency of
reserves for disasters, already incurred but not settled,
including costs for managing said disasters.
• Catastrophe risk: losses caused by catastrophic events
that increase the Group’s non-life liability.
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4.7 Liquidity risk key metrics
The Group has a strong liquidity and financing position
based on a decentralised liquidity model, where each of the
subsidiaries is autonomous in the management of its
liquidity and maintains large buffers of highly liquid assets.
In general, short-term liquidity metrics, LCR remains stable,
with regulatory ratios above the threshold, the regulatory
minimum required in 2019 was 100% and the internal limit
was 110%.
The Group has an effective management of its liquidity
buffers to face the challenge of maintaining a proper
liquidity profile (regulatory limits) while protecting the
profitability of our balance sheet.
Furthermore, most of Santander’s subsidiaries maintain
sound balance sheet structures, with a stable financing
structure based on a broad customer deposit base, which
covers structural needs, with low dependence on short-
term funding and liquidity metrics well above regulatory
requirements, both locally and at Group level, and within
the limits defined on the risk appetite framework.
Hence, for long-term liquidity, the regulatory metric NSFR
remains above 100% for the Group’s core units as well as for
the consolidated ratio, anticipating compliance with the
regulatory minimum requirement of 100% in 2021.
In terms of structural assets encumbrance risk, the Group’s
levels are in line with those of our European peers, where
the main sources of encumbrance are collateralised debt
issuances (securitisations and covered bonds) and
collateralised funding facilities provided by central banks.
The soundness of Santander units’ balance sheets is also
demonstrated under stress scenarios constructed in
accordance with uniform corporate criteria across the
Group. All units would survive the worst case scenario for at
least 45 days, meeting liquidity requirements with their
liquid asset buffers alone.
For further details regarding liquidity
metrics, see section 3.4 ‘Liquidity and
funding management’ of the chapter
on Economic and financial review.
4.8 Pension and actuarial risk
management
Pension risk
In managing the risk associated with the defined benefit
employee pension funds, the Group assumes the financial,
market, credit and liquidity risks incurred by the assets and
the investments of the fund, as well as the actuarial risks
from the fund’s liabilities, i.e. the pension obligations with
its employees.
The main Group’s goal regarding the pension risk control
and management is focused in the identification,
measurements, monitoring, mitigation and communication
of this risk. The Group’s priority is, thereby, to identify and
mitigate all sources of pension risk.
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5. Capital risk
5.1 Introduction
5.2 Capital risk management
The Group defines capital risk as the risk of lacking
sufficient capital, either in quantitative or qualitative terms,
to fulfil its business objectives, regulatory requirements, or
market expectations.
The Capital Risk function carries out, among other tasks, the
oversight and control of the capital activities developed by
the first line. These are grouped in four different work
streams, ensuring that monitoring is in accordance with the
Group's risk profile:
• Capital planning: Internal process which aims to set
capital levels and capital returns in a consistent manner
with the execution of the Group’s strategy. The Entity
should ensure its solvency and efficiency of capital. For
this purpose, the Group identifies the capital actions
required to achieve both its defined capital ratios and its
return on capital targets.
• Capital adequacy: Process to assess the capital levels
maintained to cover the nature and level of risks that the
entity is, or may be, exposed to, in accordance with the
risk identification and assessment process, the Group’s
strategy and defined risk appetite. For more detail, see
this chapter, section 2.4 'Management processes and
tools' - Risk profile assessment and Risk appetite and
structure of limits.
• Capital risk measurement: Process to cover all activities
required for obtaining a measurement of the different
metrics considered, from defining the methodology to be
followed to obtaining the final figures required, as well as
providing support for the different stages of capital
management, monitoring, oversight and control.
• Origination: Process to evaluate the efficiency of the
portfolios to identify potential initiatives for capital relief
(i.e. securitisations, risk mitigation techniques or asset
sales).
In 2019, the Capital Risk function reviewed and proposed
further enhancements to the existing Target Operating
Model (TOM) as part of its continuous review and
improvement process.
One of the key milestones of the TOM is its deployment and
monitoring in the Group’s subsidiaries. In order to achieve
this, the following key tasks have been defined:
• Review and update capital risk procedures at local level.
• Unify capital reporting following the Group’s common
guidelines while adapting to each local market regulation
and circumstances.
• Periodic follow up on local progress regarding TOM
deployment.
Capital risk, the second line of defence, independently
challenges the business or first line activities mainly
through the following processes:
• Supervision of capital planning and adequacy exercises
through a review of the main components affecting the
capital ratios.
• Ongoing supervision of the Group’s regulatory capital
measurement by identifying key metrics for its
calculation, setting tolerance levels and reviewing capital
consumption and the consistency of the calculations,
including single transactions with an impact on capital.
• Review and challenge of the execution of those capital
actions proposed in line with capital planning and risk
appetite.
The function is designed to carry out full and regular
monitoring of capital risk by verifying that capital is
sufficient and adequately covered in accordance with the
Group’s risk profile.
Capital risk control is part of the general risk framework as
well as of the Group's capital framework and model. It
brings together a range of processes, such as capital
planning and adequacy and the subsequent budget
execution and monitoring, alongside the ongoing
measurement of capital and the reporting and disclosure of
capital data, as described below:
Supervision of capital planning and adequacy exercises
The Risk function reviews capital planning and adequacy
exercises to ensure that capital is consistent with the
established risk appetite and risk profile. It has the
following fundamental objectives:
• Ensure that all relevant risks to which the Group is
subject, in the course of its activity are monitored.
• Check that the methodologies and assumptions used in
these planning processes are appropriate.
• Verify that results are reasonable and consistent with the
business strategy, the macroeconomic environment and
the variables of the system.
• Assess the consistency between different exercises,
especially those that use baseline and stressed scenarios.
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This function is implemented in phases, according to the
following scheme:
Definition of scope
The supervision of capital planning and adequacy begins
with the preparation of the materiality proposal, which will
identify the local units whose importance is representative
for the Group in terms of risk weighted assets.
In addition, other units, businesses or portfolios may be
included, even if their materiality does not make them very
representative, to be analysed due to their impact on the
Group’s strategy, compliance with the global plan or due to
their timely relevance
Qualitative analysis
In this phase, the overall quality of the qualitative forecasts
process is assessed, and includes a review of the following
aspects:
• Models used in the generation of forecasts and scenarios,
scope, metrics covered.
• Documentation available and provided in the generation
process.
• The quality of the information included in the forecasts,
the integrity of the data, the controls applied, the
recommendations issued by Internal audit, etc.
Governance of the process, committees before which the
forecasts have been presented and reviewed, approval by
different areas prior to final approval.
Quantitative analysis
The defined metrics and components that affect projections
of risk weighted assets (RWA) and available capital, are
quantitatively assessed.
This phase calls for the involvement and appropriate
coordination of all subsidiaries within the scope of the
process, to conduct an analysis of local projections, which in
turn underpin Group-level projections.
Conclusions and disclosure
Based on the outcomes from the capital planning and
adequacy phases, the Group conducts a final assessment, at
least encompassing the scope of analysis, the weaknesses
and the areas for improvement detected in the course of the
supervision process, reporting to senior management in
accordance with established governance. This ensures that
effective and constructive challenge is conducted from the
second line of defence concerning the proposed capital
plans.
If deemed necessary, a discussion of these conclusions will
be proposed in the relevant first-line (capital committee)
and second-line committees (risk control committee).
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Ongoing supervision of capital measurement
Ongoing supervision of the measurement of the Group’s
regulatory capital, ensuring an appropriate capital risk
profile, is an additional capital risk control function.
For this purpose, the Group conducts a qualitative analysis
of the regulatory and supervisory framework and an
ongoing review of capital metrics and specified thresholds.
Moreover, ongoing monitoring of compliance with the
capital risk appetite is conducted aiming to maintain capital
levels above the regulatory requirements and market
expectations.
To fulfil this function, the following phases have been
established, in accordance with the process described
below:
Definition of metrics and thresholds
A set of metrics and thresholds that are used in the
supervision process are defined to enable adequate capital
risk monitoring and control. These are specified on an
annual basis.
The metrics consist of:
• Primary metrics: cover capital ratios and numerator and
denominator components at the highest level.
• Secondary metrics: include a more extensive breakdown,
for instance credit RWAs under the Basel category or the
basis on which market RWAs are calculated.
• Supplementary metrics: provide a more detailed analysis.
Thresholds are set for primary and secondary metrics, which
if breached, trigger a more detailed analysis and an
explanation of the causes of the breach.
The metrics, their thresholds and the sources of information
used are outlined in the internal ‘Capital measurement
control metrics guidelines’
Preliminary analysis
At this phase of the control process, the qualitative issues,
such as process governance and regulatory framework are
analysed.
In addition, the steps taken in connection with capital to
fulfil recommendations and instructions issued by
supervisory authorities and by the Internal Audit function
are examined.
Measurement assessment
Based on the information provided, the Capital Risk function
analyses the metrics defined in the process, according to the
following procedure:
• Review of primary and secondary metrics to detect
variations that exceed the defined thresholds, and where
they do, perform a detailed analysis of the causes and
analyse supplementary metrics.
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• If the origin of the incident lies in a specific subsidiary or
global area, more detailed information is requested.
• Monitoring stage: Capital Risk carries out regular
monitoring of the transactions already executed.
• Incidents detected must be duly explained in terms of
their causes (change in volumes, changes in the profile,
one-off events, capital actions, etc.) and discussed with
the corresponding subsidiary or global function involved.
Conclusions and disclosure
The report containing the conclusions is discussed by the
governance body responsible for capital risk control and, if
deemed necessary, the report will be proposed for
discussion in the relevant first line committee (capital
committee) and second-line committees (risk control
committee).
Oversight of securitisation transactions
The Capital Risk function carries out the oversight of those
securitisation transactions that could be subject to be
considered as Significant RIsk Transfers (SRT), as described
on the EBA guidelines on SRT relating to Articles 243 to 245
of Regulation 2017/2401 and 2017/2402, and for which the
Bank acts as the originator.
The oversight process is a prior step and an essential
requirement for the execution of both synthetic and
traditional securitisations and applies to every transaction
that could result in a RWA reduction, following the
aforementioned regulatory guidelines.
The main purpose of this process is to ensure that the
securitisation oversight conducted by the Capital Risk
function includes the analysis of the requirements that may
affect its consideration as SRT. These requirements include:
• The transaction allows an effective transfer of risk.
• The transaction complies with all prudential regulation
requirements.
• The risk parameters used in the transaction follow the
methodology defined by the Group.
• The economic rationale for the transaction is in
accordance with the established Group standards.
The Significant Risk Transfer supervision process is divided
into the following stages:
• ECB prenotification stage: Capital Risk issues an
assessment of the transaction prior to notifying the ECB
of the intention to carry out a securitisation transaction
that may be subject to be considered as SRT.
• Validation stage: the securitisation is presented for
validation to the capital and risk committees along with
the assessment issued by the Capital Risk function.
• ECB notification stage: communication through which the
final version of the securitisation documentation package
is sent to the ECB. This should take place no later than
fifteen days after the closing date of the securitisation
transaction.
5.3 Key metrics
Santander Group has a strong capital position consistent
with its business model, balance sheet structure, risk profile
and regulatory requirements. Our strong balance sheet and
profitability enables us to finance growth and continue to
accumulate capital.
Our model of autonomous subsidiaries in terms of liquidity
and capital allows the Group to mitigate the risk that
potential difficulties of one subsidiary could affect the
others.
Santander Group capital metrics are stable, with ratios
comfortably above the regulatory requirements and at
appropriate levels, aligned with the risk appetite statement
approved by senior management.
For more detail see the section 3.5
‘Capital management and adequacy.
Solvency ratios’ of the chapter on
Economic and financial review.
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6. Operational risk
6.1 Introduction
The Group defines operational risk (OR), in line with the
Basel framework, as the risk of losses arising from defects
or failures in its internal processes, people, systems or
external events, covering risk categories such as fraud,
technological, cyber-risk, legal5 and conduct risk.
Operational risk is inherent to all products, activities,
processes and systems and is generated in all business and
support areas. For this reason, all employees are
responsible for managing and controlling the operational
risks generated by their activities.
The Group’s goal in terms of OR management and control is
focused on identifying, evaluating and mitigating sources of
risk, regardless of whether they have materialised or not.
The analysis of our exposure to OR helps to determine risk
management priorities.
Risk analysis has improved in 2019 through different
initiatives such as the definition of new risk appetite
metrics, the integration of thematic assessments into the
Risk and Control Self Assessment (RCSA), as well as the
implementation of an enhanced oversight process and the
development of a transformation risk analysis
methodology.
Mitigation plans have been promoted on aspects with
special relevance (fraud, cybersecurity and vendor
management, among others), focused on both the
implementation of corrective actions and the proper
monitoring and management of ongoing projects.
6.2 Operational risk management
Operational risk management in Santander Group is
underpinned by the following items:
Framework and tools
Santander´s operational risk model defines the necessary
elements of suitable management and control of
operational risk and compliance with advanced regulatory
standards and best practices for operational risk
management.
The management and control of operational risk must be
carried out throughout its cycle, which includes: strategy
and planning; risk identification and assessment; risk
monitoring; the application and monitoring of mitigation
measures; and the availability of information, appropriate
reporting and escalation of relevant aspects when
necessary.
5. Legal processes with an operational risk root cause.
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Policies and procedures have been defined to regulate the
management and control of operational risk, as well as the
tools in support of these processes.
The most important operational risk tools used by the
Group are the following:
• Internal events database. The events database provides
information to improve operational risk management and
control, through root cause analysis, enhancement of risk
awareness and events management. Events that are
registered in the database can have a financial impact
(Santander records all losses regardless of the amount) or
a non-financial impact (such as regulatory, reputational or
customer and services).
The internal database is supplemented by the relevant
events escalation process, which allows to manage and
report to senior management the occurrence of
significant operational risk events arising across the
Group on a timely basis.
• Operational risk and control self-assessment (RCSA). A
qualitative process that seeks, using the criteria and
experience of a pool of experts in each function, to
determine the main operational risks for each function,
the status of the existing control environment and their
allocation to the different functions within the Group.
The goal of the RCSA is to identify and assess the material
operational risks that could prevent business or support
units from achieving their objectives. Once they are
assessed, mitigation actions are identified if the risk
levels prove to be above the tolerable levels.
The Group also undertakes risk assessments for specific
sources of operational risk, enabling a more granular and
transversal identification of potential risks. In particular,
these are applied to technological risks, fraud, third party
risk and factors that could lead to specific regulatory non-
compliance, in addition areas that are exposed to money
laundering and terrorism financing risks. The two latter
areas, together with the conduct risks factor, are set out in
greater detail in this chapter in section 7.3 ‘Compliance
and conduct risk management’.
• External event database. The external database provides
quantitative and qualitative information, allowing for a
more detailed and structured analysis of relevant events
that have occurred in the industry, the benchmarking of
the losses profile and the appropriate preparation for the
RCSA, insurance and scenario analysis exercises.
• OR scenarios analysis. The objective of this tool is to
identify potential events with a very low probability of
occurrence, but which could result in significant losses for
the Group, and to establish appropriate mitigating
actions. Expert opinion is obtained from the business
lines and risk and control managers.
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• Key risk indicators. These metrics provide quantitative
information on the institution’s risk exposure and the
existing control environment. The most significant
indicators associated with the main risk factors are part of
the operational risk appetite.
• Processes improvements for the determination,
identification and assessment of standard controls that
have been aligned with internal policies, with the aim of
strengthening and homogenising the control
environment in the Group.
• Risk Appetite. Non-financial risks appetite framework is
structured as follows:
A general statement setting out that Santander is, on
principle, averse to operational risk events that could
lead to financial loss, fraud, operational,
technological, legal and regulatory breaches, conduct
problems or damage to its reputation.
General metrics of expected losses and stressed
losses.
An additional statement is included for the more
relevant risks, together with a number of forward-
looking monitoring metrics. Specifically, on the
following: internal and external fraud, technological,
cyber-risk, anti-money laundering, products
commercialisation, regulatory compliance and vendor
management risk.
• Internal audit and regulatory recommendations. These
provide relevant information on inherent and residual risk
due to internal and external factors, enabling the
identification of areas of improvement in the existing
processes and controls.
• Other specific instruments. There are other instruments
that enable further analysis and management of
operational risk, such as the new products and services
assessment, the reporting of key IT and cybersecurity
events, monthly and annual loss forecasts, business
continuity plan (BCP) management, perimeter review and
the quality assurance process.
• Capital model. A loss distribution approach (LDA) model
is used to capture the Group’s operational risk profile,
based on information collected from the internal loss
database, external data and scenarios. The main
application of the model is to determine operational risk’s
economic capital and to estimate expected and stressed
losses, which are then used for operational risk appetite.
Model implementation and initiatives
Santander performs an annual review of the Group's
operational risk profile to identify all legal entities, in which
the operational risk programme must be implemented or
improved according to their risk profile.
The main activities and global initiatives adopted in 2019 for
effective operational risk management are:
• Continuous enhancement of the integration of all tools,
mentioned above, in order to perform cross- analysis.
• Greater harmonisation and integration of IT & cyber-risk
processes within the Group operational risk methodology
framework.
• Evolving IT, cyber and vendor management appetite
metrics by improving their definition, measurement and
by stressing the thresholds.
• Establishing independent oversight and evaluation of the
Group control environment to adequately challenge the
risk and control manager’s views.
• Continue improving the integration of operational risk in
the Group’s strategic plan, by including information
regarding the potential exposure for the next three years
as well as the estimated level of losses.
• Fostering mitigation plans for specific risks such as fraud,
cybersecurity and vendor management, among others.
More information related to these plans is provided in
subsequent paragraphs.
• Improving the assessment methodology of the global
cybersecurity transformation plan to identify the risk
reduction impact derived from implementation of
technical security milestones.
• Improvements in the contingency, business continuity
and crisis management plans on a coordinated initiative
with recovery and resolution plans, also providing
coverage to emerging risks.
• Fostering technology risk control (control and supervision
of the IT systems design, infrastructure management and
applications development) by defining Reference Risks to
be assessed during RCSA by business owners and
specialized control functions.
• Developing a framework for the identification,
assessment, aggregation and mitigation of
Transformation/Change risk.
Operational risk information system
The Group’s information system for operational risk
(Heracles) supports operational risk programmes, providing
information for management and reporting purposes at
both subsidiaries and Group levels. Heracles’ main goal is to
improve decision- making related to OR management
throughout the Group, preventing redundant or duplicated
efforts.
This goal is achieved by ensuring that all people responsible
for risks throughout the Group are provided with a fuller and
more precise view of their risks in a timely manner, through
the integration of several programmes, such as risk and
control assessment, scenarios, events and metrics with a
common set of taxonomies, and methodological standards.
In 2019, further integration of the risk assessments was
accomplished with the integration of cyber, vendor and
fraud risk assessments in the RCSA module.
In addition, advances were made by the Group to enable
further convergence in: i) risk assessments, ii) libraries of
risks and controls, and iii) Internal audit’s control testing. A
process taxonomy was created, to link processes, risks and
controls.
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Mitigation actions
Online/mobile banking fraud:
In line with the model, the Group implements and monitors
mitigation actions related to the main risk sources which
are identified through the internal OR management tools
and other external information sources. Furthermore, the
Group continued to promote the preventive implementation
of policies and procedures for OR management and control.
The most significant mitigation actions are focused on
improving the customer security in their usual operations,
as well as on continuous improvements in processes and
technology, product sales and an adequate and continuous
provision of services.
Fraud
The transformation and digitalisation of the business imply
new threats related to the digital world. To mitigate these
risks, new products and control mechanisms are designed
and reviewed taking into account potential attacks through
digital means.
The use of strong customer authentication processes in line
with the European Payment Service Directive (PSD2), the
implementation of biometric validation (i.e. facial
recognition) in the on-boarding client process, etc., is
becoming increasingly widespread helping mitigate these
risks.
In regard to reducing fraud, the Group deploys specific
actions such as the following:
Card fraud:
• Generalised use of Chip & Pin (operation with PIN-cards,
which require the transaction to be signed-off with a
numeric code), both in ATMs and in physical stores, with
advanced authentication mechanisms in the
communication between the ATM and the point-of-sale
and the Group’s systems.
• Card protection against electronic commerce fraud:
Implementation of a secure e-commerce standard
(3DSecure) via two-step authentication based on one-
time passwords.
Solutions based on mobile applications that let users
deactivate cards for e-commerce use.
Virtual cards issuance using dynamic authentication
passwords.
• Use in Brazil of a biometric authentication system in
ATMs and branch cashier desks. Customers can use this
new system to withdraw cash from ATMs using their
fingerprint to sign off their transactions.
• Integration of monitoring and fraud detection tools with
other systems, internally and externally, to enhance
suspicious activity detection capabilities.
• Reinforced ATM security by incorporating physical
protection elements and anti-skimming, as well as
improvements in the logical security of the devices.
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• Validations of online banking transactions through a
second security factor based on one-time-use passwords.
Evolution of technology, depending on the geographic
area (for example, based on image codes -QR codes -
generated from the transaction data).
• Enhanced online banking security by introducing a
transaction risk scoring system that requests further
authentication when a given security threshold is
breached.
• Implementation of specific protection measures for
mobile banking, such as identification and registration of
customer devices (Device ID).
• Monitoring of e-banking platform security to avoid
systems attacks.
Cybersecurity and data security plans
Throughout the year, Santander continued to focus on
cybersecurity risks, which affect all companies and
institutions, including those in the financial sector. This
situation is a cause of concern for all entities and regulators,
prompting the implementation of preventive actions to be
prepared for any attack of this kind.
Santander has continued to mature its cybersecurity
controls and regulations in line with the Santander’s global
cybersecurity framework, and based in international best
practices.
The Group has also made positive progress with its
ambitious programme to transform cybersecurity in order
to strengthen detection, response and protection
mechanisms. That includes the inauguration of the new
Cyber Security Centre in Madrid.
Further information regarding cyber
security is available in chapter
Economic and financial review,
section 5 'Research, development and
innovation (R&D&I)'.
At the same time, cyber threats continue to increase in
severity and complexity across all industries and
geographies. Santander regularly reviews and evolves its
defences in order to continuously improve, and address
existing and emerging cyber threats.
The second line of defence, cybersecurity risk team has
evolved the process for assessment of cyber risk to
incorporate oversight across all the core cyber risk domains
in the information security program. This includes oversight
and assessment of risk reduction effectiveness of the global
cybersecurity transformation plan.
Vendor management
As part of its digitalisation strategy, the Group aims to offer
its customers the best solutions and products available in
the market, which in many cases entail an increase in
outsourcing activities or the employment of third party
services. This aspect, together with the intensive use of new
technologies such as the cloud, the increase of cyber-
related risks and an increase in regulatory pressure in this
area, making it necessary to reinforce procedures and
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controls to ensure that the risks arising from hiring
suppliers are known and managed appropriately.
In 2019, the European Banking Authority (EBA) published
its revised guidelines on outsourcing arrangements, setting
out specific provisions for the governance frameworks of all
financial institutions within the scope of the EBA's mandate.
In order to cover all new requirements, a new Target
Operating Model has been defined including the
optimisation, simplification and review of all related
policies and governance.
In 2019, efforts have mainly been aimed at:
• The definition of new criteria for classifying services
according to their level of relevance. This level of
relevance will determine the different requirements for
approval, registration and monitoring of the services.
• Methodology improvements to identify and analyse
inherent risks, in alignment with the new EBA guidelines.
• Controls have been reinforced in the different phases of
the vendor management model to ensure that services
that involve accessing or processing of sensitive data,
including personal data, are correctly identified and
classified.
• The escalation policy has been revised to ensure that the
essential outsourcing functions and the critical and high
relevance services are reviewed and approved in the
appropriate forums and that the relevant incidents
associated with suppliers that provide these services are
escalated in due time and manner for review and
adequate decision-making.
• Definition and monitoring of indicators and dashboards
with regard to the model implementation process.
• Reviewing and enhancing the data quality for relevant
services and associated suppliers inventories.
• Progress in the implementation of a management system
that automates the supplier management cycle different
phases to achieve enhanced process control and higher
information quality.
• Training and raising awareness of risks associated with
suppliers and other third parties.
• Deployment of the Vendor Risk Assessment Centre
(VRAC) function within the Group’s entity responsible for
purchases, with the aim of making supplier assessments
more efficient and standard, ensure that related risks are
adequately covered, and execute a certification process
before the service is provided. In addition, the VRAC
should help to define and monitor mitigation plans, and
reinforce the controls needed to ensure the risks
associated with services providers are at acceptable levels
according to the Group’s risk appetite.
Other relevant mitigating actions
With regards to mitigation measures related to customer
practices, products and businesses, Santander works to
continuously improve and implement corporate policies on
aspects such as products and services selling, management
and analysis of customer complaints, prevention of money
laundering, terrorism financing and compliance with new
regulations.
Also related to the same operational risk category, within
the continuous process carried out in Brazil to improve
internal processes and provide a better service to our
customers and, thereby, reduce the volume of potential
incidents and legal claims, the creation of joint and
multidisciplinary working groups for the identification,
definition and implementation of mitigation actions based
on root cause analysis, as well as for the monitoring of their
effectiveness, stands out.
Analysis and monitoring of controls in Santander
Corporate & Investment Banking (SCIB)
Due to the specific nature and complexity of the financial
markets, operational control procedures are subject to
continuous improvement at SCIB (business unit which
performs the activity related to these markets), which
currently focuses on the following aspects:
• Subsidiaries’ reporting and monitoring tools have been
strengthened, generating a more robust and systematic
methodology for periodic measurement of the main risks,
ensuring an adequate level of maturity of all the
operational risk tools.
• Continuous improvement of the control model related to
regulatory requirements such as MiFID II, Dodd Frank Act,
EMIR, IFRS 9 and GDPR among others.
• The risk of unauthorized trading continues to be
monitored through a specific risk appetite metric. As part
of the control environment continued process of
improvement, the global guidelines and their monitoring
have been strengthened. Further, new reports are being
defined to produce more granular monitoring of market
operations re-enforcing business continuity plans,
incorporating new scenarios adapted to new industry
risks (i.e. cybersecurity scenarios).
• Strengthening business continuity plans, incorporating
new scenarios adapted to new industry risks (i.e.
cybersecurity scenarios).
• Implementation of new tools that reinforce control over
communications that occur in the markets trading rooms,
among others with a focus on monitoring conduct risk.
For more information on aspects of regulatory compliance
in markets activities, see section 7.3 'Compliance and
conduct risk' - Regulatory compliance.
Finally, it should be noted that the business remains
immersed in a global transformation process that involves
the updating of its technological platforms and operational
processes, which will, among other objectives, strengthen
the control model and reduce the operational risk
associated with these activities.
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Insurance’s role in operational risk management
Business continuity plan
Santander considers insurance as a key element in the
management of operational risk. In 2019, the Own
Insurance function achieved a greater level of maturity in
the Group’s different geographies, obtaining greater
consistency and ensuring total coordination between the
different functions involved in the insurance management
cycle. The following activities should be highlighted:
• Continuous fostering of the relationship between the
own insurance, operational risk and first line areas, to
attain the objective of effective insurable risk
management, through their active participation in the
insurance and other relevant fora established by the
Operational Risk function (i.e. fraud forum).
• Permanent review of the Group's risks with respect to
contracted hedges, in order to identify all risks that may
be subject to insurance coverage, analysing the suitability
of the policies for the risks covered and taking
appropriate corrective measures in case it is deemed
necessary.
• Monitoring insurable losses and events identified in the
insurance policies, establishing action protocols and
specific monitoring fora in each geography. Identification
of all risks in the Group that can be hedged with
insurance, including the identification of new insurance
coverage for risks already detected in the market.
Likewise, the Own Insurance function has continued
developing its role of protecting the Group's income
statement, mainly through the following tasks:
• Establishment and implementation of those criteria to be
applied in order to quantify insurable risk, based on the
analysis of losses and scenarios, which allow determining
the level of exposure of the Group to each risk.
• Analysis of the coverage available in the insurance
market, and negotiation with suppliers according to the
procedures established for this purpose by the Group.
• Recovery of insured losses, maximising the efficiency of
the hedged through policies in 2019.
• Participation in various Group fora/committees related to
risk management, increasing their interaction with other
Group functions and ability to properly identify and
evaluate insurable risks, as well as their knowledge of
existing policies and activation procedures for other
Group areas.
The Group has a Business Continuity Management System
(BCMS), to guarantee the continuity of the business
processes in all its entities in the event of a potential
disaster or serious incident.
Its basic goals are to:
• Minimise the potential damage for people, and adverse
financial or business impacts for the Group, caused by the
interruption of normal business activities
• Reduce the operational effects of a potential disaster,
providing pre- defined and flexible guidelines and
procedures to be applied in the re- launching and
recovering processes.
• Restart time-sensitive business operations and
associated support functions, in order to achieve business
continuity, stable profits and planned growth.
• Protect the public image and confidence in the Group.
• Meet the Group’s obligations to its employees,
customers, shareholders and other stakeholders.
In 2019, the Group further implemented and worked on the
continuous improvement of its business continuity
management system, through the integration of the
business impact analysis with other risk assessment
methodologies. In addition, the Group is working on
creating an end to end process map that will allow having a
better identification of the risks and the controls required to
ensure the continuity of the organisation’s key services.
Furthermore, several crisis simulation exercises were
carried out, coordinated between the Group’s subsidiaries
and headquarters, involving the Group’s various crisis
management committees and senior management.
Santander has also updated the Group’s application that is
used to register and store the continuity plans to allow for
associating the economic functions set by the European
Banking Union’s resolution authority, the SRB.
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6.3 Key metrics
The distribution of net losses (including both incurred loss
and net provisions) by Basel risk categories6 over the last
three years is as follows:
Distribution of net losses by operational risk categoryA
2
(% o/total)
A. Excluding Trabalhistas events from Brazil
In relative terms, losses in the category of customers,
products and business practices increase compared to the
previous year, while external fraud and processes related
losses decreased.
Net losses by country are presented in the following chart:
Net losses by countryA
(% o/total)
A. Excluding Trabalhistas events from Brazil
Employee litigation in Brazil is managed as a personnel
expense. It is not included in the operational figures since it
is considered, from a management point of view, as part of
the entity’s personnel expense. The Group’s governing
bodies continuously monitor the levels of expenditure,
including specific appetite metrics, as well as the actions
designed to reduce it. According to the Basel operational risk
framework, these expenses are reported under the
applicable categorisation.
In 2019, the most significant losses by category and
geography corresponded to litigation in Brazil where a set
of actions has been put in place to improve customer service
(in the form of a full mitigation plan, as described in section
6.2 ‘Operational risk management’ in this chapter). In
addition, in 2019 the volume of losses in the UK and the US
increased due to provisions that cover cases related to
product commercialisation and legacy cases.
Regarding external fraud, the majority of losses are related
to forgery and identity theft, and the fraudulent use of debit
and credit cards. The forecast for next year is for this trend to
continue, with a potential intensification of the fraudsters'
activity in payment transactions and electronic commerce.
In this regard, the Group is continuously improving its
monitoring and control procedures and tools with the goal
of tackling these risks.
6. The Basel categories incorporate risks which are detailed in section 7 'Compliance and conduct risk'.
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7. Compliance and conduct risk
7.1 Introduction
The Compliance and Conduct function fosters the Group´s
adherence to the rules, supervisory requirements, and the
principles and values of good conduct, by setting standards,
advising and reporting in the interest of employees,
customers, shareholders and the community as a whole.
This function addresses all matters related to:
• Regulatory compliance.
• Financial crime compliance (FCC).
• Product governance and consumer protection.
• Reputational risk.
Under the current configuration of the Group’s three lines of
defence, Compliance and Conduct is an independent
second-line control function organisationally under the
Group CRO, reporting directly and regularly to the board of
directors and its committees, through the Group Chief
Compliance Officer (Group GCCO).
The Group’s goal is to minimise the probability of non-
compliance events and to identify, evaluate, assess,
manage, control and report any potential irregularities that
may occur.
The Group sets out in its risk appetite model its zero
tolerance for Compliance and Conduct risks with the goal of
minimising the probability of any economic, regulatory or
reputational impact. In order to achieve this goal,
Compliance and Conduct risk is managed through a
homogeneous process carried out towards a common
methodology and taxonomy, fully aligned with the Risk
function principles, by establishing a series of risk
indicators, assessment matrices and qualitative statements.
The Compliance and Conduct function takes part in the
annual risk appetite formulation, in order to verify that the
current model is aligned with the Group’s risk appetite.
In addition, the transition from the Target Operating Model
(TOM) implementation to the Annual Compliance Program
(ACP) has been completed, which is now more developed,
becoming a key management tool for covering a wide scope
of around 70 activities related to risk management,
governance and culture. This tool addresses potential
improvements detected during the capacity and maturity
model assessment on the effectiveness of the function and
significantly improving the oversight and control
environment.
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The Program is supervised by the Board and the
management team of each respective subsidiary, and it is
validated by the Group C&C function. It details the main
activities to be developed by the function throughout the
year, classified into the following categories: i) governance;
ii) findings and recommendations; iii) regulatory radar; iv)
risk management; v) culture and vi) improvement projects.
7.2 Governance
The Group CCO reports to the Group’s governing and
management bodies. This is independent of the Risk
function’s other reporting obligations to the governance and
management bodies of the Group’s risk profile, which also
includes compliance and conduct risks.
The function’s governance has historically been predicated
on a strong structure of Group Committees. During the past
year, a simplification process led by the Internal Governance
function was performed to achieve a more efficient
governance structure that strikes an appropriate balance
between governance, oversight and responsive decision-
making whilst eliminating unnecessary complexity. As a
result of this process, the governance structure is now
composed of the General Compliance Committee and three
supporting governance fora: Reputational Risk Forum,
Corporate Product Governance Forum and the Anti-Money
Laundering and Terrorism Financing Forum.
The general compliance committee is the high- level
collegiate body of the Compliance and Conduct function. Its
main responsibilities are as follows:
• Proposing updates and modifications to the General
Compliance and Conduct Corporate framework and other
corporate frameworks sponsored by the Compliance
function for ultimate approval by the board of directors.
• Reviewing significant compliance and conduct risk events,
measures adopted and their effectiveness.
• Setting up and assessing corrective actions when risks of
this kind are detected in the Group, either due to
weaknesses in the existing management and control or
due to emerging new risks.
• Monitoring newly issued or amended regulations and
establishing their scope of application in the Group, and,
if necessary, defining adaptation or mitigation actions.
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7.3 Compliance and conduct risk
management
As previously mentioned, the Compliance and Conduct risk
management follows the Group’s three lines of defence
model as an independent second-line control function at
both the Group and subsidiaries levels. In this respect,
significant progress has been achieved in the improvement
of the Compliance and Conduct function’s regulatory tree
and in its transposition to local subsidiaries, although
further developments are still being carried out.
One of the Compliance and Conduct function’s cornerstones
consists on overseeing the effective implementation and
monitoring of the General Code of Conduct (GCC) under the
supervision of the compliance committee and of the risk
supervision, regulation and compliance committee.
The GCC catalogues the ethical principles and rules of
conduct by which all activities of Santander Group
employees must be governed. This code must be
understood and applied along with the other internal
development regulations. The GCC establishes the
following:
• Compliance functions and responsibilities on the
application of the General Code of Conduct;
(GDPR), Foreign Account Tax Compliance Act (FATCA) and
Common Reporting Standard (CRS).
• Disclosure of relevant Group information (material facts).
The most relevant areas of the Regulatory compliance
function are described below:
A. Employees
The main objective of this function is to extend the ethical
and compliance culture across the Group, establishing
internal standards for the prevention of criminal risks,
conflicts of interest or anti-competitive behaviours based on
the principles established by the General Code of Conduct,
which is the central element of Regulatory Compliance.
The Group in its firm commitment against any form of
corruption, whether in the public or private sectors, has an
Anti-Corruption policy whose purpose is to establish the
guidelines to be applied, assign the relevant roles and
responsibilities and establish certain anti-corruption
elements for its governance. This policy, which can be
supplemented by any additional stricter controls derived
from more demanding local regulations or obligations and
their specific training, includes elements aimed at
mitigating and preventing corruption and bribery within the
Group, such as:
• Guidelines regarding gifts and invitations extended to
• General ethical principles of the Group;
public officials.
• General standards of conduct;
• The consequences in case of breach;
• A whistleblowing channel ('Canal Abierto'), which allows
employees who are aware of allegedly misconducts or
that are not aligned with the corporate behaviours,
communicate them confidentially and anonymously.
The following paragraphs provide the details on how risk
management is conducted for the additional items that are
under the Compliance and Conduct function’s scope:
regulatory compliance, product governance and consumer
protection, financial crime compliance and reputational risk.
Regulatory Compliance
The Regulatory compliance is responsible for controlling
and supervising regulatory risks related to employees,
securities markets and data management, developing
policies and rules and ensuring compliance by the Group
subsidiaries.
The following functions are in place for the adequate
control and management of regulatory compliance risks:
• Guidelines regarding the conduct of agents,
intermediaries, advisors and business partners.
• Control and prevention measures regarding third parties
(agents, intermediaries, advisors and business partners)
with whom the Group operates: due diligence processes
for third parties who are not first-line or of renowned
prestige; anti-corruption clauses; payment controls;
accounting controls.
• Guidelines regarding the acceptance by Group employees
of gifts or invitations.
Corporate defence subject matter experts have held the
Global Corporate Defence Forum for a third consecutive year
to share best practices and jointly design working plans for
improving and promoting the compliance culture in all our
subsidiaries through collaboration and networking.
Additionally, in 2019 Canal Abierto has been launched at the
Group’s headquarters, Santander Consumer HQ and
Santander Spain as the evolution of the already-in-use
whistleblowing channel implemented since 2016 in the
Group’s main subsidiaries. Canal Abierto goals are:
• Application and interpretation of the GCC and other codes
and rules and regulations that implement it, including
oversight of the corporate defence model and promotion
of the Group’s Whistleblowing channels model, known as
Canal Abierto.
• Contribute to the Group´s cultural transformation, since it
allows to escalate behaviours that are not aligned with
our corporate values, in addition to other more usual
compliance related cases, such as unlawful acts or
breaches of the GCC.
• Development and application of policies and rules aimed
at preventing market abuse, paying special attention to
the use of common methodologies and corporate tools.
• Control and supervision of regulations related to: (i)
markets, mainly, MiFID II, EMIR, Dodd-Frank Title VII and
the Volcker Rule and (ii) data management, in the
competencies of General Data Protection Regulation
• Create a working environment where employees feel able
to Speak Up and are Truly Listened to, in line with our
Responsible Banking strategy and with our aim to be a
bank that is Simple, Personal and Fair.
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• Support FCC according to the existing regulations and
culture objectives.
For further details regarding Canal
Abierto, see section 'A talented and
motivated team' of the Responsible
Banking chapter.
B. Market abuse
In 2019, Regulatory compliance activities focused on the
implementation in our main geographies of group tools for
market abuse risk prevention and management:
C. Market regulations
Regulatory compliance carries out the risk management of
the main international markets regulations that affect the
Group. The most relevant actions during 2019 are detailed
below:
MiFID II
Dodd-Frank
Title VII
Volcker Rule
Relevant
information
Swap dealer compliance
programme improvement in
2019, successfully
strengthening internal
controls and monitoring.
Throughout 2019, the
Regulatory Compliance
function worked together
with Regulatory Affairs &
Compliance SCIB, as well as
with the different
subsidiaries in finalising and
improving the MiFID II
control framework for each
subsidiary.
Regulatory compliance is
responsible for disclosing
relevant Group information
to the markets. Banco
Santander made public a
number of material facts
during the year, which are
available on the Group’s
website and the CNMV
website.
Oversight of this regulation
has continued this year. The
Volcker Rule allows
proprietary trading only in
limited cases that the Group
controls by means of a
specific compliance
programme.
Due to the recent
amendments introduced to
the Rule, the current
Compliance Programme is
expected to be modified
gradually during 2020.
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D. Data management
Product governance and consumer protection
The focal points for Regulatory compliance in 2019 were:
GDPR
• Monitoring the completion of pending actions from
adaptation programs and control framework
consolidation based on three pillars: key performance
indicators (KPIs), monitoring program and risk self-
assessment.
• Support the Group’s subsidiaries with the release of new
guidelines and operating criteria based on supervisory
guidance. In addition, the existent corporate policies on
data protection have been revised.
• A series of corporate initiatives to ensure the compliance
program effectiveness: training materials and courses for
Data Protection Officers (DPOs) and data protection
champions; key internal processes reinforcement (vendor
management; technical assistance to product and service
approval governing bodies; security incident
management; among others).
• Fostering cooperation and best practices sharing among
subsidiaries.
FATCA and CRS
• In terms of the automatic exchange of tax information
among countries (FATCA and CRS), the main oversight
activities were centred around: (i) reporting obligations
by our subsidiaries according to local provisions; (ii)
remedial actions following Internal audit’s
recommendations and (iii) reinforcement of the control
framework (KPI's and controls) and review of the existing
corporate policies.
The product governance and customer protection mission is
to ensure that the Group acts in the customer´s interest by
complying with regulations, the entity’s values and
principles. This mission is achieved through the following
drivers:
Culture
• Establish the principles of conduct and risk management
throughout the commercialisation process and the
relationship with retail customers. At the same time,
establish and manage a strong governance culture.
• Promote an appropriate culture with a Simple, Personal
and Fair approach, to act in the customers´ best interest.
Processes
• Ensure that products are designed to meet the
characteristics and needs of customers, with an
appropriate balance of risks, costs and profitability.
• Oversee the sale process to the adequate target market,
with proper commercial treatment and transparency of
information, as well as salesforce training and
compensation systems that encourage performance in
the best interest of the customer.
• Ensure that customer service, post-sale systems and
processes facilitate a simple, personal and fair approach
to customers, as well as adequate detection and
management of any possible deterioration of products
and services.
Management
• Ensure that decisions are made, action plans are defined
and followed when necessary, and that senior
management and statutory bodies are properly informed.
• Oversee the design and execution of controls throughout
the commercialisation and customer relationship process.
• Identify risks through client voice, regulatory guidelines,
industry practices, supervisor and auditor opinions, and
learning from internal/external events.
• Apply group risk assessment methodologies, such as
management indicators, thematic evaluations, and self-
assessments.
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• Mitigate conduct risks with customers through solid
oversight, reviewing conduct management at subsidiaries
based on regular corporate reporting, and capacity and
maturity model assessment.
Main product governance and consumer protection
progresses and activities in 2019
According to the risk-based management approach, the main
actions to mitigate risk during 2019 have been based on:
Digitalization and
simplification
Culture and awareness
1LoD accountability and
controls
New platform and standardization
frameworks in order to streamline the
product/service approval process.
Focusing on customer
impact
Expanding the scope of conduct risk
management taking into account
customer impact in recovery and
collections processes and fraud
management.
Consumer protection principles
communication and measures.
Best practices for vulnerable customers
treatment.
Evolving sales force remuneration and
training.
Enhancement of conduct risk management by
the risk owners: local products conduct risk
forums leaded by 1LoD and local control
standards.
Consolidating the
customer voice
Integrating all the customer voice input such
as social media and reinforcing forums
providing a holistic oversight.
Digitalization and simplification
First line of defence accountability and controls
• Specific approval powers for any product or service
promoted by Santander and establishing the Santander
Digital Guide that highlights the relevant aspects to be
taken into account by the Business areas in the
development and subsequent launch of Santander Digital
initiatives in order to protect consumers' rights.
• Simplification of the product/service approval process
through the enhancement of the digital platform and
simplification of the product approval frameworks at
subsidiaries’ level.
Culture and awareness
• Leverage on the consumer protection principles KPIs in
our core geographies, which work as a bridge between
the voice of customers and business indicators, in order to
identify potential cases of customers’ detriment.
• Best practices guidelines on vulnerable customers’
treatment & prevention of over-indebtedness. This
provides Santander with a consistent approach regarding:
the identification and treatment of customers in special
circumstances and preventing over-indebtedness,
ensuring that those customers identified are treated not
only in a fair manner but also with empathy and
sensitiveness according to their particular circumstances
at all times, enhancing their experience and outcomes.
• Evolving guidelines and implementation of best practices
regarding sales force remuneration, training models and
controls as main drivers to mitigate miss-selling and
promote higher customer satisfaction and sustainable
business.
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• Business accountability reinforcement through the local
products conduct risk forums leaded by the first line of
defence, especially in insurance and cards where conduct
risk management has been significantly enhanced.
• Strengthen local control standards across all the
commercialization processes, engaging first and second
lines of defence, and oversight, highlighting Spain and
Brazil initiatives. In this context, a new guideline for
conduct in marketing and promotional activities has been
developed to define best practices and reinforce the
control environment across the Group
Focusing on customer impact
• Expanding the scope of conduct risk management taking
into account customer impact in recovery and collections
processes and fraud management.
Consolidating the customer voice
• Execution of a thematic review regarding customer care
on social media, in which action plans have been
developed in order to enhance local models and promote
resolution capacity of customer care on social media; and
increase the use of reports generated in this channel for
business insights purposes.
• Global workshop on best practices in managing Customer
Voice (CuVo) with 19 speakers and 56 attendees from 12
countries where the Group is present. Local practices
were shared and regulatory trends addressed, while the
future was also discussed, laying the foundation for the
Group's CuVo management strategy.
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Other best practices
• Best practices workshop focused on the importance of
acting as a second line of defence for the local
Compliance & Conduct teams. Also raising awareness of
the first line of defence with regards to their role of “true
risk owners”, paying special attention to evolving
concepts of conduct with customers, digitalisation and
processes simplification, among others.
• Support local custody risk management coordinators to
effectively deploy the corporate custody procedure and to
enhance their second line of defence role at a local level.
Products and Services validation
Products validated in corporate
office
Collective investment undertakings
and discretionary profiled portfolios
New products presented at CCCA
Funds/Investments
Units enquiries
Private Banking products
Structured Prod. (Santander
Internation Products Plc.)
Structured products Retail Banking
Other (policies, ETFs, funds focus
list, among others)
A. Of these proposals, one was not validated and others were retired for any
modification prior to assignment to other committee
Conduct risk with customers monitoring
23 sessions of the Corporate Product Governance and
Consumer Protection Meeting were held in 2019, at which
monitoring of the following items was presented:
• The marketing of products and services by country and
type of product with a focus on those in special
monitoring, regulatory and supervisory environment,
events and conduct costs and risk analysis through
indicators.
• Investment mandates compliance, portfolios risk
exposure and performance of investment products
managed by the Group’s subsidiaries, both considering
the fiduciary relationship with the customer and relative
performance to competitors.
• Customer complaints, managing 28 countries, 36
business units and 9 SGCB branches, including action
plans to mitigate customer detriment.
• Oversight the implementation of the corporate custody
procedure and monitoring the degree of control and
volume of 51 suppliers (42 of them external to
Santander) that provide custody services for both the
Group's own positions and for customers’ positions.
Financial Crime Compliance (FCC)
One of the Group’s strategic objectives is to maintain
advanced and efficient financial crime compliance systems,
constantly adapted to international regulations, with the
capacity to confront new techniques deployed by criminal
organisation's.
As a part of the second line of defence, the FCC function
ensures that risks are managed in accordance with the risk
appetite defined by the Group and promotes a strong risk
culture through the organisation. The global FCC function is
responsible for supervising and coordinating the FCC
systems of the Group subsidiaries, branches and business
areas, requiring the implementation of the necessary
programmes, measures and enhancements.
The Group anti-money laundering (AML) and countering
(CTF) terrorism financing policy is based on three main
pillars: the highest international standards, their adaptation
and compliance through global policies and technology
systems to facilitate such compliance.
During 2019, a new global head of FCC was appointed while
the Group continued to actively work on the following
tasks:
• Review of internal regulations and strengthening
management policies.
• Active oversight of subsidiaries, highlighting the effective
collaboration between them and communication
between the Group and its subsidiaries.
• Review and update the key risk Indicators (KRIs) to better
identify and monitor key areas of focus or relevance.
• Analysis of new products to be commercialised by the
Bank from an FCC standpoint.
• Special focus on systems optimisation, enhancing their
effectiveness and considering and developing new
technologies that are becoming available.
The global FCC function addressed significant
transformation projects, highlighting: i) the continuous
improvement of supporting tools and risk management
platforms, such as the one used for automation and
improvement of adverse media identification and
management processes; ii) extending its scope to other
units/areas within the Group; iii) or updating the corporate
money laundering and terrorism financing risks and
controls self- assessment (RCSA AML/CTF), in alignment
with the rest of the RCSA methodologies defined by the
Compliance function.
In addition, given that these standards and those adopted
by the Group are mandatory, their correct implementation
and application must be overseen. To do so, continuous
work is carried out in the different Group entities, including
monitoring of the training of Group employees.
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The main activity data in 2019 is as follows:
193 Subsidiaries reviewed (+14% vs. 2018)
62,885 Disclosures to authorities (+10% vs. 2018)
256,384 Investigations carried out (+23% vs. 2018)
177,062 Employees trained (+4% vs. 2018)
The Group has training plans in place at both local and
Group level, in order to cover all employees. Specific
training plans are also in place for the most sensitive areas
from the perspective of anti-money laundering and
counter-terrorism financing.
Reputational risk
Reputational risk is defined in the Group as the risk of a
current or potential negative economic impact due to
damage to the perception of the bank on the part of
employees, customers, shareholders and investors, and the
wider community.
Reputational risk may arise from a multitude of sources and
in many cases from other risks. In general, these sources
may be related to the Group's business and support
activities, the economic, social and political environment
and events associated with our competitors. Consequently,
the management of this risk requires global interaction with
both first and second lines of defence functions responsible
for the relationship with stakeholders, in order to ensure a
consolidated oversight of the risk, efficiently supported on
the current control frameworks.
The reputational risk model is based on a prominently
preventive approach to risk management and control, and
on effective processes for the identification and
management of early warnings of events and risks, and
subsequent monitoring and management of events and
detected risks.
Key actions in 2019:
• Operating of a new version of the Group reputational risk
model, defence sector policy and sensitive sectors
financing policy.
• Consolidation of subsidiaries reporting to Group,
including events, transactions and clients. In this regard,
the approval workflow for corporate transactions has
been improved.
• Consolidation of Group governance and elevation of
membership of the Reputational Risk Forum, the status
of which remains as a supporting forum.
• General awareness campaign aimed at all employees and
promoted by senior management, thematic forum with
countries and training sessions for specific groups
focusing specifically on reputational risk assessment.
• Reformulation and cascading-down to countries of the
preventive risk appetite metric. Approval of risk appetite
metrics in main countries.
• New risk assessment conducted in the Group’s
headquarters.
• New reputational risk approach for the global risk profile
assessment exercise.
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2019 Annual Report
• Reinforcement of governance with subsidiaries, including
new guidelines for analysis and units’ supervision.
Transformation and improvement projects
Significant improvements have been done in the
Compliance and Conduct function during 2019 in all
disciplines: processes simplification, customer focus, “Canal
Abierto”, FCC policies and standards and EU regulation,
reputational risk consolidation, new transformation
capabilities, among others.
In accordance with the organisational principles defined in
the function, transversal functions support specialised
vertical functions, providing them with methodologies and
resources, management systems and information and
support in executing multidisciplinary projects and
activities, among them:
• Analytic Cluster. This initiative aims to provide the Group
with a new set of tools to help its analytic projects.
Through this cluster we can upload massive amounts of
information (big data), process the information in
different ways with different programming languages,
and finally run different analysis (Machine Learning -
Algorithm) that allow us to get different insights
depending on the use case that we are working on (AML
processes, customer protection processes, among
others).
• Machine Learning for AML Transaction Monitoring. The
transaction monitoring process is one of the most time-
consuming activities, due to the high number of alerts, an
area where previous expertise domain, rules, conditions
and thresholds define the risk that we would like to
control.
During the last few years, we have identified
opportunities to improve this kind of process by
introducing Artificial Intelligence capacities. Our goal is to
validate if the use of unsupervised machine learning
algorithms can be a real alternative to improve our
detection processes, being able to find unknown
unknowns, being more efficient and making our
investigation team focus on finding what matters.
Different benefits of using an AI approach are seen in the
transaction monitoring area:
Better Detection. This new approach is based on a
multi dimension analysis.
Flexibility and speed to face new changes in the
analysis/ detection approach. The flexibility of these
tools is also another benefit since in these projects we
are able to run different analysis/approaches working
in parallel with big amounts of data.
Significant improvement in the investigation process.
The new environment brings all the latest IT
functionalities in order to provide everything that the
user needs in only one application.
Simulation environment. We have, as part of the
production environment, functionalities that allow us
to run new analysis in parallel with the production
analysis.
Full Track. These new projects allow us to have a 100%
full track of the information.
Responsible Corporate
banking
Economic
and financial review
governance
• The Regulatory Radar function, which manages the
regulatory adhesion cycle, has been strengthened at the
Group’s headquarters, through the development of a
single platform of new regulation repository which will
integrate the analysis of its applicability and materiality
for the Group, break-down into actionable duties and
obligations, and follow-up of the process of
implementing required changes. The system incorporates
an automatic integration of regulatory sources.
• The Group strengthened best practices sharing and
cooperation between the Group's headquarters and the
subsidiaries.
• In addition to the traditional training, for which the
function is responsible, a biannual review of compliance
and conduct and awareness-raising actions is carried out
through the Group’s internal networks.
During 2019, the Compliance and Conduct function has
carried out several risk assessments (inherent risk, control
environment and the net residual risk) in coordination with
the Risk function, notably:
• A regulatory compliance assessment focused on the
Group’s main subsidiaries. This exercise is carried out
annually, following a bottom-up process, with the
involvement of both the first and the second lines of
defence. First, an assessment is made on the consistency
of the controls that mitigate such inherent risk, and then
the residual risk in each of these obligations is
determined. For those residual risks categorized as high
or critical, action plans are established and followed by
both the local and corporate compliance functions.
• Conduct assessment in products and services with a
scope of 20 geographies of the Group and 46 legal
entities, where the first line of defence functions evaluate
the main risks of conduct in commercialization, the
suitability of the controls that mitigate said risks and
establish action plans in those cases where risk
assessments exceed the defined risk appetite.
• Assessment of FCC on those Group units considered as
obliged entities in this matter (or equivalent). The
business units and the local FCC prevention officers,
under the supervision of the Corporate FCC function,
carry out this annual self-assessment exercise, which is
focused on Anti-Money Laundering (AML)/Terrorism
Financing (TF) aspects.
• In addition, the function has carried out a reputational
risk assessment within the corporate and global
functions, which are critical for the management and
prevention of this risk. Its objective has been to improve
the knowledge and awareness of the areas closest to
stakeholders and to detect and monitor potential specific
risks and associated action plans.
Risk management
and control
455
At the end of 2017, we launched a strategic plan, Model
Risk Management 2.0 (MRM 2.0), to reinforce model risk
management in the Group, reviewing each of the model’s
governance phases, and to address the new supervisory
expectations set out in the 2018 ECB Guide on internal
models.
MRM 2.0 is currently underway, and involves three phases
(2018, 2019 and 2020) which include 10 main initiatives
organized around four pillars:
• Key elements: Initiatives related to governance, risk
appetite, management scope and risk policies. A new
structure for model risk committees has been defined,
model risk governance has been enhanced. The Model
Risk Management framework has been reviewed and
simplified.
• Processes: Initiatives related to the model life cycle
phases. Model Risk Management is performed based on a
risk-based approach according the Tiering concept
defined.
• Communication: Internal and external communication
(monitoring, reports, training, among others). The
internal reporting framework has been enhanced and
specific model risk training has been prepared in order to
support the cultural change.
• Model Risk Facilitators: infrastructure, tools and
resources. A new Model Risk Management tool has been
implemented, and has been continuously evolved since
beginning of 2019.
So far, the MRM 2.0 strategic plan is progressing well,
ensuring that all regulatory requirements are covered.
Around 245 deliverables have been produced since the
beginning of the project, covering the different pillars
mentioned previously.
Table of Contents
8. Model risk
8.1 Introduction
A model is defined as a system, approach or quantitative
method that applies theories, techniques or statistical,
economic, financial or mathematical hypotheses to
transform input data into quantitative estimates. The
models are simplified representations of real world
relationships between characteristics, values and observed
assumptions. This simplification allows the Group to focus
attention on specific aspects which are considered to be
most important for applying a given model. Santander
Group uses models for different purposes such as admission
(scoring/rating), capital calculation, behaviour, provisions,
market and operational risk, compliance, liquidity, among
others.
The use of all those models entails model risk, defined as
the potential negative consequences arising from decisions
based on the results of wrong, inadequate or incorrectly
used models.
According to this definition, the sources of model risk are as
follows:
• The model itself, due to the utilization of incorrect or
incomplete data, or due to the modelling method used
and its implementation in systems.
• Incorrect use of the model.
The materialisation of model risk may cause financial loss,
erroneous commercial and strategic decision-making or
damage to the Group’s transactions.
The Group has been working towards the definition,
management and control of model risk for several years. In
2015, a specific area was established within the Risk
division in order to manage and control this risk.
Model risk management and control functions are
performed at both the Group’s Head Quarters and in each of
the Group’s main subsidiaries. To ensure adequate model
risk management the Group has in place a set of policies
and procedures which establish the principles,
responsibilities and processes to follow during the model
life cycle detailing aspects related to organization,
governance, model management and model validation,
among others.
The supervision and control of model risk is proportional to
the importance of each model. In this sense, a concept of
Tiering is defined as the main attribute used to synthesize
the model’s level of importance or model significance, this
criteria defines the intensity of the risk management
processes that must be followed.
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Responsible Corporate
banking
Economic
and financial review
governance
Risk management
and control
8.2 Model risk management
Model risk management and control is structured around a
set of processes regarded as the model life cycle. The
definition of the model life cycle phases in the Group is
outlined as follows:
Identification
As soon as a model is identified, it is necessary to ensure
that it is included in the model risk control perimeter.
One key feature for a proper model risk management is to
have a complete inventory of the models used.
The Group has a centralized inventory, created on the basis
of a uniform taxonomy for all models used at the different
business units. The inventory contains all relevant
information for each model, which allows them to be
monitored properly according to their relevance and the tier
criteria.
Planning
This is an internal annual exercise, approved by the local
units’ governance bodies and validated by the Global team,
which aims to establish a strategic action plan for all
models included in the scope of management of the Model
Risk function. It identifies the needs for resources related to
the models that are going to be developed, revised and
implemented during the year.
Development
This is the model’s construction phase, based on the needs
established in the models plan and with the information
provided by the specialists for that purpose.
The development must take place using common standards
for the Group, and which are defined by the Global team.
This ensures the quality of the models used for decision-
making purposes.
Internal validation
Independent validation of models is not only a regulatory
requirement, but it is also a key feature for proper
management and control of the Group’s model risk.
Hence, there is a specialized unit, independent from
developers and users, which draws up technical opinions on
the suitability of internal models, and sets out conclusions
concerning their robustness, utility and effectiveness. The
validation opinion for each model is expressed through a
rating which summarises the model risk associated with it.
The internal validation process covers all models within the
model risk control scope, ranging from those used in the -
Risk function (credit, market, structural or operational risk
models, capital models, economic and regulatory models,
provision models, stress tests, among others) to other
models used in different functions that support decision-
making.
The validation scope includes not only more theoretical or
methodological aspects, but also the IT systems and the
data quality that models rely upon for their effective
functioning. In general, it includes all relevant aspects
related to Risk management (controls, reporting, uses,
involvement of senior management, among others).
One of the key tasks related to the internal validation is the
consistency analysis process carried out by the different
validators, which includes the review of the issued
recommendations, their severity and the rating assigned. In
this way it acts as an important point of control of the
consistency and comparability of the validation works. The
validation works are only concluded once this phase of
consistency has been completed.
Approval
Before being deployed and therefore used, each model
must be submitted for approval to the corresponding
governance bodies.
Deployment and use
This is the phase during which the newly developed model
is implemented in the system in which it will be used. As
mentioned already, this implementation phase is another
possible source of model risk. It is therefore essential that
tests are conducted by technical units and the model
owners to certify that the model has been implemented
pursuant to its methodological definition and that it works
and performs as expected.
Monitoring and control
Models have to be regularly reviewed to ensure correct
performance and that they are suitable for purpose.
Otherwise, they must be adapted or redesigned.
Additionally, control teams have to ensure that the model
risk is managed in accordance with the principles and rules
set out in the model risk framework and all related internal
regulations.
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9. Strategic risk
9.1 Introduction
9.2 Strategic risk management
Strategic risk is the risk of loss or damage arising from
strategic decisions or their poor implementation, or from
the inability to adapt to external developments.
The Group’s business model must be considered as key
factor that is pivotal to strategic risk. It has to be viable and
sustainable; therefore, it must be able to generate results in
accordance with the Group’s targets, every year and at least
during the following three years, as well as being consistent
with the Group’s long-term view.
Strategic risk, can be split into three main components:
Business model risk: the risk associated with the Group’s
1 business model. This includes, among others, the risk of the
model becoming obsolete, irrelevant, and/or that it loses
value to generate expected results.
Strategy design risk: the risk related to the strategy set out
2 in the Group’s long term strategic plan, including the risk
that this plan may not be adequate per se, or due to its
assumptions, and thus resulting in the Group may not be
able to deliver expected results.
Strategy execution risk: the risk associated with the
3 execution of the three-year financial plan. Risks considered
within this component include potential impacts due to both
internal and external factors, the inability to react to
changes in the business environment, and risks associated
with corporate development transactions.
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For Santander, strategic risk is viewed as a transversal risk
and a Group target operating model that is used as a
reference by our subsidiaries. This model encompasses the
procedures and necessary tools for robust monitoring and
control, which can be summarised as follows:
• Strategic plans: the strategic risk function, with the
support of the different areas within the Risk division,
independently monitors and challenges the risk
management activities performed by the Group’s
corporate development and Strategy function. It is an
additional component, albeit independent, that is fully
integrated in all the Group’s strategic plans.
• Corporate development transactions: the Strategic risk
function, with the support of the different areas in the
Risk division, ensures that corporate development
transactions are subject to a risk assessment that
comprises their potential impact on both Santander’s risk
profile and risk appetite.
• Top risks: under stressed assumptions, the Group
identifies, evaluates, monitors and proactively manages
those risks that may have a significant impact on its
results, liquidity or capital affecting its financial health.
• New products commercialization: The Strategic Risk
function participates in the process of assessing and
validating any new product or service proposal before it is
launched on the market by the Group or any of its
subsidiaries ensuring full alignment with the defined
strategy.
• Strategic risk report: prepared jointly by the Group’s
Corporate Development and Strategy function and
strategic risk, as a combined tool for the monitoring and
assessment of the Group’s strategy, in addition to
associated risks. This report is presented to the senior
management and covers several topics: strategy
execution, strategic projects, corporate development
transactions, business model performance, top risks and
risk profile.
Additionally, one of the main points of focus from a
strategic point of view, continues to be the potential
outcome of Brexit and the uncertainty around it, not only for
the bank but also for the financial industry and the economy
as a whole. Through the strategic risk function, constant
monitoring is being carried out involving key areas, from
both the 1st and 2nd line of defence, to ensure that any
potential measures that could be required are ready to be
implemented in order to safeguard the interests of the
Group, our customers and shareholders.
Responsible Corporate
banking
Economic
and financial review
governance
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Glossary
2019 AGM
2020 AGM
2019 EGM
2Dii
Active customer
ADS
AGM
AI
ALCO
ALM
AML
AORM
APM
ARM
ASF
ASR
AT1
ATF
ATM
ATOMIC
AVAs
B2B2C
B2C
Our annual general shareholders’ meeting held on 12 April 2019
Our annual general shareholders’ meeting that has been called for 2 or 3 April 2020, at first or second
call respectively
Extraordinary general shareholder's meeting held on 23 July 2019
2 Degree Investing Initiative
Those customers who comply with balance, income and/or transactionality demanded minimums
defined according to the business area
American Depositary Shares
Annual General Shareholders´ meeting
Artificial Intelligence
Asset-Liability Committee
Asset and Liability Management
Anti-money laundering
Advance Operational Risk Management
Alternative Performance Measure
Advanced Risk Management
Available Stable Funding
Recovered write-off assets (Activos en suspenso recuperados)
Additional Tier 1
Anti-terrorist financing
Automated teller machine
Advanced Target Operating Models in Collaboration
Additional Valuation Adjustments
Business to business to customer
Business to customer
Banco Popular/Popular
Banco Popular Español, S.A., a bank whose share capital was acquired by Banco Santander, S.A. on 7
June 2017 and was merged into Santander in September 2018
Basel or Basel Committee
The Basel Committee on Banking Supervision
BAU
BCMS
BEPS
Bigtechs
BIS
Bn
bps
BRRD
BSI
BSPR
C&C
CAE
CAF
CAGR
CAO
CARF
CCO
CCP
CCPS
CCSM
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Business as usual
Business Continuity Management System
Base Erosion and Profit Shifting
Large companies with established international presence in the market for digital services
Bank for International Settlements
Billion (1,000,000,000)
basis points
Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions
and investment firms, as amended from time to time
Banco Santander International
Banco Santander Puerto Rico
Compliance and Conduct
Chief audit executive
Development Bank of Latin America
Compound annual growth rate
Chief accounting officer
Conselho Administrativo de Recursos Fiscais
Chief compliance officer
Central Counterparties
Contingent Convertible Preferred Securities
Code of Conduct in Securities Markets
Responsible banking
Corporate governance
Economic and financial
review
Risk management and
control
CDI
CDS
CEB
CEO
CEPR
CET1
CFO
CNMV
COFINS
Corporate Centre
Corporation
COSO
CRD IV package
CRD V package
CRE
CRO
CRR
CRS
CSA
CVA
D&I
DI
Digital customers
Dodd-Frank Act
DRA
DTA
DVA
E&S
E2E
EAD
EBA
EBRD
ECB
EIB
EMIR
EP
EPS
ERC
ES
ESG
ESMA
ETF
EU
EVE
EWIs
FATCA
FATF
FCA
FCC
Crest Depositary Interests
Credit Default Swaps
Council of Europe Development Bank
Chief executive officer
Centre for Economic Policy Research
Common equity tier 1
Chief financial officer
Spanish National Securities Market Commission (Comisión Nacional del Mercado de Valores)
Contribuiçao para Financiamento da Seguridade Social
Our headquarters in Boadilla and business segment as described in section 4.1 ‘Description of
segments’ in the Economic and financial review chapter.
All the governing bodies, organisational structures and employees entrusted by Banco Santander,
S.A. to exercise oversight and control across the entire Group, including those functions typically
associated with the relationship between a parent company and its subsidiaries.
Committee of Sponsoring Organisations of the Tradeway Commission
The prudential framework established by the CRD and CRR currently in force
Amendment to the CRD IV package
Credit Risk Equivalent
Chief risk officer
Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms, as
amended from time to time
The Common Reporting Standard approved by the OECD Council on 15 July 2014
Credit Support Annex
Credit Valuation Adjustment
Diversity & inclusion
Debt to Income
Every consumer of a commercial bank’s services who has logged on to their personal online banking
and/or mobile banking in the last 30 days.
The US Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Share Registration Document (Documento de Registro de Acciones)
Deferred Tax Asset
Debt Valuation Adjustment
Environmental and social
End to end
Exposure at Default
European Banking Authority
European Bank for Reconstruction and Development
European Central Bank
European Investment Bank
Regulation (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories, as
amended from time to time
Equator Principles
Earnings Per Share
Executive risk committee
Expected Shortfall
Environmental, Social and Governance
European Securities and Markets Authority
Exchange Traded Funds
European Union
Economic Value of Equity
Early Warning Indicators
Foreign Account Tax Compliance Act
Financial Action Task Force
Fiat Chrysler Automobiles
Financial Crime Compliance
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FEBEF
FED
FL CET1
FRA
FROB
FRTB
FSB
FX
GBP
GCCO
GCRO
GDP
GDPR
GMRA
GMS
GPG
GPTW
GRI
GSGM
G-SIB
GSM
GTS
HR
IAS
IBORs
ICAAP
ICAC
ICFR
ICM
IFC
IFRS
ILAAP
IMF
IRC
IRPJ
IRRBB
IRS
ISMA
IT
KPI
LCR
LDA
LGD
Fundación Española de Banca para Estudios Financieros
Federal Reserve
Fully loaded common equity tier 1 / Fully loaded CET1
Forward Rate Agreements
Fondo de Reestructuración Ordenada Bancaria
Fundamental Review of the Trading Book
Financial Stability Board
Foreign Exchange
Pound sterling
Group chief compliance officer
Group chief risk officer
Gross Domestic Product
General Data Protection Regulation
Global Master Repurchase Agreement
Global Merchant Services
Gender pay gap
Great Place to Work
Global Reporting Initiative
Group-Subsidiary Governance model
Global Systematically Important Bank
General shareholders’ meeting
Global Trade Services
Human Resources
International Accounting Standards
Interbank offered rates
Internal Capital Adequacy Assessment Process
Spanish Instituto de Contabilidad y Auditoría de Cuentas
Internal control over financial reporting
Internal control model
International Finance Corporation
International Financial Reporting Standards (IFRS) as adopted in the EU pursuant to Regulation (EC)
1606/2002 on the application of international accounting standards, as amended from time to time
Internal Liquidity Adequacy Assessment Process
International Monetary Fund
Incremental Risk Charge
Imposto de Renda Pessoa Jurídica
Interest Rate Risk in the Banking Book
Internal Revenue Service
International Securities Market Association
Information technology
Key performance indicator
Liquidity Coverage Ratio
Loss Distribution Approach
Loss Given Default
Active customers who receive most of their financial services from the Group according to the
commercial segment to which they belong. Various engaged customer levels have been defined
taking profitability into account.
Loan to Deposit ratio
Loan to Value
Medium and long-term
Market Risk Advanced Platform
Markets in Financial Instruments Directive.
Million
Loyal customers
LTD
LTV
M/LT
MARP
MiFID 2
Mn
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Corporate governance
Economic and financial
review
Risk management and
control
MREL
MRM
MtM
MXN
NAFTA
NGO
NII
Minimum requirement for own funds and eligible liabilities which is required to be met under the
BRRD
Model Risk Management
Mark-to-Market
Mexican peso
North American Free Trade Agreement
Non-governmental organisation
Net Interest Income
Nominal cap
Maximum nominal amount of a risk operation, excluding market transactions
NPAs
NPLs
NPS
NSFR
NYSE
o/w
OECD
OFAC
OM
ONP
OR
ORX
OSLA
OTC
P&L
PACTA
PCAOB
PD
Non-performing assets
Non-performing loans
Net promoter score
Net stable funding ratio
New York Stock Exchange
Of which
Organisation for Economic Co-operation and Development
Office of Foreign Assets Control
Organised Markets
Ordinary net profit
Operational risk
Operational Risk Exchange
Overseas Securities Lender’s Agreement
Over the counter
Profit and Loss
Paris Agreement Capital Transition Assessment
Public Company Accounting Oversight Board
Probability of Default
People supported in our communities
The Bank has devised a corporate methodology tailored to Santander’s requirements and specific
model for contributing to society. This methodology identifies a series of principles, definitions and
criteria to allow the Bank to consistently keep track of those people who have benefited from the
programmes, services and products with a social and/or environmental component promoted by the
Bank. This methodology has been reviewed by an external auditor.
PIS
PIT
PLN
PMO
POCI
POS
pp
PPI
PPNR
PRA
PRI
PRIIPS
PSD2
PwC
R&D&i
RAF
RAS
RBSCC
RCC
RCSA
RDA
RIA
Programa de Integraçao Social
Point in time
Polish Zloty
Project management office
Purchased or Originated Credit Impaired
Point of sale
percentage point
Payment protection insurance
Pre-Provisions Net Revenue
UK Prudential Regulatory Authority
Principles for responsible Investment
Regulation 1286/2014 on key information documents for packaged retail and insurance-based
investment products, as amended from time to time
Payment Services Directive II
PricewaterhouseCoopers Auditores, S.L.
Research, development and innovation
Risk appetite framework
Risk appetite statement
Responsible banking, sustainability and culture committee
Risk control committee
Risk control self-assessment
Risk Data Aggregation
Risk Identification and Assessment
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RoA
RoE
RoRAC
RoRWA
RoTE
RRS
RSF
RWAs
S&P 500
SAM
Return on assets
Return on equity
Return on risk adjusted capital
Return on risk weighted assets
Return on tangible equity
Risk Reporting Structure
Required Stable Funding
Risk weighted assets
The S&P 500 index maintained by S&P Dow Jones Indices LLC
Santander Asset Management
Santander Consumer US
Santander Consumer USA Holdings Inc.
SBNA
SC USA
SCAN
SCF
SCIB
SCPs
SDE
SDG
SEA
SEC
SHUSA
SIS
SMEs
SOX
Santander Bank N.A.
Santander Consumer US
Santander Customer Assessment Note
Santander Consumer Finance
Santander Corporate & Investment Banking
Strategic commercial plans
Santander Dividendo Elección scheme
Sustainable Development Goals
Securities Exchange Act
Securities and Exchanges Commission
Santander Holdings USA, Inc.
Santander Investment Securities
Small and medium enterprises
Sarbanes-Oxley Act of 2002
Spanish Companies Act
Spanish companies act approved by Royal Decree Law 1/2010, as amended from time to time
Spanish Securities Markets
Spanish securities markets act approved by Royal Decree Law 4/2015, as amended from time to time
SPF
SRB
SREP
SRF
SRI
SRT
SSM
ST
STEM
SVaR
T&O
T2
TCFD
TF
TLAC
TLTRO
TNC
TOM
TRIM
TSR
UK
UN SDG
UNEP FI
US
USD
464
2019 Annual Report
Simple, Personal and Fair
European Single Resolution Board
Supervisory Review and Evaluation Process
Single Resolution Fund
Socially Responsible Investment
Significant Risk Transfer
Single Supervisory Mechanism, the system of banking supervision in Europe. It comprises the ECB
and the national supervisory authorities of the participating countries.
Short-term
Science, Technology, Engineering and Mathematics
Stressed value at risk
Technology and operations
Tier 2
Task Force on Climate-related Financial Disclosures
Terrorist financing
The total loss-absorbing capacity requirement which is required to be met under the CRD V package
Targeted longer-term refinancing operations
The Nature Conservancy
Target Operational Model
Targeted Review of Internal Models
Total Shareholder Return
United Kingdom
United Nations Sustainable Development Goals
United Nations Environmental Program Financial Initiative
United States of America
United States dollar
Responsible banking
Corporate governance
Economic and financial
review
Risk management and
control
VaE
VaR
VAT
Volcker Rule
VRAC
WBCSD
WM&I
Value at Earnings
Value at Risk
Value Added Tax
Section 619 of the Dodd-Frank Act
Vendor Risk Assessment Centre
World Business Council for Sustainable Development
Wealth Management and Insurance
Wolfsberg group
Association of thirteen global banks which aims to develop frameworks and guidance for the
management of financial crime risks
465
Auditor's report and consolidated
financial statements
Auditor’s report
Consolidated annual accounts
Consolidated balance sheets as of 31 December
2019, 2018 and 2017
Consolidated income statements for the years
ended 31 December 2019, 2018 and 2017
Consolidated statements of recognised income
and expense for the years ended 31 December
2019, 2018 and 2017
Consolidated statements of changes in total
equity for the years ended 31 December 2019,
2018 and 2017
Consolidated statements of cash flows for the
years ended 31 December 2019, 2018 and 2017
468
480
480
484
486
487
493
Notes to the consolidated annual accounts 496
1. Introduction, basis of presentation of the
consolidated financial statements
(consolidated annual accounts) and other
information
2. Accounting policies
3. Santander Group
4. Distribution of the Bank’s profit, shareholder
remuneration scheme and earnings per share
5. Remuneration and other benefits paid to the
Bank’s directors and senior managers
6. Loans and advances to central banks and credit
institutions
7. Debt instruments
8. Equity instruments
9. Trading Derivatives (assets and liabilities) and
short positions
10. Loans and advances to customers
11. Trading derivatives
12. Non-current assets
13. Investments
14. Insurance contracts linked to pensions
15. Liabilities and assets under insurance
contracts and reinsurance assets
16. Tangible assets
17. Intangible assets – Goodwill
18. Intangible assets - Other intangible assets
19. Other assets
20. Deposits from central banks and credit
institutions
21. Customer deposits
22. Marketable debt securities
23. Subordinated liabilities
24. Other financial liabilities
497
509
550
554
556
570
571
573
574
574
581
581
582
584
584
585
588
591
592
592
593
594
599
601
25. Provisions
26. Other liabilities
27. Tax matters
28. Non-controlling interests
29. Other comprehensive income
30. Shareholders’ equity
31. Issued capital
32. Share premium
33. Accumulated retained earnings
34. Other equity instruments and own shares
35. Memorandum items
36. Hedging derivatives
37. Discontinued operations
38. Interest income
39. Interest expense
40. Dividend income
41. Income from companies accounted for using
the equity method
42. Commission income
43. Commission expense
44. Gains or losses on financial assets and
liabilities
45. Exchange differences, net
46. Other operating income and expenses
47. Staff costs
48. Other general administrative expenses
49. Gains or losses on non financial assets, net
50. Gains or losses on non-current assets held for
sale not classified as discontinued operations
51. Other disclosures
52. Primary and secondary segments reporting
53. Related parties
54. Risk management
55. Explanation added for translation to English
602
614
614
619
621
625
625
627
627
628
628
629
656
656
656
656
657
657
657
658
659
659
659
664
665
665
666
682
696
720
733
Appendix
735
Appendix I. Subsidiaries of Banco Santander, S.A.
736
Appendix II. Societies of which the Group owns
more than 5%, entities associated with Grupo
Santander and jointly controlled entities
Appendix III. Issuing subsidiaries of shares and
preference shares
Appendix IV. Notifications of acquisitions and
disposals of investments in 2019
Appendix V. Other information on the Group’s
banks
Appendix VI. Annual banking report
760
769
769
770
778
Auditors'
report
I
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
469
Table of Contents
470
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
471
Table of Contents
472
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
473
Table of Contents
474
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
475
Table of Contents
476
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
477
Table of Contents
478
2019 Annual Report
Consolidated
annual accounts
Table of Contents
Translation of the consolidated annual accounts originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the
Group in Spain (see Notes 1 and 55). In case of discrepancy, the Spanish version prevails.
Santander Group
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2019, 2018 AND 2017
Million euros
ASSETS
CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEPOSITS ON DEMAND
FINANCIAL ASSETS HELD FOR TRADING
Derivatives
Equity instruments
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
NON-TRADING FINANCIAL ASSETS MANDATORILY AT
FAIR VALUE THROUGH PROFIT OR LOSS
Equity instruments
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Equity instruments
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Equity instruments
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
FINANCIAL ASSETS AVAILABLE-FOR-SALE
Equity instruments
Debt instruments
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
FINANCIAL ASSETS AT AMORTISED COST
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
480
2019 Annual Report
Note
2019
2018* **
2017**
110,995
125,458
57,243
21,353
36,351
10,511
—
1,696
8,815
50,891
101,067
108,230
63,397
12,437
32,041
355
—
—
355
28,445
4,911
3,350
1,175
386
—
—
386
224
113,663
92,879
55,939
8,938
27,800
202
—
—
202
23,495
10,730
3,260
5,587
1,883
—
2
1,881
—
62,069
57,460
34,782
3,186
58,883
6,473
21,649
30,761
8,430
125,708
2,863
3,222
54,238
9,226
23,097
21,915
6,477
121,091
2,671
118,405
116,819
4,440
1,601
—
—
—
—
4,440
29,116
1,601
35,558
995,482
946,099
933
3,485
30,364
—
9,889
20,475
5,766
133,271
4,790
128,481
43,079
9 and 11
8
7
6
6
10
8
7
6
6
10
8
7
6
6
10
8
7
6
6
10
8
7
7
6
6
29,789
965,693
18,474
40,943
10
906,276
19,993
37,696
908,403
15,601
35,480
857,322
18,271
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
ASSETS
LOANS AND RECEIVABLES
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
INVESTMENTS HELD-TO-MATURITY
Memorandum items: lent or delivered as guarantee with disposal or pledge rights
HEDGING DERIVATIVES
CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN
PORTFOLIO HEDGES OF INTEREST RISK
INVESTMENTS
Joint ventures entities
Associated entities
ASSETS UNDER INSURANCE OR REINSURANCE CONTRACTS
TANGIBLE ASSETS
Property, plant and equipment
For own-use
Leased out under an operating lease
Investment property
Of which leased out under an operating lease
Memorandum items: in lease
INTANGIBLE ASSETS
Goodwill
Other intangible assets
TAX ASSETS
Current tax assets
Deferred tax assets
OTHER ASSETS
Insurance contracts linked to pensions
Inventories
Other
NON-CURRENT ASSETS HELD FOR SALE
TOTAL ASSETS
Note
2019
2018* **
2017**
7
6
6
10
7
36
36
13
15
16
16
17
18
27
14
19
12
903,013
17,543
885,470
26,278
39,567
819,625
8,147
13,491
6,996
8,537
1,287
6,184
1,987
4,197
341
22,974
20,650
8,279
12,371
2,324
1,332
96
28,683
25,769
2,914
30,243
7,033
23,210
9,766
239
1,964
7,563
15,280
7,216
8,607
1,702
8,772
1,325
7,447
292
35,235
34,262
15,041
19,221
973
823
5,051
27,687
24,246
3,441
29,585
6,827
22,758
10,138
192
5
9,941
4,601
1,088
7,588
979
6,609
324
26,157
24,594
8,150
16,444
1,563
1,195
98
28,560
25,466
3,094
30,251
6,993
23,258
9,348
210
147
8,991
5,426
1,522,695
1,459,271
1,444,305
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Presented for comparison purposes only (Note 1.d).
*
**
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated balance sheet as of 31 December 2019.
481
Table of Contents
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2019, 2018 AND 2017
Million euros
LIABILITIES
FINANCIAL LIABILITIES HELD FOR TRADING
Derivatives
Short positions
Deposits
Central banks
Credit institutions
Customers
Marketable debt securities
Other financial liabilities
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Deposits
Central banks
Credit institutions
Customers
Marketable debt securities
Other financial liabilities
Memorandum items: subordinated liabilities
FINANCIAL LIABILITIES AT AMORTISED COST
Deposits
Central banks
Credit institutions
Customers
Marketable debt securities
Other financial liabilities
Memorandum items: subordinated liabilities
HEDGING DERIVATIVES
CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN
PORTFOLIO HEDGES OF INTEREST RATE RISK
LIABILITIES UNDER INSURANCE OR REINSURANCE CONTRACTS
PROVISIONS
Pensions and other post-retirement obligations
Other long term employee benefits
Taxes and other legal contingencies
Contingent liabilities and commitments
Other provisions
TAX LIABILITIES
Current tax liabilities
Deferred tax liabilities
OTHER LIABILITIES
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE
TOTAL LIABILITIES
482
2019 Annual Report
Note
2019
2018* **
2017**
77,139
70,343
107,624
9
9
20
20
21
22
24
20
20
21
22
24
23
20
20
21
22
24
23
36
36
15
25
27
26
63,016
14,123
55,341
15,002
—
—
—
—
—
—
—
—
—
—
—
—
60,995
68,058
57,111
12,854
9,340
34,917
3,758
126
—
65,304
14,816
10,891
39,597
2,305
449
—
57,892
20,979
28,753
282
292
28,179
—
—
59,616
55,971
8,860
18,166
28,945
3,056
589
—
1,230,745
1,171,630
1,126,069
942,417
903,101
883,320
62,468
90,501
72,523
89,679
71,414
91,300
789,448
740,899
720,606
258,219
244,314
214,910
30,109
21,062
24,215
23,820
27,839
21,510
6,048
6,363
8,044
269
739
303
765
330
1,117
13,987
13,225
14,489
6,358
1,382
3,057
739
2,451
9,322
2,800
6,522
5,558
1,239
3,174
779
2,475
8,135
2,567
5,568
6,345
1,686
3,181
617
2,660
7,592
2,755
4,837
12,792
13,088
12,591
—
—
—
1,412,036 1,351,910
1,337,472
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2019, 2018 AND 2017
Million euros
EQUITY
SHAREHOLDERS´ EQUITY
CAPITAL
Called up paid capital
Unpaid capital which has been called up
Memorandum items: uncalled up capital
SHARE PREMIUM
EQUITY INSTRUMENTS ISSUED OTHER THAN CAPITAL
Equity component of the compound financial instrument
Other equity instruments issued
OTHER EQUITY
ACCUMULATED RETAINED EARNINGS
REVALUATION RESERVES
OTHER RESERVES
Reserves or accumulated losses in joint ventures investments
Others
(-) OWN SHARES
Note
2019
2018* **
2017**
30
31
122,103
118,613
116,265
8,309
8,309
—
—
8,118
8,118
—
—
8,068
8,068
—
—
32
52,446
50,993
51,053
598
—
598
146
565
—
565
234
525
—
525
216
61,028
56,756
53,437
—
—
—
(5,246)
(3,567)
(1,602)
1,166
917
724
(6,412)
(4,484)
(2,326)
34
33
33
33
34
(31)
(59)
(22)
PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
6,515
7,810
6,619
(-) INTERIM DIVIDENDS
OTHER COMPREHENSIVE INCOME
ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS
ITEMS THAT MAY BE RECLASSIFIED TO PROFIT OR LOSS
NON-CONTROLLING INTEREST
Other comprehensive income
Other items
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
MEMORANDUM ITEMS: OFF BALANCE SHEET AMOUNTS
Loans commitment granted
Financial guarantees granted
Other commitments granted
4
(1,662)
(2,237)
(2,029)
29
29
28
35
(22,032)
(22,141)
(21,776)
(4,288)
(2,936)
(4,034)
(17,744)
(19,205)
(17,742)
10,588
10,889
12,344
(982)
(1,292)
(1,436)
11,570
12,181
13,780
110,659
107,361
106,833
1,522,695
1,459,271
1,444,305
241,179
218,083
207,671
13,650
68,895
11,723
74,389
14,499
64,917
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Presented for comparison purposes only (Note 1.d).
*
**
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated balance sheet as of 31 December 2019.
483
Table of Contents
CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2019, 2018 AND 2017
Million euros
Interest income
Financial assets at fair value through other comprehensive income
Financial assets at amortised cost
Other interest income
Interest expense
Interest income/ (charges)
Dividend income
Income from companies accounted for using the equity method
Commission income
Commission expense
Gain or losses on financial assets and liabilities not measured
at fair value through profit or loss, net
Financial assets at amortised cost
Other financial assets and liabilities
Note
38
(Debit) Credit
2019
2018* **
56,785
3,571
48,552
4,662
54,325
4,481
47,560
2,284
2017**
56,041
4,384
49,096
2,561
39
(21,502)
(19,984)
(21,745)
35,283
34,341
34,296
40
13 and 41
42
43
44
533
324
15,349
(3,570)
1,136
308
828
370
737
14,664
(3,179)
604
39
565
384
704
14,579
(2,982)
404
Gain or losses on financial assets and liabilities held for trading, net
44
1,349
1,515
1,252
Reclassification of financial assets at fair value through other comprehensive income
Reclassification of financial assets at amortised cost
Other gains (losses)
Gains or losses on non-trading financial assets and liabilities mandatorily
at fair value through profit or loss
Reclassification of financial assets at fair value through other comprehensive income
Reclassification of financial assets at amortised cost
Other gains (losses)
Gain or losses on financial assets and liabilities measured
at fair value through profit or loss, net
Gain or losses from hedge accounting, net
Exchange differences, net
Other operating income
Other operating expenses
Income from assets under insurance and reinsurance contracts
Expenses from liabilities under insurance and reinsurance contracts
Total income
Administrative expenses
Staff costs
Other general administrative expenses
Depreciation and amortisation cost
Provisions or reversal of provisions, net
—
—
—
—
1,349
1,515
292
—
—
292
(286)
(28)
(932)
1,797
(2,138)
2,534
(2,414)
331
—
—
331
(57)
83
(679)
1,643
(2,000)
3,175
(3,124)
(85)
(11)
105
1,618
(1,966)
2,546
(2,489)
49,229
48,424
48,355
(20,279)
(20,354)
(20,400)
(12,141)
(11,865)
(12,047)
(8,138)
(3,001)
(3,490)
(8,489)
(2,425)
(2,223)
(8,353)
(2,593)
(3,058)
44
44
44
45
46
46
46
46
47
48
16 and 18
25
484
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Impairment or reversal of impairment at financial assets not measured
at fair value through profit or loss and net gains and losses from changes
Financial assets at fair value through other comprehensive income
Financial assets at amortised cost
Financial assets measured at cost
Financial assets available-for-sale
Loans and receivables
Held-to-maturity investments
Impairment or reversal of impairment of investments in
subsidiaries, joint ventures and associates, net
Impairment or reversal of impairment on non-financial assets, net
Tangible assets
Intangible assets
Others
Gain or losses on non-financial assets and investments, net
Negative goodwill recognised in results
Gains or losses on non-current assets held for sale
not classified as discontinued operations
Operating profit/(loss) before tax
Tax expense or income from continuing operations
Profit from continuing operations
Profit or loss after tax from discontinued operations
Profit for the year
Profit attributable to non-controlling interests
Profit attributable to the parent
Earnings per share
Basic
Diluted
(Debit) Credit
Note
2019
2018* **
2017**
(9,352)
(8,986)
(9,259)
(12)
(1)
10
(9,340)
(8,985)
(8)
(10)
(9,241)
—
(13)
(1,260)
(72)
(1,073)
(115)
522
—
—
(1,623)
(45)
(1,564)
(14)
1,291
—
(17)
(190)
(83)
(117)
10
28
67
(232)
(123)
(203)
12,543
14,201
12,091
(4,427)
8,116
—
8,116
1,601
6,515
0.362
0.361
(4,886)
9,315
—
9,315
1,505
7,810
0.449
0.448
(3,884)
8,207
—
8,207
1,588
6,619
0.404
0.403
10
17 and 18
16
17 and 18
49
50
27
37
28
4
4
See further detail regarding the impacts of the entry into force of IFRS 9 as of 1 January 2018 (Note 1.d).
Presented for comparison purposes only (Note 1.d).
*
**
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated income statement for the year ended 31 December 2019.
485
Table of Contents
CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR
THE YEARS ENDED 31 DECEMBER 2019, 2018 AND 2017
Million euros
CONSOLIDATED PROFIT FOR THE YEAR
OTHER RECOGNISED INCOME AND EXPENSE
Items that will not be reclassified to profit or loss
Actuarial gains and losses on defined benefit pension plans
Non-current assets held for sale
Other recognised income and expense of investments in
subsidiaries, joint ventures and associates
Changes in the fair value of equity instruments measured at fair value through other
comprehensive income
Gains or losses resulting from the accounting for hedges of equity instruments
measured at fair value through other comprehensive income, net
Changes in the fair value of equity instruments measured at fair value through other
comprehensive income (hedged item)
Changes in the fair value of equity instruments measured at fair value through other
comprehensive income (hedging instrument)
Changes in the fair value of financial liabilities at fair value through profit or loss
attributable to changes in credit risk
Income tax relating to items that will not be reclassified
Items that may be reclassified to profit or loss
Hedges of net investments in foreign operations (effective portion)
Revaluation gains (losses)
Amounts transferred to income statement
Other reclassifications
Exchanges differences
Revaluation gains (losses)
Amounts transferred to income statement
Other reclassifications
Cash flow hedges (effective portion)
Revaluation gains (losses)
Amounts transferred to income statement
Transferred to initial carrying amount of hedged items
Other reclassifications
Financial assets available-for-sale
Revaluation gains (losses)
Amounts transferred to income statement
Other reclassifications
Hedging instruments (items not designated)
Revaluation gains (losses)
Amounts transferred to income statement
Other reclassifications
Debt instruments at fair value with changes in other comprehensive income
Revaluation gains (losses)
Amounts transferred to income statement
Other reclassifications
Non-current assets held for sale
Revaluation gains (losses)
Amounts transferred to income statement
Other reclassifications
Share of other recognised income and expense of investments
Income tax relating to items that may be reclassified to profit or loss
Total recognised income and expenses for the year
Attributable to non-controlling interests
Attributable to the parent
Note
29
2019
8,116
419
(1,351)
(1,677)
—
1
2018* **
9,315
(1,899)
332
618
—
1
2017**
8,207
(7,320)
(88)
(157)
—
1
36
(29)
(174)
29
36
36
29
36
29
—
44
(44)
(156)
510
1,770
(1,151)
(1,151)
—
—
1,396
1,396
—
—
8
(1,104)
1,112
—
—
—
—
—
—
2,414
2,588
(792)
618
—
—
—
—
(27)
(870)
8,535
1,911
6,624
—
—
—
109
(222)
(2,231)
(2)
(2)
—
—
(1,874)
(1,874)
—
—
174
491
(317)
—
—
—
—
—
—
(591)
(29)
(562)
—
—
—
—
—
(77)
139
7,416
1,396
6,020
68
(7,232)
614
614
—
—
(8,014)
(8,014)
—
—
(441)
501
(942)
—
—
683
1,137
(454)
—
—
—
—
—
(70)
(4)
887
1,005
(118)
See further detail regarding the impacts of the entry into force of IFRS 9 as of 1 January 2018 (Note 1.d).
Presented for comparison purposes only (Note 1.d).
*
**
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated statement of recognised income and expense for the year ended 31 December
2019.
486
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2019, 2018 AND 2017
Million euros
Balance at 31 December 2018* **
Adjustments due to errors
Adjustments due to changes in accounting policies
Opening balance at 1 January 2019**
Total recognised income and expense
Other changes in equity
Issuance of ordinary shares
Issuance of preferred shares
Issuance of other financial instruments
Maturity of other financial instruments
Conversion of financial liabilities into equity
Capital reduction
Dividends
Purchase of equity instruments
Disposal of equity instruments
Transfer from equity to liabilities
Transfer from liabilities to equity
Transfers between equity items
Increases (decreases) due to business combinations
Share-based payment
Others increases or (-) decreases of the equity
Capital
8,118
—
—
Share
premium
50,993
—
—
8,118
50,993
—
191
191
—
1,453
1,453
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance at 31 December 2019
8,309
52,446
Equity
instruments
issued (not
capital)
565
—
—
565
—
33
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33
598
Other equity
instruments
234
—
—
234
—
(88)
—
—
—
—
—
—
—
—
—
—
—
—
—
(88)
—
146
Accumulated
retained
earnings
56,756
—
—
56,756
—
4,272
—
—
—
—
—
—
(1,055)
—
—
—
—
5,327
—
—
—
61,028
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Presented for comparison purposes only (Note 1.d).
*
**
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2019.
487
Non-controlling interest
(-) Interim
dividends
Other
Other
comprehensive comprehensive
income
income
Others items
Total
(2,237)
(22,141)
(1,292)
12,181
107,361
—
—
—
—
—
—
(2,237)
(22,141)
(1,292)
Profit
attributable to
shareholders
of the parent
7,810
—
—
7,810
6,515
(7,810)
—
—
—
—
—
—
—
—
—
—
—
(59)
—
—
(59)
—
28
—
—
—
—
—
—
—
(928)
956
—
—
—
—
—
—
—
575
—
—
—
—
—
—
(1,662)
—
—
—
—
109
—
310
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7,810)
2,237
—
—
—
—
—
—
(31)
6,515
(1,662)
(22,032)
(982)
—
—
12,181
1,601
(2,212)
1
—
—
—
—
(2)
(895)
—
—
—
—
—
110
—
(1,426)
11,570
—
(391)
106,970
8,535
(4,846)
1,673
—
—
—
—
(2)
(3,612)
(928)
950
—
—
—
110
(88)
(2,949)
110,659
Table of Contents
Revaluation
reserves
Other reserves
(-) Own shares
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,567)
—
(391)
(3,958)
—
(1,288)
28
—
—
—
—
—
—
—
(6)
—
—
246
—
—
(1,556)
(5,246)
488
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2019, 2018 AND 2017
Million euros
Balance at 31 December 2017**
Adjustments due to errors
Adjustments due to changes in accounting policies
Opening balance at 1 January 2018* **
Total recognised income and expense
Other changes in equity
Issuance of ordinary shares
Issuance of preferred shares
Issuance of other financial instruments
Maturity of other financial instruments
Conversion of financial liabilities into equity
Capital reduction
Dividends
Purchase of equity instruments
Disposal of equity instruments
Transfer from equity to liabilities
Transfer from liabilities to equity
Transfers between equity items
Increases (decreases) due to business combinations
Share-based payment
Others increases or (-) decreases of the equity
Capital
8,068
—
—
Share
premium
51,053
—
—
8,068
51,053
—
50
50
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(60)
(60)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance at 31 December 2018**
8,118
50,993
Equity
instruments
issued (not
capital)
525
—
—
525
—
40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
40
565
Other equity
instruments
216
—
—
216
—
18
—
—
—
—
—
—
—
—
—
—
—
—
—
(74)
92
234
Accumulated
retained
earnings
53,437
—
—
53,437
—
3,319
—
—
—
—
—
—
(968)
—
—
—
—
4,287
—
—
—
56,756
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Presented for comparison purposes only (Note 1.d).
*
**
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2019.
489
Profit
attributable to
shareholders
of the parent
6,619
—
—
6,619
7,810
(6,619)
—
—
—
—
—
—
—
—
—
—
—
(22)
—
—
(22)
—
(37)
—
—
—
—
—
—
—
(1,026)
989
—
—
—
—
—
—
Non-controlling interest
(-) Interim
dividends
Other
comprehensive
income
Other
comprehensive
income
Others items
Total
(2,029)
(21,776)
(1,436)
13,780
106,833
—
—
(2,029)
—
(208)
—
—
—
—
—
—
(2,237)
—
—
—
—
—
1,425
(20,351)
(1,790)
—
253
(1,183)
(109)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,545)
12,235
1,505
(1,559)
—
(1,340)
105,493
7,416
(5,548)
—
—
—
—
—
—
(687)
—
—
—
—
—
(660)
17
(229)
—
—
—
—
—
—
(3,892)
(1,026)
989
—
—
—
(601)
(57)
(961)
(6,619)
2,029
—
—
—
—
—
—
(59)
7,810
(2,237)
(22,141)
(1,292)
12,181
107,361
Table of Contents
Revaluation
reserves Other reserves
(-) Own shares
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,602)
—
(1,473)
(3,075)
—
(492)
10
—
—
—
—
—
—
—
—
—
—
303
59
—
(864)
(3,567)
490
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2019, 2018 AND 2017
Million euros
Balance at 31 December 2016*
Adjustments due to errors
Adjustments due to changes in accounting policies
Opening balance at 1 January 2017*
Total recognised income and expense
Other changes in equity
Issuance of ordinary shares
Issuance of preferred shares
Issuance of other financial instruments
Maturity of other financial instruments
Conversion of financial liabilities into equity
Capital reduction
Dividends
Purchase of equity instruments
Disposal of equity instruments
Transfer from equity to liabilities
Transfer from liabilities to equity
Transfers between equity items
Increases (decreases) due to business combinations
Share-based payment
Others increases or (-) decreases of the equity
Capital
7,291
—
—
Share
premium
44,912
—
—
7,291
44,912
—
777
777
—
6,141
6,141
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Equity
instruments
issued (not
capital)
—
—
—
—
—
525
—
—
525
—
—
—
—
—
—
—
—
—
—
—
—
Balance at 31 December 2017*
8,068
51,053
525
Other equity
instruments
240
—
—
240
—
(24)
—
—
—
—
—
—
—
—
—
—
—
—
—
(72)
48
216
Accumulated
retained
earnings
49,953
—
—
49,953
—
3,484
—
—
—
—
—
—
(802)
—
—
—
—
4,286
—
—
—
53,437
Presented for comparison purposes only (Note 1.d).
*
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2019.
491
Profit
attributable to
shareholders
of the parent
6,204
—
—
6,204
6,619
(7)
—
—
(7)
—
(15)
(6,204)
Non-Controlling interest
(-) Interim
dividends
Other
comprehensive
income
Other
comprehensive
income
Others items
Total
(1,667)
(15,039)
(853)
12,614
102,699
—
—
(1,667)
—
(362)
—
—
—
—
—
—
(2,029)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6,204)
1,667
—
—
—
—
—
—
—
—
(15,039)
(6,737)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(853)
(583)
—
—
—
12,614
1,588
(422)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
543
—
592
—
—
(10)
(665)
—
—
—
—
—
(39)
24
(867)
—
—
102,699
887
3,247
7,467
—
1,117
—
—
(10)
(3,496)
(1,309)
1,320
—
—
—
(39)
(48)
(1,755)
—
—
—
—
—
—
—
(1,309)
1,294
—
—
—
—
—
—
(22)
6,619
(2,029)
(21,776)
(1,436)
13,780
106,833
Table of Contents
Revaluation
reserves Other reserves
(-) Own shares
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(949)
—
—
(949)
—
(653)
6
—
—
—
—
—
—
—
26
—
—
251
—
—
(936)
(1,602)
492
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2019, 2018 AND 2017
Million euros
A. CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year
Adjustments made to obtain the cash flows from operating activities
Depreciation and amortisation cost
Other adjustments
Net increase/(decrease) in operating assets
Financial assets held-for-trading
Non-trading financial assets mandatorily at fair value through profit or loss
Financial assets at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Financial assets available-for-sale
Financial assets at amortised cost
Loans and receivables
Other operating assets
Net increase/(decrease) in operating liabilities
Financial liabilities held-for-trading
Financial liabilities designated at fair value through profit or loss
Financial liabilities at amortised cost
Other operating liabilities
Income tax recovered/(paid)
B. CASH FLOWS FROM INVESTING ACTIVITIES
Payments
Tangible assets
Intangible assets
Investments
Subsidiaries and other business units
Non-current assets held for sale and associated liabilities
Held-to-maturity investments
Other payments related to investing activities
Proceeds
Tangible assets
Intangible assets
Investments
Subsidiaries and other business units
Non-current assets held for sale and associated liabilities
Held-to-maturity investments
Other proceeds related to investing activities
C. CASH FLOW FROM FINANCING ACTIVITIES
Payments
Dividends
Subordinated liabilities
Redemption of own equity instruments
Acquisition of own equity instruments
Other payments related to financing activities
Proceeds
Subordinated liabilities
Issuance of own equity instruments
Disposal of own equity instruments
Other proceeds related to financing activities
Note
2019
3,389
8,116
23,990
3,001
20,989
64,593
15,450
(6,098)
4,464
1,693
2018* **
3,416
9,315
21,714
2,425
19,289
51,550
2017**
40,188
8,207
23,927
2,593
21,334
18,349
(31,656)
(18,114)
5,795
16,275
(2,091)
49,541
61,345
(457)
38,469
6,968
(8,858)
47,622
(7,263)
(2,593)
(7,229)
14,289
12,766
1,377
63
83
—
—
7,060
4,091
—
686
218
2,065
1,882
27,279
(36,315)
8,312
60,730
(5,448)
(3,342)
3,148
12,936
10,726
1,469
11
730
—
—
16,084
3,670
—
2,327
431
9,656
—
—
(10,122)
(3,301)
12,159
3,773
5,123
—
928
2,335
2,037
1,090
—
947
—
7,573
3,118
2,504
—
1,026
925
4,272
3,283
—
989
—
16
18
13
16
18
13
12
4
23
23
3,085
2,494
32,379
(1,495)
30,540
1,933
19,906
12,006
(3,305)
(4,137)
(4,008)
10,134
7,450
1,538
8
838
—
300
—
6,126
3,211
—
883
263
1,382
387
—
4,206
7,783
2,665
2,007
—
1,309
1,802
11,989
2,994
7,072
1,331
592
493
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2019, 2018 AND 2017
Million euros
D. EFFECT OF FOREIGN EXCHANGE RATE DIFFERENCES
E. NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
F. CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
G. CASH AND CASH EQUIVALENTS AT END OF THE YEAR
COMPONENTS OF CASH AND CASH EQUIVALENTS AT END OF THE YEAR
Cash
Cash equivalents at central banks
Other financial assets
Less: Bank overdrafts refundable on demand
TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR
In which: restricted cash
Note
2019
1,366
(12,596)
2018* **
(595)
2,668
113,663
110,995
2017**
(5,845)
34,541
76,454
101,067
113,663
110,995
8,764
75,353
16,950
—
10,370
89,005
14,288
—
8,583
87,430
14,982
—
101,067
113,663
110,995
—
—
—
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Presented for comparison purposes only (Note 1.d).
*
**
The accompanying Notes 1 to 55 and Appendices are an integral part of the consolidated statement of cash flows for the year ended 31 December 2019.
494
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
[This page has been left blank intentionally]
495
Notes to the consolidated
annual accounts
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Translation of the consolidated annual accounts originally
issued in Spanish and prepared in accordance with the
regulatory financial reporting framework applicable to the
Group in Spain (see Notes 1 and 55). In case of discrepancy,
the Spanish version prevails.
market of any Member State must prepare their
consolidated financial statements for the years beginning
on or after 1 January, 2005 in conformity with the
International Financial Reporting Standards (“IFRSs”)
previously adopted by the European Union (“EU-IFRSs”).
Banco Santander, S.A. and Companies composing
Santander Group
Notes to the consolidated financial statements
(consolidated annual accounts) for the year ended 31
December 2019
1. Introduction, basis of
presentation of the consolidated
financial statements (consolidated
annual accounts) and other
information
a) Introduction
Banco Santander, S.A. (“the Bank” or “Banco Santander”) is
a private-law entity subject to the rules and regulations
applicable to banks operating in Spain. The Bylaws and
other public information on the Bank can be consulted at its
registered office at Paseo de Pereda 9-12, Santander.
In addition to the operations carried on directly by it, the
Bank is the head of a group of subsidiaries that engage in
various business activities and which compose, together
with it, Santander Group (“the Group”). Therefore, the Bank
is obliged to prepare, in addition to its own separate
financial statements, the Group's consolidated financial
statements, which also include the interests in joint
ventures and investments in associates.
At 31 December 2019, the Group consisted of 685
subsidiaries of Banco Santander, S.A. In addition, other 169
companies are associates of the Group, joint ventures or
companies of which the Group holds more than 5%
(excluding the Group companies of negligible interest with
respect to the fair presentation that the annual accounts
must express).
The Group´s consolidated financial statements for 2017
were approved by the shareholders at the Bank´s annual
general meeting on 23 March 2018. The Group´s
consolidated financial statements for 2018 were approved
by the shareholders at the Bank´s annual general meeting
on 12 April 2019. The 2019 consolidated financial
statements of the Group, the financial statements of the
Bank and of substantially all the Group companies have not
been approved yet by their shareholders at the respective
annual general meetings. However, the Bank´s board of
directors considers that the aforementioned financial
statements will be approved without any significant
changes.
b) Basis of presentation of the consolidated financial
statements (consolidated annual accounts)
Under Regulation (EC) no. 1606/2002 of the European
Parliament and of the Council of July 19, 2002 all
companies governed by the law of an EU Member State and
whose securities are admitted to trading on a regulated
In order to adapt the accounting system of Spanish credit
institutions to the new standards, the Bank of Spain issued
Circular 4/2004, of 22 December on Public and Confidential
Financial Reporting Rules and Formats, which was repealed
on 1 January 2018 by the Circular 4/2017 issued by the
Bank of Spain on 27 November 2017 and subsequent
modifications.
The Group's consolidated financial statements for 2019
were authorised by the Bank's directors (at the board
meeting on 27 February 2020) in accordance with
International Financial Reporting Standards as adopted by
the European Union and with Bank of Spain Circular 4/2017
and subsequent modifications, and Spanish corporate and
commercial law applicable to the Group, using the basis of
consolidation, accounting policies and measurement bases
set forth in Note 2, accordingly, they present fairly the
Group's equity and financial position at 31 December 2019,
2018 and 2017 and the consolidated results of its
operations and the consolidated cash flows in 2019, 2018
and 2017. These consolidated financial statements were
prepared from the accounting records kept by the Bank and
by the other Group entities, and include the adjustments
and reclassifications required to unify the accounting
policies and measurement bases applied by the Group.
The notes to the consolidated financial statements contain
additional information to that presented in the consolidated
balance sheet, consolidated income statement,
consolidated statement of recognised income and expense,
consolidated statement of changes in total equity and
consolidated statement of cash flows. The notes provide, in
a clear, relevant, reliable and comparable manner, narrative
descriptions and breakdowns of these statements.
Adoption of new standards and interpretations issued
The following modifications came into force and were
adopted by the European Union in 2019:
• IFRS 16 Leases
On 1 January 2019, IFRS 16 Leases became effective. IFRS
16 establishes the principles for the recognition,
measurement, presentation and breakdown of lease
contracts, with the objective of ensuring reporting
information that faithfully represents the lease
transactions. The Group has adopted the standard, using
the modified retrospective approach from 1 January
2019, not restating the comparative financial statements
for 2018, as permitted under the specific transitional
provisions of the standard.
The adoption of IFRS 16 has led to changes in the Group's
accounting policies for the recognition, measurement,
presentation and breakdown of lease contracts.
The main aspects contained in the new regulations and
the breakdowns relating to the impact of the adoption of
IFRS 16 in the Group are included below:
497
Table of Contents
a) Lease accounting policy
Since 1 January 2019, when the Group acts as lessee, it
recognises a right-of-use asset representing its right to
use the underlying leased asset with a corresponding
lease liability on the date on which the leased asset is
available for use by the Group. Each lease payment is
allocated between the liability and the finance charge.
The finance charge is allocated to the income statement
during the term of the lease in such a way as to produce a
constant periodic interest rate on the remaining balance
of the liability for each year. The right-of-use asset is
depreciated over the useful life of the asset or the lease
term, whichever is shorter, on a straight-line basis. If the
Group is reasonably certain to exercise a purchase option,
the right-of-use asset is amortized over the useful life of
the underlying asset.
Assets and liabilities arising from a lease are initially
measured at present value. Lease liabilities include the
net present value of the following lease payments:
- Fixed payments (including inflation-linked payments),
less any lease incentive receivable,
- Variable lease payments that depend on an index or
rate,
- The amounts expected to be paid by the lessee under
residual value guarantees,
- The exercise price of a purchase option if the lessee is
reasonably certain that it will exercise that option, and
- Lease termination penalty payments, if the term of the
lease reflects the lessee's exercise of that option.
Lease payments are discounted using the interest rate
implicit in the lease. Given in certain situations this
interest rate cannot be obtained, the discount rate used in
this cases, is the lessee's incremental borrowing rate at
the related date. For this purpose, the entity has
calculated this incremental borrowing rate taking as
reference the listed debt instruments issued by the
Group; in this regard, the Group has estimated different
interest rate curves depending on the currency and
economic environment in which the contracts are located.
In order to construct the incremental borrowing rate, a
methodology has been developed at the corporate level.
This methodology is based on the need for each Entity to
consider its economic and financial situation, for which
the following factors must be considered:
- Economic and political situation (country risk).
- Credit risk of the company.
- Monetary policy.
- Volume and seniority of the company’s debt instrument
issues.
The incremental borrowing rate is defined as the interest
rate that a lessee would have to pay for borrowing, given
a similar period to the duration of the lease and with
similar security, the funds necessary to obtain an asset of
similar value to the right-of-use asset in a similar
economic environment. The Group Entities have a wide
stock and variety of financing instruments issued in
different currencies to that of the euro (pound, dollar,
498
2019 Annual Report
etc.) that provide sufficient information to be able to
determine an "all in rate" (reference rate plus adjustment
for credit spread at different terms and in different
currencies). In circumstances, where the leasing company
has its own financing, this has been used as the starting
point for determining the incremental borrowing rate. On
the other hand, for those Group entities that do not have
their own financing, the information from the financing
of the consolidated subgroup to which they belong was
used as the starting point for estimating the entity's
curve, analysing other factors to assess whether it is
necessary to make any type of negative or positive
adjustment to the initially estimated credit spread.
Right-of-use assets are valued at cost which includes the
following:
- The amount of the initial measurement of the lease
liability,
- Any lease payment made at or before the
commencement date less any lease incentive received,
- Any initial direct costs, and
- Restoration costs.
The Group recognises the payments associated with
short-term leases and leases of low-value assets on a
straight-line basis as an expense in the income
statement. Short-term leases are leases with a lease
term less than or equal to 12 months (a lease that
contains a purchase option is not a short term lease).
b) Recognised effects on the adoption of the standard
With the adoption of IFRS 16, the Group recognised lease
liabilities in relation to leases previously classified as
"operating leases" under the principles of IAS 17 Leases in
force at 31 December 2018. These liabilities were
measured at the present value of the remaining lease
payments, discounted using the lessee's incremental
borrowing rate at 1 January 2019. At the date of first
application, the weighted average discount rate was
4.5%, mainly due to the contribution of rented properties
in Spain.
For leases previously classified as finance leases, the
Group recognised the carrying amount of the lease asset
and lease liability immediately before transition as the
carrying amount of the right-of-use asset and lease
liability on the initial effective date. The measurement
principles in IFRS 16 apply only after that date.
The Group has considered the practical expedients
defined in paragraph C10 of the standard in the
application of the modified retrospective method. Such
application was made on a contract-by-contract basis,
and not on a generalised basis.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
A reconciliation between the operating lease
commitments at 31 December 2018 and the lease
liability recognised at 1 January 2019 is detailed below:
Operating lease commitments at 31
December 2018
Amount of operating lease commitments
discounted by the Group rate
(+) Liabilities under finance leases at 31
December 2018
(-) Short-term leases recognised as expenses
on a straight-line basis
(-) Low-value leases recognised as expenses
on a straight-line basis
(-) Contracts revalued as service contracts
(+)/(-) Adjustments resulting from different
treatment of extension and termination
options
(+)/(-) Adjustments related to changes in the
index or rate affecting variable payments
Lease liability at 1 January 2019
Million euros
8,699
6,550
96
(20)
(2)
—
556
—
7,180
As a result of the adoption of IFRS 16, the impact of the
first application recorded by the Group corresponds,
mainly, to the recognition of right-of-use for an amount
of EUR 6,693 million, financial liabilities for an amount of
EUR 7,084 million and a negative impact on the Group's
equity of EUR 391 million. The impact of the first
application of IFRS 16 on the ordinary capital ratio
(Common Equity Tier 1 - CET 1) was -20 b.p.
• IBOR (Interest Borrowing Offering Rate) Reform on
Reference Interest Rates (Amendments to IFRS 9, IAS 39
and IFRS 7) - The Group applies IAS 39 for hedge
accounting and, therefore, the amendments to IFRS 9
referred to in this section are not applicable to it. The
contractual cash flows of the accounting hedges, both of
the hedged items and of the hedging instruments, which
are based on a reference interest rate that currently
exists, will be modified by the substitution of said rate by
an alternative interest rate or modification of its
calculation methodology, in order to adapt it to the new
regulatory requirements. The amendments to the
standard permit the temporary application of certain
exceptions to compliance with hedge accounting
requirements that may be directly affected by the IBOR
reform, specifically requirements regarding highly
probable future transactions in cash flow hedges,
prospective and retrospective effectiveness (exemption
from compliance with the 80-125% effectiveness ratio)
and the need to identify the risk component separately.
These exemptions are no longer applicable when:
- uncertainty regarding the timing and amount of cash
flows based on the benchmark is no longer present, or
- the coverage relationship is interrupted.
The amendments to IAS 39 will apply to all hedging
relationships directly affected by uncertainties related to
the IBOR reform for annual periods beginning on or after
1 January 2020, with the possibility of early application.
In this regard, following their entry into force for use in
the European Union, the Group has chosen to apply the
amendments to IAS 39 and IFRS 7 in the preparation of
the financial statements for the year ended 31 December
2019.
The exceptions given by the amendments to IAS 39 mean
that the IBOR reform had no impact on the hedging
relationships affected in the year ended 31 December
2019. The main assumptions or judgements made by the
Group in applying the amendments to IAS 39 are detailed
below:
– For cash flow hedges, the Group has assumed that the
cash flows covered (which are based on the benchmark
index) are not modified as a result of the
aforementioned reform, and therefore continue to
comply with the highly probable future transaction
requirement.
– To determine the prospective effectiveness of hedges,
the Group has assessed that the economic relationship
between the hedged item and the hedging instrument
continues to exist since the interest rate benchmark on
which the hedged item and the hedging instrument are
based is not changed as a result of the IBOR reform.
Subsequently, the nominal amount of the hedging
instruments corresponding to the hedging relationships
directly affected by uncertainties related to the IBOR
reform is shown:
Million euros
Total hedging
instruments affected
2019
USD
LIBOR Others
Total
GBP
LIBOR
Cash flow hedges
28,077 21,894
2,213
52,184
Fair value hedges
64,629 15,758
3,248
83,635
92,706 37,652
5,461 135,819
With maturity after
the transition date
Cash flow hedges
15,692
7,421
1,863
24,975
Fair value hedges
53,180 11,467
2,849
67,497
68,872 18,888
4,712
92,472
In order to manage the transition process to the new
reference rates, the Group has established a global
corporate project to identify the risks and challenges
arising from this reform, with the involvement of senior
management, and which extends to all the affected
geographies and businesses. In addition, Santander is
continuously monitoring all regulatory and market
developments and is actively participating in the
discussion forums created by the various public
authorities in order to support an orderly transition to the
new interest rates.
499
Table of Contents
• IFRIC 23: Uncertainty about the treatment of income tax -
applies to the determination of taxable profit or loss, tax
bases, unused tax loss carry forwards, unused tax credits
and tax rates when there is uncertainty about the
treatment of taxes under IAS 12.
• Amendment to IFRS 9 Financial Instruments: prepayment
features with negative compensation - allows entities to
measure certain financial assets prepayable with a
negative offset at amortised cost. These assets, which
include some loans and debt securities, would have had
to be measured at fair value through profit or loss.
In order to apply measurement at amortised cost, the
negative offset must be 'reasonable compensation for
early termination of the contract' and the asset must be
maintained within a 'held-to-collect' business model.
• Amendment to IAS 28 Investments in associates and joint
ventures - the amendments clarify the accounting for
long-term interests in an associate or joint venture, which
are essentially part of the net investment in the associate
or joint venture, but to which equity accounting is not
applied. Entities must account for such interest under IFRS
9 Financial Instruments before applying the allocation of
losses and IAS 28 impairment requirements in
Investments in associates and joint ventures.
• Amendment to IAS 19 Employee Benefits - clarifies the
accounting of the amendments, reductions and
settlements on defined benefit plans.
• Amendment to IFRS 2015-2017 introduces minor
amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23:
- IFRS 3, Business Combinations - clarifies that obtaining
control of a business that is a joint venture is a business
combination achieved in stages.
- IFRS 11 Joint Arrangements - clarifies that the party that
obtains joint control of a business that is a joint venture
should not reassess its previous interest in the joint
venture.
- IAS 12 Income Taxes - clarifies that the income tax
consequences of dividends on financial instruments
classified as equity should be recognised according to
where the past transactions or events that generated
distributable profits were recognised.
- IAS 23 Borrowing Costs - clarifies that if a specific loan
remains outstanding after the related qualifying asset is
ready for sale or intended use, it becomes part of generic
loans.
The application of the aforementioned amendments to
accounting standards and interpretations did not have any
material effects on the Group's consolidated financial
statements.
At the date of formulation of these consolidated annual
accounts, the following amendments with an effective date
subsequent to 31 December 2019 were in force:
• Modification of IFRS conceptual framework: The IFRS
Framework, which sets out the fundamental concepts of
financial reporting, is amended. The revised Framework
includes: a new chapter about measurement; guidance on
financial reporting; improved definitions, in particular the
definition of liabilities; and clarifications such as
500
2019 Annual Report
management functions, prudence and measurement
uncertainty in financial reporting. It will apply from 1
January 2020.
• Modification of IAS 1 Presentation of financial statements
and IAS 8 Accounting policies, changes in accounting
estimates and errors which use a consistent definition of
materiality throughout International Financial Reporting
Standards and the Conceptual Framework for Financial
Reporting, clarify when information is material and
incorporate some of the guidance in IAS 1 about
immaterial information. It will apply from 1 January
2020.
Lastly, at the date of formulation of these consolidated
annual accounts, the following standards which effectively
come into force after 31 December 2019 had not yet been
adopted by the European Union:
• Modification of IFRS 3 Business combinations -
amendments are introduced. The amendments are
intended to assist entities to determine whether a
transaction should be accounted for as a business
combination or as an asset acquisition. IFRS 3 continues
to adopt a market participant’s perspective to determine
whether an acquired set of activities and assets is a
business.
The amendments are mainly due to: clarify the minimum
requirements for a business; remove the assessment of
whether market participants are capable of replacing any
missing elements; add guidance to help entities assess
whether an acquired process is substantive; narrow the
definitions of a business and of outputs; and introduce an
optional fair value concentration test. It will apply from 1
January 2020.
• IFRS 17 Insurance contracts - new comprehensive
accounting standard for insurance contracts, which
includes recognition, measurement, presentation and
disclosure. It will apply from 1 January 2021.
• Classification of liabilities, amendments to IAS 1,
Presentation of Financial Statements, considering non-
current liabilities, those in which the entity has the
possibility of deferring payment for more than 12 months
from the end of the reporting period.
The Group is currently analysing the possible effects of
these new standards and interpretations.
All accounting policies and measurement bases with a
material effect on the consolidated financial statements for
2019 were applied in their preparation.
c) Use of critical estimates
The consolidated results and the determination of
consolidated equity are sensitive to the accounting policies,
measurement bases and estimates used by the directors of
the Bank in preparing the consolidated financial statements.
The main accounting policies and measurement bases are
set forth in Note 2.
In the consolidated financial statements estimates were
occasionally made by the senior management of the Bank
and of the consolidated entities in order to quantify certain
of the assets, liabilities, income, expenses and obligations
reported herein. These estimates, which were made on the
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
basis of the best information available, relate basically to
the following:
• The impairment losses on certain assets: it applies to
financial assets at fair value through other comprehensive
income, financial assets at amortised cost, non-current
assets held for sale, investments, tangible assets and
intangible assets (see Notes 6, 7, 10, 12, 13, 16, 17 and
18);
• The assumptions used in the actuarial calculation of the
post-employment benefit liabilities and commitments
and other obligations (see Note 25);
• The useful life of the tangible and intangible assets (see
Notes 16 and 18);
• The measurement of goodwill arising on consolidation
(see Note 17);
• The calculation of provisions and the consideration of
contingent liabilities (see Note 25);
• The fair value of certain unquoted assets and liabilities
(see Notes 6, 7, 8, 9, 10, 11, 20, 21 and 22);
• The recoverability of deferred tax assets (see Note 27);
and
• The fair value of the identifiable assets acquired and the
liabilities assumed in business combinations (see Note 3).
Although these estimates were made on the basis of the
best information available at 2019 year-end, and
considering updated information at the date of preparation
of these consolidated financial statements, future events
might make it necessary to change these estimates
(upwards or downwards) in coming years. Changes in
accounting estimates would be applied prospectively,
recognising the effects of the change in estimates in the
related consolidated income statement.
d) Information relating to 2018 and 2017
In July 2014, the IASB published IFRS 9, which was adopted
with the subsequent amendments by the Group on 1
January 2018. As permitted by the regulation itself, the
Group has chosen not to reclassify the comparative financial
statements without having reclassified under these criteria
the information relating to the year ended 31 December
2017 so that it is not comparative. However, the company
has included a reconciliation of balances as of 31 December
2017 under IAS 39 and the corresponding balances as of 1
January 2018 under IFRS 9 where the effect of the first
application of the rule is broken down.
IFRS 9 establishes the requirements for recognition and
measurement of both financial instruments and certain
types of non-financial-purchase contracts. The
aforementioned requirements should be applied
retrospectively, adjusting the opening balance at 1 January,
2018, not requiring restatement of the comparative
financial statements.
The adoption of IFRS 9 has resulted in changes in the
Groups’ accounting policies for the recognition,
classification and measurement of financial assets and
liabilities and financial assets impairment. IFRS 9 also
significantly modifies other standards related to financial
instruments such as IFRS 7 "Financial instruments:
disclosure”.
Additionally, IFRS 9 includes new hedge accounting
requirements which have a twofold objective: to simplify
current requirements, and to bring hedge accounting in line
with risk management, allowing to be a greater variety of
derivative financial instruments which may be considered to
be hedging instruments. Furthermore, additional
breakdowns are required providing useful information
regarding the effect which hedge accounting has on
financial statements and also on the entity’s risk
management strategy. The treatment of macro-hedges is
being developed as a separate project under IFRS 9. Entities
have the option of continuing to apply IAS 39 with respect
to accounting hedges until the project has been completed.
According to the analysis performed until now, the Group
applies IAS 39 in hedge accounting.
For breakdowns of the notes, according to the regulations in
force, the amendments relating to IFRS 7 have only been
applied to the years 2019 and 2018. The breakdowns of
comparative information period notes related to 2017,
maintain the applicable breakdowns made in that period.
The following breakdowns relate to the impact of the
adoption of IFRS 9 in the Group:
i. Classification and measurement of financial instruments
The following table shows a comparison between IAS 39 as
of 31 December 2017 and IFRS 9 as of 1 January 2018 of
the reclassified financial instruments in accordance with the
new requirements of IFRS 9 regarding classification and
measurement (without impairment), as well as its book
value:
501
Table of Contents
Balance
Portfolio
Book value
(Million euros)
Portfolio
Book value
(Million euros)
IAS 39
IFRS 9
Equity
instruments
Financial assets available for sale
(including those that were valued at cost
at December)
Loans and receivables
Debt instruments
Financial assets available for sale
Financial assets at fair value through
profit or loss
2,154
Non-trading financial assets mandatorily
at fair value through profit or loss
Financial assets at fair value through
other comprehensive income
1,537
Non-trading financial assets mandatorily
at fair value through profit or loss
457
Financial assets at fair value through
other comprehensive income
96
Non-trading financial assets mandatorily
at fair value through profit or loss
6,589
Financial assets at amortised cost
203 Financial assets held for trading
199 Non-trading financial assets mandatorily
at fair value through profit or loss
Investments held-to-maturity
13,491 Financial assets at amortised cost
Loans and
advances
Loans and receivables
Loans and receivables
Financial assets held for trading
Financial assets at fair value through
profit or loss
Non-trading financial assets mandatorily
at fair value through profit or loss
Financial assets at fair value through
profit or loss
Financial assets at fair value through
other comprehensive income
10,179
1,069
43
1,152 Financial assets at amortised cost
Derivatives
Derivatives – hedging accounting
(liabilities)
10 Derivatives - financial liabilities held for
trading
1,651
533
1,497
486
96
6,704
203
199
13,491
611
9,577
1,107
1,102
10
ii. Reconciliation of impairment provisions from IAS 39 to
IFRS 9
The following table shows a comparison between IAS 39 as
of 31 December 2017 and IFRS 9 as of 1 January, 2018 of
the impairment provisions of the financial instruments in
accordance with the new requirements of IFRS 9:
Million euros
IAS 39
Impairment
IFRS 9
31/12/2017
impact 01/01/2018
Financial assets at
amortised cost
Loans and advances
24,682
23,952
1,974
2,002
26,656
25,954
Debt instruments
730
(28)
702
Financial assets at fair
value through other
comprehensive income
Debt instruments
Commitments and
guarantees granted
—
—
2
2
2
2
617
197
814
Total
25,299
2,173
27,472
Additionally, there was an impairment impact on Investments in joint ventures
and associates of EUR 34 million.
iii. Balance sheet reconciliation from IAS 39 to IFRS 9
The following table shows in detail the reconciliation the
consolidated balance sheet under IAS 39 as of 31 December
2017 to IFRS 9 as of 1 January, 2018 distinguishing
between the impacts due to classification and
measurement and due to impairment once adopted IFRS 9:
502
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Naming
modifications*
Classification and
measurement
impact
Impairment impact
01/01/18
IFRS 9
IAS 39
31/12/17
110,995
125,458
57,243
21,353
36,351
10,511
34,782
933
3,485
30,364
ASSETS (Million euros)
Cash, cash balances at central banks and
other deposits on demand
Financial assets held for trading
Derivatives
Equity instruments
Debt instruments
Loans and advances
Non-trading financial assets mandatorily at
fair value through profit or loss
Equity instruments
Debt instruments
Loans and advances
Financial assets designated at fair value
through profit or loss
Equity instruments
Debt instruments
Loans and advances
Financial assets at fair value through other
comprehensive income
Equity instruments
Debt instruments
Loans and advances
—
—
—
—
—
—
933
933
—
—
(933)
(933)
—
—
124,229
2,636
121,593
—
Financial assets available-for-sale
133,271
(124,229)
Equity instruments
Debt instruments
Financial assets at amortised cost
Debt instruments
Loans and advances
Loans and receivables
Debt instruments
Loans and advances
Investments held to maturity
Investments
Other assets**
TOTAL ASSETS
4,790
(2,636)
128,481
(121,593)
a
889,779
15,557 b
874,222
(889,779) a
(15,557)
903,013
17,543
885,470
(874,222)
13,491
6,184
117,111
1,444,305
—
—
—
—
—
160
—
—
203
(43)
4,054 c
1,651
1,792
611
8,226
—
(199)
8,425
a
2,126
533
486
1,107
(9,042)
(2,154) c
(6,888) b
21,297
20,195 b
1,102
(13,242)
(1,994) c
(11,248) a,c
(13,491) b
—
6
94
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2)
—
(2)
—
—
—
—
(1,982) d
20
(2,002)
8
8
—
—
(34)
680
e
(1,330)
110,995
125,618
57,243
21,353
36,554
10,468
4,987
2,584
1,792
611
42,075
3,286
38,789
126,353
3,169
122,077
1,107
909,094
35,772
873,322
—
6,150
117,797
1,443,069
* Due to the entry into force of Bank of Spain Circular 4/2017.
** Includes Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Assets under insurance or reinsurance contracts, Tangible
assets, Intangible assets, Tax assets, Other assets and Non-current assets held for sale.
a. The amount of the item Loans and receivables at 31 December 2017 is reclassified into Financial assets at amortised cost. Nevertheless, the Group maintained a
portfolio of loans and receivables for an approximate amount of EUR 8,600 million, which relate mainly to Brazil, which was designated at amortised cost; as a result of
the initial implementation of IFRS 9 this portfolio has been designated as fair value and finally it has been reclassified as ‘Financial assets designated at fair value
through profit or loss’.
b. Instruments classified as Investments held to maturity at 31 December 2017 have been reclassified into Financial assets available-for-sale because of the initial
implementation of IFRS 9. Additionally, after the review of the business model of cash flow portfolio in different locations, the group has identified certain groups of
assets classified at 31 December 2017 as Financial assets available-for-sale, which relate mainly to Mexico, Brazil and Consumer Finance business, whose
management is oriented towards the maintenance of financial instruments in a portfolio until maturity end; because of that, this asset group has been reclassified as
Financial assets at amortised cost.
c. The Group has reclassified in Non-trading financial assets mandatory at fair value through profit or loss those financial instruments which have not comply with the
SPPI test (solely payments of principal and interest) classified at 31 December 2017 mainly in Loans and receivables and Financial assets available for sale, which relate
mainly to the UK, Spain and Poland.
d. It corresponds to the increase in provisions for impairment of the value of the assets included in the item Financial assets at amortised cost derived from the change in
accounting policy.
e. This corresponds with increase on provisions for the tax effect referred in section d.
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Table of Contents
LIABILITIES (Million euros)
Financial liabilities held for trading
Derivatives
Short positions
Deposits
Marketable debt securities
Other financial liabilities
Financial liabilities designated at fair value
through profit or loss
Deposits
Marketable debt securities
Other financial liabilities
107,624
57,892
20,979
28,753
—
—
59,616
55,971
3,056
589
Financial liabilities at amortised cost
1,126,069
Deposits
Marketable debt securities
Other financial liabilities
Hedging derivatives
Changes in the fair value of hedged items in
portfolio hedges of interest rate risk
Provisions
Contingent liabilities and commitments
Other provisions*
Other liabilities **
TOTAL LIABILITIES
883,320
214,910
27,839
8,044
330
14,489
617
13,872
21,300
1,337,472
IAS 39
31/12/2017
Naming
modifications
Classification and
measurement
impact
Impairment
impact
IFRS 9
01/01/2018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10
10
—
—
—
—
—
—
—
—
—
—
—
—
(10)
—
—
—
—
41
41
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
197
197
—
(3)
107,634
57,902
20,979
28,753
—
—
59,616
55,971
3,056
589
1,126,069
883,320
214,910
27,839
8,034
330
14,686
814
13,872
21,338
194
1,337,707
*
**
Includes Pensions and other post-retirements obligations, Other long-term employee benefits, Taxes and other legal contingencies and Other provisions (including
guarantees and other contingent liabilities).
Includes Liabilities under insurance or reinsurance contracts, Tax liabilities, Other liabilities and Liabilities associated with non-current assets held for sale.
504
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
IAS 39
31/12/2017
Naming
modifications*
Classification and
measurement
impact
Impairment
impact
IFRS 9
01/01/2018
EQUITY (Million euros)
Shareholders’ equity
Capital
Share premium
Equity instruments issued
other than capital
Other equity
Accumulated retained earnings
Revaluation reserves
Other reserves
Own shares
Profit attributable to
shareholders of the parent
Interim dividends
Other comprehensive income
Items not reclassified to profit or loss
Actuarial gains or losses on defined benefit
pension plans
Non-current assets held for sale
Share in other income and expenses
recognised in investments in joint ventures
and associates
Other valuation adjustments
Changes in the fair value of equity
instruments measured at fair value with
changes in other comprehensive income
Inefficacy of fair value hedges of equity
instruments measured at fair value with
changes in other comprehensive income
Changes in the fair value of financial
liabilities at fair value through profit or loss
attributable to changes in credit risk
Items that may be reclassified
to profit or loss
Hedge of net investment in foreign
operations (effective portion)
Exchange differences
Hedging derivatives. Cash flow hedges
(effective portion)
Changes in the fair value of debt
instruments measured at fair value with
changes in other comprehensive income
Hedging instruments (items not designated)
Financial assets available for sale
Debt instruments
Equity instruments
Non-current assets held for sale
Share in other income and expenses
recognised in investments in joint ventures
and associates
Non controlling interests
Other comprehensive income
Other elements
EQUITY
TOTAL EQUITY AND LIABILITIES
116,265
8,068
51,053
525
216
53,437
—
(1,602)
(22)
6,619
(2,029)
(21,776)
(4,034)
(4,033)
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
919
—
—
5
—
91
—
—
—
—
—
—
91
—
—
—
(53)
(152)
—
—
(5)
—
914
(141)
—
—
(17,742)
(919)
(4,311)
(15,430)
152
2,068
1,154
914
—
(221)
12,344
(1,436)
13,780
106,833
1,444,305
—
—
—
1,154
—
(2,068)
(1,154)
(914)
—
(5)
—
—
—
—
—
—
(6)
99
—
—
—
99
—
—
—
—
—
—
15
3
12
53
94
*
Due to the entry into force of Bank of Spain Circular 4/2017.
(1,401)
114,955
—
—
—
—
—
—
(1,401)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(123)
—
(123)
(1,524)
(1,330)
8,068
51,053
525
216
53,437
—
(2,912)
(22)
6,619
(2,029)
(21,829)
(3,267)
(4,033)
—
(1)
773
—
(6)
(18,562)
(4,311)
(15,430)
152
1,253
—
—
(226)
12,236
(1,433)
13,669
105,362
1,443,069
505
Table of Contents
Similarly, to adapt the accounting system of Spanish credit
institutions to the changes related to IFRS15 and IFRS 9, on
6 December, 2017, Circular 4/2017, of 27 November, of the
Bank of Spain, was published, which repeals Circular
4/2004, of 22 December, for those years beginning as of 1
January, 2018. The adoption of this Circular has modified
the breakdown and presentation of certain headings in the
financial statements, to adapt them to the aforementioned
IFRS 9. Information corresponding to the year ended 31
December 2017 has not been restated under this Circular.
In addition, in July 2016, the IASB published IFRS 16, which
was adopted by the Group in accordance with the standard
on 1 January 2019. As indicated in that standard, the Group
opted not to restate the comparative financial statements,
and the information relating to the years ended 31
December 2018 and 2017 was not restated in accordance
with those criteria, so that it is not comparative. However,
Note 1.b includes a reconciliation of the balances at 31
December 2018 and the corresponding balances at 1
January 2019, detailing the effect of the first application of
the standard.
In 2018, the Group changed the accounting policy for
recognition of non-controlling interests in equity stake
reduction transactions without loss of control. In accordance
with international financial reporting standards, the
goodwill associated with these transactions must be kept
on balance. The non-controlling interests resulting from the
equity stake reduction can be accounted for by their
participation in the identifiable net assets or by attributing
the goodwill associated with the participation sold. In this
sense, the Group opted to account for the non-controlling
interests by its participation in net assets. The application of
the accounting policy change, without impact on net equity,
was made on 1 January, 2018.
Therefore, the information for the years 2018 and 2017
contained in these notes to the consolidated financial
statements is presented with the information relating to
2019 for comparative purposes only, except as mentioned
above and the non-recast of the aforementioned for the
year 2017 balances due to Argentina’s hyperinflation effect
(see note 2.a iv).
Additionally, the segment information corresponding to the
year end 31 December 2018 and 2017 were recasted for
comparative purposes, in accordance with the new
organizational structure of the Group, as required by IFRS 8
(see note 52).
In order to interpret the changes in the balances with
respect to 31 December 2019, it is necessary to take into
consideration the exchange rate effect arising from the
volume of foreign currency balances held by the Group in
view of its geographic diversity (see Note 51.b) and the
impact of the appreciation/depreciation of the various
currencies against the euro in 2019, based on the exchange
rates at the end of 2019: Mexican peso ( 5.99%), US dollar
(1.92% ), Brazilian real (-1.59%) , Argentine peso
(-35.89%), Sterling pound ( 5.14%), Chilean peso ( -6.04%),
and Polish zloty (1.05% ); as well as the evolution of the
comparable average rates: Mexican peso (5.29%), US dollar
(5.41%), Brazilian real (-2.62%), Sterling pound (0.85%),
Chilean peso (-3.68%) and Polish zloty (-0.85%).
506
2019 Annual Report
e) Capital management
i. Regulatory and economic capital
The Group’s capital management is performed at regulatory
and economic levels.
The aim is to secure the Group’s solvency and guarantee its
economic capital adequacy and its compliance with
regulatory requirements, as well as an efficient use of
capital.
To this end, the regulatory and economic capital figures and
their associated metrics RORWA (Return on Risk-Weighted
Assets), RORAC (Return on Risk-Adjusted Capital) and value
creation of each business unit- are generated, analysed and
reported to the relevant governing bodies on a regular basis.
Within the framework of the internal capital adequacy
assessment process (Pillar II of the Basel Capital Accord),
the Group uses an economic capital measurement model
with the objective of ensuring that there is sufficient capital
available to support all the risks of its activity in various
economic scenarios, with the solvency levels agreed upon
by the Group; at the same time the Group assesses, also in
the various scenarios, whether it meets the regulatory
capital ratio requirements.
In order to adequately manage the Group’s capital, it is
essential to estimate and analyse future needs, in
anticipation of the various phases of the business cycle.
Projections of regulatory and economic capital are made
based on the budgetary information (balance sheet, income
statement, etc.) and the macroeconomic scenarios defined
by the Group’s economic research service. These estimates
are used by the Group as a reference when planning the
management actions (issues, securitisations, etc.) required
to achieve its capital targets.
In addition, certain stress scenarios are simulated in order to
assess the availability of capital in adverse situations. These
scenarios are based on sharp fluctuations in macroeconomic
variables (GDP, interest rates, housing prices, etc.) that
mirror historical crises that could happen again or plausible
but unlikely stress situations.
Following is a brief description of the regulatory capital
framework to which the Group is subject.
On 26 June 2013 the Basel III legal framework was included
in European law through Directive 2013/36 (CRD IV),
repealing Directives 2006/48 and 2006/49, and through
Regulation 575/2013 on prudential requirements for credit
institutions and investment firms (CRR).
The CRD IV was transposed into Spanish legislation through
Law 10/2014 on the regulation, supervision and capital
adequacy of credit institutions, and its subsequent
implementing regulations contained in Royal Decree-Law
84/2015 and Bank of Spain Circular 2/2016, was completed
the adaptation to the Spanish law.
The CRR came into force immediately, established a phase-
in that has permitted a progressive adaptation to the new
requirements in the European Union regarding AT1 and T2
capital instruments. These calendars have been
incorporated into Spanish regulations through Bank of Spain
Circular 2/2014, affecting both the new deductions and
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
those issues and equity items that are no longer eligible as
such under the new regulations.
On 27 December 2017, Regulation (EU) 2017/2395 was
published, amending the CRR with regard to the transitional
provisions to mitigate the impact of the introduction of IFRS
9 , which took place on 1 January, 2018. The timetable
provides for a gradual implementation period of 5 years,
and for the current year (2020) the applicable factor will be
0.7.
In addition, on 28 December 2017 Regulations (EU)
2017/2401 and 2017/2402 were published, incorporating
the new securitisation framework. The first regulation
establishes a new methodology for calculating capital
requirements for securitisations and a transitional period
ending on 31 December 2019, while the second regulation
defines a type of STS ('simple, transparent and
standardised') securitisation which, due to its characteristics
of simplicity, of financing the real economy, etc., receives
preferential treatment in terms of lower capital
requirements.
With regard to non performing exposures (NPEs), rules have
been published with the aim of implementing the "Action
plan for non performing exposures in Europe", published by
the European Council in July 2017. The most relevant are
the following:
– The European Central Bank (ECB)'s supervisory
expectation to address the stock of NPEs through
provisioning,
– ECB Guidance on non-performing loans to credit
institutions, published in March 2017: The Appendix to
this Guidance, published in March 2018, sets out
timetables with quantitative supervisory expectations
for provisioning of this type of exposure. Applicable to
exposures that originate prior to 26 April 2019 and that
have become NPE on or after 1 April 2018. A default
could result in a higher charge for Pillar 2.
– Amendment of the CRR by Regulation (EU) 2019/630
regarding the minimum coverage of losses derived
from doubtful exposures (prudential backstop),
published in April 2019: this Regulation (EU) includes
timetables of quantitative requirements for minimum
provisioning of NPE's. It applies to NPE's originated
after 26 April 2019 and failure to comply would result
in a deduction from the institutions' CET 1.
On 20 May 2019, the new regulatory package was
approved through Regulation (EU) 2019/876 (hereinafter
CRR II) and Directive (EU) 2019/878 (hereinafter CRD V).
As a general rule, CRR II will come into force on 28 June
2021, with some exceptions that will come into force during
a period of time that began on 1 January 2019 and will end
on 28 June 2023.
Among these exceptions, the entry into force on 27 June
2019 of the main changes regarding equity, capital
deductions, standard and IRB credit risk and authorisations
is highlighted.
On 27 June CRD V entered into force but is not yet applicable
as Member States have until 28 December 2020 to
transpose it into national law. The CRD V includes significant
changes such as the Pillar 2G regulation ('guidance').
In the regulatory package published in June 2019, the TLAC
Term Sheet set at international level by the FSB (Financial
Stability Board) has been incorporated into CRR II as a Pillar I
of minimum equity and computable liability requirements
for GSIBs.
This package of modifications also includes the
modification of the Resolution Directive (BRRD), replacing it
with BRRD II, which establishes MREL requirements with
Pillar 2 for all resolution entities, whether systemic or not,
in which the resolution authority will decide on the
requirements on a case-by-case basis. For G-SIBs, CRR II
introduces the minimum requirement established in the
TLAC term sheet (16% / 18%), which must be made up of
subordinated liabilities, with the exception of a percentage
of senior debt (2.5% / 3.5%). For large banks (defined as
those whose total assets exceed EUR 100 billion) or those
which, without being large, the resolution authority
considers may be systemic, BRRD II establishes a minimum
subordination requirement of 13.5% of risk-weighted
assets, or 5% of the leverage ratio exposure, whichever is
higher. For the remaining entities the subordination
requirement will be determined on a case-by-case basis by
the resolution authority.
At 31 December 2019 the Group met the minimum capital
requirements established by current legislation (see Note
54).
ii. Plan for the roll-out of advanced approaches and
authorisation from the supervisory authorities
The Group continues adopting, over the next few years, the
advanced internal ratings-based (AIRB) approach under
Basel II for substantially all its banks, until the percentage of
exposure of the loan portfolio covered by this approach
exceeds 90%. The commitment assumed before the
supervisor still implies the adoption of advanced models
within the ten key markets where Santander Group
operates.
Accordingly, the Group continued in 2019 with the project
for the progressive implementation of the technology
platforms and methodological improvements required for
the roll-out of the AIRB approach for regulatory capital
calculation purposes at the various Group units.
The Group has obtained authorisation from the supervisory
authorities to use the AIRB approach for the calculation of
regulatory capital requirements for credit risk for the Parent
and the main subsidiaries in Spain, the United Kingdom and
Portugal, as well as for certain portfolios in Germany,
Mexico, Brazil, Chile, the Nordic countries (Norway, Sweden
and Finland), France and the United States.
During 2018, approval was obtained for the sovereign
portfolios, Institutions (FIRB method) and specialised
financing (Slotting) in Chile, mortgages and most revolving
portfolio of Santander Consumer Germany as well as the
portfolios of dealers of PSA France and PSA UK (FIRB
method).
As regards the other risks explicitly addressed under Basel
Pillar I, the Group is authorised to use its internal model for
market risk for its treasury trading activities in the UK,
Spain, Chile, Portugal and Mexico.
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Table of Contents
For the purpose of calculating regulatory capital for
operational risk, the Group uses the standardised approach
provided for the CRR. On 2018 the European Central Bank
authorised the use of the Alternative Standardised
Approach to calculate the capital requirements at
consolidated level in Banco Santander México, S.A.,
Institución de Banca Múltiple, Grupo Financiero Santander
México, in addition to the approval obtained in 2016 in
Brazil.
f) Environmental impact
In view of the business activities carried on by the Group
entities, the Group does not have any environmental
liability, expenses, assets, provisions or contingencies that
might be material with respect to its consolidated equity,
financial position or results. Therefore, no specific
disclosures relating to environmental issues are included in
these consolidated financial statements.
g) Events after the reporting period
On 9 January, the Group announced that it had placed
contingently convertible preference shares ("PPCC") into
newly issued ordinary shares of the Bank, excluding pre-
emptive rights of its shareholders, for a nominal value of
EUR 1,500,000,000.
The placement was carried out at par and the remuneration
of the shares, whose payment is subject to certain
conditions and is also discretionary, was set at 4.375% on
an annual basis for the first six years, being reviewed every
five years thereafter by applying a margin of 453.4 basis
points over the five-year Mid-Swap Rate.
On the same date, the Group announced its irrevocable
decision to proceed with the voluntary early redemption of
the PPCC issue for a nominal amount of EUR 1,500,000,000
made at 12 March 2014.
On 29 January, 2020 the Group announced that the Bank´s
board of directors, agreed to propose to the next
shareholder Bank annual general meeting, that the second
payment of the remuneration from 2019 profit be made for
a total of EUR 0.13 per share by means of :
• The payment in cash of a final dividend of 0.10 euros
per share and
• A scrip dividend (in the form of the Santander
Dividendo Elección programme) which will allow
shareholders to receive it in cash, for those who choose
this option, EUR 0.03 per share.
h) Other information
United Kingdom Referendum
On 31 January 2020 the United Kingdom ceased to be a
member of the European Union . The UK and the European
Union agreed withdrawal terms which establish a transition
period until 31 December 2020. During the transition period
(i) the United Kingdom will be treated as if it were still a
member of the European Union for trading purposes, (ii)
European Union legislation will continue to apply in the
United Kingdom and (iii) negotiations on a trade agreement
will be conducted, as well as on the extent of legislative and
regulatory convergence and regulatory cooperation. The
European Union will also carry out regulatory equivalence
assessments for financial services. Such assessments, even
508
2019 Annual Report
if positive, do not guarantee that equivalence will be
granted. Although the withdrawal agreement foresees the
possibility to extend the transition period for two more
years after the 31 January 2020, this is not automatic and
the United Kingdom has enshrined the 31 December 2020
date in local legislation passing the withdrawal agreement
as the end of the transition period, signalling a current
desire not to extend it.
Uncertainty remains around the terms of the United
Kingdom´s relationship with the European Union at the end
of the transition period. If the transition period were to end
without a comprehensive trade agreement, the United
Kingdom’s and Europe´s economic growth may be
negatively impacted. At the end of the transition period,
even if a trade agreement is entered into force and/or if
equivalence is granted to certain areas of the United
Kingdom’s financial services, contingency measures may
still be necessary in certain economic or financial matters to
avoid uncertainty and adverse economic effects and there
will be some changes in the products and services that
Santander United Kingdom can continue to offer into the
European Economic Area (EEA) and to EEA residents or EEA
incorporated entities. Where possible, Santander UK would
look to service such EEA customers from Banco Santander
S.A. instead.
While the longer term effects of the United Kingdom’s
anticipated withdrawal from the European Union are
difficult to predict, there is ongoing political and economic
uncertainty, which is likely to continue in the medium term
depending on its result, and could have adverse effect on
the operations, financial situation and prospects of
Santander UK, especially in the Retail and Commercial
banking segments. We have identified a number of risks to
Santander as a consequence of this uncertainty and the
result of the withdrawal process, including the following:
Increased market volatility could have a negative impact on
the Group´s cost of or access to funding, especially in an
environment in which credit ratings are impacted, it could
affect interest and currency exchange rates and the value of
assets in our banking book or of securities held by the
Group for liquidity purposes.
The Group in the UK is subject to significant regulation and
supervision by the European Union. Although legislation
has now been passed transferring the European Union
regulations into United Kingdom law, there remains
significant uncertainty as to the legal and regulatory
environment in which the Group´s UK subsidiaries will
operate when the transition period ends, and the basis on
which cross-border financial business will take place after
that date.
Furthermore, at the operational level, the Group's UK
subsidiaries and other financial institutions may no longer
be able to rely on the European cross-border framework for
financial services and it is not clear what the alternative
regime will be after Brexit. This uncertainty and the actions
taken as a result of it, as well as the new or amended rules,
could have significant adverse impacts on the Group's
operations, profitability and business.
An adverse effect on the UK economy could have a negative
impact on the Group's customers in that country. However,
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
given the current uncertainty, the Group has continued to
focus on perfecting the Brexit contingency plans.
The materialisation of one or more of the above risks would
have a material adverse effect on the Group's operations,
financial situation and prospects.
The Group considered these circumstances in the review of
the goodwill assigned to Santander UK, which was impaired
in 2019 (see note 17).
2. Accounting policies
• The balances arising from non-hedging forward foreign
currency/foreign currency and foreign currency/euro
purchase and sale transactions are translated at the
closing rates prevailing in the forward foreign currency
market for the related maturity.
Translation of functional currencies to euros
The balances in the financial statements of consolidated
entities (or entities accounted for using the equity method)
whose functional currency is not the euro are translated to
euros as follows:
• Assets and liabilities, at the closing rates.
The accounting policies applied in preparing the
consolidated financial statements were as follows:
• Income and expenses, at the average exchange rates for
the year.
a) Foreign currency transactions
i. Presentation currency
The Bank’s functional and presentation currency is the euro.
Also, the presentation currency of the Group is the euro.
ii. Translation of foreign currency balances
Foreign currency balances are translated to euros in two
consecutive stages:
• Translation of foreign currency to the functional currency
(currency of the main economic environment in which the
entity operates); and
• Translation to euros of the balances held in the functional
currencies of entities whose functional currency is not the
euro.
Translation of foreign currency to the functional currency
Foreign currency transactions performed by consolidated
entities (or entities accounted for using the equity method)
not located in European Monetary Union (“EMU”) countries
are initially recognised in their respective currencies.
Monetary items in foreign currency are subsequently
translated to their functional currencies using the closing
rate.
Furthermore:
• Non-monetary items measured at historical cost are
translated to the functional currency at the exchange rate
at the date of acquisition.
• Non-monetary items measured at fair value are
translated at the exchange rate at the date when the fair
value was determined.
• Income and expenses are translated at the average
exchange rates for the year for all the transactions
performed during the year. When applying this criterion,
the Group considers whether there have been significant
changes in the exchange rates in the year which, in view
of their materiality with respect to the consolidated
financial statements taken as a whole, would make it
necessary to use the exchange rates at the transaction
date rather than the aforementioned average exchange
rates.
• Equity items, at the historical exchange rates.
iii. Recognition of exchange differences
The exchange differences arising on the translation of
foreign currency balances to the functional currency are
generally recognised at their net amount under Exchange
differences in the consolidated income statement, except for
exchange differences arising on financial instruments at fair
value through profit or loss, which are recognised in the
consolidated income statement without distinguishing
them from other changes in fair value, and for exchange
differences arising on non-monetary items measured at fair
value through equity, which are recognised under Other
comprehensive income–Items that may be reclassified to
profit or loss–Exchange differences (except for exchange
differences on equity instruments, where the option to
irrevocably elect to be measured at fair value through
changes in accumulated other comprehensive income,
which are recognised in accumulated other comprehensive
income - Items not to be reclassified to profit or loss -
Changes in fair value of equity instruments measured at fair
value through other comprehensive income (see Note 29).
The exchange differences arising on the translation to euros
of the financial statements denominated in functional
currencies other than the euro are recognised in Other
comprehensive income–Items that may be reclassified to
profit or loss–Exchange differences in the consolidated
balance sheet, whereas those arising on the translation to
euros of the financial statements of entities accounted for
using the equity method are recognised in equity under
Other comprehensive income–Items that may be
reclassified to profit or loss and Items not reclassified to
profit or loss–Other recognised income and expense of
investments in subsidiaries, joint ventures and associates
(see Note 29), until the related item is derecognised, at
which time they are recognised in profit or loss.
Exchange differences arising on actuarial gains or losses
when converting to euros the financial statements
denominated in the functional currencies of entities whose
functional currency is different from the euro are recognised
under equity–Other comprehensive income–Items not
reclassified to profit or loss–Actuarial gains or (-) losses on
defined benefit pension plans (see Note 29).
509
Table of Contents
iv. Entities located in hyperinflationary economies
Exchange differences arising on the translation to the Group
´s presentation currency of financial statements
denominated in functional currencies other than euro for
subsidiaries located in countries with high inflation rates are
recorded in the consolidated statement of changes in total
equity-Other reserves.
At 31 December 2017, none of the functional currencies of
the consolidated subsidiaries and associates located abroad
corresponded to those of countries considered to have
highly inflationary and hyperinflationary economies, in
accordance with the criteria established in this connection
by the International Financial Reporting Standards adopted
by the European Union. Consequently, at the end of the year
it was not necessary to adjust the financial statements of
any consolidated or associated entity to correct for the
effects of inflation. In 2018 the economic situation in
Argentina, especially the evolution of the index
deteriorated, which caused, among other impacts, a
significant increase in inflation, which by the end of that
year had reached 48% per year (147% accumulated in three
years),). This situation led the Group to conclude that it was
necessary to apply IAS 29 for hyperinflationary economies -
Financial Information in Hyperinflationary Economies - to
its activities in the country in question in its consolidated
financial statements for that year, and this situation will
continue in 2019.
Consequently, at 1 January 2018, an amount of EUR 1,716
million was reclassified in the statement of total changes in
equity from the heading Accumulated Other Comprehensive
Income - Translation Differences to the heading Other
Reserves, corresponding to the exchange rate losses for
2017 and earlier. In addition, at that date the historical cost
of the non-monetary assets and liabilities and the various
items of equity of the Argentine companies from their date
of acquisition or inclusion in the consolidated balance sheet
was adjusted to reflect the changes in the purchasing power
of the currency resulting from inflation, and was recorded;
consequently, a credit to Other reserves of EUR 131 million
was recorded in Other reserves. From that moment:
- The historical cost of non-monetary assets and liabilities
and equity items continues to be adjusted to, considering
the changes in the purchasing power of the currency due to
inflation, in accordance with the official indices published by
the National Institute of Statistics and Censuses (INDEC). In
accordance with the provisions of the Argentine Federation
of Professional Councils in Economic Sciences (FCPCE),
which is the organization that issues the professional
accounting standards in said country, the indexes result
from combining the National Consumer Price Index (CPI)
with the Wholesale Internal Price Index (WPI), which at
closing) until 30 November 2016 and the National
Consumer Price Index (CPI) as from 1 December 2016.
Inflation during the year reached 54%.
- The different items of the income statement are adjusted
by the inflationary index since their generation, with a
balancing entry in Other reserves. - The loss on the net
monetary position is recorded in the result for the year, with
a credit to Other reserves.
- All components of the financial statements of the
Argentine companies are translated at the closing exchange
510
2019 Annual Report
rate, with the corresponding exchange rate at December 31,
2019 of Argentine pesos 67.26 per euro (Argentine pesos
43.12 per euro at 31 December 2018).
The net impact of these effects on Other reserves in 2019
was a loss of 154 million euros (398 million euros in 2018).
v. Exposure to foreign currency risk
The Group hedges a portion of its long-term foreign
currency positions using foreign exchange derivative
financial instruments (see Note 36). Also, the Group
manages foreign exchange risk dynamically by hedging its
short-term position (with a potential impact on profit or
loss) in order to limit the impact of currency depreciations
while optimising the cost of financing the hedges.
The following tables show the sensitivity of the
consolidated income statement and consolidated equity to
percentage changes of ± 1% in the foreign exchange rate
positions arising from investments in Group companies with
currencies other than the euro (with its hedges) and in their
results (with its hedges), in which the Group maintains
significant balances.
The estimated effect on the consolidated equity attributable
to the Group and on consolidated profit of a 1%
appreciation of the euro against the corresponding currency
is as follows:
Million euros
Effect on
consolidated equity
Effect on
consolidated profit
Currency
US dollar
2019
2018
2017
2019 2018 2017
(161.3) (162.3) (157.9)
(3.5)
(4.1)
(1.4)
Chilean peso
(21.8)
(22.9)
(29.0)
(2.3)
(5.1)
(1.8)
Pound sterling
(189.2) (171.2) (176.6)
(3.9)
(4.5)
(3.1)
Mexican peso
(22.6)
(18.3)
(16.0)
(3.3)
(1.7)
(1.2)
Brazilian real
(71.6)
(85.6)
(93.1)
(10.4)
(5.6)
(6.5)
Polish zloty
(38.3)
(36.2)
(34.5)
(1.2)
(4.2)
(1.5)
Argentine peso
(6.9)
(7.8)
(7.4)
(1.2)
(0.6)
(3.5)
Similarly, the estimated effect on the Group’s consolidated
equity and on consolidated profit of a 1% depreciation of
the euro against the corresponding currency is as follows:
Million euros
Currency
US dollar
Effect on
consolidated equity
Effect on
consolidated profit
2019
2018
2017
2019 2018 2017
164.6 165.6 161.1
Chilean peso
22.2
23.4
29.6
Pound sterling
193.0 174.7 180.2
Mexican peso
Brazilian real
Polish zloty
Argentine peso
23.1
73.1
39.0
7.0
18.6
87.4
36.9
8.0
16.3
95.0
35.2
7.6
3.5
2.4
4.0
3.4
10.6
1.2
1.3
4.2
5.2
4.6
1.8
5.7
4.2
0.6
1.5
1.8
3.2
1.2
6.6
1.5
3.6
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The above data were obtained as follows:
a) Effect on consolidated equity: in accordance with the
accounting policy detailed in Note 2.a.iii, foreign
exchange rate impact arising on the translation to euros
of the financial statements in the functional currencies of
the Group entities whose functional currency is not the
euro are recognised in consolidated equity. The potential
effect that a change in the exchange rates of the related
currency would have on the Group’s consolidated equity
was therefore determined by applying the
aforementioned change to the net value of each unit’s
assets and liabilities -including, where appropriate, the
related goodwill- and by taking into consideration the
offsetting effect of the hedges of net investments in
foreign operations.
b) Effect on consolidated profit: the effect was determined
by applying the up and down movements in the average
exchange rates of the year, as indicated in Note 2.a.ii
(except in the case of Argentina, which is a
hyperinflationary economy and has applied the closing
exchange rate), to translate to euros the income and
expenses of the consolidated entities whose functional
currency is not the euro, taking into consideration, where
appropriate, the offsetting effect of the various hedging
transactions in place.
The estimates used to obtain the foregoing data were
performed considering the effects of the changes in the
exchange rate in standalone basis not considering the effect
of the performance of other variables whose changes would
affect equity and profit or loss, such as variations in the
interest rates of the reference currencies or other market
factors. Accordingly, all variables other than the exchange
rate variations were kept constant with respect to their
positions at 31 December 2019, 2018 and 2017.
b) Basis of consolidation
i. Subsidiaries
Subsidiaries are defined as entities over which the Bank has
the capacity to exercise control. The Bank controls an entity
when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect
those returns through its power over the investee.
The financial statements of the subsidiaries are fully
consolidated with those of the Bank. Accordingly, all
balances and effects of the transactions between
consolidated companies are eliminated on consolidation.
On acquisition of control of a subsidiary, its assets, liabilities
and contingent liabilities are recognised at their acquisition-
date fair values. Any positive differences between the
acquisition cost and the fair values of the identifiable net
assets acquired are recognised as goodwill (see Note 17).
Negative differences are recognised in profit or loss on the
date of acquisition.
Additionally, the share of third parties of the Group’s equity
is presented under Non-controlling interests in the
consolidated balance sheet (see Note 28). Their share of the
profit for the year is presented under Profit attributable to
non-controlling interests in the consolidated income
statement.
The results of subsidiaries acquired during the year are
included in the consolidated income statement from the
date of acquisition to year-end. Similarly, the results of
subsidiaries for which control is lost during the year are
included in the consolidated income statement from the
beginning of the year to the date of disposal.
At 31 December 2019 the Group controls the following
company in which it holds an ownership interest of less
than 50% of the share capital, Luri 1, S.A. apart from the
structured consolidated entities. The percentage ownership
interest in the aforementioned company is 46% (See
Appendix I). Although the Group holds less than half the
voting power, it manages and, as a result, exercises control
over this entity. The company´s corporate purpose for the
entity is the acquisition of real estate and other general
operations relating thereto, including rental, and the
purchase and sale of properties; the company object of the
latter entity is the provision of payment services. The impact
of the consolidation of this company on the Group's
consolidated financial statements is immaterial.
The Appendices contain significant information on the
subsidiaries.
ii. Interests in joint ventures
Joint ventures are deemed to be entities that are not
subsidiaries but which are jointly controlled by two or more
unrelated entities. This is evidenced by contractual
arrangements whereby two or more parties have interests
in entities so that decisions about the relevant activities
require the unanimous consent of all the parties sharing
control.
In the consolidated financial statements, investments in
joint ventures are accounted for using the equity method,
i.e. at the Group’s share of net assets of the investee, after
taking into account the dividends received therefrom and
other equity eliminations. The profits and losses resulting
from transactions with a joint venture are eliminated to the
extent of the Group’s interest therein.
The Appendices contain relevant information on the joint
ventures.
iii. Associates
Associates are entities over which the Bank is in a position
to exercise significant influence, but not control or joint
control. It is presumed that the Bank exercises significant
influence if it holds 20% or more of the voting power of the
investee.
In the consolidated financial statements, investments in
associates are accounted for using the equity method, i.e. at
the Group’s share of net assets of the investee, after taking
into account the dividends received therefrom and other
equity eliminations. The profits and losses resulting from
transactions with an associate are eliminated to the extent
of the Group’s interest in the associate.
There are certain investments in entities which, although
the Group owns 20% or more of their voting power, are not
considered to be associates because the Group is not in a
position to exercise significant influence over them. These
investments are not significant for the Group.
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There are also certain investments in associates where the
Group owns less than 20% of the voting rights, as it is
determined that it has the capacity to exercise significant
influence over them. The impact of these companies is
immaterial in the Group's consolidated financial statements.
The Appendices contain significant information on the
associates.
iv. Structured entities
When the Group incorporates entities, or holds ownership
interests therein, to enable its customers to access certain
investments, or for the transfer of risks or other purposes
(also called structured entities since the voting or similar
power is not a key factor in deciding who controls the
entity), the Group determines, using internal criteria and
procedures and taking into consideration the applicable
legislation, whether control (as defined above) exists and,
therefore, whether these entities should be consolidated.
Specifically, for those entities to which this policy applies
(mainly investment funds and pension funds), the Group
analyses the following factors:
• Percentage of ownership held by the Group; 20% is
established as the general threshold.
• Identification of the fund manager, and verification as to
whether it is a company controlled by the Group since this
could affect the Group’s ability to direct the relevant
activities.
• Existence of agreements between investors that might
require decisions to be taken jointly by the investors,
rather than by the fund manager.
• Existence of currently exercisable removal rights
(possibility of removing the manager from his position),
since the existence of such rights might limit the
manager’s power over the fund, and it may be concluded
that the manager is acting as an agent of the investors.
• Analysis of the fund manager’s remuneration regime,
taking into consideration that a remuneration regime that
is proportionate to the service rendered does not,
generally, create exposure of such importance as to
indicate that the manager is acting as the principal.
Conversely, if the remuneration regime is not
proportionate to the service rendered, this might give rise
to an exposure that would lead the Group to a different
conclusion.
These structured entities also include the securitisation
special purpose vehicles (“SPV”), which are consolidated in
the case of the SPVs over which, being exposed to variable
yield, it is considered that the Group continues to exercise
control.
The exposure associated with unconsolidated structured
entities are not material with respect to the Group’s
consolidated financial statements.
v. Business combinations
A business combination is the bringing together of two or
more separate entities or economic units into one single
entity or group of entities.
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2019 Annual Report
Business combinations whereby the Group obtains control
over an entity or a business are recognised for accounting
purposes as follows:
• The Group measures the cost of the business
combination, which is normally the consideration
transferred, defined as the acquisition-date fair values of
the assets transferred, the liabilities incurred to the
former owners of the acquiree and the equity
instruments issued, if any, by the acquirer. In cases where
the amount of the consideration to be transferred has not
been definitively established at the acquisition date, but
rather depends on future events, any contingent
consideration is recognised as part of the consideration
transferred and measured at its acquisition-date fair
value. Moreover, acquisition-related costs do not for these
purposes form part of the cost of the business
combination.
• The fair values of the assets, liabilities and contingent
liabilities of the acquired entity or business, including any
intangible assets identified in the business combination
which might not have been recognised by the acquiree,
are estimated and recognised in the consolidated balance
sheet; the Group also estimates the amount of any non-
controlling interests and the fair value of the previously
held equity interest in the acquiree.
• Any positive difference between the aforementioned
items is recognised as discussed in Note 2.m. Any
negative difference is recognised under negative goodwill
recognised in the consolidated income statement.
Goodwill is only calculated and recognised once, when
control of a business or an entity is obtained.
vi. Changes in the levels of ownership interests in
subsidiaries
Acquisitions and disposals not giving rise to a change in
control are recognised as equity transactions, and no gain or
loss is recognised in the income statement and the initially
recognised goodwill is not remeasured. The difference
between the consideration transferred or received and the
decrease or increase in non-controlling interests,
respectively, is recognised in reserves.
Similarly, when control over a subsidiary is lost, the assets,
liabilities and non-controlling interests and any other items
recognised in Other Comprehensive income of that company
are derecognised from the consolidated balance sheet, and
the fair value of the consideration received and of any
remaining equity interest is recognised. The difference
between these amounts is recognised in profit or loss.
vii. Acquisitions and sales
Note 3 provides information on the most significant
acquisitions and sales in the last three years.
c) Definitions and classification of financial
instruments
i. Definitions
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
An equity instrument is a contract that evidences a residual
interest in the assets of the issuing entity after deducting all
of its liabilities.
• Contracts and obligations relating to employee
remuneration based on own equity instruments (see
Note 34).
A financial derivative is a financial instrument whose value
changes in response to the change in an observable market
variable (such as an interest rate, foreign exchange rate,
financial instrument price, market index or credit rating),
whose initial investment is very small compared with other
financial instruments with a similar response to changes in
market factors, and which is generally settled at a future
date.
Hybrid financial instruments are contracts that
simultaneously include a non-derivative host contract
together with a derivative, known as an embedded
derivative, that is not separately transferable and has the
effect that some of the cash flows of the hybrid contract
vary in a way similar to a stand-alone derivative.
Compound financial instruments are contracts that
simultaneously create for their issuer a financial liability and
an own equity instrument (such as convertible bonds, which
entitle their holders to convert them into equity instruments
of the issuer).
The preference shares contingently convertible into ordinary
shares eligible as Additional Tier 1 capital (“CCPSs”) -
perpetual shares, which may be repurchased by the issuer
in certain circumstances, the interest on which is
discretionary, and would convert into variable number of
newly issued ordinary shares if the capital ratio of the Bank
or its consolidated group falls below a given percentage
(trigger event), as those two terms are defined in the
related issue prospectuses- are recognised for accounting
purposes by the Group as compound instruments. The
liability component reflects the issuer’s obligation to deliver
a variable number of shares and the equity component
reflects the issuer’s discretion in relation to the payment of
the related coupons. In order to effect the initial allocation,
the Group estimates the fair value of the liability as the
amount that would have to be delivered if the trigger event
were to occur immediately and, accordingly, the equity
component, calculated as the residual amount, is zero. In
view of the aforementioned discretionary nature of the
payment of the coupons, they are deducted directly from
equity.
Capital perpetual preference shares (“CPPSs”), with the
possibility of purchase by the issuer in certain
circumstances, whose remuneration is discretionary, and
which will be amortised permanently, totally or partially, in
the event that the bank or its consolidated group submits a
capital ratio lesser than a certain percentage (trigger event),
as defined in the corresponding prospectuses, are
accounted for by the Group as equity instruments.
The following transactions are not treated for accounting
purposes as financial instruments:
• Investments in associates and joint ventures (see
Note 13).
• Rights and obligations under employee benefit plans (see
Note 25).
• Rights and obligations under insurance contracts (see
Note 15).
ii. Classification of financial assets for measurement
purposes
Financial assets are initially classified into the various
categories used for management and measurement
purposes, unless they have to be presented as Non-current
assets held for sale or they relate to Cash, cash balances at
central banks and other deposits on demand, Changes in
the fair value of hedged items in portfolio hedges of interest
rate risk (asset side), Hedging derivatives and Investments,
which are reported separately.
Classification of financial instruments: the classification
criteria for financial assets depends on the business model
for their management and the characteristics of their
contractual flows.
The Group's business models refer to the way in which it
manages its financial assets to generate cash flows. In
defining these models, the Group takes into account the
following factors:
• How key management staff are assessed and reported on
the performance of the business model and the financial
assets held in the business model.
• The risks that affect the performance of the business
model (and the financial assets held in the business
model) and, specifically, the way in which these risks are
managed.
• How business managers are remunerated.
• The frequency and volume of sales in previous years, as
well as expectations of future sales.
The analysis of the characteristics of the contractual flows
of financial assets requires an assessment of the
congruence of these flows with a basic loan agreement. The
Group determines if the contractual cash flows of its
financial assets that are only principal and interest
payments on the outstanding principal amount at the
beginning of the transaction. This analysis takes into
consideration four factors (performance, clauses,
contractually linked products and currencies). Furthermore,
among the most significant judgements used by the Group
in carrying out this analysis, the following ones are
included:
• The return on the financial asset, in particular in cases of
periodic interest rate adjustments where the term of the
reference rate does not coincide with the frequency of the
adjustment. In these cases, an assessment is made to
determine whether or not the contractual cash flows
differ significantly from the flows without this change in
the time value of money, establishing a tolerance level of
2%.
• The contractual clauses that may modify the cash flows
of the financial asset, for which the structure of the cash
flows before and after the activation of such clauses is
analysed.
• Financial assets whose cash flows have different priority
for payment due to a contractual link to underlying assets
(e.g. securitisations) require a look-through analysis by
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the Group so as to review that both the financial asset
and the underlying assets are only principal and interest
payments and that the exposure to credit risk of the set of
underlying assets belonging to the tranche analysed is
less than or equal to the exposure to credit risk of the set
of underlying assets of the instrument.
Depending on these factors, the asset can be measured at
amortised cost, at fair value with changes in other
comprehensive income, or at fair value with changes
through profit and loss. IFRS 9 also establishes an option to
designate an instrument at fair value with changes in profit
or loss, when doing so eliminates or significantly reduces a
measurement or recognition inconsistency (sometimes
referred to as 'accounting asymmetry') that would
otherwise arise from measuring assets or liabilities or
recognising gains and losses on different bases. The Group
uses the following criteria for the classification of financial
debt instruments:
• Amortised cost: financial instruments under a business
model whose objective is to collect principal and interest
flows, over which there is no significant unjustified sales
and fair value is not a key element in the management of
these assets and contractual conditions they give rise to
cash flows on specific dates, which are only payments of
principal and interest on the outstanding principal
amount. In this sense, unjustified sales are considered to
be those other than those related to an increase in the
credit risk of the asset, unanticipated funding needs
(stress case scenarios). Additionally, the characteristics of
its contractual flows represent substantially a “basic
financing agreement”.
• Fair value with changes in other comprehensive income:
financial instruments held in a business model whose
objective is to collect principal and interest cash flows and
the sale of these assets, where fair value is a key factor in
their management. Additionally, the contractual cash
flow characteristics substantially represent a “basic
financing agreement”.
• Fair value with changes in profit or loss: financial
instruments included in a business model whose
objective is not obtained through the above mentioned
models, where fair value is a key factor in managing of
these assets, and financial instruments whose
contractual cash flow characteristics do not substantially
represent a “basic financing agreement”. In this section it
can be enclosed the portfolios classified under “Financial
assets held for trading”, “Non-trading financial assets
mandatorily at fair value through profit or loss” and
“Financial assets at fair value through profit or loss”. In
this regard, the most of the financial assets presented in
the category of "Financial assets designated at value
reasonable with change in results" are instruments
financial services that, not being part of the portfolio of
negotiation, are contracted jointly with other financial
instruments that are recorded in the category of "held for
trading", and that by both are recorded at fair value with
changes in results, so your record in any other category
would produce accounting asymmetries.
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2019 Annual Report
Equity instruments will be classified at fair value under
IFRS 9, with changes in profit or loss, unless the Group
decides, for non-trading assets, to classify them at fair value
with changes in other comprehensive income (irrevocably)
in the initial moment. The Group has generally applied this
option to the equity instruments classified as “Available-
for-sale” at 31 December 2017 under IAS 39. In general, the
Group has applied this option in the case of equity
instruments classified under "Available for Sale" at 31
December 2017 under IAS 39.
Until 31 December 2017, the Group applied IAS 39, under
which the following three categories existed that are not
applicable under IFRS 9 (see Note 1.d):
• Financial assets available-for-sale: this category includes
debt instruments not classified as Held-to-maturity
investments, Loans and receivables or Financial assets at
fair value through profit or loss, and equity instruments
issued by entities other than subsidiaries, associates and
joint ventures, provided that such instruments have not
been classified as Financial assets held for trading or as
Financial assets designated at fair value through profit or
loss.
• Loans and receivables: this category includes the
investment arising from ordinary lending activities, such
as the cash amounts of loans drawn down and not yet
repaid by customers or the deposits placed with other
institutions, whatever the legal instrument, unquoted
debt securities and receivables from the purchasers of
goods, or the users of services, constituting part of the
Group's business.
• Investments held-to-maturity: this category includes debt
instruments with fixed maturity and with fixed or
determinable payments, for which the Group has both
the intention and proven ability to hold to maturity.
iii. Classification of financial assets for presentation
purposes
Financial assets are classified by nature into the following
items in the consolidated balance sheet:
• Cash, cash balances at Central Banks and other deposits
on demand: cash balances and balances receivable on
demand relating to deposits with central banks and credit
institutions.
• Loans and advances: includes the debit balances of all
credit and loans granted by the Group, other than those
represented by securities, as well as finance lease
receivables and other debit balances of a financial nature
in favour of the Group, such as cheques drawn on credit
institutions, balances receivable from clearing houses and
settlement agencies for transactions on the stock
exchange and organised markets, bonds given in cash,
capital calls, fees and commissions receivable for
financial guarantees and debit balances arising from
transactions not originating in banking transactions and
services, such as the collection of rentals and similar
items. They are classified, on the basis of the institutional
sector to which the debtor belongs, into:
– Central banks: credit of any nature, including deposits
and money market transactions received from the Bank
of Spain or other central banks.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
– Credit institutions: credit of any nature, including
deposits and money market transactions, in the name
of credit institutions.
– Customers: includes the remaining credit, including
money market transactions through central
counterparties.
• Debt instruments: bonds and other securities that
represent a debt for their issuer, that generate an interest
return, and that are in the form of certificates or book
entries.
• Equity instruments: financial instruments issued by other
entities, such as shares, which have the nature of equity
instruments for the issuer, other than investments in
subsidiaries, joint ventures or associates. Investment fund
units are included in this item.
• Derivatives: includes the fair value in favour of the Group
of derivatives which do not form part of hedge
accounting, including embedded derivatives separated
from hybrid financial instruments.
• Changes in the fair value of hedged items in portfolio
hedges of interest rate risk: this item is the balancing
entry for the amounts credited to the consolidated
income statement in respect of the measurement of the
portfolios of financial instruments which are effectively
hedged against interest rate risk through fair value
hedging derivatives.
• Hedging derivatives: Includes the fair value in favour of
the Group of derivatives, including embedded derivatives
separated from hybrid financial instruments, designated
as hedging instruments in hedge accounting.
iv. Classification of financial liabilities for measurement
purposes
Financial liabilities are initially classified into the various
categories used for management and measurement
purposes, unless they have to be presented as Liabilities
associated with non-current assets held for sale or they
relate to Hedging derivatives or Changes in the fair value of
hedged items in portfolio hedges of interest rate risk
(liability side), which are reported separately.
IAS 39 financial liabilities classification and measurement
criteria remains substantially unchanged under IFRS 9.
Nevertheless, in most cases, the changes in the fair value of
financial liabilities designated at fair value with changes
recognised through profit or loss for the year, due to the
entity credit risk, are classified under other comprehensive
income.
Financial liabilities are included for measurement purposes
in one of the following categories:
Financial liabilities held for trading (at fair value through
profit or loss): this category includes financial liabilities
incurred for the purpose of generating a profit in the near
term from fluctuations in their prices, financial derivatives
not designated as hedging instruments, and financial
liabilities arising from the outright sale of financial assets
acquired under reverse repurchase agreements (“reverse
repos”) or borrowed (short positions).
• Financial liabilities designated at fair value through profit
or loss: financial liabilities are included in this category
when they provide more relevant information, either
because this eliminates or significantly reduces
recognition or measurement inconsistencies (accounting
mismatches) that would otherwise arise from measuring
assets or liabilities or recognising the gains or losses on
them on different bases, or because a group of financial
liabilities or financial assets and liabilities is managed
and its performance is evaluated on a fair value basis, in
accordance with a documented risk management or
investment strategy, and information about the group is
provided on that basis to the Group’s key management
personnel. Liabilities may only be included in this
category on the date when they are incurred or
originated.
• Financial liabilities at amortised cost: financial liabilities,
irrespective of their instrumentation and maturity, not
included in any of the above-mentioned categories which
arise from the ordinary borrowing activities carried on by
financial institutions.
v. Classification of financial liabilities for presentation
purposes
Financial liabilities are classified by nature into the
following items in the consolidated balance sheet:
• Deposits: includes all repayable balances received in cash
by the Group, other than those instrumented as
marketable securities and those having the substance of
subordinated liabilities (amount of the loans received,
which for credit priority purposes are after common
creditors), except for the debt instruments. This item also
includes cash bonds and cash consignments received the
amount of which may be invested without restriction.
Deposits are classified on the basis of the creditor’s
institutional sector into:
– Central banks: deposits of any nature, including credit
received and money market transactions received from
the Bank of Spain or other central banks.
– Credit institutions: deposits of any nature, including
credit received and money market transactions in the
name of credit institutions.
– Customer: includes the remaining deposits, including
money market transactions through central
counterparties.
• Marketable debt securities: includes the amount of bonds
and other debt represented by marketable securities,
other than those having the substance of subordinated
liabilities (amount of the loans received, which for credit
priority purposes are after common creditors, and
includes the amount of the financial instruments issued
by the Group which, having the legal nature of capital, do
not meet the requirements to qualify as equity, such as
certain preferred shares issued). This item includes the
component that has the consideration of financial liability
of the securities issued that are compound financial
instruments.
• Derivatives: includes the fair value, with a negative
balance for the Group, of derivatives, including embedded
derivatives separated from the host contract, which do
not form part of hedge accounting.
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• Short positions: includes the amount of financial
liabilities arising from the outright sale of financial assets
acquired under reverse repurchase agreements or
borrowed.
• Other financial liabilities: includes the amount of
payment obligations having the nature of financial
liabilities not included in other items (includes, among
others, the balance of lease liabilities that have started to
be recorded in 2019 as a result of the application of IFRS
16), and liabilities under financial guarantee contracts,
unless they have been classified as non-performing.
• Changes in the fair value of hedged items in portfolio
hedges of interest rate risk: this item is the balancing
entry for the amounts charged to the consolidated
income statement in respect of the measurement of the
portfolios of financial instruments which are effectively
hedged against interest rate risk through fair value
hedging derivatives.
• Hedging derivatives: includes the fair value of the Group’s
liability in respect of derivatives, including embedded
derivatives separated from hybrid financial instruments,
designated as hedging instruments in hedge accounting.
d) Measurement of financial assets and liabilities and
recognition of fair value changes
In general, financial assets and liabilities are initially
recognised at fair value which, in the absence of evidence to
the contrary, is deemed to be the transaction price.
In this regard, IFRS 9 states that regular way purchases or
sales of financial assets shall be recognised and
derecognised on the trade date or on the settlement date.
The Group has opted to make such recognition on the
trading date or settlement date, depending on the
convention of each of the markets in which the transactions
are carried out. For example, in relation to the purchase or
sale of debt securities or equity instruments traded in the
Spanish market, securities market regulations stipulate
their effective transfer at the time of settlement and,
therefore, the same time has been established for the
accounting record to be made.
The fair value of instruments not measured at fair value
through profit and loss is adjusted by transaction costs.
Subsequently, and on the occasion of each accounting close,
they are valued in accordance with the following criteria:
i. Measurement of financial assets
Financial assets are measured at fair value are valued
mainly at their fair value without deducting any transaction
cost for their sale.
The fair value of a financial instrument on a given date is
taken to be the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants. The most objective and
common reference for the fair value of a financial
instrument is the price that would be paid for it on an active,
transparent and deep market (quoted price or market price).
At 31 December 2019 there were no significant investments
in quoted financial instruments that had ceased to be
recognised at their quoted price because their market could
not be deemed to be active.
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If there is no market price for a given financial instrument,
its fair value is estimated on the basis of the price
established in recent transactions involving similar
instruments and, in the absence thereof, of valuation
techniques commonly used by the international financial
community, taking into account the specific features of the
instrument to be measured and, particularly, the various
types of risk associated with it.
All derivatives are recognised in the balance sheet at fair
value from the trade date. If the fair value is positive, they
are recognised as an asset and if the fair value is negative,
they are recognised as a liability. The fair value on the trade
date is deemed, in the absence of evidence to the contrary,
to be the transaction price. The changes in the fair value of
derivatives from the trade date are recognised in Gains/
losses on financial assets and liabilities held for trading
(net) in the consolidated income statement. Specifically, the
fair value of financial derivatives traded in organised
markets included in the portfolios of financial assets or
liabilities held for trading is deemed to be their daily quoted
price and if, for exceptional reasons, the quoted price cannot
be determined on a given date, these financial derivatives
are measured using methods similar to those used to
measure OTC derivatives.
The fair value of OTC derivatives is taken to be the sum of
the future cash flows arising from the instrument,
discounted to present value at the date of measurement
(present value or theoretical close) using valuation
techniques commonly used by the financial markets: net
present value (NPV), option pricing models and other
methods.
The amount of debt securities and loans and advances
under a business model whose objective is to collect the
principal and interest flows are valued at their amortised
cost, using the effective interest rate method in their
determination. Amortised cost refers to the acquisition cost
of a corrected financial asset or liability (more or less, as the
case may be) for repayments of principal and the part
systematically charged to the consolidated income
statement of the difference between the initial cost and the
corresponding reimbursement value at expiration. In the
case of financial assets, the amortised cost includes, in
addition, the corrections to their value due to the
impairment. In the loans and advances covered in fair value
hedging transactions, the changes that occur in their fair
value related to the risk or the risks covered in these
hedging transactions are recorded.
The effective interest rate is the discount rate that exactly
matches the carrying amount of a financial instrument to all
its estimated cash flows of all kinds over its remaining life.
For fixed rate financial instruments, the effective interest
rate coincides with the contractual interest rate established
on the acquisition date plus, where applicable, the fees and
transaction costs that, because of their nature, form part of
their financial return. In the case of floating rate financial
instruments, the effective interest rate coincides with the
rate of return prevailing in all connections until the next
benchmark interest reset date.
Equity instruments and contracts related with these
instruments are measured at fair value. However, in certain
circumstances the Group estimates cost value as a suitable
estimate of the fair value. This can happen if the recent
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
event available information is not enough to measure the
fair value or if there is a broad range of possible measures
and the cost value represents the best estimates of fair
value within this range.
The amounts at which the financial assets are recognised
represent, in all material respects, the Group’s maximum
exposure to credit risk at each reporting date. Also, the
Group has received collateral and other credit
enhancements to mitigate its exposure to credit risk, which
consist mainly of mortgage guarantees, cash collateral,
equity instruments and personal security, assets leased out
under finance lease and full-service lease agreements,
assets acquired under repurchase agreements, securities
loans and credit derivatives.
ii. Measurement of financial liabilities
In general, financial liabilities are measured at amortised
cost, as defined above, except for those included under
Financial liabilities held for trading and Financial liabilities
Million euros
designated at fair value through profit or loss and financial
liabilities designated as hedged items (or hedging
instruments) in fair value hedges, which are measured at
fair value. The changes in credit risk arising from financial
liabilities designated at fair value through profit or loss are
recognised in accumulated other comprehensive income,
unless they generate or increase an accounting mismatch,
in which case changes in the fair value of the financial
liability in all respects are recognised in the income
statement.
iii. Valuation techniques
The following table shows a summary of the fair values, at
the end of 2019, 2018 and 2017, of the financial assets and
liabilities indicated below, classified on the basis of the
various measurement methods used by the Group to
determine their fair value:
2019
2018*
2017
Published
price
quotations
in active
markets
(Level 1)
Internal
Models
(Level 2
and 3)
Published
price
quotations
in active
markets
(Level 1)
Internal
Models
(Level 2
and 3)
Total
Published
price
quotations
in active
markets
(Level 1)
Internal
Models
(Level 2
and 3)
Total
Total
Financial assets held for trading
44,581
63,649 108,230
37,108
55,771
92,879
58,215
67,243 125,458
Non-trading financial assets
mandatorily at fair value through
profit or loss
Financial assets designated at fair
value through profit or loss
Financial assets at fair value through
other comprehensive income
Financial assets available-for-sale**
1,530
3,381
4,911
1,835
8,895
10,730
2,572
59,497
62,069
3,102
54,358
57,460
3,823
30,959
34,782
103,089
22,619 125,708
103,590
17,501 121,091
113,258
18,802 132,060
Hedging derivatives (assets)
—
7,216
7,216
—
8,607
8,607
—
8,537
8,537
Financial liabilities held for trading
9,781
67,358
77,139
16,104
54,239
70,343
21,828
85,796 107,624
Financial liabilities designated at fair
value through profit or loss
1,484
59,511
60,995
987
67,071
68,058
769
58,847
59,616
Hedging derivatives (liabilities)
—
6,048
6,048
5
6,358
6,363
8
8,036
8,044
Liabilities under insurance or
reinsurance contracts
—
739
739
—
765
765
—
1,117
1,117
*
**
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
In addition to the financial instruments measured at fair value shown in the foregoing table, at 31 December 2017, the Group held equity instruments classified as
Financial assets available-for-sale and carried at cost amounting to EUR 1,211 million (see Note 51.c).
The financial instruments at fair value determined on the
basis of published price quotations in active markets (Level
1) include government debt securities, private-sector debt
securities, derivatives traded in organised markets,
securitised assets, shares, short positions and fixed-income
securities issued.
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In cases where price quotations cannot be observed,
management makes its best estimate of the price that the
market would set, using its own internal models. In most
cases, these internal models use data based on observable
market parameters as significant inputs (Level 2) and, in
cases, they use significant inputs not observable in market
data (Level 3). In order to make these estimates, various
techniques are employed, including the extrapolation of
observable market data. The best evidence of the fair value
of a financial instrument on initial recognition is the
transaction price, unless the fair value of the instrument can
be obtained from other market transactions performed with
the same or similar instruments or can be measured by
using a valuation technique in which the variables used
include only observable market data, mainly interest rates.
The Group has developed a formal process for the
systematic valuation and management of financial
instruments, which has been implemented worldwide
across all the Group’s units. The governance scheme for this
process distributes responsibilities between two
independent divisions: Treasury (development, marketing
and daily management of financial products and market
data) and Risk (on a periodic basis, validation of pricing
models and market data, computation of risk metrics, new
transaction approval policies, management of market risk
and implementation of fair value adjustment policies).
The approval of new products follows a sequence of steps
(request, development, validation, integration in corporate
systems and quality assurance) before the product is
brought into production. This process ensures that pricing
systems have been properly reviewed and are stable before
they are used.
The following subsections set forth the most important
products and families of derivatives, and the related
valuation techniques and inputs, by asset class:
Fixed income and inflation
The fixed income asset class includes basic instruments
such as interest rate forwards, interest rate swaps and cross
currency swaps, which are valued using the net present
value of the estimated future cash flows discounted taking
into account basis swap and cross currency spreads
determined on the basis of the payment frequency and
currency of each leg of the derivative. Vanilla options,
including caps, floors and swaptions, are priced using the
Black-Scholes model, which is one of the benchmark
industry models. More exotic derivatives are priced using
more complex models which are generally accepted as
standard across institutions.
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These pricing models are fed with observable market data
such as deposit interest rates, futures rates, cross currency
swap and constant maturity swap rates, and basis spreads,
on the basis of which different yield curves, depending on
the payment frequency, and discounting curves are
calculated for each currency. In the case of options, implied
volatilities are also used as model inputs. These volatilities
are observable in the market for cap and floor options and
swaptions, and interpolation and extrapolation of
volatilities from the quoted ranges are carried out using
generally accepted industry models. The pricing of more
exotic derivatives may require the use of non-observable
data or parameters, such as correlation (among interest
rates and cross-asset), mean reversion rates and
prepayment rates, which are usually defined from historical
data or through calibration.
Inflation-related assets include zero-coupon or year-on-
year inflation-linked bonds and swaps, valued with the
present value method using forward estimation and
discounting. Derivatives on inflation indices are priced using
standard or more complex bespoke models, as appropriate.
Valuation inputs of these models consider inflation-linked
swap spreads observable in the market and estimations of
inflation seasonality, on the basis of which a forward
inflation curve is calculated. Also, implied volatilities taken
from zero-coupon and year-on-year inflation options are
also inputs for the pricing of more complex derivatives.
Equity and foreign exchange
The most important products in these asset classes are
forward and futures contracts; they also include vanilla,
listed and OTC (Over-The-Counter) derivatives on single
underlying assets and baskets of assets. Vanilla options are
priced using the standard Black-Scholes model and more
exotic derivatives involving forward returns, average
performance, or digital, barrier or callable features are
priced using generally accepted industry models or bespoke
models, as appropriate. For derivatives on illiquid stocks,
hedging takes into account the liquidity constraints in
models.
The inputs of equity models consider yield curves, spot
prices, dividends, asset funding costs (repo margin spreads),
implied volatilities, correlation among equity stocks and
indices, and cross-asset correlation. Implied volatilities are
obtained from market quotes of European and American-
style vanilla call and put options. Various interpolation and
extrapolation techniques are used to obtain continuous
volatility for illiquid stocks. Dividends are usually estimated
for the mid and long term. Correlations are implied, when
possible, from market quotes of correlation-dependent
products. In all other cases, proxies are used for correlations
between benchmark underlyings or correlations are
obtained from historical data.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The inputs of foreign exchange models include the yield
curve for each currency, the spot foreign exchange rate, the
implied volatilities and the correlation among assets of this
class. Volatilities are obtained from European call and put
options which are quoted in markets as of-the-money, risk
reversal or butterfly options. Illiquid currency pairs are
usually handled by using the data of the liquid pairs from
which the illiquid currency can be derived. For more exotic
products, unobservable model parameters may be
estimated by fitting to reference prices provided by other
non-quoted market sources.
Credit
The most common instrument in this asset class is the credit
default swap (CDS), which is used to hedge credit exposure
to third parties. In addition, models for first-to-default
(FTD), n-to-default (NTD) and single-tranche collateralised
debt obligation (CDO) products are also available. These
products are valued with standard industry models, which
estimate the probability of default of a single issuer (for
CDS) or the joint probability of default of more than one
issuer for FTD, NTD and CDO.
Valuation inputs are the yield curve, the CDS spread curve
and the recovery rate. For indices and important individual
issuers, the CDS spread curve is obtained in the market. For
less liquid issuers, this spread curve is estimated using
proxies or other credit-dependent instruments. Recovery
rates are usually set to standard values. For listed single-
tranche CDO, the correlation of joint default of several
issuers is implied from the market. For FTD, NTD and
bespoke CDO, the correlation is estimated from proxies or
historical data when no other option is available.
Valuation adjustment for counterparty risk or default risk
The Credit valuation adjustment (CVA) is a valuation
adjustment to OTC derivatives as a result of the risk
associated with the credit exposure assumed to each
counterparty.
The CVA is calculated taking into account potential exposure
to each counterparty in each future period. The CVA for a
specific counterparty is equal to the sum of the CVA for all the
periods. The following inputs are used to calculate the CVA:
• Expected exposure: including for each transaction the
mark-to-market (MtM) value plus an add-on for the
potential future exposure for each period. Mitigating
factors such as collateral and netting agreements are
taken into account, as well as a temporary impairment
factor for derivatives with interim payments.
• Loss Given Default: percentage of final loss assumed in a
counterparty credit event/default.
• Probability of default: for cases where there is no market
information (the CDS quoted spread curve, etc.), proxies
based on companies holding exchange-listed CDS, in the
same industry and with the same external rating as the
counterparty, are used.
• Discount factor curve.
The Debit Valuation Adjustment (DVA) is a valuation
adjustment similar to the CVA but, in this case, it arises as a
result of the Group’s own risk assumed by its counterparties
in OTC derivatives.
The CVA at 31 December 2019 amounted to EUR 272
million (resulting in a reduction of 22.5% compared to 31
December 2018) and DVA amounted to EUR 171 million
(resulting in a reduction of 34.6% compared to 31
December 2018). The variations are due to the fact that
credit spreads for the most liquid maturities have been
decreased in percentages over 40%.
The CVA at 31 December 2018 amounted to EUR 351
million (8.8% compared to 31 December 2017) and DVA
amounted EUR 261 million (18.9% compared to 31
December 2018). The changes were due to the increase in
credit spreads of more than 30% in the most liquid terms.
The CVA at 31 December 2017 amounted to EUR 323
million (decrease of 50% compared to 31 December 2016)
and DVA amounted EUR 220 million (decrease of 44%
compared to 31 December 2016). The decrease was due to
the fact that credit spreads were reduced by more than 40%
in the most liquid terms and to reductions in the exposure
of the main counterparties.
In addition, the Group amounts the funding fair value
adjustment (FFVA) is calculated by applying future market
funding spreads to the expected future funding exposure of
any uncollateralised component of the OTC derivative
portfolio. This includes the uncollateralised component of
collateralised derivatives in addition to derivatives that are
fully uncollateralised. The expected future funding
exposure is calculated by a simulation methodology, where
available. The FFVA impact is not material for the
consolidated financial statements as of 31 December 2019,
2018 and 2017.
As a result of the first application of IFRS 9, the exposure at
1 January, 2018, in level 3 financial instruments, increased
by EUR 2,183 million, mainly for loans and receivables,
arising from new requirements regarding the classification
and measurement of amortised cost items at other fair
value items whose value is calculated using unobservable
market inputs (see Note 1.d).
The Group has not carried out significant reclassifications of
financial instruments between levels other than those
disclosed in level 3 movement table during 2019, 2018 and
2017.
In 2019, the Group has reclassified financial instruments
amounting to EUR 708 million (net) between levels 2 and 3
(mainly due to the reclassifications to level 2 of positions,
both derivatives and debt instruments, with maturities for
which are already observable valuation inputs or for which
new sources of recurring prices have been accessed; and to
level 3 of certain government bonds in Brazil which, based
on the Group's observability criteria, do not meet the
requirements to be considered as observable inputs).
In 2018, the Group reclassified the market value of certain
transactions of bonds, long-term repos and derivatives for
approximately EUR 1,300 million, due to the lack of liquidity
in certain significant inputs used in the calculation of the fair
value, and no significant transfers were made to level 3 in
2017.
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Valuation adjustments due to model risk
The valuation models described above do not involve a
significant level of subjectivity, since they can be adjusted
and recalibrated, where appropriate, through internal
calculation of the fair value and subsequent comparison
with the related actively traded price. However, valuation
adjustments may be necessary when market quoted prices
are not available for comparison purposes.
The sources of risk are associated with uncertain model
parameters, illiquid underlying issuers, and poor quality
market data or missing risk factors (sometimes the best
available option is to use limited models with controllable
risk). In these situations, the Group calculates and applies
valuation adjustments in accordance with common industry
practice. The main sources of model risk are described
below:
• In the fixed income markets, the sources of model risk
include bond index correlations, basis spread modelling,
the risk of calibrating model parameters and the
treatment of near-zero or negative interest rates. Other
sources of risk arise from the estimation of market data,
such as volatilities or yield curves, whether used for
estimation or cash flow discounting purposes.
• In the equity markets, the sources of model risk include
forward skew modelling, the impact of stochastic interest
rates, correlation and multi-curve modelling. Other
sources of risk arise from managing hedges of digital
callable and barrier option payments. Also worthy of
consideration as sources of risk are the estimation of
market data such as dividends and correlation for quanto
and composite basket options.
• For specific financial instruments relating to home
mortgage loans secured by financial institutions in the UK
(which are regulated and partially financed by the
Government) and property asset derivatives, the main
input is the Halifax House Price Index (HPI). In these
cases, risk assumptions include estimations of the future
growth and the volatility of the HPI, the mortality rate
and the implied credit spreads.
• Inflation markets are exposed to model risk resulting
from uncertainty around modelling the correlation
structure among various CPI rates. Another source of risk
may arise from the bid-offer spread of inflation-linked
swaps.
• The currency markets are exposed to model risk resulting
from forward skew modelling and the impact of
stochastic interest rate and correlation modelling for
multi-asset instruments. Risk may also arise from market
data, due to the existence of specific illiquid foreign
exchange pairs.
• The most important source of model risk for credit
derivatives relates to the estimation of the correlation
between the probabilities of default of different
underlying issuers. For illiquid underlying issuers, the
CDS spread may not be well defined.
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Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Set forth below are the financial instruments at fair value
whose measurement was based on internal models (Levels
2 and 3) at 31 December 2019, 2018 and 2017:
Million euros
Fair values calculated
using internal models at
2019**
Level 2
Level 3
Valuation techniques
Main assumptions
ASSETS:
Financial assets held for trading
149,711
63,051
6,651
598
Credit institutions
Customers***
Debt and equity instruments
Derivatives
Swaps
—
355
760
61,936
51,594
— Present value method
Yield curves, FX market prices
— Present value method
Yield curves, FX market prices
65 Present value method
Yield curves, FX market prices
533
182 Present value method,
Gaussian Copula****
Yield curves, FX market prices, HPI,
Basis, Liquidity
Exchange rate options
469
8 Black-Scholes Model
Interest rate options
3,073
177 Black's Model,
multifactorial advanced
models interest rate
Yield curves, Volatility surfaces, FX
market prices, Liquidity
Yield curves, Volatility surfaces, FX
market prices, Liquidity
Interest rate futures
Index and securities options
190
1,164
— Present value method
Yield curves, FX market prices
95 Black's Model,
multifactorial advanced
models interest rate
Yield curves, Volatility surfaces, FX & EQ
market prices, Dividends, Liquidity
Other
5,446
71 Present value method,
Advanced stochastic
volatility models and other Correlation, HPI, Credit, Others
Yield curves, Volatility surfaces, FX and
EQ market prices, Dividends,
Hedging derivatives
Swaps
Interest rate options
Other
7,216
6,485
25
—
— Present value method
Yield curves, FX market prices, Basis
— Black's Model
Yield curves, FX market prices, Volatility
surfaces
Yield curves, Volatility surfaces, FX
market prices, Credit, Liquidity, Others
706
— Present value method,
Advanced stochastic
volatility models and other
Non-trading financial assets mandatorily at
fair value through profit or loss
1,780
1,601
Equity instruments
1,272
550
Present value method
Market price, Interest rates curves,
Dividends and Others
Debt instruments
Loans and receivables***
498
10
675
Present value method
Interest rates curves
376 Present value method,
Interest rates curves and Credit curves
swap asset model & CDS
Financial assets designated at fair value
through profit or loss
58,833
664
Central banks
Credit institutions
Customers
Debt instruments
6,474
21,598
30,729
— Present value method
Interest rates curves, FX market prices
50 Present value method
Interest rates curves, FX market prices
32 Present value method
Interest rates curves, FX market prices,
HPI
32
582 Present value method
Interest rates curves, FX market prices
Financial assets at fair value through other
comprehensive income
18,831
3,788
Equity instruments
98
407 Present value method
Market price, Interest rates curves,
Dividends and Others
Debt instruments
Loans and receivables
17,486
188 Present value method
Interest rates curves, FX market prices
1,247
3,193 Present value method
Interest rates curves, FX market prices
and Credit curves
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Table of Contents
Million euros
Fair values calculated
using internal models at
2019**
Level 2
Level 3
Valuation techniques
Main assumptions
LIABILITIES
Financial liabilities held for trading
132,582
67,068
1,074
290
Central banks
Credit institutions
Customers
Derivatives
Swaps
—
—
—
61,789
49,927
— Present value method
Yield curves, FX market prices
— Present value method
Yield curves, FX market prices
— Present value method
Yield curves, FX market prices
290
115 Present value method,
Gaussian Copula****
Yield curves, FX market prices,
Basis, Liquidity, HPI
Exchange rate options
658
1 Black-Scholes Model
Interest rate options
4,291
34 Black's Model,
multifactorial advanced
models interest rate
Yield curves, Volatility surfaces, FX
market prices, Liquidity
Yield curves, Volatility surfaces, FX
market prices, Liquidity
Index and securities options
Interest rate and equity futures
1,309
20
88 Black-Scholes Model
Yield curves, FX market prices
2 Present value method
Other
5,584
50 Present value method,
Advanced stochastic
volatility models
Short positions
Hedging derivatives
Swaps
5,279
6,048
4,737
— Present value method
—
— Present value method
Interest rate options
10
— Black's Model
Other
1,301
— Present value method,
Advanced stochastic
volatility models and
other
Yield curves, Volatility surfaces, FX
& EQ market prices, Dividends,
Correlation, Liquidity, HPI, Credit,
Others
Yield curves, Volatility surfaces, FX
& EQ market prices, Dividends,
Correlation, Liquidity, HPI, Credit,
Others
Yield curves ,FX & EQ market prices,
Equity
Yield curves ,FX & EQ market prices,
Basis
Yield curves , Volatility surfaces, FX
market prices, Liquidity
Yield curves , Volatility surfaces, FX
market prices, Credit, Liquidity,
Other
Financial liabilities designated at fair value
through profit or loss
58,727
784 Present value method
Yield curves, FX market prices
Liabilities under insurance contracts
739
Present Value Method
with actuarial techniques
Mortality tables and interest rate
curves
—
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
ASSETS:
Financial assets held for trading
Credit institutions
Customers***
Debt and equity instruments
Derivatives
Swaps
Exchange rate options
Interest rate options
Interest rate futures
Index and securities options
Other
Hedging derivatives
Swaps
Interest rate options
Other
Non-trading financial assets
mandatorily at fair value through
profit or loss
Equity instruments
Debt instruments
Loans and receivables***
Financial assets designated at fair
value through profit or loss
Central banks
Credit institutions
Customers*****
Debt instruments
Debt and equity instruments
Financial assets at fair value through
other comprehensive income
Equity instruments
Debt instruments
Loans and receivables
Financial assets available-for-sale
Debt and equity instruments
Fair values calculated
using internal models at
Fair values calculated
using internal models at
2018* **
2017**
Level 2
140,659
55,033
—
205
314
54,514
44,423
617
3,778
—
1,118
4,578
8,586
7,704
20
862
7,492
985
5,085
1,422
53,482
9,226
22,897
21,355
4
16,066
455
14,699
912
Level 3
4,473
738
—
—
153
585
185
2
149
—
198
51
21
21
—
—
1,403
462
481
460
876
—
201
560
115
1,435
581
165
689
Level 2
Level 3 Valuation techniques
124,178
66,806
1,696
8,815
335
1,363
437
— Present value method
— Present value method
32 Present value method
55,960
405
44,766
463
4,747
2
1,257
4,725
8,519
7,896
13
610
Present value method, Gaussian
189 Copula****
5 Black-Scholes Model
Black's Model, Heath-Jarrow- Morton
162 Model
— Present value method
5 Black-Scholes Model
Present value method, Monte Carlo
simulation and others
44
18
18 Present value method
— Black’s Model
— N/A
Present value method
Present value method
Present value method, swap asset model
& CDS
30,677
282
9,889
20,403
— Present value method
72 Present value method
Present value method
385
210 Present value method
Present value method
Present value method
Present value method
18,176
18,176
626
626 Present value method
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Million euros
LIABILITIES:
Financial liabilities held for trading
Central banks
Credit institutions
Customers
Derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Interest rate and equity futures
Other
Short positions
Hedging derivatives
Swaps
Interest rate options
Other
Fair values calculated
using internal models at
Fair values calculated
using internal models at
2018* **
2017* **
Level 2
Level 3
Level 2
Level 3 Valuation techniques
127,991
53,950
—
—
—
53,950
43,489
610
4,411
1,233
7
4,200
—
6,352
5,868
158
326
442
289
—
—
—
289
111
7
26
143
—
2
—
6
6
—
—
153,600
85,614
282
292
28,179
56,860
45,041
497
5,402
1,527
1
4,392
1
8,029
7,573
287
169
196
182
— Present value method
— Present value method
— Present value method
182
Present value method, Gaussian
100 Copula****
9 Black-Scholes Model
Black's Model, Heath-Jarrow-
Morton Model
19
41 Black-Scholes Model
— Present value method
Present value method, Monte
13 Carlo simulation and others
— Present value method
7
7 Present value method
— Black’s Model
— N/A
Financial liabilities designated at fair value
through profit or loss
66,924
147
58,840
7 Present value method
Liabilities under insurance contracts
765
—
1,117
Present value method with
— actuarial techniques
*
**
***
****
*****
See reconciliation of IAS 39 as of 31 December 2017 as of 1 January 2018 (see Note 1.d).
Level 2 internal models use data based on observable market parameters, while level 3 internal models use significant non-observable inputs in market data.
Includes mainly short-term loans and reverse repurchase agreements with corporate customers (mainly brokerage and investment companies).
Includes credit risk derivatives with a net fair value of EUR -6 million at 31 December 2019 (31 December 2018 and 2017: net fair value of EUR 0 million and EUR
0 million, respectively). These assets and liabilities are measured using the Standard Gaussian Copula Model.
Includes home mortgage loans to financial institutions in the UK (which are regulated and partly financed by the Government). The fair value of these loans was
obtained using observable market variables, including current market transactions with similar amounts and collateral facilitated by the UK Housing Association.
Since the Government is involved in these financial institutions, the credit risk spreads have remained stable and are homogeneous in this sector. The results
arising from the valuation model are checked against current market transactions.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Level 3 financial instruments
Set forth below are the Group’s main financial instruments
measured using unobservable market data as significant
inputs of the internal models (Level 3):
• Instruments in Santander UK’s portfolio (loans, debt
instruments and derivatives) linked to the House Price
Index (HPI). Even if the valuation techniques used for
these instruments may be the same as those used to
value similar products (present value in the case of loans
and debt instruments, and the Black-Scholes model for
derivatives), the main factors used in the valuation of
these instruments are the HPI spot rate, the growth and
volatility thereof, and the mortality rates, which are not
always observable in the market and, accordingly, these
instruments are considered illiquid.
– HPI spot rate: for some instruments the NSA HPI spot
rate, which is directly observable and published on
a monthly basis, is used. For other instruments where
regional HPI rates must be used (published quarterly),
adjustments are made to reflect the different
composition of the rates and adapt them to the
regional composition of Santander UK’s portfolio.
– HPI growth rate: this is not always directly observable
in the market, especially for long maturities, and is
estimated in accordance with existing quoted prices. To
reflect the uncertainty implicit in these estimates,
adjustments are made based on an analysis of the
historical volatility of the HPI, incorporating reversion
to the mean.
– HPI volatility: the long-term volatility is not directly
observable in the market but is estimated on the basis
of shorter-term quoted prices and by making an
adjustment to reflect the existing uncertainty, based on
the standard deviation of historical volatility over
various time periods.
– Mortality rates: these are based on published official
tables and adjusted to reflect the composition of the
customer portfolio for this type of product at Santander
UK.
• Callable interest rate derivatives (Bermudan-style
options) where the main unobservable input is mean
reversion of interest rates.
• Trading derivatives on interest rates, taking as an
underlying asset titling and with the amortization rate
(CPR, Conditional prepayment rate) as unobservable main
entry.
• Derivatives from trading on inflation in Spain, where
volatility is not observable in the market.
• Derivatives on volatility of long-term interest rates (more
than 30 years) where volatility is not observable in the
market at the indicated term.
• Equity volatility derivatives, specifically indices and
equities, where volatility is not observable in the long
term.
• HTC&S (Hold to collect and sale) syndicated loans
classified in the fair value category with changes in other
comprehensive income, where the cost of liquidity is not
directly observable in the market, as well as the
prepayment option in favour of the borrower.
The measurements obtained using the internal models
might have been different if other methods or assumptions
had been used with respect to interest rate risk, to credit
risk, market risk and foreign currency risk spreads, or to
their related correlations and volatilities. Nevertheless, the
Bank’s directors consider that the fair value of the financial
assets and liabilities recognised in the consolidated balance
sheet and the gains and losses arising from these financial
instruments are reasonable.
The net amount recognised in profit and loss in 2019 arising
from models whose significant inputs are unobservable
market data (Level 3) amounted to EUR 185 million profit
(EUR 10 million profit in 2018 and EUR 116 million loss in
2017).
The table below shows the effect, at 31 December 2019 on
the fair value of the main financial instruments classified as
Level 3 of a reasonable change in the assumptions used in
the valuation. This effect was determined by applying the
probable valuation ranges of the main unobservable inputs
detailed in the following table:
525
Table of Contents
Portfolio/
Instrument
(Level 3)
Valuation technique
Main unobservable inputs
Range
Financial assets
held for trading
Trading
derivatives
Present value model
Curves on TAB indexes*
Present value model,
modified Black
Scholes
HPI forward growth rate
HPI spot
Interest rate curve, FX
market prices
CPR
Caps/Floors
Black Model
Cross Currency
Swaps
Forward estimation
Quanto options
Interest Rate
Swaps
Local term volatility
and reference strike
under the partial
differential equation
method.
Forward Estimation
Interest Rate
Swaps
Forward Estimation
No interest rate curve observable in the
market. It is valued with the MXNTIIE28 swap
curve and an FVA is calculated based on the
differential between the corresponding
fixings.
- No interest rate curve observable in the
market. It is valued with the MXNTIIE28 swap
curve and an FVA is calculated based on the
differential between the corresponding
fixings.
-MXN long term fees
No market volatility, a proxy is used
This is a Balance Guaranteed Swap, which, as
it did not have the appropriate valuation
model, was completely covered Back-to-Back
(both IRS clauses contain the same conditions
for repayments)
- No interest rate curve observable in the
market. It is valued with the MXNTIIE28 swap
curve and an FVA is calculated based on the
differential between the corresponding
fixings.
-MXN long term fees
Impacts (Million euros)
Weighted
average
Unfavourable
scenario
Favorable
scenario
(0.2)
0.2
(23.8)
23.1
(8.5)
(163.2)
8.5
84.4
0.2
2.1
(0.4)
0.4
a
2.5%
785.87**
n/a
(13bp)
TIIE91 -13bp
IRS TIIE 6bp
X-CCY MXN/
USD 7bp
Swaps UDI/
MXN 13bp
Beta 65%
—
—
a
0%-5%
n/a
n/a
MXNTIIE28 curve +
(-25bp, -2bp)
MXNTIIE91 Curve =
MXNTIIE28 Curve +
(-25bp, -2bp)
Bid Offer Spread
IRS TIIE 2bp - 10bp
X-CCY USD/MXN 3bp -
10bp
Swaps UDI/MXN 5bp -
20bp
Beta vs Volatility
Surface STOXX50E
69%-62%
n/a
n/a
—
—
(0.6)
1.7
'MXNTIIE91 Curve =
MXNTIIE28 Curve +
(-25bp, -2bp)
Bid Offer Spread
IRS TIIE 2bp - 10bp
X-CCY USD/MXN 3bp -
10bp
Swaps UDI/MXN 5bp -
20bp
'TIIE91 -13bp
IRS TIIE 6bp
X-CCY MXN/
USD 7bp
Swaps UDI/
MXN 13bp
Financial assets
at fair value
through other
comprehensive
income
Debt instruments
and equity
holdings
Loans and
advances to
customers
Present value method,
others
Contingencies for litigation
0 - 100%
22%
(26.5)
7.3
Present value method,
others
Late payment and prepayment rate capital
cost, long-term profit growth rate
Present value method,
others
Interest Rate Curves,
FX Market Prices
and Credit Curves
a
a
a
a
(11.4)
11.4
(2.2)
2.2
Local volatility
Long term volatility
n/a
34%
244.9
(313.8)
Estimation of default
probabilities from
credit curves
CDS curves, generic curves are used
CDS Spread (24bp,
55bp)
35.63 spread
(26.6)
—
526
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Non-trading
financial assets
mandatorily at
fair value
through profit or
loss
Credit to
customers
Debt instruments
and equity
instruments
HPI forward growth rate
0%-5%
2.7%
(6.6)
5.8
Weighted average by
probability (according
to forecast mortality
rates) of European HPI
options, using the
Black-Scholes model
HPI spot
TD Black
Spain volatility
Asset Swap and CDS
Model
Model - Interest Rate
Curves and Credit
Cvx. Adj (SLN)
Long term volatility
Present Value Model,
others
Credit Spreads
n/a
n/a
n/a
n/a
0.2%-1.6%
785.87**
(7.7)
7.7
4.7%
7.7%
8.0%
1.0%
2.2
(11.5)
(19.8)
4.4
(121.2)
105.1
0.1
(0.1)
Financial
liabilities held
for trading
Trading
derivatives
Present value method,
modifed Black-
Scholes Model
HPI forward growth rate
0%-5%
2.4%
(7.3)
6.8
HPI spot
Equity Linked Deposits Basis Risk
Discounted flows
denominated in
different currencies
Curves on TAB indexes*
This is a Balance Guaranteed Swap, which, as
it did not have the appropriate valuation
model, was completely covered Back-to-Back
(both IRS clauses contain the same conditions
for repayments)
n/a
1.5% -2%
a
n/a
765.38**
0.50%
a
n/a
Discounted flows
denominated in
different currencies
No interest rate curve observable in the
market. It is valued with the MXNTIIE28 swap
curve and an FVA is calculated*
MXNTIIE28 Curve
+ (-20bp, 9.5bp)
(5bp)
(4.3)
(6.8)
—
—
4.9
0.8
—
—
—
0.1
Hedging
derivatives
(liabilities)
Hedging
derivatives
Correlation between the price of shares
Advanced models of
local and stochastic
volatility
Advanced multi-factor Mean reversion of interest rates
interest rates models
55%-75%
65%
n/a
n/a
0.0001-0.03
0.01***
—
b
—
b
—
Financial
liabilities
designated at fair
value through
profit or loss
—
—
—
Customer
deposits
Flow Discounting
Method
Curve specified by the local regulator
Curve (IGPM + 6%) +
100bps
Curve (IGPM +
6%) + 100bps
(37.0)
37.0
*
**
TAB: “Tasa Activa Bancaria” (Active Bank Rate). Average interest rates on 30, 90, 180 and 360-day deposits published by the Chilean Association of Banks and
Financial Institutions (ABIF) in nominal currency (Chilean peso) and in real terms, adjusted for inflation (in Chilean unit of account (Unidad de Fomento - UF)).
There are national and regional HPIs. The HPI spot value is the weighted average of the indices that correspond to the positions of each portfolio. The impact
reported is in response to a 10% shift.
*** Theoretical average value of the parameter. The change made for the favourable scenario is from 0.0001 to 0.03. An unfavourable scenario was not considered as
a.
b.
there was no margin for downward movement from the parameter’s current level.
The exercise was performed for the unobservable inputs described in the column "Main unobservable inputs" under probable scenarios. The weighted average
range and value used is not shown because this exercise has been carried out jointly for different inputs or variants of them (for example, the TAB input are vector-
term curves, for which there are also nominal and indexed curves to inflation), it is not possible to break down the result in an isolated manner by type of input. In
the case of the TAB curve, the result is reported before movements of +/ 100 b.p. for the joint sensitivity of this index in CLP (Chilean peso) and UF. The same applies
for interest rates in MXN (Mexican peso).
The Group calculates the potential impact on the measurement of each instrument on a joint basis, regardless of whether the individual value is positive (assets) or
negative (liabilities), and discloses the joint effect associated with the related instruments classified on the asset side of the consolidated balance sheet.
Note: Null impacts in Quanto options arise because the position is completely covered back-to-back.
527
Table of Contents
Lastly, the changes in the financial instruments classified as
Level 3 in 2019, 2018 and 2017 were as follows:
2018
Fair value
calculated
using
internal
models Purchases/
(Level 3)
Sales/
Issuances Settlements
738
153
585
185
2
149
198
51
21
21
876
201
560
115
1,403
460
481
462
1,435
4,473
289
289
111
7
26
143
—
2
6
6
147
442
142
34
108
10
—
—
48
50
—
—
55
—
20
35
426
126
199
101
(80)
(38)
(42)
(14)
—
(5)
(18)
(5)
—
—
(16)
—
(9)
(7)
(325)
(252)
(7)
(66)
4,424
5,047
(1,698)
(2,119)
136
136
6
1
—
79
3
47
—
—
298
434
(12)
(12)
(5)
—
—
(7)
—
—
—
—
(5)
(17)
Million euros
Financial assets held for trading
Debt instruments and equity
instruments
Trading derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Other
Hedging derivatives (Assets)
Swaps
Financial assets at fair value
through profit or loss
Credit entities
Loans and advances to customers
Debt instruments
Non-trading financial assets
mandatorily at fair value through
profit or loss
Loans and advances to customers
Debt instruments
Equity instruments
Financial assets at fair value
through other comprehensive
income
TOTAL ASSETS
Financial liabilities held for trading
Trading derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Securities and interest rate futures
Others
Hedging derivatives (Liabilities)
Swaps
Financial liabilities designated at
fair value through profit or loss
TOTAL LIABILITIES
528
2019 Annual Report
Changes
Changes in
fair value Changes in
fair value
recognised
recognised
in profit or
loss
Level
in equity reclassifications Other
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(317) —
(88) —
(229) —
(20)
—
—
(182)
(27)
(1)
—
—
(1)
2
(21) —
(21) —
(261)
(55)
(151) —
(496)
(42)
386
(13)
—
—
—
—
16
21
12
(17)
(190)
(190)
(252)
(851)
69
30
115
4
111
22
6
33
50
—
—
—
65
—
(1)
66
81
21
(10)
70
—
261
45
45
(17)
—
8
51
—
3
—
—
31
76
—
—
—
—
—
—
—
—
—
—
—
—
(164)
(164)
20
(4)
(4)
—
(7) —
—
—
(177)
—
—
(1)
(1)
(2)
(6) —
(6) —
313
143
—
(4)
784
1,074
2019
Fair value
calculated
using
internal
models
(Level 3)
598
65
533
182
8
177
95
71
—
—
664
50
32
582
1,601
376
675
550
3,788
6,651
290
290
115
1
34
88
2
50
—
—
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
2017
Fair value
calculated
using
internal
models
(Level 3)
Purchases/
Issuances
Sales/
Settlements
Changes in
fair value
recognised
in profit or
loss
Changes in
fair value
recognised
in equity
Level
reclassifications Other
2018*
Fair value
calculated
using
internal
models
(Level 3)
Million euros
Financial assets held for trading
Debt instruments and equity
instruments
Trading derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Other
Hedging derivatives (Assets)
Swaps
Financial assets designated at fair
value through profit or loss
Credit entities
Loans and advances to customers
Debt instruments
Non-trading financial assets
mandatorily at fair value through
profit or loss
Loans and advances to customers
Debt instruments
Equity instruments
Financial assets at fair value
through other comprehensive
income
TOTAL ASSETS
Financial liabilities held for
trading
Trading derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Other
Hedging derivatives (Liabilities)
Swaps
Financial liabilities designated at
fair value through profit or loss
TOTAL LIABILITIES
437
32
405
189
5
162
5
44
18
18
—
—
—
—
1,365
465
518
382
1,726
3,546
182
182
100
9
19
41
13
7
7
7
196
85
22
63
—
—
—
41
22
—
—
105
—
105
66
56
—
10
162
418
41
41
—
—
—
41
—
—
140
181
(60)
(40)
(20)
(8)
—
(3)
(1)
(8)
—
—
—
—
—
—
(35)
(22)
(7)
(6)
(238)
(333)
(95)
(95)
(7)
—
(1)
(87)
—
—
—
—
(95)
(16)
2
(18)
4
(2)
(16)
(35)
31
3
3
19
(1)
6
14
12
20
(29)
21
—
18
9
9
(7)
(2)
(1)
25
(6)
(1)
(1)
—
8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
312
(20)
141
171
(4)
(16)
4
—
8
195
(36)
—
—
699
202
497
—
(4)
(1)
(2)
(7)
(2)
—
—
53
—
57
(4)
31
—
1
30
(36)
(59)
(2)
25
(269)
(269)
147
1,189
(93)
(96)
—
—
—
—
—
—
—
—
—
—
—
161
161
28
—
10
(9)
(9)
(3)
—
(1)
128
(5)
(5) —
—
—
—
161
—
—
—
(9)
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note1.d).
738
153
585
185
2
149
198
51
21
21
876
201
560
115
1,403
460
481
462
1,435
4,473
289
289
111
7
26
143
2
6
6
147
442
529
Changes
Changes in
Purchases/
Issuances
Sales/
Settlements
fair value Changes in
fair value
recognised
recognised
in profit or
loss
in equity reclassifications Other
Level
2017
Fair value
calculated
using
internal
models
(Level 3)
437
32
405
189
5
162
5
44
18
18
282
72
199
11
626
200
—
200
200
—
—
—
—
—
—
—
—
—
—
1
—
1
(2)
—
—
(2)
5
—
—
(14)
(3)
(10)
(1)
(6) 160
194
147
1,363
126
126
126
—
—
—
—
—
—
—
126
(5)
(5)
(1)
(1)
—
(2)
(1)
—
—
(1)
(6)
182
182
100
9
19
41
13
7
7
7
196
45
—
45
1
5
—
—
39
—
—
—
—
—
—
1
46
33
33
—
21
—
—
12
—
—
—
33
(21)
(7)
(14)
(6)
—
—
(1)
(7)
(2)
(2)
(9)
(2)
(7)
—
(244)
(276)
(3)
(3)
—
—
—
(3)
—
—
—
—
(3)
(129)
(1)
(128)
(59)
(2)
(11)
(18)
(38)
(7)
(7)
(20)
3
(21)
(2)
—
(156)
(38)
(38)
(26)
(11)
(2)
—
1
(2)
(2)
—
(40)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
59
59
—
—
—
—
—
—
—
—
—
—
—
Table of Contents
2016
Fair value
calculated
using
internal
models
(Level 3)
341
40
301
55
2
173
26
45
27
27
325
74
237
14
656
Million euros
Financial assets held for trading
Debt and equity instruments
Derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Other
Hedging derivatives (Assets)
Swaps
Financial assets designated at fair
value through profit or loss
Loans and advances to customers
Debt instruments
Equity instruments
Financial assets available-for-sale
TOTAL ASSETS
1,349
Financial liabilities held for trading
Derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Other
Hedging derivatives (Liabilities)
Swaps
Financial liabilities designated at
fair value through profit or loss
TOTAL LIABILITIES
69
69
1
—
21
46
1
9
9
8
86
530
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
iv. Recognition of fair value changes
As a general rule, changes in the carrying amount of
financial assets and liabilities are recognised in the
consolidated income statement. A distinction is made
between the changes resulting from the accrual of interest
and similar items, (which are recognised under Interest
income or Interest expense, as appropriate), and those
arising for other reasons, which are recognised at their net
amount under Gains/losses on financial assets and
liabilities.
Adjustments due to changes in fair value arising from:
• Financial assets at fair value with changes in other
comprehensive income are recorded temporarily, in the
case of debt instruments in other comprehensive income
- Elements that can be reclassified to profit or loss -
Financial assets at fair value with changes in other
comprehensive income, while in the case of equity
instruments are recorded in other comprehensive income
- Elements that will not be reclassified to line item -
Changes in the fair value of equity instruments valued at
fair value with changes in other comprehensive income.
Exchange differences on debt instruments measured at
fair value with changes in other comprehensive income
are recognised under Exchange Differences, net of the
consolidated income statement. Exchange differences on
equity instruments, in which the irrevocable option of
being measured at fair value with changes in other
comprehensive income has been chosen, are recognised
in Other comprehensive income - Items that will not be
reclassified to profit or loss - Changes in the fair value of
equity instruments measured at fair value with changes
in other comprehensive income.
• Items charged or credited to Items that may be
reclassified to profit or loss – Financial assets at fair value
through other comprehensive income and Other
comprehensive income – Items that may be reclassified
to profit or loss – Exchange differences in equity remain in
the Group's consolidated equity until the asset giving rise
to them is impaired or derecognised, at which time they
are recognised in the consolidated income statement.
• Unrealised gains on Financial assets classified as Non-
current assets held for sale because they form part of a
disposal group or a discontinued operation are recognised
in Other comprehensive income under Items that may be
reclassified to profit or loss – Non-current assets held for
sale.
v. Hedging transactions
The consolidated entities use financial derivatives for the
following purposes: i) to facilitate these instruments to
customers who request them in the management of their
market and credit risks; ii) to use these derivatives in the
management of the risks of the Group entities’ own
positions and assets and liabilities (hedging derivatives);
and iii) to obtain gains from changes in the prices of these
derivatives (derivatives).
Financial derivatives that do not qualify for hedge
accounting are treated for accounting purposes as trading
derivatives.
A derivative qualifies for hedge accounting if all the
following conditions are met:
1. The derivative hedges one of the following three types of
exposure:
a. Changes in the fair value of assets and liabilities due to
fluctuations, among others, in the interest rate and/or
exchange rate to which the position or balance to be
hedged is subject (fair value hedge);
b. Changes in the estimated cash flows arising from
financial assets and liabilities, commitments and
highly probable forecast transactions (cash flow
hedge);
c. The net investment in a foreign operation (hedge of a
net investment in a foreign operation).
2. It is effective in offsetting exposure inherent in the
hedged item or position throughout the expected term of
the hedge, which means that:
a. At the date of arrangement the hedge is expected,
under normal conditions, to be highly effective
(prospective effectiveness).
b. There is sufficient evidence that the hedge was actually
effective during the whole life of the hedged item or
position (retrospective effectiveness). To this end, the
Group checks that the results of the hedge were within
a range of 80% to 125% of the results of the hedged
item.
3. There must be adequate documentation evidencing the
specific designation of the financial derivative to hedge
certain balances or transactions and how this hedge was
expected to be achieved and measured, provided that this
is consistent with the Group’s management of own risks.
The changes in value of financial instruments qualifying
for hedge accounting are recognised as follows:
a. In fair value hedges, the gains or losses arising on both
the hedging instruments and the hedged items
attributable to the type of risk being hedged are
recognised directly in the consolidated income
statement.
In fair value hedges of interest rate risk on a portfolio of
financial instruments, the gains or losses that arise on
measuring the hedging instruments are recognised
directly in the consolidated income statement,
whereas the gains or losses due to changes in the fair
value of the hedged amount (attributable to the
hedged risk) are recognised in the consolidated income
statement with a balancing entry under Changes in the
fair value of hedged items in portfolio hedges of
interest rate risk on the asset or liability side of the
balance sheet, as appropriate.
531
Table of Contents
b. In cash flow hedges, the effective portion of the
change in value of the hedging instrument is
recognised temporarily in Other comprehensive
income – under Items that may be reclassified to profit
or loss – Hedging derivatives – Cash flow hedges
(effective portion) until the forecast transactions occur,
when it is recognised in the consolidated income
statement, unless, if the forecast transactions result in
the recognition of non-financial assets or liabilities, it is
included in the cost of the non-financial asset or
liability.
c. In hedges of a net investment in a foreign operation,
the gains or losses attributable to the portion of the
hedging instruments qualifying as an effective hedge
are recognised temporarily in Other comprehensive
income under Items that may be reclassified to profit or
loss – Hedges of net investments in foreign operations
until the gains or losses – on the hedged item are
recognised in profit or loss.
d. The ineffective portion of the gains or losses on the
hedging instruments of cash flow hedges and hedges
of a net investment in a foreign operation is recognised
directly under Gains/losses on financial assets and
liabilities (net) in the consolidated income statement,
in Gains or losses from hedge accounting, net.
If a derivative designated as a hedge no longer meets the
requirements described above due to expiration,
ineffectiveness or for any other reason, the derivative is
classified for accounting purposes as a trading derivative.
When fair value hedge accounting is discontinued, the
adjustments previously recognised on the hedged item are
amortised to profit or loss at the effective interest rate
recalculated at the date of hedge discontinuation. The
adjustments must be fully amortised at maturity.
When cash flow hedge accounting is discontinued, any
cumulative gain or loss on the hedging instrument
recognised in equity under other comprehensive income -
Items that may be reclassified to profit or loss (from the
period when the hedge was effective) remains in this equity
item until the forecast transaction occurs, at which time it is
recognised in profit or loss, unless the transaction is no
longer expected to occur, in which case the cumulative gain
or loss is recognised immediately in profit or loss.
vi. Derivatives embedded in hybrid financial instruments
Derivatives embedded in other financial instruments or in
other host contracts are accounted for separately as
derivatives if their risks and characteristics are not closely
related to those of the host contracts, provided that the host
contracts are not classified as financial assets/liabilities
designated at fair value through profit or loss or as Financial
assets/liabilities held for trading.
e) Derecognition of financial assets and liabilities
The accounting treatment of transfers of financial assets
depends on the extent to which the risks and rewards
associated with the transferred assets are transferred to
third parties:
532
2019 Annual Report
1. If the Group transfers substantially all the risks and
rewards to third parties unconditional sale of financial
assets, sale of financial assets under an agreement to
repurchase them at their fair value at the date of
repurchase, sale of financial assets with a purchased call
option or written put option that is deeply out of the
money, securitisation of assets in which the transferor
does not retain a subordinated debt or grant any credit
enhancement to the new holders, and other similar
cases-, the transferred financial asset is derecognised and
any rights or obligations retained or created in the
transfer are recognised simultaneously.
2. If the Group retains substantially all the risks and rewards
associated with the transferred financial asset -sale of
financial assets under an agreement to repurchase them
at a fixed price or at the sale price plus interest, a
securities lending agreement in which the borrower
undertakes to return the same or similar assets, and
other similar cases-, the transferred financial asset is not
derecognised and continues to be measured by the same
criteria as those used before the transfer. However, the
following items are recognised:
a. An associated financial liability, which is recognised for
an amount equal to the consideration received and is
subsequently measured at amortised cost, unless it
meets the requirements for classification under
Financial liabilities designated at fair value through
profit or loss.
b. The income from the transferred financial asset not
derecognised and any expense incurred on the new
financial liability, without offsetting.
3. If the Group neither transfers nor retains substantially all
the risks and rewards associated with the transferred
financial asset -sale of financial assets with a purchased
call option or written put option that is not deeply in or
out of the money, securitisation of assets in which the
transferor retains a subordinated debt or other type of
credit enhancement for a portion of the transferred asset,
and other similar cases- the following distinction is made:
a. If the transferor does not retain control of the
transferred financial asset, the asset is derecognised
and any rights or obligations retained or created in the
transfer are recognised.
b. If the transferor retains control of the transferred
financial asset, it continues to recognise it for an
amount equal to its exposure to changes in value and
recognises a financial liability associated with the
transferred financial asset. The net carrying amount of
the transferred asset and the associated liability is the
amortised cost of the rights and obligations retained, if
the transferred asset is measured at amortised cost, or
the fair value of the rights and obligations retained, if
the transferred asset is measured at fair value.
Accordingly, financial assets are only derecognised when
the rights to the cash flows they generate have expired or
when substantially all the inherent risks and rewards have
been transferred to third parties. Similarly, financial
liabilities are only derecognised when the obligations they
generate have been extinguished or when they are acquired
with the intention either to cancel them or to resell them.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
f) Offsetting of financial instruments
Financial asset and liability balances are offset, i.e. reported
in the consolidated balance sheet at their net amount, only
if the Group entities currently have a legally enforceable
right to set off the recognised amounts and intend either to
settle on a net basis, or to realise the asset and settle the
liability simultaneously.
Financial asset and liability balances are offset, i.e. reported
in the consolidated balance sheet at their net amount, only
if the Group entities currently have a legally enforceable
right to set off the recognised amounts and intend either to
settle on a net basis, or to realise the asset and settle the
liability simultaneously.
Following is the detail of financial assets and liabilities that
were offset in the consolidated balance sheets as of 31
December 2019, 2018 and 2017:
Following is the detail of financial assets and liabilities that
were offset in the consolidated balance sheets as of 31
December 2019, 2018 and 2017:
31 December 2019
Million euros
Gross amount
of
financial
assets
Gross amount
of financial
liabilities
offset in the
balance sheet
Net amount
of financial
assets
presented in
the balance
sheet
126,389
(55,776)
70,613
Liabilities
Derivatives
Reverse
repurchase
agreements
Liabilities
Derivatives
Reverse
repurchase
agreements
89,465
215,854
(5,168)
84,297
(60,944)
154,910
Total
31 December 2018
Million euros
Gross amount
of
financial
assets
Gross amount
of financial
liabilities
offset in the
balance sheet
Net amount
of financial
assets
presented in
the balance
sheet
107,055
(42,509)
64,546
79,114
186,169
(4,031)
75,083
(46,540)
139,629
Total
31 December 2017
Million euros
Gross amount
of
financial
assets
Gross amount
of financial
liabilities
offset in the
balance sheet
Net amount
of financial
assets
presented in
the balance
sheet
103,740
(37,960)
65,780
56,701
(7,145)
49,556
Liabilities
Derivatives
Reverse
repurchase
agreements
160,441
(45,105)
115,336
Total
Assets
Derivatives
Reverse
repurchase
agreements
Total
Assets
Derivatives
Reverse
repurchase
agreements
Total
Assets
Derivatives
Reverse
repurchase
agreements
Total
31 December 2019
Million euros
Gross amount
of
financial
liabilities
Gross amount
of financial
assets
offset in the
balance sheet
Net amount
of financial
liabilities
presented in
the balance
sheet
124,840
(55,776)
69,064
81,087
205,927
(5,168)
75,919
(60,944)
144,983
31 December 2018
Million euros
Gross amount
of
financial
liabilities
Gross amount
of financial
assets
offset in the
balance sheet
Net amount
of financial
liabilities
presented in
the balance
sheet
104,213
(42,509)
61,704
82,201
186,414
(4,031)
78,170
(46,540)
139,874
31 December 2017
Million euros
Gross amount
of
financial
liabilities
Gross amount
of financial
assets
offset in the
balance sheet
Net amount
of financial
liabilities
presented in
the balance
sheet
103,896
(37,960)
65,936
110,953
214,849
(7,145)
(45,105)
103,808
169,744
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Table of Contents
Also, at 31 December 2019 the Group has offset other items
amounting to EUR 1,366 million (EUR 1,445 million and
EUR 1,645 million at 31 December 2018 and 2017,
respectively).
At 31 December 2019 the balance sheet shows the amounts
EUR 141,201 million (2018: EUR 128,637 million and 2017:
EUR 97,017 million) on derivatives and repos as assets and
EUR 134,694 million (2018: EUR 130,969 million and 2017:
EUR 153,566 million) on derivatives and repos as liabilities
that are subject to netting and collateral arrangements.
g) Impairment of financial assets
i. Definition
The Group associates an impairment in the value to financial
assets measured at amortised cost, debt instruments
measured at fair value with changes in other comprehensive
income, lease receivables and commitments and
guarantees granted that are not measured at fair value.
The impairment for expected credit losses is recorded with a
charge to the consolidated income statement for the period
in which the impairment arises. In the event of occurrence,
the recoveries of previously recognised impairment losses
are recorded in the consolidated income statement for the
period in which the impairment no longer exists or is
reduced.
In the case of purchased or originated credit-impaired
assets, the Group only recognizes at the reporting date the
changes in the expected credit losses during the life of the
asset since the initial recognition as a credit loss. In the case
of assets measured at fair value with changes in other
comprehensive income, the changes in the fair value due to
expected credit losses are charged in the consolidated
income statement of the year where the change happened,
reflecting the rest of the valuation in other comprehensive
income.
As a rule, the expected credit loss is estimated as the
difference between the contractual cash flows to be
recovered and the expected cash flows discounted using the
original effective interest rate. In the case of purchased or
originated credit-impaired assets, this difference is
discounted using the effective interest rate adjusted by
credit rating.
Depending on the classification of financial instruments,
which is mentioned in the following sections, the expected
credit losses may be along 12 months or during the life of
the financial instrument:
• 12-month expected credit losses: arising from the
potential default events, as defined in the following
sections that are estimated to be likely to occur within the
12 months following the reporting date. These losses will
be associated with financial assets classified as "normal
risk" as defined in the following sections.
• Expected credit losses over the life of the financial
instrument: arising from the potential default events that
are estimated to be likely to occur throughout the life of
the financial instruments. These losses are associated
with financial assets classified as "normal risk under
watchlist" or "doubtful risk".
534
2019 Annual Report
With the purpose of estimating the expected life of the
financial instrument all the contractual terms have been
taken into account (e.g. prepayments, duration, purchase
options, etc.), being the contractual period (including
extension options) the maximum period considered to
measure the expected credit losses. In the case of financial
instruments with an uncertain maturity period and a
component of undrawn commitment (e.g.: credit cards), the
expected life is estimated through quantitative analyses to
determine the period during which the entity is exposed to
credit risk, also considering the effectiveness of
management procedures that mitigate such exposure (e.g.
the ability to unilaterally cancel such financial instruments,
etc.).
The following constitute effective guarantees:
a) Mortgage guarantees on housing as long as they are first
duly constituted and registered in favour of the entity.
The properties include:
i. Buildings and building elements, distinguishing
among:
• Houses.
• Offices, stores and multi-purpose premises.
• Rest of buildings such as non-multi-purpose
premises and hotels.
ii. Urban and developable ordered land.
iii.Rest of properties that classify as: buildings and
building elements under construction, such as property
development in progress and halted development, and
the rest of land types, such as rustic lands.
b) Collateral guarantees on financial instruments in the
form of cash deposits and debt securities issued by
creditworthy issuers.
c) Other types of real guarantees, including properties
received in guarantee and second and subsequent
mortgages on properties, as long as the entity
demonstrates its effectiveness. When assessing the
effectiveness of the second and subsequent mortgages
on properties the entity will implement particularly
restrictive criteria. It will take into account, among others,
whether the previous charges are in favour of the entity
itself or not and the relationship between the risk
guaranteed by them and the property value.
d) Personal guarantees, as well as the incorporation of new
owners, covering the entire amount of the financial
instruments and implying direct and joint liability to the
entity of persons or other entities whose solvency is
sufficiently proven to ensure the repayment of the loan
on the agreed terms.
The different aspects that the Group considers for the
evaluation of effective guarantees are set out below in
relation to the individual analysis.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
ii. Financial instruments presentation
For the purposes of estimating the impairment amount,
and in accordance with its internal policies, the Group
classifies its financial instruments (financial assets,
commitments and guarantees) measured at amortised
cost or fair value through other comprehensive income in
one of the following categories:
• Normal Risk ("Stage 1"): includes all instruments that do
not meet the requirements to be classified in the rest of
the categories.
• Normal risk under watchlist ("Stage 2"): includes all
instruments that, without meeting the criteria for
classification as doubtful or default risk, have
experienced significant increases in credit risk since initial
recognition.
In order to determine whether a financial instrument has
increased its credit risk since initial recognition and is to
be classified in Stage 2, the Group considers the
following criteria:
Changes in the risk of a default occurring
through the expected life of the financial
instrument are analysed and quantified with
respect to its credit level in its initial recognition.
With the purpose of determining if such
changes are considered as significant, with the
consequent classification into stage 2, each
Group unit has defined the quantitative
thresholds to consider in each of its portfolios
taking into account corporate guidelines
ensuring a consistent interpretation in all units.
Within the quantitative thresholds, two types
are considered: A relative threshold is those that
compare current credit quality with credit quality
at the time of origination in percentage terms of
change. In addition, an absolute threshold
compares both references in total terms,
calculating the difference between the two.
These absolute/relative concepts are used
homogeneously (with different values) in all
geographies. The use of one type of threshold or
another (or both) is determined in accordance
with the process described in Note 54, below,
and is marked by the type of portfolio and
characteristics such as the starting point of the
average credit quality of the portfolio.
In addition to the quantitative criteria indicated,
various indicators are used that are aligned with
those used by the Group in the normal
management of credit risk. Irregular positions of
more than 30 days and renewals are common
criteria in all Group units. In addition, each unit
can define other qualitative indicators, for each
of its portfolios, according to the particularities
and normal management practices in line with
the policies currently in force (i.e. use of
management alerts, etc.).
The use of these qualitative criteria is
complemented with the use of an expert
judgement, under the corresponding
governance.
Quantitative
criteria
Qualitative
criteria
In the case of forbearances, instruments classified as
"normal risk under watchlist" may be generally
reclassified to "normal risk" in the following
circumstances: at least two years have elapsed from the
date of reclassification to that category or from its
forbearance date, the client has paid the accrued principal
and interest balance, and the client has no other
instruments with more than 30 days past due balances.
• Doubtful Risk (“Stage 3"): includes financial instruments,
overdue or not, in which, without meeting the
circumstances to classify them in the category of default
risk, there are reasonable doubts about their total
repayment (principal and interests) by the client in the
terms contractually agreed. Likewise, off-balance-sheet
exposures whose payment is probable and their recovery
doubtful are considered in Stage 3. Within this category,
two situations are differentiated:
– Doubtful risk for non-performing loans: financial
instruments, irrespective of the client and guarantee,
with balances more than 90 days past due for principal,
interest or expenses contractually agreed.
This category also includes all loan balances for a client
which overdue amount more than 90 days past due is
greater than 20% of the loan receivable balance.
These instruments may be reclassified to other
categories if, as a result of the collection of part of the
past due balances, the reasons for their classification in
this category do not remain and the client does not
have balances more than 90 days past due in other
loans.
– Doubtful risk for reasons other than non-performing
loans: this category includes doubtful recovery
financial instruments that are not more than 90 days
past due.
The Group considers that a financial instrument to be
doubtful for reasons other than delinquency when one
or more combined events have occurred with a
negative impact on the estimated future cash flows of
the financial instrument. To this end, the following
indicators, among others, are considered:
a) Negative net equity or decrease because of losses of
the client's net equity by at least 50% during the last
financial year.
b) Continued losses or significant decrease in revenue
or, in general, in the client's recurring cash flows.
c) Generalised delay in payments or insufficient cash
flows to service debts.
d) Significantly inadequate economic or financial
structure or inability to obtain additional financing
by the client.
e) Existence of an internal or external credit rating
showing that the client is in default.
f) Existence of overdue customer commitments with a
significant amount to public institutions or
employees.
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Table of Contents
These financial instruments may be reclassified to
other categories if, as a result of an individualised
study, reasonable doubts do not remain about the total
repayment under the contractually agreed terms and
the client does not have balances with more than 90
days past due.
In the case of forbearances, instruments classified as
doubtful risk may be reclassified to the category of
'normal risk under watchlist' when the following
circumstances are present: a minimum period of one
year has elapsed from the forbearance date, the client
has paid the accrued principal and interest amounts,
and the client has no other loan balance with more
than 90 days past due.
• Default Risk: includes all financial assets, or part of them,
for which, after an individualised analysis, their recovery
is considered remote due to a notorious and irrecoverable
deterioration of their solvency.
In any event, except in the case of financial instruments
with effective collateral covering a substantial portion of
the transaction amount, the Group generally consider as
remote the following:
- Those operations that, after an individualized analysis,
are categorized as unsustainable debt, assuming an
irrecoverability of such debt.
- Transactions classified as doubtful due to non-
performing loans with recovery costs that exceed the
amounts receivable.
- The operations on which the award is executed. The
queue of these operations shall be included under
default risk, as the recovery of the flows, provided that
no further guarantees associated with the operation
remain after the award of the property.
- Those operations on which a deduction is made, the
portion of the operation corresponding to that
deduction, will be given as a balance at the time of
signature.
A financial asset amount is maintained in the balance
sheet until they are considered as a "default risk", either
all or a part of it, and the write-off is registered against
the balance sheet.
In the case of operations that have only been partially
derecognised, for forgiveness reasons or because part of
the total balance is considered unrecoverable, the
remaining amount shall be fully classified in the category
of "doubtful risk", except where duly justified.
The classification of a financial asset, or part of it, as a
'default risk' does not involve the disruption of
negotiations and legal proceedings to recover the
amount.
iii. Impairment valuation assessment
The Group has policies, methods and procedures in place to
hedge its credit risk, both due to the insolvency attributable
to counterparties and its residence in a specific country.
536
2019 Annual Report
These policies, methods and procedures are applied in the
concession, study and documentation of financial assets,
commitments and guarantees, as well as in the
identification of their impairment and in the calculation of
the amounts needed to cover their credit risk.
The asset impairment model in IFRS 9 applies to financial
assets measured at amortised cost, debt instruments at fair
value with changes in other comprehensive income, lease
receivables and commitments and guarantees granted that
are not measured at fair value.
The impairment represents the best estimation of the
financial assets expected credit losses at the balance sheet
date, assessed both individually and collectively.
• Individually: for the purposes of estimating the provisions
for credit risk arising from the insolvency of a financial
instrument, the Group individually assesses impairment
by estimating the expected credit losses on those
financial instruments that are considered to be significant
and with sufficient information to make such an estimate.
Therefore, this classification mostly includes wholesale
banking customers - Corporations, specialised financing -
as well as some of the largest companies – Chartered and
real estate developers - from retail banking. The
determination of the perimeter in which the
individualised estimate is applied is detailed in a later
section.
The individually assessed impairment estimate is equal to
the difference between the gross carrying amount of the
financial instrument and the estimated value of the
expected cash flows receivable discounted using the
original effective interest rate of the transaction. The
estimate of these cash flows takes into account all
available information on the financial asset and the
effective guarantees associated with that asset. This
estimation process is detailed below.
• Collectively: the Group also assesses impairment by
estimating the expected credit losses collectively in cases
where they are not assessed on an individual basis. This
includes, for example, loans with individuals, sole
proprietors or businesses in retail banking subject to a
standardised risk management.
For the purposes of the collective assessment of expected
credit losses, the Group has consistent and reliable
internal models. For the development of these models,
instruments with similar credit risk characteristics that
are indicative of the debtors' capacity to pay are
considered.
The credit risk characteristics used to group the
instruments are, among others: type of instrument,
debtor's sector of activity, geographical area of activity,
type of guarantee, aging of past due balances and any
other factor relevant to estimating the future cash flows.
The Group performs retrospective and monitoring tests to
evaluate the reasonableness of the collective estimate.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
On the other hand, the methodology required to estimate
the expected credit loss due to credit events is based on an
unbiased and weighted consideration by the probability of
occurrence of a series of scenarios, considering a range of
three to five possible future scenarios, depending on the
characteristics of each unit, which could have an impact on
the collection of contractual cash flows, always taking into
account the time value of money, as well as all available and
relevant information on past events, current conditions and
forecasts of the evolution of macroeconomic factors that are
shown to be relevant for the estimation of this amount (for
example: GDP (Gross Domestic Product), housing price,
unemployment rate, etc.).
For the estimation of the parameters used in the estimation
of impairment provisions (EAD (Exposure at Default), PD
(Probability of Default), LGD (Loss Given Default)), the
Group based its experience in developing internal models
for the estimation of parameters both in the regulatory area
and for management purposes, adapting the development
of the impairment provision models under IFRS 9.
• Exposure at default: is the amount of estimated risk
incurred at the time of the counterparty's analysis.
• Probability of default: is the estimated probability that
the counterparty will default on its principal and/or
interest payment obligations.
• Loss given default: is the estimate of the severity of the
loss incurred in the event of non-compliance. It depends
mainly on the updating of the guarantees associated with
the operation and the future cash flows that are expected
to be recovered.
In any case, when estimating the flows expected to be
recovered, portfolio sales are included. It should be noted
that due to the Group's recovery policy and the
experience observed in relation to the prices of past sales
of assets classified as Stage 3 and/or default risk, there is
no substantial divergence between the flows obtained
from recoveries after performing recovery management
of the assets with those obtained from the sale of
portfolios of assets discounting structural expenses and
other costs incurred.
The definition of default implemented by the Group for the
purpose of calculating the impairment provision models is
based on the definition in Article 178 of Regulation
575/2013 of the European Union (CRR), which is fully
aligned with the requirements of IFRS 9, which considers
that a "default" exists in relation to a specific customer/
contract when at least one of the following circumstances
exists: the entity considers that there are reasonable doubts
about the payment of all its credit obligations or that the
customer/contract is in an irregular situation for more than
90 days with respect to any significant credit obligation.
In addition, the Group considers the risk generated in all
cross-border transactions due to circumstances other than
the usual commercial risk of insolvency (sovereign risk,
transfer risk or risks arising from international financial
activity, such as wars, natural catastrophes, balance of
payments crisis, etc.).
IFRS 9 includes a series of practical solutions that can be
implemented by entities, with the aim of facilitating its
implementation. However, in order to achieve a complete
and high-level implementation of the standard, and
following the best practices of the industry, the Group does
not apply these practical solutions in a generalised manner:
– Rebuttable presumption that the credit risk has
increased significantly, when payments are more than
30 days past due: this threshold is used as an
additional, but not primary, indicator of significant risk
increase. Additionally, there may be cases in the Group
where its use has been rebutted as a result of studies
that show a low correlation of the significant risk
increase with this past due threshold. The volume
rebutted does not exceed 0.1% of the Group's total
exposure.
– Assets with low credit risk at the reporting date: the
Group assesses the existence of significant risk
increase in all its financial instruments.
This information is provided in more detail in Note 54 b.
iv. Detail of individual estimate of impairment
For the individual estimate of the correction for impairment
of the financial asset, the Group has a specific methodology
to estimate the value of the cash flows expected to be
collected:
• Recovery through the debtor's ordinary activities ("Going
Concern" approach).
• Recovery through the execution and sale of the collateral
guaranteeing the operations ("Gone Concern" approach).
"Gone Concern" approach:
a. Evaluation of the effectiveness of guarantees
The Group assesses the effectiveness of all the guarantees
associated considering the following:
• The time required to execute these guarantees;
• The Group's ability to enforce or assert these guarantees
in its favour;
• The existence of limitations imposed by each local unit´s
regulation on the foreclosure of collateral.
Under no circumstances the Group considers that a
guarantee is effective if its effectiveness depends
substantially on the solvency of the debtor, as could be the
case:
• Promises of shares or other securities of the debtor
himself when their valuation may be significantly
affected by a debtor's default.
• Personal cross-collateralisation: when the guarantor of a
transaction is, at the same time, guaranteed by the holder
of that transaction.
On the basis of the foregoing, the following types of
guarantees are considered to be effective:
• Mortgage guarantees on properties, which are first
charge, duly constituted and registered. Real estate
includes:
– Buildings and finished building elements.
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Table of Contents
– Urban and developable land in order.
– Other real estate, including buildings under
construction, developments in progress or at a
standstill, and other land, such as rural properties.
• Pledges on financial instruments such as cash deposits,
debt securities of reputables issuers or equity
instruments.
• Other types of security interests, including movable
property received as security and second and subsequent
mortgages on real state , provided that they are proven to
be effective under particularly restrictive criteria.
• Personal guarantees, including new holders, covering the
entire amount and involving direct and joint liability to the
entity, from persons or entities whose equity solvency
ensures repayment of the transaction under the agreed
terms.
b. Valuation of guarantees
The Group assesses the guarantees on the basis of their
nature in accordance with the following:
• Mortgage guarantees on properties associated with
financial instruments, using a complete individual
valuations carried out by independent valuation experts
and under generally accepted valuation standards. If this
is not possible, alternative valuations are used with duly
documented and approved internal valuation models.
• Personal guarantees are valued individually on the basis
of the guarantor´s updated information.
• The rest of the guarantees are valued based of current
market values.
c. Adjustments to the value of guarantees and estimation of
future cash flow inflows and outflows
The Group applies a series of adjustments to the value of
the guarantees in order to improve the reference values:
• Adjustments based on the historical sales experience of
local units for certain types of assets.
• Individual expert adjustments based on additional
management information.
Likewise, to adjust the value of the guarantees, the time
value of money is taken into account based on the historical
experience of each of the units, estimating:
• Period of adjudication.
• Estimated time of sale of the asset.
In addition, the Group takes into account all those cash
inflows and outflows linked to that guarantee until it is sold:
• Possible future income commitments in favour of the
borrower which will available after the asset is awarded.
• Estimated foreclosure costs.
• Asset maintenance costs, taxes and community costs.
• Estimated marketing or sales costs.
Finally, since it is considered that the guarantee will be sold
in the future, the Group applies an additional adjustment
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2019 Annual Report
("index forward") in order to adjust the value of the
guarantees to future valuation expectations.
v. Scope of application of the individual estimate of the
correction for impairment
The Group determines the perimeter over which it makes an
estimate of the correction for impairment on an individual
basis based on a relevance threshold set by each of the
geographical areas and the stage in which the operations
are located. In general, the Group applies the individualised
calculation of expected losses to the significant exposures
classified in stage 3, although Banco Santander, S.A. has
also extended its analyses to some of the exposures
classified in stage 2.
It should be noted that, in any case and irrespective of the
stage in which their transactions are carried out, for
customers who do not receive standardised treatment, a
relational risk management model is applied, with
individualised treatment and monitoring by the assigned
risk analyst. In addition to wholesale customers (SCIB,
Santander Corporate & Investment Banking) and large
companies, this relational management model also includes
other segments of smaller companies for which there is
information and capacity for more personalised and expert
analysis and monitoring. As indicated in the Group's
wholesale credit model, the individual treatment of the
client facilitates the continuous updating of information.
The risk assumed must be followed and monitored
throughout its life cycle, enabling anticipation and action to
be taken in the event of possible impairments. In this way,
the customer's credit quality is analysed individually, taking
into account specific aspects such as his competitive
position, financial performance, management, etc. In the
wholesale risk management model, every customer with a
credit risk position is assigned a rating, which has an
associated probability of customer default. Thus, individual
analysis of the debtor triggers a specific rating for each
customer, which determines the appropriate parameters for
calculating the expected loss, so that it is the rating itself
that initially modulates the necessary coverage, adjusting
the severity of the possible loss to the guarantees and other
mitigating factors that the customer may have available. In
addition, if as a result of this individualised monitoring of
the customer, the analyst finally considers that his coverage
is not sufficient, he has the necessary mechanisms to adjust
it under his expert judgement, always under the appropriate
governance.
h) Repurchase agreements and reverse repurchase
agreements
Purchases (sales) of financial instruments under a non-
optional resale (repurchase) agreement at a fixed price
(repos) are recognised in the consolidated balance sheet as
financing granted (received), based on the nature of the
debtor (creditor), under Loans and advances with central
banks, Loans and advances to credit institutions or Loans
and advances to customers (Deposits from central banks,
Deposits from credit institutions or Customer deposits).
Differences between the purchase and sale prices are
recognised as interest over the contract term.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
i) Non-current assets and liabilities associated with
non-current assets held for sale
Non-current assets held for sale includes the carrying
amount of individual items, disposal groups or items
forming part of a business unit earmarked for disposal
(discontinued operations), whose sale in their present
condition is highly likely to be completed within one year
from the reporting date. Therefore, the recovery of the
carrying amount of these items -which can be of a financial
nature or otherwise- will foreseeably be effected through
the proceeds from their disposal.
Specifically, property or other non-current assets received
by the consolidated entities as total or partial settlement of
their debtors’ payment obligations to them are deemed to
be Non-current assets held for sale, unless the consolidated
entities have decided to make continuing use of these
assets. In this connection, for the purpose of its
consideration in the initial recognition of these assets, the
Group obtains, at the foreclosure date, the fair value of the
related asset through a request for appraisal by external
appraisal agencies.
The Group has in place a corporate policy that ensures the
professional competence and the independence and
objectivity of the external appraisal agencies, in accordance
with the regulations, which require appraisal agencies to
meet independence, neutrality and credibility requirements,
so that the use of their estimates does not reduce the
reliability of its valuations. This policy establishes that all
the appraisal companies and agencies with which the Group
works in Spain should be registered in the Official Register
of the Bank of Spain and that the appraisals performed by
them should follow the methodology established in
Ministry of Economy Order ECO/805/2003, of 27 March.
The main appraisal companies and agencies with which the
Group worked in Spain in 2019 are as follows:
Eurovaloraciones, S.A., Gloval Valuation, S.A.U., Tinsa
Tasaciones Inmobiliarias, S.A.U., and Krata, S.A. Also, this
policy establishes that the various subsidiaries abroad work
with appraisal companies that have recent experience in the
area and the type of asset under appraisal and meet the
independence requirements established in the corporate
policy. They should verify, inter alia, that the appraisal
company is not a party related to the Group and that its
billings to the Group in the last twelve months do not
exceed 15% of the appraisal company’s total billings.
Liabilities associated with non-current assets held for sale
includes the balances payable arising from the assets held
for sale or disposal groups and from discontinued
operations.
Non-current assets and disposal groups of items that have
been classified as held for sale are generally recognised at
the date of their allocation to this category and are
subsequently valued at the lower of their fair value less
costs to sell or its book value. Non-current assets and
disposal groups of items that are classified as held for sale
are not amortised as long as they remain in this category.
At 31 December 2019 the fair value less costs to sell of non-
current assets held for sale exceeded their carrying amount
by EUR 601 million; however, in accordance with the
accounting standards, this unrealised gain could not be
recognised.
The valuation of the portfolio of non-current assets held for
sale has been made in compliance with the requirements of
International Financial Reporting Standards in relation to
the estimate of the fair value of tangible assets and the
value-in-use of financial assets.
The value of the portfolio is determined as the sum of the
values of the individual elements that compose the
portfolio, without considering any total or batch grouping in
order to correct the individual values.
Banco Santander, in compliance with Bank of Spain Circular
4/2017 on public and private financial reporting standards
and financial statement models, has developed a
methodology that enables it to estimate the fair value and
costs of sale of assets foreclosed or received in payment of
debts. This methodology is based on the classification of
the portfolio of foreclosed assets into different segments.
Segmentation enables the intrinsic characteristics of Banco
Santander's portfolio of foreclosed assets to be
differentiated, so that assets with homogeneous
characteristics are grouped by segment.
Thus, the portfolio is segmented into i) finished assets of a
residential and tertiary nature, ii) developments in progress
and iii) land1.
In determining the critical segments in the overall portfolio,
assets are classified on the basis of the nature of the asset
and its stage of development. This segmentation is made in
order to seek the liquidation of the asset (which should be
carried out in the shortest possible time).
When making decisions, the situation and/or characteristics
of the asset are fundamentally taken into account, as well
as the evaluation of all the determining factors that favour
the recovery of the debt. For them, the following aspects
are analyzed, among others:
• The time that has elapsed since the adjudication.
• The transferability and contingencies of the foreclosed
asset.
• The economic viability from the real estate point of view
with the necessary investment estimate.
• The expenses that may arise from the marketing process.
• The offers received, as well as the difficulties in finding
buyers.
In the case of real estate assets foreclosed in Spain, which
represent 86% of the Group’s total non-current assets held
for sale, the valuation of the portfolio is carried out by
applying the following models:
• Market Value Model used in the valuation of finished
properties of a residential nature (mainly homes and car
parks) and properties of a tertiary nature (offices,
commercial premises and multipurpose buildings). For
the valuation of finished assets whose availability for sale
is immediate, a market sale value provided by a third
party external to Banco Santander is considered,
539
For this segmentation of assets, when they are
completed, the real costs are known and the actual
expenses for the marketing and sale of the asset must be
taken into account. Therefore, Banco Santander uses the
actual costs in its calculation engine or, failing that, those
estimated on the basis of its observed experience.
• Market Value Model according to Evolution of Market
Values used to update the valuation of developments in
progress. The valuation model estimates the current
market value of the properties based on complete
individual valuations by third parties, calculated from the
values of the feasibility studies and development costs of
the promotion, as well as the selling costs, distinguishing
by location, size and type of property. The inputs used in
the valuation model for residential assets under
construction are actual revenues and costs.
For this purpose, in order to calculate the investment
flows, Banco Santander considers, on the basis of the
feasibility studies, the expenditure required for
construction, the professional fees relating to the project
and to project management, the premiums for mandatory
building insurance, the developer's administrative
expenses, licences, taxes on new construction and fees,
and urban development charges.
With respect to the calculation of income flows, Banco
Santander takes into account the square metres built, the
number of homes under construction and the estimated
selling price over 1.5 years.
The market value will be the result of the difference
between the income flows and the investment flows
estimated at each moment.
• Land Valuation model. The methodology followed by the
Group regarding land valuation consists of updating the
individual reference valuation of each of the land on an
annual basis, through updated valuation valuations
carried out by independent professionals and following
the methodology established in the OM (Ministerial
Order) ECO/805/2003, of 27 March, whose main
verifications in the case of land valuation, regardless of
the degree of urbanisation of the land, correspond to:
– Visual verification of the assessed property.
– Registry description.
– Urban planning.
– Visible easements.
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calculated under the AVM methodology by the
comparable properties method adjusted by our
experience in selling similar assets, given the term, price,
volume, trend in the value of these assets and the time
elapsing until their sale and discounting the estimated
costs of sale.
The market value is determined on the basis of the
definition established by the International Valuation
Standards drawn up by the IVSC (International Valuation
Standards Council), understood as the estimated amount
for which an asset or a liability should be exchanged on
the measurement date between a willing buyer and a
willing seller, in an arm's length transaction, after
appropriate marketing, and in which the parties have
acted with sufficient information, prudently and without
coercion.
The current market value of the properties is estimated
on the basis of automated valuations obtained by taking
comparable properties as a reference; simulating the
procedure carried out by an appraiser in a physical
valuation according to Order ECO 805/2003: selection of
properties and obtaining the unit value by applying
homogenisation adjustments. The selection of the
properties is carried out by location within the same real
estate cluster and according to the characteristics of the
properties, filtering by type2, surface area range and age.
The model enables a distinction to be made within the
municipality under study as to which areas are similar
and comparable and therefore have a similar value in the
property market, discriminating between which
properties are good comparators and which are not.
Adjustments to homogenize the properties are made
according to: i) the age of the property according to the
age of the property to be valued, ii) the deviation of the
built area from the common area with respect to the
property to be valued and iii) by age of the date of
capture of the property according to the price evolution
index of the real estate market.
In addition, for individually significant assets, complete
individual valuations are carried out, including a visit to
the asset, market analysis (data relating to supply,
demand, current sale or rental price ranges and supply-
demand and revaluation expectations) and an estimate of
expected income and costs.
1. The assets in a situation of "stopped development" are included under
"land".
2. Assets qualified as protected housing are taken into account. The
Maximum Legal Value of these assets is determined by the VPO module,
obtained from the result of multiplying the State Basic Module (MBE) by
a zone coefficient determined by each Autonomous Community. To carry
out the valuation of a protected property, the useful surface area is used
in accordance with current regulations.
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Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
– Visible state of occupation, possession, use and
exploitation.
– Protection regime.
– Apparent state of preservation.
– Correspondence with cadastral property.
– Existence of expropriation procedure, expropriation
plan or project, administrative resolution or file that
may lead to expropriation.
– Expiry of the Urbanization or Building deadlines.
– Existence of a procedure for failure to comply with
obligations.
– Verification of surfaces.
costs to sell) are recognised under Gains or (losses) on non-
current assets held for sale not classified as discontinued
operations in the consolidated income statement. The gains
on a non-current asset held for sale resulting from
subsequent increases in fair value (less costs to sell)
increase its carrying amount and are recognised in the
consolidated income statement up to an amount equal to
the impairment losses previously recognised.
j) Assets under insurance or reinsurance contracts and
liabilities under insurance or reinsurance contracts
Insurance contracts involve the transfer of a certain
quantifiable risk in exchange for a periodic or one-off
premium. The effects on the Group’s cash flows will arise
from a deviation in the payments forecast and/or an
insufficiency in the premium set.
For the purposes of valuation, the land will be classified
in the following levels:
– Level I: It will include all the lands that do not belong to
The Group controls its insurance risk as follows:
• By applying a strict methodology in the launch of
products and in the assignment of value thereto.
Level II.
• By using deterministic and stochastic actuarial models for
– Level II: It shall include land classified as undeveloped
measuring commitments.
where building is not allowed for uses other than
agriculture, forestry, livestock or linked to an economic
exploitation permitted by the regulations in force. Also
included are lands classified as developable that are
not included in a development area of urban planning
or that, in such an area, the conditions for its
development have not been defined.
In those cases where the Group does not have an updated
reference value through an ECO valuation for the current
year, we use as a reference value the latest available ECO
valuation reduced or corrected by the average annual
coverage ratio of the land on which we have obtained an
updated reference value, through an ECO valuation.
The Group applies a discount to the aforementioned
reference values that takes into account both the discount
on the reference value in the sales process and the
estimated costs of marketing or selling the land:
Discount on reference value = % Discount on Sales + %
Marketing Costs
being:
– % Discount on Sales: = 100 - (sales price / updated
appraisal value).
– Marketing Costs: Calculated on the basis of our
historical experience in sales and in accordance with
the marketing management fees negotiated with our
suppliers of this type of service.
In this way the Group obtains the corrected market value, an
amount that we compare with the net cost of each piece of
land to determine its correct valuation and conclude with
our valuation process.
In addition, in relation to the previously mentioned
valuations, less costs to sell, are contrasted with the sales
experience of each type of asset in order to confirm that
there is no significant difference between the sale price and
the valuation.
Impairment losses on an asset or disposal group arising
from a reduction in its carrying amount to its fair value (less
• By using reinsurance as a risk mitigation technique as
part of the credit quality guidelines in line with the
Group’s general risk policy.
• By establishing an operating framework for credit risks.
• By actively managing asset and liability matching.
• By applying security measures in processes.
Reinsurance assets includes the amounts that the
consolidated entities are entitled to receive for reinsurance
contracts with third parties and, specifically, the reinsurer’s
share of the technical provisions recorded by the
consolidated insurance entities.
At least once a year these assets are reviewed to ascertain
whether they are impaired (i.e. there is objective evidence,
as a result of an event that occurred after initial recognition
of the reinsurance asset, that the Group may not receive all
amounts due to it under the terms of the contract and the
amount that will not be received can be reliably measured),
and any impairment loss is recognised in the consolidated
income statement and the assets are written down.
Liabilities under insurance contracts includes the technical
provisions recorded by the consolidated entities to cover
claims arising from insurance contracts in force at year-end.
Insurers’ results relating to their insurance business are
recognised, according to their nature, under the related
consolidated income statement items.
In accordance with standard accounting practice in the
insurance industry, the consolidated insurance entities
credit to the income statement the amounts of the
premiums written and charge to income the cost of the
claims incurred on final settlement thereof.
Insurance entities are therefore required to accrue at period-
end the unearned revenues credited to their income
statements and the accrued costs not charged to income.
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At least at each reporting date the Group assesses whether
the insurance contract liabilities recognised in the
consolidated balance sheet are adequate. For this purpose,
it calculates the difference between the following amounts:
• Current estimates of future cash flows under the
insurance contracts of the consolidated entities. These
estimates include all contractual cash flows and any
related cash flows, such as claims handling costs; and
• The carrying amount recognised in the consolidated
balance sheet of its insurance contract liabilities (see Note
15), less any related deferred acquisition costs or related
intangible assets, such as the amount paid to acquire, in
the event of purchase by the entity, the economic rights
held by a broker deriving from policies in the entity’s
portfolio.
If the calculation results in a positive amount, this
deficiency is charged to the consolidated income statement.
When unrealised gains or losses on assets of the Group’s
insurance companies affect the measurement of liabilities
under insurance contracts and/or the related deferred
acquisition costs and/or the related intangible assets, these
gains or losses are recognised directly in equity. The
corresponding adjustment in the liabilities under insurance
contracts (or in the deferred acquisition costs or in
intangible assets) is also recognised in equity.
The most significant items forming part of the technical
provisions (see Note 15) are detailed below:
• Non-life insurance provisions:
i) Provision for unearned premiums: relates to the
portion of the premiums received at year-end that is
allocable to the period from the reporting date to the
end of the policy cover period.
ii) Provisions for unexpired risks: this supplements the
provision for unearned premiums to the extent that the
amount of the latter is not sufficient to reflect all the
assessed risks and expenses to be covered by the
insurance companies in the policy period not elapsed at
the reporting date.
• Life insurance provisions: represent the value of the net
obligations acquired vis-à-vis life insurance policyholders.
These provisions include:
i) Provision for unearned premiums and unexpired risks:
this relates to the portion of the premiums received
at year-end that is allocable to the period from the
reporting date to the end of the policy cover period.
ii) Mathematical provisions: these relate to the value of
the insurance companies’ obligations, net of the
policyholders’ obligations. These provisions are
calculated on a policy-by-policy basis using an
individual capitalisation system, taking as a basis for
the calculation the premium accrued in the year, and in
accordance with the technical bases of each type of
insurance updated, where appropriate, by the local
mortality tables.
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2019 Annual Report
• Provision for claims outstanding: this reflects the total
obligations outstanding arising from claims incurred prior
to the reporting date. This provision is calculated as the
difference between the total estimated or certain cost of
the claims not yet reported, settled or paid and all the
amounts already paid in relation to such claims.
• Provision for bonuses and rebates: this provision includes
the amount of the bonuses accruing to policyholders,
insureds or beneficiaries and that of any premiums to be
returned to policyholders or insureds, to the extent that
such amounts have not been assigned at the reporting
date. These amounts are calculated on the basis of the
conditions of the related individual policies.
• Technical provisions for life insurance policies where the
investment risk is borne by the policyholders: these
provisions are calculated on the basis of the indices
established as a reference to determine the economic
value of the policyholders’ rights.
k) Tangible assets
Tangible assets includes the amount of buildings, land,
furniture, vehicles, computer hardware and other fixtures
owned by the consolidated entities or acquired under
finance leases. Tangible assets are classified by use as
follows:
i. Property, plant and equipment for own use
Property, plant and equipment for own use – including
tangible assets received by the consolidated entities in full
or partial satisfaction of financial assets representing
receivables from third parties which are intended to be held
for continuing use and tangible assets acquired under
finance leases– are presented at acquisition cost, less the
related accumulated depreciation and any estimated
impairment losses (carrying amount higher than
recoverable amount).
Depreciation is calculated, using the straight-line method,
on the basis of the acquisition cost of the assets less their
residual value. The land on which the buildings and other
structures stand has an indefinite life and, therefore, is not
depreciated.
The period tangible asset depreciation charge is recognised
in the consolidated income statement and is calculated
using the following depreciation rates (based on the
average years of estimated useful life of the various assets):
Buildings for own use
Furniture
Fixtures
Office and IT equipment
Lease use rights
Average
annual rate
2.0%
7.7%
7.0%
25.0%
Less than the lease
term or the useful life
of the underlying asset
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The consolidated entities assess at the reporting date
whether there is any indication that an asset may be
impaired (i.e. its carrying amount exceeds its recoverable
amount). If this is the case, the carrying amount of the asset
is reduced to its recoverable amount and future depreciation
charges are adjusted in proportion to the revised carrying
amount and to the new remaining useful life (if the useful
life has to be re-estimated).
Similarly, if there is an indication of a recovery in the value
of a tangible asset, the consolidated entities recognise the
reversal of the impairment loss recognised in prior periods
and adjust the future depreciation charges accordingly. In no
circumstances may the reversal of an impairment loss on an
asset raise its carrying amount above that which it would
have if no impairment losses had been recognised in prior
years.
The estimated useful lives of the items of property, plant
and equipment for own use are reviewed at least at the end
of the reporting period with a view to detecting significant
changes therein. If changes are detected, the useful lives of
the assets are adjusted by correcting the depreciation
charge to be recognised in the consolidated income
statement in future years on the basis of the new useful
lives.
Upkeep and maintenance expenses relating to property,
plant and equipment for own use are recognised as an
expense in the period in which they are incurred, since they
do not increase the useful lives of the assets.
ii. Investment property
Investment property reflects the net values of the land,
buildings and other structures held either to earn rentals or
for obtaining profits by sales due to future increase in
market prices.
The criteria used to recognise the acquisition cost of
investment property, to calculate its depreciation and its
estimated useful life and to recognise any impairment
losses thereon are consistent with those described in
relation to property, plant and equipment for own use.
In order to evaluate the possible impairment the Group
determines periodically the fair value of its investment
property so that, at the end of the reporting period, the fair
value reflects the market conditions of the investment
property at that date. This fair value is determined annually,
taking as benchmarks the valuations performed by
independent experts. The methodology used to determine
the fair value of investment property is selected based on
the status of the asset in question; thus, for properties
earmarked for lease, the valuations are performed using the
sales comparison approach, whereas for leased properties
the valuations are made primarily using the income
capitalisation approach and, exceptionally, the sales
comparison approach.
In the sales comparison approach, the property market
segment for comparable properties is analysed, inter alia,
and, based on specific information on actual transactions
and firm offers, current prices are obtained for cash sales of
those properties. The valuations performed using this
approach are considered as Level 2 valuations.
In the income capitalisation approach, the cash flows
estimated to be obtained over the useful life of the property
are discounted taking into account factors that may
influence the amount and actual obtainment thereof, such
as: (i) the payments that are normally received on
comparable properties; (ii) current and probable future
occupancy; (iii) the current or foreseeable default rate on
payments. The valuations performed using this approach
are considered as Level 3 valuations, since significant
unobservable inputs are used, such as current and probable
future occupancy and/or the current or foreseeable default
rate on payments.
iii. Assets leased out under an operating lease
Property, plant and equipment - Leased out under an
operating lease reflects the amount of the tangible assets,
other than land and buildings, leased out by the Group
under an operating lease.
The criteria used to recognise the acquisition cost of assets
leased out under operating leases, to calculate their
depreciation and their respective estimated useful lives and
to recognise the impairment losses thereon are consistent
with those described in relation to property, plant and
equipment for own use.
l) Accounting for leases
Since 1 January 2019, the Group has changed the
accounting policy for leases when acting as a lessee (see
Note 1.b).
Until 31 December 2018, the accounting policy applied by
the Group when acting as lessee was the following:
i. Finance leases
Finance leases are leases that transfer substantially all the
risks and rewards incidental to ownership of the leased
asset to the lessee.
When the consolidated entities act as the lessors of an
asset, the sum of the present value of the lease payments
receivable from the lessee, including the exercise price of
the lessee’s purchase option at the end of the lease term
when such exercise price is sufficiently below fair value at
the option date such that it is reasonably certain that the
option will be exercised, is recognised as lending to third
parties and is therefore included under Loans and
receivables in the consolidated balance sheet.
When the consolidated entities act as the lessees, they
present the cost of the leased assets in the consolidated
balance sheet, based on the nature of the leased asset, and,
simultaneously, recognise a liability for the same amount
(which is the lower of the fair value of the leased asset and
the sum of the present value of the lease payments payable
to the lessor plus, if appropriate, the exercise price of the
purchase option). The depreciation policy for these assets is
consistent with that for property, plant and equipment for
own use.
In both cases, the finance income and finance charges
arising under finance lease agreements are credited and
debited, respectively, to interest and similar income and
interest expense and similar charges in the consolidated
income statement so as to produce a constant rate of return
over the lease term.
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ii. Operating leases
In operating leases, ownership of the leased asset and
substantially all the risks and rewards incidental thereto
remain with the lessor.
When the consolidated entities act as the lessors, they
present the acquisition cost of the leased assets under
Tangible assets (see Note 16). The depreciation policy for
these assets is consistent with that for similar items of
property, plant and equipment for own use, and income
from operating leases is recognised on a straight-line basis
under Other operating income in the consolidated income
statement.
When the consolidated entities act as the lessees, the lease
expenses, including any incentives granted by the lessor, are
charged on a straight-line basis to Other general
administrative expenses in their consolidated income
statements.
. .. R .
iii. Sale and leaseback transactions
In sale and leaseback transactions where the sale is at fair
value and the leaseback is an operating lease, any profit or
loss is recognised at the time of sale. In the case of finance
leasebacks, any profit or loss is amortised over the lease
term.
In accordance with IAS 17, in determining whether a sale
and leaseback transaction results in an operating lease, the
Group should analyse, inter alia, whether at the inception of
the lease there are purchase options whose terms and
conditions make it reasonably certain that they will be
exercised, and to whom the gains or losses from the
fluctuations in the fair value of the residual value of the
related asset will accrue.
m) Intangible assets
Intangible assets are identifiable non-monetary assets
(separable from other assets) without physical substance
which arise as a result of a legal transaction or which are
developed internally by the consolidated entities. Only
assets whose cost can be estimated reliably and from which
the consolidated entities consider it probable that future
economic benefits will be generated are recognised.
Intangible assets are recognised initially at acquisition or
production cost and are subsequently measured at cost less
any accumulated amortisation and any accumulated
impairment losses.
i. Goodwill
Any excess of the cost of the investments in the
consolidated entities and entities accounted for using the
equity method over the corresponding underlying carrying
amounts acquired, adjusted at the date of first-time
consolidation, is allocated as follows:
• If it is attributable to specific assets and liabilities of the
companies acquired, by increasing the value of the assets
(or reducing the value of the liabilities) whose fair values
were higher (lower) than the carrying amounts at which
they had been recognised in the acquired entities’ balance
sheets.
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2019 Annual Report
• If it is attributable to specific intangible assets, by
recognising it explicitly in the consolidated balance sheet
provided that the fair value of these assets within twelve
months following the date of acquisition can be
measured reliably.
• The remaining amount is recognised as goodwill, which is
allocated to one or more cash-generating units (a cash-
generating unit is the smallest identifiable group of
assets that, as a result of continuing operation, generates
cash inflows that are largely independent of the cash
inflows from other assets or groups of assets). The cash-
generating units represent the Group’s geographical and/
or business segments.
Goodwill (only recognised when it has been acquired by
consideration) represents, therefore, a payment made by
the acquirer in anticipation of future economic benefits from
assets of the acquired entity that are not capable of being
individually identified and separately recognised.
At the end of each annual reporting period or whenever
there is any indication of impairment goodwill is reviewed
for impairment (i.e. a reduction in its recoverable amount to
below its carrying amount) and, if there is any impairment,
the goodwill is written down with a charge to Impairment or
reversal of impairment on non-financial assets, net -
Intangible assets in the consolidated income statement.
An impairment loss recognised for goodwill is not reversed
in a subsequent period.
ii. Other intangible assets
Other intangible assets includes the amount of identifiable
intangible assets (such as purchased customer lists and
computer software).
Other intangible assets can have an indefinite useful life -
when, based on an analysis of all the relevant factors, it is
concluded that there is no foreseeable limit to the period
over which the asset is expected to generate net cash
inflows for the consolidated entities- or a finite useful life, in
all other cases.
Intangible assets with indefinite useful lives are not
amortised, but rather at the end of each reporting period or
whenever there is any indication of impairment the
consolidated entities review the remaining useful lives of
the assets in order to determine whether they continue to
be indefinite and, if this is not the case, to take the
appropriate steps.
Intangible assets with finite useful lives are amortised over
those useful lives using methods similar to those used to
depreciate tangible assets.
The intangible asset amortisation charge is recognised
under Depreciation and amortisation in the consolidated
income statement.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
In both cases the consolidated entities recognise any
impairment loss on the carrying amount of these assets
with a charge to Impairment or reversal of impairment on
non-financial assets, net - Intangible assets in the
consolidated income statement. The criteria used to
recognise the impairment losses on these assets and, where
applicable, the reversal of impairment losses recognised in
prior years are similar to those used for tangible assets (see
Note 2.k).
Internally developed computer software
Internally developed computer software is recognised as an
intangible asset if, among other requisites (basically the
Group’s ability to use or sell it), it can be identified and its
ability to generate future economic benefits can be
demonstrated.
Expenditure on research activities is recognised as an
expense in the year in which it is incurred and cannot be
subsequently capitalised into the carrying amount of the
intangible asset.
n) Other assets
Other assets in the consolidated balance sheet includes the
amount of assets not recorded in other items, the
breakdown being as follows:
• Inventories: this item includes the amount of assets,
other than financial instruments, that are held for sale in
the ordinary course of business, that are in the process of
production, construction or development for such
purpose, or that are to be consumed in the production
process or in the provision of services. Inventories include
land and other property held for sale in the property
development business.
Inventories are measured at the lower of cost and net
realisable value, which is the estimated selling price of
the inventories in the ordinary course of business, less
the estimated costs of completion and the estimated
costs required to make the sale.
Any write-downs of inventories -such as those due to
damage, obsolescence or reduction of selling price- to net
realisable value and other impairment losses are
recognised as expenses for the year in which the
impairment or loss occurs. Subsequent reversals are
recognised in the consolidated income statement for the
year in which they occur.
The carrying amount of inventories is derecognised and
recognised as an expense in the period in which the
revenue from their sale is recognised.
• Other: this item includes the balance of all prepayments
and accrued income (excluding accrued interest, fees and
commissions), the net amount of the difference between
pension plan obligations and the value of the plan assets
with a balance in the entity’s favour, when this net
amount is to be reported in the consolidated balance
sheet, and the amount of any other assets not included in
other items.
Additionally, in this chapter at 31 December 2019, the right
of collection acquired from Enagás Transporte is registered
in the amount of EUR 666 million of principal charged to the
gas system conferred by Royal Decree-Law 13/2004 (for
which urgent measures were adopted in relation to with the
gas system and due to the extraordinary and urgent need to
find a solution to the complex technical situation existing in
the underground storage of natural gas «Castor», especially
after the resignation of the concession presented by its
owner).
In the aforementioned RD-law, it was agreed the
hibernation of the Castor gas submarine storage facilities
and the assignation of the operations required for its
maintenance and operability to Enagás Transporte. It also
recognised the value of the investment at EUR 1,350 million
and an obligation to pay this amount to the holder of the
extinguished concession by Enagás Transporte, recognising
a collection right, charged to the monthly billing for access
tolls and gas system fees during 30 years, for the amount
paid to the holder of the extinguished concession plus the
financial remuneration recognised by the RD-law.
Banco Santander acquired, along with other financial
entities, the collection right for its nominal redemption
value under a contract with full legal effectiveness and
protected, in good faith, in the full constitutionality of the
RD-law that created it, set its amount, established the legal
mechanism for its payment from the gas system and
allowed its transfer with full effect against it.
On 21 December 2017 the Constitutional Court gave a
judgement declaring unconstitutional certain provisions of
RD-Law 13/2014 and cancelling them due to procedural
defect, considering that the urgency reasons for which said
provisions had to be excluded from the ordinary legislative
procedure were not proven. Among others, the recognition
of the costs accrued until the entry into force of the Royal
Decree by the concessionaire waiving the investment and,
therefore, the compensation of EUR 1,350 million, and the
recognition of Enagás Transporte's right of collection from
the gas system for the amount of this compensation were
cancelled.
Because of the termination of the payment of the right of
collection and the obligation to reimburse the amounts
received following the declaration of unconstitutionality of
the RD-law, the Bank has internally analysed the situation
and, with due external advice, has concluded that the
probability of recovery of the total amount invested is high,
highlighting that the opinion of the Permanent Commission
of the State Council No. 196/2019, of 27 June, in the ex
officio review file of the final settlements paid to the bank
under the gas system, and considers that the current
situation involves an unjust enrichment of the State (or the
gas system) having received a work but not having assumed
the cost of its construction by the concessionaire.
The bank has also initiated the administrative and judicial
procedures that it has considered appropriate for the
defence of its rights. None of these procedures have been
concluded yet, but the bank considers them likely to be
favourably resolved, existing other recovery channels
available in the event that those described above are not
successful. This indemnification asset, since it does not arise
as a consequence of a contract, but rather from the liability
of the State legislator, does not meet the definition of a
financial asset. Consequently, and since it has the
characteristic of certain, it also does not meet the definition
of a contingent asset, it was classified as a non-financial
asset.
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o) Other liabilities
Other liabilities includes the balance of all accrued expenses
and deferred income, excluding accrued interest, and the
amount of any other liabilities not included in other
categories.
p) Provisions and contingent assets and liabilities
When preparing the financial statements of the
consolidated entities, the Bank’s directors made a
distinction between:
• Provisions: credit balances covering present obligations at
the reporting date arising from past events which could
give rise to a loss for the consolidated entities, which is
considered to be likely to occur and certain as to its nature
but uncertain as to its amount and/or timing.
• Contingent liabilities: possible obligations that arise from
past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more
future events not wholly within the control of the
consolidated entities. They include the present
obligations of the consolidated entities when it is not
probable that an outflow of resources embodying
economic benefits will be required to settle them. The
Group does not recognise the contingent liability. The
Group will disclose a contingent liability, unless the
possibility of an outflow of resources embodying
economic benefits is remote.
• Contingent assets: possible assets that arise from past
events and whose existence is conditional on, and will be
confirmed only by, the occurrence or non-occurrence of
one or more uncertain future events not wholly within
the control of the Group. Contingent assets are not
recognised in the consolidated balance sheet or in the
consolidated income statement, but rather are disclosed
in the notes, provided that it is probable that these assets
will give rise to an increase in resources embodying
economic benefits.
The Group’s consolidated financial statements include all
the material provisions with respect to which it is
considered that it is more likely than not the obligation will
have to be settled. In accordance with accounting standards,
contingent liabilities must not be recognised in the
consolidated financial statements, but must rather be
disclosed in the notes.
Provisions, which are quantified on the basis of the best
information available on the consequences of the event
giving rise to them and are reviewed and adjusted at the
end of each year, are used to cater for the specific
obligations for which they were originally recognised.
Provisions are fully or partially reversed when such
obligations cease to exist or are reduced.
Provisions are classified according to the obligations
covered as follows (see Note 25):
• Provision for pensions and similar obligations: includes
the amount of all the provisions made to cover post-
employment benefits, including obligations to pre-
retirees and similar obligations.
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• Provisions for contingent liabilities and commitments:
include the amount of the provisions made to cover
contingent liabilities -defined as those transactions in
which the Group guarantees the obligations of a third
party, arising as a result of financial guarantees granted
or contracts of another kind- and contingent
commitments -defined as irrevocable commitments that
may give rise to the recognition of financial assets.
• Provisions for taxes and other legal contingencies and
Other provisions: include the amount of the provisions
recognised to cover tax and legal contingencies and
litigation and the other provisions recognised by the
consolidated entities. Other provisions includes, inter alia,
any provisions for restructuring costs and environmental
measures.
q) Court proceedings and/or claims in process
At the end of 2019 certain court proceedings and claims
were in process against the consolidated entities arising
from the ordinary course of their operations (see Note 25).
r) Own equity instruments
Own equity instruments are those meeting both of the
following conditions:
• The instruments do not include any contractual obligation
for the issuer: (i) to deliver cash or another financial asset
to a third party; or (ii) to exchange financial assets or
financial liabilities with a third party under conditions that
are potentially unfavourable to the issuer.
• The instruments will or may be settled in the issuer’s own
equity instruments and are: (i) a non-derivative that
includes no contractual obligation for the issuer to deliver
a variable number of its own equity instruments; or (ii) a
derivative that will be settled by the issuer through the
exchange of a fixed amount of cash or another financial
asset for a fixed number of its own equity instruments.
Transactions involving own equity instruments, including
their issuance and cancellation, are charged directly to
equity.
Changes in the value of instruments classified as own
equity instruments are not recognised in the consolidated
financial statements. Consideration received or paid in
exchange for such instruments, including the coupons on
preference shares contingently convertible into ordinary
shares and the coupons associated with CCPP, is directly
added to or deducted from equity.
s) Equity-instrument-based employee remuneration
Own equity instruments delivered to employees in
consideration for their services, if the instruments are
delivered once the specific period of service has ended, are
recognised as an expense for services (with the
corresponding increase in equity) as the services are
rendered by employees during the service period. At the
grant date the services received (and the related increase in
equity) are measured at the fair value of the equity
instruments granted. If the equity instruments granted are
vested immediately, the Group recognises in full, at the
grant date, the expense for the services received.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
When the requirements stipulated in the remuneration
agreement include external market conditions (such as
equity instruments reaching a certain quoted price), the
amount ultimately to be recognised in equity will depend on
the other conditions being met by the employees (normally
length of service requirements), irrespective of whether the
market conditions are satisfied. If the conditions of the
agreement are met but the external market conditions are
not satisfied, the amounts previously recognised in equity
are not reversed, even if the employees do not exercise their
right to receive the equity instruments.
t) Recognition of income and expenses
The most significant criteria used by the Group to recognise
its income and expenses are summarised as follows:
i. Interest income, interest expenses and similar items
Interest income, interest expenses and similar items are
generally recognised on an accrual basis using the effective
interest method. Dividends received from other companies
are recognised as income when the consolidated entities’
right to receive them arises.
ii. Commissions, fees and similar items
Fee and commission income and expenses are recognised in
the consolidated income statement using criteria that vary
according to their nature. The main criteria are as follows:
• Fee and commission income and expenses relating to
financial assets and financial liabilities measured at fair
value through profit or loss are recognised when paid.
• Those arising from transactions or services that are
performed over a period of time are recognised over the
life of these transactions or services.
• Those relating to services provided in a single act are
recognised when the single act is carried out.
iii. Non-finance income and expenses
They are recognised for accounting purposes when the good
is delivered or the non-financial service is rendered. To
determine the amount and timing of recognition, a five-step
model is followed: identification of the contract with the
customer, identification of the separate obligations of the
contract, determination of the transaction price, distribution
of the transaction price among the identified obligations
and finally recording of income as the obligations are
satisfied.
iv. Deferred collections and payments
These are recognised for accounting purposes at the amount
resulting from discounting the expected cash flows at
market rates.
v. Loan arrangement fees
Loan arrangement fees, mainly loan origination, application
and information fees, are accrued and recognised in income
over the term of the loan.
u) Financial guarantees
Financial guarantees are defined as contracts whereby an
entity undertakes to make specific payments on behalf of a
third party if the latter fails to do so, irrespective of the
various legal forms they may have, such as guarantees,
insurance policies or credit derivatives.
The Group initially recognises the financial guarantees
provided on the liability side of the consolidated balance
sheet at fair value, which is generally the present value of
the fees, commissions and interest receivable from these
contracts over the term thereof, and simultaneously the
Group recognises the amount of the fees, commissions and
similar interest received at the inception of the transactions
and a credit on the asset side of the consolidated balance
sheet for the present value of the fees, commissions and
interest outstanding.
Financial guarantees, regardless of the guarantor,
instrumentation or other circumstances, are reviewed
periodically so as to determine the credit risk to which they
are exposed and, if appropriate, to consider whether a
provision is required. The credit risk is determined by
application of criteria similar to those established for
quantifying impairment losses on debt instruments carried
at amortised cost (described in Note 2.g above).
The provisions made for these transactions are recognised
under Provisions - Provisions for commitments and
guarantees given in the consolidated balance sheet (see
Note 25). These provisions are recognised and reversed with
a charge or credit, respectively, to Provisions or reversal of
provisions, net, in the consolidated income statement.
If a specific provision is required for financial guarantees,
the related unearned commissions recognised under
Financial liabilities at amortised cost - Other financial
liabilities in the consolidated balance sheet are reclassified
to the appropriate provision.
v) Assets under management and investment and
pension funds managed by the Group
Assets owned by third parties and managed by the
consolidated entities are not presented on the face of the
consolidated balance sheet. Management fees are included
in Fee and commission income in the consolidated income
statement.
The investment funds and pension funds managed by the
consolidated entities are not presented on the face of the
Group’s consolidated balance sheet since the related assets
are owned by third parties. The fees and commissions
earned in the year for the services rendered by the Group
entities to these funds (asset management and custody
services) are recognised under Fee and commission income
in the consolidated income statement.
Note 2.b.iv describes the internal criteria and procedures
used to determine whether control exists over the
structured entities, which include, inter alia, investment
funds and pension funds.
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w) Post-employment benefits
Post-employment benefits are recognised as follows:
Under the collective agreements currently in force and other
arrangements, the Spanish banks included in the Group and
certain other Spanish and foreign consolidated entities have
undertaken to supplement the public social security system
benefits accruing to certain employees, and to their
beneficiary right holders, for retirement, permanent
disability or death, and the post-employment welfare
benefits.
The Group's post-employment obligations to its employees
are deemed to be defined contribution plans when the
Group makes pre-determined contributions (recognised
under Personnel expenses in the consolidated income
statement) to a separate entity and will have no legal or
effective obligation to make further contributions if the
separate entity cannot pay the employee benefits relating
to the service rendered in the current and prior periods.
Post-employment obligations that do not meet the
aforementioned conditions are classified as defined benefit
plans (see Note 25).
Defined contribution plans
The contributions made in this connection in each year are
recognised under Personnel expenses in the consolidated
income statement. The amounts not yet contributed at each
year-end are recognised, at their present value, under
Provisions - Provision for pensions and similar obligations
on the liability side of the consolidated balance sheet.
Defined benefit plans
The Group recognises under Provisions - Provision for
pensions and similar obligations on the liability side of the
consolidated balance sheet (or under Other assets on the
asset side, as appropriate) the present value of its defined
benefit post-employment obligations, net of the fair value
of the plan assets.
Plan assets are defined as those that will be directly used to
settle obligations and that meet the following conditions:
• They are not owned by the consolidated entities, but by a
legally separate third party that is not a party related to
the Group.
• They are only available to pay or fund post-employment
benefits and they cannot be returned to the consolidated
entities unless the assets remaining in the plan are
sufficient to meet all the benefit obligations of the plan
and of the entity to current and former employees, or
they are returned to reimburse employee benefits
already paid by the Group.
If the Group can look to an insurer to pay part or all of the
expenditure required to settle a defined benefit obligation,
and it is practically certain that said insurer will reimburse
some or all of the expenditure required to settle that
obligation, but the insurance policy does not qualify as a
plan asset, the Group recognises its right to reimbursement
-which, in all other respects, is treated as a plan asset-
under Insurance contracts linked to pensions on the asset
side of the consolidated balance sheet.
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2019 Annual Report
• Current service cost, (the increase in the present value of
the obligations resulting from employee service in the
current period), is recognised under Staff costs.
• The past service cost, which arises from changes to
existing post-employment benefits or from the
introduction of new benefits and includes the cost of
reductions, is recognised under Provisions or reversal of
provisions.
• Any gain or loss arising from a liquidation of the plan is
included in the Provisions or reversion of provisions.
• Net interest on the net defined benefit liability (asset), i.e.
the change during the period in the net defined benefit
liability (asset) that arises from the passage of time, is
recognised under Interest expense and similar charges
(Interest and similar income if it constitutes income) in
the consolidated income statement.
The remeasurement of the net defined benefit liability
(asset) is recognised in Other comprehensive income under
Items not reclassified to profit or loss and includes:
• Actuarial gains and losses generated in the year, arising
from the differences between the previous actuarial
assumptions and what has actually occurred and from
the effects of changes in actuarial assumptions.
• The return on plan assets, excluding amounts included in
net interest on the net defined benefit liability (asset).
• Any change in the effect of the asset ceiling, excluding
amounts included in net interest on the net defined
benefit liability (asset).
x) Other long-term employee benefits
Other long-term employee benefits, defined as obligations
to pre-retirees -taken to be those who have ceased to
render services at the entity but who, without being legally
retired, continue to have economic rights vis-à-vis the entity
until they acquire the legal status of retiree-, long-service
bonuses, obligations for death of spouse or disability before
retirement that depend on the employee’s length of service
at the entity and other similar items, are treated for
accounting purposes, where applicable, as established
above for defined benefit post-employment plans, except
that actuarial gains and losses are recognised under
Provisions or reversal of provisions, net, in the consolidated
income statement (see Note 25).
y) Termination benefits
Termination benefits are recognised when there is a
detailed formal plan identifying the basic changes to be
made, provided that implementation of the plan has begun,
its main features have been publicly announced or objective
facts concerning its implementation have been disclosed.
z) Income tax
The expense for Spanish income tax and other similar taxes
applicable to the foreign consolidated entities is recognised
in the consolidated income statement, except when they
arise from a transaction whose results are recognised
directly in equity, in which case the related tax effect is
recognised in equity (see Note 1.b) - Amendment to IFRS
Cycle 2015-2017.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The current income tax expense is calculated as the sum of
the current tax resulting from application of the appropriate
tax rate to the taxable profit for the year (net of any
deductions allowable for tax purposes), and of the changes
in deferred tax assets and liabilities recognised in the
consolidated income statement.
Deferred tax assets and liabilities include temporary
differences, which are identified as the amounts expected
to be payable or recoverable on differences between the
carrying amounts of assets and liabilities and their related
tax bases, and tax loss and tax credit carryforwards. These
amounts are measured at the tax rates that are expected to
apply in the period when the asset is realised or the liability
is settled.
Tax assets include the amount of all tax assets, which are
broken down into current -amounts of tax to be recovered
within the next twelve months- and deferred -amounts of
tax to be recovered in future years, including those arising
from tax loss or tax credit carryforwards.
Tax liabilities includes the amount of all tax liabilities
(except provisions for taxes), which are broken down into
current -the amount payable in respect of the income tax on
the taxable profit for the year and other taxes in the next
twelve months- and deferred -the amount of income tax
payable in future years.
Deferred tax liabilities are recognised in respect of taxable
temporary differences associated with investments in
subsidiaries, associates or joint ventures, except when the
Group is able to control the timing of the reversal of the
temporary difference and, in addition, it is probable that the
temporary difference will not reverse in the foreseeable
future. In this regard, no deferred tax liabilities of EUR 920
million were recognised in relation to the taxation that
would arise from the undistributed earnings of certain
Group holding companies, in accordance with the legislation
applicable in those jurisdictions.
Deferred tax assets are only recognised for temporary
differences to the extent that it is considered probable that
the consolidated entities will have sufficient future taxable
profits against which the deferred tax assets can be utilised,
and the deferred tax assets do not arise from the initial
recognition (except in a business combination) of other
assets and liabilities in a transaction that affects neither
taxable profit nor accounting profit. Other deferred tax
assets (tax loss and tax credit carryforwards) are only
recognised if it is considered probable that the consolidated
entities will have sufficient future taxable profits against
which they can be utilised.
Income and expenses recognised directly in equity are
accounted for as temporary differences.
The deferred tax assets and liabilities are reassessed at the
reporting date in order to ascertain whether any
adjustments need to be made on the basis of the findings of
the analyses performed.
aa) Residual maturity periods and average interest
rates
The analysis of the maturities of the balances of certain
items in the consolidated balance sheet and the average
interest rates at the end of the reporting periods is provided
in Note 51.
ab) Consolidated statement of recognised income and
expense
This statement presents the income and expenses
generated by the Group as a result of its business activity in
the year, and a distinction is made between the income and
expenses recognised in the consolidated income statement
for the year and the other income and expenses recognised
directly in consolidated equity.
Accordingly, this statement presents:
a. Consolidated profit for the year.
b. The net amount of the income and expenses recognised
in Other comprehensive income under items that will not
be reclassified to profit or loss.
c. The net amount of the income and expenses recognised
in Other comprehensive income under items that may be
reclassified subsequently to profit or loss.
d. The income tax incurred in respect of the items indicated
in b) and c) above, except for the valuation adjustments
arising from investments in associates or joint ventures
accounted for using the equity method, which are
presented net.
e. Total consolidated recognised income and expense,
calculated as the sum of a) to d) above, presenting
separately the amount attributable to the parent
company and the amount relating to non-controlling
interests.
The statement presents the items separately by nature,
grouping together items that, in accordance with the
applicable accounting standards, will not be reclassified
subsequently to profit and loss since the requirements
established by the corresponding accounting standards are
met.
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ac) Statement of changes in total equity
This statement presents all the changes in equity, including
those arising from changes in accounting policies and from
the correction of errors. Accordingly, this statement
presents a reconciliation of the carrying amount at the
beginning and end of the year of all the consolidated equity
items, and the changes are grouped together on the basis of
their nature into the following items:
a. Adjustments due to changes in accounting policies and to
errors: include the changes in consolidated equity arising
as a result of the retrospective restatement of the
balances in the consolidated financial statements,
distinguishing between those resulting from changes in
accounting policies and those relating to the correction of
errors.
b. Income and expense recognised in the year: includes, in
aggregate form, the total of the aforementioned items
recognised in the consolidated statement of recognised
income and expense.
c. Other changes in equity: includes the remaining items
recognised in equity, including, inter alia, increases and
decreases in capital, distribution of profit, transactions
involving own equity instruments, equity-instrument-
based payments, transfers between equity items and any
other increases or decreases in consolidated equity.
ad) Consolidated statement of cash flows
The following terms are used in the consolidated
statements of cash flows with the meanings specified:
• Cash flows: inflows and outflows of cash and cash
equivalents, which are short-term, highly liquid
investments that are subject to an insignificant risk of
changes in value, irrespective of the portfolio in which
they are classified.
The Group classifies as cash and cash equivalents the
balances recognised under Cash, cash balances at central
banks and other deposits on demand in the consolidated
balance sheet.
• Operating activities: the principal revenue-producing
activities of credit institutions and other activities that are
not investing or financing activities.
• Investing activities: the acquisition and disposal of long-
term assets and other investments not included in cash
and cash equivalents.
• Financing activities: activities that result in changes in the
size and composition of the equity and liabilities that are
not operating activities.
During 2019 the Group received interest amounting to EUR
55,269 million (EUR 50,685 million in 2018) and paid
interest amounting to EUR 20,671 million (EUR 19,927
million in 2018).
Also, dividends received and paid by the Group are detailed
in Notes 4, 28 and 40, including dividends paid to minority
interests (non-controlling interests).
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3. Santander Group
a) Banco Santander, S.A. and international Group
structure
The growth of the Group in the last decades has led the
Bank to also act, in practice, as a holding entity of the
shares of the various companies in its Group, and its results
are becoming progressively less representative of the
performance and earnings of the Group. Therefore,
each year the Bank determines the amount of the dividends
to be distributed to its shareholders on the basis of the
consolidated net profit, while maintaining the Group’s
objectives of capitalisation and taking into account that the
transactions of the Bank and of the rest of the Group are
managed on a consolidated basis (notwithstanding the
allocation to each company of the related net worth effect).
At the international level, the various banks and other
subsidiaries, joint ventures and associates of the Group are
integrated in a corporate structure comprising various
holding companies which are the ultimate shareholders of
the banks and subsidiaries abroad.
The purpose of this structure, all of which is controlled by
the Bank, is to optimise the international organisation from
the strategic, economic, financial and tax standpoints, since
it makes it possible to define the most appropriate units to
be entrusted with acquiring, selling or holding stakes in
other international entities, the most appropriate financing
method for these transactions and the most appropriate
means of remitting the profits obtained by the Group’s
various operating units to Spain.
The Appendices provide relevant data on the consolidated
Group companies and on the companies accounted for using
the equity method.
b) Acquisitions and disposals
Following is a summary of the main acquisitions and
disposals of ownership interests in the share capital of other
entities and other significant corporate transactions
performed by the Group in the last three years:
i. Agreement for the acquisition of 50.1% of Ebury
On 4 November 2019, Banco Santander, S.A. announced a
strategic investment in Ebury, one of the best payment and
currency platforms for SMEs, worth GBP 350 million
(approximately EUR 400 million). In accordance with the
conditions of the operation, Santander will acquire 50.1% of
Ebury for GBP 350 million, of which GBP 70 million
correspond to new shares (approximately EUR 80 million) to
support the company's plans to enter in new markets in
Latin America and Asia.
As of 31 December 2019, the Group had acquired a 6.4%
interest in Ebury for a price of GBP 40 million
(approximately EUR 45 million), pending the rest of the
investment in compliance with the usual suspensive
conditions in this type of operations, including obtaining
regulatory approvals. The rest of the investment is expected
to be completed in 2020.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
ii. Agreement with Crédit Agricole S.A. on the depositary
and custody business
iv. Reorganization of the banking insurance business,
asset management and pension plans in Spain
On 17 April 2019, Banco Santander, S.A. announced that it
had signed a memorandum of understanding with Crédit
Agricole S.A. with the purpose of combining CACEIS and its
subsidiaries (the “CACEIS Group”), which is wholly-owned
by Crédit Agricole S.A., with Santander Securities Services,
S.A.U. and its subsidiaries (the “S3 Group”), which is wholly-
owned by Banco Santander, S.A.
The operation consists of the contribution by the Santander
Group to the CACEIS Group of 100% of the S3 Group in
Spain and 50% of the S3 Group's business in Latin America
in exchange for a 30.5% stake in the CACEIS Group Capital
and voting rights. The remaining 69.5% remains the
property of Crédit Agricole, SA. The S3 Group's Latin
American business is under the joint control of the CACEIS
Group and the Santander Group.
On 27 June 2019, the signing of the final contracts took
place after having carried out the precise prior consultations
with the representative bodies of Credit Agricole, SA
employees and the CACEIS Group. The closing of the
operation took place on 20 December, 2019 once the
relevant regulatory authorizations were obtained.
The operation has generated a net capital gain of EUR 693
million recorded for its gross amount under the heading of
non-classified assets as non-current assets for sale of the
consolidated profit and loss account, of which EUR 219
million correspond to the recognition at fair value of the
investment of 49.99% retained by the Group in S3 Latin
America. The 30.5% interest in the CACEIS GROUP has been
recorded under the heading of Investments - Associates of
the consolidated balance sheet for an amount of EUR 1,010
million.
iii. Offer to acquire shares of Banco Santander Mexico,
S.A., Institución de Banca Multiple, Grupo Financiero
Santander México.
On 12 April 2019, Banco Santander, S.A. announced its
intention to make an offer to acquire all the shares of Banco
Santander Mexico, S.A., Institución de Banca Múltiple,
Grupo Financiero Santander México ("Santander México")
which are not owned by Grupo Santander, representing
approximately 25% of the share capital of Santander
México.
The shareholders who have accepted the offer have
received 0.337 newly issued shares of Banco Santander, S.A.
per share of Santander México and 1.685 American
Depositary Shares (ADSs) of Banco Santander, S.A. per ADS
of Santander México.
The offer was accepted by holders of shares representing
16.69% of the capital stock of Santander Mexico, so the
Group's participation in Santander Mexico has become
91.65% of its share capital. To meet the exchange, the Bank
proceeded to issue, in execution of the agreement adopted
by the extraordinary general meeting held on 23 July 2019,
381,540,640 shares, which represented approximately
2.35% of the Bank's share capital in the date of issue. This
operation meant an increase of191 million euros in Capital,
1,491 million euros in issue premium and a decrease of 670
million euros in Reserves and 1,012 million euros in
minority interests.
On 24 June 2019, Banco Santander, S.A. reached an
agreement with the Allianz Group to terminate the
agreement that Banco Popular Español, S.A.U. (“Banco
Popular”) held in Spain with the Allianz Group for the
exclusive distribution of certain life insurance products,
non-life insurance products, collective investment
institutions, and pension plans through the Banco Popular
network (the “Agreement”).
The Agreement was executed on 15 January 2020 for the
non-life business and on 31 January 2020 for the remaining
businesses, once the regulatory authorisations were
obtained in the first half of 2020. The execution of the
Termination Agreement entailed the payment by Banco
Santander of a total consideration of EUR 859 million (after
deducting the dividends paid until the end of the operation).
It is expected that, subject to the fulfilment of certain
suspensive conditions, 51% of the life-risk insurance
business held by Banco Santander and 51% of the new
General Insurance line of business from Banco Popular's
network not transferred to Mapfre (in accordance with the
agreement indicated below) will be acquired by Aegon.
These transactions are not expected to have a significant
impact on the Group's income statement.
In addition, under the agreement reached between Banco
Santander and Mapfre on 21 January 2019, 50.01% of the
car, commercial, SME and corporate liability insurance
business throughout Banco Santander's network in Spain
was acquired by Mapfre on 25 June 2019 for EUR 82
million.
v. Sale of the 49% stake in WiZink
Once the relevant regulatory authorizations were obtained,
on 6 November 2018, the operations related to the
agreement reached with entities managed by Värde
Partners, Inc (“Varde") and with WiZink Bank, S.A.
(“WiZink”) communicated by the Group on 26 March 2018
by virtue of which:
i. Banco Santander, S.A. sold its 49% stake in WiZink to
Varde for EUR 1,043 million, with no significant impact on
the Group's results and,
ii. Banco Santander, S.A. and Banco Santander Totta, S.A.
acquired the business of credit and debit cards marketed by
Grupo Banco Popular in Spain and Portugal that WiZink had
acquired in 2014 and 2016. As a result of this transaction,
the Group paid a total of EUR 681 million, receiving net
assets worth EUR 306 million (mainly customer loans worth
EUR 315 million), with the business combination generating
a goodwill of EUR 375 million, managed by the businesses
in Spain.
With these transactions, the Group resumed Grupo Banco
Popular's debit and credit card business, which improves the
commercial strategy.
vi. Acquisition of the retail banking and private banking
business of Deutsche Bank Polska S.A.
On 14 December 2017, the Group announced that its
subsidiary Santander Bank Polska S.A. (previously Bank
Zachodni WBK S.A.) together with Banco Santander, S.A.,
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Table of Contents
had reached an agreement with Deutsche Bank, A.G. for the
acquisition (through a carve out) of the retail and private
banking business of Deutsche Bank Polska S.A., excluding
the foreign currency mortgage portfolio and the CIB
(Corporate & Investment Banking) business, and including
the asset management company DB Securities, S.A.
(Poland).
In November 2018, once the regulatory authorisations had
been received and approved by the general shareholders'
meetings of Santander Bank Polska S.A. and Deutsche Bank
Polska, S.A., the acquisition of EUR 298 million in cash and
newly issued shares of Santander Bank Polska S.A.
subscribed in full by Deutsche Bank, A.G. was closed. As a
result of this transaction, the Group has acquired net assets
worth EUR 365 million, mainly loans and deposits to
customers and credit institutions amounting to EUR 4,304
million and EUR 4,025 million, respectively, and negative
value adjustments amounting to EUR 82 million (mainly
under line Loans and advances).
The difference between the fair value of the net assets
acquired and the transaction value resulted in a gain of EUR
67 million which was recognised under "Negative Goodwill
Recognised in Income" in the Group's consolidated income
statement.
vii. Acquisition of Banco Popular Español, S.A.U.
On 7 June 2017, (the acquisition date), as part of its growth
strategy in the markets where it is present, the Group
communicated the acquisition of 100% of the share capital
of Banco Popular Español, S.A.U. (“Banco Popular”)(merged
with Banco Santander, see Note 3.b)v) as a result of a
competitive sale process organised in the framework of a
resolution scheme adopted by the Single Resolution Board
(“SRB”) and executed by the FROB, Spanish single
resolution board, in accordance with Regulation (EU)
806/2014 of the European Parliament and of the Council of
15 May 2014, and Law 11/2015, of 18 June, for the
recovery and resolution of credit institutions and investment
firms.
As part of the execution of the resolution:
• All the shares of Banco Popular outstanding at the closing
of market on 7 June 2017 and all the shares resulting
from the conversion of the regulatory capital instruments
Additional Tier 1 issued by Banco Popular have been
converted into undisposed reserves.
• All the regulatory capital instruments Tier 2 issued by
Banco Popular S.A.U. have been converted into newly
issued shares of Banco Popular, all of which have been
acquired for a total consideration of one euro by the
Group.
The transaction was approved by all the applicable
regulatory and antitrust authorities in the territories where
Banco Popular operated.
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2019 Annual Report
In accordance with IFRS 3, the Group measured the
identifiable assets acquired and liabilities assumed at fair
value. The detail of this fair value of the identifiable assets
acquired and liabilities assumed at the business
combination date was as follows:
As of 7 June, 2017
Cash and balances with central banks
Financial assets available-for-sale
Deposits from credit institutions
Loans and receivables*
Investments
Intangible assets*
Tax assets*
Non-current assets held for sale*
Other assets
Total assets
Deposits from central banks
Deposits from credit institutions
Customer deposits
Marketable debt securities and
other financial liabilities
Provisions ***
Other liabilities
Total liabilities **
Net assets
Purchase consideration
Goodwill
Million
euros
1,861
18,974
2,971
82,057
1,815
133
3,945
6,531
6,259
124,546
28,845
14,094
62,270
12,919
1,816
4,850
124,794
(248)
—
248
* The main fair value adjustments were the following:
• Loans and receivables: in the estimation of their fair value,
impairment have been considered for an approximate amount of EUR
3,239 million, considering, among others, the sale process carried
out by the Bank.
• Foreclosed assets: the valuation, considering the sale process carried
out by the company, has meant a reduction in the value of EUR 3,806
million, approximately.
Intangible assets: includes value reductions amounting to
approximately of EUR 2,469 million, mainly recorded under the
“Intangible assets - goodwill”.
•
• Deferred tax assets: mainly corresponds to the reduction of the value
of negative tax bases and deductions for an approximate amount of
EUR 1,711 million.
** After the initial analysis and the conversion of the subordinated debt, the
best estimation is there is no significant impact between fair value and
previous carrying amount of the financial liabilities.
***As a result of the resolution of Banco Popular S.A.U., it includes the
estimated cost of EUR 680 million relating to the potential compensation to
the shareholders of Banco Popular S.A.U. of which EUR 535 million have
been applied to the fidelity action.
During 2018, the Group closed its assessment exercise of
the assets acquired and liabilities assumed at fair value,
without any modification with respect to what was recorded
in 2017.
viii. Sale agreement of Banco Popular S.A.U.’s real estate
business
In relation with Banco Popular Español, S.A.U.’s (“Banco
Popular”) real estate business, on 8 August 2017, the Group
announced the agreement with a Blackstone fund for the
acquisition by the fund of 51% of, and hence the
assignment of control over, part of Banco Popular's real
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
estate business (the “Business”), which comprises a
portfolio of foreclosed properties, real estate companies,
non-performing loans relating to the sector and other
assets related to these activities owned by Banco Popular
and its affiliates (including deferred tax assets allocated to
specific real estate companies which are part of the
transferred portfolio) registered on certain specified dates
(31 March 2017 or 30 April 2017).
The signing took place after the European Commission
authorized, without imposing any restrictions, the
acquisition of Banco Popular Español S.A.U. by Banco
Santander, S.A. for the purposes of competition law. The
Group closed its valuation exercise of the assets and
liabilities assumed at fair value during 2018 without any
change with respect to what was recorded at the end of
2017.
The transaction closed on 22 March 2018 following receipt
of the required regulatory authorizations and other usual
conditions in this type of transactions. The transaction
consisted of the creation of various companies, being the
parent company Project Quasar Investments 2017, S.L., in
which Banco Santander, S.A. maintains 49% of the share
capital and Blackstone the remaining 51%, and to which
Banco Popular and some subsidiaries transferred the
business constituted by the indicated assets, and its
participation in the capital of Aliseda Real Estate
Management Services, S.L. The value attributed to the
contributed assets is approximately EUR 10,000 million
euros, of which approximately 70% was financed with third
party bank debt. After the contribution to the vehicle by its
shareholders of the necessary liquidity for the transaction of
the business, the 49% stake in the capital of the vehicles
was recorded in the consolidated balance sheet of the
Group for EUR 1,701 million in the "Investments in joint
ventures and associates - entities" section, without impact
in the Group´s income statement.
ix. Merger by absorption of Banco Santander, S.A. with
Banco Popular Español, S.A.U.
On 23 April 2018 the boards of directors of Banco
Santander, S.A. and Banco Popular Español, S.A.U. agreed to
approve and sign the merger project by absorption of Banco
Popular Español, S.A.U. by Banco Santander, S.A.
On 28 September 2018 the merger certificate of Banco
Popular Español, S.A.U. by Banco Santander, S.A. was
registered in the Mercantile Registry of Cantabria. After the
merger, Banco Santander, S.A. acquired, by universal
succession, all the rights and obligations of Banco Popular
Español, S.A.U., including those that had been acquired
from Banco Pastor, S.A.U. and Popular Banca Privada, S.A.U.,
by virtue of the merger of Banco Pastor and Popular Banca
Privada with Banco Popular Español, S.A.U. that was also
approved on 23 April 2018 by the respective board of
directors. This transaction had no impact on the Group's
income statement.
x. Agreement with Santander Asset Management
a) Acquisition of 50% of SAM Investment Holdings Limited
On 16 November 2016, after the agreement with Unicredit
Group on 27 July 2016 to integrate Santander Asset
Management and Pioneer Investments was abandoned, the
Group announced that it had reached an agreement with
Warburg Pincus (“WP”) and General Atlantic (“GA”) under
which Santander acquired 50% of SAM Investment Holdings
Limited, at 22 December 2017.
The Group disbursed a total amount of EUR 545 million and
assumed financing of EUR 439 million, with the business
combination generating a goodwill of EUR 1,173 million
and EUR 320 million of “intangible assets - contracts and
relationships with customers” identified in the purchase
price allocation, without other value adjustments to net
assets of the business. Likewise, the market valuation of the
previous participation held did not have an impact on the
Group’s income statement.
Considering that the main activity of the business is asset
management, the main part of its activity are recorded off
balance sheet. The main net assets acquired, in addition to
the aforementioned intangible assets, were net deposits in
credit institutions (EUR 181 million) and net tax assets (EUR
176 million). Given their nature, the fair value of these
assets and liabilities do not differ from the book value
recorded.
The Group closed its assessment exercise of assets acquired
and liabilities assumed at fair value during the year 2018
without modification with respect to what was recorded at
the end of 2017.
b) Sale participation Allfunds Bank, S.A.
As part of the transaction, which consists in the acquisition
of 50% of SAM Investment Holdings Limited, that was not
owned by the Group, Santander, WP and GA agreed to
explore different alternatives for the sale of its stake in
Allfunds Bank, S.A. (“Allfunds Bank”), including a possible
sale or a public offering. On 7 March 2017, the Bank
announced that together with our partners in Allfunds Bank
we had reached an agreement for the sale of 100% of
Allfunds Bank to funds affiliated with Hellman & Friedman,
a leading private equity investor, and GIC, Singapore’s
sovereign wealth fund.
On 21 November 2017 the Group announced the closing of
the sale by the Bank and its partners of 100% of Allfunds
Bank’s capital, obtaining an amount of EUR 501 million
from the sale of its 25% stake in Allfunds Bank, resulting in
gains net of tax of EUR 297 million, which were recognised
as “Gains or losses on disposal of non-financial assets and
investments, net”, within the statement of profit or loss.
xi. Purchase of the shares to DDFS LLC in Santander
Consumer USA Holdings Inc. (SCUSA)
On 2 July, 2015, the Group announced that it had reached
an agreement to purchase the 9.65% ownership interest
held by DDFS LLC in SCUSA.
On 15 November 2017, after having agreed on some
modifications to the original agreement and having
obtained the required regulatory authorizations, the Group
completed the acquisition of the aforementioned 9.65% of
SCUSA shares for a total sum of USD 942 million (EUR 800
million), which have caused a decrease of EUR 492 million
in the non-controlling interests balance and another
reduction to reserves of EUR 307 million.
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Table of Contents
c) Off-shore entities
The European Union.
According to current Spanish regulation (Royal Decree
1080/1991, of 5th July), Santander has entities in 4 off-
shore territories: Jersey, Guernsey, Isle of Man and Cayman
Islands. Santander has 3 subsidiaries and 4 branches in
these territories. Santander also has 4 subsidiaries in off-
shore territories, of which 3 are tax resident in the UK and 1
tax resident in Spain, to whose tax regimes they are
subjected.
I) Subsidiaries in off-shore territories.
At the reporting date, the Group has 3 subsidiaries resident
in off-shore territories, two in Jersey, Whitewick Limited (in
liquidation) and Abbey National International Limited, and
one in the Isle of Man, ALIL Services Limited (its liquidation
is expected in 2020). These subsidiaries contributed with a
very immaterial result to the Group’s consolidated profit in
2019. During 2019 a subsidiary resident in Jersey has been
liquidated.
II) Off-shore branches.
The Group also has 4 operative off-shore branches: 2 in the
Cayman Islands, 1 in the Isle of Man and 1 in Jersey. These
branches report to and consolidate their balance sheets and
income statements with their respective foreign
headquarters. Likewise they are taxed with their respective
headquarters (Cayman Islands branches, one of Brazil and
other of USA) or in the territories where they are located
(Jersey and Isle of Man branches belonging to UK).
The aforementioned entities of Sections I and II have a total
of 135 employees as of December 2019.
III) Subsidiaries in off-shore territories that are tax
resident in the UK and Spain.
As indicated, the Group also has 4 subsidiaries constituted
in these territories that are not considered to be off-shore
entities, since 3 of them are tax residents in the UK and,
therefore, subject to UK tax law during the period and
operate exclusively from the UK (one of these subsidiaries is
expected to be liquidated in 2020). In addition, since April
2018, the fourth subsidiary ceased to be a resident for tax
purposes in the UK to become a tax resident in Spain.
IV) Other off-shore investments.
The Group manages from Brazil a segregated portfolio
company called Santander Brazil Global Investment Fund
SPC in the Cayman Islands, and manages from the United
Kingdom a protected cell company in Guernsey called
Guaranteed Investment Products 1 PCC Limited. The Group
also has, directly or indirectly, few investments of reduced
amount in entities located in the Cayman Islands, as is the
case of the minority stakes through a subsidiary in UK.
OECD.
The Group has no presence in non-cooperative territories for
tax purposes as defined by the OECD in July 2019. In this
sense, it should be noted that Jersey, Guernsey, Isle of Man
and Cayman Islands, comply with OECD standards in terms
of transparency and exchange of information for tax
purposes.
554
2019 Annual Report
On 5 December 2017, the European Commission published
some lists of non-cooperative jurisdictions for tax purposes
(where there is no member state of the European Union):
blacklist, gray list and territories which have received a
grace period. Since then, the European Commission has
updated these lists.
After the last update published in February 2020, the EU
blacklist is composed of 12 jurisdictions in which the Group
only has presence in Cayman Islands, also considered
offshore territory by Spanish legislation, and one entity
without activity and in process of sale in Panama. On the
contrary, the Group has no presence in any of the 13
jurisdictions in the gray list that have committed, in a way
considered sufficient, to correct their legal frameworks to
align them with international standards and whose
implementation will be monitored by the EU.
The Group has established appropriate procedures and
controls (risk management, supervision, verification and
review plans and periodic reports) to prevent reputational,
tax and legal risk at these entities. In addition, the Group
has continued to implement its policy of reducing the
number of these off-shore units.
The financial statements of the Group’s off-shore units are
audited by PwC (PricewaterhouseCoopers) member firms in
2019, 2018 and 2017.
4. Distribution of the Bank's
profit, shareholder remuneration
scheme and earnings per share
a) Distribution of the Bank's profit and shareholder
remuneration scheme
The distribution of the Bank's net profit against the results
for 2019, that the board of directors will propose for
approval by the shareholders at the annual general meeting
is as follows:
Million of euros
Dividend distributed at 31 December*
Complementary dividend (includes in its case, cash
dividend from shareholders who opt to receive cash
in scrip dividend)**
To voluntary reserves
Net profit for the year
1,662
1,761
3,423
107
3,530
* Recognised under Shareholders' equity – Interim Dividends.
** Assuming a % of cash requests of 20%.
As of 2019, the Bank's shareholders have received the
dividend in two payments, instead of the four received in
previous years.
On 24 September 2019, the Bank´s Board of Directors
approved its first dividend against 2019 earnings of EUR
1,662 million (EUR 0.10 per share), which was entirely paid
in cash on 1 November 2019.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
A total remuneration of EUR 0.23 per share, charged to the
2019 annual period, will be proposed by the board of
directors to the shareholders at the annual general meeting.
b) Earnings per share from continuing and discontinued
operations
i. Basic earnings per share
Basic earnings per share are calculated by dividing the net
profit attributable to the Group (adjusted by the after-tax
amount of the remuneration of contingently convertible
preference shares recognised in equity - see Note 23) and
the capital perpetual preference shares, if applicable, by the
weighted average number of ordinary shares outstanding
during the year, excluding the average number of treasury
shares held in the year.
ii. Diluted earnings per share
Diluted earnings per share are calculated by dividing the net
profit attributable to the Group (adjusted by the after-tax
amount of the remuneration of contingently convertible
preference shares recognised in equity - see Note 23) and
the capital perpetual preference shares, if applicable, by the
weighted average number of ordinary shares outstanding
during the year, excluding the average number of treasury
shares and adjusted for all the dilutive effects inherent to
potential ordinary shares (share options, and convertible
debt instruments).
Accordingly, diluted earnings per share were determined as
follows:
Accordingly:
Profit attributable
to the parent
(million of euros)
Remuneration of
contingently
convertible
preference shares
(CCP) (million of
euros) (Note 23)
Of which:
Profit or Loss
from
discontinued
operations
(non
controlling
interest net)
(million of
euros)
Profit or Loss
from
continuing
operations
(net of non-
controlling
interests and
CCP) (million
of euros)
Weighted average
number of shares
outstanding
Adjusted number
of shares
Basic earnings
per share (euros)
Basic earnings
per share from
discontinued
operations
(euros)
Basic earnings
per share from
continuing
operations
(euros)
2019
2018
2017
6,515
7,810
6,619
(595)
5,920
(560)
7,250
(395)
6,224
—
—
—
5,920
7,250
6,224
16,348,415,883
16,150,090,739 15,394,458,789
16,348,415,883
16,150,090,739 15,394,458,789
0.362
0.449
0.404
0.000
0.000
0.000
0.362
0.449
0.404
Profit attributable
to the parent
(million of euros)
Remuneration of
contingently
convertible
preference shares
(CCP) (million of
euros) (Note 23)
Of which:
Profit (Loss)
from
discontinued
operations
(net of non-
controlling
interests)
(million of
euros)
Profit from
continuing
operations
(net of non-
controlling
interests and
CCP) (million
of euros)
Weighted average
number of shares
outstanding
Dilutive effect of
options/rights on
shares
Adjusted number
of shares
Diluted earnings
per share (euros)
Diluted earnings
per share from
discontinued
operations
(euros)
Diluted earnings
per share from
continuing
operations
(euros)
2019
2018
2017
6,515
7,810
6,619
(595)
5,920
(560)
7,250
(395)
6,224
—
—
—
5,920
7,250
6,224
16,348,415,883
16,150,090,739 15,394,458,789
35,891,644
42,873,078
50,962,887
16,384,307,527
16,192,963,817 15,445,421,676
0.361
0.448
0.403
0.000
0.000
0.000
0.361
0.448
0.403
555
Table of Contents
5. Remuneration and other
benefits paid to the Bank’s
directors and senior managers
Annual emolument
The amounts received individually by the directors in 2019
and 2018 based on the positions held by them on the board
and their membership of the board committees were as
follows:
The following section contains qualitative and quantitative
disclosures on the remuneration paid to the members of the
board of directors -both executive and non-executive
directors- and senior managers for 2019 and 2018:
Euros
2019
2018
a) Remuneration of Directors
i. Bylaw-stipulated emoluments
The annual General Meeting held on 22 March 2013
approved an amendment to the Bylaws, whereby the
remuneration of directors in their capacity as board
members became an annual fixed amount determined by
the annual General Meeting. This amount shall remain in
effect unless the shareholders resolve to change it at a
general meeting. However, the board of directors may elect
to reduce the amount in any years in which it deems such
action justified. The remuneration established by the
Annual General Meeting was EUR 6 million in 2019 (same
amount as in 2018), with two components: (a) an annual
emolument and (b) attendance fees.
The specific amount payable for the above-mentioned items
to each of the directors is determined by the Board of
Directors. For such purpose, it takes into consideration the
positions held by each director on the Board, their
membership of the Board and the board committees and
their attendance to the meetings thereof, and any other
objective circumstances considered by the Board.
The total bylaw-stipulated emoluments earned by the
Directors in 2019 amounted to EUR 4.9 million (EUR 4.6
million in 2018).
556
2019 Annual Report
Members of the board of directors
90,000
90,000
Members of the executive committee
170,000
170,000
Members of the audit committee
40,000
40,000
Members of the appointments
committee
Members of the remuneration
committee
Members of the risk supervision,
regulation and compliance oversight
committee
Members of the responsible banking,
sustainability and culture committee
25,000
25,000
25,000
25,000
40,000
40,000
15,000
15,000
Chairman of the audit committee
70,000
70,000
Chairman of the appointments
committee
Chairman of the remuneration
committee
Chairman of the risk, regulation and
compliance oversight committee
Chairman of the responsible banking,
sustainability and culture committee
Lead director*
50,000
50,000
50,000
50,000
70,000
70,000
50,000
50,000
110,000
110,000
Non-executive deputy chairman
30,000
30,000
* Mr Bruce Carnegie-Brown, for duties performed as part of the board and
board committees, specifically as chairman of the appointments and
remuneration committees and as lead director, and for the time and
dedication required to perform these duties, has been allocated a minimum
total annual remuneration of EUR 700,000 since 2015, including the
aforementioned annual allowances and attendance fees corresponding to
him.
Attendance fees
The directors receive fees for attending board and
committee meetings, excluding executive committee
meetings, since no attendance fees are received for this
committee.
By resolution of the board of directors, at the proposal of
the remuneration committee, the fees for attending board
and committee meetings - excluding, as aforementioned,
executive committee meetings - were as follows:
Meeting attendance fees
Euros
Board of directors
Audit committee and risk
supervision, regulation and
compliance oversight committee
Other committees (except the
executive committee)
2019
2,600
2018
2,600
1,700
1,700
1,500
1,500
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
ii. Salaries
The executive directors receive salaries. In accordance with
the policy approved by the annual general meeting, salaries
are composed of a fixed annual remuneration and a variable
one, which consists in a unique incentive, which is a
deferred variable remuneration plan linked to multi-year
objectives, which establishes the following payment
scheme:
• 40% of the variable remuneration amount, determined at
year-end on the basis of the achievement of the
established objectives, is paid immediately.
• The remaining 60% is deferred over five years, to be paid
in five portions, provided that the conditions of
permanence in the Group and non-concurrence of the
malus clauses are met, and subject to long term metrics,
taking into account the following accrual scheme:
– The accrual of the first and second portion (payment in
2021 and 2022) is conditional on none of the malus
clauses being triggered.
– The accrual of the third, fourth, and fifth portion
(payment in 2023, 2024 and 2025), is linked to
objectives related to the period 2019-2021 and the
metrics and scales associated with these objectives.
The fulfilment of the objectives determines the
percentage to be paid of the deferred amount in these
three annuities, which, accordingly, might not be paid,
where the maximum amount is the amount
determined at closing of 2019, when the total variable
remuneration is approved.
• In accordance with current remuneration policies, the
amounts already paid will be subject to a possible
recovery (clawback) by the Bank during the period set out
in the policy in force at each moment.
The immediate payment (or short-term), as well as each
deferred payment (linked to long term metrics and not
linked to long-term metrics) will be settled 50% in cash and
the remaining 50% in Santander shares.
557
Table of Contents
iii. Detail by director
The detail, by bank director, of the short-term (immediate)
and deferred (not subject to long-term goals) remuneration
for 2019 and 2018 is provided below:
Thousand euros
Bylaw-stipulated emoluments
Annual emolument
2019
2018
Exec
utive
com
mitte
e
Aud
it
com
mitt
ee
BoardH
Ms Ana Botín-Sanz de
Sautuola y O’Shea
90
170
—
App
oint
men
ts
com
mitt
ee
Rem
uner
atio
n
com
mitt
ee
—
—
—
—
Mr José Antonio
Álvarez Álvarez
Mr Bruce Carnegie-
Brown
Mr Rodrigo Echenique
GordilloA
Mr Guillermo de la
Dehesa Romero
Ms Homaira Akbari
Mr Ignacio Benjumea
Cabeza de Vaca
Mr Francisco Javier
Botín-Sanz de
Sautuola y O’SheaB
Ms Sol Daurella
Comadrán
Ms Esther Giménez-
Salinas i Colomer
Ms Belén Romana
García
Mr Ramiro Mato
García-Ansorena
Mr Álvaro Cardoso de
SouzaC
Mr Henrique Manuel
Drummond Borges
Cirne de CastroD
Ms Pamela Ann
WalkdenE
Mr Carlos Fernández
GonzálezF
Mr Juan Miguel Villar
MirG
90
170
—
393
170
—
25
25
90
57
—
17
—
90
90
170
—
—
40
25
—
25
—
—
—
—
—
—
—
—
—
—
—
15
89
81
90
170
—
—
25
40
15
93
90
90
90
41
16
74
—
—
—
—
—
—
25
25
—
—
160
170
40
140
170
40
160
—
—
—
—
8
7
4
—
—
—
—
—
—
—
—
—
4
—
—
33
21
21
—
—
—
—
—
—
—
40
40
40
40
—
—
—
—
—
47
15
85
15
79
15
100
15
95
15
61
—
—
—
—
33
11
65
—
Risk
supervi
sion,
regulat
ion and
compli
ance
oversig
ht
commi
ttee
Respon
sible
bankin
g,
sustain
ability
and
culture
commi
ttee
Atten
danc
e
fees
and
com
missi
ons
Short-term and deferred (not subject to long-
term goals) salaries of executive directors
Variable -
immediate
payment
Deferred
variable
Fixed
In
cash
In
share
s
In
share
s
In
cash
Total
Pensio
n
contrib
ution
Other
remun
eratio
nI
Total
Total
15
59
3,176
1,302
1,302
781
781
7,342
1,145
1,132
9,953
10,483
53
2,541
870
870
522
522
5,325
858
1,774
8,270
8,645
87
—
—
—
—
—
—
—
—
700
732
56
600
400
400
240
240
1,880
—
2,775
4,875
4,830
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
399
226
441
199
91
524
513
—
—
—
—
—
—
—
—
—
—
137
121
240
215
228
196
525
414
500
450
276
148
86
34
—
—
214
266
—
108
Total 2019
Total 2018
1,794 1,247
168
117
125
1,763 1,275
160
113
125
200
247
120 1,094
6,317
2,572
2,572
1,543 1,543 14,547
2,003
5,772 27,187
-
61
872
7,517
3,254
3,254
1,952 1,952 17,929
2,284
2,932
-
27,761
A.
B.
C.
D.
E.
F.
G.
H.
I.
Ceased to be an executive director on 30 April 2019. Non-executive director since 1 May 2019.
All amounts received were reimbursed to Fundación Botín.
Director since 1 April 2018.
Director since 17 July 2019.
Director since 29 October 2019.
Ceased to be a director on 28 October 2019
Ceased to be a director on 1 January 2019
Includes committee chairmanship and other roles emoluments.
Includes, inter alia, the life and medical insurance costs borne by the Group relating to Bank directors as well as a fixed supplement approved as part of the benefit
systems transformation of the Executive Directors Ms Ana Botín and Mr José Antonio Álvarez
558
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Following is the detail, by executive director, of the salaries
linked to multiannual objectives at their fair value, which
will only be received if the conditions of permanence in the
group, non-applicability of “malus” clauses and
achievement of the established objectives are met (or, as
the case may be, of the minimum thresholds thereof, with
the consequent reduction of amount agreed-upon at the
end of the year) in the terms described in Note 47.
Thousand euros
2019
2018
Variable subject to
Long-term
objectives1
In cash
In
shares
Total
Total
Ms. Ana Botín-Sanz de Sautuola
y O’Shea
821
821
1,642
1,864
Mr. José Antonio Álvarez Álvarez
Mr. Rodrigo Echenique Gordillo
548
252
548
252
1,096
1,246
504
990
Total
1,621
1,621
3,242
4,100
1. Corresponds with the fair value of the maximum amount they are entitled to
in a total of 3 years: 2023, 2024 and 2025, subject to conditions of
continued service, with the exceptions provided, and to the non-
applicability of “malus” clauses and achievement of the objectives
established.
The fair value has been determined at the grant date based
on the valuation report of an independent expert, Willis
Towers Watson. Based on the design of the plan for 2019
and the levels of achievement of similar plans in
comparable entities, the expert concludes that the
reasonable range for estimating the initial achievement
ratio is around 60% - 80%. Accordingly, it has been
considered that the fair value is 70% of the maximum (see
Note 47).
Note 5.e below includes disclosures on the shares delivered
from the deferred remuneration schemes in place in
previous years and for which delivery conditions were met ,
as well as on the maximum number of shares that may be
received in future years in connection with the
aforementioned 2019 and 2018 variable remuneration
plans.
b) Remuneration of the Board members as
representatives of the Bank
By resolution of the executive committee, all the
remuneration received by the Bank’s directors who
represent the Bank on the Boards of Directors of listed
companies in which the Bank has a stake, paid by those
companies and relating to appointments made on or after
18 March, 2002, accrues to the Group. In 2019 and 2018
the Bank’s directors did not receive any remuneration in
respect of these representative duties.
On the other hand, Mr, Alvaro Cardoso de Souza, in his role
as non-executive Chairman of Banco Santander (Brasil) S.A.
received a remuneration in 2019 of 1,752 thousand
Brazilian reales (397 thousand euro), and Mr. Rodrigo
Echenique, received a remuneration of 666 thousand euro
for his role as Chairman of the board of the Santander Spain
business unit for the period from 1 May 2019 to 31
December 2019.
c) Post-employment and other long-term benefits
The executive directors other than Mr Rodrigo Echenique
participate in the defined benefit system created in 2012,
which covers the contingencies of retirement, disability and
death. The Bank makes annual contributions to the benefit
plans of its executive directors. The contracts of the
executive directors (and the other members of the Bank’s
senior management) with defined benefit pension
commitments were amended in 2012 to align them with
the new system, transforming them into a defined
contribution system. The new system gives executive
directors the right to receive benefits upon retirement,
regardless of whether or not they are active at the Bank at
such time, based on contributions to the system, and
replaced their previous right to receive a pension
supplement in the event of retirement. In the event of pre-
retirement and up until the retirement date, executive
directors, except for Mr. Rodrigo Echenique, have the right to
receive an annual allotment.
The initial balance for each of the executive directors in the
new defined benefits system corresponded to the market
value of the assets from which the provisions corresponding
to the respective accrued obligations had materialised on
the date on which the old pension commitments were
transferred into the new benefits system.
Since 2013, the Bank has made annual contributions to the
benefits system for executive directors and senior
executives, in proportion to their respective pensionable
bases, until they leave the Group or until their retirement
within the Group, death, or disability (including, if
applicable, during pre-retirement).
Mr Rodrigo Echenique’s contract did not provide for any
charge to Banco Santander regarding benefits, without
prejudice to the pension rights to which Mr Echenique was
entitled prior to his appointment as executive director.
The benefit plan is outsourced to Santander Seguros y
Reaseguros, Compañía Aseguradora, S.A., and the economic
rights of the foregoing directors under this plan belong to
them regardless of whether or not they are active at the
Bank at the time of their retirement, death or disability.
In accordance with the provisions of the remuneration
regulations, contributions made calculated on variable
remuneration are subject to the discretionary pension
benefits regime. Under this regime, contributions are
subject to malus clauses and clawback according to the
policy in force at any given time and during the same period
in which the variable remuneration is deferred.
Furthermore, they must be invested in bank shares for a
period of five years from the date when the executive
director leaves the Group, regardless of whether or not they
leave to retire. Once that period has elapsed, the amount
invested in shares will be reinvested, along with the
remainder of the cumulative balance corresponding to the
executive director, or it will be paid to the executive director
or to their beneficiaries in the event of a contingency
covered by the benefits system.
559
Table of Contents
Until March 2018, the system also included a
supplementary benefits scheme for cases of death (death of
spouse and death of parent) and permanent disability of
serving directors envisaged in the contracts of Ms Ana Botín
and Mr José Antonio Álvarez.
As per the director´s remuneration policy approved at the 23
March 2018 general shareholder´s meeting, the system was
changed with a focus on:
• Aligning the annual contributions with practices of
comparable institutions.
• Reducing future liabilities by eliminating the
supplementary benefits scheme in the event of death
(death of spouse or parent) and permanent disability of
serving directors.
• Not increasing total costs for the Bank.
The changes to the system were the following:
Following is a detail of the balances relating to each of the
executive directors under the welfare system as of 31
December 2019 and 2018:
Thousand euros
Ms Ana Botín-Sanz de Sautuola y O’Shea1
48,104
46,093
2019
2018
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo 2
17,404
16,630
13,268
13,614
78,776
76,337
1. Includes the amounts relating to the period of provision of services at
Banesto, externalised with another insurance company.
2. Mr. Rodrigo Echenique does not participate in the defined pension scheme
defined in the preceding paragraphs. However, as a previous executive
director and for informational purposes, this year's table includes the rights
to which he was entitled prior to his designation as such. The payments
made to him in 2019 with respect to his participation in this plan amounted
to 0.9 million euros (0.9 million euros in 2018).
• Fixed and variable pension contributions were reduced to
d) Insurance
22% of the respective pensionable bases. The gross
annual salaries and the benchmark variable remuneration
were increased in the corresponding amount with no
increase in total costs for the Bank. The pensionable base
for the purposes of the annual contributions for the
executive directors is the sum of fixed remuneration plus
30% of the average of their last three variable
remuneration amounts (or, in the event of Mr José
Antonio Álvarez’s pre-retirement, his fixed remuneration
as a senior executive vice president).
• The death and disability supplementary benefits were
eliminated since 1 April 2018. A fixed remuneration
supplement (included in other remuneration in section
a.iii in this note) was implemented the same date.
The Group pays for life insurance policies for the Bank’s
directors, who will be entitled to receive benefits if they are
declared disabled; in the event of death, the benefits will be
payable to their heirs. The premiums paid by the Group are
included in the Other remuneration column of the table
shown in Note 5.a.iii above. Also, the following table
provides information on the sums insured for the Bank’s
executive directors:
Insured capital
Thousand euros
Ms. Ana Botín-Sanz de Sautuola y O’Shea
22,475
22,710
2019
2018
• The total amount insured for life and accident insurance
was increased.
Mr. José Antonio Álvarez Álvarez
Mr. Rodrigo Echenique Gordillo
19,373
19,694
5,400
5,400
47,248
47,804
The provisions recognised in 2019 and 2018 for retirement
pensions and supplementary benefits (surviving spouse and
child benefits, and permanent disability) were as follows:
Thousand euros
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
2019
1,145
858
2018
1,234
1,050
2,003
2,284
560
2019 Annual Report
The insured capital has been modified in 2018 for Ms Ana
Botín and Mr José Antonio Alvarez as part of the pension
systems transformation set out in Note 5.c) above, which
has encompassed the elimination of the supplementary
benefits systems (death of spouse and death of parent) and
the increase of the life insurance annuities.
During 2019 and 2018, the Group has disbursed a total
amount of 11.6 million euros and 10.1 million euros,
respectively, for the payment of civil-liability insurance
premiums. These premiums correspond to several civil-
liability insurance policies that hedge, among others,
directors, senior executives and other managers and
employees of the Group and the Bank itself, as well as its
subsidiaries, in light of certain types of potential claims. For
this reason, it is not possible to disaggregate or individualize
the amount that correspond to the directors and executives.
As of 31 December 2019 and 2018, no life insurance
commitments exist for the Group in respect of any other
directors.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
e) Deferred variable remuneration systems
The following information relates to the maximum number
of shares to which the executive directors are entitled at the
beginning and end of 2019 and 2018 due to their
participation in the deferred variable remuneration systems,
which instrumented a portion of their variable
remuneration relating to 2019 and prior years, as well as on
the deliveries, in shares or in cash, made to them in 2019
and 2018 once the conditions for the receipt thereof had
been met (see Note 47):
i) Deferred conditional variable remuneration plan
From 2011 to 2015, the bonuses of executive directors and
certain executives (including senior management) and
employees who assume risk, who perform control functions
or receive an overall remuneration that puts them on the
same remuneration level as senior executives and
employees who assume risk (all of whom are referred to as
identified staff) have been approved by the Board of
Directors and instrumented, respectively, through various
cycles of the deferred conditional variable remuneration
plan. Application of these cycles, insofar as they entail the
delivery of shares to the plan beneficiaries, was authorized
by the related Annual General Meetings.
The purpose of these plans is to defer a portion of the bonus
of the plan beneficiaries (60% in the case of executive
directors) over a period of five years (three years for the
plans approved up to 2014) for it to be paid, where
appropriate, in cash and in Santander shares. The remaining
40% portion of the bonus is paid in cash and Santander
shares (in equal parts), upon commencement of this plan, in
accordance with the rules set forth below.
In addition to the requirement that the beneficiary remains
in Santander Group’s employ, the accrual of the deferred
remuneration is conditional upon none of the following
circumstances existing in the opinion of the Board of
Directors -following a proposal of the remuneration
committee-, in relation to the corresponding year, in the
period prior to each of the deliveries: (i) poor financial
performance of the Group; (ii) breach by the beneficiary of
internal regulations, including, in particular, those relating
to risks; (iii) material restatement of the Group’s
consolidated financial statements, except when it is
required pursuant to a change in accounting standards; or
(iv) significant changes in the Group’s economic capital or its
risk profile. All the foregoing shall be subject in each case to
the regulations of the relevant plan cycle.
On each delivery, the beneficiaries will be paid an amount in
cash equal to the dividends paid for the amount deferred in
shares and the interest on the amount deferred in cash. If
the Santander Dividendo Elección scrip dividend scheme is
applied, payment will be based on the price offered by the
Bank for the bonus share rights corresponding to those
shares.
The maximum number of shares to be delivered is
calculated taking into account the daily volume-weighted
average prices for the 15 trading sessions prior to the date
on which the Board of Directors approves the bonus for the
Bank’s Executive Directors for each year.
This plan and the Performance Shares (ILP) plan described
below have been integrated for the executive directors and
other senior managers in the deferred variable
compensation plan linked to multiannual objectives, in the
terms approved by the General Meeting of Shareholders
held on March 18, 2016.
ii) Deferred variable compensation plan linked to
multiannual objectives
In the annual shareholders meeting of 12 March 2016, with
the aim of simplifying the remuneration structure,
improving the ex-ante risk adjustment and increasing the
incidence of long-term objectives, the bonus plan (deferred
and conditioned variable compensation plan) and ILP were
replaced by one single plan, the deferred multiyear
objectives variable remuneration plan.
The variable remuneration of executive directors and certain
executives (including senior management) corresponding to
2019 has been approved by the Board of Directors and
implemented through the fourth cycle of the deferred
variable remuneration plan linked to multi-year objectives.
The application of the plan was authorised by the annual
general meeting of shareholders, as it entails the delivery
of shares to the beneficiaries.
As indicated in section a.ii of this Note, 60% of the variable
remuneration amount is deferred over five years (three
years for certain beneficiaries, not including executive
directors), to be paid, where appropriate, in five portions,
provided that the conditions of permanence in the group
and non-concurrence of malus clauses are met, and subject
to long term metrics, according to the following accrual
scheme:
• The accrual of the first and second parts (instalments in
2021 and 2022) is conditional on none of the malus
clauses being triggered.
• The accrual of the third, fourth and fifth parts
(instalments in 2023, 2024 and 2025) is linked to the
fulfilment of certain objectives related to the 2019 2021
period and the metrics and scales associated with those
objectives, as well as to non-concurrence of malus
clauses. These objectives are:
– the growth of consolidated earnings per share in 2021
compared to 2018;
– the relative performance of the Bank’s total
shareholder return (RTA) in the 2019 2021 period in
relation to the weighted RTAs of a reference group of 9
credit institutions;
– compliance with the fully loaded ordinary level 1
capital objective for the year 2021;
The degree of compliance with the above objectives
determines the percentage to be applied to the deferred
amount in these three annuities, the maximum being the
amount determined at the end of the year 2019 when the
total variable remuneration is approved.
Both the immediate (short-term) and each of the deferred
(long-term and conditioned) portions are paid 50% in cash
and the remaining 50% in Santander shares.
561
Table of Contents
The accrual of deferred amounts (whether or not subject to
performance measures) is conditioned, in addition to the
permanence of the beneficiary in the Group, to non-
occurrence, during the period prior to each of the deliveries,
of any the circumstances giving rise to the application of
malus as set out in the Group’s remuneration policy in its
chapter related to malus and clawback. Likewise, the
amounts already paid of the incentive will be subject to
clawback by the Bank in the cases and during the term
foreseen in said policy, and in accordance with the terms
and conditions foreseen in it.
The application of malus and clawback is activated in cases
in which there is poor financial performance of the entity as
a whole or of a specific division or area of the entity or of
the exposures generated by the personnel, and at least the
following factors must be considered:
(i) Significant failures in risk management committed by
the entity, or by a business unit or risk control.
(ii) The increase suffered by the entity or by a business
unit of its capital needs, not foreseen at the time of
generation of the exposures.
(iii) Regulatory sanctions or judicial sentences from events
that could be attributable to the unit or the personnel
responsible for those. Also, the breach of internal codes
of conduct of the entity.
(iv) Irregular conduct, whether individual or collective. In
this regard, the negative effects derived from the
marketing of inappropriate products and the
responsibilities of the people or bodies that made
those decisions will be specially considered.
The maximum number of shares to be delivered is
calculated by taking into account the average weighted
daily volume of the average weighted listing prices
corresponding to the fifteen trading sessions prior to the
previous Friday (excluded) to the date on which the bonus is
agreed by the board of executive directors of the Bank.
iii) Shares assigned by deferred variable remuneration
plans
The following table shows the number of Santander shares
assigned to each executive director and pending delivery as
of January 1, 2018, December 31, 2018 and 2019, as well
as the gross shares that were delivered to them in 2018 and
2019, either in the form of an immediate payment or a
deferred payment. In this case after having been appraised
by the board, at the proposal of the remuneration
committee, that the corresponding one-fifth (one third until
2014) of each plan had accrued. They come from each of
the plans through which the variable remunerations of
deferred conditional variable remuneration plans in 2014,
and 2015 and of the deferred conditional and linked to
multiannual objectives in 2016, 2017, 2018 and 2019.
562
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Share-based variable remuneration
Maximum
number of
shares to be
delivered at
January 1, 2018
Shares delivered
in 2018
(immediate
payment 2017
variable
remuneration)
Shares delivered
in 2018
(deferred
payment 2016
variable
remuneration)
Shares delivered
in 2018
(deferred
payment 2015
variable
remuneration)
Shares delivered
in 2018
(deferred
payment 2014
variable
remuneration)
Variable
remuneration
2018
(Maximum
number of
shares to be
delivered)
2014 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez²
2015 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
2016 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
2017 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
2018 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
2019 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo3
(61,721)
(26,632)
(88,353)
(64,404)
(42,811)
(31,712)
(138,927)
61,721
26,632
88,353
257,617
171,242
126,846
555,705
360,512
243,332
180,226
784,070
574,375
384,118
299,346
1,257,839
(229,750)
(153,647)
(119,738)
(503,135)
(72,102)
(48,667)
(36,046)
(156,815)
860,865
575,268
456,840
1,892,973
1
2
3
4
For each director, 40% of the shares indicated correspond to the short-term variable (or immediate payment). The remaining 60% is deferred for delivery, where
appropriate, by fifths in the next five years, the last three being subject to the fulfilment of multiannual objectives.
Maximum number of shares resulting from their participation in the corresponding plans during their stage as general manager.
Ceased to be an executive director on 30 April 2019.
In addition, Mr. Ignacio Benjumea Cabeza de Vaca maintains the right to a maximum of 70,741 shares arising from his participation in the corresponding plans
during his term as executive vice president.
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Maximum number Shares delivered in
of shares to be
delivered at
December 31,
2018
2019 (immediate
payment 2018
variable
remuneration)
Shares delivered in
2019 (deferred
payment 2017
variable
remuneration)
Shares delivered in
2019 (deferred
payment 2016
variable
remuneration)
Shares delivered in Variable
2019 (deferred
payment 2015
variable
remuneration)
remuneration 2019
(Maximum number
of shares to be
delivered)1
Maximum number
of shares to be
delivered at
December 31,
20194
(64,404)
(42,811)
(31,712)
(138,927)
(72,102)
(48,667)
(36,046)
(156,815)
(68,925)
(46,094)
(35,922)
(150,941)
193,213
128,431
95,134
416,778
288,410
194,665
144,180
627,255
344,625
230,471
179,608
754,704
860,865
575,268
456,840
1,892,973
(344,346)
(230,107)
(182,736)
(757,189)
128,809
85,620
63,422
277,851
216,308
145,998
108,134
470,440
275,700
184,377
143,686
603,763
516,519
345,161
274,104
1,135,784
887,193
592,915
272,480
887,193
592,915
272,480
1,752,588
1,752,588
564
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Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
In addition, the table below shows the cash delivered in
2019 and 2018, by way of either immediate payment or
deferred payment, in the latter case once the Board had
determined, at the proposal of the remuneration
committee, that one-fifth relating to each plan had accrued:
Thousand of euros
2019
2018
Cash paid (immediate
Cash paid (deferred
payments from 2017,
payment 2018 variable 2016 and 2015 variable
remuneration)
remuneration)
Cash paid (immediate
Cash paid (deferred
payments from 2016,
payment 2017 variable 2015 and 2014 variable
remuneration)
remuneration)
Ms. Ana Botín-Sanz de Sautuola y O’Shea
Mr. José Antonio Álvarez Álvarez1
Mr. Rodrigo Echenique Gordillo
1,480
989
785
3,254
1,025
686
519
2,230
1,370
916
714
3,000
947
574
305
1,826
1. Includes paid cash corresponding to his participation in the corresponding plans during the time as executive vice president.
iv) Information on former members of the Board of
Directors
The chart below includes information on the maximum
number of shares to which former members of the Board of
Directors who ceased in office prior to 1 January 2018 are
entitled for their participation in the various deferred
variable remuneration systems, which instrumented a
portion of their variable remuneration relating to the years
in which they were Executive Directors. Also set forth below
is information on the deliveries, whether in shares or in
cash, made in 2019 and 2018 to former board members,
upon achievement of the conditions for the receipt thereof
(see Note 47):
Maximum number of shares to be delivered1
Deferred conditional variable remuneration plan (2015)
Deferred conditional variable remuneration plan and linked to objectives (2016)
Deferred conditional variable remuneration plan and linked to objectives (2017)
Number of shares delivered
Deferred conditional variable remuneration plan (2014)
Deferred conditional variable remuneration plan (2015)
Performance shares plan ILP (2015)
Deferred conditional variable remuneration plan and linked to objectives (2016)
Deferred conditional variable remuneration plan and linked to objectives (2017)
In addition, 663 thousand euros and 2,057 thousand euros
relating to the deferred portion payable in cash of the
aforementioned plans were paid each in 2019 and 2018.
2019
121,694
98,253
140,530
2019
—
60,847
129,612
42,924
35,132
2018
182,541
171,696
175,662
2018
148,589
60,847
—
42,924
117,108
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f) Loans
The Group’s direct risk exposure to the bank’s directors and
the guarantees provided for them are detailed below. These
transactions were made on terms equivalent to those that
prevail in arm’s-length transactions or the related
compensation in kind was recognised:
Thousand euros
Ms. Ana Botín-Sanz de Sautuola y O’Shea
Mr. José Antonio Álvarez Álvarez
Mr. Bruce Carnegie-Brown
Mr. Rodrigo Echenique Gordillo
Mr. Javier Botín-Sanz de Sautuola y O’Shea
Ms. Sol Daurella Comadran
Mr. Carlos Fernández Gonzàlez1
Ms. Esther Gimenez-Salinas i Colomer
Mr. Ignacio Benjumea Cabeza de Vaca
Ms. Belén Romana García
Mr. Guillermo de la Dehesa Romero
1.
Ceased to be a director on December 2019.
g) Senior managers
2019
2018
Loans and
credits
Guarantees
Total
Loans and
credits
Guarantees
Total
18
27
—
33
21
55
—
1
1
21
56
233
—
—
—
—
—
—
—
—
—
—
—
—
18
27
—
33
21
55
—
1
1
21
56
18
8
—
29
15
53
12
1
—
21
21
233
178
—
—
—
—
—
—
—
—
—
—
—
—
18
8
—
29
15
53
12
1
—
21
21
178
The table below includes the amounts relating to the short-
term remuneration of the members of senior management
at December 31, 2019 and those at December 31, 2018,
excluding the remuneration of the executive directors,
which is detailed above:
Thousand of euros
Short-term salaries and deferred remuneration
Variable remuneration (bonus)
- Immediate payment
Deferred variable
remuneration
Year
2019
2018
Number of
persons
18
18
Fixed
22,904
22,475
In cash
In shares2
In cash
In shares
Pensions
Other
remuneration1
7,668
8,374
7,669
8,374
3,336
3,791
3,337
3,791
6,282
6,193
7,491
7,263
Total 3
58,687
60,261
1. Includes other remuneration items such as life and medical insurance premiums and localization aids .
2. The amount of immediate payment in shares for 2019 is 2,090,536 shares (1,936,037 Santander shares in 2018)
3. The deferred amount in shares not linked to long-term objectives for 2019 is 900,534 shares (877,154 Santander shares in 2018).
Likewise, the shareholders meeting of 12 April 2019
approved the 2019 Digital Transformation Incentive, which
is a variable compensation system that includes the delivery
of Santander shares and share options subject to meeting
certain important milestones of the Group's digital
roadmap.
Three senior executives are included within this plan, which
is aimed at a larger group of up to 250 employees whose
performance is considered essential to the growth and
digital transformation of Santander Group. The three
employees have been awarded a total overall amount of
2,100 thousand euro1, which will be provided to them in
thirds, on the third, fourth and fifth anniversary of the
granting date (2023, 2024 and 2025).
1 The 2,100 thousand euro amount is implemented in 286,104 Santander shares and 1,495,726 options over Santander shares,
using for these purposes the fair value of the options at the moment of their grant (0.702 euros).
566
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Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
See Note 47 for further detail on the Digital Transformation
Incentive.
was delivered in 2019 and 2018 to the senior management,
in addition to the payment of the related cash amounts:
Also, the detail of the breakdown of the remuneration
linked to long-term objectives of the members of senior
management at December 31, 2019 and 2018 is provided
below. These remuneration payments shall be received, as
the case may be, in the corresponding deferral periods,
upon achievement of the conditions stipulated for each
payment (see Note 47):
Thousand of euros
Variable remuneration subject
to long-term objectives1
Year
2019
2018
Number of
people
Cash
payment
Share
payment
18
18
3,503
3,981
3,504
3,981
Total
7,007
7,962
1. Relates in 2019 with the fair value of the maximum annual amounts for
years 2022, 2023 and 2024 of the third cycle of the deferred conditional
variable remuneration plan (2021, 2022 and 2023 for the first cycle of the
deferred variable compensation plan linked to annual objectives for the
year 2017).
Senior executive vice presidents who retired in 2019 and,
therefore, were not members of senior management at
year-end, received in 2019 salaries and other remuneration
relating to their termination amounting to EUR 6,789
thousand (EUR 1,861 thousand in 2018). Likewise, these
same individuals have generated as senior managers the
right to obtain variable remuneration linked to long-term
objectives for a total amount of 618 thousand euro (this
right has not been generated in 2018 in respect of any
employee who has ceased in his/her role as senior
manager)
The average total remuneration awarded to women who
were part of the senior management during 2019, excluding
executive directors, is 1% higher than the average
remuneration of men senior managers.
The maximum number of Santander shares that the
members of senior management at each plan grant date
(excluding executive directors) were entitled to receive as of
December 31, 2019 and 2018 relating to the deferred
portion under the various plans then in force is the
following (see Note 47):
Maximum number of shares to be delivered
2019
2018
Deferred conditional variable remuneration
plan (2015)
391,074
705,075
Performance shares plan ILP (2015)
—
515,456
Deferred conditional variable remuneration
plan and linked to objectives (2016)
Deferred conditional variable remuneration
plan and linked to objectives (2017)
Deferred conditional variable remuneration
plan and linked to objectives (2018)
Deferred conditional variable remuneration
plan and linked to objectives (2019)
660,205
1,079,654
1,115,570
1,434,047
1,986,754
2,192,901
2,273,859
—
Since the conditions established in the corresponding
deferred share-based remuneration schemes for prior years
had been met, the following number of Santander shares
Number of shares delivered
Deferred conditional variable remuneration plan
(2014)
2019
2018
—
248,963
Deferred conditional variable remuneration plan
(2015)
257,187
261,109
Performance shares plan ILP (2015)
515,456
—
Deferred conditional variable remuneration plan
and linked to objectives (2016)
215,868
258,350
Deferred conditional variable remuneration plan
and linked to objectives (2017)
245,575
—
As indicated in Note 5.c above, senior management
participate in the benefit system created in 2012, which
covers the contingencies of retirement, disability and death.
The Bank makes annual contributions to the benefit plans of
its senior managers.
In 2012, the contracts of the senior managers with benefit
pension commitments were amended to transform them
into a contribution system. The system, which is outsourced
to Santander Seguros y Reaseguros, Compañía
Aseguradora, S.A., gives senior managers the right to
receive benefits upon retirement, regardless of whether or
not they are active at the Bank at such time, based on
contributions to the system. This new system replaced their
previous right to receive a pension supplement in the event
of retirement. In the event of pre-retirement, and up to the
retirement date, senior managers appointed prior to
September 2015 are entitled to receive an annual
allowance.
In addition, further to applicable remuneration regulations,
from 2016 (inclusive), a discretionary pension benefit
component of at least 15% of total remuneration in
contributions to the pension system has been included.
Under the regime corresponding to these discretionary
benefits, the contributions that are calculated on variable
remunerations are subject to malus and clawback clauses,
subject to policies applicable at each time, and during the
same period in which the variable remuneration is deferred.
Likewise, the annual contributions calculated on variable
remunerations must be invested in Bank shares for a period
of five years from the date tht the senior manager leaves
the Group, regardless of whether or not they leave to retire.
Once that period has elapsed, the amount invested in shares
will be reinvested, along with the remainder of the
cumulative balance corresponding to the senior manager, or
it will be paid to the senior manager or to their beneficiaries
in the event of a contingency covered by the benefits
system.
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At the begining of 2018 the contracts of certain senior
managers went through the amendments set out in note
5.c. for executive directors. The amendments, aimed at
aligning the annual contributions with practices of
comparable institutions and reducing future liabilities by
eliminating the supplementary benefits scheme in the
event of death (death of spouse or parent) and in the event
of permanent disability while still in active employment,
with no increase in total costs for the Bank, were the
following:
• Contributions to the pensionable bases were reduced.
Gross annual salaries were increased in the
corresponding amount .
• The death and disability supplementary benefits were
eliminated since January 1, 2018. A fixed remuneration
supplement reflected in other remuneration in the table
above was implemented on the same date.
• The amounts insured for life and accident insurance were
increased.
All of the above was done without an increase in total cost
for the Bank.
The balance as of December 31, 2019 in the pension system
for those who were part of senior management during
the year amounted to EUR: 69.8 million (EUR: 66.5 million
in December 31, 2018).
The net charge to income corresponding to pension and
supplementary benefits for widows, orphans and
permanent invalidity amounted to EUR 6.3 million in 2019
(EUR: 6.4 in December 31, 2018).
In 2019 and 2018 there have been no payments in the form
of a single payment of the annual voluntary pre-retirement
allowance.
Additionally, the capital insured by life and accident
insurance at December 31, 2019 of this group amounts to
EUR 134.1 million (EUR: 133.3 million at December 31,
2018).
h) Post-employment benefits to former Directors and
former senior executive vice presidents
The post-employment benefits and settlements paid in
2019 to former directors of the Bank, other than those
detailed in note 5.c amounted to EUR 6.3 million (2018: EUR
13.8 million). Also, the post-employment benefits and
settlements paid in 2019 to former executive vice
presidents amounted to EUR 6.5 million (2018: EUR 63
million).
Contributions to insurance policies that hedge pensions and
complementary widowhood, orphanhood and permanent
disability benefits to previous members of the Bank’s board
of directors, amounted to EUR 0.2 million in 2019 (EUR 0.5
million in 2018). Likewise, contributions to insurance
policies that hedge pensions and complementary
widowhood, orphanhood and permanent disability benefits
for previous senior managers amounted to EUR 5.5 million
in 2019 (EUR 5.4 million in 2018).
In addition, Provisions - Pension Fund and similar
obligations in the consolidated balance sheet as at
568
2019 Annual Report
December 31, 2019 included EUR 65.7 million in respect of
the post-employment benefit obligations to former
Directors of the Bank (December 31, 2018: EUR 70.2
million) and EUR 172 million corresponding to former senior
managers (2018: EUR 179 million).
i) Pre-retirement and retirement
In case of termination in their role as executive directors
prior to reaching their retirement age, the following
executive directors will be entitled to take pre-retirement ,
subject to the terms indicated below:
Ms. Ana Botín will be entitled to take pre-retirement in the
event of termination for reasons other than breach. In such
case, she will be entitled to an annual emolument
equivalent to her fixed remuneration plus 30% of the
average of her latest amounts of variable remuneration, up
to a maximum of three years. This emolument would be
reduced by up to 8% in the event of voluntary retirement
before the age of 60. This assignment will be subject to
malus and clawback conditions in effect for a period of 5
years. Mr. José Antonio Álvarez will be entitled to take pre-
retirement in the event of termination for reasons other
than his own free will or breach. In such case, he will be
entitled to an annual emolument equivalent to the fixed
remuneration corresponding to him as senior executive vice
president. This assignment will be subject to malus and
clawback conditions in effect for a period of 5 years.
j) Contract termination
The executive directors and senior managers have
indefinite-term employment contracts. Executive directors
or senior managers whose contracts are terminated
voluntarily or due to breach of duties are not entitled to
receive any economic compensation. If the Bank terminates
the contract for any other reason, they will be entitled to the
corresponding legally-stipulated termination benefit,
without prejudice to any compensation that may for non-
competition obligations, as detailed in the directors'
remuneration policy.
If the Bank were to terminate her contract, Ms. Ana Botín
would have to remain at the Bank’s disposal for a period of
four months in order to ensure an adequate transition, and
would receive her fixed salary during that period.
k) Information on investments held by the directors in
other companies and conflicts of interest
None of the members of the board of directors or persons
related to them perform, as independent professionals or
asemployees, activities that involve effective competition,
be it present or potential, with the activities of Banco
Santander, S.A., or that, in any other way, place the directors
in an ongoing conflict with the interests of Banco Santander,
S.A.
Without prejudice to the foregoing, following is a detail of
the declarations by the directors with respect to their equity
interests in companies not related to the Group whose
object is banking, financing or lending; and of the
management or governing functions, if any, that the
directors discharge thereat.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Administrator
Ms. Ana Botín-Sanz de Sautuola y
O’Shea
Denomination
Bankinter, S.A.*
Mr. Bruce Neil Carnegie-Brown
Moneysupermarket.com Group plc
Lloyd’s of London Ltd
Mr. Guillermo de la Dehesa Romero
Goldman, Sachs & Co. (The Goldman Sachs Group, Inc.)
Mr. Javier Botín-Sanz de Sautuola y
O’Shea
Bankinter, S.A.
Number of
shares Functions
5,000,000 —
30,000 —
— President**
19,546 —
6,929,853 —
JB Capital Markets Sociedad de Valores, S.A.
2,077,198 President
Ms. Pamela Ann Walkden
Standard Chartered Bank***
Mr. Ramiro Mato García-Ansorena
BNP Paribas, S.A.
Mr. Rodrigo Echenique Gordillo
Mitsubishi UFJ Financial Group*
Contingent convertible (CoCos) issued in 2018 by Caixabank, S.A*
Ares Capital Corporation
*
**
***
Indirect ownership.
Non-executive.
includes: Ordinary shares; Deferred shares; Deferred option and Management Long Term Inventive Plan (MLTIP).
651,141 —
13,806 —
17,500 —
1 —
13,128 —
In addition, according to the Article 40 of the rules and
regulations of the Board, the Board, following a favorable
report from the audit committee, must authorize the
operations that the bank carries out with directors (unless
their approval corresponds by law to the Shareholders
Meeting), with the exception of those that simultaneously
meet the conditions referred to in paragraph 2 of said Article
40.
Accordingly, the related party transactions carried out
during the financial year met the conditions established in
the regulations of the board of directors so as not to require
a prior favourable report from the audit committee and
subsequent authorisation from the board of directors.
In addition, during 2019 there were 49 occasions in which,
in accordance with the provisions of article 36.1 (b) (iii) of
the Regulations of the Board, the directors have abstained
from intervening and voting in the deliberation of matters in
the sessions of the board of directors or its committees. The
breakdown of the 49 cases is as follows: on 28 occasions
they were due to proposals for the appointment, re-election
or resignation of directors, as well as members of board
committees; on 13 occasions it was about retributive
aspects or the granting of loans or credits and on 8
occasions the abstention occurred in relation to the annual
verification of the directors’ suitability or nature.
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Table of Contents
6. Loans and advances to central
banks and credit institutions
The detail, by classification, type and currency, of Loans and
advances to central banks and credit institutions in the
consolidated balance sheets is as follows:
Million euros
CENTRAL BANKS
Classification:
Financial assets held for trading
Non-trading financial assets mandatorily at
fair value through profit or loss
Financial assets designated at fair value through profit or loss
Financial assets designated at fair value
through other comprehensive income
Financial assets at amortised cost
Loans and receivables
Type:
Time deposits
Reverse repurchase agreements
Impaired assets
Valuation adjustments for impairment
CREDIT INSTITUTIONS
Classification:
Financial assets held for trading
Non-trading financial assets mandatorily at
fair value through profit or loss
Financial assets designated at fair value through profit or loss
Financial assets designated at fair value
through other comprehensive income
Financial assets at amortised cost
Loans and receivables
Type:
Time deposits
Reverse repurchase agreements
Non- loans advances
Impaired assets
Valuation adjustments for impairment
Currency:
Euro
Pound sterling
US dollar
Brazilian real
Other currencies
TOTAL
2019
2018*
2017
—
—
6,473
—
18,474
—
—
9,226
—
15,601
24,947
24,827
17,533
7,414
—
—
15,601
9,226
—
—
24,947
24,827
—
—
21,649
—
40,943
—
2
23,097
—
35,480
62,592
58,579
9,699
31,180
21,726
1
(14)
10,759
33,547
14,283
2
(12)
62,592
58,579
32,248
3,659
14,442
30,919
6,271
87,539
24,801
4,073
19,238
28,310
6,984
83,406
—
—
26,278
26,278
17,359
8,919
—
—
26,278
1,696
9,889
39,567
51,152
8,169
21,765
21,232
4
(18)
51,152
23,286
5,582
15,325
28,140
5,097
77,430
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
570
2019 Annual Report
Auditors'
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The loans and advances classified under Financial assets
designated at fair value through profit or loss consist of
assets of Spanish and foreign institutions acquired under
reverse repurchase agreements.
The loans and advances to credit institutions classified
under Financial assets at amortised cost (IFRS 9) and Loans
and receivables (IAS 39) are mainly time accounts and
deposits.
Note 51 contains a detail of the residual maturity periods of
Financial assets at amortised cost (IFRS 9) and Loans and
receivables (IAS 39) and of the related average interest
rates.
Million euros
Classification:
Financial assets held for trading
Non-trading financial assets mandatorily at fair value through profit or loss
Financial assets designated at fair value through profit or loss
At 31 December 2019 the exposure by impairment stage of
the assets accounted for under IFRS 9 amounts to EUR
59,430, EUR 0 and EUR 1 million (EUR 51,090, EUR 1 and
EUR 2 million in 2018), and the loan loss provision by
impairment stage amounts to EUR 14, 0 and 0 million (EUR
12, 0 and 0 million in 2018) in stage 1, without loan loss
provision in stage 2 and stage 3.
7. Debt instruments
a) Detail
The detail, by classification, type and currency, of Debt
instruments in the consolidated balance sheets is as
follows:
2019
2018*
2017
Financial assets designated at fair value through other comprehensive income
118,405
116,819
Financial assets available-for-sale
Financial assets at amortised cost
Loans and receivables
Held-to-maturity investments
Type:
Spanish government debt securities
Foreign government debt securities
Issued by financial institutions
Other fixed-income securities
Impaired financial assets
Impairment losses
Currency:
Euro
Pound sterling
US dollar
Brazilian real
Other currencies
Total gross
Impairment losses
32,041
1,175
3,186
27,800
5,587
3,222
29,789
37,696
36,351
3,485
128,481
17,543
13,491
184,596
191,124
199,351
42,054
107,434
9,670
25,265
647
(474)
50,488
99,959
10,574
29,868
870
(635)
59,186
99,424
12,155
28,299
1,017
(730)
184,596
191,124
199,351
70,357
15,713
29,846
38,316
30,838
185,070
(474)
184,596
76,513
19,153
22,864
40,871
32,358
191,759
(635)
191,124
93,250
16,203
25,191
39,233
26,204
200,081
(730)
199,351
* See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
In the last quarter of 2019, debt securities were transferred
from the financial asset at amortised cost to the financial
asset at fair value through other comprehensive income. The
fair value of these assets at the date of the transfer being
EUR 6,359 million.
As established in IFRS 9, the aforementioned transfer was
made prospectively, recognising the difference between the
previous amortised cost of the transferred financial assets
and their fair value in other comprehensive income. In
application of this standard, the effective interest rate and
the measurement of expected credit losses were not
adjusted as a result of the transfer.
The context of adapting the Group´s commercial strategy to
the changes in business models, in order to favour a greater
alignment of the sensitivity of the Bank's balance sheet
masses to interest rates, has led to a change in the assets
related to these liabilities from a business model whose
objective is to collect the principal and interest flows to a
business model whose objective is achieved through the
collection of the principal and interest flows and the sale of
these assets.
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Table of Contents
At 31 December 2019 and 2018 the exposure by
impairment stage of the book assets under IFRS 9
amounted to EUR 147,575 million and EUR 154,164 million
in stage 1, EUR 446 million and EUR 117 million in stage 2,
and EUR 647 million and EUR 870 million in stage 3,
respectively.
b) Breakdown
The breakdown, by origin of the issuer, of Debt instruments
at 31 December 2019, 2018 and 2017, net of impairment
losses, is as follows:
Million euros
2019
2018
2017
Private
fixed-
income
Public
fixed-
income
Total
%
Private
fixed-
income
Public
fixed-
income
Total
%
Private
fixed-
income
Public
fixed-
income
Total
%
Spain
3,634
42,054
45,688 24.75%
4,748
50,488
55,236 28.90%
5,272
59,186
64,458 32.33%
United Kingdom
3,806
11,479
15,285
8.28%
5,615
9,512
15,127
7.91%
4,339
10,717
15,056
7.55%
Portugal
Italy
Ireland
Poland
2,979
7,563
10,542
5.71%
3,663
6,943
10,606
5.55%
3,972
7,892
11,864
5.95%
1,384
3,620
5,004
2.71%
857
3,134
3,991
2.09%
1,287
7,171
8,458
4.24%
2,387
2
2,389
1.29%
4,543
2
4,545
2.38%
3,147
2
3,149
1.58%
460
9,361
9,821
5.32%
683
10,489
11,172
5.85%
772
6,619
7,391
3.71%
Other European countries
7,186
1,784
8,970
4.86%
6,101
1,518
7,619
3.99%
7,195
1,733
8,928
4.48%
United States
5,915
15,609
21,524 11.66%
6,833
10,362
17,195
9.00%
7,986
11,670
19,656
9.86%
Brazil
Mexico
Chile
5,808
35,036
40,844 22.13%
5,285
36,583
41,868 21.91%
4,729
34,940
39,669 19.90%
708
13,234
13,942
7.55%
520
11,325
11,845
6.20%
461
9,478
9,939
4.99%
50
4,819
4,869
2.64%
79
2,729
2,808
1.47%
62
4,071
4,133
2.07%
Other American countries
Rest of the world
605
186
1,095
1,700
0.92%
1,111
1,375
2,486
1.30%
3,832
4,018
2.18%
639
5,987
6,626
3.47%
755
764
913
1,668
0.84%
4,218
4,982
2.50%
35,108 149,488 184,596
100%
40,677 150,447 191,124
100%
40,741 158,610 199,351
100%
The detail, by issuer rating, of Debt instruments at 31
December 2019, 2018 and 2017 is as follows:
Million euros
AAA
AA
A
BBB
2019
2018
2017
Private
fixed-
income
Public
fixed-
income
Total
%
Private
fixed-
income
Public
fixed-
income
Total
%
Private
fixed-
income
Public
fixed-
income
Total
%
14,737
1,085
15,822
8.57%
18,901
834
19,735 10.33%
16,239
924
17,163
8.61%
5,133
28,325
33,458
18.13%
2,715
20,966
23,681 12.39%
2,714
23,522
26,236 13.16%
3,238
59,744
62,982
34.12%
3,464
69,392
72,856 38.12%
4,373
8,037
12,410
6.23%
4,889
24,766
29,655
16.06%
5,093
21,837
26,930 14.09%
6,449
91,012
97,461 48.89%
Below BBB
1,244
35,466
36,710
19.89%
668
37,412
38,080 19.92%
2,393
35,109
37,502 18.81%
Unrated
5,867
102
5,969
3.23%
9,836
6
9,842
5.15%
8,573
6
8,579
4.30%
35,108
149,488 184,596
100%
40,677
150,447 191,124
100%
40,741
158,610 199,351
100%
572
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
8. Equity instruments
a) Breakdown
The detail, by classification and type, of Equity instruments
in the consolidated balance sheets is as follows:
Million euros
Classification:
Financial assets held for
trading
Non-trading financial assets
mandatorily at fair value
through profit or loss
Financial assets designated
at fair value through profit or
loss
Financial assets designated
at fair value through other
comprehensive income
Financial assets available-
for-sale
Type:
2019
2018*
2017
12,437
8,938
21,353
3,350
3,260
2,863
2,671
933
4,790
18,650
14,869
27,076
Shares of Spanish companies
3,711
3,448
4,199
Shares of foreign companies
12,682
9,107
20,448
Investment fund shares
2,257
2,314
2,429
18,650
14,869
27,076
During 2019, the distribution of the exposure by rating level
of the previous table has not been affected by ratings
reviews of the sovereign issuers. In 2018, Spain and Poland
went from BBB+ to A-, and by 2017, Portugal went from
BB+ to BBB- and Chile from AA- to A+.
The detail, by type of financial instrument, of Private fixed-
income securities at 31 December 2019, 2018 and 2017,
net of impairment losses, is as follows:
Million euros
Securitised mortgage bonds
Other asset-backed bonds
Floating rate debt
Fixed rate debt
Total
c) Impairment losses
2019
1,633
6,388
2018
2,942
9,805
2017
2,458
5,992
10,348
13,721
13,756
16,739
14,209
18,535
35,108
40,677
40,741
The changes in the impairment losses on Debt instruments
are summarised below:
2019
2018*
635
704
2017
498
(170)
43
348
Million of euros
Balance at beginning of year
Net impairment losses for
the year
Of which:
Impairment losses charged
to income
Impairment losses reversed
with a credit to income
Exchange differences and other
items
Balance at end of year
Of which:
By geographical location of
risk:
77
138
386
* See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January
2018 (Note 1.d).
(247)
(95)
(38)
9
474
(112)
(116)
635
730
Note 29 contains a detail of the Other comprehensive
income, recognised in equity, on Financial assets designated
at fair value through other comprehensive income (IFRS 9)
and Financial assets available-for-sale, and also the related
impairment losses (IAS 39).
b) Changes
European Union
Latin America
14
460
22
613
30
700
The changes in Financial assets at fair value through other
comprehensive income (IFRS 9), and Financial assets
available-for-sale (IAS 39) were as follows:
Of which:
Loans and advances
Financial assets
at amortised cost
Financial assets
available for sale
Financial assets designated
at fair value through other
comprehensive income
(176)
43
348
—
Million euros
Balance at beginning of the
year
2019
2018*
2017
2,671
3,169
5,487
Net additions (disposals)
221
(324)
(331)
Valuation adjustment and
other items
(29)
(174)
(366)
6
—
Balance at end of year
2,863
2,671
4,790
*See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January
2018 (Note 1.d).
* See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1
January 2018 (Note 1.d).
At 31 December 2019 and 2018 the loan loss provision by
impairment stage of the assets accounted for under IFRS9
amounted to EUR 22 million and EUR 30 million in stage 1,
EUR 6 million and EUR 9 million in stage 2, and EUR 446
million and EUR 596 million in stage 3, respectively.
c) Notifications of acquisitions of investments
The notifications of the acquisitions and disposals of
holdings in investees made by the Bank in 2019, in
compliance with Article 155 of the Spanish Limited Liability
Companies Law and Article 125 of Spanish Securities
Market Law 24/1998, are listed in Appendix IV.
573
Table of Contents
9. Trading Derivatives (assets and
liabilities) and short positions
10. Loans and advances to
customers
a) Trading Derivatives
a) Detail
The detail, by type of inherent risk, of the fair value of the
trading derivatives arranged by the Group is as follows (see
Note 11):
The detail, by classification, of Loans and advances to
customers in the consolidated balance sheets is as follows:
Million euros
2019
2018
2017
Financial assets held for trading**
355
202
8,815
2019
2018*
2017
Million euros
Debit
Credit
balance balance balance balance balance balance
Credit
Credit
Debit
Debit
Interest
rate risk
Currency
risk
42,614 40,956
36,087 36,487 38,030 37,582
18,085 19,870
16,912 17,025 16,320 18,014
Price risk
2,329
1,772
2,828
1,673
2,167
2,040
Other
risks
369
418
112
156
726
256
63,397 63,016 55,939 55,341 57,243 57,892
b) Short positions
Non-trading financial assets
mandatorily at fair value through
profit or loss
Financial assets designated at fair
value through profit or loss
Financial assets at fair value
through other comprehensive
income
386
1,881
30,761
21,915
20,475
4,440
1,601
Financial assets at amortised cost
906,276 857,322
Loans and receivables
Of which:
819,625
Following is a breakdown of the short positions (liabilities):
Impairment losses
(22,242)
(23,307)
(23,934)
Loans and advances to
customers disregarding
impairment losses
942,218
882,921 848,915
964,460 906,228 872,849
*
**
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1
January 2018 (Note 1.d).
The decrease in 2018 reflects the run-down of UK's trading business
due to the banking reform (Ring-fencing) in 2018.
Note 51 contains a detail of the residual maturity periods of
financial assets at amortised cost (IFRS 9) and loans and
receivables (IAS 39) and of the related average interest
rates.
Note 54 shows the Group’s total exposure, by geographical
origin of the issuer.
There are no loans and advances to customers for material
amounts without fixed maturity dates.
Million euros
Borrowed securities:
Debt instruments
Of which:
Banco Santander México,
S.A., Institución de Banca
Múltiple, Grupo Financiero
Santander México
Santander UK plc
Equity instruments
Of which:
Santander UK plc
Banco Santander, S.A.
Short sales:
2019
2018
2017
390
1,213
2,447
390
—
393
—
308
1,213
—
1,087
890
1,557
1,671
—
987
1,500
98
Debt instruments
13,340
12,702
16,861
Of which:
Banco Santander, S.A.
7,980
5,336
8,621
Banco Santander (Brasil)
S.A.
5,194
7,300
8,188
14,123
15,002
20,979
574
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
b) Breakdown
Following is a breakdown, by loan type and status,
geographical area of residence and interest rate formula, of
the loans and advances to customers of the Group, which
reflect the Group’s exposure to credit risk in its core
business, disregarding impairment losses:
Million euros
Loan type and status:
Commercial credit
Secured loans
2019
2018
2017
37,753
33,301
29,287
513,929 478,068 473,936
Reverse repurchase agreements
45,703
32,310
18,864
Other term loans
Finance leases
267,154 265,696 257,441
35,788
30,758
28,511
Receivable on demand
7,714
8,794
6,721
Credit cards receivables
23,876
23,083
21,809
Impaired assets
Geographical area:
Spain
32,543
34,218
36,280
964,460 906,228 872,849
204,810 215,764 227,446
European Union (excluding Spain)
460,338 411,550 390,536
United States and Puerto Rico
100,152
89,325
75,777
Other OECD countries
86,327
82,607
74,463
South America (non - OECD)
92,145
87,406
88,302
Rest of the world
20,688
19,576
16,325
Interest rate formula:
Fixed rate
Floating rate
964,460 906,228 872,849
546,619 497,365 447,788
417,841 408,863 425,061
964,460 906,228 872,849
At 31 December 2019, 2018 and 2017 the Group had
granted loans amounting to EUR 9,993, 13,615 and 16,470
million to Spanish public sector agencies which had a rating
at 31 December 2019 of A (ratings of A at 31 December
2018 and ratings of BBB at 31 December 2017), and EUR
12,218, 10,952 and 18,577 million to the public sector in
other countries (at 31 December 2019, the breakdown of
this amount by issuer rating was as follows: 15.9% AAA,
11.6% AA, 3.4% A, 56% BBB and 13.1% below BBB).
Without considering the Public Administrations, the amount
of the loans and advances at 31 December 2019 amounts to
EUR 942,249 million, of which, EUR 909,741 million euros
are classified as performing.
The above-mentioned ratings were obtained by converting
the internal ratings awarded to customers by the Group (see
Note 54) into the external ratings classification established
by Standard & Poor’s, in order to make them more readily
comparable.
575
Table of Contents
Following is a detail, by activity, of the loans to customers at
31 December 2019, net of impairment losses:
Million euros
Net exposure
Loan-to-value ratio***
Secured loans
Total
Without
collateral
Of which: Of which:
other
property
collateral
collateral
Less than
or equal
to 40%
More
than
More
than
More
than
40% and 60% and 80% and
less than
less than
less than
or equal
or equal
or equal
to 100%
to 80%
to 60%
Public sector
20,053
19,018
252
783
116
104
83
640
More
than
100%
92
Other financial institutions (financial
business activity)
Non-financial corporations and
individual entrepreneurs (non-financial
business activity) (broken down by
purpose)
Of which:
Construction and property
development
Civil engineering construction
67,830
14,375
1,001
52,454
521
757
623
51,157
397
319,616 172,659
71,474
75,483
26,695
21,566
20,872
43,227
34,597
18,434
3,533
2,517
2,140
9,954
309
5,963
1,084
4,057
2,175
1,158
2,244
6,283
137
282
54
442
478
Large companies
173,090 111,739
23,716
37,635
10,888
7,467
8,874
21,575
12,547
SMEs and individual entrepreneurs
124,559
56,263
37,495
30,801
11,613
11,642
10,786
18,966
15,289
Households – other (broken down by
purpose)
519,996 111,771 342,847
65,378
87,432 107,553 113,603
62,346
37,291
Of which:
Residential
Consumer loans
Other purposes
Total*
Memorandum item
Refinanced and restructured
transactions**
332,881
1,764 330,491
626
80,001 101,285 106,210
36,669
6,952
167,338 106,886
2,463
57,989
19,777
3,121
9,893
6,763
3,132
4,299
3,909
2,359
4,114
20,557
28,740
3,279
5,120
1,599
927,495 317,823 415,574 194,098
114,764 129,980 135,181 157,370
72,377
23,430
5,333
13,248
4,849
3,228
2,645
2,412
2,814
6,998
*
**
***
In addition, the Group has granted advances to customers amounting to EUR 14,723 million, bringing the total of loans and advances to EUR 942,218 million.
Includes the net balance of the impairment of the accumulated value or accumulated losses in the fair value due to credit risk.
The ratio is the carrying amount of the transactions at 31 December 2019 provided by the latest available appraisal value of the collateral.
Note 54 contains information relating to the refinanced/
restructured loan book.
576
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Following is the movement of the gross exposure broken
down by impairment stage of loans and advances to
customers recognised under "Financial assets at amortised
cost" and “Financial assets at fair value through other
comprehensive income” under IFRS 9 during 2019 and
2018:
2019
Million euros
Balance at the
beginning of year
Movements
Transfers
Transfer to Stage 2
from Stage 1
Transfer to Stage 3
from Stage 1
Transfer to Stage 3
from Stage 2
Transfer to Stage 1
from Stage 2
Transfer to Stage 2
from Stage 3
Transfer to Stage 1
from Stage 3
Net changes on
financial assets
Write-offs
Exchange differences
and others
Loss allowance as of
31 December 2019
2018
Million of euros
Balance at the
beginning of year
Movements
Transfers
Transfer to Stage 2
from Stage 1
Transfer to Stage 3
from Stage 1
Transfer to Stage 3
from Stage 2
Transfer to Stage 1
from Stage 2
Transfer to Stage 2
from Stage 3
Transfer to Stage 1
from Stage 3
Net changes on
financial assets
Write-offs
Exchange differences
and others
Loss allowance as of
31 December 2018
Stage 1
Stage 2
Stage 3
Total
795,829
52,183
33,461 881,473
(28,369) 28,369
(4,101)
4,101
(13,240) 13,240
12,436
(12,436)
2,439
(2,439)
488
(488)
—
—
—
—
—
—
61,581
(8,092)
(3,608) 49,881
—
—
(12,593)
(12,593)
12,075
1,253
163
13,491
849,939
50,476
31,837 932,252
Stage 1
Stage 2
Stage 3
Total
746,654
60,304
35,477 842,435
(31,234) 31,234
(3,980)
3,980
(13,998) 13,998
21,795
(21,795)
4,103
(4,103)
835
(835)
—
—
—
—
—
—
79,727
(5,265)
(1,997) 72,465
—
—
(12,673)
(12,673)
(17,968)
(2,400)
(386)
(20,754)
795,829
52,183
33,461 881,473
At 31 December 2019, the Group had EUR 706 million (31
December 2018: EUR 757 million) in purchased credit-
impaired assets, which relate mainly to the business
combinations carried out by the Group.
c) Impairment losses on loans and advances to
customers at amortised cost and at fair value through
other comprehensive income
The changes in the impairment losses on the assets making
up the balances of financial assets at amortised cost and at
fair value through other comprehensive income - Loans and
advances - Customers:
Million euros
Balance at beginning of the year
23,307
25,936
24,393
2019
2018*
2017
Impairment losses charged to
income for the year
Of which:
Impairment losses charged to
profit or loss
Impairment losses reversed
with a credit to profit or loss
Write-off of impaired balances
against recorded impairment
allowance
Exchange differences and other
changes**
11,108
10,501
10,513
19,192
17,850
19,006
(8,084)
(7,349)
(8,493)
(12,593)
(12,673) (13,522)
420
(457)
2,550
Balance at end of the year
22,242
23,307
23,934
Which correspond to:
Impaired assets
Other assets
Of which:
13,933
14,906
16,207
8,309
8,401
7,727
Individually calculated
3,555
4,905
5,311
Collective calculated
18,687
18,402
18,623
*
**
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1
January 2018 (Note 1.d).
In 2017, mainly includes the balances from the acquisition of Banco
Popular Español, S.A.U.
In addition, releases with a credit to fixed-income results
amounting to EUR 170 million were recorded in the year
(additions amounting to EUR 43 million and EUR 348
million as of 31 December 2018 and 2017, respectively)
and written-off assets recoveries have been recorded in
the year amounting to EUR 1,586 million. (31 December
2018: EUR 1,558 million; 31 December 2017: EUR 1,620
million). With this, the impairment recorded in Impairment
or reversal of impairment at financial assets not measured
at fair value through profit or loss and net gains and losses
from changes: Financial assets at fair value through other
comprehensive income and Financial assets at amortised
cost (IFRS 9) and, Loans and receivables (IAS 39); amounts
EUR 9,352 million (31 December 2018: EUR 8,986 million;
31 December 2017: EUR 9,241 million).
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Table of Contents
Following is the movement of the loan loss provision
broken down by impairment stage of loans and advances to
customers, under IFRS 9 during 2019 and 2018:
Stage 1
Stage 2
Stage 3
Total
3,658
4,743
14,906
23,307
d) Impaired assets and assets with unpaid past-due
amounts
The detail of the changes in the balance of the financial
assets classified as Financial assets at amortised cost –
Customers (IFRS 9) and Loans and receivables - Loans and
advances to customers (IAS 39) considered to be impaired
due to credit risk is as follows:
Million euros
2019
2018
2017
(964)
3,235
2,271
Balance at beginning of year
34,218
36,280 32,573
(214)
1,296
1,082
(3,065)
5,612
2,547
Net additions
Written-off assets
Changes in the scope of
consolidation
10,755
10,821
8,409
(12,593) (12,673) (13,522)
—
177
9,618
301
(1,048)
(747)
Exchange differences and other
163
(387)
(798)
Balance at end of year
32,543 34,218 36,280
This amount, after deducting the related allowances,
represents the Group’s best estimate of the discounted
value of the flows that are expected to be recovered from
the impaired assets.
At 31 December 2019, the Group’s written-off assets
totalled EUR 46,209 million (31 December 2018: EUR
47,751 million; 31 December 2017: EUR 43,508 million).
381
(817)
(436)
29
(123)
(94)
1,119
(182)
5,548
6,485
—
—
(12,593)
(12,593)
(94)
410
104
420
3,835
4,474
13,933
22,242
Stage 1
Stage 2
Stage 3
Total
4,349
5,079
16,507
25,935
(1,173)
3,854
2,681
(279)
1,264
985
(1,971)
4,528
2,557
438
(1,656)
(1,218)
435
(1,264)
(829)
84
(173)
(89)
304
—
(961)
7,070
6,413
—
(12,673) (12,673)
(65)
(37)
(353)
(455)
3,658
4,743
14,906
23,307
2019
Million euros
Loss allowance as of 1
January 2019
Transfers
Transfer from Stage
2 to Stage 1
Transfer from Stage
3 to Stage 1
Transfer from Stage
3 to Stage 2
Transfer from Stage
1 to Stage 2
Transfer from Stage
2 to Stage 3
Transfer from Stage
1 to Stage 3
Net changes of the
exposure and
modifications in the
credit risk
Write-offs
FX and other
movements
Carrying amount as of
31 December 2019
2018
Million of euros
Loss allowance as of 1
January 2018
Transfers
Transfer from Stage 2
to Stage 1
Transfer from Stage 3
to Stage 1
Transfer from Stage 3
to Stage 2
Transfer from Stage 1
to Stage 2
Transfer from Stage 2
to Stage 3
Transfer from Stage 1
to Stage 3
Net changes of the
exposure and
modifications in the
credit risk
Write-offs
FX and other
movements
Carrying amount as of
31 December 2018
578
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Following is a detail of the financial assets classified as
Financial assets at amortised cost (IFRS 9) and Loans and
receivables to costumers (IFRS 39) and considered to be
impaired due to credit risk at 31 December 2019, classified
by geographical location of risk and by age of the first
maturity of each operation:
Million euros
Spain
European Union (excluding Spain)
United States and Puerto Rico
Other OECD countries
Latin America (non-OECD)
With no past-
due balances or
less than 90
days past due
With balances past due by
90 to 180
days
180 to 270
days
270 days
to 1 year
More than
1 year
4,018
2,659
1,725
1,426
1,948
914
1,169
403
574
932
686
723
34
172
724
668
622
21
124
592
8,608
2,567
125
494
615
Total
14,894
7,740
2,308
2,790
4,811
11,776
3,992
2,339
2,027
12,409
32,543
The detail at 31 December 2018 is as follows:
Million euros
Spain
European Union (excluding Spain)
United States and Puerto Rico
Other OECD countries
Latin America (non-OECD)
With no past-
due balances or
less than 90
days past due
5,671
2,940
1,906
1,414
1,221
13,152
The detail at 31 December 2017 is as follows:
Million euros
With balances past due by
90 to 180
days
180 to 270
days
270 days
to 1 year
More than
1 year
780
1,213
531
498
1,145
4,167
551
577
30
143
782
656
519
31
162
561
8,724
2,662
178
520
803
2,083
1,929
12,887
34,218
With no past-
due balances or
less than
90 days past due
With balances past due by
90 to 180
days
180 to 270
days
270 days
to 1 year
More than
1 year
Spain
European Union (excluding Spain)
United States and Puerto Rico
Other OECD countries
Latin America (non-OECD)
6,012
2,023
1,221
1,523
945
11,724
938
1,526
641
563
1,309
4,977
793
811
42
166
709
814
558
50
128
578
9,643
3,829
192
378
888
Total
16,382
7,911
2,676
2,737
4,512
Total
18,200
8,747
2,146
2,758
4,429
2,521
2,128
14,930
36,280
579
Million euros
Retained on the balance sheet
93,553
88,767
91,208
2019
2018
2017
Of which
Securitised mortgage
assets
31,868
33,900
36,844
Of which: UK assets
13,002
13,519
15,694
Other securitised assets
61,685
54,867
54,364
Total*
93,553
88,767
91,208
* Note 22 details the liabilities associated with these securitisation
transactions.
Additionally, there are EUR 676 million (EUR 797 million
and EUR 1,139 million in 2018 and 2017, respectively) of
off-balance sheet securitised assets that mainly come from
the business combination of Banco Popular Español, S.A.U.
and that were never recorded on the Group's balance sheet.
Table of Contents
Set forth below for each class of impaired asset are the
gross amount, associated allowances and information
relating to the collateral and/or other credit enhancements
obtained at 31 December 2019:
Million euros
Without associated real
collateral
With real estate collateral
With other collateral
Total
Gross Allowance
amount recognised
Estimated
collateral
value*
11,408
16,076
5,059
7,144
4,429
2,360
—
10,819
1,900
32,543
13,933
12,719
*
Including the estimated value of the collateral associated with each loan.
Accordingly, any other cash flows that may be obtained, such as those
arising from borrowers’ personal guarantees, are not included.
When classifying assets in the previous table, the main
factors considered by the Group to determine whether an
asset has become impaired are the existence of amounts
past due -assets impaired due to arrears- or other
circumstances may be arise which will not result in all
contractual cash flow being recovered, such as a
deterioration of the borrower’s financial situation, the
worsening of its capacity to generate funds or difficulties
experienced by it in accessing credit.
Past-due amounts receivable
In addition, at 31 December 2019, there were amounts
receivable that were past due by 90 days or less, the detail
of which, by age of the oldest past-due amount, is as
follows:
Million euros
Loans and advances to
customers
Of which Public Sector
Total
Less
than 1
month
1,738
1
1,738
1 to 2
months
2 to 3
months
894
—
894
351
—
351
e) Securitisation retained on the balance sheet
Loans and advances to customers includes, inter alia, the
securitised loans transferred to third parties on which the
Group has retained the risks and rewards, albeit partially,
and which therefore, in accordance with the applicable
accounting standards, cannot be derecognised. This is
mainly due to mortgage loans, loans to companies and
consumer loans in which the group retains subordinate
financing and/or grants some kind of credit enhancement to
new holders.
Securitisation is used as a tool for the management of
regulatory capital and as a means of diversifying the
Group's liquidity sources.
580
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
11. Trading derivatives
The detail of the notional amounts and the market values of
the trading derivatives held by the Group in 2019, 2018 and
2017 is as follows:
Million euros
2019
2018
2017
Notional
amount
Market
value
Notional
amount
Market
value
Notional
amount
Market
value
Trading derivatives:
Interest rate risk
Forward rate agreements
Interest rate swaps
Options, futures and other derivatives
Credit risk
Credit default swaps
Foreign currency risk
218,252
4,322,199
794,140
(8)
308,340
2,573
4,197,246
(907)
543,138
(1)
115
(514)
190,553
3,312,025
540,424
23,701
(71)
18,889
33
25,136
Foreign currency purchases and sales
Foreign currency options
Currency swaps
Securities and commodities derivatives and other
Total
325,720
44,763
379,176
61,966
6,169,917
(441)
(182)
275,449
54,215
(1,162)
334,524
579
381
59,932
5,791,733
301
2
(416)
1,078
236,805
43,488
295,753
70,325
598
4,714,509
12. Non-current assets
The detail of Non-current assets held for sale in the
consolidated balance sheets is as follows:
Million euros
Tangible assets
Of which:
2019
2018
2017
4,588
5,424
11,661
Foreclosed assets
4,485
5,334
11,566
Of which: property assets in
Spain*
Other tangible assets held
for sale
Other assets**
Total
3,667
4,488
10,533
103
13
90
2
95
3,619
4,601
5,426
15,280
* During 2019, the sale of real estate assets to Cerberus from awards has
materialised, generating losses of EUR 180 million. In March 2018, the
agreement for the operation of Banco Popular Español, S.A.U. real estate
business with Blackstone was materialised (see Note 3).
** In 2017, the item Other assets includes, mainly, Banco Popular Español,
S.A.U. assets under the sale of the real estate business to Blackstone (see
Note 3).
At 31 December 2019, the allowances recognised for the
total non-current assets held for sale represented 48%
(2018: 49% and 2017: 50% without considering the assets
of Banco Popular Español, S.A.U. sold on March 2018). The
charges recorded in those years amounted to EUR 279
million, EUR 320 million and EUR 347 million, respectively,
and the recoveries during these exercises are amounted to
EUR 133 million, EUR 61 million and EUR 41 million,
respectively.
(15)
974
(511)
68
(29)
(37)
(1,628)
529
(649)
581
Table of Contents
13. Investments
a) Breakdown
b) Changes
The changes in the investments were as followed:
The detail, by company, of Investments is as follows:
Million euros
Million euros
Associated entities
2019
2018
2017
2019
2018*
2017
Balance at beginning of year
7,588
6,150
4,836
Acquisitions (disposals) of
companies and capital increases
(reductions)
(123)
(1,761)
1,893
Merlin Properties, SOCIMI, S.A.
1,511
1,358 1,242
Of which:
Project Quasar Investment 2017 S.L.
1,351
1,701
WiZink Bank, S.A.
Allianz Popular, S.L.
Changes in the consolidation
method (Note 3)
—
—
(1,033)
1,017
—
438
1,368
2,967
(582)
Of which:
Caceis
Santander Securities Services
Latam Holding , S.L. -
Consolidated
Project Quasar Investments
2017, S.L.
Metrovacesa, S.A.
1,010
349
—
—
—
—
1,701
1,255
—
—
—
—
Effect of equity accounting
324
737
704
Dividends paid and
reimbursements of share premium
Exchange differences and other
changes
(407)
(404)
(376)
22
(101)
(291)
Balance at end of year
8,772
7,588
6,184
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1
January, 2018 (Note 1.d).
c) Impairment losses
In 2019, 2018 and 2017 there was no evidence of material
impairment on the Group’s investments.
Metrovacesa, S.A.
Caceis (Note 3)
Zurich Santander Insurance
America S.L. - Consolidated
Testa Residencial, SOCIMI, S.A.
Allianz Popular, S.L.
Companies Santander Insurance -
Consolidated
Other companies
Joint Ventures entities
WiZink Bank, S.A.
Santander Securities Services
Latam Holding, S.L. - Consolidated
1,226
1,255
1,010
—
1,009
961
—
—
409
431
402
529
392
511
—
—
—
988
651
438
358
520
7,447 6,609 4,197
—
— 1,017
349
—
—
Unión de Créditos
Inmobiliarios, S.A., E.F.C. - Consolidated
206
202
207
Santander Generales Seguros y
Reaseguros, S.A. y Santander Vida
Seguros y Reaseguros, S.A. (former
Aegon Santander Seguros)
Other companies
170
600
163
614
186
577
1,325
979 1,987
Of the entities included above, at 31 December 2019, the
entities Merlin Properties, SOCIMI, S.A, Metrovacesa S.A.
and Compañía Española de Viviendas en Alquiler, S.A. are
the only listed companies.
582
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
d) Other information
Following is a summary of the financial information on the
associated entities and joint ventures (obtained from the
information available at the date of preparation of the
financial statements):
Million euros
Total assets
Total liabilities
Net assets
2019
2018
2017
165,386
74,765
63,093
(143,987)
(58,153)
(51,242)
21,399
16,612
11,851
Investments in Group joint
ventures and associates in the
net assets of associates
Goodwill
Of which:
Zurich Santander Insurance
America S.L. - Consolidated
Caceis
Allianz Popular, S.L.
Santander Securities
Services Latam Holding,
S.L. - Consolidated
Companies Santander
Insurance - Consolidated
WiZink Bank, S.A.
6,729
2,043
6,157
1,431
4,194
1,990
526
466
347
207
205
—
526
—
347
526
—
347
—
—
205
—
205
553
Total Group share
8,772
7,588
6,184
Total income
Total profit
14,172
12,174
12,536
1,375
1,867
1,699
Group’s share of profit
324
737
704
Following is a summary of the financial information for
2019 on the main associates and joint ventures (obtained
from the information available at the date of preparation of
the financial statements):
Million euros
Total
assets
Total
liabilities
Total
income
Total
profit
Joint Ventures entities
24,284
22,247
2,708
349
Of which:
Unión de Créditos
Inmobiliarios, S.A.,
E.F.C. - Consolidated
Santander Generales
Seguros y
Reaseguros, S.A. y
Santander Vida
Seguros y
Reaseguros, S.A.
(former Aegon
Santander Seguros)
Santander Securities
Services Latam
Holding , S.L. -
Consolidated
13,088
12,683
261
11
817
600
521
65
391
99
103
59
Associated entities
141,102 121,740 11,464 1,026
Of which:
Caceis
Zurich Santander
Insurance America,
S.L. - Consolidated
Project Quasar
Investments 2017,
S.L.
88,015
84,045
1,632
159
15,865
14,875
5,579
406
Allianz Popular, S.L.
2,749
2,593
9,928
6,712
494
361
(714)
76
Companies
Santander Insurance
- Consolidated
2,424
2,024
817
84
Total
165,386 143,987 14,172 1,375
583
Table of Contents
14. Insurance contracts linked to
pensions
The detail of Insurance contracts linked to pensions in the
consolidated balance sheets is as follows:
Million euros
Assets relating to insurance
contracts covering post-
employment benefit plan
obligations:
Banco Santander, S.A.
2019
2018
2017
192
192
210
210
239
239
15. Liabilities and assets under
insurance contracts and
reinsurance assets
The detail of Liabilities under insurance contracts and
reinsurance assets in the consolidated balance sheets (see
Note 2.j) is as follows:
Million euros
Technical provisions for:
Unearned premiums and
unexpired risks
Life insurance
Unearned premiums
and risks
Mathematical
provisions
Claims outstanding
Bonuses and rebates
Other technical
provisions
2019
2018
2017
Direct
insurance
and
reinsurance
assumed
Reinsurance
ceded
Total
(balance
payable)
Direct
insurance
and
reinsurance
assumed
Reinsurance
ceded
Total
(balance
payable)
Direct
insurance
and
reinsurance
assumed
Reinsurance
ceded
Total
(balance
payable)
59
206
139
67
399
22
53
739
(52)
(151)
(132)
(19)
(55)
(10)
(24)
(292)
7
55
7
48
344
12
29
447
52
227
140
87
397
20
69
765
(47)
(163)
(127)
(36)
(86)
(9)
(19)
(324)
5
64
13
51
311
11
50
441
50
483
100
383
423
29
132
1,117
(41)
(151)
9
332
(96)
4
(55)
(115)
(11)
(23)
(341)
328
308
18
109
776
584
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
16. Tangible assets
a) Changes
The changes in Tangible assets in the consolidated balance
sheets were as follows:
Million euros
Cost:
Tangible assets
Leased
out under
an operating
lease
For own use
Investment
property
Total For own use
Of which:
Right-of-use for operating lease
Leased
out under
an operating
lease
Investment
property
Total
Balances at 1 January 2017
18,112
18,238
3,465
39,815
Additions / disposals (net) due to change in the
scope of consolidation
Additions / disposals (net)
1,740
781
205
2,445
—
1,945
(100)
3,126
Transfers, exchange differences and other items
(1,357)
(2,215)
(223)
(3,795)
Balances at 31 December 2017
19,276
18,673
3,142
41,091
Additions / disposals (net) due to change in the
scope of consolidation
Additions / disposals (net)
34
589
Transfers, exchange differences and other items
(1,164)
Balances at 31 December 2018
IFRS 16 Adoption impact
Balances at 1 January 2019
Additions / disposals (net) due to change in the
scope of consolidation
Additions / disposals (net)
Transfers, exchange differences and other items
18,735
6,693
25,428
(5)
1,863
(178)
44
5,545
825
(630)
(182)
(552)
5,952
48
(291)
25,087
2,378
46,200
—
—
6,693
25,087
2,378
52,893
6,693
6,693
—
(15)
(20)
—
3,148
(3,781)
(310)
4,701
(997)*
(603)
(4,562)
(10)
Balances at 31 December 2019
27,108
24,454
1,450
53,012
5,686
(10,211)
(5,169)
(197)
(15,577)
Accumulated depreciation:
Balances at 1 January 2017
Disposals due to change in the scope of
consolidation
Disposals
Charge for the year
Transfers, exchange differences and other items
Balances at 31 December 2017
Disposals due to change in the scope of
consolidation
Disposals
Charge for the year
—
478
(1,165)
(22)
(10,920)
(12)
629
(1,159)
Transfers, exchange differences and other items
938
Balances at 31 December 2018
IFRS 16 Adoption impact
(10,524)
—
—
639
—
(1,574)
(6,104)
(34)
413
—
(2,679)
(8,404)
—
—
8
—
1,125
(25)
(1,190)
25
(1,571)
(189)
(17,213)
—
17
(13)
(14)
(46)
1,059
(1,172)
(1,755)
(199)
(19,127)
—
—
Balances at 1 January 2019
(10,524)
(8,404)
(199)
(19,127)
Disposals due to change in the scope of
consolidation
Disposals
Charge for the year
3
356
(2,021)
Transfers, exchange differences and other items
212
Balances at 31 December 2019
(11,974)
—
2,149
—
1,045
(5,210)
* Includes contract extensions on operating leases.
—
—
—
37
6
32
9
2,537
(14)
(2,035)
(807)
31
1,288
5
(144)
(17,328)
(765)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,693
6,693
—
(997)
(10)
5,686
—
—
—
37
(807)
5
(765)
585
Table of Contents
Million euros
Tangible assets
Leased
out under
an operating
lease
For own use
Investment
property
Total For own use
Of which:
Right-of-use for operating lease
Leased
out under
an operating
lease
Investment
property
Total
Impairment losses:
Balances at 1 January 2017
Impairment charge for the year
Releases
Disposals due to change in the scope of consolidation
Exchange differences and other
Balances at 31 December 2017
Impairment charge for the year
Releases
Disposals due to change in the scope of consolidation
Exchange differences and other
Balances at 31 December 2018
IFRS 16 Adoption impact
Balances at 1 January 2019
Impairment charge for the year
Releases
Disposals due to change in the scope of consolidation
Exchange differences and other
Balances at 31 December 2019
Tangible assets, net:
Balances at 31 December 2017
Balances at 31 December 2018
IFRS 16 Adoption impact
Balances at 1 January 2019
Balances at 31 December 2019
(41)
(16)
4
—
(24)
(77)
(30)
6
—
40
(61)
—
(61)
(14)
8
—
(26)
(93)
(159)
(42)
—
(2)
5
(198)
(56)
—
—
15
(752)
(952)
(21)
(79)
3
(1)
7
(3)
142
123
(629)
(904)
(8)
(94)
5
—
16
11
—
71
(239)
(616)
(916)
—
(239)
(12)
6
—
222
(23)
—
—
(616)
(916)
(36)
(62)
3
—
17
—
316
512
(333)
(449)
—
—
—
—
—
—
—
8,279
8,150
6,693
14,843
15,041
12,371
16,444
2,324
22,974
1,563
26,157
—
—
6,693
16,444
19,221
1,563
32,850
973
35,235
6,693
6,693
4,921
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,693
6,693
4.921
586
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
b) Tangible assets - For own use
i. Property, plant and equipment owned
The detail, by class of asset, of Property, plant and
equipment which is owned by the Group in the consolidated
balance sheets is as follows:
Million euros
Land and buildings
IT equipment and fixtures
Furniture and vehicles
Construction in progress and other items
Balances at 31 December 2017
Land and buildings
IT equipment and fixtures
Furniture and vehicles
Construction in progress and other items
Balances at 31 December 2018
Land and buildings
IT equipment and fixtures
Furniture and vehicles
Construction in progress and other items
Balances at 31 December 2019
The carrying amount at 31 December 2019 in the foregoing
table includes the following approximate amounts EUR
7,737 million (31 December 2018: EUR 5,390 million; 31
December 2017: EUR 5,455 million) relating to property,
plant and equipment owned by Group entities and branches
located abroad.
c) Tangible assets - Leased out under an operating
lease
The Group has assets leased out under operating leases
where the company is the lessor and do not meet the
accounting requirements to be classified as finance leases.
The net cost of these leases is recorded as an asset and
depreciated on a straight-line basis over the contractual
term of the lease to the expected residual value.
The expected residual value and, consequently, the monthly
depreciation expense may change during the term of the
lease. The Group estimates expected residual values using
independent data sources and internal statistical models. It
also assesses the estimate of the residual value of these
leases and adjusts the depreciation rate in line with the
change in the expected value of the asset at the end of the
lease.
The Group periodically assesses its investment in operating
leases for impairment in certain circumstances, such as a
Tangible assets for own use
Of which:
Carrying Right-of-use for
operating lease
amount
Accumulated
Cost depreciation
Impairment
losses
5,892
5,608
7,213
563
(2,014)
(4,422)
(4,391)
(93)
(77)
—
—
—
19,276
(10,920)
(77)
6,127
5,605
6,686
317
(2,056)
(4,455)
(3,946)
(67)
(61)
—
—
—
18,735
(10,524)
(61)
3,801
1,186
2,822
470
8,279
4,010
1,150
2,740
250
8,150
13,972
5,995
6,952
189
(2,889)
(4,808)
(4,216)
(61)
(93)
10,990
4,908
—
—
—
1,187
2,736
128
2
11
—
27,108
(11,974)
(93)
15,041
4,921
systemic and material decrease in the values of used
vehicles. If assets leased out under operating leases are
deemed to be impaired, impairment is measured as the
amount by which the carrying amount of the assets exceeds
the fair value as estimated by discounted cash flows. In
2019, 2018 and 2017 the Group did not recognise any
material impairment in this respect.
Of the EUR 19,221 million that the Group had assigned to
operating leases at 31 December 2019, EUR 14,779 million
relate to vehicles of Santander Consumer USA Holdings Inc.
and the variable lease payments of various items of this
entity amounted to EUR 24 million, EUR 26 million and EUR
21 million at 31 December 2019, 2018 and 2017,
respectively.
In addition, the maturity analysis of the payments for assets
leased out under operating leases from Santander
Consumer USA Holdings Inc. is as follows:
Million euros
Maturity Analysis
2020
2021
2022
2023
2019
2,467
6,330
5,474
1,362
587
Table of Contents
d) Tangible assets - Investment property
The changes in goodwill were as follows:
The fair value of investment property at 31 December 2019
amounted to EUR 1,076 million (2018: EUR 1,825 million;
2017: EUR 2,452 million). A comparison of the fair value of
investment property at 31 December 2019, with the net
book value shows gross unrealised gains of EUR 103 million
(2018: EUR 262 million and 2017: EUR 128), attributed
completely to the group.
The rental income earned from investment property and the
direct costs related both to investment properties that
generated rental income in 2019, 2018 and 2017 and to
investment properties that did not generate rental income in
those years are not material in the context of the
consolidated financial statements.
17. Intangible assets – Goodwill
The detail of goodwill, based on the cash-generating units
giving rise thereto, is as follows:
Million euros
Santander UK
2019
2018
2017
7,147
8,307
8,375
Banco Santander (Brasil)
4,388
4,459
4,988
Santander Bank Polska
2,427
2,402
2,473
Santander Consumer USA
2,143
2,102
2,007
Santander Bank, National
Association
1,828
1,793
1,712
Santander Consumer Germany
1,236
1,217
1,217
SAM Investment Holdings Limited
1,173
1,173
1,173
Santander Portugal
Santander España*
Banco Santander - Chile
Santander Consumer Nordics
Grupo Financiero Santander (México)
Other companies
Total Goodwill
1,040
1,040
1,040
1,027
1,023
589
496
460
292
627
502
434
387
648
676
518
413
529
24,246 25,466 25,769
*
Includes mainly goodwill arising from purchases of Grupo Banco Popular
S.A.U.´s network and WiZink´s card business.
588
2019 Annual Report
Million euros
Balance at beginning of year
25,466 25,769 26,724
2019
2018
2017
Additions (Note 3)
Of which:
41
383
1,644
SAM Investment Holdings Limited
Santander España*
—
4
—
1,173
375
248
Impairment losses
(1,491)
—
(899)
Of which:
Santander UK plc
Santander Consumer USA
Disposals or changes in scope of
consolidation
Exchange differences and other
items
(1,491)
—
—
—
—
(799)
—
(130)
—
230
(556)
(1,700)
Balance at end of year
24,246 25,466 25,769
* At 31 December 2018, this includes EUR 375 million for the unsold part of
the WiZink stake. As of 31 December 2017, includes EUR 248 million for the
acquisition of Banco Popular Español S A.U.
The Group has goodwill generated by cash-generating units
located in non-euro currency countries (mainly the UK,
Brazil, the United States, Poland, Chile, Norway, Sweden
and Mexico) and, therefore, this gives rise to exchange
differences on the translation to euros, at closing rates, of
the amounts of goodwill denominated in foreign currencies.
Accordingly, in 2019 there was an increase of EUR 230
million (decrease of EUR 556 and 1,704 million in 2018 and
2017) due to exchange differences and other items which,
pursuant to current standards, were recognised with a debit
to Other comprehensive income - Items that may be
reclassified to profit or loss - Exchange differences in other
comprehensive income in the consolidated statement of
recognised income and expense (see Note 29.d).
At least once per year (or whenever there is any indication of
impairment), the Group reviews goodwill for impairment
(i.e. a potential reduction in its recoverable value to below
its carrying amount). The first step that must be taken in
order to perform this analysis is the identification of the
cash-generating units, i.e. the Group's smallest identifiable
groups of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or
groups of assets.
The amount to be recovered of each cash-generating unit is
determined taking into consideration the carrying amount
(including any fair value adjustment arising on the business
combination) of all the assets and liabilities of all the
independent legal entities composing the cash-generating
unit, together with the related goodwill.
The amount to be recovered of the cash-generating unit is
compared with its recoverable amount in order to determine
whether there is any impairment.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The Group’s directors assess the existence of any indication
that might be considered to be evidence of impairment of
the cash-generating unit by reviewing information including
the following: (i) certain macroeconomic variables that
might affect its investments (population data, political
situation, economic situation -including banking
concentration level-, among others) and (ii) various
microeconomic variables comparing the investments of the
Group with the financial services industry of the country in
which the cash-generating unit carries on most of its
business activities (balance sheet composition, total funds
under management, results, efficiency ratio, capital
adequacy ratio, return on equity, among others).
Regardless of whether there is any indication of
impairment, every year the Group calculates the
recoverable amount of each cash-generating unit to which
goodwill has been allocated and, to this end, it uses price
quotations, market references (multiples), internal
estimates and appraisals performed by independent
experts, other than the external auditor.
Firstly, the Group determines the recoverable amount by
calculating the fair value of each cash-generating unit on
the basis of the quoted price of the cash-generating units, if
available, and of the Price Earnings Ratio of comparable
local entities.
In addition, the Group performs estimates of the
recoverable amounts of certain cash-generating units by
calculating their value in use using discounted cash flow
projections. The main assumptions used in this calculation
are: (i) earnings projections based on the financial budgets
approved by the Group’s directors which cover between
three and five year period (unless a longer time horizon can
be justified), (ii) discount rates determined as the cost of
capital taking into account the risk-free rate of return plus a
Santander UK
Santander Bank Polska**
Santander Consumer USA
Santander Bank, National Association
Santander Consumer Germany
SAM Investment Holdings Limited
Santander Portugal
Santander Consumer Nordics
risk premium in line with the market and the business in
which the units operate and (iii) constant growth rates used
in order to extrapolate earnings in perpetuity which do not
exceed the long-term average growth rate for the market in
which the cash-generating unit in question operates.
The cash flow projections used by Group management to
obtain the values in use are based on the financial budgets
approved by both local management of the related local
units and the Group’s directors. The Group’s budgetary
estimation process is common for all the cash-generating
units. The local management teams prepare their budgets
using the following key assumptions:
a) Microeconomic variables of the cash-generating unit:
management takes into consideration the current
balance sheet structure, the product mix on offer and
the business decisions taken by local management in
this regard.
b) Macroeconomic variables: growth is estimated on the
basis of the changing environment, taking into
consideration expected GDP growth in the unit’s
geographical location and forecast trends in interest
and exchange rates. These data, which are based on
external information sources, are provided by the
Group’s economic research service.
c) Past performance variables: in addition, management
takes into consideration in the projection the difference
(both positive and negative) between the cash-
generating unit’s past performance and that of the
market.
Following is a detail of the main assumptions used in
determining the recoverable amount, at 2019 year-end, of
the most significant cash-generating units which were
valued using the discounted cash flow method:
2019
Projected period
Discount rate*
5 years
5 years
3 years
5 years
5 years
5 years
5 years
5 years
8.5%
9.2%
9.5%
9.6%
8.2%
10.0%
8.9%
8.6%
Nominal
perpetual
growth rate
2.5%
3.5%
1.5%
3.6%
2.5%
2.5%
2.0%
2.5%
*
**
Post-tax discount rate.
The recoverable amount has been calculated using the market price in previous years.
589
Discount rate*
Nominal
perpetual
growth rate
2018
2017
2018
2017
8.4%
11.1%
10.6%
8.5%
9.6%
9.6%
9.2%
8.4%
10.7%
10.1%
8.6%
n.a.
10.0%
9.0%
2.5%
1.5%
3.8%
2.5%
2.5%
2.0%
2.5%
2.5%
2.5%
3.7%
2.5%
n.a.
2.5%
2.5%
The recoverable amount of Banco Santander - Chile, Grupo
Financiero Santander (México) and Banco Santander (Brasil)
was calculated as the fair values of the aforementioned
cash-generating units obtained from the market prices of
their shares at year-end. This value exceeded the
recoverable amount.
Based on the above, and in accordance with the estimates,
forecasts and sensibility analysis available for the managers
of the bank, during 2019 the Group recognised goodwill
impairment losses within Impairment or reversal of
impairment on non-financial assets, net - Intangible assets
caption amounting to EUR 1,491 million, which corresponds
to Santander UK (no impairment during 2018 and EUR 899
during 2017). Goodwill is deducted from the CET1 for
regulatory purposes, so an impairment of goodwill has no
impact on the Group's capital ratios.
Table of Contents
The discount and nominal perpetual growth rates used in
2018 and 2017 are presented below for comparison
purposes:
Santander UK
Santander Consumer USA
Santander Bank, National Association
Santander Consumer Germany
SAM Investment Holdings Limited
Santander Portugal
Santander Consumer Nordics
* Post-tax discount rate.
Given the degree of uncertainty of these assumptions, the
Group performs a sensitivity analysis thereof using
reasonable changes in the key assumptions on which the
recoverable amount of the cash-generating units is based in
order to confirm whether their recoverable amount still
exceeds their carrying amount. The sensitivity analysis
involved adjusting the discount rate by +/- 50 basis points
and the perpetuity growth rate by +/- 50 basis points.
Following the sensitivity analysis performed, the value in
use of all the cash-generating units still exceeds their
recoverable amount, albeit:
• In the case of Santander UK, the Group recognised a
goodwill impairment amounting to EUR 1,491 million.
The mentioned impairment was estimated considering
the following reasons: decrease in Unit´s capacity of
benefits generation in contrast with the forecast carried
out in the previous years, the general competitive
environment in the United Kingdom, the impact of
banking reform on retail businesses, and the impact of
the uncertainty generated by Brexit on the economic
growth of the country.
• In the case of Santander Consumer USA, the Group
recognised in 2017 a goodwill impairment amounting to
EUR 799 million. The mentioned impairment was
estimated considering the decrease in the entity’s profit
in contrast with the forecasts carried out in the previous
years, derived from a change in the long term business
strategy.
590
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
18. Intangible assets - Other
intangible assets
The detail of Intangible assets - Other intangible assets in
the consolidated balance sheets and of the changes therein
in 2019, 2018, and 2017 is as follows:
Million euros
Estimated
useful life
31
December
2018
Net
additions
and
disposals
Change in Amortization
and
impairment
scope of
consolidation
Application of
amortization
Exchange
and differences
and other
impairment
With indefinite useful life:
Brand names
With finite useful life:
IT developments
3 -7 years
Other
Accumulated amortisation
Development
Other
Impairment losses
Of which: addition
liberation
Million euros
36
2
7,134
1,510
(5,432)
(4,743)
(689)
(154)
—
—
1,374
1
—
—
—
—
—
—
2
(19)
(24)
8
4
4
—
—
—
(966)
(874)
(92)
(73)
(75)
2
3,094
1,377
(33)
(1,039)
—
(639)
(248)
806
570
236
81
—
—
—
2
95
37
(102)
(96)
(6)
10
—
—
42
Estimated
useful life
31
December
2017
Net
additions
and
disposals
Change in Amortization
and
impairment
scope of
consolidation
Application of
amortization
Exchange
and differences
and other
impairment
31
December
2019
42
7,945
1,276
(5,686)
(5,139)
(547)
(136)
—
—
3,441
31
December
2018
With indefinite useful life:
Brand names
With finite useful life:
IT developments
3-7 years
Other
Accumulated amortisation
Development
Other
Impairment losses
Of which: addition
liberation
35
—
6,945
1,560
(5,386)
(4,721)
(665)
(240)
—
—
1,468
1
—
—
—
—
—
—
2,914
1,469
—
1
12
(1)
(1)
—
—
—
—
12
(1,253)
(1,153)
(100)
(117)
(118)
1
(1,370)
—
1
36
(1,102)
(50)
1,035
985
50
117
—
—
—
(178)
(13)
173
147
26
86
—
—
69
7,134
1,510
(5,432)
(4,743)
(689)
(154)
—
—
3,094
591
Table of Contents
Million euros
Estimated
useful life
31
December
2016
Net
additions
and
disposals
Change in
scope of
consolidation
Amortization
and
impairment
Application of
amortization
and
impairment
Exchange
differences
and other
31
December
2017
With indefinite useful life:
Brand names
With finite useful life:
IT developments
3-7 years
Other
Accumulated amortisation
Development
Other
Impairment losses
Of which: addition
39
—
—
—
(4)
35
6,558
1,245
(4,848)
(4,240)
(608)
(297)
—
1,470
68
—
—
—
—
—
42
436
(64)
(14)
(50)
—
—
—
—
(1,403)
(1,310)
(93)
(174)
(174)
2,697
1,538
414
(1,577)
(679)
(126)
694
627
67
111
—
—
(446)
(63)
235
216
19
120
—
6,945
1,560
(5,386)
(4,721)
(665)
(240)
—
(158)
2,914
In 2019, 2018 and 2017, impairment losses of EUR 73
million, EUR 117 million and EUR 174 million, respectively,
were recognised under Impairment or reversal of
impairment on non-financial assets, net – intangible assets.
This impairment losses related mainly to the decline in or
loss of the recoverable value of certain computer systems
and applications as a result of the processes initiated by the
Group to adapt to the various regulatory changes and to
transform or integrate businesses.
19. Other assets
The detail of Other assets is as follows:
Million euros
Transactions in transit
Net pension plan assets (Note 25)
2019
2018
2017
157
143
903 1,015
206
604
Prepayments and accrued income
3,129 3,089 2,326
Other (Note 2.n)
5,752 4,744 4,427
9,941 8,991 7,563
592
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
20. Deposits from central banks
and credit institutions
The detail, by classification, counterparty, type and
currency, of Deposits from central banks and Deposits from
credit institutions in the consolidated balance sheets is as
follows:
21. Customer deposits
The detail, by classification, geographical area and type, of
Customer deposits is as follows:
Million of euros
Classification:
2019
2018
2017
Million euros
CENTRAL BANKS
Classification:
2019
2018
2017
Financial liabilities held for trading
—
—
28,179
Financial liabilities designated at
fair value through profit or loss
34,917
39,597
28,945
Financial liabilities
at amortised cost*
789,448
740,899 720,606
824,365 780,496 777,730
Financial liabilities held for trading
—
—
282
Financial liabilities designated at fair
value through profit or loss
12,854
14,816
8,860
Geographical area:
Spain
271,103
267,210 260,181
European Union (excluding Spain)
334,542
309,615 318,580
United States and Puerto Rico
60,011
53,843
50,771
Other OECD countries
71,235
67,462
62,980
South America
Rest of the world
Type:
Demand deposits-
Current accounts
Savings accounts
87,474
82,343
84,752
—
23
466
824,365 780,496 777,730
373,146
346,345 328,217
208,701
196,493 189,845
Other demand deposits
6,686
5,873
7,010
Time deposits-
Fixed-term deposits and other
term deposits
Home-purchase savings
accounts
Discount deposits
194,163
195,540 195,285
44
3
40
3
45
3
Hybrid financial liabilities
2,711
3,419
4,295
Subordinated liabilities
—
23
21
Repurchase agreements
38,911
32,760
53,009
824,365 780,496 777,730
* The decrease reflects the run-down of UK's trading business due to the
banking reform (Ring-fencing).
Note 51 contains a detail of the residual maturity periods of
financial liabilities at amortised cost and of the related
average interest rates.
Financial liabilities at amortised cost
62,468
72,523
71,414
Type:
Deposits on demand
Time deposits
75,322
87,339
80,556
5
5
5
67,424
82,797
78,801
Reverse repurchase agreements
7,893
4,537
1,750
75,322
87,339
80,556
CREDIT INSTITUTIONS
Classification:
Financial liabilities held for trading
—
—
292
Financial liabilities designated at fair
value through profit or loss
9,340
10,891
18,166
Financial liabilities at amortised cost
90,501
89,679
91,300
99,841 100,570 109,758
Type:
Deposits on demand
9,136
6,154
6,444
Time deposits
61,406
53,422
54,158
Reverse repurchase agreements
29,115
40,873
49,049
Subordinated deposits
184
121
107
Currency:
Euro
Pound sterling
US dollar
Brazilian real
Other currencies
TOTAL
99,841 100,570 109,758
79,008
97,323 119,606
18,129
19,301
14,820
53,403
45,848
33,259
13,022
18,657
16,485
11,601
6,780
6,144
175,163 187,909 190,314
At 31 December 2019, the European Central Bank's targeted
longer-term refinancing operations (TLTROs (Targeted
Long-Term Refinancing Operation)) amounted to EUR
46,201 million (EUR 55,382 million at 31 December 2018).
Note 51 contains a detail of the residual maturity periods of
financial liabilities at amortised cost and of the related
average interest rates.
593
Table of Contents
22. Marketable debt securities
a) Breakdown
The detail, by classification and type, of Marketable debt
securities is as follows:
Million euros
Classification:
Financial liabilities
held for trading
2019
2018
2017
—
—
—
Financial liabilities designated
at fair value through profit or loss
3,758
2,305
3,056
Financial liabilities
at amortised cost
Type:
Bonds and debentures
outstanding
258,219
244,314
214,910
261,977
246,619
217,966
208,455
195,498
176,719
Subordinated
20,878
23,676
21,382
Notes and other securities
32,644
27,445
19,865
261,977
246,619
217,966
The distribution of the book value of debt securities issued by
contractual maturity is shown below:
Million euros
Subordinated debt
Senior unsecured debt
Senior secured debt
Promissory notes and other
securities
Debt securities issued
On demand
Within 1
month
1 to 3
months
3 to 12
months
1 to 3 years
3 to 5 years
More than 5
years
Total
—
—
—
—
—
—
3.128
8.172
—
9.504
1.938
4.941
16.241
11.455
22.897
—
130
1,313
19,435
20,878
18,923
13,333
16,248
48,504
33,263
33,106
31,199
14,743
22,283
118,300
18,863
90,155
—
—
—
32,644
66,499
47,255
60,581
261,977
594
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The distribution by contractual maturity of the notional
amounts of these debt securities issued is as follows:
Million euros
Subordinated debt
Senior unsecured debt
Senior secured debt
Promissory notes and other
securities
Debt securities issued
On demand
Within 1
month
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than 5
years
Total
—
—
—
—
—
—
3,056
8,152
—
9,286
1,934
5,058
16,266
11,725
22,945
—
129
1,299
19,221
20,649
18,489
13,301
16,631
48,421
32,499
33,026
30,483
14,707
21,771
115,584
18,818
89,938
—
—
—
33,414
65,654
46,489
59,810
259,585
b) Bonds and debentures outstanding
The detail, by currency of issue, of Bonds and debentures
outstanding is as follows:
Currency of issue
Euro
US dollar
Pound sterling
Brazilian real
Chilean peso
Other currencies
Million euros
2018
85,479
62,021
16,616
15,778
6,460
9,144
2019
89,008
64,952
20,178
15,292
6,848
12,177
2017
83,321
48,688
13,279
17,309
5,876
8,246
2019
Outstanding issue amount
in foreign currency (Million)
Annual
interest rate (%)
89,008
72,967
17,167
69,054
5,791,169
1.13%
3.01%
2.15%
4.94%
4.48%
Balance at end of year
208,455
195,498
176,719
595
Table of Contents
The changes in Bonds and debentures outstanding were as
follows:
Million euros
Balance at beginning of year
Net inclusion of entities in the Group
Of which:
Banco Santander, S.A. (Group Banco Popular S.A.U.)
Issues
Of which:
Santander Consumer USA Holdings Inc.
Banco Santander (Brasil) S.A.
Banco Santander, S.A.*
Santander Consumer Finance, S.A.
Grupo Santander UK
Santander Holdings USA, Inc.
Banco Santander - Chile
Santander Consumer Bank A.S.
PSA Banque France
PSA Bank Deutschland GmbH
Santander International Products, Plc.
SCF Rahoituspalvelut VIII DAC
Santander Consumer Bank AG
Santander Consumer Bank S.p.A.
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México
Banco Santander Totta, S.A.
SCF Rahoituspalvelut KIMI VI DAC
Redemptions and repurchases
Of which:
Santander Consumer USA Holdings Inc.
Banco Santander (Brasil) S.A.
Santander Group UK
Banco Santander, S.A.*
Santander Consumer Finance, S.A.
Santander Holdings USA, Inc.
Santander Consumer Bank AS
PSA Bank Deutschland GmbH
Banco Santander- Chile
Banco Santander Totta, S.A.
Santander International Products, Plc.
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México
Santander Bank, National Association
Banca PSA Italia S.p.A.
Exchange differences and other movements
Balance at year-end
*
As of 31 December 2017, issuer entities were included.
596
2019 Annual Report
2019
195,498
2018
176,719
2017
183,278
—
11,426
—
—
—
64,184
68,306
15,631
13,227
12,066
5,150
4,547
2,778
1,644
1,572
1,132
1,104
848
799
750
589
577
—
—
15,627
16,422
7,683
3,605
14,984
1,210
1,483
1,342
716
600
249
—
—
—
560
—
—
11,426
62,260
11,242
16,732
10,712
2,508
7,625
4,133
579
1,117
1,032
13
588
—
749
151
118
1,999
635
(52,462)
(48,319)
(66,871)
(14,517)
(12,817)
(9,115)
(3,303)
(2,550)
(1,990)
(1,551)
(902)
(848)
(739)
(722)
(159)
—
—
1,235
208,455
(11,939)
(14,802)
(6,800)
(4,752)
(2,366)
(903)
(1,268)
(488)
(204)
(41)
(491)
(579)
—
(600)
(1,208)
195,498
(10,264)
(23,187)
(13,303)
(9,956)
(1,618)
(759)
(337)
(23)
(1,442)
(998)
(310)
(224)
(886)
—
(13,374)
176,719
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
c) Notes and other securities
These notes were issued basically by Santander Consumer
Finance, S.A., Santander UK plc, Banco Santander (México), S.A.
Institución de Banca Múltiple, Grupo Financiero Santander
México, Banco Santander, S.A. , Santander Consumer Bank AG,
PSA Banque France, Banco Santander - Chile and Santander
Bank Polska, S.A.
d) Guarantees
Set forth below is information on the liabilities secured by
financial assets:
Million euros
2019
2018
2017
Asset-backed securities
38,616
38,140
32,505
Of which, mortgage-backed
securities
3,819
5,197
4,034
Other mortgage securities
50,269
46,026
52,497
Of which: mortgage-backed
bonds
24,736
22,023
23,907
Territorial covered bond
1,270
1,270
1,270
90,155
85,436
86,272
The main characteristics of the assets securing the
aforementioned financial liabilities are as follows:
1.Asset-backed securities:
a. Mortgage-backed securities- these securities are secured
by mortgage assets (see Note 10.e) with average
maturities of more than ten years that must: be a first
mortgage for acquisition of principal or second residence,
be current in payments, have a loan-to-value ratio below
80% and have a liability insurance policy in force covering
at least the appraisal value. The value of the financial
liabilities broken down in the foregoing table is lower than
the balance of the assets securing them - securitised
assets retained on the balance sheet - mainly because the
Group repurchases a portion of the bonds issued, and in
such cases they are not recognised on the liability side of
the consolidated balance sheet.
b. Other asset - backed securities - including asset-backed
securities and notes issued by special-purpose vehicles
secured mainly by mortgage loans that do not meet the
foregoing requirements and other loans (mainly personal
loans with average maturities of five years and loans to
SMEs with average maturities of seven years).
2.Other mortgage securities include mainly: (i) mortgage-
backed bonds with average maturities of more than ten years
that are secured by a portfolio of mortgage loans and credits
(included in secured loans - see Note 10.b) which must: not
be classified as of procedural stage; have available appraisals
performed by specialised entities; have a loan-to-value (LTV)
ratio below 80% in the case of home loans and below 60%
for loans for other assets and have sufficient liability
insurance, (ii) other debt securities issued as part of the
Group’s liquidity strategy in the UK, mainly covered bonds in
the UK secured by mortgage loans and other assets.
The fair value of the guarantees received by the Group (financial
and non-financial assets) which the Group is authorised to sell
or pledge even if the owner of the guarantee has not defaulted
is scantly material taking into account the Consolidated
financial statements as a whole.
e) Spanish mortgage-market issues
The members of the board of directors hereby state that the
Group entities operating in the Spanish mortgage-market
issues area have established and implemented specific policies
and procedures to cover all activities carried on and guarantee
strict compliance with mortgage-market regulations applicable
to these activities as provided for in Royal Decree 716/2009, of
24 April implementing certain provisions of Mortgage Market
Law 2/1981, of 25 March, and, by application thereof, in Bank
of Spain Circulars 7/2010 and 5/2011, and other financial and
mortgage system regulations. Also, financial management
defines the Group entities' funding strategy.
The risk policies applicable to mortgage market transactions
envisage maximum loan-to-value (LTV) ratios, and specific
policies are also in place adapted to each mortgage product,
which occasionally require the application of stricter limits.
The Bank’s general policies in this respect require the
repayment capacity of each potential customer (the effort ratio
in loan approval) to be analysed using specific indicators that
must be met. This analysis must determine whether each
customer’s income is sufficient to meet the repayments of the
loan requested. In addition, the analysis of each customer must
include a conclusion on the stability over time of the customer’s
income considered with respect to the life of the loan. The
aforementioned indicator used to measure the repayment
capacity (effort ratio) of each potential customer takes into
account mainly the relationship between the potential debt and
the income generated, considering on the one hand
the monthly repayments of the loan requested and other
transactions and, on the other, the monthly salary income and
duly supported income.
The Group entities have specialised document comparison
procedures and tools for verifying customer information and
solvency (see Note 54).
The Group entities’ procedures envisage that each mortgage
originated in the mortgage market must be individually valued
by an appraisal company not related to the Group.
In accordance with Article 3 of Mortgage Market Law 41/2007,
any appraisal company approved by the Bank of Spain may
issue valid appraisal reports. However, as permitted by this
same article, the Group entities perform several checks and
select, from among these companies, a small group with which
they enter into cooperation agreements with special conditions
and automated control mechanisms. The Group’s internal
regulations specify, in detail, each of the internally approved
companies, as well as the approval requirements and
procedures and the controls established to uphold them. In this
connection, the regulations establish the functions of an
appraisal company committee on which the various areas of the
Group related to these companies are represented. The aim of
the committee is to regulate and adapt the internal regulations
and the activities of the appraisal companies to the current
market and business situation (see Note 2.i).
597
established in Article 90.1.1 of the aforementioned law.
Without prejudice to the foregoing, in accordance with
Article 84.2.7 of the Insolvency Law, during the insolvency
proceedings, the payments relating to the repayment of the
principal and interest of the bonds issued and outstanding at
the date of the insolvency filing will be settled up to the
amount of the income received by the insolvent party from the
mortgage loans and credits and, where appropriate, from the
replacement assets backing the bonds and from the cash flows
generated by the financial instruments associated with the
issues (Final Provision 19 of the Insolvency Law).
If, due to a timing mismatch, the income received by the
insolvent party is insufficient to meet the payments described
in the preceding paragraph, the insolvency managers must
settle them by realising the replacement assets set aside to
cover the issue and, if this is not sufficient, they must obtain
financing to meet the mandated payments to the holders of the
mortgage-backed bonds, and the finance provider must be
subrogated to the position of the bond-holders.
In the event that the measure indicated in Article 155.3 of the
Insolvency Law were to be adopted, the payments to all holders
of the mortgage-backed bonds issued would be made on a pro-
rata basis, irrespective of the issue dates of the bonds. If the
same credit or loan is subject to the payment of bonds and a
mortgage bond issue, it will be paid first to the holders of the
bonds.
The outstanding mortgage-backed bonds issued by the Group
totalled EUR 24,736 million at 31 December 2019 (all of which
were denominated in euros), of which EUR 24,286 million were
issued by Banco Santander, S.A. and EUR 450 million were
issued by Santander Consumer Finance, S.A. The issues
outstanding at 31 December 2019 and 2018 are detailed in the
separate financial statements of each of these companies.
Mortgage-backed bond issuers have an early redemption
option for the purpose of complying with the limits on the
volume of outstanding mortgage-backed bonds stipulated by
mortgage market regulations. In addition, the issuing entity
may advance the mortgage-backed bonds, if this has been
expressly established in the final conditions of the issue in
question and under the conditions set out therein.
None of the mortgage-backed bonds issued by the Group
entities had replacement assets assigned to them.
Table of Contents
Basically, the companies wishing to cooperate with the Group
must have a significant level of activity in the mortgage market
in the area in which they operate, they must pass a preliminary
screening process based on criteria of independence, technical
capacity and solvency -in order to ascertain the continuity of
their business- and, lastly, they must pass a series of tests prior
to obtaining definitive approval.
In order to comply in full with the legislation, any appraisal
provided by the customer is reviewed, irrespective of which
appraisal company issues it, to check that the requirements,
procedures and methods used to prepare it are formally
adapted to the valued asset pursuant to current legislation and
that the values reported are customary in the market.
The information required by Bank of Spain Circulars 7/2010 and
5/2011, by application of Royal Decree 716/2009, of 24 April is
as follows:
Million euros
Face value of the outstanding
mortgage loans and credits that
support the issuance of
mortgage-backed and
mortgage bonds pursuant to
Royal Decree 716/2009
(excluding securitised bonds)
Of which:
Loans eligible to cover issues
of mortgage-backed
securities
Transfers of assets retained
on balance sheet:
mortgage-backed
certificates and other
securitised mortgage assets
Mortgage-backed bonds
2019
2018
2017
84,720
85,610
91,094
59,517
60,195
59,422
14,569
15,807
18,202
The mortgage-backed bonds (“cédulas hipotecarias”) issued by
the Group entities are securities the principal and interest of
which are specifically secured by mortgages, there being no
need for registration in the property register, by mortgage on all
those that at any time are recorded in favour of the issuer and
are not affected by the issuance of mortgage bonds and / or are
subject to mortgage participations, and / or mortgage transfer
certificates, and, if they exist, by substitution assets eligible to
be hedged and for the economic flows generated by derivative
financial instruments linked to each issue, and without
prejudice to the issuer’s unlimited liability.
The mortgage bonds include the credit right of its holder
against the issuing entity, guaranteeing in the manner provided
for in the previous paragraph, and involve the execution to
claim from the issuer the payment after due date. The holders
of these securities are recognised as preferred creditors,
singularly privileged, with the preference, included in number
3º of article 1,923 of the Spanish Civil Code against any other
creditor, in relation with the entire group of loans and mortgage
loans registered in favour of the issuer, except those that act as
coverage for mortgage bonds and / or are subject to mortgage
participations and / or mortgage transfer certificates.
In the event of insolvency, the holders of mortgage-backed
bonds, as long as they are not considered "persons especially
related" to the issuing entity in accordance with the Insolvency
Law 22/2003, of 9 July, will enjoy the special privilege
598
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
23. Subordinated liabilities
a) Breakdown
The detail, by currency of issue, of Subordinated liabilities in
the consolidated balance sheets is as follows:
Currency of issue
Euro
US dollar
Pound sterling
Brazilian real
Other currencies
Balance at end of year
Of which, preference shares
Of which, preference participations
Note 51 contains a detail of the residual maturity periods of
subordinated liabilities at each year-end and of the related
average interest rates in each year.
2019
Outstanding issue
amount in foreign
currency (Million
euros)
12,542
7,309
557
Annual interest
rate (%)
4.15%
5.80%
8.91%
Million euros
2019
12,542
6,506
655
—
1,359
21,062
321
7,709
2018
14,001
7,813
628
—
1,378
23,820
345
9,717
b) Changes
2017
11,240
8,008
874
131
1,257
21,510
404
8,369
The changes in Subordinated liabilities (Note 22.a) in the
last three years were as follows:
Million euros
2019
2018
2017
Balance at beginning of year
23,676
21,382 19,873
Net inclusion of entities in the Group
(Note 3)
—
—
11
Of which:
Banco Santander, S.A. (Grupo Banco
Popular)
Placements
Of which:
—
—
11
1,056
3,266
2,916
Banco Santander, S.A.*
1,056
2,750
2,894
Banco Santander México, S.A.,
Institución de Banca Múltiple,
Grupo Financiero Santander
México
Santander Bank Polska S.A.
—
—
281
235
—
—
Net redemptions and repurchases**
(4,009)
(1,259)
(870)
Of which:
Banco Santander, S.A.*
(3,782)
(401)
(453)
Banco Santander (Brasil) S.A.
(124)
(61)
—
Banco Santander México, S.A.,
Institución de Banca Múltiple,
Grupo Financiero Santander
México
Santander Bank, National
Association
Santander UK plc
Santander Holdings USA, Inc.
Exchange differences and other
movements
(69)
(125)
—
(19)
(16)
—
(163)
(285)
(313)
(195)
(60)
(72)
155
287
(548)
Balance at end of year
20,878 23,676 21,382
*
**
As of 31 December 2017, issuer entities were included.
The balance relating to issuances, redemptions and repurchases (EUR
2,953 million), together with the interest paid in remuneration of these
issuances including PPCC (EUR 1,091 million), is included in the cash
flow from financing activities.
599
Table of Contents
c) Other disclosures
This item includes the contingently convertible or
redeemable preference shares (participaciones preferentes)
and other financial instruments issued by the consolidated
companies which do not meet the requirements for
classification as equity (preference shares).
The preference shares do not carry any voting rights and are
non-cumulative. They were subscribed to by non-Group
third parties and, except for the placements of Santander UK
plc referred to below, are redeemable at the discretion of
the issuer, based on the terms and conditions of each issue.
The Bank's contingent convertible preference shares are
subordinated payment obligations and rank, for credit
priority purposes, behind common creditors and any other
subordinated creditors that by law and/or by their terms, to
the extent permitted by Spanish law, rank higher than the
contingent convertible preference shares. The remuneration
of these securities, which have no voting rights, is
conditional upon the obtainment of sufficient distributable
profit and upon the limits imposed by regulations on equity.
The other issues of Banco Santander, S.A. mentioned under
this heading are also subordinated payment obligations
and, therefore, for the purposes of payment priority, they
are junior to all general creditors of the issuers and ahead
of any other subordinated claims ranking equally with the
Bank's contingent convertible preference shares.
The main issues of subordinated debt securities issued,
broken down by company, are detailed below:
Banco Santander, S.A. Placements
On 5 March, 8 May and 2 September 2014, three
placements of preference shares contingently convertible
into newly issued ordinary shares of the bank where
launched (“CCPS”) for a nominal amount of EUR 1,500
million, USD 1,500 million and EUR 1,500 million,
respectively, payment of which is subject to certain
conditions and is discretionary. The remuneration of the
placements, was set at 6.25% per annum for the first five
years (to be repriced thereafter by applying a 541 basis-
point spread to the 5-year Mid-Swap Rate) for the
March issue, at 6.375% per annum for the first five years (to
be repriced thereafter by applying a 478.8 basis-point
spread to the 5-year Mid-Swap Rate) for the May issue, and
at 6.25% per annum for the first seven years (to be repriced
every five years thereafter by applying a 564 basis-point
spread to the 5-year Mid-Swap Rate) for the September
issue.
In April 2019, the voluntary early redemption of all the
preferred participations was announced in relation to the
second placement made on 8 May 2014 for an amount of
EUR 1,345 million at the date of the redemption.
On 8 February 2018, Banco Santander, S.A. carried out an
issuance of “CCPS" for a nominal amount of USD 1,200
million (EUR 1,056 million). The remuneration of the
placement, whose payment is subject to certain conditions
and is also discretionary, was set at 7.50% per annum,
payable quarterly, for the first seven years (being revised
thereafter by applying a 498.9 basis-point spread over the
Mid-swap rate).
600
2019 Annual Report
On 19 March 2018, a placement of "CCPS" was carried out,
for a nominal amount of EUR 1,500 million. The
remuneration of the placement, whose payment is subject
to certain conditions and is also discretionary, was fixed at
an annual 4.75%, payable quarterly, for the first seven years
(being revised thereafter applying a margin of 410 basis
points over the type Mid-swap).
On 8 February 2018, a placement of subordinated
obligations for a term of ten years was carried out,
amounting to EUR 1,250 million. The placement accrues an
annual interest of 2.125% payable annually.
On 25 April and 29 September 2017, Banco Santander, S.A.
issued “CCPS” for a nominal amount of EUR 750 million, and
EUR 1,000 million euros, respectively. The remuneration of
the "CCPS", whose payment is subject to certain conditions
and is also discretionary, was fixed at 6.75% annually for
the first five years (being reviewed thereafter by applying a
margin of 680.3 basis points over the 5-year Mid-Swap
Rate) for the issue paid out in April, and at 5.25% annually
for the first six years (reviewed thereafter by applying a
margin of499.9 basis points over the 5-year Mid-Swap Rate)
for the issue paid out in September.
Banco Santander (Brasil) S.A. Placements
On 29 January 2014 Banco Santander (Brasil), S.A. launched
a placement of Tier 1 perpetual subordinated notes for a
nominal amount of USD 1,248 million, of which the Group
has acquired 89.6%. The notes are perpetual and would
convert into ordinary shares of Banco Santander (Brasil) S.A.
if the common equity Tier 1 ratio, calculated as established
by the Central Bank of Brazil, were to fall below 5.125%.
This placement was fully redeemed in 2019.
Banco Santander México, S.A. Institución de Banca
Múltiple, Grupo Financiero Santander México Placements
On 1 October 2018 a ten-year subordinated bond
placement was carried out, for a nominal amount of USD
1,300 million at an interest rate of 5.95%, acquiring the
Group the 75% of the issue.
Furthermore, on 30 December 2016, a placement of
perpetual subordinated notes was carried out, for a nominal
amount of USD 500 million, acquiring the Group the 88.2%.
Perpetual obligations are automatically converted into
shares when the Regulatory Capital Index (CET1) is equal to
or less than 5.125% at the conversion price.
Santander Bank Polska S.A. Placements
On 20 April 2018, Santander Bank Polska S.A. carried out an
issue of subordinated obligations for a term of ten years
and with an option to amortize the fifth anniversary of the
issue date, for an amount of EUR 1,000 million Polish zlotys.
The issue accrues a floating interest of Wibor (6M) + 160
basic points payable semiannually.
The accrued interests from the subordinated liabilities
during 2019 amounted to EUR 645 million (EUR 770 million
and EUR 966 million during 2018 and 2017, respectively).
Interests from the “CCPS” during 2019 amounted to EUR
595 million (EUR 560 million and EUR 395 million in 2018
and 2017, respectively).
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
24. Other financial liabilities
The detail of Other financial liabilities in the consolidated
balance sheets is as follows:
Million euros
Trade payables
Clearing houses
Tax collection accounts:
2019
2018
2017
1,279
1,323
1,559
165
434
767
Public Institutions
4,122
3,968
3,212
Factoring accounts payable
409
263
290
Unsettled financial transactions
3,693
3,373
6,375
Lease liabilities (Note 2.l)
5,108
190
202
Other financial liabilities
15,459
15,113 16,023
30,235 24,664 28,428
Note 51 contains a detail of the residual maturity periods of
other financial liabilities at each year-end.
Lease liabilities
The total cash outflow of leases in 2019 was EUR 946
million.
The analysis of the maturities of lease liabilities as of 31
December 2019 is shown below:
Million euros
Maturity Analysis - Discounted payments
Within 1 year
Between 1 and 3 years
Between 3 and 5 years
Later than 5 years
Total Discounted payments at 31 December 2019
2019
766
1,254
875
2,213
5,108
During 2019, there were no significant variable lease
payments not included in the valuation of lease liabilities.
601
Table of Contents
25. Provisions
a) Breakdown
The detail of Provisions in the consolidated balance sheets
is as follows:
Million euros
Provision for pensions and other obligations post-employments
Other long term employee benefits
Provisions for taxes and other legal contingencies
Provisions for contingent liabilities and commitments (Note 2)
Other provisions
Provisions
b) Changes
The changes in Provisions in the last three years were as
follows:
Million euros
2019
6,358
1,382
3,057
739
2,451
2018
5,558
1,239
3,174
779
2,475
2017
6,345
1,686
3,181
617
2,660
13,987
13,225
14,489
2019
Provisi
ons for
conting
ent
liabiliti
es and
commi
tments
Other
provisi
ons
Total
2018
Provisi Provisi Provisi
on for ons for
ons for
other conting
pensio
ent
long
ns and
liabiliti
term
other
es and
emplo
post-
commi
yee
retirem
tments
ent benefi
*
ts
obligat
ions
Other
provisi
ons
Total
2017
Provisi
ons for
conting
ent
liabiliti
es and
commi
tments
Provisi Provisi
on for
ons for
other
pensio
long
ns and
term
other
emplo
post-
yee
retirem
ent benefi
ts
obligat
ions
Other
provisi
ons
Total
1,239
779
5,649 13,225
6,345 1,686
814 5,841 14,686
6,576 1,712
459
5,712 14,459
Provisi Provisi
on for
ons for
other
pensio
long
ns and
other
term
post- employ
ee
ent benefit
s
retirem
obligat
ions
5,558
—
(1)
—
—
(1)
—
—
—
(30)
(30)
59
184
146
1,365
1,754
173
729
(31) 2,836
3,707
38
251
(49) 2,253
2,493
237
293
(49) 2,863
3,344
128
65
(20)
10
(30)
17
7
705
713
—
—
—
—
145
72
165
78
(31) 2,836
3,490
(205)
422
4,276
5,421
7
21
6
224
227
—
—
—
—
186
84
175
82
23
6
—
—
—
—
198
88
(49) 2,253
2,223
455 4,612
5,301
(20)
2
264
264
(49) 2,863
3,058
606
3,855
4,727
(8)
(453) (1,440)
(1,931)
(212)
(3)
(504) (2,359)
(3,078)
(22)
—
(655)
(992)
(1,669)
4
1,520
—
—
(331)
(612)
—
(1)
(455)
—
—
—
—
—
—
—
—
—
—
—
—
—
4
(7)
—
1,520
(482)
—
—
—
(943)
(332)
(625)
—
—
—
(1)
—
(2)
—
(455)
(368)
(2,907)
(2,907)
—
—
—
—
—
—
—
—
—
—
—
—
(7)
(7)
—
(482)
369
—
—
—
(957)
(355)
(498)
—
—
—
(260)
(2)
—
—
(368)
(273)
(3) (2,548)
(2,551)
—
—
—
—
—
—
—
—
—
—
—
—
—
(7)
369
—
(853)
—
(260)
—
—
—
(273)
(3) (2,997)
(3,000)
(110)
27
(9)
(70)
(162)
366
(73)
17
133
443
(1)
(5)
64
(1,102)
(1,044)
Balances at beginning
of year
Incorporation of Group
companies, net
Additions charged to
income:
Interest expense (Note
39)
Staff Costs (Note 47)
Provisions or reversion
of provisions
Addition
Release
Other additions arising
from insurance
contracts linked to
pensions
Changes in value
recognised in equity
Payments to
pensioners and pre-
retirees with a charge
to internal provisions
Benefits paid due to
settlements
Insurance premiums
paid
Payments to external
funds
Amounts used
Transfer, exchange
differences and other
changes
Balances at end of year
6,358
1,382
739
5,508 13,987
5,558 1,239
779 5,649 13,225
6,345 1,686
617
5,841 14,489
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January, 2018 (Note 1.d).
602
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
c) Provision for pensions and other obligations post –
employments and Other long term employee benefits
The detail of Provisions for pensions and similar obligations
is as follows:
Million euros
Provisions for post-employment
plans - Spanish entities
Provisions for other similar
obligations - Spanish entities
Of which: pre-retirements
Provisions for post-employment
plans - United Kingdom
Provisions for post-employment
plans - Other subsidiaries
Provisions for other similar
obligations - Other subsidiaries
Provision for pensions and other
obligations post -employments
and Other long term employee
benefits
Of which: defined benefits
2019
2018
2017
3,951
3,930
4,274
1,321
1,303
1,189
1,172
1,643
1,630
329
130
323
2,078
1,498
1,748
61
50
43
7,740
7,731
6,797
8,031
6,791
8,026
i. Spanish entities - Post-employment plans and other
similar obligations
At 31 December 2019, 2018 and 2017, the Spanish entities
had post-employment benefit obligations under defined
contribution and defined benefit plans. In addition, in
various years some of the consolidated entities offered
certain of their employees the possibility of taking
pre-retirement and, therefore, provisions are recognised
each year for the obligations to employees taking pre-
retirement -in terms of salaries and other employee benefit
costs- from the date of their pre-retirement to the agreed
end date. In 2019, 3,571 employees benefited from the pre-
retirement and incentivised retirement plan, being the
provision set up to cover these commitments of EUR 688
million. In 2018 and 2017 the provisions accounted for
benefit plans and contribution commitments were EUR 209
and 248 million respectively.
In October 2017, the Bank and the workers’ representatives
reached an agreement for the elimination and
compensation of certain passive rights arising from extra-
covenant improvement agreements. The effect of the
settlement of the mentioned commitments is shown in the
tables included below in the "benefit paid for settlement"
line.
The expenses incurred by the Spanish companies in 2019,
2018 and 2017 in respect of contributions to defined
contribution plans amounted to EUR 89 million, EUR 87
million and EUR 90 million, respectively.
The amount of the defined benefit obligations was
determined on the basis of the work performed by
independent actuaries using the following actuarial
techniques:
1. Valuation method: projected unit credit method, which
sees each period of service as giving rise to an
additional unit of benefit entitlement and measures
each unit separately.
2. Actuarial assumptions used: unbiased and mutually
compatible. Specifically, the most significant actuarial
assumptions used in the calculations were as follows:
Post-employment plans
Other similar obligations
2019
2018
2017
2019
2018
2017
Annual discount rate
0.80%
1.55%
1.40% and
1.38% B.
Popular
0.80%
1.55%
1.40%
Mortality tables
PERM/F-2000
PERM/F-2000
PERM/F-2000
PERM/F-2000
PERM/F-2000
PERM/F-2000
Cumulative annual CPI
growth
Annual salary increase rate
Annual social security
pension increase rate
Annual benefit increase rate
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.25%*
2.00%*
B. Popular
1.75% in 2018
and Rest B.
Santander
1.25%
1.00%
1.00%
1.00%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0% From 0% to 1.50% From 0% to 1.50%
* Corresponds to the Group’s defined-benefit obligations.
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The discount rate used for the flows was determined by
reference to high-quality corporate bonds (at least AA in
euros) with terms consistent with those of the obligations.
Any changes in the main assumptions could affect the
calculation of the obligations. At 31 December 2019, if the
discount rate used had been decreased or increased by 50
basis points, there would have been an increase or decrease
in the present value of the post-employment obligations of
5.50% (-50 b.p) to -5.02% (+50 b.p.),respectively, and an
increase or decrease in the present value of the long-term
Expected rate of return on plan assets
Expected rate of return on reimbursement rights
The funding status of the defined benefit obligations in
2019 and the four preceding years is as follows:
Million euros
obligations of 1.14% (-50 b.p.) to -1.11% (+50 b.p.),
respectively.
These changes would be offset in part by increases or
decreases in the fair value of the assets and insurance
contracts linked to pensions.
3.The estimated retirement age of each employee is the
first at which the employee is entitled to retire or the
agreed-upon age, as appropriate.
The fair value of insurance contracts was determined as
the present value of the related payment obligations,
taking into account the following assumptions:
Post-employment plans
Other similar obligations
2019
0.80%
0.80%
2018
1.55%
1.55%
2017
1.40%
1.40%
2019
2018
2017
0.80%
1.55%
1.40%
N/A
N/A
N/A
Post-employment plans
Other similar obligations
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
Present value of the obligations:
To current employees
59
60
138
50
48
Vested obligations to retired employees
5,393 5,332 5,662 4,423 4,551
—
—
—
—
—
—
—
—
—
—
To pre-retirees employees
Long-service bonuses and other benefits
Other
—
—
42
—
—
35
—
—
—
—
—
—
112
383
380
1,317 1,187 1,647 1,644 1,801
18
—
17
—
13
—
13
—
12
—
5,494 5,427 5,912 4,856 4,979
1,335 1,204 1,660 1,657 1,813
Less - Fair value of plan assets
1,547 1,500 1,640
157
157
14
15
17
—
—
Provisions - Provisions for pensions
3,947 3,927 4,272 4,699 4,822
1,321 1,189 1,643 1,657 1,813
Of which:
Internal provisions for pensions
3,759 3,720 4,036 4,432 4,524
1,321 1,189 1,642 1,657 1,813
Insurance contracts linked to pensions (Note 14)
192
210
238
269
299
Unrecognised net assets for pensions
(4)
(3)
(2)
(2)
(1)
—
—
—
—
1
—
—
—
—
—
The amounts recognised in the consolidated income
statements in relation to the aforementioned defined
benefit obligations are as follows:
Million euros
Current service cost
Interest cost (net)
Expected return on insurance contracts linked to pensions
Provisions or reversion of provisions
Actuarial (gains)/losses recognised in the year
Past service cost
Pre-retirement cost
Other
604
2019 Annual Report
Post-employment plans
Other similar obligations
2019
2018
2017
2019
2018
2017
12
53
(2)
—
3
1
(29)
38
18
73
(4)
—
3
1
(4)
87
16
79
(4)
—
—
—
(2)
89
1
15
—
7
1
687
(2)
709
1
18
—
7
5
208
—
239
1
21
—
13
—
248
—
283
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
In addition, in 2019 Other comprehensive income – Items
not reclassified to profit or loss – Actuarial gains or (-) losses
on defined benefit pension plans has increased by EUR 278
million with respect to defined benefit obligations (decrease
of EUR 65 million and increase of EUR 41 million in 2018
and 2017, respectively).
The changes in the present value of the accrued defined
benefit obligations were as follows:
Million euros
Post-employment plans
Other similar obligations
Present value of the obligations at beginning of year
Incorporation of Group companies, net
Current service cost
Interest cost
Pre-retirement cost
Effect of curtailment/settlement
Benefits paid
Benefits paid due to settlements
Past service cost
Actuarial (gains)/losses
Demographic actuarial (gains)/losses
Financial actuarial (gains)/losses
Exchange differences and other items
2019
5,427
2018
5,912
—
12
72
1
(29)
(400)
—
3
407
15
392
1
(36)
18
99
1
(4)
(423)
—
3
(145)
(21)
(124)
2
Present value of the obligations at end of year
5,494
5,427
The changes in the fair value of plan assets and of insurance
contracts linked to pensions were as follows:
Plan Assets
Million euros
2017
4,856
1,563
16
94
—
(2)
(388)
(260)
—
57
(7)
64
(24)
5,912
2019
1,204
(1)
1
15
687
(2)
(599)
—
1
7
(9)
16
22
1,335
2018
1,660
—
1
18
208
—
(617)
—
5
6
(3)
9
(77)
1,204
2017
1,657
202
1
21
248
—
(490)
—
—
13
10
3
8
1,660
Post-employment plans
Other similar obligations
2019
2018
2017
2019
2018
2017
Fair value of plan assets at beginning of
year
Incorporation of Group companies, net
Expected return on plan assets
Benefits paid
Contributions/(surrenders)
Actuarial gains/(losses)
Exchange differences and other items
1,500
1,640
—
19
(108)
8
128
—
—
26
(115)
21
(73)
1
157
1,507
15
(58)
3
24
(8)
Fair value of plan assets at end of year
1,547
1,500
1,640
15
—
—
(2)
—
—
1
14
17
—
—
(2)
—
(1)
1
15
—
18
—
(1)
—
—
—
17
605
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Insurance Contracts linked to pensions
Million euros
Fair value of insurance contracts linked to
pensions at beginning of year
Incorporation of Group companies, net
Expected return on insurance contracts
linked to pensions
Benefits paid
Paid premiums
Actuarial gains/(losses)
Post-employment plans
Other similar obligations
2019
2018
2017
2019
2018
2017
210
—
2
(24)
—
4
238
—
4
(27)
2
(7)
269
—
4
(29)
1
(7)
—
—
—
—
—
—
—
1
—
—
(1)
—
—
—
—
2
—
(1)
—
—
1
Fair value of insurance contracts linked to
pensions at end of year
192
210
238
In view of the conversion of the defined-benefit obligations
to defined-contribution obligations, the Group has not
made material current contributions in Spain in 2019 to
fund its defined-benefit pension obligations.
The plan assets and the insurance contracts linked to
pensions are instrumented mainly through insurance
policies.
The following table shows the estimated benefits payable
at 31 December 2019 for the next ten years:
Million euros
2020
2021
2022
2023
2024
2025 to 2029
ii. United Kingdom
836
638
569
491
421
1,560
At the end of each of the last three years, the businesses in
the United Kingdom had post-employment benefit
obligations under defined contribution and defined benefit
plans. The expenses incurred in respect of contributions to
defined contribution plans amounted to EUR 93 million in
2019 (2018: EUR 93 million; 2017: EUR 82 million).
The amount of the defined benefit obligations was
determined on the basis of the work performed by
independent actuaries using the following actuarial
techniques:
1. Valuation method: projected unit credit method, which
sees each period of service as giving rise to an
additional unit of benefit entitlement and measures
each unit separately.
2. Actuarial assumptions used: unbiased and mutually
compatible. Specifically, the most significant actuarial
assumptions used in the calculations were as follows:
Annual
discount rate
Mortality
tables
Cumulative
annual CPI
growth
Annual salary
increase rate
Annual
pension
increase rate
2019
2018
2017
2.11%
2.90%
2.49%
"S3 Middle" tables
weighted at 84%
CMI_2018 projection
with initial addition
0.15%, smoothing
parameter 7 and
1.25% improvements
108/86
S2 Light
108/86
S2 Light
3.01%
3.22%
3.15%
1.00%
1.00%
1.00%
2.91%
2.94%
2.94%
The discount rate used for the flows was determined by
reference to high-quality corporate bonds (at least AA in
pounds sterling) that coincide with the terms of the
obligations.
Any changes in the main assumptions could affect the
calculation of the obligations. At 31 December 2019, if the
discount rate used had been decreased or increased by 50
basis points, there would have been an increase or decrease
in the present value of the obligations of 10.27% (-50 b.p.)
and -9.08% (+50 b.p.), respectively.If the inflation
assumption had been increased or decreased by 50 basis
points, there would have been an increase or decrease in
the present value of the obligations of 6.85% (+50 b.p.) and
-6.80% (-50 b.p.), respectively. These changes would be
offset in part by increases or decreases in the fair value of
the assets.
606
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The funding status of the defined benefit obligations in
2019 and the four preceding years is as follows:
The changes in the fair value of the plan assets were as
follows:
2019
2018
2017
2016
2015
2019
2018
2017
Mllion euros
Million euros
Present value of the
obligations
Less-
Fair value of plan
assets
Provisions -
Provisions for
pensions
Of which:
Internal provisions
for pensions
Net assets for
pensions
14,297
12,079 13,056 12,955 12,271
14,755
12,887 13,239 13,118 12,880
(458)
(808)
(183)
(163)
(609)
329
130
323
306
150
(787)
(938)
(506)
(469)
(759)
The amounts recognised in the consolidated income
statements in relation to the aforementioned defined
benefit obligations are as follows:
Fair value of plan assets at beginning of
year
12,887
13,239 13,118
Expected return on plan assets
376
326
353
Benefits paid
Contributions
Actuarial gains/(losses)
Exchange differences and other items
(441)
(489)
(445)
244
993
696
209
(285)
208
481
(113)
(476)
Fair value of plan assets at end of year
14,755 12,887 13,239
In 2020 the Group expects to make current contributions to
fund these obligations for amounts similar to those made in
2019.
The main categories of plan assets as a percentage of total
plan assets are as follows:
391
362
388
403
428
2,450
Million euros
Current service cost
Interest cost (net)
2019
2018
2017
27
(24)
3
31
(6)
25
36
(6)
30
Equity instruments
Debt instruments
Properties
Other
2019
2018
2017
12%
46%
11%
31%
17%
50%
10%
23%
20%
46%
13%
21%
The following table shows the estimated benefits payable
at 31 December 2019 for the next ten years:
In addition, in 2019 Other comprehensive income – Items
not reclassified to profit or loss – Actuarial gains or (-) losses
on defined benefit pension plans increase by EUR 601
million with respect to defined benefit obligations (2018:
decrease of EUR 481 million; 2017: increase of EUR 121
million).
The changes in the present value of the accrued defined
benefit obligations were as follows:
Million euros
2020
2021
2022
2023
2024
Million euros
2025 to 2029
Present value of the obligations at
beginning of year
Current service cost
Interest cost
Benefits paid
Contributions made by employees
Past service cost
2019
2018
2017
12,079
13,056 12,955
27
31
352
320
36
347
(441)
(489)
(445)
18
—
24
—
20
—
Actuarial (gains)/losses
1,594
(766)
602
Demographic actuarial (gains)/losses
48
(21)
(184)
Financial actuarial (gains)/losses
1,546
(745)
786
Exchange differences and other items
668
(97)
(459)
Present value of the obligations at end
of year
14,297 12,079 13,056
iii. Other foreign subsidiaries
Certain of the consolidated foreign entities have acquired
commitments to their employees similar to post-
employment benefits.
At 31 December 2019, 2018 and 2017, these entities had
defined-contribution and defined-benefit post-employment
benefit obligations. The expenses incurred in respect of
contributions to defined contribution plans amounted to
EUR 110 million in 2019 (2018: EUR 107 million; 2017: EUR
99 million).
The actuarial assumptions used by these entities (discount
rates, mortality tables and cumulative annual CPI growth)
are consistent with the economic and social conditions
prevailing in the countries in which they are located.
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Table of Contents
Specifically, the discount rate used for the flows was
determined by reference to high-quality corporate bonds,
except in the case of Brazil where there is no extensive
corporate bond market and, accordingly the discount rate
was determined by reference to the series B bonds issued
by the Brazilian National Treasury Secretariat for a term
coinciding with that of the obligations. In Brazil the discount
rate used was between 7.05% and 7.22%, the CPI 3.50%
and the mortality table the AT2000.
Any changes in the main assumptions could affect the
calculation of the obligations. At 31 December 2019, if the
discount rate used had been decreased or increased by 50
basis points, there would have been an increase or decrease
in the present value of the obligations of 6.19% and
-5.58%, respectively.These changes would be offset in part
by increases or decreases in the fair value of the assets.
The funding status of the obligations similar to post-
employment benefits and other long-term benefits in 2019
and the four preceding years is as follows:
Million euros
Present value of the obligations
Less-
Of which: with a charge to the participants
Fair value of plan assets
Provisions - Provisions for pensions
Of which:
Of which
business in
Brazil
7,774
176
6,875
723
2019
10,717
176
8,826
1,715
2018
9,116
167
7,743
1,206
2017
9,534
193
7,927
1,414
2016
9,876
153
8,445
1,278
2015
8,337
133
7,008
1,196
Internal provisions for pensions
2,129
1,098
1,541
1,787
1,613
1,478
Net assets for pensions
Unrecognised net assets for pensions
(116)
(298)
(77)
(298)
(77)
(258)
(98)
(275)
(52)
(283)
(28)
(254)
The amounts recognised in the consolidated income
statements in relation to these obligations are as follows:
The changes in the present value of the accrued obligations
were as follows:
Million euros
Current service cost
Interest cost (net)
Provisions or reversion of provisions
Actuarial (gains)/losses recognised in
the year
Past service cost
Pre-retirement cost
Other
2019
2018
2017
32
101
34
101
35
104
12
6
—
5
3
(6)
1
3
—
(1)
(203)
(19)
150
(66)
124
In addition, in 2019 Other comprehensive income – Items
not reclassified to profit or loss – Actuarial gains or (-) losses
on defined benefit pension plans increase by EUR 641
million with respect to defined benefit obligations
(increased EUR 64 million and increased EUR 207 million in
2018 and 2017, respectively).
In June 2018, the Group in Brazil reached an agreement
with the labour unions to modify the scheme of
contributions to certain health benefits, which implied a
reduction in commitments amounting to EUR 186 million,
shown in the following tables under the heading "Effect to
curtailment/settlement".
Million euros
Present value of the obligations at
beginning of year
Incorporation of Group companies, net
Current service cost
Interest cost
Pre-retirement cost
2019
2018
2017
9,116
9,534 9,876
—
32
36
34
165
35
651
646
807
—
(6)
—
Effect of curtailment/settlement
(1)
(199)
(19)
Benefits paid
Benefits paid due to settlements
Contributions made by employees
Past service cost
(666)
(634)
(716)
—
5
6
—
5
3
(24)
6
3
Actuarial (gains)/losses
1,652
390
404
Demographic actuarial (gains)/losses
3
(59)
(140)
Financial actuarial (gains)/losses
1,649
449
544
Exchange differences and other items
(78)
(693) (1,003)
Present value of the obligations
at end of year
10,717 9,116 9,534
608
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The changes in the fair value of the plan assets were as
follows:
The detail, by geographical area, of Provisions for taxes and
other legal contingencies and Other provisions is as follows:
Million euros
Million euros
2019
2018
2017
2019
2018
2017
Fair value of plan assets at beginning
of year
7,743
7,927 8,445
Incorporation of Group companies, net
—
—
Expected return on plan assets
573
573
166
732
Benefits paid
Benefits paid due to settlements
Contributions
Actuarial gains/(losses)
(613)
(602)
(683)
—
214
1,021
—
(24)
199
308
94
203
Exchange differences and other items
(112)
(662) (1,006)
Fair value of plan assets at end of year 8,826 7,743 7,927
In 2020 the Group expects to make contributions to fund
these obligations for amounts similar to those made in
2019.
The main categories of plan assets as a percentage of total
plan assets are as follows:
Equity instruments
Debt instruments
Properties
Other
2019
2018
2017
8%
84%
1%
7%
7%
83%
1%
9%
6%
84%
3%
7%
The following table shows the estimated benefits payable
at 31 December 2019 for the next ten years:
Million euros
2020
2021
2022
2023
2024
2025 to 2029
609
615
629
641
655
3,418
d) Provisions for taxes and other legal contingencies
and Other provisions
Provisions - Provisions for taxes and other legal
contingencies and Provisions - Other provisions, which
include, inter alia, provisions for restructuring costs and tax-
related and non-tax-related proceedings, were estimated
using prudent calculation procedures in keeping with the
uncertainty inherent to the obligations covered. The
definitive date of the outflow of resources embodying
economic benefits for the Group depends on each
obligation. In certain cases, these obligations have no fixed
settlement period and, in other cases, depend on the legal
proceedings in progress.
Recognised by Spanish companies
1,381 1,647 1,666
Recognised by other EU companies
1,100 1,044 1,127
Recognised by other companies
3,027 2,958 3,048
Of which:
Brazil
2,484 2,496 2,504
5,508 5,649 5,841
Set forth below is the detail, by type of provision, of the
balance at 31 December 2019, 2018 and 2017 of Provisions
for taxes and other legal contingencies and Other
provisions.
The types of provision were determined by grouping
together items of a similar nature:
Million euros
Provisions for taxes
Provisions for employment-related
proceedings (Brazil)
2019
759
2018
2017
864 1,006
776
859
868
Provisions for other legal proceedings
1,522
1,451 1,307
Provision for customer remediation
725
652
885
Regulatory framework-related
provisions
Provision for restructuring
Other
67
641
105
492
101
360
1,018
1,226 1,314
5,508 5,649 5,841
Relevant information is set forth below in relation to each
type of provision shown in the preceding table:
The provisions for taxes include provisions for tax-related
proceedings.
The provisions for employment-related proceedings (Brazil)
relate to claims filed by trade unions, associations, the
prosecutor’s office and ex-employees claiming employment
rights to which, in their view, they are entitled, particularly
the payment of overtime and other employment rights,
including litigation concerning retirement benefits. The
number and nature of these proceedings, which are
common for banks in Brazil, justify the classification of
these provisions in a separate category or as a separate type
from the rest. The Group calculates the provisions
associated with these claims in accordance with past
experience of payments made in relation to claims for
similar items. When claims do not fall within these
categories, a case-by-case assessment is performed and the
amount of the provision is calculated in accordance with the
status of each proceeding and the risk assessment carried
out by the legal advisers.
The provisions for other legal proceedings include
provisions for court, arbitration or administrative
proceedings (other than those included in other categories
or types of provisions disclosed separately) brought against
Santander Group companies.
609
Table of Contents
The provisions for customer remediation include mainly the
estimated cost of payments to remedy errors relating to the
sale of certain products in the UK and the estimated amount
related to the floor clauses of Banco Popular Español, S.A.U.
To calculate the provision for customer remediation, the
best estimate of the provision made by management is
used, which is based on the estimated number of claims to
be received and, of these, the number that will be accepted,
as well as the estimated average payment per case.
The regulatory framework-related provisions include
mainly the provisions relating to the FSCS (Financial
Services Compensation Scheme), the Bank Levy in the UK
and in Poland the provision related to the Banking Tax.
The provisions for restructuring include only the costs
arising from restructuring processes carried out by the
various Group companies.
Qualitative information on the main litigation is provided in
Note 25.e to the consolidated financial statements.
Our general policy is to record provisions for tax and legal
proceedings in which we assess the chances of loss to be
probable and we do not record provisions when the chances
of loss are possible or remote. We determine the amounts
to be provided for as our best estimate of the expenditure
required to settle the corresponding claim based, among
other factors, on a case-by-case analysis of the facts and
the legal opinion of internal and external counsel or by
considering the historical average amount of the loss
incurred in claims of the same nature. The definitive date of
the outflow of resources embodying economic benefits for
the Group depends on each obligation. In certain cases, the
obligations do not have a fixed settlement term and, in
others, they depend on legal proceedings in progress.
The main movements during the 2019 of the breakdown
provisions are shown below:
Regarding the provisions for labour processes and others of
a legal nature, Brazil has provided EUR 291 and 183 million
respectively, with payments of EUR 394 and 229 million,
respectively.
Regarding the provisions arising for customer remediation,
EUR 192 million provisions in United Kingdom and EUR 59
million provisions in Puerto Rico for customer compensation
have been allocated, partially offset with EUR 175 million
provisions in United Kingdom and EUR 41 million provisions
in Puerto Rico used, and Banco Popular, S.A.U., which an
amount of EUR 47 million has been used in the period from
floor clauses.
Regarding the provisions constituted by regulatory
framework, EUR 99 million have been charged and EUR 103
million have been used in United Kingdom (Bank Levy and
FSCS). In addition, EUR 123 have been provisioned in
Poland.
Regarding the provisions for restructuring process, EUR 271
million have been provisioned in Spain, EUR 186 million
have been provisioned in United Kigdom, EUR 166 million
have been provisioned in Brazil and EUR 63 million have
been provisioned in in Poland. This increase was partially
offset by the use of EUR 165 million in Spain, EUR 139
million in United Kingdom, EUR 40 million in Brazil and EUR
58 million in Poland.
610
2019 Annual Report
e) Litigation and other matters
i. Tax-related litigation
At 31 December 2019 the main tax-related proceedings
concerning the Group were as follows:
• Legal actions filed by Banco Santander (Brasil) S.A. and
other Group entities to avoid the application of Law
9.718/98, which modifies the basis to calculate PIS and
COFINS social contribution, extending it to all the entities
income, and not only to the income from the provision of
services. In relation of Banco Santander (Brasil) S.A.
process, in May 2015 the Federal Supreme Court (FSC)
admitted the extraordinary appeal filed by the Federal
Union regarding PIS, and dismissed the extraordinary
appeal lodged by the Brazilian Public Prosecutor's Office
regarding COFINS contribution, confirming the decision of
Federal Regional Court favourable to Banco Santander
(Brasil) S.A. of August 2007. The appeals filed by the
other entities before the Federal Supreme Court, both for
PIS and COFINS, are still pending. These claims are fully
provisioned.
• Banco Santander (Brasil) S.A. and other Group companies
in Brazil have appealed against the assessments issued
by the Brazilian tax authorities questioning the deduction
of loan losses in their income tax returns (IRPJ and CSLL)
in relation to different administrative processes of various
years on the ground that the requirements under the
applicable legislation were not met. The appeals are
pending decision in CARF. No provision was recognised in
connection with the amount considered to be a
contingent liability.
• Banco Santander (Brasil) S.A. and other Group companies
in Brazil are involved in administrative and legal
proceedings against several municipalities that demand
payment of the Service Tax on certain items of income
from transactions not classified as provisions of services.
There are several cases in different judicial instances. A
provision was recognised in connection with the amount
of the estimated loss.
• Banco Santander (Brasil) S.A. and other Group companies
in Brazil are involved in administrative and legal
proceedings against the tax authorities in connection with
the taxation for social security purposes of certain items
which are not considered to be employee remuneration.
There are several cases in different judicial instances. A
provision was recognised in connection with the amount
of the estimated loss.
• In May 2003 the Brazilian tax authorities issued separate
infringement notices against Santander Distribuidora de
Títulos e Valores Mobiliarios Ltda. (DTVM, currently
Santander Brasil Tecnologia S.A.) and Banco Santander
(Brasil) S.A. in relation to the Provisional Tax on Financial
Movements (CPMF) of the years 2000, 2001 and part of
2002. In July 2015, after the unfavourable decision of
CARF, both entities appealed at Federal Justice in a single
proceeding. In June 2019 this action has been dismissed,
and the resolution has been appealed to the higher court.
There is a provision recognised for the estimated loss.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
• In December 2010 the Brazilian tax authorities issued an
infringement notice against Santander Seguros S.A.
(Brazil), currently Zurich Santander Brasil Seguros e
Previdência S.A., as the successor by merger to ABN
AMRO Brasil dois Participações S.A., in relation to income
tax (IRPJ and CSLL) for 2005, questioning the tax
treatment applied to a sale of shares of Real Seguros, S.A.
Actually it is appealed before the CARF. As the former
parent of Santander Seguros S.A. (Brasil), Banco
Santander (Brasil) S.A. is liable in the event of any
adverse outcome of this proceeding. No provision was
recognised in connection with this proceeding as it is
considered to be a contingent liability.
• In November 2014 the Brazilian tax authorities issued an
infringement notice against Banco Santander (Brasil) S.A.
in relation to corporate income tax (IRPJ and CSLL) for
2009 questioning the tax-deductibility of the
amortisation of the goodwill of Banco ABN AMRO Real
S.A. performed prior to the absorption of this bank by
Banco Santander (Brasil) S.A., but accepting the
amortisation performed after the merger. Actually, it is
appealed before the Higher Chamber of CARF. No
provision was recognised in connection with this
proceeding as it was considered to be a contingent
liability.
• Banco Santander (Brasil) S.A. has also appealed against
infringement notices issued by the tax authorities
questioning the tax deductibility of the amortisation of
the goodwill arising on the acquisition of Banco
Comercial e de Investimento Sudameris S.A from years
2007 to 2012. No provision was recognised in connection
with this matter as it was considered to be a contingent
liability.
• Banco Santander (Brazil) S.A. and other companies of the
Group in Brazil are undergoing administrative and judicial
procedures against Brazilian tax authorities for not
admitting tax compensation with credits derived from
other tax concepts, not having registered a provision for
such amount since it is considered to be a contingent
liability.
• Banco Santander (Brasil) S.A. is involved in appeals in
relation to infringement notices initiated by tax
authorities regarding the offsetting of tax losses in the
CSLL (‘Social Contribution on Net Income’) of year 2009.
The appeal is pending decision in CARF. No provision was
recognised in connection with this matter as it is
considered to be a contingent liability.
The total amount for the aforementioned Brazil lawsuits
related to tax legal obligations or with probable loss risk
is approximately EUR 1,145 million, fully provisioned,
and the total amount for tax litigation with possible loss
risk is approximately EUR 3,962 million.
• Legal action brought by Sovereign Bancorp, Inc. (currently
Santander Holdings USA, Inc.) claiming its right to take a
foreign tax credit for taxes paid outside the United States
in fiscal years 2003 to 2005 as well as the related
issuance and financing costs. On 17 July 2018, the District
Court finally ruled against Santander Holdings USA, Inc.
On September 5, 2019 the Federal District Court in
Massachussests entered a stipulated judgement
resolving the Company’s tax liability for fiscal years 2003
to 2005, which had no effect on income. The Company
has agreed to resolve the treatment of the same
transactions for 2006 and 2007, subject to review by the
Congressional Joint Committee on Taxation and final IRS
approval, with no effect on income.
• Banco Santander has appealed before European Courts
the Decisions 2011/5/CE of 28 October 2009, and
2011/282/UE of 12 January 2011 of the European
Commission, ruling that the deduction regulated
pursuant to Article 12.5 of the Corporate Income Tax Law
constituted illegal State aid. On November 2018 the
General Court confirmed these Decisions but these
judgements have been appealed at the Court of justice of
the European Union. The dismissal of this appeal would
not have effect on equity.
At the date of approval of these consolidated financial
statements certain other less significant tax-related
proceedings were also in progress.
ii. Non-tax-related proceedings
At 31 December 2019 the main non-tax-related
proceedings concerning the Group were as follows:
• Payment Protection Insurance (PPI): claims associated
with the sale by Santander UK plc of payment protection
insurance or PPI to its customers. As of 31 December
2019, the remaining provision for PPI redress and related
costs amounted to GBP 189 million (EUR 222 million)
(2018: GBP 246 million (EUR 275 million)). There was no
additional provision in the fourth quarter of 2019. The
Financial Conduct Authority (“FCA”) set a deadline of 29
August 2019 for PPI complaints and delivered a
nationwide communications campaign to raise
awareness of this deadline among consumers. In line
with industry experience, we received unprecedented
volumes of information requests in August 2019 and saw
a significant spike in both these requests and complaints
in the final days prior to the complaint deadline, with the
processing of these claims ongoing.
Given the passing of the FCA’s August 2019 time bar, the
level of judgment required by management in
determining appropriate assumptions has reduced. At 31
December 2019, the key assumptions in calculating the
provision were around the estimated number of customer
complaints that would be received in respect of
customers with successful information requests.
The uphold rates are informed by historical experience
and the average cost of redress can be predicted
reasonably accurately given that management is dealing
with a high volume and reasonably homogenous
population.
Cumulative complaints to 31 December 2019 were 4.4
million, including c.327,000 that were still being
reviewed. Future expected claims, regardless of the
likelihood of Santander UK incurring a liability, were c.
49,000. For every additional 10,000 inbound PPI
complaints, it would be expected an additional charge of
GBP 3.3 million (EUR 3.7 million). In addition, there are
legal claims being made by Claims Management
Companies challenging the FCA's industry guidance on
the treatment of Plevin/recurring non-disclosure
assessments.
611
Table of Contents
In 2019, it was charged an additional GBP 169 million
(EUR 192 million) in respect of PPI. During 2018, no
additional provision was registered.
The provision for conduct remediation recognised
represents management’s best estimate of Santander
UK’s liability in respect of mis-selling of PPI policies.
• Delforca: dispute arising from equity swaps entered into
by Gaesco (now Delforca 2008, S.A.) on shares of
Inmobiliaria Colonial, S.A. Banco Santander, S.A. is
claiming to Delforca a total of EUR 66 million from the
liquidation of the swaps. Mobiliaria Monesa, S.A.
(Delforca’s parent company) has commenced a civil
proceeding against the Bank claiming damages which, as
of date have not been determined. The proceeding has
been stayed because the jurisdiction of the Court has
been challenged. Within insolvency proceedings before
the Commercial Court, both Delforca and Mobiliaria
Monesa have instigated a claim against the Bank seeking
the recovery of EUR 56.8 million that the Bank received
from the liquidation of the swap. The Bank has filed a
claim against Delforca seeking the Bank's recognition of
its right to receive the credit. At 31 December 2019, the
risk is considered remote. The Bank has not recognised
any provisions in this connection.
• Former employees of Banco do Estado de São Paulo S.A.,
Santander Banespa, Cia. de Arrendamiento Mercantil: a
claim was filed in 1998 by the association of retired
Banespa employees (AFABESP) requesting the payment
of a half-yearly bonus contemplated in the by-laws of
Banespa in the event that Banespa obtained a profit and
that the distribution of this profit were approved by the
Board of Directors. The bonus was not paid in 1994 and
1995 since Banespa had not made a profit during those
years. Partial payments were made from 1996 to 2000,
as approved by the Board of Directors. The relevant
clause was eliminated in 2001. The Regional Labor Court
and the High Employment Court ordered Santander
Brasil, as successor to Banespa, to pay this half-yearly
bonus for the period from 1996 to the present. On 20
March 2019, a decision from the Federal Court of Justice
(Supremo Tribunal Federal, or “STF”) rejected the
extraordinary appeal filed by Santander Brasil. A
rescission action was brought to revert the decision in the
main proceedings and suspend procedural enforcement.
The external legal advisor of the Bank has classified the
risk of loss as probable. The current court decision does
not define a specific amount to be paid by the defendants
(this would only be determined once a final decision is
issued and the enforcement process has begun).
• “Planos Económicos”: like the rest of the banking system
in Brasil, Santander Brasil has been the target of
customer complaints and collective civil suits stemming
from legislative changes and its application to bank
deposits, fundamentally ('economic plans'). At the end of
2017, there was an agreement between regulatory
entities and the Brazilian Federation of Banks (Febraban),
already approved by the Supremo Tribunal Federal, with
the purpose of closing the lawsuits. Discussions focused
on specifying the amount to be paid to each affected
client according to the balance in their notebook at the
time of the Plan. Finally, the total value of the payments
will depend on the number of endorsements they have
612
2019 Annual Report
made and the number of savers who have demonstrated
the existence of the account and its balance on the date
the indexes were changed. In November 2018, the STF
ordered the suspension of all economic plan processes for
two years from May 2018.The provisions recorded for the
economic plan processes are considered to be sufficient.
• Floor clauses (“cláusulas suelo”): in consequence of the
acquisition of Banco Popular, S.A.U, the Group has been
exposed to a material number of transactions with floor
clauses. The so-called "floor clauses" or minimum
clauses are those under which the borrower accepts a
minimum interest rate to be paid to the lender, regardless
of the applicable reference interest rate. Banco Popular
Español, S.A.U. included "floor clauses" in certain asset
transactions with customers. In relation to this type of
clauses, and after several rulings made by the Court of
Justice of the European Union and the Spanish Supreme
Court, and the extrajudicial process established by the
Spanish Royal Decree-Law 1/2017, of 2 January, Banco
Popular Español, S.A.U. made extraordinary provisions
that were updated in order to cover the effect of the
potential return of the excess interest charged for the
application of the floor clauses between the contract date
of the corresponding mortgage loans and May 2013. The
Group considered that the maximum risk associated with
the floor clauses applied in its contracts with consumers,
in the most severe and not probable scenario, would
amount to approximately EUR 900 million, as initially
measured and without considering the returns
performed. For this matter, after the purchase of Banco
Popular Español, S.A.U., EUR 402 million provisions have
been used by the Group (EUR 238 million in 2017, EUR
119 million in 2018 and EUR 45 million in 2019) mainly
for refunds as a result of the extrajudicial process
mentioned above. As of 31 December 2019, the amount
of the Group's provisions in relation to this matter
amounts to EUR 79.9 million (2018: EUR 104 million).
• Banco Popular´s acquisition: considering the declaration
setting out the resolution of Banco Popular Español,
S.A.U., the redemption and conversion of its capital
instruments and the subsequent transfer to Banco
Santander, S.A. of the shares resulting from this
conversion in exercise of the resolution instrument
involving the sale of the institution's business, in the
application accordance with the single resolution
framework regulation referred to in Note 3 of the 2018
consolidated annual accounts, some investors have filed
claims against the EU’s Single Resolution Board decision,
the FROB's resolution executed in accordance to the
aforementioned decision, and claims have been filed and
may be filed in the future against Banco Santander, S.A. or
other Santander Group companies deriving from or
related to the acquisition of Banco Popular Español,
S.A.U.. There are also criminal investigations in progress
led by the Spanish National Court in connection with
Banco Popular Español, S.A.U., although not with its
acquisition. On 15 January 2019, the Spanish National
Court, applying article 130.2 of the Spanish Criminal
Code, declared the Bank the successor entity to Banco
Popular Español, S.A.U. (following the merger of the Bank
and Banco Popular Español, S.A.U. on 28 September
2018), and, as a result, determined that the Bank
assumed the role of the party being investigated in the
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
criminal proceeding. The decision was appealed and on
30 April 2019, the Spanish National Court ruled in favor of
Banco Santander, S.A. declaring that Banco Santander,
S.A. cannot inherit Banco Popular’s potential criminal
liability. This ruling was appealed before the Supreme
Court who have rejected the appeal.
At this time it is not possible to foresee the total number
of lawsuits and additional claims that could be put forth
by the former shareholders, nor their economic
implications (particularly considering that the resolution
decision in application of the new laws is unprecedented
in Spain or any other Member State of the European
Union and that possible future claims might not specify
any specific amount, allege new legal interpretations or
involve a large number of parties). The estimated cost of
the potential compensation to the shareholders of Banco
Popular Español, S.A.U. has been accounted for as
disclosed in the aforementioned Note 3.
• German shares investigation: the Cologne Public
Prosecution Office is conducting an investigation against
the Bank, and other group entities based in UK -
Santander UK plc, Abbey National Treasury Services plc
and Cater Allen International Limited -, in relation to a
particular type of tax dividend linked transactions known
as cum-ex transactions
The Group is cooperating with the German authorities.
According to the state of the investigations, the results
and the effects for the Group, which may potentially
include the imposition of financial penalties, cannot be
anticipated. The Bank has not recognised any provisions
in relation to the potential imposition of financial
penalties.
• Attorneys General Investigation of auto loan
securitisation transactions and fair lending practices: in
October 2014, May 2015, July 2015 and February 2017,
Santander Consumer USA Inc. (SC) received subpoenas
and/or Civil Investigative Demands (CIDs) from the
Attorneys General of the U.S. states of California, Illinois,
Oregon, New Jersey, Maryland and Washington under the
authority of each state's consumer protection statutes.
These states serve on behalf of a group of 33 state
Attorneys General. The subpoenas and CIDs contained
broad requests for information and the production of
documents related to SC’s underwriting, securitization,
the recovery efforts servicing and collection of nonprime
vehicle loans. SC responded to these requests within the
deadlines specified and has otherwise cooperated with
the Attorneys General with respect to this matter. The
provisions recorded for this investigation are considered
sufficient.
• Financial Industry Regulatory Authority (“FINRA”) Puerto
Rico Arbitrations: as of 31 December 2019, Santander
Securities LLC (SSLLC) had received 751 FINRA arbitration
cases related to Puerto Rico Bonds issued by public and
public related entities, as well as Puerto Rico closed-end
funds (CEFs). The statements of claims allege, among
other things, fraud, negligence, breach of fiduciary duty,
breach of contract, unsuitability, over-concentration of
the investments and failure to supervise. There were 439
arbitration cases that remained pending as of 31
December 2019.
As a result of various legal, economic and market factors
impacting or that could impact of the value Puerto Rico
bonds and CEFs, it is possible that additional arbitration
claims and/or increased claim amounts may be asserted
against SSLLC in future periods. The provisions recorded
for these matters are considered sufficient.
• IRPH Index: a portion of our Spanish mortgage loan
portfolio bears interest at a rate indexed to the “Índice de
Referencia de Préstamos Hipotecarios” known as “IRPH,”
which, at the time the contracts were entered into, served
as reference rate for mortgage loan agreements in Spain
and was published by the Bank of Spain. Consumers in
Spain have brought lawsuits against most of the Spanish
banking sector alleging that the use and related
disclosures of such rate did not comply with the
transparency requirements of European regulation. On
14 December 2017, the Supreme Court of Spain ruled
that these clauses were valid, as the IRPH is an official
rate and therefore non-subject to transparency
requirements. The matter has been referred to the Court
of Justice of the European Union through a preliminary
ruling procedure. Pending the outcome of this referral,
the IRPH remains valid as a result of the decision of the
Supreme Court of Spain.
On 10 September 2019, the Advocate General of Court of
Justice of the European Union (CJEU) issued a non-
binding opinion stating that the IRPH index clause is not
excluded from the scope of the Directive 93/13 and
article 4 of the Directive 93/13 does not apply. The
Advocate General concludes that the consumer
information must be sufficient to enable the consumer to
make a prudent and fully informed decision about the
method of calculating the interest rate applicable to the
contract and its components parts, specifying not only the
full definition of the index used by this calculation
method but also the provisions of the relevant national
legislation determining that index; and must refer to the
past performance of the index. The Advocate General
adds that it is for the national court, when carrying out
the transparency control, to verify, taking into account all
the circumstances surrounding the conclusion of the
contract, on the one hand, whether the contract
transparently sets out the method of calculating the
interest rate, so that the consumer would be able to
assess, on the basis of precise and intelligible criteria, the
economic consequences for the contract and, on the other
hand, whether this contract complies with all the
information obligations laid down in national law.
In the event the Court of Justice of the European Union
questions these clauses, it would need to be determined
the effects of the decision which carries the uncertainty
as to the interest rate that would apply to the relevant
mortgage loans. Additionally, it is unclear whether such a
ruling by the Court of Justice of the European Union
would have retroactive effect and to what extent.
The uncertainty regarding the ruling by the Court of
Justice of the European Union as well as the effects of
such ruling make estimating the potential exposure
difficult. Currently, the balance of the relevant mortgage
loans held by us equals approximately EUR 4.3 billion.
Although it is considered that the decision of the Supreme
Court of Spain is well-founded, an unfavorable decision
613
Table of Contents
by the Court of Justice of the European Union could result
in the charge of a material provision.
26. Other liabilities
• Banco Santander has been sued in a legal proceeding in
which the plaintiff alleges that a contract was concluded
whereby he would be entrusted with the functions of
CEO of the Bank. In the complaint, the claimant mainly
requests a declaratory ruling that affirms the validity and
conclusion of such contract and its enforcement together
with the payment of certain amounts. If the main request
is not granted, the claimant seeks compensation for a
total amount of approximately EUR 112 million or, an
alternative relief for other minor amounts. Banco
Santander, S.A. has answered to the complaint. In this
answer, it is stated that the conditions to which the
appointment was subject to were not met and that the
contract required by law was not concluded. The
proceeding is ongoing.
• CHF Polish Mortgage Loans: On 3 October 2019, the
Court of Justice of the European Union (CJEU) rendered its
decision in relation to a lawsuit against an unrelated bank
in Poland, with regards to unfair contractual clauses in
consumer agreements, specifically the consequences of
potentially unfair contractual clauses in CHF-indexed loan
agreements. The CJEU has left to Polish courts the
decision on whether the whole contract can be
maintained once the abusive terms have been removed,
which should in turn decide whether the effects of the
annulment of the contract are prejudicial to the consumer.
In that case, the court may only integrate the contract
with default provisions of national law and decide, in
accordance with those provisions, on the applicable rate.
As at 31 December 2019, the Group has a portfolio of
mortgage loans denominated in, or indexed to, CHF of
approximately PLN 9,891 million (EUR 2,323 million).
In 2019 the Group (Santander Bank Polska and Santander
Consumer Bank) in Poland created PLN 173 million(EUR
40.9 million) provision for CHF. This provision represents
the best estimate to date given the difficulty to predict
the financial impact, as, it is for national courts to decide
the relevant issues.
The Bank and the other Group companies are subject to
claims and, therefore, are party to certain legal proceedings
incidental to the normal course of their business including
those in connection with lending activities, relationships
with employees and other commercial or tax matters.
With the information available to it, the Group considers
that, at 31 December 2019, it had reliably estimated the
obligations associated with each proceeding and had
recognized, where necessary, sufficient provisions to cover
reasonably any liabilities that may arise as a result of these
tax and legal risks. Subject to the qualifications made, it also
believes that any liability arising from such claims and
proceedings will not have, overall, a material adverse effect
on the Group’s business, financial position or results of
operations.
614
2019 Annual Report
The detail of Other liabilities in the consolidated balance
sheets is as follows:
Million euros
Transactions in transit
Accrued expenses and deferred
income
Other
27. Tax matters
a) Consolidated Tax Group
2019
2018
2017
663
803
811
6,909
6,621
6,790
5,220
5,664
4,990
12,792 13,088 12,591
Pursuant to current legislation, the Consolidated Tax Group
includes Banco Santander, S.A. (as the parent) and the
Spanish subsidiaries that meet the requirements provided
for in Spanish legislation regulating the taxation of the
consolidated profits of corporate groups (as the controlled
entities).
The other Group companies file income tax return in
accordance with the tax regulations applicable to them.
b) Years open for review by the tax authorities
In 2018 the conformity and non-conformity acts relating to
the Corporate Income Tax financial years 2009 to 2011 were
formalised. The adjustments signed in conformity had no
significant impact on results and, in relation to the concepts
signed in disconformity both in this year and in previous
years (Corporate Income Tax 2003 to 2007), that have been
appealed, Banco Santander, S.A., as the Parent of the
Consolidated Tax Group, considers, in accordance with the
advice of its external lawyers, that the adjustments made
should not have a significant impact on the consolidated
financial statements, and there are sound arguments as
proof in the appeals filed against them. Consequently, no
provision has been recorded for this concept. Following the
completion of these actions for 2009 to 2011, subsequent
years up to and including 2019 are subject to review. At the
date of approval of these accounts, the Corporate Income
Tax proceedings for periods not yet prescribed up to and
including 2015, and the proceedings relate to other taxes up
to and including 2016 are on going.
Likewise, relating the Consolidated Tax Group of which
Banco Popular Español S.A.U. was the parent, in 2018 a
certificate of conformity was drawn up in a partial
proceeding, confirming the 2016 Corporate Income Tax
return. During 2019, a certificate of disconformity has been
drawn up for 2017 Corporate Income Tax, with no impact on
profit, and the final assessment has been appealed. In
relation to this Consolidated Tax Group, the years 2010 to
2017 inclusive are subject to review.
The other entities have the corresponding years open for
review, pursuant to their respective tax regulations.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Because of the possible different interpretations which can
be made of the tax regulations, the outcome of the tax
audits of the years reviewed and of the open years might
give rise to contingent tax liabilities which cannot be
objectively quantified. However, the Group’s tax advisers
consider that it is unlikely that such tax liabilities will arise,
and that in any event the tax charge arising therefrom
would not materially affect the Group’s consolidated
financial statements.
c) Reconciliation
The reconciliation of the income tax expense calculated at
the tax rate applicable in Spain (30%) to the income tax
expense recognised and the detail of the effective tax rate
are as follows:
Million euros
Consolidated profit (loss) before
tax:
2019
2018
2017
From continuing operations
12,543
14,201
12,091
From discontinued operations
—
—
—
Income tax at tax rate applicable
in Spain (30%)
By the effect of application of the
various tax rates applicable in
each country*
Of which:
Brazil
United Kingdom
United States
Chile
Effect of profit or loss of
associates and joint ventures
Effect of deduction of goodwill in
Brazil
Effect of reassessment of
deferred taxes
12,543
14,201
12,091
3,763
4,260
3,628
243
509
539
502
719
656
(80)
(71)
(35)
(99)
(57)
(35)
(78)
68
(48)
(97)
(221)
(211)
—
(612)
—
—
(164)
(282)
Permanent differences**
1,130
338
374
Current income tax
4,427
4,886
3,884
Effective tax rate
35.29%
34.40% 32.12%
Of which:
Continuing operations
4,427
4,886
3,884
Discontinued operations (Note
37)
—
—
—
Of which:
Current taxes
Deferred taxes
Income tax (receipts)/
payments
3,962
4,763
3,777
465
123
107
2,593
3,342
4,137
*
**
Calculated by applying the difference between the tax rate applicable in
Spain and the tax rate applicable in each jurisdiction to the profit or loss
contributed to the Group by the entities which operate in each
jurisdiction.
Including the impairment of goodwill in Santander UK in 2019 and the
recognition of tax credits in Portugal in 2018.
d) Tax recognised in equity
In addition to the income tax recognised in the consolidated
income statement, the Group recognised the following
amounts in consolidated equity in 2019, 2018 and 2017:
Million euros
Other comprehensive income
Items not reclassified to profit or
loss
Actuarial gains or (-) losses on
defined benefit pension plans
Changes in the fair value of equity
instruments measured at fair value
through other comprehensive
income
Financial liabilities at fair value
with changes in results
attributable to changes in credit
risk
Items that may be reclassified to
profit or loss
Cash flow hedges
Changes in the fair value of debt
instruments through other
comprehensive income
Financial assets available for sale
Debt instruments
Equity instruments
Other recognised income and
expense of investments in
subsidiaries, joint ventures and
associates
Total
2019
2018*
2017
500
(225)
499
(199)
60
60
(42)
—
43
(26)
(832)
(17)
124
(50)
—
108
(811)
167
(97)
(366)
269
(4)
7
(332)
(101)
(11)
60
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1
January, 2018 (Note 1.d).
e) Deferred taxes
Tax assets in the consolidated balance sheets includes debit
balances with the Public Treasury relating to deferred tax
assets. Tax liabilities includes the liability for the Group’s
various deferred tax liabilities.
On 26 June, 2013, the Basel III legal framework was
included in European law through Directive 2013/36 (CRD
IV) and Regulation 575/2013 on prudential requirements
for credit institutions and investment firms (CRR), directly
applicable in every member state as from 1 January 2014,
albeit with a gradual timetable with respect to the
application of, and compliance with, various requirements.
This legislation establishes that deferred tax assets, the use
of which relies on future profits being obtained, must be
deducted from regulatory capital.
In this regard, pursuant to Basel III, in recent years several
countries have amended their tax regimes with respect to
certain deferred tax assets so that they may continue to be
considered regulatory capital since their use does not rely
on the future profits of the entities that generate them
(referred to hereinafter as “monetizable tax assets”).
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Italy had a very similar regime to that described above,
which was introduced by Decree-Law no. 225, of 29
December 2010, and amended by Law no. 10, of 26
February 2011. In addition, in 2013 in Brazil, by means of
Provisional Measure no. 608, of 28 February 2013 and, in
Spain, through Royal Decree-Law 14/2013, of 29 November
confirmed by Law 27/2014, of 27 November tax regimes
were established whereby certain deferred tax assets
(arising from provisions to allowances for loan losses in
Brazil and provisions to allowances for loan losses,
provisions to allowances for foreclosed assets and
provisions for pension and pre-retirement obligations in
Spain) may be converted into tax receivables in specific
circumstances. As a result, their use does not rely on the
entities obtaining future profits and, accordingly, they are
exempt from deduction from regulatory capital.
In 2015 Spain completed its regulations on monetizable tax
assets with the introduction of a financial contribution
which will involve the payment of 1.5% for maintaining the
right to monetise which will be applied to the portion of the
deferred tax assets that qualify under the legal
requirements as monetizable assets generated prior to
2016.
In a similar manner, Italy, by decree of 3 May 2016 has
introduced a fee of 1.5% annually to maintain the
monetizable of part of the deferred tax assets.
The detail of deferred tax assets, by classification as
monetizable or non-monetizable assets, and of deferred tax
liabilities at 31 December 2019, 2018 and 2017 is as
follows:
Million euros
Tax assets:
Tax losses and tax credits
Temporary differences
Of which:
Non-deductible provisions
Valuation of financial instruments
Loan losses
Pensions
Valuation of tangible and intangible
assets
Tax liabilities:
Temporary differences
Of which:
Valuation of financial instruments
Valuation of tangible and intangible
assets
Investments in Group companies
2019
2018
2017
Monetizable* **
Other
Monetizable* **
Other
Monetizable* **
Other
11,233
11,525
10,866
12,392
11,046
12,164
—
11,233
—
—
7,645
3,587
—
—
—
—
—
—
3,428
8,097
2,751
400
1,086
1,009
1,317
6,522
6,522
2,073
1,962
831
—
10,866
—
—
7,279
3,587
—
—
—
—
—
—
4,276
8,116
2,613
609
1,308
632
1,215
5,568
5,568
1,168
1,503
880
—
11,046
—
—
7,461
3,585
—
—
—
—
—
—
4,457
7,707
2,336
530
1,159
723
1,077
4,837
4,837
1,207
1,256
808
*
**
Not deductible from regulatory capital.
As the circumstances of the aforementioned regulations were met, Banco Popular Español, S.A.U. requested the conversion of part of its monetizable assets in 2016
income tax return (EUR 486 million conversion approved in 2018) and in 2017 income tax form (EUR 995 million, in this case Spanish tax authorities have expressly
confirmed the nature of the assets as monetizable, but it considers that conditions for conversion are not met at the end of 2017, without prejudice to the conversion
in future years).
The Group only recognises deferred tax assets for
temporary differences or tax loss and tax credit
carryforwards where it is considered probable that the
consolidated entities that generated them will have
sufficient future taxable profits against which they can be
utilised.
The deferred tax assets and liabilities are reassessed at the
reporting date in order to ascertain whether any
adjustments need to be made on the basis of the findings of
the analyses performed.
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Notes to the consolidated
annual accounts
Appendix
estimation of the reversal of the different temporary
differences are based. In relation to Spain, the sensitivity
analysis has consisted of adjusting 50 basis points for
growth (gross domestic product) and adjusting 50 basis
points for inflation. Following the sensitivity analysis
performed, the Group does not estimate significant
variations in its future taxable income, in relation to its
deferred tax assets.
Relevant information is set forth below for the main
countries which have recognised deferred tax assets:
Spain
The deferred tax assets recognised at the Consolidated Tax
Group total EUR 12,511million, of which EUR 7,422 million
were for monetizable temporary differences with the right
to conversion into a credit against the Public Finance, EUR
2,330 million for other temporary differences and EUR
2,759 million for tax losses and credits.
The Group estimates that the recognised deferred tax assets
for temporary differences will be recovered in a maximum
period of 15 years. This period would also apply to the
recovery of the recognised tax loss and tax credit
carryforwards.
Brazil
The deferred tax assets recognised in Brazil total EUR 6,120
million, of which EUR 3,615 million were for monetizable
temporary differences, EUR 2,402 million for other
temporary differences and EUR 103 million for tax losses
and credits.
The Group estimates that the recognised deferred tax assets
for temporary differences, tax losses and credits will be
recovered in approximately 10 years.
United States
The deferred tax assets recognised in the United States total
EUR 1,303 million, of which EUR 940 million were for
temporary differences and EUR 363 million for tax losses
and credits.
The Group estimates that the recognised deferred tax assets
for temporary differences, tax losses and credits will be
recovered in a period of 15 years.
These analyses take into consideration all evidence, both
positive and negative, of the recoverability of such deferred
tax assets, among which we can find, (i) the results
generated by the different entities in previous years, (ii) the
projections of results of each entity or fiscal group, (iii) the
estimation of the reversal of the different temporary
differences according to their nature and (iv) the period and
limits established under the applicable legislation of each
country for the recovery of the different deferred tax assets,
thus concluding on the ability of each entity or fiscal group
to recover the deferred tax assets registered.
The projections of results used in this analysis are based on
the financial budgets approved by both the local directions
of the corresponding units and by the Group's
administrators. The Group's budget estimation process is
common for all units. The Group's management prepares its
financial budgets based on the following key assumptions:
a. Microeconomic variables of the entities that make up
the fiscal group in each location: the existing balance
structure, the mix of products offered and the
commercial strategy at each moment defined by local
directions are taken into account, based on the
competition, regulatory and market environment.
b. Macroeconomic variables: estimated growths are
based on the evolution of the economic environment
considering the expected evolution in the Gross
Domestic Product of each location, and the forecasts of
interest rates, inflation and exchange rates
fluctuations. These data is provided by the Group’s
Studies Service, based on external sources of
information.
Additionally, the Group performs retrospective contrasts
(backtesting) on the variables projected in the past. The
differential behavior of these variables with respect to the
real market data is considered in the projections estimated
in each fiscal year. Thus, and in relation to Spain, the
deviations identified by the Directors in recent past years
are due to non-recurring events outside the operation of the
business, such as the impacts due to the first application of
new regulations, the costs assumed for the acceleration of
the restructuring plans and the changing effect of the
current macroeconomic environment.
Finally, and given the degree of uncertainty of these
assumptions, the Group conducts a sensitivity analysis of
the most significant assumptions considered in the deferred
tax assets’ recoverability analysis, considering any
reasonable change in the key assumptions on which the
projections of results of each entity or fiscal group and the
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The changes in Tax assets - Deferred and Tax liabilities -
Deferred in the last three years were as follows:
Million euros
Deferred tax assets
Tax losses and tax credits
Temporary differences
Of which: monetizable
Deferred tax liabilities
Temporary differences
Million euros
Deferred tax assets
Tax losses and tax credits
Temporary differences
Of which: monetizable
Deferred tax liabilities
Temporary differences
Million euros
Deferred tax assets
Tax losses and tax credits
Temporary differences
Of which: monetizable
Deferred tax liabilities
Temporary differences
Balances at
31 December
2018
(Charge)/Credit
to income
23,258
4,276
18,982
10,866
(5,568)
(5,568)
17,690
215
(301)
516
427
(680)
(680)
(465)
Foreign
currency
balance
translation
differences
and other
items
(610)
(548)
(62)
(60)
92
92
(518)
(Charge)/Credit to
asset and liability
valuation Acquisition for
the year (net)
adjustments
Balances at 31
December
2019
(92)
—
(92)
—
(366)
(366)
(458)
(13)
—
(13)
—
—
—
22,758
3,427
19,331
11,233
(6,522)
(6,522)
(13)
16,236
IFRS 9
Adoption
impact
(Balance at
January 1,
2018)
(Charge)/
Credit to
income
Foreign
currency
balance
translation
differences
and other
items
(Charge)/
Credit to
asset and
liability
valuation
adjustments
Balances at
31 December
2017
Acquisition
for the year
(net)
Balances at
31 December
2018
23,210
4,457
18,753
11,046
(4,837)
(4,837)
18,373
680
—
680
273
—
—
680
241
(128)
369
391
(364)
(364)
(123)
(807)
1
(808)
(844)
(114)
(114)
(921)
149
—
149
—
(315)
(315)
(166)
(215)
(54)
(161)
—
62
62
23,258
4,276
18,982
10,866
(5,568)
(5,568)
(153)
17,690
Foreign
currency
balance
translation
differences
and other
items
(756)
(205)
(551)
(455)
414
414
(675)
(279)
(396)
(185)
568
568
(107)
(342)
(Charge)/Credit to
asset and liability
valuation Acquisitions for
the year (net)
adjustments
Balances at 31
December
2017
(1)
—
(1)
—
19
19
18
3,378
7
3,371
2,037
(144)
(144)
23,210
4,457
18,753
11,046
(4,837)
(4,837)
3,234
18,373
Balances at
31 December
2016
(Charge)/Credit
to income
21,264
4,934
16,330
9,649
(5,694)
(5,694)
15,570
Also, the Group did not recognise deferred tax assets
relating to tax losses, tax credits for investments and other
incentives amounting to approximately EUR 6,700 million,
the use of which EUR 370 million is subject, among other
requirements, to time limits.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
f) Tax reforms
The following significant tax reforms were approved in
2019 and previous years:
The Tax Cuts and Jobs Act (the 2017 Act) was approved in
the United States on 22 December 2017. The main
amendments introduced in this tax regulation affected the
US corporate tax rates, some business-related exclusions
and deductions and credits. Likewise, this amendment
entailed a tax impact for many companies that operate
internationally. The main impact is derived from the
decrease in the federal tax rate that was reduced from 35%
to 21%, which affected both the amount and estimation of
the recoverability of deferred tax assets and liabilities
during 2017 as well as the profit after tax from 2018. The
estimated impact on the Group, arisen from the affected
subsidiaries, which was already recorded as of 31 December
2017, did not represent a significant amount in the
attributable profit.
On 29 December 2017, Law No. 27430 on the reform of the
Argentine tax system was published, whose main measures
entered into force on 1 January, 2018, therefore it had no
effect on the Group’s accounts in 2017. Among other
measures, it is established a gradual reduction of the
income tax from the 35% applicable until 2017, to 30% in
2018 and 2019, and up to 25% in 2020 and ahead, which is
complemented by a dividend withholding of 7% for those
distributed with a charge to 2018 and 2019 financial years,
and 13% if distributed with a charge to 2020 onwards.
On December 2016, the Royal Decree-Law 3-2016 was
approved in Spain under which the following tax measures
were adopted , among others,: (i) The limit for the
integration of deferred monetizable tax assets, as well as
for set-off for the negative tax was reduced (the limit was
reduced from 70% to 25% of the tax base), (ii) this
regulation set out a new limit of 50% of the tax rate for the
application of deductions in order to avoid double taxation,
(iii) this regulation also set out the compulsory impairment
reversion for deductible participations in previous years by
one fifths independently from the recovery of the
participated, and (iv) the regulation included the non-
deductibility of the losses generated from the transmission
of participations performed from 1 January 2017.
In the United Kingdom, a progressive reduction was
approved in 2016 regarding the tax rate of the Corporate
Tax, from 20% to 17%. The applicable rate from 1 April,
2017 is 19% and it will be 17% from 1 April 2020. Also, in
2015, a surcharge of 8% on the standard income tax rate for
bank profits was approved. This surcharge applies from 1
January 2016. In addition, from 2015 customer remediation
payments are no longer considered to be tax-deductible.
In Brazil, in 2015, there was also an increase for insurance
and financial companies and in the rate of the Brazilian
social contribution tax on net income ("Contribuição Social
sobre o Lucro Líquido"; CSLL) from 15% to 20% (applicable
from 1 September, 2015 to 31 December 2018). Since 1
January, 2019, the tax rate is 15% again, as a result of
which the income tax rate (25)% plus the CSLL rate total
40% for those companies. The main change in 2019 was the
approval on 12 November of Constitutional Amendment
103/19 modifying the social security system, which
includes, among other measures, an increase in the CSLL
tax rate for credit institutions from 15% to 20%, effective 1
March 2020. This increase lifted the aggregate tax rate -
sum of CSLL and the corporate income tax (Imposto de
Renda Pessoa Jurídica; IRPJ)- for credit institutions from
40% to 45%.
In Argentina, the Law Num. 27541 (B.O.E. of 23 December
2019), on Social Solidarity and Production Reactivation in
the Context of the Public Emergency, have introduced
various modifications to the Argentinean tax system to
increase tax receipts. The main amendments are the delay
of previously approved lowering of the corporate tax rate
from 30% to 25% (scheduled to take effect on 1 January
2020), as well as increasing in dividend withholdings from
7% to 13% (pushed back to 1 January 2021). Additionally
the adjustment for tax inflation that was to be applied on a
transitional basis in 1/3 of 2019, with the remaining two-
thirds pending application in equal parts in 2020 and 2021,
has been lowered to 1/6 in 2019, with the rest being
deferred over the next five years. The same deferral rule will
apply if there is an inflation adjustment in 2020.
On 27 November 2019 has entered into force the Protocol
amending the Convention between the United States of
America and the kingdom of Spain for the Avoidance of
Double Taxation (DTT). The revision of the Convention
introduces substantial reductions in the withholding rates
that apply to different types of income, highlighting the
reduction of the withholding rate on dividends to 5% for
shareholdings of more than 10%, the elimination of
withholding for shareholdings greater than 80% and
elimination of withholding at source on interests and
royalties.
g) Other information
In compliance with the disclosure requirement established
in the Listing Rules Instrument 2005 published by the UK
Financial Conduct Authority, it is hereby stated that
shareholders of the Bank resident in the United Kingdom
will be entitled to a tax credit for taxes paid abroad in
respect of withholdings that the Bank has to pay on the
dividends to be paid to such shareholders if the total income
of the dividend exceeds the amount of exempt dividends of
GBP 2,000 for the year 2019/20. The shareholders of the
Bank resident in the United Kingdom who hold their
ownership interest in the Bank through Santander Nominee
Service will be informed directly of the amount thus
withheld and of any other data they may require to
complete their tax returns in the United Kingdom. The other
shareholders of the Bank resident in the United Kingdom
should contact their bank or securities broker.
Banco Santander, S.A. is part of the Large Business Forum
and has adhered since 2010 to the Code of Good Tax
Practices in Spain. Also Santander UK is a member of the
HMRC’s Code of Practice on Taxation in the United Kingdom,
actively participating in both cases in the cooperative
compliance programs being developed by these Tax
Administrations.
28. Non-controlling interests
Non-controlling interests include the net amount of the
equity of subsidiaries attributable to equity instruments
619
Table of Contents
that do not belong, directly or indirectly, to the Bank,
including the portion attributed to them of profit for
the year.
a) Breakdown
b) Changes
The changes in Non-controlling interests are summarised as
follows:
The detail, by Group company, of Equity - Non-controlling
interests is as follows:
Million euros
2019
2018
2017
Santander Consumer USA Holdings
Inc.
1,565
1,652
1,479
Santander Bank Polska S.A.
1,597
1,538
1,901
Grupo PSA
1,569
1,409
1,305
Banco Santander (Brasil) S.A.
1,167
1,114
1,489
Balance at the end of the previous
year
Effect of changes in accounting
policies**
2019
2018*
2017
10,889
12,344 11,761
—
(1,292)
—
Balance at beginning of year
10,889
11,052 11,761
Other comprehensive income***
310
(109)
(583)
Other
(611)
(54)
1,166
Profit attributable to non-
controlling interests
1,601
1,505
1,588
Banco Santander - Chile
1,101
1,085
1,209
Modification of participation rates
(1,623)
(65)
(819)
Banco Santander México, S.A.
Institución de Banca Múltiple, Grupo
Financiero Santander México
Grupo Metrovacesa
Other companies*
333
1,093
1,056
—
—
836
1,655
1,493
1,481
8,987
9,384 10,756
Change of perimeter
110
(660)
(39)
Dividends paid to minority
shareholders
Changes in capital and others
concepts
(895)
(687)
(665)
196
(147)
1,101
Balance at end of year
10,588 10,889 12,344
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1
January 2018 (Note 1.d).
See change in consolidated statements of changes in total equity.
**
*** Mainly due to Exchange differences.
On 6 September 2019, the period for acceptance of the offer
by Banco Santander S.A. to acquire shares of Banco
Santander México, S.A. Institución de Banca Múltiple, Grupo
Financiero Santander México ended (see Note 3). The offer
was accepted by securities representing 16.69% of the
share capital of Banco Santander México and, consequently,
the Group's interest in Banco Santander México was reduced
to 91.65% of its share capital, which meant a decrease of
EUR 1,012 million in minority interests, as reported in the
table above under Changes in percentage of ownership.
During the year 2017, the Group completed the acquisition
of 9.65% of shares of Santander Consumer USA Holdings
Inc (see Note 3), which resulted in a reduction of EUR 492
million in the balance of Non - controlling interests.
In 2018 there was a loss of control over Metrovacesa, S.A. in
the Group, which has led to a decrease of EUR 826 million in
the balance of Minority interests (see Note 3).
The foregoing changes are shown in the consolidated
statement of changes in total equity.
Profit/(Loss) for the year attributable
to non-controlling interests
1,601
1,505
1,588
Of which:
Banco Santander (Brasil) S.A.
Banco Santander - Chile
Grupo PSA
Santander Consumer USA
Holdings Inc.
Banco Santander México, S.A.
Institución de Banca Múltiple,
Grupo Financiero Santander
México
Santander Bank Polska S.A.
Other companies
373
283
266
292
279
232
288
264
206
230
218
368
195
162
92
216
173
95
194
160
108
TOTAL
10,588 10,889 12,344
*
Includes a Santander UK plc issuance of perpetual convertible equity
instruments, at the option of Santander UK plc, into preference shares of
Santander UK itself for a nominal amount of GBP 2,250 million (the
Group having acquired GBP 1,100 million). Carrying amount of EUR
1,346 million in 2019 (EUR 1,280 million and EUR 1,290 million in 2018
and 2017, respectively).
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
c) Other information
The financial information on the subsidiaries with
significant non-controlling interests at 31 December 2019 is
summarised below:
Million euros*
Total assets
Total liabilities
Net assets
Total income
Total profit
Banco Santander
(Brasil) S.A.
Banco Santander
(Chile), S.A.
Grupo Financiero
Santander México,
S.A.B. de C.V.
Santander Bank
Polska S.A.
Santander Consumer
USA Holdings Inc.
172,033
156,251
15,782
13,951
3,311
62,151
57,246
4,905
2,539
919
72,441
66,086
6,355
3,998
1,145
44,688
39,659
5,029
1,717
511
43,706
37,097
6,609
4,575
806
*
Information prepared in accordance with the segment reporting criteria described in Note 52 and, therefore, it may not coincide with the information published
separately by each entity.
29. Other comprehensive income
The balances of Other comprehensive income include the
amounts, net of the related tax effect, of the adjustments to
assets and liabilities recognised in equity through the
consolidated statement of recognised income and expense.
The amounts arising from subsidiaries are presented, on a
line by line basis, in the appropriate items according to their
nature.
Respect to items that may be reclassified to profit or loss,
the consolidated statement of recognised income and
expense includes changes in other comprehensive income
as follows:
• Revaluation gains (losses): includes the amount of the
income, net of the expenses incurred in the year,
recognised directly in equity. The amounts recognised in
equity in the year remain under this item, even if in the
same year they are transferred to the income statement
or to the initial carrying amount of the assets or liabilities
or are reclassified to another line item.
• Amounts transferred to income statement: includes the
amount of the revaluation gains and losses previously
recognised in equity, even in the same year, which are
recognised in the income statement.
• Amounts transferred to initial carrying amount of hedged
items: includes the amount of the revaluation gains and
losses previously recognised in equity, even in the same
year, which are recognised in the initial carrying amount
of assets or liabilities as a result of cash flow hedges.
• Other reclassifications: includes the amount of the
transfers made in the year between the various valuation
adjustment items.
621
Table of Contents
a) Breakdown of Other comprehensive income - Items
that will not be reclassified in results and Items that
can be classified in results
Million of euros
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains and losses on defined benefit pension plans
Non-current assets held for sale
Share in other income and expenses recognised in investments, joint ventures and associates
Other valuation adjustments
Changes in the fair value of equity instruments measured at fair value with changes in other
comprehensive income
Inefficiency of fair value hedges of equity instruments measured at fair value with changes in other
comprehensive income
Changes in the fair value of equity instruments measured at fair value with changes in other
comprehensive income (hedged item)
Changes in the fair value of equity instruments measured at fair value with changes in other
comprehensive income (hedging instrument)
Changes in the fair value of financial liabilities measured at fair value through profit or loss attributable
to changes in credit risk
Items that may be reclassified to profit or loss
Hedges of net investments in foreign operations (Effective portion)
Exchange differences
Hedging derivatives. Cash flow hedges (Effective portion)
Changes in the fair value of debt instruments measured at fair value with changes in other
comprehensive income
Hedging instruments (items not designated)
Financial assets available-for-sale
Debt instruments
Equity instruments
Non-current assets classified as held for sale
Share in other income and expenses recognised in investments, joint ventures and associates
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
2019
2018
2017
(IFRS 9)
(IFRS 9)*
(IAS 39)
(22,032)
(22,141)
(21,776)
(4,288)
(4,764)
(2,936)
(3,609)
(4,034)
(4,033)
—
1
—
—
1
—
514
597
—
(1)
—
—
44
(44)
(39)
—
—
—
75
(17,744)
(19,205)
(17,742)
(5,464)
(4,312)
(4,311)
(14,607)
(15,730)
(15,430)
300
2,321
—
277
828
—
—
(294)
—
(268)
152
2,068
1,154
914
—
(221)
b) Other comprehensive income- Items not reclassified
to profit or loss – Actuarial gains or (-) losses on
defined benefit pension plans
Other comprehensive income – Items not reclassified to
profit or loss – Actuarial gains or (-) losses on defined
benefit pension plans include the actuarial gains and losses
and the return on plan assets, less the administrative
expenses and taxes inherent to the plan, and any change in
the effect of the asset ceiling, excluding amounts included
in net interest on the net defined benefit liability (asset).
Its variation is shown in the consolidated statement of
income and expense.
The provisions against equity in 2019 amounted to EUR
1,677 million - see Note 25.b -, with the following
breakdown:
• Increase of EUR 278 million in the accumulates actuarial
losses relating to the Group´s entities in Spain, mainly
due to the evolution experienced by the discount rate -
reduction from 1.55% to 0.80%.
622
2019 Annual Report
• Increase of EUR 601 million in the cumulative actuarial
losses relating to the Group´s businesses in the UK,
mainly due to the evolution experienced by the main
actuarial hypotheses – reduction in the discount rate from
2.90% to 2.11%.
• Increase of EUR 310 million in accumulated actuarial
losses corresponding to the Group’s business in Brazil,
mainly due to the reduction in the discount rate (from
9.11% to 7.05% in pension benefits and 9.26% to 7.22%
in medical benefits), as well as variations in the other
hypotheses.
• Increase of EUR 150 million in the accumulated actuarial
losses relating to the Group's business in Portugal, due
mainly to the evolution of the main actuarial assumptions
-reduction in the discount rate from 2.10% to 1.10%.
The other modification in accumulated actuarial profit or
losses is a increase of the losses of EUR 338 million as a
result of the evolution of exchange rates and other effects,
mainly in the United Kingdom (appreciation of the pound).
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
c) Other comprehensive income - Items that will not be
reclassified in results - Changes in the fair value of
equity instruments measured at fair value with
changes in other comprehensive income
Includes the net amount of unrealised fair value changes of
equity instruments at fair value with changes in other
comprehensive income.
The following is a breakdown of the composition of the
balance as of 31 December 2019 (IFRS 9) under "Other
comprehensive income" - Items that will not be reclassified
to profit or loss - Changes in the fair value of equity
instruments measured at fair value with changes in other
global result depending on the geographical origin of the
issuer:
Million of euros
Equity instruments
Spain
International
Rest of Europe
United States
Latin America and rest
Of which:
Publicly listed
Non publicly listed
Capital gains by
valuation
Capital losses by
valuation
Net gains/losses by
valuation
Fair Value
31/12/2019
21
68
15
934
1,038
936
102
(445)
(72)
(3)
(4)
(524)
(14)
(510)
(424)
(4)
12
930
514
922
(408)
184
379
44
2,256
2,863
2,283
580
d) Other comprehensive income - Items that may be
reclassified to profit or loss - Hedge of net investments
in foreign operations (effective portion) and exchange
differences
The changes in 2019 reflect the positive effect of the
appreciation of the pound sterling and US dollar and the
negative effect of the depreciation of the Brazilian real,
whereas the changes in 2018 reflect the negative effect of
the depreciation of large part of the currencies, mainly the
Brazilian real and pound sterling.
Of the change in the balance in these years, a profit of EUR
230 million, a loss of EUR 556 million and a loss of EUR
1,704 million in 2019, 2018 and 2017, respectively relate to
the measurement of goodwill.
The detail, by country is as follows:
Net balance at end of year
(20,071) (20,042) (19,741)
2019
2018
2017
Of which:
Brazilian Real
Pound Sterling
Mexican Peso
Argentine Peso*
Chilean Peso
US Dollar
Other
(13,579) (12,950) (11,056)
(3,135)
(3,924)
(3,732)
(2,439)
(2,312)
(2,230)
—
—
(1,684)
(1,560)
(1,238)
(866)
1,654
1,330
555
(1,012)
(948)
(728)
*
In 2019 and 2018, due to the application of IAS 29 for hyperinflationary
economies, they have been transferred to Other Reserves (see Note 33).
e) Other comprehensive income -Items that may be
reclassified to profit or loss - Hedging derivatives –
Cash flow hedges (Effective portion)
Other comprehensive income – Items that may be
reclassified to profit or loss - Cash flow hedges includes the
gains or losses attributable to hedging instruments that
qualify as effective hedges. These amounts will remain
under this heading until they are recognised in the
consolidated income statement in the periods in which the
hedged items affect it (see Note 11).
623
Table of Contents
f) Other comprehensive income - Items that may be
reclassified to profit or loss – Changes in the fair value
of debt instruments measured at fair value with
changes in other comprehensive income (IFRS 9) and
available-for-sale (IAS 39)
Includes the net amount of unrealised changes in the fair
value of assets classified as Changes in the fair value of debt
instruments measured at fair value with changes in other
comprehensive income (IFRS 9) and Financial assets
available-for-sale (IAS 39) (see Notes 7 and 8).
The breakdown, by type of instrument and geographical
origin of the issuer, of Other comprehensive income – Items
that may be reclassified to profit or loss - Changes in the fair
value of debt instruments measured at fair value with
changes in other comprehensive income (IFRS 9) and
Financial assets available-for-sale (IAS 39) at 31 December
2019, 2018 and 2017 is as follows:
Million euros
Debt
instruments
Government
debt
securities
and debt
Instruments
issued by
central banks
Spain (Note
7)
Rest of
Europe
Latin
America
and rest of
the world
Private-
sector debt
securities
Equity
instruments
Domestic
Spain
International
Rest of
Europe
United
States
Latin
America
and rest of
the world
Of which:
Listed
Unlisted
31 December 2019
31 December 2018*
31 December 2017
Revaluation
gains
Revaluation
losses
Net
revaluation
gains/
(losses)
Fair
value
Revaluation
gains
Revaluation
losses
Net
revaluation
gains/
(losses)
Fair
value
Revaluation
gains
Revaluation
losses
Net
revaluation
gains/
(losses)
Fair
value
947
664
(2)
945
32,413
(38)
626
19,052
326
373
(3)
323
38,550
(55)
318
17,494
660
306
(25)
635
48,217
(24)
282
20,244
839
(121)
718
51,284
448
(117)
331
42,599
404
(129)
275
39,132
81
(49)
32
20,096
37
2,531
(210)
2,321 122,845
1,184
(178)
(353)
(141) 19,777
90
831 118,420
1,460
(128)
(306)
(38) 20,888
1,154 128,481
5
(2)
3
1,373
166
14
744
929
828
101
(2)
(5)
(6)
(15)
(5)
(10)
164
979
9
560
738
914
1,878
4,790
823
2,900
91
1,890
2,531
(210)
2,321 122,845
1,184
(353)
831 118,420
2,389
(321)
2,068 133,271
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
624
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
At the end of 2017 the Group assessed whether there is any
objective evidence that the instruments classified Changes
in the fair value of debt and equity instruments measured at
fair value with changes in other comprehensive income and
Financial assets available-for-sale (IAS 39) (debt securities
and equity instruments) were impaired.
This assessment included but was not limited to an analysis
of the following information: i) the issuer’s economic and
financial position, the existence of default or late payment,
analysis of the issuer’s solvency, the evolution of its
business, short-term projections, trends observed with
respect to its earnings and, if applicable, its dividend
distribution policy; ii) market-related information such as
changes in the general economic situation, changes in the
issuer’s sector which might affect its ability to pay; iii)
changes in the fair value of the security analysed, analysis
of the origins of such changes - whether they are intrinsic or
the result of the general uncertainty concerning the
economy or the country - and iv) independent analysts’
reports and forecasts and other independent market
information.
As of 1 January 2018, with the entry into force of IFRS 9, the
Group estimates the expected losses on debt instruments
measured at fair value with changes in other comprehensive
income. These losses are recorded with a charge to the
consolidated income statement for the period.
At the end of the years 2019, 2018 and 2017, the Group
recorded under Impairment or reversal of impairment on
financial assets not measured at fair value through profit or
loss, net due to modification of the consolidated income
statement, in the line of financial assets at fair value with
changes in other comprehensive income (IFRS 9) a provision
of EUR 12 million and EUR 1 million in 2019 and 2018,
respectively, and in the line of available-for-sale financial
assets (IAS 39) a provision of EUR 10 million in equity
instruments in 2017.
Until 31 December 2017, in the case of quoted equity
instruments, when the changes in the fair value of the
instrument under analysis were assessed, the duration and
significance of the fall in its market price below cost for the
Group was taken into account. As a general rule, for these
purposes the Group considers a significant fall to be a 40%
drop in the value of the asset or a continued fall over a
period of 18 months. Nevertheless, it should be noted that
the Group assessed, on a case-by-case basis, each of the
securities that have suffered losses, and monitors the
performance of their prices, recognising an impairment loss
as soon as it is considered that the recoverable amount
could be affected, even though the price may not have
fallen by the percentage or for the duration mentioned
above.
If, after the above assessment has been carried out, the
Group considers that the presence of one or more of these
factors could affect recovery of the cost of the asset, an
impairment loss was recognised in the income statement
for the amount of the loss registered in equity under Other
comprehensive income – Items that may be reclassified to
profit or loss – Items not reclassified to profit or loss – Other
Valuation adjustments. Also, where the Group was not
intend and/or is not able to hold the investment for a
sufficient amount of time to recover the cost, the instrument
was written down to its fair value.
As of 1 January 2018, with the entry into force of IFRS 9, no
impairment analysis is performed of equity instruments
recognised under Other comprehensive income . IFRS 9
eliminates the need to carry out the impairment estimate
on this class of equity instruments and the reclassification
to profit and loss on the disposal of these assets, being
recognised at fair value with changes in equity.
g) Other comprehensive income - Items that may be
reclassified to profit or loss and Items not reclassified
to profit or loss - Other recognised income and expense
of investments in subsidiaries, joint ventures and
associates
The changes in other comprehensive income - Entities
accounted for using the equity method were as follows:
Million euros
Balance at beginning of year
Revaluation gains/(losses)
2019
2018
2017
(267)
(222)
(153)
(33)
(65)
(84)
Net amounts transferred to profit or loss
7
20
15
Balance at end of year
(293)
(267)
(222)
Of which:
Zurich Santander Insurance
América, S.L.
(145)
(159)
(145)
30. Shareholders’ equity
The changes in Shareholders' equity are presented in the
consolidated statement of changes in total equity.
Significant information on certain items of Shareholders'
equity and the changes therein in 2019 is set forth below.
31. Issued capital
a) Changes
At 31 December 2016 the Bank’s share capital consisted of
14,582,340,701 shares with a total par value of EUR 7,291
million.
As a result of the acquisition of Banco Popular Español,
S.A.U. described in Note 3, and in order to strengthen and
optimize the bank’s equity structure to provide adequate
coverage of the acquisition, the Group, on 3 July 2017,
reported on the agreement of the executive committee of
Banco Santander , S.A.to increase the capital of the Bank by
EUR 729 million by issuing and putting into circulation
1,458,232,745 new ordinary shares of the same class and
series as the shares currently in circulation and with
preferential subscription rights for the shareholders.
The issue of new shares was carried out at a nominal value
of fifty euro cents (EUR 0.50) plus a premium of EUR 4.35
per share, so the total issue rate of the new shares was EUR
4.85 per share and the total effective amount of the capital
increase (including nominal and premium) of EUR 7,072
million.
625
Table of Contents
Each outstanding share had been granted a preferential
subscription right during the preferential subscription
period that took place from 6 to 20 July 2017, where 10
preferential subscription rights were required to subscribe 1
new share.
On 7 November 2017, a capital increase of EUR 48 million
was made, through which the Santander Dividendo Elección
scrip dividend scheme took place, whereby 95,580,136
shares were issued (0.66% of the share capital).
At 31 December 2017, the Bank’s share capital consisted of
16,136,153,582 shares with a total par value of EUR 8,068
million.
On 7 November 2018, a capital increase of EUR 50 million
was made, through which the Santander Dividendo Elección
scrip dividend scheme took place, whereby 100,420,360
shares were issued (0.62% of the share capital).
At 31 December 2018, the Bank’s share capital consisted of
16,236,573,942 shares with a total par value of EUR 8,118
million.
On 10 September 2019, a capital increase of EUR 191
million was carried out with the issuance of 381,540,640
shares (2.35% of the Bank's share capital). to meet the
takeover bid for 16.69% of the share capital of Banco
Santander México, S.A. (see Note 3.a).
Therefore, the Bank’s new capital consists of EUR 8,309
million at 31 December 2019, represented by
16,618,114,582 shares of EUR 0.50 of nominal value each
one and all of them from a unique class and series.
The Bank’s shares are listed on the Spanish Stock Market
Interconnection System and on the New York, London,
Mexico and Warsaw Stock Exchanges, and all of them have
the same features and rights. Santander shares are listed on
the London Stock Exchange under Crest Depository Interest
(CDI’s), each CDI representing one Bank’s share. They are
also listed on the New York Stock Exchange under American
Depositary Receipts (BDRs), each BDR representing one
share. During 2018 and the beginning of 2019 the number
of markets where the Bank is listed has been reduced; the
Bank's shares has been delisted from Buenos Aires, Milan,
Lisboa and Sao Paulo's markets.
At 31 December 2019, no shareholder of the Bank
individually held more than 3% of its total share capital
(which is the significant threshold generally established
under Spanish regulations for a significant holding in a
listed company to be disclosed). While at 31 December
2019 certain custodians appeared in the register of
shareholders as holding more than 3% of the share capital,
the Bank understands that those shares were held in
custody on behalf of other investors, none of which
exceeded that threshold individually. These custodians were
State Street Bank and Trust Company (14.06%), The Bank of
New York Mellon Corporation (8.12%), Chase Nominees
Limited (6.38%), EC Nominees Limited (3.97%) and BNP
Paribas (3.40%).
Also, as of that date, BlackRock Inc. had communicated a
significant participation in voting rights in the Bank
(5.426%), although it specified that the corresponding
shares were held on behalf of several funds or other
626
2019 Annual Report
investment entities and that none of them exceeded 3%
individually.
Throughout 2019 BlackRock Inc. informed the CNMV of the
movements regarding its voting rights in the Bank: 6
February, increase above 5%, 17 April, decrease below 5%,
9 May, increase above 5% and, 23 October, decrease below
5%.
It should be noted that there may be some overlap in the
holdings declared by the above mentioned custodians and
asset manager.
At 31 December 2019, neither the Bank´s shareholders
registry nor the CNMV's registry showed any shareholder
resident in a tax haven with a shareholding of 1% or higher
of the share capital (which is the other threshold applicable
under Spanish regulations).
b) Other considerations
The ordinary general meeting of shareholders of 7 April
2017 also agreed to delegate to the board of directors the
broadest powers so that, within one year from the date of
the meeting, it can indicate the date and set the conditions
for a capital increase with the issuance of new shares, for an
amount of EUR 500 million. The capital increase will have
no value or effect if, within the period of one year, the board
of directors does not exercise the powers delegated to it.
Likewise, the additional capital authorised by the ordinary
general meeting of shareholders on 7 April 2017 is not
more than EUR 3,645,585,175. The term available to the
Bank’s administrators to execute and carry out capital
increases up to that limit ends on 7 April 2020. The
agreement grants the board the power to totally or partially
exclude the pre-emptive subscription right under the terms
of article 506 of the Capital Companies Law, although this
power is limited to EUR 1,458,234,070.
At 23 March 2018, the ordinary general meeting of
shareholders also agreed to delegate to the board of
directors the broadest power to execute the capital increase
agreement adopted by the shareholders meeting and the
authorization to the Board of directors to increase it.
At 31 December 2019 the shares of the following
companies were listed on official stock markets: Banco
Santander Río, S.A.; Banco Santander México, S.A.,
Institución de Banca Múltiple, Grupo Financiero Santander
México; Banco Santander - Chile; Santander Chile Holding
S.A.; Banco Santander (Brasil) S.A., Santander Bank Polska
S.A. (former Bank Zachodni WBK S.A.) and Santander
Consumer USA Holdings Inc.
At 31 December 2019 the number of Bank shares owned by
third parties and managed by Group management
companies (mainly portfolio, collective investment
undertaking and pension fund managers) or jointly
managed was 40 million shares, which represented 0.24%
of the Bank’s share capital (63 and 52 million shares,
representing 0.39% and 0.32% of the share capital in 2018
and 2017, respectively). In addition, the number of Bank
shares owned by third parties and received as security was
227 million shares (equal to 1.36% of the Bank’s share
capital).
At 31 December 2019 the capital increases in progress at
Group companies and the additional capital authorised by
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
their shareholders at the respective general meetings were
not material at Group level (See Appendix V).
32. Share premium
Share premium includes the amount paid up by the Bank’s
shareholders in capital issues in excess of the par value.
The Spanish Limited Liability Companies Law expressly
permits the use of the share premium account balance to
increase capital at the entities at which it is recognised and
does not establish any specific restrictions as to its use.
The change in the balance of Share premium corresponds to
the capital increases detailed in Note 31.a). The increase in
2017 is the result of the capital increase of EUR 6,343
million approved on 3 July 2017 and the reduction of EUR
48 million is due the capital increases charge to reserve
arising from the Santander Diviendo Elección program.
The decrease produced in 2018 was a consequence of the
decrease of EUR 50 million to cope with the capital increase
due to Santander Dividendo Elección program.
The increased produced in 2019 is a consequence of the
increase of EUR 1,491 million to cope with the capital
increase for the acquisition of Banco Santander México, S.A,
Institución de Banca Múltiple, Grupo Financiero Santander
México shares on September 10,2019.
Also, in 2019, and an amount of EUR 38 million was
transferred from the Share premium account to the Legal
reserve (2018: EUR 10 million; 2017: EUR 154 million) (see
note 33.b.i).
33. Accumulated retained
earnings
a) Definitions
The balance of Equity - Accumulated gains and Other
reserves includes the net amount of the accumulated
results (profits or losses) recognised in previous years
through the consolidated income statement which in the
profit distribution were allocated in equity, the expenses of
own equity instrument issues, the differences between the
amount for which the treasury shares are sold and their
acquisition price, as well as the net amount of the results
accumulated in previous years, generated by the result of
non-current assets held for sale, recognised through the
consolidated income statement.
b) Breakdown
The detail of Accumulated retained earnings and Reserves
of entities accounted for using the equity method is as
follows:
Million euros
Restricted reserves
Legal reserve
Own shares
Revaluation reserve Royal Decree-
Law 7/1996
Reserve for retired capital
Unrestricted reserves
Voluntary reserves*
2019
2018
2017
2,595
2,580
2,880
1,662
1,624
1,614
879
902
1,212
43
11
43
11
43
11
10,664 12,099 11,369
4,603
5,737
6,904
Consolidation reserves attributable
to the Bank
6,061
6,362
4,465
Reserves of subsidiaries
41,357 37,593 36,862
Reserves of entities accounted for
using the equity method
1,166
917
724
55,782 53,189 51,835
*
In accordance with the commercial regulations in force in Spain.
i. Legal reserve
Under the Consolidated Spanish Limited Liability Companies
Law, 10% of net profit for each year must be transferred to
the legal reserve. These transfers must be made until the
balance of this reserve reaches 20% of the share capital.
The legal reserve can be used to increase capital provided
that the remaining reserve balance does not fall below 10%
of the increased share capital amount.
In 2019 the Bank transferred EUR 38 million from the Share
premium account to the Legal reserve (2018: EUR 10
million; 2017: EUR 154 million).
Consequently, once again, after the capital increases
described in Note 31 had been carried out, the balance of
the Legal reserve reached 20% of the share capital, and at
31 December 2019 the Legal reserve was of the stipulated
level.
ii. Reserve for treasury shares
Pursuant to the Consolidated Spanish Limited Liability
Companies Law, a restricted reserve has been recognised for
an amount equal to the carrying amount of the Bank shares
owned by subsidiaries. The balance of this reserve will
become unrestricted when the circumstances that made it
necessary to record it cease to exist. Additionally, this
reserve covers the outstanding balance of loans granted by
the Group secured by Bank shares and the amount
equivalent to loans granted by Group companies to third
parties for the acquisition of treasury shares plus the own
treasury shares amount.
iii. Revaluation reserve Royal Decree Law 7/1996, of 7
June
The balance of Revaluation reserve Royal Decree-Law
7/1996 can be used, free of tax, to increase share capital.
From 1 January 2007, the balance of this account can be
taken to unrestricted reserves, provided that the monetary
627
Table of Contents
surplus has been realised. The surplus will be deemed to
have been realised in respect of the portion on which
depreciation has been taken for accounting purposes or
when the revalued assets have been transferred or
derecognised.
If the balance of this reserve were used in a manner other
than that provided for in Royal Decree-Law 7/1996, of 7
June, it would be subject to taxation.
iv. Reserves of subsidiaries
The detail, by company, of Reserves of subsidiaries, based
on the companies’ contribution to the Group (considering
the effect of consolidation adjustments) is as follows:
Million euros
Banco Santander (Brasil) S.A.
(Consolidated Group)
Santander UK Group
2019
2018
2017
12,400 10,755
9,874
8,079
8,207
7,724
Group Santander Holdings USA
4,528
4,260
4,150
Santander Consumer Finance Group
4,012
2,841
2,465
Banco Santander México, S.A.,
Institución de Banca Múltiple, Grupo
Financiero Santander México
3,810
3,436
3,229
Banco Santander - Chile
3,116
2,963
2,764
Banco Santander Totta, S.A.
(Consolidated Group)
2,823
2,729
2,821
Santander Bank Polska S.A.
1,738
1,387
1,093
Santander Seguros y Reaseguros,
Compañía Aseguradora, S.A.
Banco Santander (Suisse) SA.
Santander Investment, S.A.
823
348
146
714
369
208
638
381
202
Banco Santander Río S.A.
(197)
(82) 1,639
Other companies and consolidation
adjustments*
(269)
(194)
(118)
41,357 37,593 36,862
Of which, restricted
3,193
2,964
2,777
*
Includes the charge relating to cumulative exchange differences in the
transition to International Financial Reporting Standards.
34. Other equity instruments and
own shares
a) Equity instruments issued not capital and other
equity instruments
Other equity instruments includes the equity component of
compound financial instruments, the increase in equity due
to personnel remuneration, and other items not recognised
in other “Shareholders’ equity” items.
On 8 September 2017, Banco Santander issued contingent
redeemable perpetual bonds (the “Fidelity Bonds”)
amounting to EUR 981 million nominal value -EUR 686
million fair value. On 31 December 2019 amounted to EUR
598 million (EUR 565 million on 31 December 2018).
Additionally, at 31 December 2019 the Group had other
equity instruments amounting to EUR 146 million.
628
2019 Annual Report
b) Own shares
Shareholders’ equity - Own shares includes the amount of
own equity instruments held by all the Group entities.
Transactions involving own equity instruments, including
their issuance and cancellation, are recognised directly in
equity, and no profit or loss may be recognised on these
transactions. The costs of any transaction involving own
equity instruments are deducted directly from equity, net of
any related tax effect.
The Bank’s shares owned by the consolidated companies
accounted for 0.051% of issued share capital at 31
December 2019 (31 December 2018: 0.075%; 31 December
2017: 0.024%).
The average purchase price of the Bank’s shares in 2019
was EUR 4.09 per share and the average selling price was
EUR 4.11 per share.
The effect on equity, net of tax, arising from the purchase
and sale of Bank shares is of EUR 6 million of losses in 2019
(2018: EUR 0 million; 2017: EUR 26 million of profit).
35. Memorandum items
Memorandum items relates to balances representing rights,
obligations and other legal situations that in the future may
have an impact on net assets, as well as any other balances
needed to reflect all transactions performed by the
consolidated entities although they may not impinge on
their net assets.
Contingent liabilities includes all transactions under which
an entity guarantees the obligations of a third party and
which result from financial guarantees granted by the entity
or from other types of contract. The detail is as follows:
2019
2018
2017
Loans commitment granted
241,179 218,083 207,671
Of which doubtful
352
298
81
Financial guarantees granted
13,650
11,723
14,499
Of which doubtful
154
181
254
Financial guarantees
13,619
11,557
14,287
Credit derivatives sold
31
166
212
Other commitments granted
68,895
74,389
64,917
Of which doubtful
747
983
992
Technical guarantees
33,890
35,154
30,273
Other
35,005
39,235
34,644
The breakdown as at 31 December 2019 of the exposures
and the provision fund (see note 25) out of balance sheet by
impairment stage under IFRS 9 is EUR 316,116 million and
EUR 417 million (EUR 297,409 million and EUR 382 million
in 2018) in stage 1, EUR 6,355 million and EUR 145 million
(EUR 5,324 million and EUR 132 million in 2018) in stage 2
and EUR 1,253 million and EUR 177 million (EUR 1,462
million and EUR 265 million in 2018) in stage 3,
respectively.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Additionally, the Group had provisions for guarantees and
commitments granted for an amount of EUR 617 million
and a doubtful exposure amounting to EUR 1,327 million,
as at 31 December 2017.
A significant portion of these guarantees will expire without
any payment obligation materialising for the consolidated
entities and, therefore, the aggregate balance of these
commitments cannot be considered as an actual future
need for financing or liquidity to be provided by the Group
to third parties.
Income from guarantee instruments is recognised under
Fee and commission income in the consolidated income
statements and is calculated by applying the rate
established in the related contract to the nominal amount of
the guarantee.
i. Loan commitments granted
Loan commitments granted: firm commitments of grating
of credit under predefined terms and conditions, except for
those that comply with the definition of derivatives as these
can be settled in cash or through the delivery of issuance of
another financial instrument. They include stand-by credit
lines and long-term deposits.
ii. Financial guarantees granted
Financial guarantees includes, inter alia, financial guarantee
contracts such as financial bank guarantees, credit
derivatives sold, and risks arising from derivatives arranged
for the account of third parties.
iii. Other commitments granted
Other contingent liabilities include all commitments that
could give rise to the recognition of financial assets not
included in the above items, such as technical guarantees
and guarantees for the import and export of goods and
services.
b) Memorandum items
i. Off-balance-sheet funds under management
The detail of off-balance-sheet funds managed by the
Group and by joint ventures is as follows:
Million euros
2019
2018
2017
Investment funds
142,988
127,564
135,749
Pension funds
11,843
11,160
11,566
Assets under management
22,079
19,131
19,259
176,910 157,855 166,574
ii. Non-managed marketed funds
At 31 December 2019 there are non-managed marketed
funds totalling EUR 49,490 million (31 December 2018:
EUR 42,211 million; 31 December 2017: EUR 41,398
million).
c) Third-party securities held in custody
At 31 December 2019 the Group held in custody debt
securities and equity instruments totalling EUR 229,381
million (31 December 2018: EUR 940,650 million; 31
December 2017 EUR 997,061 million) entrusted to it by
third parties. The decrease in 2019 is due to the agreement
to sell the deposit and custody business to Crédit Agricole
S.A. (see note 3).
36. Hedging derivatives
The Group, within its financial risk management strategy,
and in order to reduce asymmetries in the accounting
treatment of its operations, enters into hedging derivatives
on interest, exchange rate, credit risk or variation of stock
prices, depending on the nature of the risk covered.
Based on its objective, the Group classifies its hedges in the
following categories:
• Cash flow hedges: cover the exposure to the variation of
the cash flows associated with an asset, liability or a
highly probable forecast transaction. This cover the
variable-rate issues in foreign currencies, fixed-rate
issues in non-local currency, variable-rate interbank
financing and variable-rate assets (bonds, commercial
loans, mortgages, etc.).
• Fair value hedges: cover the exposure to the variation in
the fair value of assets or liabilities, attributable to an
identified and hedged risk. This covers the interest risk of
assets or liabilities (bonds, loans, bills, issues, deposits,
etc.) with coupons or fixed interest rates, interests in
entities, issues in foreign currencies and deposits or other
fixed rate liabilities.
• Hedging of net investments abroad: cover the exchange
rate risk of the investments in subsidiaries domiciled in a
country with a different currency from the functional one
of the Group.
The following tables contains details of the hedging
instruments used in the Group's hedging strategies as of 31
December 2019 and 31 December 2018:
629
Table of Contents
Million euros
Fair value hedges
Interest rate risk
Equity swap
Future interest rate
Interest rate swap
Call money swap
Currency swap
Swaption
Collar
Floor
Exchange rate risk
Curency swap
Fx forward
Interest rate and exchange rate risk
Interest rate swap
Call money swap
Currency swap
Inflation risk
Call money swap
Credit risk
CDS
Cash flow hedges
Interest rate risk
Futures
Future interest rate
Interest rate swap
Call money swap
Currency swap
Floor
Exchange rate risk
FX forward
Future interest rate
Interest rate swap
Currency swap
Deposits borrowed
Interest rate and exchange rate risk
Interest rate swap
Currency swap
Call money swap
Inflation risk
Fx forward
Currency swap
Call money swap
Equity risk
Option
Other risk
Future FX and c/v term RF
Hedges of net investments in foreign operations
Exchange rate risk
FX forward
630
2019 Annual Report
2019
Carrying amount
Notional Value
Assets
Liabilities
202,548
183,586
78
12,325
117,439
44,791
8,728
50
15
160
10,006
284
9,722
8,698
869
277
7,552
—
—
258
258
3,570
3,032
—
—
2,651
91
272
9
1
8
73
24
49
465
16
—
449
—
—
—
—
3,649
3,160
1
32
2,297
472
349
9
—
—
55
1
54
428
1
4
423
—
—
6
6
135,439
3,398
1,618
55,810
21,655
771
21,492
6,164
2,345
3,383
31,803
10,595
9,290
888
11,030
—
38,938
7,347
27,044
4,547
8,830
2,230
6,511
89
58
58
—
—
24,477
24,477
24,477
277
33
—
99
30
98
17
463
237
—
12
214
—
2,625
133
2,492
—
33
5
28
—
—
—
—
—
248
248
248
261
147
—
97
12
5
—
660
216
—
11
433
—
640
5
622
13
53
4
42
7
4
4
—
—
781
781
781
Changes in fair
value used for
calculating hedge
ineffectiveness
(1,522)
(1,346)
Balance sheet line ítems
1 Hedging derivatives
(476) Hedging derivatives
(429) Hedging derivatives
(295) Hedging derivatives
(126) Hedging derivatives
— Hedging derivatives
— Hedging derivatives
(21) Hedging derivatives
(60)
— Hedging derivatives
(60) Hedging derivatives
(116)
(45) Hedging derivatives
(4) Hedging derivatives
(67) Hedging derivatives
5
5 Hedging derivatives
(5)
(5) Hedging derivatives
(1,540)
(267)
(93) Hedging derivatives
(64) Hedging derivatives
(105) Hedging derivatives
8 Hedging derivatives
(17) Hedging derivatives
4 Hedging derivatives
(405)
(145) Hedging derivatives
113 Hedging derivatives
(6) Hedging derivatives
(365) Hedging derivatives
(2) Deposits
(826)
201 Hedging derivatives
(1,020) Hedging derivatives
(7) Hedging derivatives
(44)
4 Hedging derivatives
(44) Hedging derivatives
(4) Hedging derivatives
2
2 Hedging derivatives
—
— Hedging derivatives
—
—
— Hedging derivatives
362,464
7,216
6,048
(3,062)
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
Fair value hedges
Interest rate risk
Equity swap
Future interest rate
Interest rate swap
Call money swap
Currency swap
Inflation swap
Swaption
Collar
Floor
Exchange rate risk
Fx forward
Interest rate and exchange rate risk
Interest rate swap
Call money swap
Currency swap
Inflation risk
Call money swap
Currency swap
Credit risk
CDS
Cash flow hedges
Interest rate risk
Fx forward
Future interest rate
Interest rate swap
Currency swap
Floor
Exchange rate risk
Future FX and c/v term FV
FX forward
Future interest rate
Interest rate swap
Currency swap
Floor
Deposits borrowed
Interest rate and exchange rate risk
Interest rate swap
Currency swap
Inflation risk
FX forward
Currency swap
Equity risk
Option
Other risk
Future FX and c/v term RF
Hedges of net investments in foreign operations
Exchange rate risk
FX forward
2018
Carrying amount
Notional Value
Assets
Liabilities
178,719
163,069
109
7,702
129,045
19,579
4,957
—
51
15
1,611
3,191
3,191
12,237
3,022
20
9,195
168
64
104
54
54
118,400
39,165
985
127
33,956
2,350
1,747
38,457
4,955
3,283
4,946
1,055
23,904
314
—
34,383
12,572
21,811
6,318
414
5,904
77
77
—
—
21,688
21,688
21,688
3,451
2,642
—
—
2,339
170
121
—
6
1
5
17
17
792
143
—
649
—
—
—
—
—
4,865
307
—
—
240
57
10
971
—
186
—
10
775
—
—
3,542
20
3,522
45
—
45
—
—
—
—
291
291
291
318,807
8,607
5,114
4,620
2
—
4,172
250
45
—
6
—
145
(3)
(3)
493
20
—
473
4
3
1
—
—
976
250
22
—
202
26
—
568
—
15
—
5
548
—
—
124
97
27
30
9
21
4
4
—
—
273
273
273
6,363
Changes in fair
value used for
calculating hedge
ineffectiveness
96
Balance sheet line ítems
16
— Hedging derivatives
(126) Hedging derivatives
281 Hedging derivatives
(32) Hedging derivatives
(17) Hedging derivatives
9 Hedging derivatives
— Hedging derivatives
— Hedging derivatives
(99) Hedging derivatives
43
43 Hedging derivatives
42
(15) Hedging derivatives
— Hedging derivatives
57 Hedging derivatives
(5)
(3) Hedging derivatives
(2) Hedging derivatives
—
— Hedging derivatives
(28)
182
(22) Hedging derivatives
29 Hedging derivatives
159 Hedging derivatives
11 Hedging derivatives
5 Hedging derivatives
(878)
(697) Hedging derivatives
(36) Hedging derivatives
(12) Hedging derivatives
8 Hedging derivatives
(142) Hedging derivatives
— Hedging derivatives
1 Deposits
665
(7) Hedging derivatives
672 Hedging derivatives
11
(1) Hedging derivatives
12 Hedging derivatives
(8)
(8) Hedging derivatives
—
— Hedging derivatives
(1)
(1)
(1) Hedging derivatives
67
631
Table of Contents
Considering the main contributions of hedging within the
Group, the main types of hedgings that are being carried are
in Santander UK Group, Banco Santander, S.A., Consumer
Group, Banco Santander Mexico and Banco Santander Brazil
that are detailed below.
On the other hand, the interest and exchange rate risk of
loans granted to corporate clients at a fixed rate is generally
covered. These coverages, are carried out through Interest
Rate Swaps, Cross Currency Swaps and Exchange Rate
Derivatives (Forex Swaps and Forex Forward).
Santander UK Group enters into derivatives to provide
customers with risk management solutions and to manage
and hedge the Group's own risks.
Within fair value hedges, Santander UK Group has portfolios
of assets and liabilities at fixed rate that are exposed to
changes in fair value due to changes in market interest
rates. These positions are managed by contracting mainly
Interest Rate Swaps. Effectiveness is assessed by comparing
the changes in the fair value of these portfolios generated
by the hedged risk with the changes in the fair value of the
derivatives contracted.
Santander UK Group also has access to international
markets to obtain financing by issuing fixed-rate debt in its
functional currency and other currencies. As such, they are
exposed to changes in interest rates and exchange rates,
mainly in EUR and USD. This risk is mitigated with Cross
Currency Swaps and Interest Rate Swaps in which they pay a
fixed rate and receive a variable rate. Effectiveness is
evaluated using linear regression techniques to compare
changes in the fair value of the debt at interest and
exchange rates with changes in the fair value of Interest
Rate Swaps or Cross Currency Swaps.
Within the cash flow hedges, Santander UK Group has
portfolios of assets and liabilities at variable rates, normally
at SONIA or LIBOR. To mitigate this risk of variability in
market rates, it contracts Interest Rate Swaps.
As Santander UK Group obtains financing in the
international markets, it assumes a significant exposure to
currency risk mainly USD and EUR. To manage this
exchange rate risk, Spot, Forward and Cross Currency Swap
are contracted to match the cash flow profile and the
maturity of the estimated interest and principal repayments
of the hedged item.
Effectiveness is assessed by comparing changes in the fair
value of the derivatives with changes in the fair value of the
hedged item attributable to the hedged risk by applying a
hypothetical derivative method using linear regression
techniques.
In addition, within the hedges that cover equity risk,
Santander UK Group offers employees the opportunity to
purchase shares of the Bank at a discount under the
Sharesave scheme, exposing the Bank to share price risk. As
such, options are purchased allowing them to purchase
shares at a pre-set price.
Banco Santander, S.A. covers the risks of its balance sheet in
a variety of ways. On the one hand, documented as fair
value hedges, it covers the interest rate, foreign currency
and credit risk of fixed-income portfolios at a fixed rate
(REPOs are included in this category). Resulting, in an
exposure to changes in their fair value due to variations in
market conditions based on the various risks hedged, which
has an impact on the Bank's income statement. To mitigate
these risks, the Bank contracts derivatives, mainly Interest
rate Swaps, Cap&Floors, Forex Forward and Credit Default
Swaps.
632
2019 Annual Report
In addition, the Bank manages the interest and exchange
risk of debt issues in their various categories (issuing
covered bonds, perpetual, subordinated and senior bond)
and in different currencies, denominated at fixed rates, and
therefore subject to changes in their fair value. These issues
are covered through Interest Rate Swaps, Cross Currency
Swaps or a combination of both by applying differentiated
fair value hedging strategies for interest rate risk and cash
flow hedging strategies to cover foreign exchange risk.
The Bank's methodology for measuring the effectiveness of
this type of coverage is based on comparing the markets
value of the hedged items (based on the objective risk of
the hedge) and of the hedging instruments in order to
analyse whether the changes in the market value of the
hedged items are offset by the market value of the hedging
instruments, thereby mitigating the hedged risk.
Prospectively, the same analysis is performed, measuring
the theoretical market values in the event of parallel
variations in the market curves of a positive basis point.
Regarding cash flow hedges, the objective is to hedge the
cash flow exposure to changes in interest rates and
exchange rates.
For retrospective purposes, all cash flows generated by the
structure (hedged item and hedging instrument) are
compared to measure effectiveness. The objective is to
obtain a synthetic hedge resulting from the application of
the hedging instrument. The total discounted cash flows
obtained are compared with the target set for the
calculation of potential ineffectiveness.
For prospective purposes, the cash flows of the structure
are calculated by shifting the curve by one basis point. As in
the retrospective test, the calculation of the flows will take
into account the time factor. The measurement of
effectiveness is identical to that of the retrospective test,
using the new flows based on the new curve-shift scenario
applied to both the hedged item and the hedging
instrument.
Consumer Group entities mainly have loans portfolios at
fixed interest rates and are therefore, exposed to changes in
fair value due to movements in market interest rates. The
entities manage this risk by contracting Interest Rate Swaps
in which they pay a fixed rate and receive a variable rate.
Interest rate risk is the only one hedged and, therefore,
other risks, such as credit risk, are managed but not hedged
by the entities. The interest rate risk component is
determined as the change in fair value of fixed rate loans
arising solely from changes in a reference rate. This strategy
is designated as a fair value hedge and its effectiveness is
assessed by comparing changes in the fair value of loans
attributable to changes in reference interest rates with
changes in the fair value of interest rate swaps.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
In addition, in order to access international markets with the
aim of obtaining sources of financing, some Consumer
Group´s entities issue fixed rate debt in their own currency
and in other currencies that differ from their functional
currency. Therefore, they are exposed to changes in both
interest rates and exchange rates, which they mitigate with
derivatives (Interest Rate Swaps, Fx Forward and Cross
Currency Swaps) in which they receive a fixed interest rate
and pay a variable interest rate, implemented with a fair
value hedge.
The cash flow hedges of the Santander Group´s entities
hedge the foreign currency risk of loans and financing.
Finally, it has hedges of net investments abroad to hedge
the foreign exchange risk of the shareholding in NOK and
CNY currencies.
Banco Santander Mexico has mainly long-term loan
portfolios at fixed interest rates, portfolios of short-term
deposits in local currency, portfolios of Mexican
Government bonds and corporate bonds in currencies other
than the local currency and are therefore exposed to
changes in fair value due to movements in market interest
rates, as well as these latter portfolios also to variations in
exchange rates. The entity manages this risk by contracting
derivatives (Interest Rate Swaps or Cross Currency Swaps) in
which they pay a fixed rate and receive a variable rate. The
interest rate is hedged and the exchange risk, if applicable,
too. Thus, other risks, such as credit risk, are managed but
not hedged by the entities.
The interest rate risk component is determined as the
change in the fair value of fixed rate loans arising solely
from changes in a reference rate. This strategy is designated
as a fair value hedge and its effectiveness is assessed by
comparing changes in the fair value of loans attributable to
changes in benchmark interest rates with changes in the fair
value of interest rate swaps.
Regarding cash flow hedges, Banco Santander Mexico has a
portfolio of unsecured bonds issued at a variable rate in its
local currency, which it manages with an Interest Rate Swap
in which it receives a variable rate and pays a fixed rate. On
the other hand, it also has different items in currencies other
than the local currency: unsecured floating rate bonds,
commercial bank loans at variable rates, fixed rate issues,
Mexican and Brazilian government bonds at fixed rates and
loans received in USD from other banks. In all these
portfolios, the Bank is exposed to exchange rate variations,
which it mitigates by contracting Cross Currency Swaps or
FX Forward.
Banco Santander Brazil has, on the one hand, fixed-rate
government bond portfolios and, therefore, they are
exposed to changes in fair value due to movements in
market interest rates. The entity manages this risk by
contracting derivatives (Interest Rate Swaps or Futures) in
which they pay a fixed rate and receive a variable rate. The
interest rate risk is the only one hedged and consequently
other risks, such as credit risk, are managed but not hedged
by the entity. This strategy is designated as a fair value
hedge and its effectiveness is evaluated by comparing by
linear regression the changes in the fair value of the bonds
with the changes in the fair value of the derivatives. On the
other hand, as part of the fair value hedge strategy, it has
corporate loans in different currencies than the local one
and is therefore exposed to changes in fair value due to
exchange rates. This risk is mitigated by contracting Cross
Currency Swaps. Its effectiveness is evaluated by comparing
changes in the fair value of loans attributable to changes
subject of hedge with changes in the fair value of
derivatives.
Finally, it also has a portfolio of long-term Corporate Bonds
with inflation-indexed rates. With reference to what it has
been mentioned before, they are exposed to variations in
market value due to variations in market inflation rates. In
order to achieve its mitigation, they contract futures in
which they pay the indexed inflation and receive variable
interest rates.
Its effectiveness is assessed by comparing through lineal
regression the changes in the fair value of the bonds to the
changes in fair value of the derivatives.
In the hedge of cash flows, Banco Santander Brazil has
portfolios of loans and government bonds in different
currency than the entity's functional currency and,
therefore, it is subject to the risk of changes in currency
rates. This exposure will be mitigated by hiring cross
currency swaps and futures. Its effectiveness is assessed by
comparing changes in fair value of loans and bonds, caused
by the hedge risk, to changes in fair value of such
derivatives.
Finally, they have a portfolio of variable rate government
bonds, so they are exposed to changes in the value due to
changes in interest rates. In order to mitigate these changes,
a future is hired in which a variable rate is paid and a fixed
rate is received. Its effectiveness is assessed by comparing
changes in the fair value loans and bonds to changes in the
fair value of the futures.
In any case, in the event of ineffectiveness in fair value or
cash flow hedges, the entity mainly considers the following
causes:
• Possible economic events affecting the entity (e.g.:
default),
• For movements and possible market-related differences
in the collateralized and non-collateralized curves used in
the valuation of derivatives and hedged items,
respectively.
• Possible differences between the nominal value,
settlement/price dates and credit risk of the hedged item
and the hedging element.
633
Table of Contents
Regarding net foreign investments hedges, basically, they
are allocated in Banco Santander, S.A. and Santander
Consumer Finance Group. The Group assumes, as a priority
objective in risk management, to minimize – up to a
determined limit set up by the responsible for the financial
management of the Group- the impact on the calculation of
the capital ratio of their permanent investments included
within the consolidation perimeter of the Group, and whose
shares are legally named in a different currency than the
holding has. For this purpose, financial instruments
(generally derivatives) on exchange rates are hired, that
allow mitigating the impact on the capital ratio of changes
in the forward exchange rate. The Group hedges the risk,
mainly, for the following currencies: BRL, CLP, MXN, CAD,
COP, CNY, GBP, CHF, NOK, USD, SAR, MAD and PLN.
The instruments used to hedge the risk of these
investments are Forex Swaps, Forex Forward and buys/sells
of spot currencies.
In the case of this type of hedge, the ineffectiveness
scenarios are considered to be of low probability, given that
the hedging instrument is designated considering the
determined position and the spot rate at which it is found.
The following table sets out the maturity profile of the
hedging instruments used in the Group's non-dynamic
hedging strategies:
634
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
Fair value hedges
Interest rate risk
Equity swap
Future interest rate
Interest rate swap
Call money swap
Currency swap
Swaption
Collar
Floor
Exchange rate risk
Currency swap
Fx forward
Interest rate and exchange rate risk
Interest rate swap
Call money swap
Currency swap
Credit risk
CDS
Cash flow hedges
Interest rate risk
Futures
Future interest rate
Interest rate swap
Call money swap
Currency swap
Floor
Exchange rate risk
FX forward
Future interest rate
Interest rate swap
Currency swap
Interest rate and exchange rate risk
Interest rate swap
Currency swap
Call money swap
Inflation risk
FX forward
Currency swap
Call money swap
Equity risk
Option
Other risk
Future FX and c/v term RF
Hedges of net investments in foreign
operations
Exchange rate risk
FX forward
Up to one
month
One to three
months
Three months to
one year
One year to five
years
More than five
years
31 December 2019
5,816
5,468
—
16
734
4,674
44
—
—
—
333
4
329
15
—
—
15
—
—
16,506
13,023
12,304
—
460
—
259
—
2,300
2,173
—
—
127
1,086
—
1,086
—
97
—
97
—
—
—
—
14,591
9,055
11
—
3,532
5,318
194
—
—
—
4,090
—
4,090
1,432
—
—
1,432
14
14
5,912
2,179
385
—
864
398
354
178
2,572
1,746
—
—
826
308
—
308
—
853
117
736
—
—
—
—
—
2,735
2,735
2,735
4,191
4,191
4,191
25,057
24,694
43,236
37,627
25
606
24,382
12,085
529
—
—
—
5,172
90
5,082
437
—
—
437
—
—
38,678
13,011
3,196
—
7,441
1,253
231
890
90,707
86,119
42
6,066
62,474
14,653
2,819
50
15
—
411
190
221
3,933
869
21
3,043
244
244
62,119
26,332
5,770
771
12,585
3,925
966
2,315
14,324
11,753
3,404
9,290
—
1,630
9,221
1,917
5,553
1,751
2,114
1,205
909
—
8
8
—
—
14,192
14,192
14,192
96,106
3,272
—
888
7,593
20,782
2,880
15,106
2,796
3,204
908
2,207
89
48
48
—
—
3,359
3,359
3,359
48,198
45,317
—
5,637
26,317
8,061
5,142
—
—
160
—
—
—
2,881
—
256
2,625
—
—
12,224
1,265
—
—
142
588
535
—
854
—
—
—
854
7,541
2,550
4,991
—
2,562
—
2,562
—
2
2
—
—
—
—
—
Total
202,548
183,586
78
12,325
117,439
44,791
8,728
50
15
160
10,006
284
9,722
8,698
869
277
7,552
258
258
135,439
55,810
21,655
771
21,492
6,164
2,345
3,383
31,803
10,595
9,290
888
11,030
38,938
7,347
27,044
4,547
8,830
2,230
6,511
89
58
58
—
—
24,477
24,477
24,477
156,185
60,422
362,464
635
Table of Contents
Million euros
Fair value hedges:
Interest rate risk
Equity swap
Future interest rate
Interest rate swap
Call money swap
Currency swap
Swaption
Collar
Floor
Exchange rate risk
Fx forward
Interest rate and exchange rate risk
Interest rate swap
Call money swap
Currency swap
Inflation risk
Call money swap
Currency swap
Credit risk
CDS
Cash flow hedges
Interest rate risk
Fx forward
Future interest rate
Interest rate swap
Currency swap
Floor
Exchange rate risk
Future FX and c/v term FV
FX forward
Future interest rate
Interest rate swap
Currency swap
Floor
Interest rate and exchange rate risk
Interest rate swap
Currency swap
Inflation risk
FX forward
Currency swap
Equity risk
Option
Other risk
Future FX and c/v term RF
Hedges of net investments in foreign
operations
Exchange rate risk
FX forward
636
2019 Annual Report
Up to one
month
One to three
months
Three months to
one year
One year to five
years
More than five
years
31 December 2018
9,377
8,436
—
668
7,672
96
—
—
—
—
17
17
924
445
—
479
—
—
—
—
—
18,684
2,079
49
2
2,028
—
—
16,166
4,955
1,423
4,946
—
4,842
—
—
—
—
439
—
439
—
—
—
—
555
555
555
17,989
12,519
27
2,012
10,213
267
—
—
—
—
1,855
1,855
3,615
1,462
—
2,153
—
—
—
—
—
6,994
2,984
377
—
2,161
446
—
3,478
—
—
—
—
3,478
—
8
8
—
524
121
403
—
—
—
—
777
777
777
28,616
25,760
23,773
21,987
46
981
18,423
1,823
714
—
—
—
1,147
1,147
639
35
—
604
—
—
—
—
—
16,954
7,530
559
—
5,957
839
175
5,896
—
47
—
—
5,535
314
2,921
898
2,023
566
156
410
41
41
—
—
11,067
11,067
11,067
51,794
78,541
73,817
36
2,650
60,330
6,967
2,368
51
—
1,415
172
172
4,503
710
—
3,793
—
—
—
49
49
62,947
26,020
—
125
23,593
730
1.572
11,984
—
1,813
—
1,055
9,116
—
21,930
8,456
13,474
2,977
137
2,840
36
36
—
—
9,289
9,289
9,289
49,039
46,310
—
1,391
32,407
10,426
1,875
—
15
196
—
—
2,556
370
20
2,166
168
64
104
5
5
Total
178,719
163,069
109
7,702
129,045
19,579
4,957
51
15
1,611
3,191
3,191
12,237
3,022
20
9,195
168
64
104
54
54
12,821
552
118,400
39,165
—
—
217
335
—
933
—
—
—
—
933
—
9,524
3,210
6,314
1,812
—
1,812
—
—
—
—
—
—
—
985
127
33,956
2,350
1,747
38,457
4,955
3,283
4,946
1,055
23,904
314
34,383
12,572
21,811
6,318
414
5,904
77
77
—
—
21,688
21,688
21,688
150,777
61,860
318,807
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Additionally, the profile information of maturities and the
price/average rate for the most representative geographies
is shown:
Santander UK Group
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Average fixed interest rate (%) EUR
Average fixed interest rate (%) USD
Interest rate and foreign exchange rate risk
Exchange rate instruments
Nominal
Average GBP/EUR exchange rate
Average GBP/USD exchange rate
Average fixed interest rate (%) EUR
Average fixed interest rate (%) USD
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Foreign exchange risk
Exchange rate instruments
Nominal
Average GBP/JPY exchange rate
Average GBP/EUR exchange rate
Average GBP/USD exchange rate
Interest rate and foreign exchange rate risk
Exchange rate instruments
Nominal
Average GBP/EUR exchange rate
Average GBP/USD exchange rate
Average fixed interest rate (%) GBP
31 December 2019
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
5,118
0.770
(0.410)
—
—
—
—
—
—
—
—
6,822
0.900
0.290
1.540
887
—
1.511
—
2.380
32,210
51,307
15,397
110,854
0.880
2.210
1.990
—
—
—
—
—
1.330
1.360
2.690
394
1.178
—
3.520
—
3.000
2.360
4.560
738
1.160
—
2.120
—
2,019
398
0.760
1,253
0.820
5,490
1.460
588
0.400
7,729
1,395
2,491
4,417
7,019
—
—
1.286
954
1.274
—
2.490
145.928
143.086
140.815
1.144
1.252
—
—
—
—
1.117
1.293
7,626
1.169
1.536
2.160
1.153
1.299
15,089
1.311
1.581
2.870
15,322
30,960
—
—
—
—
7,291
1.209
1.450
2.960
637
31 December 2018
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
16,333
44,166
17,498
94,288
6,888
0.633
(0.223)
1.513
877
—
1.580
—
3.615
9,403
0.788
0.670
1.314
2,894
—
1.332
—
2.500
1.057
0.911
1.337
—
—
—
—
—
1.586
1.085
2.684
1,331
1.183
1.511
3.888
2.375
—
—
1,917
0.726
2,225
0.733
3,466
1.334
4,378
2,853
3,310
7,132
—
—
1.304
147.215
146.372
145.319
—
1.307
1.280
1.310
1.135
1.305
2.849
1.261
2.179
585
1.168
—
3.923
7.950
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,859
1.252
1.633
2.340
21,288
1.271
1.545
2.660
9,495
1.217
1.511
2.900
5,687
7,608
17,673
33,642
Table of Contents
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Average fixed interest rate (%) USD
Average fixed interest rate (%) EUR
Interest rate and foreign exchange rate risk
Exchange rate instruments
Nominal
Average GBP/EUR exchange rate
Average GBP/USD exchange rate
Average fixed interest rate (%) EUR
Average fixed interest rate (%) USD
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Foreign exchange risk
Exchange rate instruments
Nominal
Average GBP/JPY exchange rate
Average GBP/EUR exchange rate
Average GBP/USD exchange rate
Interest rate and foreign exchange rate
risk
Exchange and interest rate instruments
Nominal
Average GBP/EUR exchange rate
Average GBP/USD exchange rate
Average fixed interest rate (%) GBP
638
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2019
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
Banco Santander, S.A.
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Average fixed interest rate (%) EUR
Average fixed interest rate (%) CHF
Average fixed interest rate (%) JPY
Average fixed interest rate (%) USD
Foreign exchange risk
Exchange rate instruments
Nominal
Average fixed interest rate (%) GBP/EUR
Average fixed interest rate (%) USD/EUR
8
—
5.30
—
—
—
211
—
—
106
—
2.41
—
—
—
3,903
0.86
1.12
Average fixed interest rate (%) USDCLP
747.72
747.90
Average CNY/EUR exchange rate
Average SAR/EUR exchange rate
Interest rate and foreign exchange rate risk
Exchange rate instruments
Nominal
Average fixed interest rate (%) AUD/EUR
Average fixed interest rate (%) CZK/EUR
Average fixed interest rate (%) EUR/COP
Average fixed interest rate (%) RON/EUR
Average fixed interest rate (%) HKD/EUR
Average fixed interest rate (%) JPY/EUR
Average fixed interest rate (%) NOK/EUR
Average fixed interest rate (%) CHF/EUR
—
4.16
14
—
—
—
—
—
—
—
—
Average fixed interest rate (%) USD/COP
7.54
7.91
4.18
289
—
—
—
—
—
—
—
—
—
—
—
1.1711
Average AUD/EUR exchange rate
Average CZK/EUR exchange rate
Average EUR/GBP exchange rate
Average EUR/COP exchange rate
Average HKD/EUR exchange rate
Average JPY/EUR exchange rate
Average MXN/EUR exchange rate
Average NOK/EUR exchange rate
Average RON/EUR exchange rate
Average CHF/EUR exchange rate
Average USD/COP exchange rate
Average USD/MXN exchange rate
Credit Risk
Credit risk instruments
Nominal
Cash flow hedges
Interest rate and foreign exchange rate risk
Interest rate and foreign exchange rate
instruments
Nominal
Interest rate risk
Bond Forward instruments
Nominal
—
—
—
—
—
—
—
—
—
—
0.0003
—
—
—
—
—
—
—
—
—
—
0.0003
8.7185
130.4700
—
—
—
—
0.0003
—
1,406
—
3.20
—
—
2.05
4,777
0.87
1.12
746.70
8.01
—
346
—
—
6.16
—
2.52
0.54
—
—
5.67
—
—
—
16,707
10,219
28,446
8,891
4,197
1.43
0.79
0.80
0.46
3.12
—
—
—
—
—
—
2,599
4
0.86
—
4.85
2.58
0.66
—
—
7.62
1.4989
25.407
—
—
8.782
132.4608
14.696
—
4.7271
1.0924
0.0003
0.0520
6.82
2.58
0.40
—
3.93
—
—
—
—
—
—
949
4.66
—
—
—
—
1.28
3.61
1.24
7.22
1.5080
26.030
—
—
—
125.883
—
9.606
—
1.1053
0.0003
—
—
13
—
244
—
257
—
11,626
—
—
353
4,410
207
4,970
1,792
5,443
—
18,861
639
Table of Contents
Hedges of net investments in foreign operations
Exchange rate risk
Exchange rate instruments
Nominal
Average BRL/EUR exchange rate
Average CLP/EUR exchange rate
Average COP/EUR exchange rate
Average GBP/EUR exchange rate
Average MAD/EUR exchange rate
Average MXN/EUR exchange rate
Average PLN/EUR exchange rate
2,592
4.59
822.13
—
0.89
—
23.49
4.37
3,838
4.74
822.32
13,595
4.74
811.64
3,359
4.88
824.36
—
3,828.61
0.91
10.77
23.10
4.38
0.94
10.87
23.27
4.39
—
—
—
—
—
—
—
—
—
—
—
—
—
23,384
640
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Average fixed interest rate (%) EUR
Average fixed interest rate (%) CHF
Average fixed interest rate (%) USD
Foreign exchange risk
Exchange rate instruments
Nominal
Interest rate and foreign exchange rate risk
Exchange rate instruments
Nominal
Average fixed interest rate (%) AUD/EUR
Average fixed interest rate (%) CZK/EUR
Average fixed interest rate (%) EUR/COP
Average fixed interest rate (%) HKD/EUR
Average fixed interest rate (%) JPY/EUR
Average fixed interest rate (%) NOK/EUR
Average fixed interest rate (%) USD/COP
6.13
Average AUD/EUR exchange rate
Average CZK/EUR exchange rate
Average EUR/GBP exchange rate
Average EUR/COP exchange rate
Average EUR/MXN exchange rate
Average HKD/EUR exchange rate
Average JPY/EUR exchange rate
Average MXN/EUR exchange rate
Average NOK/EUR exchange rate
Average USD/COP exchange rate
Average USD/MXN exchange rate
Credit Risk
Credit risk instruments
Nominal
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) EUR
Hedges of net investments in foreign operations
Exchange rate risk
Exchange rate instruments
Nominal
Average BRL/EUR exchange rate
Average CLP/EUR exchange rate
Average CNY/EUR exchange rate
Average COP/EUR exchange rate
Average GBP/EUR exchange rate
Average MXN/EUR exchange rate
Average PLN/EUR exchange rate
—
—
—
—
—
—
—
—
—
—
—
—
1,942
—
373
4.46
—
—
—
—
22.98
—
31 December 2018
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
500
—
3.75
—
—
665
—
0.63
—
—
425
—
2.06
—
1.38
12,987
22,025
36,602
—
1.81
0.76
3.43
7.08
3.20
1.04
4.11
—
1,825
771
—
—
2,596
41
—
—
—
—
—
—
3,656
461
—
—
—
—
—
—
6.71
—
—
1.145
—
—
—
—
—
—
—
0.0003
120
—
—
7.54
—
—
—
—
—
—
—
0.0003
—
—
—
—
—
0.269
0.0003
2,083
4.00
0.86
—
2.52
0.64
—
9.47
1.499
25.407
—
—
—
8.718
132.014
14.696
—
—
—
951
—
—
—
—
1.28
3.61
—
1.499
26.030
—
—
—
—
125.883
—
9.606
—
0.0003
—
—
49
5
54
—
—
—
—
6,130
—
20
0.55
8,092
497
—
766.01
—
10,587
4.46
768.25
8.14
3,728.01
3,685.8
0.91
—
—
0.89
24.51
4.38
9,289
4.73
795.1
—
—
—
24.5
4.26
—
—
—
—
—
—
—
—
20,746
641
Table of Contents
Consumer Group
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) EUR
Average fixed interest rate (%) CHF
Foreign exchange risk
Exchange rate instruments
Nominal
Average DKK/EUR exchange rate
Average PLN/EUR exchange rate
Average CHF/EUR exchange rate
Average SEK/EUR exchange rate
Interest rate and foreign exchange rate risk
Interest rate and exchange rate instruments
Nominal
Average fixed interest rate (%) DKK
Average DKK/EUR exchange rate
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) EUR
Foreign exchange risk
Nominal exchange rate instruments
Nominal
Average SEK/EUR exchange rate
Average CHF/EUR exchange rate
Average CAD/EUR exchange rate
Average DKK/EUR exchange rate
Average JPY/EUR exchange rate
Interest rate and foreign exchange rate risk
Interest rate and exchange rate instruments
Nominal
Average SEK/EUR exchange rate
Average NOK/EUR exchange rate
Average CHF/EUR exchange rate
Average CAD/EUR exchange rate
Average DKK/EUR exchange rate
Average JPY/EUR exchange rate
Average fixed interest rate (%) EUR
Average fixed interest rate (%) CHF
Hedges of net investments in foreign operations
Foreign exchange risk
Exchange rate instruments
Nominal
Average NOK/EUR exchange rate
Average CNY/EUR exchange rate
642
2019 Annual Report
31 December 2019
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
159
(0.164)
(0.700)
1,394
(0.027)
(0.700)
2,154
(0.119)
(0.630)
5,669
(0.110)
(0.560)
18
(0.123)
—
9,394
118
7.458
4.382
1.093
187
7.465
4.302
1.096
—
10.687
—
—
—
249
7.462
0.004
304
7.458
4.347
—
—
—
—
—
—
—
—
—
—
499
7.443
0.006
54
0.212
152
0.212
379
0.212
562
0.212
—
—
—
—
—
—
—
—
—
—
609
748
1,147
254
953
72
1,318
10.461
10.529
10.456
14
—
—
25
—
—
1,539
1.500
—
—
—
—
130
175
10.415
10.362
—
—
—
7.468
—
—
—
9.241
1.085
—
7.466
—
—
—
1.094
1.528
7.474
1.121
1.491
—
131.960
123.116
1,025
10.488
9.082
1.090
—
7.460
—
—
—
452
10.318
9.281
1.089
—
7.457
4.287
0.410
0.330
143
9.920
—
352
9.878
7.9675
597
10.186
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,782
1,092
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2018
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) EUR
Average fixed interest rate (%) CHF
Foreign exchange risk
Exchange rate instruments
Nominal
Average DKK/EUR exchange rate
Average NOK/EUR exchange rate
Average CHF/EUR exchange rate
Interest rate and foreign exchange rate
risk
Exchange rate instruments
Nominal
Average SEK/EUR exchange rate
Average DKK/EUR exchange rate
Average fixed interest rate (%) SEK
Average fixed interest rate (%) DKK
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) EUR
Foreign exchange risk
Exchange rate instruments
Nominal
Average SEK/EUR exchange rate
Average NOK/EUR exchange rate
Average CHF/EUR exchange rate
Average CAD/EUR exchange rate
Average DKK/EUR exchange rate
Average PLN/EUR exchange rate
Average USD/EUR exchange rate
Average JPY/EUR exchange rate
Hedges of net investments in foreign
operations
Foreign exchange risk
Exchange rate instruments
Nominal
253
(0.197)
(0.659)
17
7.455
—
—
—
—
—
—
—
85
0.183
339
0.101
0.108
0.896
0.654
0.134
—
—
—
672
(0.125)
(0.696)
3,488
(0.036)
(0.679)
6,883
(0.065)
(0.561)
63
(0.113)
—
30
—
—
1.138
240
—
0.134
—
0.002
99
0.183
557
0.098
0.108
0.859
0.658
0.134
—
—
—
376
7.456
9.687
1.127
339
0.104
0.134
0.008
0.003
313
0.183
2,368
0.099
0.108
0.870
0.652
0.134
0.234
0.897
0.008
480
102.963
121.796
—
—
—
—
448
—
0.134
—
0.004
423
0.183
1,061
0.099
0.108
0.900
0.656
—
0.233
—
0.008
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Average NOK/EUR exchange rate
103.751
103.538
Average CNY/EUR exchange rate
—
—
181
282
11,359
423
1,027
920
4,325
943
643
31 December 2019
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
6
5,005
140
8,475
174
8,420
121
7,126
2,262
6,584
2,703
1
21,230
—
—
—
—
0.500
—
—
—
—
890
3.55
2
16,710
—
—
—
—
1,510
—
5
—
—
13,300
—
3,930
—
—
—
—
—
—
—
133
19,318
—
—
—
7,930
—
—
66
—
—
—
4,680
—
—
—
2,500
—
—
103
4.32
163
—
23,130
16,220
—
2,628
—
1,083
423
20,992
25,196
13,300
—
2,460
2,076
6,750
—
533
7,182
2,793
5.21
208
19,169
25,196
12,725
—
3,441
2,600
6,750
1,195
21,755
—
19,278
4,680
7,077
3,012
—
4,500
—
—
—
—
43
21,493
—
18,227
—
4,125
0.151
—
1,690
533
3,786
549
Table of Contents
Banco Santander Mexico
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) MXN
Interest rate and foreign exchange rate
risk
Exchange rate instruments
Nominal
Average EUR/MXN exchange rate
Average GBP/MXN exchange rate
Average USD/MXN exchange rate
Average MXV/MXN exchange rate
Average fixed interest rate (%) USD
Average fixed interest rate (%) EUR
Average fixed interest rate (%) GBP
Average fixed interest rate (%) MXN
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) MXN
Foreign exchange risk
Exchange rate instruments
Nominal
Average BRL/MXN exchange rate
Interest rate and foreign exchange rate
risk
Exchange rate instruments
Nominal
Average EUR/MXN exchange rate
Average GBP/MXN exchange rate
Average USD/MXN exchange rate
Average MXV/MXN exchange rate
Average fixed interest rate (%) USD
Average fixed interest rate (%) EUR
Average fixed interest rate (%) GBP
644
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2018
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) MXN
Average fixed interest rate (%) USD
Interest rate and foreign exchange rate
risk
Exchange rate instruments
Nominal
Average EUR/MXN exchange rate
Average GBP/MXN exchange rate
Average USD/MXN exchange rate
Average MXV/MXN exchange rate
Average fixed interest rate (%) USD
Average fixed interest rate (%) EUR
Average fixed interest rate (%) GBP
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) MXN
Foreign exchange risk
Exchange rate instruments
Nominal
Average EUR/MXN exchange rate
Average GBP/MXN exchange rate
Average USD/MXN exchange rate
Average BRL/MXN exchange rate
—
—
—
—
—
—
—
—
—
—
—
—
—
1,415
—
—
18.729
5.863
1
5.180
—
—
—
—
—
—
—
—
—
—
—
44
—
—
20.289
—
346
6.907
1.465
41
—
—
13.920
5.059
8.000
—
—
—
—
56
16.679
—
17.918
5.732
80
5.593
1.465
282
20.470
24.870
13.920
5.059
3.980
2.420
—
178
7.258
2,719
18.932
23.127
16.443
5.736
—
—
—
1,009
21.890
25.310
18.390
5.059
4.125
2.750
6.750
—
—
103
18.688
25.947
18.508
—
427
1,332
178
4,337
645
31 December 2019
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
16
7.9200
—
—
—
—
—
—
—
—
—
—
—
—
3.7300
3.7500
—
—
1
—
—
—
—
—
—
—
—
—
—
606
9.2500
6,065
6.8800
5,638
0.04
12,325
90
7
—
4.57
193
3.8300
—
—
—
—
—
772
4.5000
9,290
4.57
—
—
—
—
—
389
4.57
—
284
7
772
9,290
389
—
—
—
—
—
—
—
—
—
—
—
—
Table of Contents
Banco Santander Brazil
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) BRL
Foreign exchange risk
Exchange rate instruments
Nominal
Average USD/BRL exchange rate
Interest rate and foreign exchange rate
risk
Exchange rate instruments
Nominal
Average EUR/MXN exchange rate
Average fixed interest rate (%) BRL
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) BRL
Foreign exchange risk and others
Exchange rate instruments
Nominal
Average USD/BRL exchange rate
Interest rate and foreign exchange rate
risk
Exchange rate instruments
Nominal
Average EUR/MXN exchange rate
Average fixed interest rate (%) BRL
646
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) BRL
Foreign exchange rate risk and other
Exchange rate instruments
Nominal
Average USD/BRL exchange rate
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) BRL
Foreign exchange risk and other
Exchange rate instruments
Nominal
Average USD/BRL exchange rate
31 December 2018
Million euros
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
668
9.500
6
3.247
3,877
6.500
—
—
2,045
6.967
15
3.303
2,997
6.500
8
3.716
—
6.937
3,529
10.055
1,378
10.030
36
3.551
316
3.642
38
3.265
7,620
411
3,030
6.500
26
3.648
119
6.500
—
—
10,023
—
—
238
3.135
272
647
Table of Contents
The following table contains details of the hedged
exposures covered by the Group's hedging strategies of 31
December 2019 and 31 December 2018:
Million euros
31 December 2019
Carrying amount of
hedged items
Accumulated amount
of fair value
adjustments on the
hedged item
Assets
Liabilities
Assets
Liabilities Balance sheet line item
Fair value hedges
134,958
60,487
Interest rate risk
122,560
55,538
2,768
2,764
2,298
2,099
Deposits
Bond
Repo
Liquidity facilities
Issuances assurance
Securitisation
66,087
8,814
1,584
(5) Deposits
Loans and advances/
33,202
24,145
1,150
1,302
Debt instruments/
Debt instruments
issued
22,057
589
1,214
4,531
27
3
Loans and advances/
Deposits
18
Loans and advances/
(219) Deposits
—
3,171
—
12
Exchange rate risk
8,613
Liquidity facilities
—
14,288
—
—
—
—
57
2,912
5,644
—
19
3
1
15
Debt instruments/
Debt instruments
issued
Debt instruments/
Debt instruments
issued
991
—
Loans and advances/
— Deposits
Loans and advances/
— Deposits
— Debt instruments
3,532
4,949
(21)
199
460
—
2,262
—
810
—
—
—
253
253
3,366
1,483
100
—
—
—
—
—
—
(16)
—
(5)
—
—
—
6
6
Loans and advances/
— Deposits
Loans and advances/
51 Deposits
150 Debt instruments
Loans and advances/
(2) Deposits
—
Loans and advances/
— Deposits
— Debt instruments
—
— Debt instruments
Deposits
Bonds
Interest and Exchange
rate risk
Borrowed deposits
Bonds
Securitisation
Repos
Inflation risk
Deposits
Bonds
Credit risk
Bonds
648
2019 Annual Report
Change in fair
value of hedged
item for
ineffectiveness
assessment
Cash flow reserves or
conversion reserves
Continuing
hedges
Discontinued
hedges
1,583
1,370
578
825
—
177
(4)
(206)
58
3
37
18
154
—
4
152
(2)
(4)
(1)
(3)
5
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
31 December 2019
Carrying amount of
hedged items
Accumulated amount
of fair value
adjustments on the
hedged item
Assets
Liabilities
Assets
Liabilities Balance sheet line item
Change in fair
value of hedged
item for
ineffectiveness
assessment
Cash flow reserves or
conversion reserves
Continuing
hedges
Discontinued
hedges
Cash flow hedges
Interest rate risk
Firm commitment
Deposits
Government bonds
Liquidity facilities
Secondary market
loans
Highly likely
scheduled
transactions
Exchange rate risk
Deposits
Bonds
Issuances assurance
Secondary market
loans
Senior titulisation
Highly likely
scheduled
transactions
Interest and Exchange
rate risk
Deposits
Bonds
Securitisation
Inflation risk
Deposits
Bonds
Liquidity facilities
Equity risk
Highly likely
scheduled
transactions
Other risks
Bonds
Net foreign investments
hedges
Exchange rate risk
Equity instruments
1,070
1,070
1,070
—
—
—
—
—
—
Other assets/liabilities
Deposits and loans
and advances
Debt instruments
Loans and advances
Loans and advances
Other assets/liabilities
Deposits and loans
and advances
Deposits and loans
and advances
Loans and advances
Debt instruments
Other assets/liabilities
Deposits and loans
and advances
Debt instruments
Debt instruments
Deposits and loans
and advances
Debt instruments
Loans and advances
Other assets/liabilities
Other assets/liabilities
—
—
— Equity instruments
(204)
(128)
18
1
(24)
(121)
522
4
(11)
(5)
(22)
27
(2)
3
—
(32)
12
130
(3)
140
(237)
—
194
15
4
(3)
(9)
(4)
(1)
2
(169)
510
54
29
(252)
20
23
(3)
—
7
7
98
98
—
—
—
(6)
(25)
541
(22)
(24)
2
—
(2)
(2)
(98)
(98)
—
—
—
(79)
(74)
—
14
(63)
(25)
—
—
(4)
—
(4)
—
—
—
—
—
—
—
—
0
—
—
—
(1)
(1)
—
—
—
—
—
136,028
60,487
2,768
2,298
1.379
522
(79)
649
Table of Contents
Million euros
31 December 2018
Accumulated amount
of fair value
adjustments on the
hedged item
Accumulated amount
of fair value
adjustments on the
hedged item
Assets
Liabilities
Assets
Liabilities Balance sheet line item
Change in fair
value of hedged
item for
ineffectiveness
assessment
Cash flow reserves or
conversion reserves
Continuing
hedges
Discontinued
hedges
1,915
1,886
1,021
792
25
—
48
—
—
—
5
9
1,765
1,478
Deposits and loans
(1) and advances
791 Debt instruments
16 Other assets
— Loans and advances
2 Loans and advances
12 Other assets/liabilities
658 Debt instruments
— Equity instruments
—
— Debt instruments
(4)
— Debt instruments
21
19
2
—
—
—
3
—
3
—
—
287
Deposits and loans
— and advances
26 Debt instruments
262 Debt instruments
(1) Other assets/liabilities
— Other assets/liabilities
0
Deposits and loans
— and advances
— Debt instruments
—
— Debt instruments
Other assets/liabilities
Deposits and loans
and advances
Debt instruments
Loans and advances
Other assets/liabilities
Debt instruments
Other assets/liabilities
Deposits and loans
and advances
Loans and advances
Debt instruments
Other assets/liabilities
Fair value hedges
110,669
46,830
Interest rate risk
104,393
39,251
59,319
1,370
27,235
21,759
13,874
—
3,965
—
—
—
3,378
1,614
1,764
561
—
232
2,013
13,316
—
—
—
—
2,776
7,474
751
1,591
—
434
—
68
—
68
54
54
—
3,571
3,358
99
446
105
105
—
—
—
Deposits
Bond
Repo
Loans of securities
Liquidity facilities
Issuances assurance
Securitisation
Equity instruments
Exchange rate risk
Deposits
Bonds
Interest and Exchange
rate risk
Borrowed deposits
Bonds
Securitisation
Repos
CLO
Inflation risk
Deposits
Bonds
Credit risk
Bonds
Cash flow hedges
Interest rate risk
Firm commitment
Deposits
Government bonds
Liquidity facilities
Secondary market
loans
Senior securitization
Exchange rate risk
Deposits
Bonds
Secondary market
loans
Senior titulisation
CLO
650
2019 Annual Report
(20)
(74)
(265)
(35)
18
—
35
3
170
—
(3)
8
(11)
53
16
(31)
67
1
—
4
1
3
—
—
(432)
(52)
(24)
(26)
(13)
8
4
(1)
(416)
83
(309)
(179)
(11)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
447
111
(75)
47
72
65
2
—
(23)
(8)
(16)
(21)
21
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(10)
(12)
—
—
—
(12)
—
—
2
—
2
—
—
—
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
31 December 2018
Carrying amount of
hedged items
Accumulated amount
of fair value
adjustments on the
hedged item
Assets
Liabilities
Assets
Liabilities Balance sheet line item
Change in fair
value of hedged
item for
ineffectiveness
assessment
Cash flow hedge/currency
translation reserve
Continuing
hedges
Discontinued
hedges
Interest and Exchange
rate risk
Deposits
Bonds
Securitisation
Inflation risk
Deposits
Bonds
Liquidity facilities
Equity risk
Highly likely
scheduled
transactions
Other risks
Bonds
Net foreign investments
hedges
Exchange rate risk
Firm commitment
Equity instruments
792
792
13
779
—
—
—
—
10
10
—
10
Deposits and loans
and advances
Debt instruments
Debt instruments
Deposits and loans
and advances
Debt instruments
Loans and advances
Other assets/liabilities
Other assets/liabilities
—
—
— Other assets/liabilities
— Equity instruments
4
7
(13)
10
15
25
(3)
(7)
17
17
—
—
—
—
—
—
341
2
(9)
348
22
25
(3)
—
(4)
(4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
111,461
46,830
1,925
1,765
(452)
447
(10)
The cumulative amount of adjustments of the fair value
hedging instruments that remain in the balance for covered
items that are no longer adjusted by profit and loss of
coverage as of 31 December 2019 is EUR 340 million
(2018: EUR 71 million euros.)
651
Table of Contents
The net impact of the coverages are shown in the following table:
Million euros
31 December 2019
Earnings/
(loses)
recognised
in another
cumulative
overall
result
Ineffective
coverage
recognised
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
income
statement
that includes the
ineffectiveness of cash flows
Cover transaction Line of the income
affecting the income
statement
statement that includes
reclassified items
Fair value hedges
Interest rate risk
Deposits
Bonds
Securitisations
Equity instruments
Risk of Exchange rate
Deposits
Bonds
Risk of interest rate and
exchange rate
Deposits
Securitisations
Inflation Risks
Deposits
Bonds
Cash flow hedges
Risk of interest rate
Firm Commitment
Deposits
Bonds
Liquidity lines
Loans secondary markets
Highly likely scheduled
transactions
Risk of Exchange rate
Deposits
Bonds
Repo
652
2019 Annual Report
58
5
7
5
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
(7)
Gains or losses of financial
assets/liabilities
—
(3)
Gains or losses of financial
assets/liabilities
(1)
Gains or losses of financial
assets/liabilities
(2)
56
Gains or losses of financial
assets/liabilities
1
Gains or losses of financial
assets/liabilities
55
—
Gains or losses of financial
assets/liabilities
(1)
Gains or losses of financial
assets/liabilities
1
(86)
1
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
—
1
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
— assets/liabilities
(34)
Gains or losses of financial
assets/liabilities
8
(263)
65
(37)
(254)
(48)
(1)
12
145
148
(31)
11
—
—
—
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
(1,112)
8
(37)
7
(26)
61
3
—
(364)
Interest margin
Interest margin
Interest margin
Interest margin
Interest margin
Interest margin
Interest margin /
Gains or losses of
financial assets/
(39) liabilities
Interest margin /
Gains or losses of
financial assets/
154 liabilities
Interest margin /
Gains or losses of
financial assets/
(4) liabilities
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
31 December 2019
Earnings/
(loses)
recognised
in another
cumulative
overall
result
Ineffective
coverage
recognised
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
income
statement
that includes the
ineffectiveness of cash flows
Cover transaction Line of the income
affecting the income
statement
statement that includes
reclassified items
Loans secondary markets
Securitisations
CLO
Highly likely scheduled
transactions
Risk of interest rate and
exchange rate
Deposits
Bonds
Securitisations
Risk of inflation
Deposits
Asset bonds
Risk of equity
Highly probable planned
transactions
Other risks
Bonds
Coverage of net investment
abroad
Risk of Exchange rate
Equity instruments
12
2
(27)
(4)
(1)
—
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
2
168
(8)
(16)
192
(44)
(49)
5
2
2
—
—
—
—
—
8
(1)
(53)
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
(4) assets/liabilities
Gains or losses of financial
assets/liabilities
(49)
—
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
— assets/liabilities
—
Gains or losses of financial
— assets/liabilities
—
Gains or losses of financial
— assets/liabilities
—
—
Gains or losses of financial
— assets/liabilities
Interest margin /
Gains or losses of
financial assets/
liabilities
8
Interest margin /
Gains or losses of
financial assets/
(166) liabilities
Interest margin /
Gains or losses of
financial assets/
(13) liabilities
Interest margin /
Gains or losses of
financial assets/
(304) liabilities
(769)
(10)
57
Interest margin
Interest margin
Interest margin /
Gains or losses of
financial assets/
(816) liabilities
Interest margin
Interest margin
13
9
4
—
—
—
—
—
—
—
(28)
(1,112)
653
Table of Contents
Million euros
31 December 2018
Earnings/
(loses)
recognised
in another
cumulative
overall
result
Ineffective
coverage
recognised
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
income
statement
that includes the
ineffectiveness of cash flows
Cover transaction Line of the income
affecting the income
statement
statement that includes
reclassified items
Fair value hedges
Interest rate risk
Deposits
Bonds
Repo
Loans of fixed-income securities
Liquidity lines
Securitisations
Risk of interest rate and
exchange rate
Deposits
Bonds
Securitisations
CLO
Other Risks
Securitisations
Cash flow hedges
Risk of interest rate
Firm Commitment
Deposits
Bonds
Loans secondary markets
Liquidity lines
Repo
Securitisations
75
(18)
Gains or losses of financial
assets/liabilities
(24)
Gains or losses of financial
assets/liabilities
(61)
Gains or losses of financial
assets/liabilities
1
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
46
12
Gains or losses of financial
assets/liabilities
8
95
39
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
8
Gains or losses of financial
assets/liabilities
49
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
(1)
(2)
(2)
8
(4)
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
(21) assets/liabilities
Gains or losses of financial
2 assets/liabilities
Gains or losses of financial
16 assets/liabilities
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
(1) assets/liabilities
200
193
(2)
50
104
85
2
(46)
—
654
2019 Annual Report
317
57
(24) Interest margin
16
Interest margin
Interest margin/ Gains
or losses of financial
15 assets/liabilities
Interest margin/ Gains
or losses of financial
47 assets/liabilities
3
Interest margin
—
Interest margin
—
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
31 December 2018
Earnings/
(loses)
recognised
in another
cumulative
overall
result
Ineffective
coverage
recognised
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
income
statement
that includes the
ineffectiveness of cash flows
Cover transaction Line of the income
affecting the income
statement
statement that includes
reclassified items
Risk of Exchange rate
(20)
(688)
Deposits
Asset bonds
Repo
Loans secondary markets
Securitisations
CLO
Risk of interest rate and
exchange rate
Deposits
Bonds
Securitisations
Risk of inflation
Deposits
Asset bonds
Risk of equity
Highly probable planned
transactions
Other risks
Bonds
Coverage of net investment
abroad
Risk of Exchange rate
Equity instruments
(25)
(698) assets/liabilities
Gains or losses of financial
(25)
—
5
Gains or losses of financial
43 assets/liabilities
Gains or losses of financial
assets/liabilities
—
Gains or losses of financial
assets/liabilities
4
Gains or losses of financial
assets/liabilities
24
(37)
Gains or losses of financial
assets/liabilities
1
45
1
—
700
Gains or losses of financial
743 assets/liabilities
Gains or losses of financial
assets/liabilities
Gains or losses of financial
assets/liabilities
(4)
447
(490)
—
48
11
14
(3)
(8)
(8)
(21)
(21)
—
—
—
200
83
Gains or losses of financial
— assets/liabilities
Gains or losses of financial
— assets/liabilities
—
Gains or losses of financial
— assets/liabilities
—
Gains or losses of financial
— assets/liabilities
—
—
Gains or losses of financial
— assets/liabilities
(631)
Interest margin/ Gains
or losses of financial
(563) assets/liabilities
Interest margin/ Gains
or losses of financial
(168) assets/liabilities
Gains or losses of
financial assets/
— liabilities
Interest margin/ Gains
or losses of financial
assets/liabilities
(75
Interest margin /
Gains or losses of
financial assets/
150 liabilities
Interest margin /
Gains or losses of
financial assets/
25 liabilities
887
35
Interest margin
Interest margin/ Gains
or losses of financial
581 assets/liabilities
Interest margin/ Gains
or losses of financial
271 assets/liabilities
Interest margin
Interest margin
4
3
1
—
—
—
—
—
—
—
317
655
Table of Contents
The following table shows the movement in the impact of
equity for cash flow hedges for the year:
The detail of the main interest and similar income items
earned in 2019, 2018 and 2017 is as follows:
Million euros
Million euros
Balance at beginning of year
Cash flow hedges
Risks of interest rate
2019
2018
277
152
(264)
172
2019
2018
2017
Loans and advances, central banks
1,314
1,320
1,881
Loans and advances, credit institutions
1,785
1,555
1,840
Debt instruments
6,378
6,429
7,141
Amounts transferred to income statements
(8)
(57)
Loans and advances, customers
46,180
43,489 43,640
Gain or loss in value CFE - recognized in
equity
Risks of exchange rate
Amounts transferred to income statements
Gain or loss in value CFE - recognized in
equity
Risks of interest rate and exchange rate
Amounts transferred to income statements
Gain or loss in value CFE - recognized in
equity
Risk of inflation
Amounts transferred to income statements
Gain or loss in value CFE - recognized in
equity
Risk of equity
Amounts transferred to income statements
Gain or loss in value CFE - recognized in
equity
Other risks
Amounts transferred to income statements
Gain or loss in value CFE - recognized in
equity
Minorities
Taxes
Balance at end of year
(256)
229
146
364
(20)
631
(218)
(651)
168
769
45
(887)
(601)
932
(44)
(13)
11
(4)
(31)
15
2
—
2
—
—
(8)
—
(8)
—
—
—
32
(17)
—
(25)
(50)
300
277
37. Discontinued operations
No operations were discontinued in 2019, 2018 or 2017.
38. Interest income
Interest and similar income in the consolidated income
statement comprises the interest accruing in the year on all
financial assets with an implicit or explicit return, calculated
by applying the effective interest method, irrespective of
measurement at fair value; and the rectifications of income
as a result of hedge accounting. Interest is recognised gross,
without deducting any tax withheld at source.
Other interest
1,128
1,532
1,539
56,785 54,325 56,041
Most of the interest and similar income was generated by
the Group’s financial assets that are measured either at
amortised cost or at fair value through Other comprehensive
income.
39. Interest expense
Interest expense and similar charges in the consolidated
income statement includes the interest accruing in the year
on all financial liabilities with an implicit or explicit return,
including remuneration in kind, calculated by applying the
effective interest method, irrespective of measurement at
fair value; the rectifications of cost as a result of hedge
accounting; and the interest cost attributable to provisions
recorded for pensions.
The detail of the main items of interest expense and similar
charges accrued in 2019, 2018 and 2017 is as follows:
Million euros
2019
2018
2017
Central banks deposits
468
421
216
Credit institution deposits
2,576
2,588
2,037
Customer deposits
10,137
9,062 11,074
Debt securities issued and
subordinated liabilities
6,679
6,073
6,651
Marketable debt securities
6,034
5,303
5,685
Subordinated liabilities (Note 23)
Provisions for pensions (Note 25)
Lease Liabilities
645
145
273
770
186
9
966
198
8
Other interest expense
1,224
1,645
1,561
21,502 19,984 21,745
Most of the interest expense and similar charges was
generated by the Group’s financial liabilities that are
measured at amortised cost.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
40. Dividend income
The detail of fee and commission income is as follows:
Dividend income includes the dividends and payments on
equity instruments out of profits generated by investees
after the acquisition of the equity interest.
The detail of Income from dividends as follows:
Million euros
Dividend income classified as:
Financial assets held for trading
388
241
234
2019
2018*
2017
Non-trading financial assets
mandatorily at fair value through
profit or loss
Financial assets available-for-sale
Financial assets at fair value
through other comprehensive
income
34
23
150
111
106
533
370
384
*
See further detail regarding the impacts of the entry into force of IFRS 9
as of 1 January 2018 (Note 1.d).
41. Income from companies
accounted for using the equity
method
Income from companies accounted for using the equity
method comprises the amount of profit or loss attributable
to the Group generated during the year by associates and
joint ventures.
The detail of Income from companies accounted for using
the equity method is as follows:
Million euros
Zurich Santander Insurance
America, S.L. - Consolidated
WiZink Bank, S.A.
Allianz Popular, S.L.
Companhia de Crédito, Financiamento e
Investimento RCI Brasil
SAM Investment Holdings Limited
2019 2018 2017
197
194
241
—
30
25
—
56
45
21
—
—
36
15
19
87
—
Project Quasar Investments 2017, S.L.
(350)
Other entities
422
421
306
324
737
704
42. Commission income
Commission income comprises the amount of all fees and
commissions accruing in favour of the Group in the year,
except those that form an integral part of the effective
interest rate on financial instruments.
Million euros
Coming from collection and
payment services:
Bills
Demand accounts
Cards
Orders
Cheques and other
Coming from non-banking financial
products:
Investment funds
Pension funds
Insurance
Coming from Securities services:
Securities underwriting and
placement
Securities trading
Administration and custody
Asset management
Other:
Foreign exchange
Financial guarantees
Commitment fees
2019
2018
2017
328
334
368
1,382
1,371
1,490
3,858
3,514
3,515
478
155
475
138
449
154
6,201
5,832
5,976
943
180
1,024
124
751
92
2,631
2,433
2,517
3,754
3,581
3,360
364
281
485
293
283
251
458
305
374
302
359
251
1,423
1,297
1,286
612
521
293
546
549
291
471
559
283
Other fees and commissions
2,545
2,568
2,644
3,971
3,954
3,957
15,349 14,664 14,579
43. Commission expense
Commission expense shows the amount of all fees and
commissions paid or payable by the Group in the year,
except those that form an integral part of the effective
interest rate on financial instruments.
The detail of commission expense is as follows:
Million euros
2019
2018
2017
Commissions assigned to third parties 2,350 1,972 1,831
Cards
By collection and return of effects
Other fees assigned
1,616 1,358 1,391
12
722
11
603
12
428
Other commissions paid
1,220 1,207 1,151
Brokerage fees on lending and deposit
transactions
Sales of insurance and pension funds
Other fees and commissions
27
42
49
232
961
232
933
205
897
3,570 3,179 2,982
657
Table of Contents
44. Gains or losses on financial
assets and liabilities
b) Financial assets and liabilities at fair value through
profit or loss
The detail of the amount of the asset balances is as follows:
Gains/losses on financial assets and liabilities includes the
amount of the Other comprehensive income of financial
instruments, except those attributable to interest accrued as
a result of application of the effective interest method and
to allowances, and the gains or losses obtained from the
sale and purchase thereof.
a) Breakdown
The detail, by origin, of Gains/losses on financial assets and
liability:
Million euros
Loans and receivables:
Central banks
Credit institutions
Customers
Debt instruments
Equity instruments
Derivatives
2019
59,624
2018
56,323
2017
40,875
6,473
9,226
—
21,649
23,099
11,585
31,502
23,998
29,290
36,402
36,609
39,836
15,787
12,198
22,286
63,397
55,939
57,243
175,210 161,069 160,240
Million euros
Gains or losses on financial assets and
liabilities not measured at fair value
through profit or loss, net (IFRS 9)
Financial assets at amortised cost
Other financial assets and liabilities
Of which: debt instruments
Gains or losses on financial assets and
liabilities not measured at fair value
through profit or loss, net (IAS 39)
Of which financial assets available
for sale
Of which: debt instruments
Of which: equity instruments
Gains or losses on financial assets and
liabilities held for trading, net**
Gains or losses on non-trading
financial assets and liabilities
mandatory at fair value through profit
or loss
Gains or losses on financial assets and
liabilities measured at fair value
through profit or loss, net**
Gains or losses from hedge
accounting, net
2019
2018*
2017
1,136
604
308
828
804
39
565
563
404
472
316
156
The Group mitigates and reduces this exposure as follows:
• With respect to derivatives, the Group has entered into
framework agreements with a large number of credit
institutions and customers for the netting-off of asset
positions and the provision of collateral for non-payment.
At 31 December 2019 the actual credit risk exposure of
the derivatives was EUR 32,552 million.
• Loans and advances to credit institutions and Loans and
advances to customers included reverse repos amounting
to EUR 39,555 million at 31 December 2019.
Also, mortgage-backed assets totalled EUR 1,882 million.
1,349
1,515
1,252
• Debt instruments include EUR 29,941 million of Spanish
and foreign government securities.
292
331
(286)
(57)
(85)
(28)
83
(11)
At 31 December 2019 the amount of the change in the year
in the fair value of financial assets at fair value through
profit or loss attributable to variations in their credit risk
(spread) was not material.
The detail of the amount of the liability balances is as
follows:
2,463
2,476
1,560
Million euros
*
**
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1
January 2018 (Note 1.d).
Includes the net result obtained by transactions with debt securities,
equity instruments, derivatives and short positions included in this
portfolio when the Group jointly manages its risk in these instruments.
As explained in Note 45, the above breakdown should be
analysed in conjunction with the exchange differences, net:
Million euros
Exchange differences, net
2019
2018
2017
(932)
(679)
105
Deposits
Central banks
Credit institutions
Customer
2019
2018
2017
57,111
65,304
84,724
12,854
14,816
9,142
9,340
10,891
18,458
34,917
39,597
57,124
Marketable debt securities
3,758
2,305
3,056
Short positions
Derivatives
14,123
15,002
20,979
63,016
55,341
57,892
Other financial liabilities
126
449
589
138,134 138,401 167,240
At 31 December 2019, the amount of the change in the fair
value of financial liabilities at fair value through profit or
loss attributable to changes in their credit risk during
the year is not material.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
In relation to liabilities designated at fair value through
profit or loss where it has been determined at initial
recognition that the credit risk is recorded in accumulated
other comprehensive income (see Statement of recognised
income and expense) the amount that the Group would be
contractually obliged to pay on maturity of these liabilities
at 31 December 2019 is EUR 26 million lower than their
carrying amount (EUR 32 million at 31 December 2018).
Most of the Bank’s insurance activity is carried on in life
insurance.
The amount of the Group recognises in relation to income
from sub-leases of rights of use is not material.
47. Staff costs
a) Breakdown
45. Exchange differences, net
The detail of Staff costs is as follows:
2019
2018
2017
120
51
57
2,534 3,175 2,546
Clerical staff**
General services personnel**
Exchange differences shows basically the gains or losses on
currency dealings, the differences that arise on translations
of monetary items in foreign currencies to the functional
currency, and those disclosed on non-monetary assets in
foreign currency at the time of their disposal.
The Group manages the currencies to which it is exposed
together with the arrangement of derivative instruments
and, accordingly, the changes in this line item should be
analysed together with those recognised under Gains/
losses on financial assets and liabilities (see Note 44).
46. Other operating income and
expenses
Other operating income and Other operating expenses in
the consolidated income statements include:
Million euros
Insurance activity
Income from insurance and
reinsurance contracts issued
Of which:
Insurance and reinsurance
premium income
2,404 3,011 2,350
Reinsurance income (Note 15)
130
164
196
Expenses of insurance and reinsurance
contracts
(2,414) (3,124) (2,489)
Of which:
Claims paid, other insurance-
related expenses and net provisions
for insurance contract liabilities
(2,183) (2,883) (2,249)
Reinsurance premiums paid
(231)
(241)
(240)
Other operating income
1,797 1,643 1,618
Non- financial services
Other operating income
379
367
472
1,418 1,276 1,146
Other operating expense
(2,138) (2,000) (1,966)
Non-financial services
(351)
(270)
(302)
Other operating expense:
(1,787) (1,730) (1,664)
Of which, credit institutions deposit
guarantee fund and single resolution
fund
(911)
(895)
(848)
(221)
(306)
(291)
Million euros
Wages and salaries
Social Security costs
2019
2018
2017
9,020
8,824
8,879
1,426
1,412
1,440
Additions to provisions for defined
benefit pension plans (Note 25)
72
84
88
Contributions to defined
contribution pension funds
Other staff costs
b) Headcount
292
287
271
1,331
1,258
1,369
12,141 11,865 12,047
The average number of employees in the Group, by
professional category, was as follows:
Average number of employees
2019
2018
2017
The Bank:
Senior management*
20
22
64
Other line personnel
29,147
30,399
21,327
—
—
—
—
—
—
29,167
30,421
21,391
8,269
7,944
12,703
17,961
18,757
19,079
Rest of Spain
Santander UK plc
Banco Santander (Brasil) S.A.
47,253
46,645
46,210
Other companies***
98,464
98,062
96,349
201,114 201,829 195,732
*
**
During 2018, categories of deputy assistant executive vice president and
above were no longer included.
During 2017, clerical staff and general services personnel categories
were no longer included, considering all the staff in the aforementioned
categories on the Other line personnel category.
*** Does not include staff affected by discontinued operations.
The number of employees, at the end of 2019, 2018 and
2017, was 196,419, 202,713 and 202,251, respectively.
659
Table of Contents
The functional breakdown (final employment), by gender, at
31 December, 2019 is as follows:
Functional breakdown by gender
Continental Europe
Latin America and Others
United Kingdom
Senior executives
Other executives
Other personnel
Men
918
543
99
1,560
Women
283
143
31
457
Men
6,043
4,615
1,076
11,734
Women
3,534
2,876
496
6,906
Men
24,117
42,626
8,870
75,613
Women
30,370
51,388
13,391
100,149
The same information, expressed in percentage terms at 31
December, 2019, is as follows:
Functional breakdown by gender
Continental Europe
Latin America and Others
United Kingdom
Senior executives
Other executives
Other personnel
Men
58.73%
34.92%
6.35%
Women
61.93%
31.29%
6.78%
Men
51.40%
39.44%
9.16%
Women
51.09%
41.74%
7.18%
Men
32.00%
56.23%
11.77%
Women
30.27%
56.39%
13.34%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
The labour relations between employees and the various
Group companies are governed by the related collective
agreements or similar regulations.
The number of employees in the Group with disabilities,
distributed by professional categories, at 31 December,
2019, is as follows:
Number of employees*
Senior management
Other management
Other staff
2019
6
92
3,486
3,584
* An employee with disabilities is considered to be a person who is
recognised by the State or the company in each jurisdiction where the
Group operates and that entitles them to receive direct monetary
assistance, or other types of aid such as, for example, reduction of their
taxes. In the case of Spain, employees with disabilities have been
considered to be those with a degree of disabilities greater than or equal to
33%. The amount does not include employees in the United States.
The number of Group employees with disabilities at 2018
and 2017, was 3,436 and 3,289, respectively, (not including
the United States).
Likewise, the average number of employees of Banco
Santander, S.A. with disabilities, equal to or greater than
33%, during 2019 was 318 (241 and 209 employees during
2018 and 2017). At the end of fiscal year 2019, there were
295 employees (304 and 211 employees at 31 December,
2018 and 2017).
c) Share-based payments
The main share-based payments granted by the Group in
force at 31 December, 2019, 2018 and 2017 are described
below.
i. Bank
The variable remuneration policy for the Bank’s executive
directors and certain executive personnel of the Bank and of
other Group companies includes Bank share-based
payments, the implementation of which requires, in
conformity with the law and the Bank’s Bylaws, specific
resolutions to be adopted by the general meeting.
Were it necessary or advisable for legal, regulatory or other
similar reasons, the delivery mechanisms described below
may be adapted in specific cases without altering the
maximum number of shares linked to the plan or the
essential conditions to which the delivery thereof is subject.
These adaptations may involve replacing the delivery of
shares with the delivery of cash amounts of an equal value.
The plans that include share-based payments are as
follows: (i) Deferred and Conditional Variable Remuneration
Plan; (ii) Performance Shares Plan (iii) Deferred Multiyear
Objectives Variable Remuneration Plan; (iv) Digital
Transformation Award. The characteristics of the plans are
set forth below:
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2019 Annual Report
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Deferred
variable
remuneration
systems
(i) Deferred and
conditional
variable
remuneration
plan (2014,
2015, 2016,
2017, 2018 and
2019)
Description and plan beneficiaries
Conditions
Calculation Base
Fourth and fifth cycles (2014 and 2015,
respectively):
• Executive directors and members of the
Identified Staff with total variable remuneration
higher than 2.6 million euros: 40% paid
immediately and 60% deferred over 3 years
(fourth cycle) or 5 years (fifth cycle).
• Division managers, country heads, other
executives of the Group with a similar profile
and members of the Identified Staff with total
variable remuneration between 1.7 million
euros (1.8 million in fourth cycle) and 2.6
million euros: 50% paid immediately and 50%
deferred over 3 years (fourth cycle) or 5 years
(fifth cycle)
• Other beneficiaries: 60% paid immediately and
40% deferred over 3 years.
Sixth cycle (2016):
• 60% of bonus will be paid immediately and
40% deferred over a three year period.
Seventh, eight and ninth cycle (2017, 2018 and
2019):
• Beneficiaries of these plans with target total
variable remuneration higher or equal to 2.7
million euros: 40% paid immediately and 60%
deferred over 5 years
• Beneficiaries of these plans with target total
variable remuneration between 1.7 million
euros and 2.7 million euros: 50% paid
immediately and 50% paid over 5 years
• Other beneficiaries of these plans: 60% paid
immediately and 40% deferred over 3 years.
The purpose of these cycles is to
defer a portion of the variable
remuneration of the beneficiaries
over a period of three years for the
fourth and the sixth cycles, and over
three or five years for the fifth,
seventh, eighth and ninth cycles, for
it to be paid, where appropriate, in
cash and in Santander shares; the
other portion of the variable
remuneration is also to be paid in
cash and Santander shares, upon
commencement of the cycles, in
accordance with the rules set forth
below.
Beneficiaries:
• Executive directors and certain
executives (including senior
management) and employees
who assume risk, who perform
control functions or receive an
overall remuneration which puts
them on the same remuneration
level as senior executives and
employees who assume risks
(third, fourth and fifth cycle)
•
In the case of the sixth, seventh,
eighth and ninth cycle, the
beneficiaries are Material Risk
Takers (Identified staff) that are
not beneficiaries of the Deferred
Multiyear Objectives Variable
Remuneration Plan.
For the fourth, fifth and sixth cycles (2014 to
2016), the accrual of deferred compensation is
conditioned, in addition to the requirement that
the beneficiary remains in the Group's employ,
with the exceptions included in the plan
regulations upon none of the following
circumstances existing during the period prior to
each of the deliveries, pursuant to the provisions
set forth in each case in the plan regulations:
i.
ii.
Poor financial performance of the Group;
breach by the beneficiary of internal
regulations, including, in particular, those
relating to risks;
iii. material restatement of the Group's
consolidated financial statements, except
when it is required pursuant to a change in
accounting standards; or
Significant changes in the Group’s economic
capital or risk profile
iv.
In the case of the seventh, eight and ninth cycles
(2017 to 2019), the accrual of deferred
compensation is conditioned, in addition to the
permanence of the beneficiary in the Group, with
the exceptions contained in the plan's regulations,
to no assumptions in which there is a poor
performance of the entity as a whole or of a
specific division or area of the entity or of the
exposures generated by the personnel, and at least
the following factors must be considered:
i.
significant failures in risk management
committed by the entity , or by a business
unit or risk control unit;
the increase suffered by the entity or by a
business unit of its capital needs, not
foreseen at the time of generation of the
exposures;
Regulatory sanctions or judicial sentences for
events that could be attributable to the unit
or the personnel responsible for those. Also,
the breach of internal codes of conduct of
the entity; and
Irregular behaviours, whether individual or
collective, considering in particular the
negative effects derived from the marketing
of inappropriate products and the
responsibilities of the persons or bodies that
made those decisions.
ii.
iii.
iv.
(ii) Performance
shares plans
(2014 and
2015)
The purpose is to instrument a
portion of the variable remuneration
of the executive directors and other
members of the Identified Staff,
consisting of a long-term incentive
(ILP) in shares based on the Bank's
performance over a multiannual
period. In addition, the second cycle
also applies to other Bank
employees not included in the
Identified Staff or Material Risk
Takers, in respect of whom it is
deemed appropriate that the
potential delivery of Bank shares be
included in their remuneration
package in order to better align the
employee's interests with those of
the Bank.
Beneficiaries
i. Executive Directors and senior
managers
ii. Other Material Risk Takers or
Identified Staff
iii. Other beneficiaries in the case
only of the second cycle (2015)
In addition to the requirement that the beneficiary
remains in the Group's employ, with the exceptions
included in the plan regulations, the delivery of
shares to be paid on the ILP payment date based
on compliance with the related multiannual target
is conditional upon none of the following
circumstances existing, in the opinion of the board
of directors, subject to a proposal of the
remuneration committee, during the period prior
to each delivery:
i.
ii.
Poor financial performance of the Group;
breach by the beneficiary of internal
regulations, including, in particular, those
relating to risks;
iii. material restatement of the Group's
consolidated financial statements, except
when it is required pursuant to a change in
accounting standards; or
significant changes in the Group's economic
capital or risk profile
iv.
For the second cycle (2015), based on the
maximum benchmark value (20%), at the proposal
of the remuneration committee, the Board of
Directors will set the maximum number of shares,
the value in euros of which is called the "Agreed-
upon Amount of the ILP", taking into account (i) the
Group's earnings per share (EPS) and (ii) the
Group's return on tangible equity (RoTE) for 2015
with respect to those budgeted for the year.
The first cycle (2014) is subject to compliance of
Relative Total Shareholder Return (TSR) metric
measured against a group of 15 comparable
institutions (the “peer group”) in the periods
2014-2015; 2014-2016; and 2014-2017. At the
end of of 2017, the 2014 Performance Share Plan
was fully terminated.
For the second cycle (2015), the basis of
calculation is the fulfilment of the following
objectives:
• Relative performance of the earning per share
growth (EPS) growth of the Santander Group for
the 2015-2017 period compared to a peer
group of 17 credit institutions.
• RoTE of the Santander Group for financial year
2017
• Employee satisfaction, measured by whether or
not the corresponding Group company is
included in the "Top 3" of the best banks to
work for.
• number of principal markets in which Santander
is in the Top 3 of the best banks on the
customer satisfaction index in 2017
• Retail loyal clients
• SME and corporate loyal clients
As a result of the process described above the
board of directors approved, further to a proposal
from the remuneration committee, a 65.67%
achievement for the plan. This plan terminated in
2019.
661
Description and plan beneficiaries
Conditions
Calculation Base
Table of Contents
Deferred
variable
remuneration
systems
(iii)Deferred
Multiyear
Objectives
Variable
Remuneration
Plan (2016,
2017, 2018 and
2019)
The aim is simplifying the
remuneration structure, improving
the ex ante risk adjustment and
increasing the impact of the long-
term objectives on the Group’s most
relevant roles. The purpose of these
cycles is to defer a portion of the
variable remuneration of the
beneficiaries over a period of three
or five years, for it to be paid, where
appropriate, in cash and in
Santander shares; the other portion
of the variable remuneration is also
to be paid in cash and Santander
shares, upon commencement of the
cycles, in accordance with the rules
set forth below. The accrual of the
last third of the deferral (in the case
of 3 years deferral) of the last three
fifths (in the case of 5 years deferral)
is also subject to long-term
objectives.
Beneficiaries
Executive directors, senior managers
and certain executives of the Group’s
first lines of responsibility.
(iv) Digital
Transformation
Award (2019)
The 2019 Digital Transformation
Incentive (the “Digital Incentive”) is a
variable remuneration system that
includes the delivery of Santander
shares and share options.
The aim of the Digital Incentive is to
attract and retain the critical skill
sets to support and accelerate the
digital transformation of the Group.
By means of this program, the
Group offers a remuneration
element which is competitive with
the remuneration systems offered
by other market operators who also
compete for digital talent.
The number of beneficiaries is
limited to a maximum of 250
employees and the total amount of
the incentive is limited to 30 million
euros.
662
2019 Annual Report
In 2016 the accrual is conditioned, in addition to
the permanence of the beneficiary in the Group,
with the exceptions contained in the plan’s
regulations that none of The following
circumstances during the period prior to each of
the deliveries in the terms set forth in each case in
the plan’s regulations:
i.
ii.
Poor performance of the Group;
breach by the beneficiary of the internal
regulations, including in particular that
relating to risks;
iii. material restatement of the Group’s
consolidated financial statements, except
when appropriate under a change in
accounting regulations; Or
Significant changes in the Group’s economic
capital or risk profile.
iv.
In 2017, 2018 and 2019 the accrual is conditioned,
in addition to the beneficiary permanence in the
Group, with the exceptions contained in the plan’s
regulations, to the non-occurrence of instances of
poor financial performance from the entity as a
whole or of a specific division or area thereof or of
the exposures generated by the personnel, at least
the following factors must be considered:
i.
Significant failures in risk management
committed by the entity, or by a business
unit or risk control unit;
the increase suffered by the entity or by a
business unit of its capital needs, not
foreseen at the time of generation of the
exposures;
Regulatory sanctions or court rulings for
events that could be attributable to the unit
or the personnel responsible for those. Also,
the breach of internal codes of conduct of
the entity; and
Irregular behaviours, whether individual or
collective, considering in particular negative
effects derived from the marketing of
inappropriate products and responsibilities
of persons or bodies that made those
decisions.
ii.
iii.
iv.
Paid half in cash and half in shares.
The maximum number of shares to be delivered is
calculated by taking into account the weighted
average daily volume of weighted average prices
for the fifteen trading sessions prior to the
previous Friday (excluding) on the date on which
the board decides the bonus for the Executive
directors of the Bank.
The funding of this incentive is subject to meeting
important milestones that are aligned with the
Group´s digital roadmap and have been approved
by the board of directors, taking into account the
digitalization strategy of the Group, with the aim
of becoming the best open, responsible global
financial services platform.
Performance of incentive shall be measured based
on achievement of the following milestones:
1. Launch of a Global Trade Services (GTS)
platform.
2. Launch of a Global Merchant Services (GMS)
platform
3. Migration of our fully digital bank, OpenBank,
to a "next generation" platform and launch in 3
markets
4. Extension of SuperDigital in Brazil to at least
one other country
First cycle (2016):
• Executive directors and members of the
Identified Staff with total variable remuneration
higher than or equal to 2.7 million euros: 40%
paid immediately and 60% deferred over a 5
year period.
• Senior managers, country heads of countries
representing at least 1% of the Group´s capital
and other members of the identified staff
whose total variable remuneration is between
1.7 million and 2.7 million euros: 50% paid
immediately and 50% deferred over a5 year
period.
• Other beneficiaries: 60% paid immediately and
40% deferred over a 3 year period.
The second, third and fourth cycles (2017, 2018
and 2019, respectively) are under the
aforementioned deferral rules, except that the
variable remuneration considered is the target for
each executive and not the actual award.
In 2016 the metrics for the deferred portion
subject to long-term objectives (last third or last
three fifths, respectively, for the cases of three year
and five year deferrals) are:
• Earnings per share (EPS) growth in 2018 over
2015.
• Relative Total Shareholder Return (TSR) in the
2016-2018 period measured against a group of
credit institutions.
• Compliance with the fully-loaded common
equity tier 1 (“CET1”) ratio target for financial
year 2018.
• Compliance with Santander Group’s underlying
return on risk-weighted assets (“RoRWA”)
growth target for financial year 2018 compared
to financial year 2015.
In the second, third and fourth cycle (2017, 2018
and 2019) the metrics for the deferred portion
subject to long-term objectives (last third or last
three fifths, respectively, for the cases of three year
and five year deferrals) are:
• EPS growth in 2019, 2020 and 2021 (over
2016, 2017 and 2018, for each respective cycle)
• Relative Total Shareholder Return (TSR)
measured against a group of 17 credit
institutions (second and third cycles) in the
periods 2017-2019 and 2018.-2019,
respectively, and against a group of 9 entities
(fourth cycle) for the 2019-2021 period.
• Compliance with the fully-loaded common
equity tier 1 (“CET1”) ratio target for financial
years 2019, 2020 and 2021, respectively.
After a review at the beginning of 2020 of the
achievement levels of the approved objectives and
underlying progress against them, the board of
directors approved 83% funding of the 2019
award.
The Digital Incentive is structured 50% in
Santander shares and 50% in options over
Santander shares, taking into account the fair value
of the option at the moment in which they are
granted. For Material Risk Takers subject to five
year deferrals, the Digital Incentive (shares and
options over shares) shall be delivered in thirds, on
the third, fourth and fifth anniversary from their
granting. For Material Risk Takers subject to three
year deferrals and employees not subject to
deferrals, delivery shall be done on the third
anniversary from their granting.
5. Launch of our international payments app
based on blockchain Pago FX to non-Santander
customers.
Vested share options can be exercised until
maturity, with all options lapsing after ten years
from granting
Any delivery of shares, either directly or via
exercise of options overs shares, will be subject
generally to the Group’s general malus & clawback
provisions as described in the Group’s
remuneration policy and to the continuity of the
beneficiary within the Santander Group. In this
regard, the board may define specific rules for non-
Identified Staff
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
ii. Santander UK plc
The long-term incentive plans on shares of the Bank
granted by management of Santander UK plc to its
employees are as follows:
Plans outstanding at 1 January 2017
Options granted (Sharesave)
Options exercised
Options cancelled (net) or not exercised
Plans outstanding at 31 December 2017
Options granted (Sharesave)
Options exercised
Options cancelled (net) or not exercised
Plans outstanding at 31 December 2018
Options granted (Sharesave)
Options exercised
Options cancelled (net) or not exercised
Plans outstanding at 31 December 2019
Exercise
price in
pounds Year
sterling* granted
Date of
Number of
commencement
persons** of exercise period period
Date of
expiry of
exercise
Employee group
4.91
2016
Employments
7,024
01/11/16
01/11/19
01/11/16
01/11/21
3.67
3.51
4.02
2017
Employments
4,260
01/11/17
01/11/20
01/11/17
01/11/22
3.77
3.4
3.46
2018
Employments
4,880
01/11/18
01/11/21
01/11/18
01/11/23
3.16
3.76
Number of
shares (in
thousand)
24,762
17,296
(338)
(12,804)
28,916
3,916
(1,918)
(3,713)
27,201
6,210
(3,340)
(3,233)
26,838
*
**
At 31 December, 2019, 2018, 2017 and 2016, the euro/pound sterling exchange rate was EUR 1.1754 GBP 1; EUR 1.1179 GBP 1, EUR 1.1271 GBP 1 and EUR
1.1680 GBP 1, respectively.
Number of accounts/contracts. A single employee may have more than one account/contract.
In 2008 the Group launched a voluntary savings scheme for
Santander UK employees (Sharesave Scheme) whereby
employees who join the scheme in 2017, 2018 and 2019
see deducted between GBP 5 and GBP 500 from their
net monthly pay over a period of three or five years. When
this period has ended, the employees may use the amount
saved to exercise options on shares of the Bank at an
exercise price calculated by reducing by up to 20% the
average purchase and sale prices of the Bank shares in the
three trading sessions prior to the approval of the scheme
by the UK tax authorities (HMRC). This approval must be
received within 21 to 41 days following the publication of
the Group’s results for the first half of the year. This scheme
was approved by the Board of Directors, at the proposal of
the appointments and remuneration committee, and, since
it involved the delivery of Bank shares, its application was
authorized by the Annual General Meeting held on June 21,
2008. Also, the scheme was authorized by the UK tax
authorities (HMRC) and commenced in September 2008. In
subsequent years, at the Annual General Meetings held on
June 19, 2009, June 11, 2010, June 17, 2011, March 30,
2012, March 22, 2013, March 28, 2014, March 27, 2015,
March 18, 2016, April 7, 2017, March 23, 2018, and April
12, 2019, respectively, the shareholders approved the
application of schemes previously approved by the board
and with similar features to the scheme approved in 2008.
iii. Fair value
The fair value of the performance share plans was
calculated as follows:
a) Deferred variable compensation plan linked to multi-year
objectives 2017, 2018 and 2019:
The Group calculates at the grant date the fair value of the
plan based on the valuation report of an independent
expert, Willis Towers Watson. According to the design of the
plan for 2017, 2018 and 2019 and the levels of
achievement of similar plans in comparable entities, the
expert concludes that the reasonable range for estimating
the initial achievement ratio is around 60% - 80%. It has
been considered that the fair value is 70% of the maximum.
d) Santander UK Sharesave plans:
The fair value of each option at the date of grant is
estimated using a partial differentiation equation model.
This model uses assumptions on the share price, the EUR/
GBP FX rate, the risk free interest rate, dividend yields, the
expected volatility of the underlying shares and the
expected lives of options granted. The weighted average
grant-date fair value of options granted during the year was
£0.49 (2018: £0.53, 2017: £1.02).
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Table of Contents
48. Other general administrative
expenses
a) Breakdown
The detail of Other general administrative expenses is as
follows:
Million euros
Property, fixtures and supplies
(Note 2.k)
2019
2018
2017
975
1,968
1,931
Technology and systems
2,161
1,550
1,257
Technical reports
Advertising
Taxes other than income tax
Communications
Surveillance and cash courier
services
Per diems and travel expenses
Insurance premiums
677
685
522
518
416
226
86
707
646
557
527
405
225
76
759
757
583
529
443
217
78
Other administrative expenses
1,872
1,828
1,799
8,138
8,489
8,353
The payments associated with short-term leases (leases
less than or equal to 12 months) and leases of low-value
assets, that the Group recognises as an expense in the
income statement is not material.
b) Technical reports and other
Technical reports includes the fees paid by the various
Group companies (detailed in the accompanying
Appendices) for the services provided by their respective
auditors, the detail being as follows:
The Audit fees heading includes mainly, audit fees for the
Banco Santander, S.A. individual and consolidated financial
statements, as the case may be, of the companies forming
part of the Group, the integrated audits prepared for the
annual report filling in the Form 20-F required by the U.S.
Securities and Exchange Commission (SEC) for those
entities currently required to do so, the internal control audit
(SOx) for those required entities, the audit of the
consolidated financial statements as of 30 June and, the
regulatory reports required by the auditor corresponding to
the different locations of the Santander Group.
The main concepts included in Audit-related fees
correspond to aspects such as the issuance of Comfort
letters, or other reviews required by different regulations in
relation to aspects such as, for example, Securitization.
The services commissioned from the Group's auditors meet
the independence requirements stipulated by the Audit Law,
the US SEC rules and the Public Company Accounting
Oversight Board (PCAOB), applicable to the Group, and they
did not involve in any case the performance of any work that
is incompatible with the audit function.
Lastly, the Group commissioned services from audit firms
other than PwC amounting to EUR 227.6 million in 2019
(2018: EUR 173.9 million; 2017: EUR 115.6 million,
respectively).
The "Audit Fees" caption includes the fees corresponding to
the audit for the year, regardless of the date on which the
audit was completed. In the event of subsequent
adjustments, which are not significant in any case, and for
purposes of comparison, they are presented in this note in
the year to which the audit relates. The rest of the services
are presented according to their approval by the Audit
Committee.
c) Number of branches
The number of offices at 31 December 2019 and 2018 is as
follow:
Million euros
Audit fees
Audit-related fees
Tax fees
All other fees
Total
2019
2018
2017
98.2
92.1
88.1
7.4
0.7
2.3
6.8
0.9
3.4
6.7
1.3
3.1
108.6 103.2
99.2
Number of branches
Spain
Group
Group
2019
2018
3,286
4,427
8,666
8,790
11,952 13,217
664
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
49. Gains or losses on non
financial assets, net
The detail of Gains/ (losses) on disposal of assets not
classified as non-current assets held for sale is as follow:
Million euros
Gains:
2019
2018
2017
Tangible and intangible assets
131
124
Investments
Of which:
Custody Business (Note 3)
Prisma
Allfunds Bank, S.A. (Note 3)
Losses:
Tangible and intangible assets
Investments
1,219
989
194
—
2
—
—
—
1,350
126
(55)
(4)
(59)
1,291
(92)
(6)
(98)
28
134
443
—
—
425
577
(43)
(12)
(55)
522
50. Gains or losses on non-current
assets held for sale not classified
as discontinued operations
The detail of Gains/(losses) on non-current assets held for
sale not classified as discontinued operations is as follows:
Million euros
Net balance
Tangible assets
Impairment (Note 12)
2019
2018
2017
(232)
(123)
(195)
(146)
(259)
(306)
Gain (loss) on sale (Note 12)
(86)
136
111
Other gains and other losses
—
—
(8)
(232)
(123)
(203)
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Table of Contents
51. Other disclosures
a) Residual maturity periods and average interest rates
The detail, by maturity, of the balances of certain items in
the consolidated balance sheet is as follows:
31 December 2019
Million euros
On Within 1
month
demand
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
years
Total
Average
interest
rate
101,067
—
—
—
—
—
—
101,067
0.70%
—
—
—
—
6,933
6,879
54
54
2,704
2,699
5
5
7,689
7,554
135
135
19,101
17,989
68,429
122,845
17,489
17,063
66,721
118,405
3.07%
1,612
1,612
926
926
1,708
1,708
4,440
4,440
1.84%
51,702
73,890
76,229
116,511
150,365
103,584
423,201
995,482
—
1,563
1,847
3,073
2,549
3,642
17,115
29,789
3.23%
51,702
72,327
74,382
113,438
147,816
99,942
406,086
965,693
Assets:
Cash, cash balances at Central
Banks and other deposits on
demand
Financial assets at fair value
through other comprehensive
income
Debt instruments
Loans and advances
Customers
Financial assets at amortised
cost
Debt instruments
Loans and advances
Central banks
Credits institutions
17,665
6,223
4,602
7,435
3,963
—
17,086
—
—
—
—
428
1,388
627
18,474
40,943
Customers
34,037
49,018
69,780
106,003
143,853
99,514
404,071
906,276
152,769
80,823
78,933
124,200
169,466
121,573
491,630
1,219,394
Liabilities:
Financial liabilities at amortised
cost
619,003
99,203
88,546
159,120
134,799
61,282
68,792
1,230,745
Deposits
607,051
76,101
61,627
111,190
64,781
14,224
7,443
942,417
Central banks
Credit institutions
Customer deposits
99
462
64
33,229
28,424
23,526
14,494
18,922
14,245
9,327
583,426
61,145
42,641
63,716
27,030
190
5,668
8,366
—
4,319
3,124
62,468
90,501
789,448
Marketable debt securities* **
—
16,008
22,569
47,808
65,545
46,577
59,712
258,219
Other financial liabilities
11,952
7,094
4,350
122
4,473
481
1,637
30,109
4.78%
1.04%
4.85%
4.15%
0.51%
2.97%
0.91%
2.38%
619,003
99,203
88,546
159,120
134,799
61,282
68,792
1,230,745
1.33%
Difference (assets less
liabilities)
(466,234)
(18,380)
(9,613)
(34,920)
34,667
60,291
422,838
(11,351)
Includes promissory notes, certificates of deposit and other short-term debt issues.
*
** See breakdown by type of debt (subordinated debt, senior unsecured debt, senior secured debt, notes and other securities) (see note 22).
The Group’s net borrowing position with the ECB was EUR
22,704 million at 31 December 2019, mainly because in last
period the Group borrowed funds under the ECB's targeted
longer-term refinancing operations (LTRO, TLTRO)
programme. (see note 20).
The Group has accounted as "On demand", those financial
liabilities assumed, in which the counterparty may require
the payments.
In addition, when the Group is committed to have amounts
available in different maturity periods, these amounts have
been accounted for in the first year, in which they may be
required.
Additionally, for issued financial guarantee contracts, the
Group has recorded the maximum amount of the financial
guarantee issued, in the first year in which the guarantee
could be executed.
666
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2018*
Million euros
On demand
Within 1
month
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than
5 years
Total
Average
interest
rate
113,663
—
—
—
—
—
—
113,663
0.61%
1,886
6,023
3,329
12,873
19,432
10,705
64,172
118,420
487
1,399
1,399
6,022
3,328
12,830
19,415
10,661
64,076
116,819
3.11%
1
1
1
1
43
43
17
17
44
44
96
96
1,601
1,601
1.41%
46,247
56,818
71,627
102,036
134,697
107,921
426,753
946,099
Assets:
Cash, cash balances at Central
Banks and other deposits on
demand
Financial assets at fair value
through other comprehensive
income
Debt instruments
Loans and advances
Customers
Financial assets at amortised
cost
Debt instruments
16
1,534
1,319
6,646
2,474
1,783
23,924
37,696
3.30%
Loans and advances
46,231
55,284
70,308
95,390
132,223
106,138
402,829
908,403
Central banks
Credit institutions
Customers
Liabilities:
Financial liabilities at amortised
cost
—
23
—
4
—
5,389
6,711
6,003
5,314
—
947
15,574
1,024
15,601
35,480
49,872
63,597
89,383
126,909
105,191
386,231
857,322
10,092
36,139
161,796
62,841
74,956
114,909
154,129
118,626
490,925
1,178,182
545,284
87,782
93,293
127,522
182,670
56,927
78,152
1,171,630
Deposits
536,134
74,440
67,406
91,958
107,459
18,833
6,871
903,101
Central banks
Credit institutions
Customer deposits
Marketable debt securities
Other financial liabilities
304
15,341
520,489
237
8,913
2,130
13,413
58,897
11,347
1,995
2,629
24,724
40,053
18,817
7,070
507
64,433
16,384
75,067
33,536
2,028
8,759
34,267
71,805
3,406
2,520
6,412
9,901
—
4,646
2,225
72,523
89,679
740,899
37,919
70,653
244,314
175
628
24,215
6.07%
1.66%
4.96%
4.22%
0.39%
2.19%
0.90%
2.59%
Difference (assets less
liabilities)
(383,488)
(24,941)
(18,337)
(12,613)
(28,541)
61,699
412,773
6,552
545,284
87,782
93,293
127,522
182,670
56,927
78,152
1,171,630
1.30%
*
**
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Includes promissory notes, certificates of deposit and other short-term debt issues.
667
Table of Contents
Assets:
Cash, cash balances at central
banks and other deposits on
demand
Financial assets available-for-
sale
Debt instruments
Loans and receivables
Debt instruments
Loans and advances
Central banks
Credits institutions
Customers
Liabilities:
Financial liabilities at amortised
cost
Deposits
Central banks
Credit institutions
Customer deposits
Marketable debt securities*
Other financial liabilities
Difference (assets less
liabilities)
31 December 2017
Million euros
On demand
Within 1
month
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than
5 years
Total
Average
interest
rate
110,995
—
—
—
—
—
—
110,995
0.53%
326
326
2,467
2,467
1,646
1,646
11,497
11,497
22,447
22,447
11,164
11,164
78,934
78,934
128,481
128,481
4.34%
57,000
58,686
53,218
96,689
119,541
112,786
405,093
903,013
249
1,381
997
2,073
2,317
1,656
8,870
17,543
3.06%
56,751
57,305
52,221
94,616
117,224
111,130
396,223
885,470
—
18,242
3,948
4,198
1,446
3,445
4,811
5,708
—
5,694
—
939
16,073
1,341
26,278
39,567
38,509
49,159
47,330
84,097
111,530
110,191
378,809
819,625
537,604
527,499
450
20,870
506,179
105
10,000
75,161
59,325
2,015
15,263
42,047
11,927
3,909
87,939
130,672
136,487
66,667
100,658
681
13,350
52,636
11,638
9,634
2,715
25,406
72,537
29,286
728
81,169
42,988
6,501
31,680
54,202
1,116
83,542
39,719
22,565
5,247
11,907
43,395
74,664
1,126,069
8,283
883,320
—
4,663
3,620
71,414
91,300
720,606
64,357
214,910
428
2,024
27,839
537,604
75,161
87,939
130,672
136,487
83,542
74,664
1,126,069
1.98%
(369,283)
(14,008)
(33,075)
(20,584)
5,623
40,702
420,536
29,911
5.10%
1.26%
5.44%
1.52%
4.61%
0.24%
2.40%
2.00%
2.56%
Held-to-maturity investments
—
—
—
1,902
122
294
11,173
13,491
168,321
61,153
54,864
110,088
142,110
124,244
495,200
1,155,980
*
Includes promissory notes, certificates of deposit and other short-term debt issues.
668
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The detail of the undiscounted contractual maturities of the
existing financial liabilities at amortised cost at 31
December 2019 is as follows:
31 December 2019
Million euros
Financial liabilities at amortised cost
Deposits
Central banks
Credit institutions
Customer
Marketable debt securities
Other financial liabilities
On demand
Within 1
month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
years
Total
603,126
75,899
61,107
109,747
99
23,348
579,679
—
11,952
454
14,491
60,954
16,252
7,094
41
18,810
42,256
22,912
4,350
32,805
14,134
62,808
48,030
122
63,013
28,255
8,519
26,239
64,650
4,473
14,027
7,228
934,147
190
5,478
8,359
—
4,113
3,115
61,844
88,893
783,410
45,830
58,215
255,889
481
1,637
30,109
615,078
99,245
88,369
157,899
132,136
60,338
67,080 1,220,145
31 December 2018*
Million euros
Financial liabilities at amortised cost
Deposits
Central banks
Credit institutions
Customer
Marketable debt securities
Other financial liabilities
On demand
Within 1
month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
years
Total
532,915
74,320
67,169
91,766
106,935
18,439
6,540
898,084
304
15,257
517,354
296
8,913
2,126
13,413
58,781
11,243
1,995
2,624
24,698
39,847
17,359
7,070
896
64,424
16,288
74,582
33,443
2,028
8,552
33,959
71,431
3,406
2,520
6,085
9,834
—
4,427
2,113
72,894
88,720
736,470
37,409
69,352
240,533
175
628
24,215
542,124
87,558
91,598
127,237
181,772
56,023
76,520 1,162,832
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
31 December 2017
Million euros
Financial liabilities at amortised cost
Deposits
Central banks
Credit institutions
Customer
Marketable debt securities
Other financial liabilities
On demand
Within 1
month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
years
Total
526,059
57,490
451
20,378
505,230
1,486
10,001
2,018
14,903
40,569
11,735
3,908
89,249
23,801
13,035
52,413
11,387
9,634
99,780
2,719
24,807
72,254
28,412
728
64,977
27,138
6,348
31,491
52,989
1,116
32,365
15,385
5,123
11,857
42,888
8,157
878,077
—
4,553
3,604
71,512
89,147
717,418
63,648
212,545
428
2,024
27,839
537,546
73,133
110,270
128,920
119,082
75,681
73,829 1,118,461
669
Table of Contents
Below is a breakdown of contractual maturities for the rest
of financial assets and liabilities as of 31 December 2019,
2018 and 2017:
31 December 2019
Million euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than
5 years
Total
FINANCIAL ASSETS
Financial assets held for trading
Derivatives
Equity instruments
Debt instruments
Loans and advances
Credits institutions
Customers
Financial assets designated at fair value
through profit or loss
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Non-trading financial assets mandatorily at
fair value through profit or loss
Equity instruments
Debt instruments
Loans and advances
Central banks
Credits institutions
Customers
Financial assets at fair value through other
comprehensive income
Equity instruments
Hedging derivatives
Changes in the fair value of hedged items in
portfolio hedges of interest rate risk
4,864
3,329
—
3,522
2,233
—
19,740
6,552
—
21,603
15,855
—
18,083
14,925
—
1,531
1,289
13,188
5,748
3,141
40,418
108,230
3,488
5,573
20,503
12,437
7,144
334
—
334
8,137
1,605
6,532
—
959
4,507
3,350
1,047
110
—
—
110
2,863
2,863
3,172
63,397
12,437
32,041
355
—
355
62,069
3,186
58,883
6,473
21,649
30,761
4,911
3,350
1,175
386
—
—
386
2,863
2,863
7,216
4
—
4
—
—
—
—
—
—
24,110
13,167
7,602
457
10
81
23,653
13,157
7,521
1,744
13,186
8,723
4,729
4,946
3,482
—
1,534
5,987
4
—
—
4
—
—
4
—
—
272
—
—
272
—
—
272
—
—
807
267
—
—
—
—
—
—
—
—
—
86
1
—
—
—
5,175
652
4,523
—
1,015
3,508
11
—
11
—
—
—
—
—
—
17
—
17
3,878
381
3,497
—
9
117
—
117
—
—
—
—
—
—
601
1,646
904
24
112
265
1,033
1,702
TOTAL FINANCIAL ASSETS
30,320
16,776
27,971
28,547
23,247
60,130
186,991
670
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
FINANCIAL LIABILITIES
Financial liabilities held for trading
Derivatives
Shorts positions
Deposits
Central banks
Credits institutions
Customers
Marketable debt securities
Other financial liabilities
Financial liabilities designated at fair value
through profit or loss
Deposits
Central banks
Credits institutions
Customers
Marketable debt securities*
Other financial liabilities
Hedging derivatives
Changes in the fair value of hedged items in
portfolio hedges of interest rate risk
31 December 2019
Million euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than 5
years
10,851
2,672
8,179
3,427
1,973
1,454
7,130
6,591
539
17,244
16,965
279
16,905
16,023
882
21,582
18,792
2,790
—
—
—
—
—
—
21,929
21,904
8,831
4,133
8,940
14
11
1,997
3
—
—
—
—
—
—
2,259
2,225
1,228
521
476
34
—
337
6
—
—
—
—
—
—
5,307
4,909
2,795
1,857
257
398
—
848
26
—
—
—
—
—
—
3,565
2,429
—
2,132
297
1,021
115
678
53
—
—
—
—
—
—
1,450
780
—
11
769
670
—
528
59
—
—
—
—
—
—
26,485
24,864
—
686
24,178
1,621
—
1,660
122
Total
77,139
63,016
14,123
—
—
—
—
—
—
60,995
57,111
12,854
9,340
34,917
3,758
126
6,048
269
TOTAL FINANCIAL LIABILITIES
34,780
6,029
13,311
21,540
18,942
49,849
144,451
*
Includes promissory notes, certificates of deposit and other short-term debt issues (see Note 22).
Memorandum items
Loans commitment granted
Financial guarantees granted
Other commitments granted
MEMORANDUM ITEMS
31 December 2019
Million of euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than 5
years
Total
98,630
2,176
44,950
16,529
30,370
37,097
48,072
10,481
241,179
1,791
3,052
5,626
9,957
1,933
4,606
1,364
4,132
760
2,198
13,650
68,895
145,756
21,372
45,953
43,636
53,568
13,439
323,724
In the Group’s experience, no outflows of cash or other
financial assets take place prior to the contractual maturity
date that might affect the information broken down above.
671
Table of Contents
31 December 2018
Million euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than
5 years
FINANCIAL ASSETS
Financial assets held for trading
Derivatives
Equity instruments
Debt instruments
Loans and advances
Credits institutions
Customers
Financial assets designated at fair value
through profit or loss
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Non-trading financial assets mandatorily at
fair value through profit or loss
Equity instruments
Debt instruments
Loans and advances
Central banks
Credits institutions
Customers
Financial assets at fair value through other
comprehensive income
Equity instruments
Hedging derivatives
Changes in the fair value of hedged items in
portfolio hedges of interest rate risk
4,512
2,691
—
1,821
—
—
—
3,564
3,165
—
399
—
—
—
21,598
13,045
604
7
20,994
13,038
1,211
14,587
5,196
5,433
4,131
3,474
3,215
—
1,876
1,339
—
2
1,337
—
—
609
106
346
—
20
326
—
—
326
—
—
166
7
6,793
899
—
22,084
15,189
—
19,350
14,098
—
5,894
6,895
5,252
—
—
—
5,625
304
5,321
2,582
778
1,961
17
—
—
17
—
—
17
—
—
—
—
—
5,215
727
4,488
—
1,327
3,161
125
—
—
125
—
—
125
—
—
—
—
—
4,065
348
3,717
—
579
3,138
2
—
2
—
—
—
—
—
—
474
2,167
957
36,576
19,897
8,938
7,539
202
—
202
7,912
1,232
6,680
—
1,695
4,985
7,025
3,260
3,689
76
—
—
76
2,671
2,671
4,234
Total
92,879
55,939
8,938
27,800
202
—
202
57,460
3,222
54,238
9,226
23,097
21,915
10,730
3,260
5,587
1,883
—
2
1,881
2,671
2,671
8,607
20
28
59
868
1,088
TOTAL FINANCIAL ASSETS
30,040
17,128
12,929
29,619
24,433
59,286
173,435
* See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
672
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
FINANCIAL LIABILITIES
Financial liabilities held for trading
Derivatives
Shorts positions
Deposits
Central banks
Credits institutions
Customers
Marketable debt securities
Other financial liabilities
Financial liabilities designated at fair value
through profit or loss
Deposits
Central banks
Credits institutions
Customers
Marketable debt securities
Other financial liabilities
Hedging derivatives
Changes in the fair value of hedged items in
portfolio hedges of interest rate risk
31 December 2018
Million euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than
5 years
10,473
2,897
7,576
3,351
2,874
477
1,104
822
282
16,123
14,323
1,800
16,457
14,956
1,501
22,835
19,469
3,366
—
—
—
—
—
—
29,574
29,522
9,804
8,809
10,909
13
39
485
3
—
—
—
—
—
—
7,017
6,947
4,940
949
1,058
70
—
144
5
—
—
—
—
—
—
864
627
72
271
284
237
—
321
23
—
—
—
—
—
—
1,497
531
—
188
343
556
410
362
64
—
—
—
—
—
—
999
455
—
229
226
544
—
651
60
—
—
—
—
—
—
28,107
27,222
—
445
26,777
885
—
4,400
148
Total
70,343
55,341
15,002
—
—
—
—
—
—
68,058
65,304
14,816
10,891
39,597
2,305
449
6,363
303
TOTAL FINANCIAL LIABILITIES
40,535
10,517
2,312
18,046
18,167
55,490
145,067
* See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Memorandum items
Loans commitment granted
Financial guarantees granted
Other commitments granted
MEMORANDUM ITEMS
31 December 2018
Million euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than 5
years
Total
71,860
2,100
58,431
12,436
22,749
35,632
43,205
32,201
218,083
1,737
1,486
4,437
6,174
1,728
2,650
1,029
3,503
692
2,145
11,723
74,389
132,391
15,659
33,360
40,010
47,737
35,038
304,195
* See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
673
Table of Contents
FINANCIAL ASSETS
Financial assets held for trading
Derivatives
Equity instruments
Debt instruments
Loans and advances
Credits institutions
Customers
Financial assets designated at fair value
through profit or loss
Equity instruments
Debt instruments
Loans and advances
Central banks
Credits institutions
Customers
Financial assets at fair value through other
comprehensive income
Equity instruments
Hedging derivatives
Changes in the fair value of hedged items in
portfolio hedges of interest rate risk
31 December 2017
Million euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than 5
years
Total
11,147
4,026
—
4,253
2,868
1,216
1,652
5,887
1,691
—
1,706
2,490
1
21,896
5,352
—
11,850
4,694
63
2,489
4,631
24,178
17,233
—
19,563
14,895
—
6,529
4,662
416
416
—
6
—
6
9,998
4,485
5,032
3,402
3,922
—
19
—
120
—
850
—
667
—
579
9,979
4,365
4,182
2,735
3,343
—
2,020
2,345
—
—
162
—
183
—
32
—
77
3,999
2,703
3,266
5,524
—
—
—
—
—
—
519
1,113
1,583
4,790
4,790
4,905
—
7,341
2,638
—
—
255
57
42,787
125,458
14,046
21,353
7,351
37
—
37
7,943
933
1,250
5,760
—
236
57,243
21,353
36,351
10,511
1,696
8,815
34,782
933
3,485
30,364
—
9,889
20,475
4,790
4,790
8,537
6
33
151
59
981
1,287
TOTAL FINANCIAL ASSETS
21,457
10,540
27,480
28,844
25,127
61,406
174,854
674
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2017
Million euros
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than 5
years
Total
FINANCIAL LIABILITIES
Financial liabilities held for trading
Derivatives
Shorts positions
Deposits
Central banks
Credits institutions
Customers
Marketable debt securities
Other financial liabilities
Financial liabilities designated at fair value
through profit or loss
Deposits
Central banks
Credits institutions
Customers
Marketable debt securities
Other financial liabilities
Hedging derivatives
Changes in the fair value of hedged items in
portfolio hedges of interest rate risk
38,976
3,698
8,060
27,218
282
292
4,073
2,070
468
1,535
—
—
26,644
1,535
—
—
30,152
30,083
6,038
16,521
7,524
69
—
40
—
—
—
5,166
4,730
2,077
1,485
1,168
436
—
79
—
22,496
107,624
7,177
5,951
1,226
17,913
15,634
2,279
16,989
14,897
2,092
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,642
6,854
—
—
—
—
—
—
1,635
1,065
1,251
191
1,120
425
20,292
19,477
745
63
257
570
—
180
2
—
—
191
471
589
493
1
—
97
328
695
—
677
31
—
—
19,477
815
—
6,575
302
57,892
20,979
28,753
282
292
28,179
—
—
59,616
55,971
8,860
18,166
28,945
3,056
589
8,044
330
TOTAL FINANCIAL LIABILITIES
69,168
9,318
8,990
19,656
18,817
49,665
175,614
31 December 2017
Million euros
Memorandum items
Loans commitment granted
Financial guarantees granted
MEMORANDUM ITEMS
Within 1
months
1 to 3
months
3 to 12
months 1 to 3 years 3 to 5 years
More than 5
years
Total
87,280
17,065
104,345
14,165
5,059
19,224
54,069
12,599
66,668
32,664
10,502
43,166
34,011
2,326
36,337
15,781
237,970
1,566
49,117
17,347
287,087
675
Table of Contents
b) Equivalent euro value of assets and liabilities
The detail of the main foreign currency balances in the
consolidated balance sheet, based on the nature of the
related items, is as follows:
Equivalent value in million euros
Cash, cash balances at central banks and other
deposits on demand
2019
2018*
2017
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
65,205
—
61,372
—
67,025
—
Financial assets/liabilities held for trading
60,526
45,262
56,217
40,989
82,004
76,459
Non-trading financial assets mandatorily at fair
value through profit or loss
Other financial assets/liabilities at fair value
through profit or loss
Financial assets/liabilities available-for-sale
Financial assets at fair value through other
comprehensive income
Financial assets at amortised cost
Loans and receivables
Investments held-to-maturity
Investments
Tangible assets
Intangible assets
Financial liabilities at amortised cost
Liabilities under insurance contracts
Other
2,611
—
8,231
—
25,938
29,593
32,244
35,997
7,322
21,766
76,402
656,564
1,355
24,662
21,942
—
—
—
—
—
67,926
598,629
1,189
19,903
23,016
65,691
—
553,301
11,490
1,121
15,971
23,499
—
—
—
—
—
—
—
—
—
—
—
752,188
13
—
—
694,362
29
—
—
638,680
58
25,410
23,428
24,506
20,567
23,695
20,989
960,615
850,484
893,233
791,944
851,119
757,952
*
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
c) Fair value of financial assets and liabilities not
measured at fair value
The financial assets owned by the Group are measured at
fair value in the accompanying consolidated balance sheet,
except for cash, cash balances at central banks and other
deposits on demand, loans and advances at amortised cost
(IFRS 9) and the loans and receivables, held-to-maturity
investments, equity instruments whose market value
cannot be estimated reliably and derivatives that have these
instruments as their underlyings and are settled by delivery
thereof (IAS 39).
Similarly, the Group’s financial liabilities -except for financial
liabilities held for trading, those measured at fair value and
derivatives other than those having as their underlying
equity instruments whose market value cannot be
estimated reliably- are measured at amortised cost in the
accompanying consolidated balance sheet.
676
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Following is a comparison of the carrying amounts of the
Group’s financial instruments measured at other than fair
value and their respective fair values at year-end:
i) Financial assets measured at other than fair value
Million euros
Assets
Loans and
advances
Debt
instruments
2019
2018
2017
Carrying
amount
Fair value
Level 1
Level 2
Level 3
Carrying
amount
Fair
value
Level 1
Level 2
Level 3
Carrying
amount
Fair
value
Level 1
Level 2
Level 3
965,693
975,523
—
82,045
893,478
29,789
30,031
10,907
9,971
9,153
908,403 914,013
—
88,091 825,922
885,470 895,645
— 141,839 753,806
37,696
38,095
20,898
11,246
5,951
31,034
31,094
10,994
13,688
6,412
995,482 1,005,554
10,907
92,016
902,631
946,099 952,108
20,898
99,337 831,873
916,504 926,739
10,994 155,527 760,218
ii) Financial liabilities measured at other than fair value
Million euros
2019
2018
2017
Liabilities*
Carrying
amount
Fair value
Level 1
Level 2
Level 3
Carrying
amount
Fair value
Level 1
Level 2
Level 3
Carrying
amount
Fair value
Level 1
Level 2
Level 3
Deposits
942,417
942,397
— 245,143 697,254
Debt
instruments
258,219
266,784
84,793 149,516
32,475
903,101
902,680
— 302,414 600,266
883,320
883,880
— 177,147 706,733
244,314
247,029
72,945 143,153
30,931
214,910
221,276
52,896 139,301
29,079
1,200,636 1,209,181
84,793 394,659 729,729
1,147,415 1,149,709 72,945 445,567 631,197
1,098,230 1,105,156 52,896 316,448 735,812
* At 31 December, 2019, the Group had other financial liabilities that amounted to EUR 30,109 million, EUR 24,215 million in 2018 and EUR 27,839 million in 2017.
The main valuation methods and inputs used in the
estimates at 31 December 2019 of the fair values of the
financial assets and liabilities in the foregoing table were as
follows:
• Loans and receivables: the fair value was estimated using
the present value method. The estimates were made
considering factors such as the expected maturity of the
portfolio, market interest rates, spreads on newly
approved transactions or market spreads -when
available-.
• Held-to-maturity investments: the fair value was
calculated based on market prices for these instruments
(only applicable as of 31 December 2017).
• Financial liabilities at amortised cost:
i) Deposits: the fair value of short term deposits was taken
to be their carrying amount. Factors such as the expected
maturity of the transactions and the Group’s current cost of
funding in similar transactions are consider for the
estimation of long term deposits fair value. It had been used
also current rates offered for de posits of similar remaining
maturities.
ii) Marketable debt securities and subordinated liabilities:
the fair value was calculated based on market prices for
these instruments -when available- or by the present value
method using market interest rates and spreads, as well as
using any significant input which is not observable with
market data if applicable.
iii) The fair value of cash, cash balances at central banks and
other deposits on demand was taken to be their carrying
amount since they are mainly short-term balances.
In addition, at 31 December 2017, equity instruments
amounting to EUR 1,211 million, (See note 2.d) recognised
as Financial assets available-for-sale (IAS 39) were
measured at cost in the consolidated balance sheet because
it was not possible to estimate their fair value reliably, since
they related to investments in entities not listed on
organised markets and, consequently, the non-observable
inputs were significant.
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Table of Contents
d) Exposure of the Group to Europe’s peripheral
countries
The detail at 31 December 2019, 2018 and 2017, by type of
financial instrument, of the Group’s sovereign risk exposure
to Europe’s peripheral countries and of the short positions
held with them, taking into consideration the criteria
established by the European Banking Authority (EBA) (see
Note 54) is as follows:
Sovereign risk by country of issuer/borrower at 31 December 2019*
Million euros
Debt instruments
MtM
Derivatives***
Financial
assets held for
trading and
financial assets
designated at
fair value
through profit
or loss
Financial
assets at fair
value through
other
comprehensive
income
Non-trading
financial assets
mandatorily
at fair value
through
profit or loss
Financial
assets at
amortised
cost
Short
positions
Loans and
advances to
customers**
Total net
direct
exposure
Direct
risk
Indirect
risk (CDS)s
Spain
Portugal
Italy
Ireland
9,090
(3,886)
19,961
31
1,095
—
(777)
(452)
—
5,450
1,631
—
—
—
—
—
208
577
442
—
9,993
35,366
474
3,408
19
—
8,689
2,735
—
—
5
—
—
—
(5)
—
*
**
***
Information prepared under EBA standards. Also, there are government debt instruments on insurance companies balance sheets amounting to EUR 14,517 million
(of which EUR 12,756 million, EUR 1,306 million, EUR 453 million and EUR 2 million relate to Spain, Portugal, Italy and Ireland, respectively) and off-balance-sheet
exposure other than derivatives – contingent liabilities and commitments– amounting to EUR 6,299 million (of which EUR 5,808 million, EUR 224 million and EUR
267 million to Spain, Portugal and Italy, respectively).
Presented without taking into account the valuation adjustments recognised (EUR 17 million).
“Other than CDSs" refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. “CDSs” refers to the
exposure to CDSs based on the location of the underlying.
Sovereign risk by country of issuer/borrower at 31 December 2018**
Million euros*
Debt instruments
MtM
Derivatives****
Financial
assets held for
trading and
financial assets
designated at
fair value
through profit
or loss
Financial
assets at fair
value through
other
comprehensive
income
Non-trading
financial assets
mandatorily
at fair value
through
profit or loss
Financial
assets at
amortised
cost
Short
positions
Loans and
advances to
customers***
Total net
direct
exposure
Direct
risk
Indirect
risk (CDS)s
Spain
Portugal
Italy
Ireland
3,601
(2,458)
72
477
—
(115)
(681)
—
27,078
4,794
—
—
—
—
—
—
7,804
13,615
49,640
407
277
385
—
3,725
8,753
80
—
261
—
—
87
2
—
—
—
—
*
**
See reconciliation of IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January 2018 (Note 1.d).
Information prepared under EBA standards. Also, there are government debt securities on insurance companies' balance sheets amounting to EUR 13,364 million
(of which EUR 11,529 million, EUR 1,415 million, EUR 418 million and EUR 2 million relate to Spain, Portugal, Italy and Ireland, respectively) and off-balance-sheet
exposure other than derivatives – contingent liabilities and commitments– amounting to EUR 5,622 million (of which EUR 4,870 million, EUR 366 million and EUR
386 million to Spain, Portugal and Italy, respectively).
Presented without taking into account the valuation adjustments recognised (EUR 34 million).
***
**** “Other than CDSs" refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. “CDSs” refers to the
exposure to CDSs based on the location of the underlying.
678
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Sovereign risk by country of issuer/borrower at 31 December 2017*
Million euros
Debt instruments
Financial
assets held for
trading and financial
assets designated at
fair value
through profit or loss
Financial
assets
available-
for-sale
Short
positions
MtM Derivatives***
Loans and
receivables
Held-to-
maturity
investments
Loans and
advances to
customers**
Total net
direct
exposure****
Direct risk
Indirect
risk (CDS)s
Spain
Portugal
Italy
6,940
(2,012)
37,748
1,585
1,906
208
1,962
(155)
(483)
5,220
4,613
232
—
3
—
16,470
3,309
16
62,637
8,817
6,108
(21)
—
(5)
—
—
5
*
Information prepared under EBA standards. Also, there are government debt securities on insurance companies’ balance sheets amounting to EUR 11,673 million (of
which EUR 10,079 million, EUR 1,163 million and EUR 431 million relate to Spain, Portugal and Italy, respectively) and off-balance-sheet exposure other than
derivatives – contingent liabilities and commitments– amounting to EUR 3,596 million (EUR 3,010 million, EUR 146 million and EUR 440 million to Spain, Portugal
and Italy, respectively).
Presented without taking into account the Other comprehensive income recognised (EUR 31 million).
**
*** Other than CDSs refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDSs refers to the
exposure to CDSs based on the location of the underlying.
**** EUR 19,601 million were included within the direct exposures of the balance sheet mainly from debt securities of Grupo Banco Popular S.A.U.
The detail of the Group's other exposure to other
counterparties (private sector, central banks and other
public entities that are not considered to be sovereign risks)
in the aforementioned countries at 31 December 2019,
2018 and 2017 is as follows:
Exposure to other counterparties by country of issuer/borrower at 31 December 2019***
Million euros
Debt instruments
MtM Derivatives**
Financial
assets held
for trading
and financial
assets
designated
at fair value
through
profit
or loss
656
190
625
—
55
Balances
with
central
banks
21,696
2,814
182
—
—
Reverse
repurchase
agreements
7,627
409
6,243
—
—
Spain
Portugal
Italy
Greece
Ireland
Financial
assets
at fair value
through other
comprehensive
income
Non-trading
financial
assets
mandatorily
at fair value
through profit
or loss
Financial
assets
at
amortised
cost
Loans and
advances
to
customers*
Total net
direct
exposure
Other
than
CDSs
1,195
32
606
—
1,718
321
—
—
—
592
1,501
2,956
153
—
22
194,817 227,813
2,417
33,403
39,804
12,284
20,093
12
12
11,875
14,262
931
512
—
232
CDSs
2
—
—
—
—
*
**
***
Also, the Group has off-balance-sheet exposure other than derivatives -contingent liabilities and commitments- amounting to EUR 77,468 million, EUR 7,749
million, EUR 4,948 million, EUR 201 million and EUR 996 million to counterparties in Spain, Portugal, Italy, Greece and Ireland, respectively.
Presented without taking into account valuation adjustments or impairment corrections (EUR 7,322 million).
“Other than CDSs” refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. “CDSs” refers to the
exposure to CDSs based on the location of the underlying.
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Table of Contents
Exposure to other counterparties by country of issuer/borrower at 31 December 2018****
Million euros*
Debt instruments
MtM Derivatives***
Financial
assets held
for trading
and financial
assets
designated
at fair value
through
profit
or loss
Financial
assets
at fair value
through other
comprehensive
income
Non-trading
financial
assets
mandatorily
at fair value
through profit
or loss
Financial
assets
at
amortised
cost
Loans and
advances
to
customers**
Total net
direct
exposure
412
1,760
11
84
—
21
90
635
—
1,093
320
—
—
—
16
2,662
3,821
—
—
25
202,149 258,075
33,596
38,887
10,830
17,896
80
80
10,633
11,788
Other
than
CDSs
3,880
1,132
253
28
127
CDSs
(6)
—
—
—
—
Balances
with
central
banks
42,655
1,369
51
—
—
Reverse
repurchase
agreements
8,117
—
6,296
—
—
Spain
Portugal
Italy
Greece
Ireland
*
**
See reconciliation of IAS 39 as of 31 December, 2017 to IFRS 9 as of 1 January, 2018 (Note 1.d).
Also, the Group has off-balance-sheet exposure other than derivatives -contingent liabilities and commitments- amounting to EUR 76,691 million, EUR 8,158
million, EUR 5,193 million, EUR 200 million and EUR 850 million to counterparties in Spain, Portugal, Italy, Greece and Ireland, respectively.
Presented without taking into account valuation adjustments or impairment corrections (EUR 9,385 million).
***
**** “Other than CDSs” refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. “CDSs” refers to the
exposure to CDSs based on the location of the underlying.
Exposure to other counterparties by country of issuer/borrower at 31 December 2017*
Million euros
Debt instruments
Derivatives***
Balances
with central
banks
Reverse
repurchase
agreements
36,091
761
17
—
—
6,932
178
2,416
—
—
Spain
Portugal
Italy
Greece
Ireland
Financial assets
held for trading
and financial assets
designated at fair
value through
profit or loss
623
160
438
—
20
Financial
assets
available-
for-sale
4,784
764
1,010
—
476
Loans and
receivables
Investments
held-to-
maturity
Loans and
advances to
customers**
Total net
direct
exposure*
***
Other
than
CDSs
2,880
4,007
—
—
584
—
106
—
—
—
210,976
262,286 2,299
35,650
41,626 1,416
10,015
13,896
211
56
56
1,981
3,061
30
79
CDSs
2
—
5
—
—
*
**
***
Also, the Group has off-balance-sheet exposure other than derivatives -contingent liabilities and commitments- amounting to EUR 81,072 million, EUR 8,936
million, EUR 4,310 million, EUR 200 million and EUR 714 million, of which Grupo Banco Popular S.A.U. EUR 15,460 million, to counterparties in Spain, Portugal, Italy,
Greece and Ireland, respectively.
Presented excluding Other comprehensive income and impairment losses recognised (EUR 10,653 million of which around EUR 3,986 of Grupo Banco Popular
S.A.U.).
“Other than CDSs” refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. “CDSs” refers to the
exposure to CDSs based on the location of the underlying.
**** EUR 83,625 million were included within the direct exposures of the balance sheet mainly from debt securities of Grupo Banco Popular S.A.U.
680
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Following is certain information on the notional amount of
the CDSs at 31 December 2019, 2018 and 2017 detailed in
the foregoing tables:
31/12/2019
Million euros
Spain
Portugal
Italy
Sovereign
Other
Sovereign
Other
Sovereign
Other
31/12/2018
Million euros
Spain
Portugal
Italy
31/12/2017
Million euros
Sovereign
Other
Sovereign
Other
Sovereign
Other
Spain
Portugal
Italy
Sovereign
Other
Sovereign
Other
Sovereign
Other
Notional amount
Fair value
Bought
—
127
27
—
314
60
Sold
—
340
27
—
9
60
Net
—
(213)
—
—
305
—
Bought
Sold
Net
—
(2)
—
—
(5)
(2)
—
4
—
—
—
2
—
2
—
—
(5)
—
Notional amount
Fair value
Bought
—
151
26
—
—
205
Sold
—
382
26
—
265
75
Net
—
(231)
—
—
(265)
130
Bought
Sold
Net
—
(2)
—
—
—
(5)
—
(4)
—
—
—
5
—
(6)
—
—
—
—
Notional amount
Fair value
Bought
—
324
25
1
25
225
Sold
—
499
128
1
450
201
Net
—
(175)
(103)
—
(425)
24
Bought
Sold
Net
—
(3)
(1)
—
—
(3)
—
5
1
—
5
8
—
2
—
—
5
5
681
Table of Contents
52. Primary and secondary
segments reporting
The segment reporting is based on financial information
presented to the chief operating decision maker, which
excludes certain items included in the statutory results that
distort year-on-year comparisons and are not considered for
management reporting purposes. This financial information
(“underlying basis”) is computed by adjusting reported
results for the effects of certain gains and losses (e.g.:
capital gains, write-downs, etc.). These gains and losses are
items that management and investors ordinarily identify
and consider separately to understand better the underlying
trends in the business.
The Group has aligned the information in this operating
segment Note in a manner consistent with the underlying
information used internally for management reporting
purposes and with that presented throughout the Group’s
other public documents.
The Group executive committee has been determined to be
the chief operating decision maker for the Group. The
Group’s operating segments reflect its organizational and
management structures. The Group executive committee
reviews the Group’s internal reporting based around these
segments in order to assess performance and allocate
resources.
The segments are differentiated by the geographical area
where profits are earned and by type of business. The
financial information of each reportable segment is
prepared by aggregating the figures for the Group’s various
geographic areas and business units.
Our results are affected by the change in our reported
segments resulting from new criteria to measure our
segments´ profits or loss and from the new composition of
our segments starting with the financial information for the
first half 2019 to reflect our current reporting structure. The
main changes, which have been applied to all segment
information for all periods included in the consolidated
financial statements, are the following:
i. Primary segments
• Creation of the new geographic segment Europe that
includes the existing units under the previous Continental
Europe segment (Spain, Portugal, Poland and Santander
Consumer Finance) plus the UK (that was previously a
segment on its own.
• Creation of the new geographic segment North America
that comprises the existing units under the previous US
segment plus Mexico.
• Creation of the new geographic segment South America
that comprises the existing units under the previous Latin
America segment except for Mexico.
• Creation of a new reporting unit segment, Santander
Global Platform, which includes our global digital services
under a single unit:
– Our fully digital native bank Openbank S.A. and Open
Digital Services, S.L.
682
2019 Annual Report
– Global Payments Services: payments platform to better
serve our customers with value propositions developed
globally, including Global Merchant Services, Global
Trade Services, Superdigital y Pago FX.
– Digital Assets: common digital assets and Centres of
Digital Expertise which help our banks in their digital
transformation.
ii. Secondary segments
• The Real Estate Activity Spain unit, that was previously a
segment reported on its own, is now included in Retail
Banking.
• The insurance business, previously included in Retail
Banking, is now included in the Wealth Management
segment, which was renamed Wealth Management &
Insurance.
• The new digital segment (Santander Global Platform) is
also incorporated as a secondary segment.
• Finally, the change in reported segments also includes
adjustments of the clients of the Global Customer
Relationship Model between Retail Banking and
Santander Corporate & Investment Banking and between
Retail Banking and Wealth Management & Insurance.
After these changes, the operating business areas are
structured in two levels:
a) Primary segments
This primary level of segmentation, which is based on the
Group's management structure, comprises five reportable
segments: four operating areas plus the Corporate Center.
The operating areas, are: Europe, South America, North
America and Santander Global Platform.
The Europe area encompasses all the business activities
carried on in the region, including the business activities
carried on by the various Group units and branches with a
presence in the UK.
The North America area includes all the financial activities
carried on by the Group through its banks and subsidiaries
in Mexico and the United States; activities in the US include
the holding company (SHUSA) and the businesses of
Santander Bank, National Association, Santander Consumer
USA Holdings Inc., Banco Santander Puerto Rico, Banco
Santander International's specialised unit and the New York
branch.
The South America area includes all the financial activities
carried on by the Group through its banks and subsidiaries
in the region.
The Santander Global Platform segment consolidates all
global digital initiatives.
The Group has considered the aggregation criteria of IFRS8
for purposes of identifying these reportable segments.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The Corporate Centre segment includes the centralised
management business relating to financial investments,
financial management of the structural currency position,
within the remit of the Group's corporate asset and liability
management committee, and management of liquidity and
equity through issues.
With regard to the balance sheet, due to the required
segregation of the various business units (included in a
single consolidated balance sheet), the amounts lent and
borrowed between the units are shown as increases in the
assets and liabilities of each business. These amounts
relating to intra-Group liquidity are eliminated and are
shown in the Intra-Group eliminations column in the table
below in order to reconcile the amounts contributed by each
business unit to the consolidated Group's balance sheet.
There are no customers located in any of the areas that
generate income exceeding 10% of Total income.
The condensed balance sheets and income statements of
the various primary segments are as follows:
Million euros
(Condensed) balance sheet
Total Assets
Europe
North
America
South
America
2019
Santander
Global
Platform
Corporate
Centre
Intra-Group
eliminations
Total
1,057,038
223,857
253,804
10,234
168,352
(190,590) 1,522,695
Loans and advances to customers
676,904
133,726
125,122
702
5,764
—
942,218
Cash, balances at central banks and credit
institutions and other deposits on demand
Debt instruments
Other financial assets
Other asset accounts
Total Liabilities
Customer deposits
Central banks and credit institutions
Marketable debt securities
Other financial liabilities***
Other liabilities accounts****
Total Equity
Other customer funds under management
Investment funds
Pension funds
Assets under management
Other non-managed marketed customer
funds
180,389
104,381
53,893
41,471
22,885
33,746
10,759
22,741
51,360
45,619
14,802
16,901
1,000,905
199,955
231,321
600,380
189,791
133,544
60,807
16,383
56,133
86,558
62,203
11,746
12,609
98,915
38,942
44,098
11,763
6,237
23,902
14,319
11,703
98
2,518
114,817
41,989
29,840
34,062
10,613
22,483
76,023
69,071
—
6,952
9,063
32,803
(107,894)
188,606
10
187
272
9,760
9,460
82
—
106
112
474
—
—
—
—
840
2,406
—
—
184,596
82,047
126,539
(82,696)
125,228
77,989
(107,894) 1,412,036
793
12,253
54,495
636
9,812
—
824,365
(107,894)
175,163
—
—
—
261,977
107,374
43,157
90,363
(82,696)
110,659
11
11
—
—
—
—
—
—
—
—
176,911
142,988
11,844
22,079
49,489
33,107
15,872
60
450
*
**
***
****
Including Trading derivatives and Equity instruments.
Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Non-current assets held for sale, Assets under insurance
or reinsurance contracts, tangible assets, intangible assets, tax assets, other assets and non-current assets held for sale.
Including Trading derivatives, Short positions and Other financial liabilities.
Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Liabilities under insurance or reinsurance contracts,
provisions, tax liabilities, other liabilities and liabilities associated with non-current assets held for sale.
683
Table of Contents
Million euros
(Condensed) balance sheet
Total Assets
Europe
North
America
South
America
2018
Santander
Global
Platform
Corporate
Centre
Intra-Group
eliminations
Total
1,020,737
200,919
237,480
8,781
170,614
(179,260) 1,459,271
Loans and advances to customers
639,966
116,196
119,912
337
6,509
1
882,921
Cash, balances at central banks and credit
institutions and other deposits on demand
172,298
28,845
48,318
8,168
39,840
(100,400)
197,069
Debt instruments
Other financial assets*
Other asset accounts**
Total Liabilities
Customer deposits
Central banks and credit institutions
Marketable debt securities
Other financial liabilities***
Other liabilities accounts****
Total Equity
Other customer funds under management
Investment funds
Pension funds
Assets under management
Other non-managed marketed customer funds
118,221
49,263
40,989
27,302
9,974
18,602
45,224
9,311
14,715
966,727
179,046
215,605
571,834
192,685
129,574
53,687
18,947
54,010
76,524
55,239
11,062
10,223
28,555
91,895
26,048
43,758
11,379
5,966
21,873
12,785
10,436
98
2,251
13,528
108,248
38,584
31,504
28,570
8,699
21,875
68,172
61,515
—
6,657
128
—
146
130
8,492
8,284
111
—
38
59
289
367
367
—
—
—
377
2,113
—
1
191,124
70,808
121,775
(78,862)
117,349
82,439
(100,399) 1,351,910
235
—
780,496
30,879
(100,398)
187,909
41,783
1,334
8,208
—
(1)
—
246,619
95,007
41,879
88,175
(78,861)
107,361
7
7
—
—
—
—
—
—
—
—
157,855
127,564
11,160
19,131
42,211
*
**
***
****
Including Trading derivatives and Equity instruments.
Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Non-current assets held for sale, Assets under insurance
or reinsurance contracts, tangible assets, intangible assets, tax assets, other assets and non-current assets held for sale.
Including Trading derivatives, Short positions and Other financial liabilities.
Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Liabilities under insurance or reinsurance contracts,
provisions, tax liabilities, other liabilities and liabilities associated with non-current assets held for sale.
684
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
(Condensed) balance sheet
Total Assets
Europe
North
America
South
America
2017
Santander
Global
Platform
Corporate
Centre
Intra-Group
eliminations
Total
1,023,053
172,591
235,144
7,372
157,126
(150,981) 1,444,305
Loans and advances to customers
623,604
98,424
121,467
92
5,326
2
848,915
Cash, balances at central banks and credit
institutions and other deposits on demand
Debt instruments
Other financial assets*
Other asset accounts**
Total Liabilities
Customer deposits
Central banks and credit institutions
Marketable debt securities
Other financial liabilities***
Other liabilities accounts****
Total Equity
Other customer funds under management
Investment funds
Pension funds
Assets under management
Other non-managed marketed customer funds
155,203
125,848
64,608
53,790
23,256
27,519
8,996
46,131
44,148
8,599
14,396
14,799
966,064
152,455
211,148
576,072
179,057
122,325
67,041
21,569
56,989
82,287
60,254
11,490
10,543
27,790
81,581
112,874
24,131
31,344
10,183
5,216
20,136
12,790
10,371
—
2,419
13,561
31,366
29,267
28,403
9,238
23,996
70,811
64,514
—
6,297
47
7,128
25,897
(69,190)
188,425
68
—
84
7,135
6,981
63
—
44
47
237
686
610
76
—
—
1,768
2,116
—
—
199,351
84,319
122,019
(81,793)
123,295
69,860
(69,190) 1,337,472
222
24,887
35,030
1,628
8,093
—
777,730
(69,190)
190,314
—
—
—
217,966
107,299
44,163
87,266
(81,791)
106,833
—
—
—
—
—
—
—
—
—
—
166,574
135,749
11,566
19,259
41,398
*
**
***
****
Including Trading derivatives and Equity instruments.
Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Non-current assets held for sale, Assets under insurance
or reinsurance contracts, tangible assets, intangible assets, tax assets, other assets and non-current assets held for sale.
Including Trading derivatives, Short positions and Other financial liabilities.
Including Hedging derivatives, Changes in the fair value of hedged items in portfolio hedges of interest risk, Liabilities under insurance or reinsurance contracts,
provisions, tax liabilities, other liabilities and liabilities associated with non-current assets held for sale.
685
Table of Contents
The condensed income statements for the primary
segments are as follows:
Million euros
2019
(Condesed) Underlying income statement
Europe North America South America
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and
amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Profit from continuing operations
Net profit from discontinued operations
Consolidated profit
Non-controlling interests
Attributable profit to the parent
14,201
5,260
1,036
504
8,926
1,776
230
672
13,316
4,787
565
(243)
21,001
11,604
18,425
(11,044)
9,957
(1,839)
(768)
7,350
(1,979)
5,371
—
5,371
493
4,878
(4,967)
6,637
(3,656)
(205)
2,776
(683)
2,093
—
2,093
426
1,667
(6,656)
11,769
(3,789)
(748)
7,232
(2,644)
4,588
—
4,588
664
3,924
Santander
Global
Platform
92
6
(3)
(14)
81
(240)
(159)
(1)
(6)
(166)
46
(120)
—
(120)
—
(120)
Corporate
centre
(1,252)
(50)
(297)
(18)
Total
35,283
11,779
1,531
901
(1,617)
49,494
(373)
(23,280)
(1,990)
(36)
(237)
(2,263)
157
(2,106)
—
(2,106)
(9)
(2,097)
26,214
(9,321)
(1,964)
14,929
(5,103)
9,826
—
9,826
1,574
8,252
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement – reclassification of financial assets at amortized cost. Additionally, includes a release of EUR 31 million
mainly corresponding to the results by commitments and contingent risks includes in the line of the statutory income statement of provisions or reversal of
provisions.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except a release EUR 31 million mainly corresponding to the results by commitments and
contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial assets,
net; Negative goodwill recognised in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
686
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
(Condesed) Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and
amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Profit from continuing operations
Net profit from discontinued operations
Consolidated profit
Non-controlling interests
Attributable profit to the parent
Europe
14,204
5,434
1,114
505
North
America
8,154
1,615
173
534
2018
South
America
12,891
4,497
498
(212)
21,257
10,476
17,674
(11,166)
10,091
(1,572)
(1,027)
7,492
(2,020)
5,472
—
5,472
424
5,048
(4,488)
5,988
(3,449)
(202)
2,337
(599)
1,738
—
1,738
434
1,304
(6,557)
11,117
(3,737)
(663)
6,717
(2,642)
4,075
—
4,075
624
3,451
Santander
Global
Platform
Corporate
Centre
(987)
(68)
12
(14)
Total
34,341
11,485
1,797
801
(1,057)
48,424
79
7
—
(12)
74
(142)
(68)
(426)
(22,779)
(1,483)
25,645
—
(2)
(70)
17
(53)
—
(53)
1
(54)
(115)
(101)
(8,873)
(1,995)
(1,699)
14,777
14
(1,685)
—
(1,685)
—
(1,685)
(5,230)
9,547
—
9,547
1,483
8,064
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement – reclassification of financial assets at amortized cost. Additionally, includes a release of EUR 113 million
mainly corresponding to the results by commitments and contingent risks includes in the line of the statutory income statement of provisions or reversal of
provisions.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except a release of EUR 113 million mainly corresponding to the results by commitments and
contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial assets,
net; Negative goodwill recognised in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
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Table of Contents
Million euros
(Condesed) Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and
amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Profit from continuing operations
Net profit from discontinued operations
Consolidated profit
Non-controlling interests
Attributable profit to the parent
Europe
13,529
5,163
907
463
North
America
8,170
1,721
159
370
2017
South
America
13,383
4,744
863
69
20,062
10,420
19,059
(10,454)
9,608
(1,313)
(1,207)
7,088
(1,980)
5,108
—
5,108
408
4,700
(4,580)
5,840
(3,685)
(129)
2,026
(486)
1,540
—
1,540
422
1,118
(7,339)
11,720
(4,067)
(1,290)
6,363
(2,156)
4,207
—
4,207
620
3,587
Santander
Global
Platform
Corporate
Centre
63
7
—
(11)
59
(67)
(8)
—
(6)
(14)
2
(12)
—
(12)
—
(12)
(849)
(38)
(225)
(94)
Total
34,296
11,597
1,704
797
(1,206)
48,394
(477)
(22,917)
(1,683)
25,477
(46)
(181)
(9,111)
(2,813)
(1,910)
13,553
32
(1,878)
—
(1,878)
(1)
(1,877)
(4,588)
8,965
—
8,965
1,449
7,516
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement – reclassification of financial assets at amortized cost. Additionally, includes a release of EUR 50 million
mainly corresponding to the results by commitments and contingent risks includes in the line of the statutory income statement of provisions or reversal of
provisions.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except a release of EUR 50 million mainly corresponding to the results by commitments and
contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial assets,
net; Negative goodwill recognised in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
688
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
b) Secondary segments
At this secondary level of segment reporting, the Group is
structured into Retail Banking, Santander Corporate &
Investment Banking (SCIB), Wealth Management &
Insurance and Santander Global Platform; the sum of these
segments is equal to that of the primary geographical
reportable segments and total figures for the Group are
obtained by adding the data for the Corporate Centre.
Considering the aforementioned information, the business
segments are now conformed as follows:
•
•
Retail Banking: this covers all customer banking
businesses, including consumer finance, except those
of corporate banking, which are managed through
Santander Corporate & Investment Banking, and asset
management, private banking and insurance, which are
managed by Wealth Management & Insurance. The
results of the hedging positions in each country are
also included, conducted within the sphere of each
one’s assets and liabilities committee.
Santander Corporate & Investment Banking (SCIB): This
business reflects revenue from global corporate
banking, investment banking and markets worldwide
including treasuries managed globally (always after
the appropriate distribution with Retail Banking
customers), as well as equities business.
• Wealth Management & Insurance: Includes the asset
management business (Santander Asset Management,
S.A., S.G.I.I.C.), the insurance business, the corporate
unit of Private Banking and International Private
Banking in Miami and Switzerland.
•
Finally, the Santander Global Platform segment
includes in a single unit all global digital initiatives.
Although the Santander Global Platform and the Wealth
Management & Insurance business segments do not meet
the quantitative thresholds defined in IFRS 8, such
segments are considered reportable by the Group and
separately disclosed because the Group management
believes that information about these segments is useful to
users of the financial statements.
There are no customers in any of the business segments
that generate income exceeding 10% of total income.
689
Table of Contents
The condensed income statements are as follows:
Million euros
(Condensed) Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and
amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Profit from continuing operations
Net profit from discontinued operations
Consolidated profit
Non-controlling interests
Attributable profit to the parent
Retail
Banking
33,157
9,094
975
297
43,523
(19,481)
24,042
(9,154)
(1,623)
13,265
(4,156)
9,109
—
9,109
1,361
7,748
2019
Santander
Corporate &
Investment
Banking
Wealth
Management &
Insurance
Santander
Global
Platform
2,721
1,528
740
295
5,284
(2,275)
3,009
(155)
(86)
2,768
(838)
1,930
—
1,930
169
1,761
565
1,201
116
341
2,223
(911)
1,312
25
(12)
1,325
(312)
1,013
—
1,013
53
960
Corporate
centre
Total
(1,252)
35,283
(50)
11,779
(297)
(18)
1,531
901
(1,617)
49,494
(373)
(23,280)
(1,990)
26,214
(36)
(237)
(9,321)
(1,964)
(2,263)
14,929
157
(5,103)
(2,106)
9,826
92
6
(3)
(14)
81
(240)
(159)
(1)
(6)
(166)
46
(120)
—
—
(120)
(2,106)
—
(9)
(120)
(2,097)
—
9,826
1,574
8,252
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement. Additionally, includes a release of EUR 31 million mainly corresponding to the results by commitments
and contingent risks included in the line provisions or reversal of provisions, net of the statutory income statement.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except a release of EUR 31 million mainly corresponding to the results by commitments and
contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial assets,
net; Negative goodwill recognized in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
690
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
(Condensed) Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and
amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Profit from continuing operations
Net profit from discontinued operations
Consolidated profit
Non-controlling interests
Attributable profit to the parent
2018
Santander
Corporate &
Investment
Banking (SCIB)
Wealth
Management &
Insurance
Santander
Global
Platform
2,461
1,534
898
184
5,077
527
1,142
131
299
2,099
79
7
—
(12)
74
Retail
Banking
32,261
8,870
756
344
42,231
Corporate
Centre
Total
(987)
34,341
(68)
12
(14)
11,485
1,797
801
(1,057)
48,424
(19,237)
(2,101)
(873)
(142)
(426)
(22,779)
22,994
(8,549)
(1,791)
12,654
(4,144)
8,510
—
8,510
1,272
7,238
2,976
(199)
(97)
2,680
(832)
1,848
—
1,848
157
1,691
1,226
(10)
(4)
1,212
(285)
927
—
927
52
875
(68)
—
(2)
(70)
17
(53)
—
(53)
1
(54)
(1,483)
25,645
(115)
(101)
(8,873)
(1,995)
(1,699)
14,777
14
(5,230)
(1,685)
9,547
—
(1,685)
1
(1,686)
—
9,547
1,483
8,064
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement. Additionally, includes a release of EUR 113 million mainly corresponding to the results by commitments
and contingent risks included in the line provisions or reversal of provisions, net of the statutory income statement.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except a release of EUR 113 million mainly corresponding to the results by commitments and
contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial assets,
net; Negative goodwill recognized in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
691
Table of Contents
Million euros
(Condensed) Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and
amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Profit from continuing operations
Net profit from discontinued operations
Consolidated profit
Non-controlling interests
Attributable profit to the parent
2017
Santander
Corporate &
Investment
Banking (SCIB)
Wealth
Management &
Insurance
Santander
Global
Platform
2,442
1,621
1,207
221
5,491
(2,028)
3,463
(682)
(80)
2,701
(747)
1,954
—
1,954
182
1,772
471
712
37
426
1,646
(593)
1,053
(9)
(11)
1,033
(187)
846
—
846
50
796
63
7
—
(11)
59
(67)
(8)
—
(6)
(14)
2
(12)
—
(12)
—
(12)
Retail
Banking
32,169
9,295
685
255
42,404
(19,752)
22,652
(8,374)
(2,535)
11,743
(3,688)
8,055
—
8,055
1,218
6,837
Corporate
Centre
Total
(849)
34,296
(38)
11,597
(225)
(94)
1,704
797
(1,206)
48,394
(477)
(22,917)
(1,683)
25,477
(46)
(181)
(9,111)
(2,813)
(1,910)
13,553
32
(4,588)
(1,878)
8,965
—
(1,878)
(1)
(1,877)
—
8,965
1,449
7,516
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement. Additionally, includes a release of EUR 50 million mainly corresponding to the results by commitments
and contingent risks included in the line provisions or reversal of provisions, net of the statutory income statement.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except a release of EUR 50 million mainly corresponding to the results by commitments and
contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial assets,
net; Negative goodwill recognized in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
692
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
c) Reconciliations of reportable segment results
The tables below reconcile the underlying basis results to
the statutory results for each of the periods presented as
required by IFRS 8. For the purposes of these
reconciliations, all material reconciling items are separately
identified and described.
The Group’s assets and liabilities for management reporting
purposes do not differ from the statutory reported figures
and therefore are not reconciled.
Million euros
2019
Reconciliation of underlying results to statutory results
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Consolidated profit
Non-controlling interests
Attributable profit to the parent
Underlying
results
Adjustments
Statutory
results
35,283
11,779
1,531
901
49,494
(23,280)
26,214
(9,321)
(1,964)
14,929
(5,103)
9,826
1,574
8,252
—
—
—
(265)
(265)
—
(265)
—
(2,121)
(2,386)
676
(1,710)
27
(1,737)
35,283
11,779
1,531
636
49,229
(23,280)
25,949
(9,321)
(4,085)
12,543
(4,427)
8,116
1,601
6,515
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement – reclassification of financial assets at amortized cost. Additionally, includes a release of EUR 31 million
mainly corresponding to the results by commitments and contingent risks includes in the line of the statutory income statement of provisions or reversal of
provisions.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except for a release of 31 million euros mainly corresponding to results from commitments
and contingent risks, Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial
assets, net; Negative goodwill recognized in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
Explanation of adjustments:
• Impairment of goodwill assigned to Santander UK and
provisions for PPI in the UK, with a net impact of EUR
-1,491 million and EUR -183 million, respectively,
reflected in "Other gains (losses) and provisions".
• Restructuring costs with a net impact of EUR -864 million,
which are included gross in "Other gains (losses) and
provisions".
• Losses related to the real estate assets and stakes in
Spain, with a net impact of EUR -405 million which are
included in the headings "Other operating income" and
"Other gains (losses) and provisions".
• Provisions related to intangible assets and others,
amounting to -174 million euros, which are included for
their gross amount in the line "Other gains (losses) and
provisions".
• Capital gains on the sale of holdings in Prisma and on the
integration of the custody business with a net impact of
EUR 136 million and EUR 693 million, respectively, which
are reflected grossly in "Other gains (losses) and
provisions".
• Positive impact of the change in Brazilian tax regulations,
net of EUR 551 million, included in "Tax on profit".
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Table of Contents
Million euros
Reconciliation of underlying results to statutory results
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Consolidated profit
Non-controlling interests
Attributable profit to the parent
2018
Underlying
results
Adjustments
Statutory
results
34,341
11,485
1,797
801
48,424
(22,779)
25,645
(8,873)
(1,995)
14,777
(5,230)
9,547
1,483
8,064
—
—
—
—
—
—
—
—
(576)
(576)
344
(232)
22
(254)
34,341
11,485
1,797
801
48,424
(22,779)
25,645
(8,873)
(2,571)
14,201
(4,886)
9,315
1,505
7,810
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement – reclassification of financial assets at amortized cost. Additionally, includes a release of EUR 113 million
mainly corresponding to the results by commitments and contingent risks includes in the line of the statutory income statement of provisions or reversal of
provisions.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except for a release of EUR 113 million mainly corresponding to results from commitments
and contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial
assets, net; Negative goodwill recognized in results and Gains or losses on non-current assets held for sale not classified as discontinued operations
Explanation of adjustments
• Restructuring costs: The net impact of EUR -300 million
on Profit attributable to the Parent, relates to
restructuring costs in connection with the integration of
Banco Popular, S.A.U., as follows EUR -280 million in
Spain, EUR -40 million in corporate center and EUR 20
million in Portugal. The corresponding gross impacts are
reflected on the “Other gains (losses) and provisions” line
above.
• Negative goodwill in Poland: The negative goodwill of
EUR 45 million, relates to the acquisition of the banking
and private banking business of Deutsche Bank Polska,
S.A.
694
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Million euros
2017
Reconciliation of underlying results to statutory results
Net interest income
Net fee income
Gains (losses) on financial transactions*
Other operating income**
Total income
Administrative expenses, depreciation and amortisation
Net operating income***
Net loan-loss provisions****
Other gains (losses) and provisions*****
Operating profit/(loss) before tax
Tax on profit
Consolidated profit
Non-controlling interests
Attributable profit to the parent
Underlying
results
Adjustments
Statutory
results
34,296
11,597
1,704
797
48,394
(22,917)
25,477
(9,111)
(2,813)
13,553
(4,588)
8,965
1,449
7,516
—
—
(39)
—
(39)
(76)
(115)
(98)
(1,249)
(1,462)
704
(758)
139
(897)
34,296
11,597
1,665
797
48,355
(22,993)
25,362
(9,209)
(4,062)
12,091
(3,884)
8,207
1,588
6,619
*
**
Gains (losses) on financial transactions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net, Gain or losses on financial
assets and liabilities held for trading, net, Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss, net, Gain or
losses on financial assets and liabilities measured at fair value through profit or loss, net, Gain or losses from hedge accounting, net and Exchange differences, net.
Other operating income includes the following line items in the statutory income statement, which are presented net for internal reporting and management
reporting purposes: Dividend income; Income from companies accounted for using the equity method, Other operating income, Other operating expenses, Income
from assets under insurance or reinsurance contracts and Expenses from liabilities under insurance or reinsurance contracts.
*** Net Operating Income is used for the Group’s internal reporting and management reporting purposes but is not a line item in the statutory consolidated income
statement.
**** Net loan-loss provisions refers to Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss and net gains and losses
from changes line item in the statutory income statement – reclassification of financial assets at amortized cost. Additionally, includes a release of EUR 50 million
mainly corresponding to the results by commitments and contingent risks includes in the line of the statutory income statement of provisions or reversal of
provisions.
***** Other gains (losses) and provisions includes the following line items in the statutory income statement, which are presented net for internal reporting and
management reporting purposes: Provisions or reversal of provisions except a release of EUR 50 million mainly corresponding to results from commitments and
contingent risks; Impairment of investments in joint ventures and associates, net; Impairment on non-financial assets, net; Gains or losses on non-financial assets,
net; Negative goodwill recognized in results and Gains or losses on non-current assets held for sale not classified as discontinued operations.
Explanation of adjustments
• Allfunds Bank, S.A. sale: corresponds to the sale by the
Bank and its partners of 100% of Allfunds Bank, S.A.
capital, obtaining an amount of EUR 501 million from the
sale of its 25% stake in Allfunds Bank, S.A., resulting in
gains of EUR 425 million recognised in “Other gains
(losses) and provisions” and of EUR 297 million net of tax.
• Restructuring Costs and equity impairments: relates to
the charge of EUR -425 million on “Other gains (losses)
and provisions” (EUR -300 million net of tax) for the
integration of Banco Popular Español, S.A.U. into the
group and an additional charge of EUR -125 million on
“Other gains (losses) and provisions” (EUR -85 million
after tax effect) mainly related to commercial networks in
Germany. During 2017, an additional impairment on
equity investment and intangible assets held by the
Group has been accounted for a value of EUR -130 million
on “Other gains (losses) and provisions”, with no tax
effect.
• Goodwill Impairment: impairment of goodwill associated
with Santander Consumer USA Holdings, Inc. This
impairment had a gross impact of EUR -899 million on
“Other gains (losses) and provisions” line (EUR -603
million in Profit attributable to the parent).
• US Tax Reform and other impairments: the adjustment
primarily corresponds to net impacts of the tax reform in
the United States together with other expenses related to
provisions for hurricanes and other provisions in the year
2017. The net impact of these adjustments in Profit
attributable to the parent adds EUR -76 million.
695
Table of Contents
53. Related parties
The parties related to the Group are deemed to include, in
addition to its subsidiaries, associates and joint ventures,
the Bank's key management personnel (the members of its
board of directors and the executive vice presidents,
together with their close family members) and the entities
over which the key management personnel may exercise
significant influence or control.
Million euros
Following below is the balance sheet balances and amounts
of the Group's income statement corresponding to
operations with the parties related to it, distinguishing
between associates and joint ventures, members of the
Bank's board of directors, the Bank's executive vice
presidents, and other related parties. Related-party
transactions were made on terms equivalent to those that
prevail in arm's-length transactions or, when this was not
the case, the related compensation in kind was recognised.
2019
2018
2017
t
n
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Assets:
9,659
—
26
104
7,202
—
30
256
6,048
—
21
300
Cash, cash balances at central banks and
other deposits on demand
Loans and advances: credit institutions
Loans and advances: customers
Debt instruments
Others
Liabilities:
Financial liabilities: credit institutions
Financial liabilities: customers
Marketable debt securities
Others
Income statement:
Interest income
Interest expense
Gains/losses on financial assets and
liabilities and others
Commission income
Commission expense
Other:
Contingent liabilities and others
Contingent commitments
Derivative financial instruments
740
961
6,950
848
160
2,689
563
2,064
—
62
1,386
111
15
47
1,269
26
4,219
17
197
4,005
—
—
—
—
—
41
—
41
—
—
—
—
—
—
—
—
7
5
1
1
—
—
26
—
—
12
—
12
—
—
—
—
—
—
—
—
3
2
1
—
—
—
—
704
104
6,142
—
—
57
—
57
—
—
2
1
—
—
1
—
49
38
6
5
295
61
1,650
8
1,596
8
38
993
73
3
82
853
12
4,707
21
393
4,293
—
—
—
—
—
19
—
19
—
—
—
—
—
—
—
—
9
7
1
1
—
—
30
—
—
12
—
12
—
—
—
—
—
—
—
—
3
1
2
—
—
—
472
256
5,081
—
—
363
—
363
—
—
31
14
1
—
18
—
473
22
748
309
414
4
21
1,020
57
3
302
735
71
782
508
64
3,881
6
301
—
210
3,574
—
—
—
—
—
19
—
19
—
—
—
—
—
—
—
—
7
6
1
—
—
—
21
—
—
14
—
14
—
—
—
—
—
—
—
—
3
1
2
—
—
279
21
—
63
—
63
—
—
14
8
—
—
6
—
597
352
60
—
185
The remaining required information is detailed in Notes 5,
14 and 47.c.
696
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
54. Risk management
a) Cornerstones of the risk function
Our risk principles are mandatory and must be followed at
all times. They take into account regulatory requirements
and market best practices. They are the following:
1. A strong risk culture (Risk Pro), as part of ‘The
Santander Way’, which is followed by all employees,
covers all risks and promotes socially responsible
management that contributes to Santander’s long-term
sustainability.
2. All employees are responsible for managing risk. They
must be aware of, and understand, the risks generated
in their day-to-day activities, avoiding risks where the
impacts are unknown or exceed the Group’s risk appetite
limits.
3. Engagement of senior management, ensuring
consistent management and control of risk through their
conduct, actions and communication. They also promote
our risk culture and assess its degree of
implementation, overseeing that the risk profile is kept
within the levels defined by the our risk appetite.
4. Independence of the risk management and control
functions, consistent with the three lines of defence
model.
5. A forward-looking and comprehensive approach to risk
management and control across all businesses and risk
types.
6. Complete and timely information management,
enabling risks to be appropriately identified, assessed,
managed and reported to the corresponding level.
These principles, combined with a series of tools and
processes that are embedded in the Group’s strategic
planning, such as our risk appetite statement, risk profile
assessment, scenario analysis, and our risk reporting
structure, annual planning and budget process, provide a
holistic control structure for the entire Group.
1. Main risks of the group's financial instruments
The main risk categories in which the Group has its most
significant current and/or potential exposures, thus
facilitating the identification thereof, includes the following:
• Credit risk: is the risk of financial loss arising from the
default or credit quality deterioration of a customer or
other third party, to which Santander has either directly
provided credit or for which it has assumed a contractual
obligation.
• Market risk: is the risk incurred as a result of changes in
market factors that affect the value of positions in the
trading book.
• Liquidity risk: is the risk that Santander does not have the
liquid financial resources to meet its obligations when
they fall due, or can only obtain them at high cost.
• Structural Risk: is the risk arising from the management
of different balance sheet items, not only in the banking
book but also in relation to insurance and pension
activities. It includes the risk of Santander not having an
adequate amount or quality of capital to meet its internal
business objectives, regulatory requirements or market
expectations.
• Operational risk: is defined as the risk of loss resulting
from inadequate or failed internal processes, people and
systems or from external events, including conduct risk.
• Regulatory Compliance Risk: risk of non-compliance with
legal and regulatory requirements as well as supervisors
expectations, which may result in legal or regulatory
sanctions, including fines or other financial implications.
• Model Risk: is the risk of loss arising from inaccurate
predictions, causing a sub-optimal decision, or from a
model being implemented or used inappropriately.
• Reputational Risk: the risk of current or potential negative
economic impact to the Bank due to damage to its
perception on the part of employees, customers,
shareholders/investors and the wider community.
• Strategic Risk: is the risk of loss or damage arising from
strategic decisions or their poor implementation that
impact the medium and long term interests of our key
stakeholders, or from an inability to adapt to external
developments.
In addition, climate-change related risk drivers - whether
physical or transition-led - have been identified as factors
that could aggravate the existing risks in the medium and
long term.
The classification of risks is critical to ensure an effective
risk management and control. All identified risks should be
therefore referenced to the aforementioned risk categories
in order to organise their management, control and related
information.
2. Risk governance
The Group has a robust risk governance structure, aimed at
ensuring the effective control of its risk profile in accordance
with the risk appetite defined by the board of directors.
The board of directors is responsible for approving the
general framework for risk management and control,
including tax risks.
This governance structure is underpinned by the
distribution of roles among the three lines of defence, a
robust structure of committees and a strong relationship
between the Group and its subsidiaries. All supported by
our Group-wide risk culture, Risk Pro.
2.1 Lines of defense
At Santander, we follow a three lines of defence model to
ensure effective risk management and control:
• First line: Businesses and all other functions that
originate risks make up the first line of defence. These
functions must ensure that these risks are aligned with
the approved risk appetite and associated limits. Any unit
that originates risk has primary responsibility for the
management of that risk.
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Table of Contents
• Second line: Risk and Compliance & Conduct functions.
Their role is to provide independent oversight and
challenge to the risk management activities performed
by the first line of defence. These functions ensure that
risks are managed in accordance with the risk appetite
defined by the board and promote a strong risk culture
throughout the organisation.
• Third line: The Internal Audit function, which regularly
assesses policies, methodologies and procedures to
ensure they are appropriate and effectively implemented
for the management and control of all risks.
The Risk, Compliance and Conduct and Internal Audit
functions are separate and independent and have direct
access to the board of directors and its committees.
2.2 Risk committee structure
The board of directors is responsible for risk management
and control and, in particular, for approving and periodically
reviewing the risk appetite and the risk framework, as well
as for promoting a strong risk culture across the whole
organisation. In order to conduct these tasks, the board has
the support of different committees, this is the case of the
risk supervision, regulation and compliance committee
and the Group’s executive committee, which have specific
risk related responsibilities.
The Group Chief Risk Officer (Group CRO) is responsible for
the oversight of all risks and for challenging and advising
the business lines on how they manage risks, with direct
access and reporting to the board risk committee as well as
to the board of directors.
Other bodies that make up the highest level of risk
governance, with authority delegated by the board of
directors, are the executive risk committee and the risk
control committee, details of which are provided below:
• Executive risk committee (ERC)
This committee is responsible for risk management,
within the authorities delegated by the board. The
committee makes risk taking decisions at the highest
level, ensuring that they are within the established risk
appetite limits for the Group.
Chair: CEO.
Composition: nominated executive directors and other
Group senior management. Risk, Finance and Compliance
& Conduct functions, among others, are represented. The
Group CRO has the power of veto over the committee’s
decisions.
• Risk control committee (RCC)
This committee is responsible for risk control,
determining whether the risks originated by the business
lines are managed within our risk appetite limits and
providing a holistic view of all risks. This includes the
identification and monitoring of both current and
emerging risks, and evaluating their impact on the
Group's risk profile.
Chair: Group CRO.
Composition: senior management members from the
Risk, Compliance & Conduct, Finance, Accounting and
Management Control functions are represented among
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2019 Annual Report
others. Senior members of the Risk function (CROs) from
the Group’s subsidiaries regularly take part to report their
own risk profiles.
Additionally, each risk factor has its own fora and/or regular
meetings to manage and control the risks under their scope.
Among others, they have the following responsibilities:
• Advise the Group CRO and the risk control committee that
risks are being managed in accordance with the Group’s
risk appetite.
• Carry out regular monitoring of each risk factor.
• Oversee the measures adopted to comply with the
expectations of the supervisors and internal and external
auditors.
For certain matters, the Group may establish specific
additional governance. For example:
• Following the UK’s decision to leave the EU, the Group
and Santander UK set up steering committees and
separate working groups to: i) monitor the Brexit process;
ii) develop contingency plans; and iii) escalate and take
decisions to minimise potential impacts on our business
and customers.
• In order to steer and supervise the review process of the
interest rate benchmarks (which include among others
EONIA, LIBOR and EURIBOR, with specific solutions for
each of them: EONIA will be discontinued on January
2022, LIBOR is likely to cease in December 2021, while
EURIBOR will remain as a compliant benchmark), the
Group established the IBOR steering group. This group is
responsible for driving the project's strategic direction
and take the required decisions to ensure a correct
transition across all Santander businesses and entities.
The IBOR steering group operates in accordance with the
methodology defined by the Group's Execution Project
Office and is chaired by the project's global sponsor, the
global head of SCIB, with the additional support of eight
senior executives.
2.3 The Group’s relationship with subsidiaries regarding
risk management
In all our subsidiaries, the risk management and control
model is aligned with the frameworks established by the
Group’s board of directors. The local units adhere to them
through their respective boards and adapt them to their
own market conditions and regulation.
In order to conduct the review of the aggregated oversight
of all risks, the Group exercises a validation and challenge
role with regard to the policies of the subsidiaries and
transactions.
This creates a common risk management and control model
across the Group.
The ‘Group-subsidiary governance model and good
governance practices for subsidiaries’ sets up regular
interaction and functional reporting by each local CRO to the
Group CRO, as well as the latter’s participation in the
appointments process, target setting and local CRO’s
evaluation and remuneration, in order to ensure that risks
are effectively controlled.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
To strengthen the relationship between the Group and its
subsidiaries, various initiatives have been implemented in
order to develop an advanced risk management model
across the Group:
• Coherence across the various subsidiaries and a
common risk language throughout the Group. Each
subsidiary's risk appetite must be coherent with that of
the Group.
• Promoting collaboration to accelerate the sharing of best
practices, strengthen existing processes and accelerate
innovation.
• Talent identification in the risk teams, developing
international mobility through the global risk talent
programme.
• Risk Subject Matter Experts: leveraging on our “best in
class” experts across the Group.
• Peer review: constructive review of specific matters
within the risk function, performed by experts from
different subsidiaries.
3. Management processes and tools
To ensure that an effective risk management and control is
carried out, the Group has defined several key processes
that rely on a series of tools, which are described as follows:
3.1 Risk appetite and structure of limits
The Group defines the risk appetite as the amount and type
of risks that are considered prudent to assume for
implementing our business strategy, so that the Group can
maintain its ordinary activity in the event of unexpected
circumstances. When establishing the risk appetite, adverse
scenarios that could have a negative impact on capital and
liquidity levels, profitability and/or the share price are taken
into account.
The risk appetite statement (RAS) is annually set by the
board for the entire Group. Additionally, the boards of our
subsidiaries also set their own risk appetite on an annual
basis, aligned and embedded within the Group’s
consolidated statement. Each subsidiary's statement is then
further cascaded down in the form of management limits
and policies by risk type, portfolio and activity segment.
Santander risk appetite principles
The following principles govern the Group’s risk appetite in
all its subsidiaries:
• Responsibility of the board and of senior management.
The board is responsible for setting the risk appetite and
for monitoring compliance with its requirements.
• Holistic risk view (enterprise wide risk), risk profile
backtesting and challenge. The risk appetite must
consider all significant risks and facilitate an aggregate
view of the risk profile through the use of quantitative
metrics and qualitative indicators.
• Forward-looking view. The risk appetite must consider
the desirable risk profile for the short and medium term,
taking into account both the most plausible
circumstances and adverse/ stress scenarios.
• Embedding and alignment with strategic and business
plans. The risk appetite is an integral part of the strategic
and business planning, which is embedded in the daily
management by cascading down the aggregated limits to
those set at portfolio level, subsidiary or business line, as
well as through the key risk appetite processes.
• Periodic review, backtesting and adoption of best
practices and regulatory requirements. Monitoring and
control mechanisms are established to ensure the risk
profile is maintained, and the necessary corrective and
mitigating actions are taken in the event of non-
compliance.
Limits structure, monitoring and control
Risk appetite is expressed through qualitative statements
and quantitative limits structured around 5 main axes:
• Results volatility:
- Maximum loss that the Group is willing to accept under
a scenario of acute stress.
• Solvency
- Minimum capital position that the Group is willing to
accept under a scenario of acute stress.
- Maximum leverage the Group is willing to accept under
a scenario of acute stress.
• Liquidity
- Minimum structural liquidity position.
- Minimum liquidity horizon position that the Group is
willing to accept under a scenario of acute stress.
- Minimum liquidity coverage position.
• Concentration:
- Concentration in single names, sectors and portfolios.
- Concentration in non-investment grade counterparties.
- Concentration in large exposures.
• Non-financial risks
- Qualitative non-financial risk indicators:
• Fraud.
• Technological.
• Security and cyber-risk.
• Reputational.
• Others.
- Maximum operational risk losses.
- Maximum risk profile.
Compliance with risk appetite limits is regularly monitored.
Specialised control functions report the appropriateness of
the risk profile to the board and its committees on a
monthly basis.
Linkage between the risk appetite limits and those of the
business units and portfolios is a key element for making
the risk appetite an effective risk management tool. The
management policies and structure of limits used to
manage the different categories and types of risk are
directly related to the principles and limits defined in the
the risk appetite statement.
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3.2. Risk profile assessment (RPA)
The Group carries out identification and assessment tests
on the different risks that it is exposed to, involving the
different lines of defence, establishing management
standards that not only meet regulatory requirements but
also reflect best practices in the market and reinforce our
risk culture.
The results of these risk identification and assessment (RIA)
exercises are integrated to evaluate the Group risk profile
through the risk profile assessment (RPA). This exercise
analyses the development of risks and identifies areas for
improvement:
• Risk performance, enabling the understanding of
residual risk by risk type through a set of metrics and
indicators calibrated using international standards.
• Control environment assessment, measuring the degree
of implementation of the target operating model, as part
of our advanced risk management.
• Forward-looking analysis, based on stress metrics and
identification and/or assessment of the main threats to
the strategic plan (Top risks), enabling specific action
plans to be put in place to mitigate potential impacts and
their monitoring.
Based on this periodic identification and assessment
exercises for the different risks, as of December 2019 the
Group maintains a solid medium-low risk profile.
In 2019, improvements were centred on three main areas: i)
reviewing the control environment standards ii) risk
performance indicators and their alignment with risk
appetite metrics, and iii) enhancing the perimeter by
integrating reputational risk as a cross layer in the risk
profile assessment and strengthening the business
performance area by enriching capital metrics.
3.3. Scenario analysis
Another fundamental tool that is used by the Group to
ensure an effective risk management and control is the
analysis of potential impacts triggered by different
scenarios related to the environment in which the Group
operates. These scenarios are expressed both in terms of
macroeconomic variables, as well as other variables that
may affect our risk profile.
This is usually known as “scenario analysis”, which is a
robust and useful tool for risk management at all levels. It
enables the Group to assess its resilience under stressed
conditions and the identification of possible mitigating
actions to be implemented in case the projected scenarios
start to materialise. Its ultimate objective is to reinforce the
stability of income, capital and liquidity.
In this respect, the role of our Research and Public Policy
team in terms of the generation of the different scenarios as
well as the strict governance and control processes that
these exercises are subject to, including their analysis and
review by the senior management as well as the different
divisions involved, including Internal Audit, are fundamental
to ensure their quality.
The robustness and consistency of the scenario analysis
exercises are therefore based on the following pillars:
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2019 Annual Report
• Development and integration of models that estimate the
future performance of metrics, such as credit losses,
based on historic information that can be internal to the
Group and/or external from the market, as well as on
simulation techniques.
• Challenge and backtesting of model results to ensure
their quality.
• Inclusion of expert judgement and deep knowledge of our
different portfolios.
• Robust governance of the whole process, covering
models, scenarios, assumptions and results rationale, as
well as their impact in terms of management actions to
be taken.
The application of these pillars in the European Banking
Authority (EBA) stress test exercise that is executed and
reported biennially, has enabled Santander to satisfactorily
meet the defined quantitative and qualitative requirements,
contributing to the excellent results obtained by the Group.
Applications of scenario analysis
The EBA guidelines establish that scenario analysis should
be integrated in the Group’s risk management framework
and management processes. This requires a forward looking
view in terms of risk management and capital and liquidity
strategic planning.
Scenario analysis is included in the Group’s risk framework,
ensuring that any impact affecting its solvency or liquidity
can be rapidly identified and addressed. With this objective
in mind, a systematic review of the exposure to different
types of risks is included, not only under the baseline
scenario but also under various simulated adverse
scenarios.
The Group has a map of uses in place to strengthen their
alignment across the different risk types, and to facilitate
the continuous improvement of such uses. An additional
fundamental goal is to reinforce the integration and
synergies between the different regulatory and internal
exercises.
Scenario analysis forms an integral part of several key Group
processes:
• Regulatory uses: exercises conducted under the
European regulatory guidelines or those of each local
supervisor in those geographies where the Group
operates.
• Internal capital adequacy assessment (ICAAP) and
liquidity assessment (ILAAP) in which, while the
regulators define certain requirements, the Group
develops its own methodology to assess its capital and
liquidity levels under different stress scenarios to support
planning and the effective management of these two
critical aspects.
• Risk appetite. This includes stressed metrics for which
the Group defines maximum levels of losses (or
minimum liquidity levels) that should not be exceeded.
These exercises are related to those conducted for capital
and liquidity, although they have different frequencies
and present different granularity levels.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
• Climate change scenario analysis: the objective is to
provide a scenario-based assessment of those risks and
opportunities related to climate change. It is currently
focused on the wholesale portfolio as a pilot.
• Recurrent risk management in different processes/
exercises:
- Budget and strategic planning process, in the
development of commercial risk approval policies, in the
global risk assessment for senior management or in
specific analysis regarding activity profiles or portfolios.
- Identification of Top risks on the basis of a systematic
process to identify and assess all risks which the Group
is exposed to. These Top risks are selected and a
macroeconomic or idiosyncratic scenario is associated
with each one, to assess their potential impact on the
Group.
- Recovery plan, which is drawn up annually to establish
the tools available to the Group to survive in the event of
an extremely severe financial crisis. The plan sets out a
series of financial and macroeconomic stress scenarios,
with differing degrees of severity that include
idiosyncratic and/or systemic events.
- IFRS 9, since 1 January 2018, the processes, models and
scenario analysis methodologies have been included in
the regulatory provision requirements.
3.4. Risk Reporting Structure (RRS)
The reporting model of the Group continues to be enhanced
after the simplification and optimisation of processes, the
quality controls implemented and the strengthening of our
effective communication to senior management.
Furthermore, the overall view of all risks has been
consolidated, based on complete, precise and recurring
information allowing the Group’s senior management to
assess the risk profile and decide accordingly.
The risk reporting of the Group taxonomy contains three
types of reports that are released on a monthly basis: the
Group risk report (which is distributed to senior
management), the subsidiaries risk reports, and the reports
on each of the risk factors identified in the Group’s risk
framework.
This taxonomy is characterised by the following:
• All risk factors included in the Group’s risk framework are
covered.
• Balance between data, analysis and qualitative
comments is maintained throughout the reports,
including forward-looking measures, risk appetite
information, limits and emerging risks.
• The holistic view is combined with a deeperanalysis of each
risk factor and geographic area and region.
• A homogenous structure and criteria, as each subsidiary
may define its own reports following local standards.
Therefore, a consolidated view is provided to enable the
analysis of all risks based on common definitions
• All the metrics reported follow RDA criteria, ensuring the
quality and consistency of the data included in all risk
reports.
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b) Credit risk
1. Introduction to the credit risk treatment
In Santander, credit risk is defined as the risk that a financial
loss will be incurred arising from the default or credit
quality deterioration of a customer or other third party, with
whom the Group has assumed a contractual obligation,
including providing credit, that may therefore not be
fulfilled.
2. Main aggregates and variations
Following are the main aggregates relating to credit risk
from our activities with customers:
Main credit risk aggregates from customer business
Main credit risk performance metrics from activity with customers
December 2019 data
Credit risk with customers*
(EUR million)
Non-performing loans
(EUR million)
NPL ratio
(%)
2019
2018
2017
2019
2018
2017
2019
2018
2017
722,661
688,810
671,776
23,519
25,287
27,964
237,327
14,824
16,651
18,270
2,786
2,416
1,834
1,447
3,165
2,331
389
2,739
2,244
2,279
1,317
3,510
2,688
450
3,210
2,319
2,959
1,114
2,935
2,156
536
1,787
2,043
1,410
834
6,972
4,727
1,947
171
4
138
822
6,639
4,418
1,925
179
4
252
779
6,685
4,391
2,004
202
4
8
3.25
6.94
1.01
2.30
4.83
4.31
2.20
2.20
0.69
6.16
2.19
4.86
5.32
4.64
3.39
0.63
2.34
3.32
3.67
7.32
1.08
2.29
5.94
4.28
2.79
2.92
0.88
7.73
2.43
4.81
5.25
4.66
3.17
1.21
5.09
3.73
4.16
7.70
1.32
2.50
7.51
4.57
2.77
2.79
1.21
5.86
2.69
4.82
5.29
4.96
2.50
4.56
0.15
4.08
1,016,507
958,153
920,968
33,799
35,692
37,596
Europe
Spain
UK
S. Consumer Finance
Portugal
Poland
213,668
275,941
105,048
37,978
33,566
227,401
252,919
97,922
38,340
30,783
242,993
92,589
39,394
24,391
North America
143,839
125,916
106,129
US
SBNA
SC USA
Mexico
105,792
56,640
29,021
38,047
92,152
51,049
26,424
33,764
77,190
44,237
24,079
28,939
South America
143,428
138,134
138,577
Brazil
Chile
Argentina
Santander Global
Platform
Corporte Centre
Total Group
88,893
42,000
5,044
706
5,872
84,212
41,268
5,631
83,076
40,406
8,085
340
96
4,953
5,369
* Includes gross lending to customers, guarantees and documentary credits.
Key figures by geographic region are described below:
• Europe: NPL ratio decreases to 3.25% (-42 bp compared
to 2018), due to the significant decrease of non-
performing loans in Spain and Portugal; and the slight
increase in the UK and SCF, offset by a proportionally
higher increase in total loans.
• North America: NPL ratio down to 2.20% (-59 bp vs
2018) due to the good performance of the region,
especially in the US which fell by 72 bp, compared to
2018.
• South America: NPL ratio stands at 4.86%, increasing in
Brazil and Argentina (+7 bp and +22 bp compared to
2018, respectively); and decreasing in Chile (-2 bp vs to
2018).
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2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Information on the estimation of impairment losses
The Group estimates the impairment losses by calculating
the expected loss at 12 months or for the entire life of the
transaction, based on the stage in which each financial
asset is classified in accordance with IFRS 9.
Then, considering the most relevant units of the Group,
which represent approximately 97% of the total Group's
provisions. The table below shows the impairment losses
associated with each stage as of 31 December 2019 and
2018.
In addition, depending on the transactions credit quality, the
exposure is divided into three grades (investment,
speculation and default):
Exposure and impairment losses by stage
EUR million
2019
Credit Quality*
Stage 1
Stage 2
Stage 3
Total
Investment
grade
Speculation
grade
Default
552,763
5,532
—
558,295
306,880
47,365
—
354,245
—
—
31,363
31,363
Total Risk **
859,643
52,897
31,363 943,903
Impairment
losses***
3,980
4,311
13,276
21,567
*
**
***
Detail of credit quality ratings calculated for Group management
purposes.
Credit to Customers (Amortized Cost and FV through OCI) + Off Balance
Sheet with Customers (Financial Guarantees, Technical Guarantees and
Letters of Credit), (including temporary asset acquisitions).
Includes provisions for undrawn authorized lines (loan commitments).
Exposure and impairment losses by stage
EUR million
2018
Credit Quality*
Stage 1
Stage 2
Stage 3
Total
Investment
grade
Speculation
grade
Default
685,507
7,176
—
692,683
222,495
47,439
—
269,935
—
—
30,795
30,795
Total Risk **
908,002
54,616
30,795 993,412
Impairment
losses
3,823
4,644
12,504
20,970
*
**
Detail of credit quality ratings calculated for Group management
purposes.
Amortised cost assets + Loans and advances + loan commitments
granted.
The remaining units that form the totality of the Group
exposure, contributed EUR 38,174 million in stage 1, EUR
442 million in stage 2, and EUR 1,743 million in stage 3 (In
2018 EUR 151,906 million in stage 1, EUR 700 million in
stage 2, and EUR 1,743 million in stage 3), and impairment
losses of EUR 264 million in stage 1, EUR 306 million for
stage 2, and EUR 91 million in stage 3 (In 2018 EUR 152
million, EUR 163 million and EUR 1,145 million in stage 1,
stage 2 and stage 3, respectively).
The rest of the exposure, including all financial instruments
not included before, amounts to EUR 507.479 million, as
this includes all undrawn authorized lines (loan
commitments). In 2018, the rest of the exposure amounted
to EUR 242.867 million, due to the fact that the undrawn
authorized lines were included in the "Total Risk" reported
in the previous tables. The reporting criterion has been
updated in 2019 with regards to the undrawn authorized
lines in order to align the exposure figures reported in this
section to the rest of the report.
In addition, at 31 December 2019, the Group had EUR 706
million (31 December, 2018: EUR 757 million) of purchased
credit-impaired assets, which relate mainly to the business
combinations carried out by the Group.
Regarding the evolution of credit risk provisions, the Group,
in collaboration with the main geographical areas, monitors
them by carrying out sensitivity analyses considering
changes in macroeconomic scenarios and main variables
that have an impact on the financial assets distribution in
the different stages and calculating credit risk provisions.
Additionally, based on similar macroeconomic scenarios,
the Group also performs stress tests and sensitivity analysis
in a regular basis, such as ICAAP, strategic plans, budgets
and recovery and resolution plans. In this sense, a
prospective view of the sensitivity of each of the Group’s
loan portfolio is created in relation to the possible deviation
from the base scenario, considering both the
macroeconomic developments in different scenarios and
the three year evolution of the business. These tests include
potentially adverse and favourable scenarios.
The transactions classification into the different IFRS 9
stages is carried out in accordance with the regulation
through the risk management policies of our subsidiaries,
which are consistent with the risk management policies
defined by the Group. In order to determine the
classification in stage 2, the Group assesses whether there
has been a significant increase in credit risk (SICR) since the
initial recognition of the transactions, considering a series of
common principles throughout the Group that guarantee
that all financial instruments are subject to this assessment,
which considers the particularities of each portfolio and
type of product on the basis of various quantitative and
qualitative indicators. Furthermore, transactions are subject
to the expert judgement of the analysts, who set the
thresholds under an effective integration in management.
All is implemented according to the approved governance.
The establishment of judgements and criteria thresholds
used by the Group are based on a series of principles, and
develop a set of techniques. The principles are as follows:
• Universality: all financial instruments subject to a credit
rating must be assessed for their possible Significant
Increment Credit Risk (SICR).
• Proportionality: the definition of the SICR must take into
account the particularities of each portfolio
• Materiality: its implementation must be also consistent
with the relevance of each portfolio so as not to inclur in
unnecessary costs or efforts.
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• Holistic vision: the approach selected must be a
3.Detail of the main geographical areas
combination of the most relevant credit risk aspects (e.g.
quantitative and qualitative).
• Application of IFRS 9: the approach must take into
consideration IFRS 9 characteristics, focusing on a
comparison with credit risk at initial recognition, as well
as considering forward-looking information.
• Risk management integration: the criteria must be
consistent with those metrics considered in the day-to-
day risk management.
• Documentation: Appropriate documentation must be
prepared.
The techniques are summarised below:
• Stability of stage 2: in the absence of significant changes
in the portfolios credit quality, the volume of assets in
stage 2 should maintain a certain stability as a whole.
• Economic reasonableness: at transaction level, stage 2 is
expected to be a transitional rating for exposures that
could eventually move to a deteriorating credit status at
some point or stage 3, as well as for exposures that have
suffered credit deterioration and whose credit quality is
improving. .
• Predictive power: it is expected that the SICR definition
avoids, as fas as possible, direct migrations from stage 1
to stage 3 without having been previously classified in
stage 2.
• Time in stage 2: it is expected that the exposures do not
remain categorized as stage 2 for an excessive time.
The application of the aforementioned techniques,
conclude in the setting of one or several thresholds for each
portfolio in each geography. Likewise, these thresholds are
subject to a regular review by means of calibration tests,
which may entail updating the thresholds types or their
values.
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2019 Annual Report
Following is the risk information related to the most
relevant geographies in exposure and credit risk allowances.
This information includes sensitivity analysis, consisting on
simulations of +/-100 bp in the main macroeconomic
variables. A set of specific and complete scenarios is used in
each geography, where different shocks that affect both the
reference variable as well as the rest of the parameters is
simulated. These shocks may be originated by productivity,
tax, wages or exchange and interest rates factors. Sensitivity
is measured as the average variation on expected loss
corresponding to the aforementioned scenarios. Following a
conservative approach, the negative movements take into
account one additional standard deviation in order to reflect
the potential higher variability of losses.
3.1. United Kingdom
Credit risk with customers in the UK, including Santander
Consumer UK, amounted to 275,941 million euros as of
December 2019, an increase of 9.1% compared to year-end
2018 (+3.8% in local currency), representing 27% of the
Group’s total loan portfolio.
The NPL ratio decreased to 1.01% as of December 2019 (-7
bp vs. year-end 2018), despite macroeconomic uncertainty
and thanks to the application of prudent policies, within the
risk appetite framework. The amount of non-performing
loans increased by 1.7%, below the credit risk growth,
supported by the continued strong performance of the
mortgage portfolio.
Mortgage portfolio
Due to its size, not only for Santander UK, but also for the
Group, the UK mortgage portfolio is closely monitored.
This portfolio, as at December 2019, amounted to 194,354
million euros growing, in local currency, by 4.7% in the
year. It consists of residential mortgages granted to new and
existing customers, all of which are first lien mortgages. No
transactions entail second or successive liens on mortgaged
properties.
The real estate market has shown strong resilience with
over 4.0% price growth in the year and a stable number of
transactions.
All properties are valued independently before each new
transaction approval, in accordance with the Group’s risk
management principles.
The value of the property used as collateral for mortgages
that have been granted is updated quarterly by an
independent agency, using an automatic valuation system
in accordance with market practices and applicable
legislation.
Geographically, credit exposures are predominantly situated
in the southeast of the UK and the London metropolitan
area.
Information on the estimation of impairment losses
The detail of Santander's UK exposure and impairment
losses associated with each of the stages at 31 December,
2019 and 2018, is shown below.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
In addition, depending on the current operations credit
quality, the exposure is divided into three grades
(investment, speculation and default):
Exposure and impairment losses by stage
EUR million
2019
Credit Quality *
Stage 1
Stage 2
Stage 3
Total
Investment grade
238,985
2,032
Speculation grade
40,281
12,543
—
—
241,017
52,824
Default
—
—
2,821
2,821
Total Exposure **
279,266
14,575
2,821 296,662
Impairment
losses***
117
470
588
1,175
*
**
***
Detail of credit quality ratings calculated for Group management
purposes.
Credit to Customers (Amortized Cost and FV through OCI) + Off Balance
Sheet with Customers (Financial Guarantees, Technical Guarantees and
Letters of Credit), (including temporary asset acquisitions).
Includes provisions for undrawn authorized lines (loan commitments).
Exposure and impairment losses by stage
EUR million
2018
Credit Quality *
Stage 1
Stage 2
Stage 3
Total
Investment grade
225,929
1,900
Speculation grade
34,655
11,514
—
—
227,829
46,169
Default
—
—
2,795
2,795
Total Exposure **
260,584
13,415
2,795 276,793
Impairment
losses
224
335
335
894
*
**
Detail of credit quality ratings calculated for Group management
purposes.
Amortised cost assets + Loans and advances + loan commitments
granted.
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For the estimation of expected losses, prospective
information is taken into account. Specifically, Santander UK
considers five macroeconomic scenarios, which are updated
periodically over a 5-year time horizon. The evolution
forecasted for the next five years of the main
macroeconomic indicators used by Santander UK to
estimate expected losses is presented below:
Magnitudes
Interest rate
Unemployment rate
Housing price change
GDP growth
Magnitudes
Interest rate
Unemployment rate
Housing price change
GDP growth
2020 - 2024
Pessimistic
scenario 2
Pessimistic
scenario 1
Base scenario
Optimistic
scenario 1
Optimistic
scenario 2
2.6 %
7.3 %
(0.1)%
0.01 %
1.8 %
5.1 %
(0.01)%
0.01 %
0.9%
4.0%
0.02%
0.02%
1.8%
3.1%
0.04%
0.02%
1.9%
2.6%
0.06%
0.03%
2019-2023
Pessimistic
scenario 2
Pessimistic
scenario 1
Base scenario
Optimistic
scenario 1
Optimistic
scenario 2
2.3 %
8.6 %
(9.5)%
0.3 %
2.5 %
6.9 %
(2.0)%
0.7 %
1.5%
4.3%
2.0%
1.6%
1.3%
3.8%
2.3%
2.1%
1.0%
2.8%
3.4%
2.5%
Each of the macroeconomic scenarios is associated with a
given probability of occurrence. In terms of allocation,
Santander UK associates the highest weighting to the base
scenario, while it associates the lowest weightings to the
most extreme or severe scenarios. In addition, at
December 31, 2019, the weights used by Santander UK
reflect the future prospects of the British economy in
relation to its current political and economic position so that
higher weights are assigned for negative scenarios:
Pessimistic scenario 2
Pessimistic scenario 1
Base scenario
Optimistic scenario 1
Optimistic scenario 2
2019
2018
15%
30%
40%
10%
5%
10%
30%
40%
15%
5%
706
2019 Annual Report
The sensitivity analysis of the main portfolios expected loss
to variations of +/-100 b.p. for the macroeconomic variables
used in the construction of the scenarios is as follows:
GDP Growth
-100 b.p.
100 b.p.
Housing price change
-100 b.p.
100 b.p.
Unemployment rate
-100 b.p.
100 b.p.
Change in provision
Mortgages
13.11 %
(5.01)%
7.16 %
(2.95)%
(8.01)%
16.86 %
With regards to the determination of classification in stage
2, the quantitative criteria applied by Santander UK are
based on identifying whether any increase in PD for the
expected life of the transaction is greater than both an
absolute and a relative threshold (the PDs used in that
assessment are adjusted to the transaction's remaining
term and also annualised in order to facilitate that the
thresholds defined cover the whole range of the
transactions maturity dates). The relative threshold
established is common to all portfolios and a transaction is
considered to exceed this threshold when the PD for the
entire life of the transaction increases by 100% with respect
to the PD at the time of initial recognition. The absolute
threshold, on the other hand, is different for each portfolio
depending on the characteristics of the transactions,
ranging between 400 b.p. and 30 b.p.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
In addition, for each portfolio, a series of specific qualitative
criteria is defined to indicate that the exposure has had a
significant increase in credit risk, regardless of the evolution
of its PD since the time of initial recognition. Santander UK,
among other criteria, considers that an operation presents a
significant increase in risk when it presents irregular
positions for more than 30 days. These criteria depend on
the risk management practices of each portfolio.
3.2. Spain
Portfolio overview
Total credit risk at Santander Spain, including the real estate
unit, amounted to 213,668 million euros, 21% of the Group
total, with an appropriate level of diversification by both
product and customer segment.
In a context of lower economic and credit growth, new
business continues to increase in the segments of consumer
loans, SMEs and Corporates. Total credit risk decreased by
6.0% compared to December 2018, mainly due to lower
financing extended to public administrations, wholesale
banking which also amortises faster than the growth of new
business in the individuals segment.
The NPL ratio for the total portfolio was 6.94% (6.58%
excluding the real estate unit), -38 bp less than in 2018.
This is the result of lower NPLs, which reduced the ratio by
-80 bp due to overall better performance, the cure of several
restructured positions and portfolio sales. However, this
positive effect was partially offset by the decrease observed
in the loan portfolio, which had an increasing effect on the
ratio of +47 bp.
This credit quality improvement, together with proactive
portfolio management, has resulted in a slight decrease in
the coverage ratio, standing at 41% at year-end 2019 (-3 pp
vs. 2018) as the NPL reduction is focused on those loans
with higher expected loss.
The evolution of cost of credit follows the reduction in total
loans and a slight increase in provisions.
Information on the estimation of impairment losses
The detail of Santander Spain exposure and impairment
losses associated with each of the stages at 31 December,
2019 and, is shown below. In addition, depending on the
current credit quality of the operations, the exposure is
divided into three grades (Investment, speculation and
default):
Exposure and impairment losses per stage
EUR million
2019
Credit Quality *
Stage 1
Stage 2
Stage 3
TOTAL
Investment grade
139,673
Speculation grade
42,603
1,315
9,115
— 140,988
—
51,718
Default
—
—
14,587
14,587
Total Exposure **
182,276
10,430
14,587 207,293
Impairment
losses***
296
503
5,195
5,994
*
**
***
Detail of credit quality ratings calculated for Group management
purposes.
Credit to Customers (Amortized Cost and FV through OCI) + Off Balance
Sheet with Customers (Financial Guarantees, Technical Guarantees and
Letters of Credit), (including temporary asset acquisitions).
Includes provisions for undrawn authorized lines (loan commitments).
Exposure and impairment losses per stage
EUR million
2018
Credit Quality *
Stage 1
Stage 2
Stage 3
Total
Investment grade
171,266
289
— 171,555
Speculation grade
25,108
12,603
—
37,711
Default
—
—
14,941
14,941
Total Exposure **
196,374
12,892
14,941 224,207
Impairment losses
366
768
5,565
6,699
*
**
Detail of credit quality calculated for the purposes of Grupo Santander’s
management
Amortised cost assets + Loans and advances + loan commitments
granted.
The remaining legal entities to reach the entire portfolio in
Spain contribute another EUR 5.693 million, EUR 445
million and EUR 237 million of exposure (in 2018, EUR
125,544, EUR 66 and EUR 1,657 million) in stage 1, stage 2
and stage 3 respectively, and impairment losses in the
amount of EUR 55 million, EUR 41 million and EUR 8 million
(EUR 132, EUR 48 and EUR 957 million in 2018) , in stage 1,
stage 2 and stage 3, respectively.
For the estimation of the expected losses, the prospective
information is taken into account. Specifically, Santander
Spain considers three macroeconomic scenarios, which are
updated periodically, over a time horizon of five years. The
projected evolution for the next five years of the main
macroeconomic indicators used by Santander Spain for
estimating expected losses is presented below:
Magnitudes
Interest rate
Unemployment rate
Housing price
change
GDP growth
2020 - 2024
Pessimistic
scenario
Base
scenario
Optimistic
scenario
0.0 %
13.7 %
(0.3)%
0.8 %
0.0%
11.7%
1.6%
1.6%
0.8%
9.6%
3.2%
2.3%
Magnitudes
Interest rate
Unemployment rate
Housing price
change
GDP growth
2019 - 2023
Pessimistic
scenario
Base
scenario
Optimistic
scenario
0.3%
15.3%
0.5%
1.1%
0.7%
12.3%
2.2%
1.8%
1.2%
10.8%
3.8%
2.6%
707
Table of Contents
Each macroeconomic scenarios is associated with a given
probability of occurrence. As for its allocation, Santander
Spain associates the Base scenario with the highest weight,
while associating the lower weights to the most extreme
scenarios:
Residential mortgage portfolio
Residential mortgages in Spain, including Santander
Consumer Finance business, amounted to EUR 62,236
million million (EUR 63,290 million in 2018), 99.51%of
which have a mortgage guarantee (99.14% in 2018).
Pessimistic scenario
Base scenario
Optimistic scenario
2019
2018
30%
40%
30%
30%
40%
30%
The sensitivity analysis of the main portfolios expected loss
to variations of +/-100 b.p. for the macroeconomic variables
used in the construction of the scenarios is as follows:
EUR million
2019
Gross amount
Of which: non -
performing
Home purchase loans to families
Without mortgage guarantee
With mortgage guarantee
62,236
306
61,930
2,649
14
2,635
Change in provision
EUR million
Mortgages
Corporate
Home purchase loans to families
Without mortgage guarantee
With mortgage guarantee
2018
Gross amount
Of which: non -
performing
63,290
545
62,745
2,493
54
2,439
The mortgage portfolio for the acquisition of homes in Spain
is characterised by its medium-low risk profile, which limits
expectations of any potential additional impairment:
• Principal is repaid on all mortgages from the start.
• Early repayment is common so the average life of the
transaction is well below that of the contract.
• High quality of collateral, concentrated almost exclusively
in financing for first homes.
• The average affordability rate stood at 26% (28% in
2018).
• The 85% of the portfolio has a LTV below 80% calculated
as total risk/latest available house appraisal.
GDP Growth
-100 b.p.
100 b.p.
Housing price change
-100 b.p.
100 b.p.
13.57 %
4.23 %
(2.55)%
(0.23)%
2.62 %
2.19 %
(1.02)%
(0.76)%
With regards to the stage 2 classification determination, the
quantitative criteria applied in Santander Spain are based on
identifying whether any increase in the PD for the expected
lifetime of the transaction is greater than an absolute
threshold. The threshold established is different for each
portfolio based on the transactions characteristics,
considering that a transaction is above this threshold when
the PD for the life of the transaction increases by a certain
quantity over the initial recognized PD. The values of these
thresholds depend on their calibration, carried out
periodically as indicated in the preceding paragraphs, which
currently ranges from 25% to 1%, depending on the type of
product and estimated sensitivity.
In the case of non-retail portfolios, Santander Spain uses
the transaction's rating as a reference for its PD, taking into
account its rating at the time of origination and its current
rating, setting absolute thresholds for the different rating
bands that depend on each portfolio characteristics. A SICR
implies changes in the rating value between 4 and 0.4,
depending on the portfolio and the estimated sensitivity
(from lower to higher credit quality, the rating range goes
from 1 to 9.3).
In addition, for each portfolio, a series of specific qualitative
criteria are defined indicating that the exposure has had a
significant increase in credit risk, regardless of the evolution
of its PD since the time of initial recognition. Santander
Spain, among other criteria, considers that an operation
presents a significant increase in risk when positions have
been past due for more than 30 days. These criteria depend
on the risk management practices of each portfolio.
708
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Breakdown of the credit with mortgage guarantee to
households for house acquisition, according to the
percentage that the total risk represents on the amount of
the latest available valuation (loan to value):
2019
Loan to value ratio
Less than or
equal to 40%
More than
40% and less
than 60%
More than
60% and less
than 80%
More than
80% and less
than or equal
to 100%
16,211
228
18,652
297
17,947
422
5,398
435
More than
100%
3,722
1,253
Total
61,930
2,635
Million euros
Gross amount
Of which: watchlist /non-performing
Businesses portfolio
Credit risk assumed directly with SMEs and Corporates
amounts to 134,508 million euros, representing the main
lending segment at Santander Spain with 63% of the total.
Most of the portfolio corresponds to customers who have
been assigned a credit analyst to monitor them
continuously throughout the risk cycle.
The portfolio is highly diversified, with no significant
concentrations by sector of activity.
The NPL ratio for this portfolio stood at 7.31% in December
2019. Despite the reduction in total risk, the NPL ratio fell
by 21 bp compared to December 2018, due to a better
performance, the normalisation of several restructured
positions in corporates and portfolio sales.
Real estate activity
The real estate unit in Spain has been consolidated within
Santander Spain. We should differentiate between the part
of the portfolio resulting from the past financial crisis and
the new business that is identified as viable. In both cases,
Santander has specialized teams that are not only part of
the Risk function but that supplement the management of
this exposure and cover the whole life-cycle of these
transactions: commercial management, legal treatment and
eventually, collections and recoveries.
In recent years the Group's strategy has been geared
towards reducing these assets. The changes in gross
property development loans to customers were as follows:
EUR million
Balance at beginning of
year
Foreclosed assets
Banco Popular S.A.U.
(perimeter)
2019
2018
2017
4,812
(29)
6,472
(100)
5,515
(27)
—
—
2,934
Reductions*
(1,685)
(1,267)
(1,620)
Written-off assets
Balance at end of year
(159)
2,939
(293)
4,812
(330)
6,472
*
Includes portfolio sales, cash recoveries and third-party subrogations and
new production.
The NPL ratio of this portfolio ended the year at 9.73%
(compared with 27.58% at December 2018) due to the
decrease of non-performing assets in the troubled loan
portfolio and, in particular, to the sharp reduction in lending
in this segment. The table below shows the distribution of
the portfolio. The coverage ratio of the real estate doubtful
exposure in Spain stands at 35.31% (35.27% in 2018).
2019
Excess of
gross
exposure
over
maximum
recoverabl
e amount
of
effective
Specific
collateral allowance
Gross
amount
2,939
435
115
87
101
286
963
Million euros
Financing for construction
and property development
recognised by the Group's
credit institutions (including
land) (business in Spain)
Of which: watchlist/ non-
performing
Memorandum items:
Written-off assets
Memorandum items: Data from the public
consolidated balance sheet
EUR million
Total loans and advances to customers
excluding the Public sector (business in Spain)
(Book value)
Total consolidated assets (Total business)
(Book value)
Impairment losses and credit risk allowances.
Coverage for unimpaired assets (business in
Spain)
2019
Carrying amount
232,027
1,522,695
1,349
709
In the case of construction-phase projects that are
experiencing difficulties of any kind, the policy adopted is to
ensure completion of the construction work so as to obtain
completed buildings that can be sold in the market. To
achieve this aim, the projects are analysed on a case-by-
case basis in order to adopt the most effective series of
measures for each case (structured payments to suppliers
to ensure completion of the work, specific schedules for
drawing down amounts, etc.).
For the new post-crisis real estate business production, the
admission processes are managed by specialized teams that
work in direct coordination with the commercial teams, with
clearly defined policies and criteria:
The loan approval processes are managed by specialist
teams which, working in direct coordination with the sales
teams, have a set of clearly defined policies and criteria:
• Property developers with a robust solvency profile and a
proven track record in the market.
• Medium-high level projects, conducting to contracted
demand and significant cities.
• Strict criteria regarding the specific parameters of the
transactions: exclusive financing for the construction cost,
high percentages of accredited sales, principal residence
financing, etc.
• Support of financing of government-subsidised housing,
with accredited sales percentages.
• Restricted financing of land purchases dealt with
exceptional nature.
In addition to the permanent control performed by its risk
monitoring teams, the Group has a specialist technical unit
that monitors and controls this portfolio with regard to the
stage of completion of construction work, planning
compliance and sales control, and validates and controls
progress billing payments. The Group has created a set of
specific tools for this function. All mortgage distributions,
amounts drawn down of any kind, changes made to the
grace periods, etc. are authorised on a centralised basis.
Foreclosed properties
At 31 December, 2019, the net balance of these assets
amounted to EUR 4,190 million (gross amount: EUR 8,226
million; recognised allowance: EUR 4,036 million, of which
EUR 2,812 million related to impairment after the
foreclosure date).
Table of Contents
At year-end, the concentration of this portfolio was as
follows:
EUR million
1. Without mortgage guarantee
2. With mortgage guarantee
2.1 Completed buildings
2.1.1 Residential
2.1.2 Other
2.2 Buildings and other constructions under
construction
2.2.1 Residential
2.2.2 Other
2.3 Land
2.3.1 Developed consolidated land
2.3.2 Other land
Total
Loans: gross
amount
2019
146
2,793
1,552
914
638
1,081
1,036
45
160
109
51
2,939
Policies and strategies in place for the management of
these risks
The policies in force for the management of this portfolio,
which are reviewed and approved on a regular basis by
senior management, are currently geared towards reducing
and securing the outstanding exposure, albeit without
neglecting any viable new business that may be identified.
As has already been disclosed in this section, the Group’s
anticipatory management of these risks enabled it to
significantly reduce its exposure, and it has a granular,
geographically diversified portfolio in which the financing
of second residences accounts for a very small proportion of
the total.
Mortgage lending on non-urban land represents a low
percentage of mortgage exposure to land, while the
remainder relates to land already classified as urban or
approved for development.
The significant reduction of exposure in the case of
residential financing projects in which the construction
work has already been completed was based on various
actions. As well as the specialised marketing channels
already in existence, campaigns were carried out with the
support of specific teams of managers for this function who,
in the case of the Santander network, were directly
supervised by the recoveries business area. These
campaigns, which involved the direct management of the
projects with property developers and purchasers, reducing
sale prices and adapting the lending conditions to the
buyers’ needs, enabled loans already in force to be
subrogated. These subrogations enable the Group to
diversify its risk in a business segment that displays a
clearly lower non-performing loans ratio.
710
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The following table shows the detail of the assets
foreclosed by the businesses in Spain at the end of 2019:
EUR million
Gross carrying
amount
Valuation
adjustments
Of which:
impairment
losses on
assets since
time of
foreclosure
Carrying
amount
Property assets arising from financing provided to construction and property
development companies
7,044
3,645
2,570
3,399
2019
Of which:
Completed buildings
Residential
Other
Buildings under construction
Residential
Other
Land
Developed land
Other land
Property assets from home purchase mortgage loans to households
Other foreclosed property assets
Total property assets
In addition, the Group has shareholdings in entities holding
foreclosed assets amounting to EUR 1,415 million (mainly
Project Quasar Investment 2017, S.L.), and equity
instruments foreclosed or received in payment of debts
amounting to EUR 69 million.
In recent years, the Group has considered foreclosure to be
a more efficient method for resolving cases of default than
legal proceedings. The Group initially recognises foreclosed
assets at the lower of the carrying amount of the debt (net
of provisions) and the fair value of the foreclosed asset (less
estimated costs to sell).Subsequent to initial recognition,
the assets are measured at the lower of fair value (less costs
to sell) and the amount initially recognised.
The fair value of this type of assets is determined by the
Group’s directors based on evidence obtained from qualified
valuers or evidence of recent transactions.
The management of real estate assets on the balance sheet
is carried out through companies specializing in the sale of
real estate that is complemented by the structure of the
commercial network. The sale is realised with levels of price
reduction in line with the market situation.
The gross movement in foreclosed properties were as
follows (in thousand of million of euros):
Gross additions
Disposals
Difference
2019
2018
2017*
0.7
(2.7)
(2.0)
0.8
(1.8)
(1.0)
1.4
(1.9)
(0.5)
* Without considering the Blackstone transaction (see Note 3).
2,306
575
1,731
219
219
—
4,519
1,991
2,528
932
250
8,226
873
166
707
90
90
—
2,682
1,222
1,460
305
86
4,036
616
108
508
47
47
—
1,907
934
973
191
51
2,812
1,433
409
1,024
129
129
—
1,837
769
1,068
627
164
4,190
3.3. United States
Creditrisk at Santander US increased to 105,792 million euros
at the end of December representing 10% of the Group total.
It comprises the following business units:
Santander Bank N.A.
Santander Bank N.A. business is focused on retail and
commercial banking, representing 82% of total Santander
US), of which 41% is with individuals and approximately
59% with corporates. One of the main strategic goals is to
continue to encourage the further development of the
wholesale banking business, which represents 17% of the
business.
The NPL ratio decreased, standing at 0.69% (-22 bp in the
year) in December. This reduction can be explained by the
proactive management of certain exposures and the
favourable macro trends reflected in the improvement of
customer credit risk profiles in the Corporates and
Individuals portfolios. The cost of credit increased to 0.35%
due to the normalisation of provisions in the Corporates
segment and the increase in auto loans.
711
Table of Contents
Information on the estimation of impairment losses
The detail of Santander Bank, National Association exposure
and impairment losses associated with each of the stages at
31 December, 2019 and 2018, is shown below. In addition,
depending on the current credit quality of the operations,
the exposure is divided into three grades (Investment,
speculation and default):
Exposure and impairment losses by stage
EUR million
2019
Credit Quality *
Stage 1
Stage 2
Stage 3
Total
Investment grade
27,078
763
Speculation grade
32,273
3,964
Default
—
—
Total Exposure**
59,351
4,727
—
—
419
419
27,841
36,237
419
64,497
Impairment
losses***
265
208
71
544
*
**
***
Detail of credit quality ratings calculated for Group management
purposes.
Credit to Customers (Amortized Cost and FV through OCI) + Off Balance
Sheet with Customers (Financial Guarantees, Technical Guarantees and
Letters of Credit), (including temporary asset acquisitions).
Includes provisions for undrawn authorized lines (loan commitments).
Exposure and impairment losses by stage
EUR million
2018
Credit Quality *
Stage 1
Stage 2
Stage 3
Investment grade
5,149
—
Speculation grade
60,391
3,784
Default
—
—
Total Exposure**
65,540
3,784
—
—
448
448
Total
5,149
64,175
448
69,772
Impairment
losses
233
204
105
542
*
**
Detail of credit quality ratings calculated for Group management
purposes.
Amortised cost assets + Loans and advances + loan commitments
granted.
712
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
For the estimation of expected losses, prospective
information is taken into account. Specifically, Santander
Bank, National Association considers three macroeconomic
scenarios, which are updated periodically over a 5-year time
horizon. The evolution projected for the next five years of
the main macroeconomic indicators used Santander Bank,
National Association to estimate expected losses is
presented below:
Magnitudes
Interest rate (annual averaged)
Unemployment rate
House price change
GDP growth
Magnitudes
Interest rate (annual averaged)
Unemployment rate
House price change
GDP growth
Each of the macroeconomic scenarios is associated with a
given probability of occurrence. As for its allocation,
Santander Bank, National Association associates the highest
weighting to the Base scenario, while associates the lowest
weightings to the most extreme scenarios:
Pessimistic scenario 2
Pessimistic scenario 1*
Base scenario
Optimistic scenario
2019
17.5%
20%
32.5%
30%
2018
20%
n.a.
60%
20%
* The exercise carried out in 2019 includes two adverse scenarios compared
to one in 2018, due to the evolution of the local methodology.
In relation to the Stage 2 classification determination, the
quantitative criteria applied at SBNA for retail portfolios
uses the FICO (Fair Isaac Corporation) score at the time of
origination and its current value, establishing different
absolute threshold for each portfolio according to their
characteristics. A SICR implies changes in that score ranging
from 120 b.p. to 20 b.p. In the case of some portfolios, the
behaviour score supplements this criterion.
Also, for some retail portfolios a threshold based on the
probability of default (PD) is used. A transaction is
considered to exceed this threshold when the PD increases
by 100% with respect to the PD that it had at the time of
origination.
In the case of non-retail portfolios, SBNA uses the
transaction's rating as a reference for its PD, taking into
account its rating at the time of origination and its current
rating, setting absolute thresholds for the different rating
bands that depend on each portfolio characteristics. A SICR
implies changes in the rating value between 2 and 0.1,
Unfavourable
scenario 2
Unfavourable
scenario 1
Base scenario
Favourable
scenario
2020 - 2024
1.1%
7.7%
2.6%
1.6%
2.2%
2.7%
3.7%
2.1%
2.3 %
(0.9)%
4.5 %
2.1 %
2.7 %
(2.1)%
4.7 %
2.8 %
2019-2023
Unfavourable
scenario
Base scenario
Favourable
scenario
1.3%
6.9%
2.2%
1.5%
2.8%
4.2%
3.9%
2.1%
3.6%
3.8%
3.9%
2.8%
depending on the portfolio and the estimated sensitivity
(from lower to higher credit quality, the rating range goes
from 1 to 9.3).
Additionally, for each portfolio, a series of specific
qualitative criteria are defined, which indicate that the
exposure has had a significant increase in credit risk,
regardless of the evolution of its PD since the initial
recognition. Santander Bank, National Association, among
other criteria, considers that a transaction presents a
significant increase in risk when it has arrears positions for
more than 30 days. These criteria depend on the risk
management practices of each portfolio.
Santander Consumer USA
Risk indicators for SC USA are higher than those of the other
United States units and of the Group, due to the nature of its
business, which focuses on auto financing through loans
and leases (97%), seeking to optimise the returns
associated with the risk assumed. SC USA´s lending also has
a smaller personal lending portfolio (3%).
The NPL ratio dropped to 6.16% (-158 bp in the year),
mainly due to the positive performance of the business and
higher used vehicle prices. Cost of credit, at the end of
December, stood at 9.42% (-59 bp in the year). An increase
that was partially mitigated by efficiency in recoveries and
the aforementioned positive performance in vehicle prices.
The coverage ratio surged to 175% (+20 pp in the year) on
the back of the reduction in NPLs.
713
Table of Contents
Information on the estimation of impairment losses
The detail of Santander Consumer USA Holding Inc.
exposure and impairment losses associated with each of the
stages at 31 December 2019 and 2018, is shown below. In
addition, depending on the current credit quality of the
operations, the exposure is divided into three grades
(Investment, speculation and default):
Exposure and impairment losses by stage
EUR million
2019
Credit Quality *
Stage 1
Stage 2
Stage 3
Total
Investment grade
1,029
14
—
1,043
Speculation
grade
Default
20,083
6,277
—
26,360
—
—
1,600
1,600
Total Exposure **
21,112
6,291
1,600
29,003
Impairment
losses***
859
1,503
731
3,093
*
**
***
Detail of credit quality ratings calculated for Group management
purposes.
Credit to Customers (Amortized Cost and FV through OCI) + Off Balance
Sheet with Customers (Financial Guarantees, Technical Guarantees and
Letters of Credit), (including temporary asset acquisitions).
Includes provisions for undrawn authorized lines (loan commitments).
Exposure and impairment losses by stage
EUR million
2018
Credit Quality *
Stage 1
Stage 2
Stage 3
Investment grade
224
—
—
Total
224
Speculation
grade
Default
20,313
6,600
—
26,913
—
—
2,218
2,218
Total Exposure **
20,537
6,600
2,218
29,355
Impairment
losses
824
1,720
667
3,211
* Detail of credit quality ratings calculated for Group management purposes.
** Amortised cost assets + Loans and advances + loan commitments granted.
In relation to the methodology used to calculate
impairment losses, Santander Consumer USA uses a
method for calculating expected losses based on the use of
risk parameters: EAD (Exposure at Default), PD (Probability
of Default) and LGD (Loss Given Default). The expected loss
is calculated by adding the estimated monthly expected
losses for the entire life of the operation, unless the
operation is classified in Stage 1 (on those used for the
Santander Corporate Investment Banking portfolios see
section 3.5) which will correspond to the sum of the
estimated monthly expected losses during the following 12
months.
In general, there is an inverse relationship between the
transactions credit quality and the impairment losses
projections so that transactions with better credit quality
require a lower expected loss. Transactions credit quality,
which is reflected in the internal rating associated to each
transaction or client, is shown in the probability of default
odf the transactions.
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2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
For the expected losses estimation, prospective information
should be taken into account. Specifically, Santander
Consumer USA Holdings Inc. considers three
macroeconomic scenarios, periodically updated over a 5-
year time horizon. The evolution forecasted for the next five
years of the main macroeconomic indicators used by in
Santander Consumer USA Holdings Inc in the estimation of
expected losses is shown below:
Magnitudes
Interest rate (year averaged)
Unemployment rate
Housing price growth
GDP Growth
Manheim indexA
A. US used vehicle price car index
Magnitudes
Interest rate (year averaged)
Unemployment rate
Housing price growth
GDP Growth
Each of the macroeconomic scenarios is associated with a
given probability of occurrence. Santander Consumer USA
Inc. associates the highest weighting to the Base scenario,
whereas it associates the lowest weightings to the most
extreme or acid scenarios:
Pessimistic scenario 2
Pessimistic scenario 1*
Base scenario
Optimistic scenario
2019
2018
17.5%
20%
32.5%
30%
20%
n.a.
60%
20%
* The exercise carried out in 2019 includes two adverse scenarios compared
to one in 2018, due to the evolution of the local methodology.
Unfavourable
scenario 1
Unfavourable
scenario 2
Base scenario
Favourable
scenario
2020 - 2024
1.1 %
7.7 %
2.6 %
1.6 %
(1.2)%
2.2%
2.7%
3.7%
2.1%
0.5%
2.3 %
(0.9)%
4.5 %
2.1 %
1.6 %
2.7 %
(2.1)%
4.7 %
2.8 %
3.1 %
2019 - 2023
Unfavourable
scenario
Base scenario
Favourable
scenario
1.3%
6.9%
2.2%
1.5%
2.8%
4.2%
3.9%
2.1%
3.6%
3.8%
3.9%
2.8%
The sensitivity analysis of the main portfolios expected loss
to variations of +/-100 b.p. for the macroeconomic variables
used in the construction of the scenarios is as follows:
Change in provision
SC Auto
GDP Growth
-100 b.p.
100 b.p.
Manheim index
-100 b.p.
100 b.p.
Unemployment rate
-100 b.p.
100 b.p.
5.73 %
(0.74)%
1.02 %
(1.88)%
(0.55)%
0.15 %
In relation to the Stage 2 classification determination, the
quantitative criteria applied at SC USA uses the FICO (Fair
Isaac Corporation) score at the time of origination and its
current value, establishing different absolute threshold for
each portfolio according to their characteristics. A SICR
implies changes in that score ranging from 100 b.p. to 60
b.p.
Additionally, for each portfolio, a series of specific
qualitative criteria are defined, which indicate that the
exposure has had a significant increase in credit risk,
regardless of the evolution of its PD since the initial
recognition. Santander Consumer USA Holdings Inc. among
other criteria, considers that a transaction presents a
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significant increase in risk when it has irregular positions for
more than 30 days. These criteria depend on the risk
management practices of each portfolio.
3.4. Brazil
Credit risk in Brazil amounts to 88,893 million euros,
representing an increase of 5.6% compared to 2018.
Excluding the exchange rate effect, growth was 7%.
Santander Brazil accounts for 9% of the Group’s lending.
Its loan portfolio is properly diversified and has an
increasingly marked retail profile, with 75% of loans
extended to individuals, consumer financing and
companies.
Information on the estimation of impairment losses
The detail of Santander Brazil exposure and impairment
losses associated with each of the stages at 31December,
2019 and 2018, is shown below. In addition, depending on
the current credit quality of the operations, the exposure is
divided into three grades (Investment, speculation and
default):
Exposure and impairment losses as of 31 December 2019
EUR million
Credit Quality *
Stage 1
Stage 2
Stage 3
Total
Investment grade
45,764
308
Speculation grade
32,699
5,393
—
—
46,072
38,092
Default
—
—
4,727
4,727
Total Exposure **
78,463
5,701
4,727
88,891
Impairment
losses***
1,054
732
2,931
4,717
*
**
***
Detail of credit quality ratings calculated for Group management
purposes.
Credit to Customers (Amortized Cost and FV through OCI) + Off Balance
Sheet with Customers (Financial Guarantees, Technical Guarantees and
Letters of Credit), (including temporary asset acquisitions).
Includes provisions for undrawn authorized lines (loan commitments).
Exposure and impairment losses as of 31 December 2018
EUR million
Credit Quality *
Stage 1
Stage 2
Stage 3
Total
Investment grade
51,150
472
Speculation grade
56,884
5,334
—
—
51,622
62,218
Default
—
—
4,223
4,223
Total Exposure **
108,034
5,806
4,223
118,063
Impairment
losses
997
768
2,889
4,654
* Detail of credit quality ratings calculated for Group management purposes.
** Amortised cost assets + Loans and advances + loan commitments granted.
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2019 Annual Report
For the expected losses estimation, prospective information
is taken into account. Particularly, Santander Brazil
considers three macroeconomic scenarios, periodically
updated, over a time horizon of 5 years. The evolution
forecasted for the next five years of the main
macroeconomic indicators used to estimate the expected
losses in Santander Brazil is as follows:
Magnitudes
Interest rate
Unemployment rate
Housing price
change
GDP Growth
Burden income
2020 - 2024
Pessimistic
scenario
Base
scenario
Optimistic
scenario
8.7 %
16.5 %
(1.2)%
(1.4)%
21.7 %
5.6%
9.6%
2.7%
2.4%
4.5%
8.0%
6.4%
4.4%
20.4%
19.0%
Magnitudes
Interest rate
Unemployment rate
Housing price
change
GDP Growth
2019 - 2023
Pessimistic
scenario
Base
scenario
Optimistic
scenario
11.0 %
16.3 %
(1.4)%
(1.2)%
7.7%
9.9%
4.3%
2.4%
6.0%
8.6%
5.9%
3.5%
Each macroeconomic scenario is associated with a
determined likelihood of occurrence. Regarding its
assignation, Brazil links the highest weight to the base
scenario whilst links the lowest weights to the most
extreme scenarios:
Pessimistic scenario
Base scenario
Optimistic scenario
2019
2018
10%
80%
10%
10%
80%
10%
The sensitivity analysis of the main portfolios expected loss
to variations of +/-100 b.p. for the macroeconomic variables
used in the construction of the scenarios is as follows:
GDP Growth
-100 b.p.
100 b.p.
Burden income
-100 b.p.
100 b.p.
Change in provision
Consumer
Corporate
0.73 %
0.54 %
(0.20)%
(0.23)%
(1.00)%
0.07 %
2.17 %
0.45 %
Regarding the Stage 2 classification determination,
Santander Brazil uses the transaction's rating as a reference
for its PD, taking into account its rating at the time of
origination and its current rating, setting different
thresholds that depend on each portfolio characteristics.
SICR is determined by observing the rating's evolution,
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
considering that a significant reduction has occurred when
this decrease reaches values between 3.1 and 1, depending
on the rating's value at the time of origination.
In addition, for every portfolio, a set of specific qualitative
criteria are defined to indicate that the exposure to credit
risk has significantly risen, regardless of the evolution of its
PD since the initial recognition. Santander Brazil, among
other criteria, considers that an operations involves a
significant increase in risk when it presents irregular
positions for more than 30 days, but in Real State,
Consigned and Financial portfolios, where, due to their
particular attributes, they use a 60 days threshold. Such
criteria depend upon each portfolio’s risk management
practices.
3.5. Santander Corporate & Investment Banking
The exposure detail and impairment losses presented for
the main geographies includes the Santander Corporate &
Investment Banking portfolios. In this sense, due to the type
of customers managed in these portfolios, large
multinational companies, the Group uses its own credit risk
models. These models are common to different
geographies using their own macroeconomic scenarios.
The average evolution forecasted for the next years of the
GDP projected for the next few years is presented, which
has been used for the estimation of the expected losses,
together with the weighting of each scenario:
2020 - 2024
Magnitudes
Pessimistic
scenario
Base
scenario
Optimistic
scenario
Global GDP Growth
3.0%
3.6%
3.8%
2019 - 2023
Magnitudes
Pessimistic
scenario
Base Optimistic
scenario
scenario
Global GDP Growth
2.7%
3.6%
4.2%
Each macroeconomic scenarios is associated with a
determined likelihood of occurrence. As for its allocation,
Santander Corporate & Investment Banking associates the
highest weight with the Base Scenario, while associating
the lower weights with the more extreme scenarios.
Pessimistic scenario
Base scenario
Optimistic scenario
2019
2018
30%
40%
30%
20%
60%
20%
With regards to the stage 2 classification determination,
SCIB uses the customer's rating as a reference for its PD,
taking into account its rating at the time of origination and
its current rating for each transaction, setting absolute
thresholds for the different rating bands. A SICR implies
changes in the rating value between 3.6 and 0.1, depending
on the estimated sensitivity of each rating band (from lower
to higher credit quality, the rating range goes from 1 to 9.3).
4. Other credit risk aspects
4.1. Credit risk by activity in the financial markets
This section covers credit risk generated in treasury
activities with customers, mainly with credit institutions.
Transactions are undertaken through money market
financial products with different financial institutions and
through counterparty risk products, which serve the Group’s
customer needs.
According to regulation (EU) 575/2013, counterparty credit
risk is the risk that a client in a transaction could default
before the definitive settlement of the cash flows of the
transaction. It includes the following types of transactions:
derivative instruments, transactions with repurchase
commitment, stock and commodities lending, transactions
with deferred settlement and financing of guarantees.
There are two methodologies for measuring this exposure:
(i) mark-to-market (MtM) methodology (replacement value
of derivatives) plus potential future exposure (add-on) and
(ii) the calculation of exposure using Montecarlo simulation
for some countries and products. The capital at risk or
unexpected loss is also calculated, i.e. the loss which, once
the expected loss has been subtracted, constitutes the
economic capital, net of guarantees and recoveries.
After the markets close, exposures are re-calculated by
adjusting all transactions to their new time frame, adapting
the potential future exposure and applying mitigation
measures (netting, collateral, etc.), so that the exposures
can be controlled directly against the limits approved by
senior management. Risk control is performed through an
integrated system and in real time, enabling the exposure
limit available with any counterparty, product and maturity
and in any of Santander’s subsidiaries to be known at any
time.
4.2. Concentration risk
Concentration risk control is a vital part of our management.
The Group continuously monitors the degree of
concentration of its credit risk portfolios using various
criteria: geographic areas and countries, economic sectors
and groups of customers.
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The board, via the risk appetite framework, determines the
maximum levels of concentration.
In line with these maximum levels and limits, the executive
risk committee establishes the risk policies and reviews the
appropriate exposure levels for the effective management
of the degree of concentration in Santander’s credit risk
portfolios.
The Group must adhere to the regulation on large risks
contained in the CRR, according to which the exposure
contracted by an entity with a customer or group of
associated customers will be considered a large exposure
when its value is equal to or greater than 10% of eligible
capital. In addition, in order to limit large exposures, no
entity may assume exposures exceeding 25% of its eligible
capital with a single customer or group of associated
customers, having factored in the credit risk reduction effect
contained in the regulation.
EUR million
At the end of December, after applying risk mitigation
techniques, no group reaches the above-mentioned
thresholds.
Regulatory credit exposure with the 20 largest groups
within the scope of large risks represented 4.65% of the
outstanding credit risk with customers (lending to
customers plus off-balance sheet risks) as of December
2019.
The detail, by activity and geographical area of the Group's
risk concentration at 31 December, 2019 is as follows:
Central banks and Credit institutions
Public sector
Of which:
Central government
Other central government
Other financial institutions (financial business activity)
Non-financial companies and individual entrepeneurs (non-
financial business activity) (broken down by purpose)
Of which:
Construction and property development
Civil engineering construction
Large companies
SMEs and individual entrepreneurs
Households – other (broken down by purpose)
Of which:
Residential
Consumer loans
Other purposes
Total
31 December 2019
Spain
36,163
52,635
42,752
9,883
17,073
Other EU
countries
109,303
40,285
36,409
3,876
69,336
America
82,754
76,061
69,980
6,081
32,558
Rest of the
world
10,629
4,725
4,689
36
1,995
Total
238,849
173,706
153,830
19,876
120,962
400,371
117,943
127,494
139,236
15,698
21,050
6,270
237,994
135,057
523,072
333,043
169,464
20,565
4,028
3,195
59,223
51,497
88,980
62,349
18,551
8,080
9,893
1,979
74,743
40,879
7,062
959
90,022
41,193
300,261
125,268
228,677
69,358
2,226
41,099
76,757
7,412
67
137
14,006
1,488
8,563
918
4,798
2,847
1,456,960
312,794
646,679
455,877
41,610
* For the purposes of this table, the defnition of risk includes the following items in the public balance sheet: Loans and advances to credit institutions, Loans and advances
to Central Banks, Loans and advances to Customers, Debt Instruments, Equity Instruments, trading Derivatives, Hedging derivatives, Investments and financial guarantees
given.
that the EBA’s criterion does not include deposits with
central banks, exposures with insurance companies, indirect
exposures via guarantees and other instruments. On the
other hand, the EBA does include public administrations in
general, including regional and local bodies, not only the
central state sector.
4.3. Sovereign risk and exposure to other public sector
entities
Sovereign risk is the risk contracted in transactions with a
central bank, including the regulatory cash reserve
requirement, issuer risk with the Treasury (public debt
portfolio) and the risk arising from transactions with public
institutions with the following features: their funds only
come from the state’s budget income and activities are of a
non-commercial nature.
These historic Group criteria, differ in some respects from
those applied by the European Banking Authority (EBA) in
its regular stress test exercises. The main differences are
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2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
According to the management Group’s criteria, local
sovereign exposure in currencies other than the official
currency of the country of issuance is not significant (12,187
million euros, 5.3% of total sovereign risk), and exposure to
non-local sovereign issuers involving cross-border risk2 is
even less significant (4,269 million euros, 1.8% of total
sovereign risk). f
Sovereign exposure in Latin America is mostly in local
currency, and is recognised in the local accounts and
concentrated in short- term maturities.
Over the past few years, total exposure to sovereign risk has
remained aligned with the regulatory requirements and
strategic reasons that support the management of this
portfolio.
The movements observed in the different countries
exposure is therefore explained by the Group's liquidity
management strategy and the hedging of interest and
exchange rates risks. Santander has a diversified
international exposure among different countries with
diverse macroeconomic perspectives and thus, dissimilar
growth, interest and exchange rates scenarios.
Regarding the deterioration measurement of these
exposures, the Group has evaluated methodologies and
criteria in accordance with the IFRS 9 general criteria,
integrating common processes, systems, tools and data that
are used both for accounting purposes and for capital
adequacy.
When estimating the expected losses, the Group applies its
own credit risk models for the valuation of financial
instruments belonging to Santander Corporate &
Investment Banking portfolios.
Regarding the methodology and parameters development
for this segment, it should be noted that the PD model
incorporates forward-looking information as well as the
current credit quality indicator (rating). As for the LGD, two
approaches are given depending on the existence of
guarantees. The LGD secured approach (severity based on
guarantees) is based on the estimate made by analysts and
aligned with the general framework proposed for
individualised analysis by discounting cash flows. In the
case of unsecured LGD (estimated severity without
guarantee base), due to the low number of observations
collected in recent decades, it is not possible to reflect a
forward-looking vision or PiT (Point in Time) and therefore a
prudent value is estimated in line with industry practices.
In case of sovereign risk issued in the official currency of the
issuing country or in which the issuer has the 100%
guarantee of the issuing country of the currency, the few
default cases existing over the last decades only reflect the
possibility if a potential unexpected loss that is still not
modelable due to its scarcity. Consequently, for this type of
sovereign risk, the expected loss is considered irrelevant in
consistency with unexpected loss.
The exposure in the table below is disclosed following the
latest amendments of the regulatory reporting framework
carried out by the EBA, which entered into force in 2019:
2019
Portfolio
2018
Financial assets held for
trading and Financial
assets designated as FV
with changes in results
Financial assets
at fair value
through other
comprehensive
income
Financial
assets at
amortised cost
Non-
trading financial assets
mandatorily at fair value
through profit or loss
Total net direct
exposure
Total net direct
exposure
Spain
Portugal
Italy
Greece
Ireland
Rest Eurozone
UK
Poland
Rest of Europe
US
Brazil
Mexico
Chile
Rest of America
Rest of the World
Total
5,204
(746)
643
—
—
(313)
740
22
(2)
794
3,483
4,366
320
9
0
19,961
5,450
1,631
—
—
1,679
1,402
8,313
120
10,463
21,250
8,350
2,759
249
3,832
10,201
3,985
461
—
—
443
8,221
31
659
5,042
4,265
957
381
771
981
14,520
85,459
36,398
2 Countries that are not considered low risk by Banco de España.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35,366
8,689
2,735
—
—
1,809
10,363
8,366
777
16,299
28,998
13,673
3,460
1,029
4,813
49,640
8,753
261
—
—
2,778
10,869
11,229
329
8,682
27,054
10,415
1,776
893
6,222
136,377
138,901
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Table of Contents
5. Credit risk management
Our credit risk management process consists of identifying,
analysing, controlling and deciding on the credit risk
incurred by the Group. It considers a holistic view of the
credit risk cycle including the transaction, customer and
portfolio views. Both business and risk areas, together with
the senior management participate in the management and
control process.
Credit risk identification is a key component for the active
management and effective control of our portfolios. The
identification and classification of external and internal risks
in each business allows corrective and mitigating measures
to be adopted in the event they are needed. This is achieved
through the following processes:
5.1. Planning
Planning allows business targets to be set and specific
action plans defined, within the risk appetite framework
established by the Group.
Strategic commercial plans (SCPs) are one of our
management and control tools for the Group’s credit
portfolios. SCPs are prepared jointly by the business and
risk areas, and define the commercial strategies, risk
policies, measures and infrastructure required. These
factors are considered as a whole, ensuring a holistic view
of the portfolios.
The integration of SCPs at management level provides an
updated view of the credit portfolio quality, enabling credit
risk to be measured, and internal controls executed
alongside the periodic monitoring of strategy, the early
detection of deviations and significant changes in the risk
and potential impact, as well as defining corrective actions
where necessary.
SCPs are approved and monitored by senior management in
each entity before review and validation at Group level.
The SCPs are aligned with the Group´s risk appetite and the
capital objectives of the subsidiaries.
5.2. Risk assessment and credit rating process
In order to analyse a customer’s capacity to meet their
contractual commitments with the Bank, the Group uses
valuation and parameter estimation models in each of the
segments where it operates.
The credit quality valuation models applied are based on
credit rating drivers, which are monitored and controlled to
calibrate and adjust the decisions and ratings they assign.
Depending on the segment, drivers may be:
• Rating: resulting from the application of mathematical
algorithms incorporating a quantitative model based on
balance sheet ratios or macroeconomic variables, and a
qualitative module supplemented by the credit analyst’s
expert judgement. Used for the SCIB, commercial
banking, institutions and SMEs (those who are treated on
an individual basis) segments.
• Scoring: an automatic assessment system for credit
applications. It automatically assigns an individual score
to the customer for subsequent decision-making,
generally in the retail and smaller SMEs segments.
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2019 Annual Report
Parameter estimation models are obtained through internal
econometric models based on the portfolios’ historical
defaults and losses for which they are developed. They are
also used to calculate economic and regulatory capital and
the portfolio’s IFRS 9 provision.
Periodic model monitoring and evaluation is carried out,
assessing among other factors, the appropriateness of
usage, predictive capacity, performance and granularity. In
addition, policy compliance is also monitored.
The resulting ratings are regularly reviewed, incorporating
the latest available financial information as well as other
relevant data. The depth and frequency of the reviews are
increased in the case of customers who require a more
detailed monitoring or have automatic warnings in the risk
management systems.
5.3. Credit risk mitigation techniques
Generally, from a risk acceptance standpoint, the criteria are
linked to the borrower’s payment capacity for the financial
obligations - although this does not inhibit imply an
impediment to requiring collateral or personal guarantees in
addition.
Payment capacity is assessed based on the funds or net
cash flows from the customer´s businesses or income,
excluding guarantors or assets pledged as collateral. These
guarantors or assets are always to be considered, when
evaluating the approval of the transaction, as a secondary
method of recovery in the event the first channel fails.
In general, a guarantee is defined as a reinforcement
measure added to a credit transaction with the purpose of
mitigating the loss due to a breach of the payment
obligation.
At Santander, we apply several credit risk mitigation
techniques on the basis, among other factors, of the type of
customer and product. Some are inherent to specific
transactions (e.g. real estate guarantees) while others apply
to a series of transactions (e.g. derivatives netting and
collateral). The different mitigation techniques can be
grouped into personal guarantees, guarantees in the form
of credit derivatives or collateral.
5.4. Definition of limits, pre-classifications and pre-
approvals
The connection between the Group’s credit risk appetite and
credit portfolios management and control is implemented
through the SCPs, which define the portfolio and origination
limits to predict the portfolio’s risk profile. The cascading
down of the Group’s risk appetite, strengthens the controls
over our credit portfolios.
We have processes that determine the risk that the Group is
able to assume with each customer. These limits are jointly
set by the business and risk areas and have to be approved
by the executive risk committee (or delegated committees)
and reflect the expected results of the business in terms of
risk-return.
There are different limit models depending on the segment:
• Large corporate groups: we use a pre-classification
model based on a system for measuring and monitoring
economic capital. The result is the level of risk that the
Group is willing to assume with a customer/group, in
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
terms of capital at risk, nominal cap, and maximum
tenors according to the type of transaction, in the case of
financial entities, limits are managed through credit
equivalent risk (CER). It includes the actual and expected
risk with a customer within the limits defined in the risk
appetite statement and credit policies.
• Corporates and institutions that meet certain
requirements (strong relationships, rating, etc.): a more
simplified pre-classification model is used, with an
internal limit that establishes a reference point in the
level of risk to be assumed with the customer. The criteria
will include, among others, repayment capacity, overall
indebtedness, and the distribution of the banking pool.
In both cases, transactions over certain thresholds or with
specific characteristics might require the approval of a
senior credit analyst or committee.
For individual customers and SMEs with low turnover,
large volumes of credit transactions are managed with
the use of automatic decision models to classify the
customer/transaction.
5.5. Scenario analysis
Scenario analysis is used in credit portfolio management as
an evolution of the portfolio analysis. It enriches the
understanding of the portfolio performance under different
macroeconomic conditions, and allows management
strategies to be anticipated and defined in order to avoid
future deviations from the established plans and targets.
The approach taken with regard to scenario analysis
consists of simulating the impact of alternative scenarios in
the portfolio credit parameters (PD, LGD) and the associated
expected credit losses. The results of this analysis are
compared with the portfolio’s credit profile indicators to
identify the most appropriate measures that could be
developed to guide the required management actions.
Scenario analysis is integrated into credit management
portfolio activities and in the SCPs.
5.6. Monitoring
Business performance is monitored on a regular basis by
comparing performance with established plans. This is a
key risk management activity.
All customers are monitored on an ongoing, holistic manner
that enables the early detection of events that may have an
impact on the customer’s credit rating. Monitoring is carried
out through an ongoing review of all customers, assigning a
monitoring classification, establishing pre-defined actions
associated to each classification and executing specific
measures (pre-defined or ad-hoc) to correct any deviations
that could have a negative effect for the Group.
This monitoring process takes into consideration the
transaction forecasts and characteristics throughout its
entire life. It also takes into consideration any variations that
may have occurred in the classification and suitability since
the time of the review.
Monitoring is carried out by local and global Risk teams,
backed up by Internal audit. It is based on customer
segmentation:
• In the SCIB segment, monitoring, in the first instance, is a
direct function of both the business manager and the risk
analyst, who maintain direct relationship with the
customer and manage the portfolio. This guarantees an
up-to- date view of the customer’s credit quality is always
available and allows us to anticipate situations of concern
and take the necessary actions.
• For commercial banking, institutions and SMEs with a
credit analyst assigned, the function consists of
identifying and tracking customers that require closer
monitoring, reviewing ratings and continuously analysing
relevant indicators.
• For individual customers, businesses and smaller SMEs
monitoring is carried out through automatic alerts, in
order to detect shifts in the performance of the portfolio.
The Group performs the monitoring process through the
Santander Customer Assessment Note (SCAN), which was
implemented in the Group’s subsidiaries in 2019.
The Group’s SCAN system aims to establish the level of
monitoring, policies and specific actions for all individual
customers, based on their credit quality and particular
circumstances. Each customer is assigned a level of
monitoring, and specific risk management actions, on a
dynamic basis, with a specific manager appointed and
agreed monitoring frequency.
In addition to customer credit quality monitoring, Santander
establishes the control procedures needed to analyse
portfolios and performance, as well as any possible
deviations regarding planning or approved alert levels.
Portfolio analysis systematically controls the evolution of
credit risk with regard to budgets, limits and benchmarks,
assessing the impacts of future situations, both exogenous
and resulting from strategic decisions, to establish actions
to keep the risk portfolio profile and volumes within the
parameters set by the Group within its risk appetite.
5.7. Recovery and collections management
Recovery activity is a significant component in the Group’s
risk management and control. This function is carried out by
the Recoveries area, which defines a global strategy and an
enterprise-wide focus for recovery management.
The Group has a recovery management operating model
that sets the guidelines and general policies of action to be
applied, taking into account the local environment.
The Recoveries area directly manages customers, where
value creation is based on effective and efficient collection
management. New digital channels are becoming
increasingly important in recovery management.
The diverse features of Santander´s customers make
segmentation necessary in order to manage recoveries
effectively. Mass management of large groups of customers
with similar profiles and products is conducted through
processes with a high technological and digital component,
while personalised management focuses on customers
who, because of their profile, require a specific manager
and more customised management.
Recovery management is divided into four phases: in
arrears, non-performing loans recoveries, write-offs
recoveries and management of foreclosed assets.
721
The following terms are used in Bank of Spain Circular
4/2017 of Bank of Spain with the meanings specified:
• Refinancing transaction: transaction that is granted or
used, for reasons relating to current or foreseeable
financial difficulties of the borrower, to repay one or more
of the transactions granted to it, or through which the
payments on such transactions are brought fully or
partially up to date, in order to enable the borrowers of
the cancelled or refinanced transactions to repay their
debt (principal and interest) because they are unable, or
might foreseeably become unable, to comply with the
conditions thereof in due time and form.
• Restructured transaction: transaction with respect to
which, for economic or legal reasons relating to current or
foreseeable financial difficulties of the borrower, the
financial terms and conditions are modified in order to
facilitate the payment of the debt (principal and interest)
because the borrower is unable, or might foreseeably
become unable, to comply with the aforementioned
terms and conditions in due time and form, even if such
modification is envisaged in the agreement.
Table of Contents
The management scope for the Recovery function includes
non-productive assets (NPAs), corresponding to the
forborne portfolios, NPLs, written-off loans and foreclosed
assets, where the Group may use mechanisms to rapidly
reduce the volume of these assets, such as the sale of
portfolios or foreclosed assets.
In the written-off loans category, debt instruments are
included (past due or otherwise) the recovery of which, after
an individualised analysis, is considered remote, due to the
severe and unrecoverable impairment of the solvency of the
transaction or the customer. Classification in this category
involves the full or partial cancellation of the gross carrying
amount of the loan and its derecognition. This does not
mean that the Group will suspend negotiations or legal
proceedings to recover the amounts.
In those geographies with a significant exposure to real
estate risk, the Group has efficient sales management
instruments to maximise recovery and optimise the existing
stock in the balance sheet.
5.8. Forborne loan portfolio
The Group has an internal forbearance policy, which acts as
a reference for the different transpositions in all local
subsidiaries and shares the principles established by the
regulation and the applicable supervisory expectations. This
year, the policy was updated to include the EBA Guidelines
on the management of non-performing and forborne
exposures
This policy defines forbearance as the modification of the
payment conditions of a transaction to allow a customer
who is experiencing financial difficulties (current or
foreseeable), to fulfil their payment obligations.
In addition, this policy sets rigorous criteria for the
evaluation, classification and monitoring of such
transactions, ensuring the strictest possible care and
diligence in their approval and monitoring. Therefore, the
forborne transaction must be focused on recovery of the
amounts due and the payment obligations adapted to the
customer’s current position and, in addition, losses must be
recognised as soon as possible if any amounts are deemed
irrecoverable.
Forbearance may never be used to delay the immediate
recognition of losses or to hinder the appropriate
recognition of risk of default.
Further, the policy defines the classification criteria for
forborne transactions in order to ensure that any risks are
suitably recognised, bearing in mind that they must remain
classified as non-performing or watchlist for an appropriate
period to ensure reasonable certainty that repayment
capacity can be recovered.
The forborne portfolio stood at EUR 32,475 million euros at
the end of December 2019. In terms of credit quality, 53%
of the loans are classified as non-performing loans, with
average coverage of 52% (28% of the total portfolio).
The Group's forborne portfolio decreased by 21% in 2019,
in line with the trend observed in previous years.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CURRENT REFINANCING AND RESTRUCTURING BALANCES
Amounts in million euros, except number of transactions that are in units
Without real guarantee
With real guarantee
Total
Maximum amount of the actual
collateral that can be considered
Number of
transactions Gross amount
Number of
transactions Gross amount
Real estate
guarantee
Rest of real
guarantees
—
43
630
—
31
200
—
15
350
—
10
90
—
7
13
—
—
19
Impairment of
accumulated
value or
accumulated
losses in fair
value due to
credit risk
—
2
35
161,353
5,413
45,474
11,438
6,339
2,271
5,029
6,427
1,791,788
1,953,814
190
3,542
9,185
1,293
680,475
726,314
847
11,753
23,290
554
6,354
12,714
21
1,958
4,248
392
3,980
9,045
—
—
—
—
—
—
—
Credit entities
Public sector
Other financial institutions
and: individual shareholder
Non-financial institutions
and individual shareholder
Of which: financing for
constructions and
property development
Other warehouses
Total
Financing classified as non-
current assets and
disposable groups of items
that have been classified as
held for sale
In 2019, the amortised cost of financial assets whose
contractual cash flows were modified during the year when
the corresponding loss adjustment was valued at an amount
equal to the expected credit losses over the life of the asset
amounted to EUR 1,566 million, without these
modifications having a material impact on the income
statement. Also, during 2019, the total of financial assets
that have been modified since the initial recognition, and
whose correction for expected loss has gone from being
valued during the entire life of the asset to the following
twelve months, amounts to 1,601 million euros.
The transactions presented in the foregoing tables were
classified at 31 December 2019 by nature, as follows:
• Non-performing: Operations that rest on an inadequate
payment scheme will be classified within the non-
performing category, regardless they include contract
clauses that delay the repayment of the operation
throughout regular payments or present amounts written
off the balance sheet for being considered irrecoverable.
• Performing: Operations not classifiable as non-
performing will be classified within this category.
Operations will also will be classified as normal if they
have been reclassified from the non-performing category
for complying with the specific criteria detailed below:
a) A period of a year must have expired from the
refinancing or restructuring date.
b) The owner must have paid for the accrued
amounts of the capital and interests, thus
reducing the rearranged capital amount, from the
date when the restructuring of refinancing
operation was formalised.
c) The owner must not have any other operation with
amounts past due by more than 90 days on the
date of the reclassification to the normal risk
category.
47% of the forborne loan transactions are classified as
other than non-performing. Particularly noteworthy are the
level of existing guarantees (52% of transactions are
secured by collateral) and the coverage provided by specific
allowances (representing 28% of the total forborne loan
portfolio and 42% of the non-performing portfolio)
The table below shows the changes in 2019 in the forborne
loan portfolio:
Million euros
Beginning balance
Refinancing and restructuring of the period
Memorandum item: impact recorded in the
income statement for the period
Debt repayment
Foreclosure
Derecognised from the consolidated balance sheet
Others variations
Balance at end of year
2019
30,527
6,174
2,684
(6,032)
(564)
(1,403)
(5,272)
23,430
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2019
Without real guarantee
With real guarantee
Of which: Non-performing/Doubtful
Maximum amount of the actual
collateral that can be considered
Number of
transactions
Gross amount
Number of
transactions
Gross amount
Real estate
guarantee
Rest of real
guarantees
Impairment of
accumulated value
or accumulated
losses in fair value
due to credit risk
—
13
315
—
3
179
—
9
240
—
4
43
—
3
9
—
—
3
—
1
33
93,803
3,406
32,199
7,189
3,586
867
4,590
4,077
1,062,900
1,157,031
144
1,823
5,411
938
155,288
187,736
629
4,630
11,865
350
2,643
6,241
9
357
1,227
378
2,558
7,181
—
—
—
—
—
—
—
c) Trading market risk, structural and liquidity risk
1. Activities subject to market risk and types of market
risk
The perimeter of activities subject to market risk involves
transactions where patrimonial risk is assumed as a
consequence of variations in market factors. Thus they
include trading risks and also structural risks, which are also
affected by market shifts. This risk arises from changes in
risk factors - interest rates, inflation rates, exchange rates,
stock prices, credit spreads, commodity prices and the
volatility of each of these elements - as well as liquidity risk
of the various products and markets in which the Group
operates, and balance sheet liquidity risk:
• Interest rate risk arises from the possibility that changes
in interest rates could adversely affect the value of a
financial instrument, a portfolio or the Group as a whole.
It affects loans, deposits, debt securities, most assets and
liabilities in the trading books and derivatives, among
others.
• Inflation rate risk originates from potential changes in
inflation rates that could adversely affect the value of a
financial instrument, a portfolio or the Group as a whole.
It affects instruments such as loans, debt securities and
derivatives, where the return is linked to future inflation
values or to a change in the current rate.
• Exchange rate risk is defined as the sensitivity to
potential movements in exchange rates of a position’s
value that is denominated in a different currency than the
base currency. Hence, a long or open position in a foreign
currency may produce a loss if that currency depreciates
against the base currency. Among the exposures affected
by this risk are the Group’s investments in subsidiaries in
non-euro currencies, as well as any transactions in
foreign currency.
• Equity risk is the sensitivity of the value of open positions
in equities to adverse movements in their market prices
or future dividend expectations. Among others, this
affects positions in shares, stock market indices,
convertible bonds and derivatives with shares as the
underlying asset (put, call, equity swaps, among others).
• Credit spread risk is the risk or sensitivity of the value of
open positions in fixed income securities or in credit
derivatives to movements in credit spread curves or
recovery rates associated with specific issuers and types
of debt. The spread is the difference between financial
instruments with a quoted margin over other benchmark
instruments, mainly the internal rate of return (IRR) of
government bonds and interbank interest rates.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
• Commodities price risk is the risk derived from the effect
of potential changes in commodities prices. The Group’s
exposure to this risk is not significant and mainly comes
from our customers’ derivative transactions on
commodities.
• Volatility risk is the risk or sensitivity of the value of a
portfolio to changes in the volatility of risk factors:
interest rates, exchange rates, shares and credit spreads.
This risk is incurred by all financial instruments where
volatility is a variable in the valuation model. The most
significant case is the financial options portfolio.
All these market risks can be partly or fully mitigated by
using derivatives such as options, futures, forwards and
swaps.
In addition, there are other types of market risk that require
more complex hedging. For example:
• Correlation risk. Sensitivity of the portfolio to changes in
the relationship between risk factors (correlation), either
of the same type (for example, two exchange rates) or
different types (for example, an interest rate and the price
of a commodity).
• Market liquidity risk. This risk arises when a Group
subsidiary or the Group as a whole cannot reverse or
close a position in time without having an impact on the
market price or the transaction cost. Market liquidity risk
can be caused by a reduction in the number of market
makers or institutional investors, the execution of a large
volume of transactions, or market instability. Additionally,
this risk could increase depending on how the different
exposures are distributed among certain products and
currencies.
• Pre-payment or cancellation risk. Some on-balance-
sheet instruments (such as mortgages or deposits) may
have associated options that allow the holder to buy, sell
it or otherwise alter its future cash flows. This may result
in mismatches arising in the balance sheet, which may
pose a risk since cash flows may have to be reinvested at
an interest rate that is potentially lower (assets) or higher
(liabilities).
• Underwriting risk. This is the consequence of an entity’s
involvement in the underwriting or placement of
securities or other types of debt, when the entity
assumes the risk of having to partially acquire the issued
securities when the placement has not been taken up in
full by potential buyers.
In addition to the above market risks, balance sheet liquidity
risk must also be considered. Unlike market liquidity risk,
balance sheet liquidity risk is defined as the possibility of
not meeting payment obligations on time, or doing so at an
excessive cost. Among the losses caused by this risk are
losses due to forced sales of assets or margin impacts due
to the mismatch between expected cash inflows and
outflows.
Pension and actuarial risks also depend on potential shifts
in market factors. Further details are provided at the end of
this section.
1. Trading market risk management
The Group's trading risk profile remained moderately low in
2019, in line with previous years, due to the fact that the
Group’s activity has traditionally focused on providing
services to its customers, with only limited exposure to
complex structured assets, as well as geographic
diversification and risk factors.
The standard methodology Santander Group applies to
trading activities is Value at Risk (VaR), which measures the
maximum expected loss with a certain confidence level and
time frame.
The standard for historic simulation is a confidence level of
99% and a time frame of one day. Statistical adjustments
are applied enabling the most recent developments
affecting the levels of risk assumed to be incorporated
efficiently and on a timely manner. A time frame of two
years or at least 520 days from the reference date of the
VaR calculation is used. Two figures are calculated every
day: one applying an exponential decay factor that accords
less weight to the observations furthest away in time and
another with the same weight for all observations. The
higher of the two is reported as the VaR.
725
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The balance sheet items in the Group’s consolidated
position that are subject to market risk are shown below,
distinguishing those positions for which the main risk
metric is VaR from those for which risk monitoring is carried
out using other metrics:
Assets subject to market risk
Cash, cash balances at central banks and other deposits on demand
Financial assets held for trading
Non-trading financial assets mandatorily at fair value through profit or
loss
Financial assets designated at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Financial assets measured at amortised cost
Hedging derivatives
Changes in the fair value of hedged items in portfolio hedges of interest
risk
Other assets
Total assets
Liabilities subject to market risk
Financial liabilities held for trading
Financial liabilities designated at fair value through profit or loss
Financial liabilities at amortised cost
Hedging derivatives
Changes in the fair value hedged items in portfolio hedges of interest
rate risk
Other liabilities
Total liabilities
Total equity
Main market
risk metrics
Balance
sheet amount
VaR
Other
Main risk factors for
'Other' balance
101,067
108,230
4,911
62,069
125,708
995,482
7,216
1,702
116,310
1,522,695
77,139
60,995
1,230,745
101,067
Interest rate
107,522
708
Interest rate, spread
3,310
61,405
1,601
664
Interest rate, Equity
market
Interest rate
125,708
Interest rate, spread
995,482
Interest rate
7,216
—
Interest rate, exchange
1,702
Interest rate
76,849
60,211
290
784
Interest rate, spread
Interest rate
1,230,745
Interest rate, spread
6,048
6,048
—
Interest rate, exchange
269
Interest rate
269
36,840
1,412,036
110,659
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The following table displays the latest and average VaR
values at 99% by risk factor over the last three years, the
lowest and highest values in 2019 and the ES at 97.5% as of
the end of December 2019:
VaR statistics and Expected Shortfall by risk factorA
EUR million. VaR at 99% and ES at 97.5% with one day time horizon
2019
VaR (99%)
ES (97.5%)
2018
VaR
2017
VaR
Min
Average
Max
Latest
Latest
Average
Latest
Average
Latest
7.1
(4.3)
6.6
1.0
1.8
2.1
0.0
4.2
(2.9)
3.6
0.4
1.0
2.1
0.0
1.5
(0.4)
1.5
0.1
0.4
5.5
(0.4)
4.9
0.4
0.6
12.1
(8.2)
10.0
2.9
3.9
3.4
0.0
6.3
(6.9)
6.0
1.9
1.9
3.4
0.0
3.5
(1.3)
2.6
0.2
2.0
9.5
(2.9)
7.8
2.0
2.6
21.6
(24.6)
17.6
15.3
8.4
4.8
0.1
11.6
(15.2)
12.8
5.1
3.8
5.1
0.0
5.1
(3.6)
4.0
0.6
4.1
20.7
(13.4)
19.6
7.0
7.6
10.3
(9.9)
9.2
4.8
2.6
3.5
0.0
10.1
(8.3)
8.2
4.9
1.9
3.5
0.0
3.8
(2.1)
3.4
0.1
2.4
6.0
(3.8)
5.9
1.7
2.1
9.5
(8.8)
7.6
4.6
2.8
3.2
0.0
6.8
(8.8)
6.5
4.4
1.4
3.2
0.0
4.0
(1.2)
2.6
0.1
2.4
6.1
(2.6)
5.4
1.6
1.7
9.7
(9.3)
9.4
2.4
3.9
3.4
0.0
5.0
(6.7)
5.0
1.1
1.7
3.9
0.0
7.2
(4.8)
6.4
0.1
5.5
7.2
(3.5)
6.4
2.5
1.9
11.3
(11.5)
9.7
2.8
6.2
4.1
0.0
5.5
(8.2)
5.8
1.2
2.1
4.6
0.0
8.3
(2.7)
7.7
0.0
3.3
10.0
(2.3)
6.6
2.9
2.9
21.5
(8.0)
16.2
3.0
6.6
3.6
0.0
6.8
(6.1)
6.1
1.1
2.0
3.7
0.0
7.6
(4.7)
7.6
0.4
4.2
18.7
(2.9)
14.8
3.2
3.5
10.2
(7.6)
7.9
1.9
3.3
4.6
0.0
6.3
(6.1)
5.7
0.5
1.4
4.7
0.0
4.3
(3.5)
4.6
0.0
3.3
7.8
(3.4)
7.4
1.9
2.0
Total Trading
Diversification effect
Interest rate
Equities
Exchange rate
Credit spread
Commodities
Total Europe
Diversification effect
Interest rate
Equities
Exchange rate
Credit spread
Commodities
Total North America
Diversification effect
Interest rate
Equities
Exchange rate
Total South America
Diversification effect
Interest rate
Equities
Exchange rate
A. In South America and North America, VaR levels of credit spreads and commodities are not shown separately due to their low or null materiality.
In 2019, VaR fluctuated between 21.6 million euros and 7.1
million euros. The most significant changes were related to
variations in exchange and interest rate exposures and also
market volatility.
The average VaR in 2019 was 12.1 million euros, slightly
above 2018 but lower than in 2017 (9.7 million euros in
2018 and 21.5 million euros in 2017).
The Group continues to have very limited exposure to
complex structured instruments or assets. This is a
reflection of our risk culture with prudence in risk
management as one of its hallmarks.
At the end of December 2019, the Group had the following
exposures in this area:
• Hedge funds: exposure was EUR 90 million, all indirect,
acting as counterparty in derivatives transactions. The
risk related to this type of counterparty is analysed on a
case by case basis, establishing percentages of
collateralisation on the basis of the features and assets of
each fund.
• Monolines: no exposure at the end of December 2019.
The Group’s policy for approving new transactions related to
these products is still extremely prudent and conservative. It
is subject to strict supervision by the Group’s senior
management.
Backtesting
Actual losses can differ from those forecast by VaR for
various reasons related to the limitations of this metric. The
Group regularly analyses and contrasts the accuracy of the
VaR calculation model in order to confirm its reliability. The
most important tests consist of backtesting exercises:
For hypothetical P&L backtesting and for the total portfolio,
there were two overshootings in VaR at 99%, on August 5th
and on September 2nd, due to the increase in market
volatility caused by US/China trade disputes and political
uncertainty in Argentina.
There were no overshootings in Value at Earnings (VaE) at
99% in 2019. The number of observed overshootings in
2019 is consistent with the assumptions specified in the
VaR calculation model.
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Table of Contents
2. Structural balance sheet risks
2.1. Main aggregates and variations
The market risk profile inherent to the Group’s balance
sheet, in relation to its asset volumes and shareholders’
equity, as well as the budgeted net interest income margin,
remained moderate in 2019, in line with previous years.
Structural VaR
A standardised metric such as VaR can be used for
monitoring total market risk for the banking book, excluding
the trading activity of SCIB considering both interest rates
and credit spreads on ALCO portfolios), exchange rates and
equities.
In general the structural VaR is not significant according to
the assets amounts or capital of the Group:
Structural VaR
EUR million. Structural VaR 99% with a temporary horizon of one day.
2019
2018
2017
Structural VaR
Min
Average
438.2
511.4
Max
729.1
Latest
729.1
Average
568.5
Latest
556.8
Average
878.0
Latest
815.7
Diversification effect
(225.5 )
(304.2)
(404.3)
(402.0)
(325.0)
(267.7)
(337.3)
(376.8)
VaR interest rate*
VaR exchange rate
VaR equities
224.7
283.5
155.5
345.6
308.1
161.9
629.7
332.1
171.7
629.7
331.7
169.8
337.1
338.9
217.6
319.5
324.9
180.1
373.9
546.9
294.5
459.6
471.2
261.6
* Includes credit spread VaR on ALCO portfolios.
Structural interest rate risk
• Europe
The main balance sheets, those of the Parent and Santander
UK, in mature markets and in a low interest rate
environment, usually show positive sensitivities to interest
rates in economic value of equity and net interest income.
Exposure levels in all countries were moderate in relation to
the annual budget and capital levels in 2019.
At the end of December 2019, risk on net interest income
over a one year horizon, measured as the sensitivity to
parallel changes in the worst-case scenario of ±100 basis
points, was concentrated in the Euro, at 479 million euros,
the British pound yield curve at EUR 69 million, the Polish
zloty, at 60 million euros, and the US dollar, at 13 million
euros, all related to risks of rate cuts.
• North America
North American balance sheets usually show positive
sensitivities to interest rates in economic value of equity and
net interest income, except for economic value of equity in
Mexico.
Exposure levels in all countries were moderate in relation to
the annual budget and capital levels in 2019.
As of the end of December, risk on net interest income over
a one year horizon, measured as the sensitivity to parallel
changes in the worst case scenario of ±100 basis points,
was mainly located in the USA (EUR 65 million) as shown in
the chart below.
728
2019 Annual Report
• South America
South American balance sheets are usually positioned for
interest rate cuts in terms of both economic value and net
interest income.
In 2019, exposure levels in all countries were moderate in
relation to the annual budget and capital levels.
As of the end of December, risk on net interest income over
a one year horizon, measured as the sensitivity to parallel
changes in the worst case scenario of ±100 basis points,
was mainly found in two countries, Brazil (74 million euros)
as shown in the chart below.
Structural foreign currency risk/hedges of results
Structural exchange rate risk arises from Group transactions
in foreign currencies, mainly related to permanent financial
investments, results and the hedging of both.
This management is dynamic and seeks to limit the impact
on the core capital ratio from exchange rates movements. In
2019, hedging levels of the core capital ratio for foreign
exchange rate risk were maintained near 100%.
At the end of 2019, the largest exposures of permanent
investments (with their potential impact on equity) were, in
the following order, in Brazilian real, US dollars, UK pounds
sterling, Chilean pesos, Mexican pesos and Polish zlotys.
The Group hedges some of these positions of a permanent
nature with foreign exchange-rate derivatives.
In addition, the financial area is responsible for managing
foreign exchange rate risk for the Group’s expected results
and dividends in units where the base currency is not the
euro.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Structural equity risk
The Group maintains equity positions in its banking book in
addition to those of the trading portfolio. These positions
are maintained as equity instruments or as investments,
depending on the percentage or control.
The equity portfolio available for the banking book at the
end of December 2019 was diversified in securities in
various countries, mainly Spain, China, Morocco,
Netherlands and Poland. Most of the portfolio is invested in
financial activities and insurance sectors. Among other
sectors, to a lesser extent, are for e.g. real estate activities or
public administration.
Structural equity positions are exposed to market risk. VaR
is calculated for these positions using market price data
series or proxies. As of the end of December 2019, the VaR
at 99% with a one day time frame was EUR 170 million
(EUR 180.1 and EUR 261.6 million at the end of 2018 and
2017, respectively).
2.2. Methodologies
Structural interest rate risk
The Group analyses the sensitivity of its equity value and
net interest income to changes in interest rates as well as its
different sources and sub-types of risk. These sensitivities
measure the impact of changes in interest rates on the value
of a financial instrument, a portfolio or the Group as a
whole, as well as the impact on the profitability structure
over the given time horizon for which NII is calculated.
Taking into consideration the balance-sheet interest rate
position and the market situation and outlook, the
necessary financial actions are adopted to align this position
with that defined by the Group. These measures can range
from opening positions in markets to the definition of the
interest rate characteristics of our commercialized products.
The metrics used by the Group to control interest rate risk in
these activities are the repricing gap, sensitivity of net
interest margin and market value of equity to changes in
interest rates, the duration of capital and value at risk (VaR)
for economic capital calculation purposes.
Structural exchange-rate risk/hedging of results
These activities are monitored via position measurements,
VaR and results, on a daily basis.
Structural equity risk
These activities are monitored via position measurements,
VaR and results, on a monthly basis.
3. Liquidity risk
Structural liquidity management aims to fund the Group’s
recurring activity optimising maturities and costs, while
avoiding taking on undesired liquidity risks.
Santander’s liquidity management is based on the following
principles:
• Decentralised liquidity model.
• Medium- and long-term (M/LT) funding needs must be
covered 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 short-term funding.
• Availability of sufficient liquidity reserves, including
standing facilities/discount windows at central banks to
be used in adverse situations.
• Compliance with regulatory liquidity requirements both
at Group and subsidiary level, as a new factor
conditioning management.
The effective application of these principles by all
institutions comprising the Group required the development
of a unique management framework built upon three
fundamental pillars:
• A solid organisational and governance model that
ensures the involvement of the subsidiaries’ senior
management in decision-taking and its integration into
the Group’s global strategy. The decision-making process
for all structural risks, including liquidity and funding risk,
is carried out by
local Asset and Liability Committees (ALCOs) in
coordination with the global ALCO, which is the body
empowered by the Bank's board in accordance with the
corporate Asset and Liability Management (ALM)
framework.
This governance model has been reinforced as it has been
included within Santander's Risk Appetite Framework.
This framework meets demands from regulators and
market players emanating from the financial crisis to
strengthen banks’ risk management and control systems.
• In-depth balance sheet analysis and measurement of
liquidity risk, supporting decision-taking and its control.
The objective is to ensure the Group maintains adequate
liquidity levels necessary to cover its short- and long-
term needs with stable funding sources, optimising the
impact of their costs on the income statement.
The Group’s liquidity risk management processes are
contained within a conservative risk appetite framework
established in each geographic area in accordance with its
commercial strategy. This risk appetite establishes the
limits within which the subsidiaries can operate in order
to achieve their strategic objectives.
• Management adapted in practice to the liquidity needs
of each business. Every year, based on business needs, a
liquidity plan is developed which seeks to achieve:
• a solid balance sheet structure, with a diversified
presence in the wholesale markets;
• the use of liquidity buffers and limited encumbrance of
assets;
729
Table of Contents
• compliance with both regulatory metrics and other
iii. Asset encumbrance
metrics included in each entity’s risk appetite
statement.
Over the course of the year, all dimensions of the plan are
monitored.
The Group continues to develop the ILAAP (Internal
Liquidity Adequacy Assessment Process), an internal self-
assessment of liquidity adequacy which must be integrated
into the Group’s other risk management and strategic
processes. It focuses on both quantitative and qualitative
matters and is used as an input to the SREP (Supervisory
Review and Evaluation Process). The ILAAP evaluates the
liquidity position both in ordinary and stressed scenarios.
In accordance with the guidelines established by the
European Banking Authority (EBA) in 2014 on committed
and uncommitted assets, the concept of assets committed
in financing transactions (asset encumbrance) includes both
on-balance sheet assets provided as collateral in
transactions to obtain liquidity and off-balance sheet assets
that have been received and reused for similar purposes, as
well as other assets associated with liabilities for reasons
other than financing.
The residual maturities of the liabilities associated with the
assets and guarantees received and committed are
presented below, as of 31 of December of 2019 (thousand
of million of euros):
Residual
maturities of
the liabilities unmatured <=1month <=3months
>3months
>1month <=12month
s
>1year
<=2years
>2years
<=3years
3years
5years
<=5years <=10years
>10years
TOTAL
Committed
assets
Guarantees
received
31.9
27.1
43.0
23.9
7.8
3.9
80.3
65.2
28.8
24.1
20.2
20.2
321.5
19.9
1.1
0.2
0.9
—
—
76.9
The reported Group information as required by the EBA at
2019 year-end is as follows:
On-balance-sheet encumbered assets
Thousand of million of euros
Loans and advances
Equity instruments
Debt securities
Other assets
Total assets
Carrying amount of
encumbered assets
Fair Value of
encumbered assets
Fair Value of non- Carrying amount of non-
encumbered assets
encumbered assets
215.9
6.5
64.7
34.4
321.5
6.5
64.8
906.2
12.1
119.9
163.0
1,201.2
12.1
119.6
Encumbrance of collateral received
Thousand of million of euros
Encumbered assets and collateral received and matching liabilities
Thousand of million of euros
Fair value of
encumbered
collateral received
or own debt
securities issued
Fair value of
collateral received or
own debt securities
issued available for
encumbrance
77.0
0.8
5.6
70.6
—
—
55.8
—
8.2
47.6
—
1.2
Collateral received
Loans and advances
Equity instruments
Debt securities
Other collateral received
Own debt securities issued
other than own covered
bonds or ABSs
Matching liabilities,
contingent liabilities
or securities lent
Assets, collateral
received and own
debt securities issued
other than covered
bonds and ABSs
encumbered
302.5
398.6
Total sources of
encumbrance (carrying
amount)
On-balance-sheet encumbered assets amounted to EUR
321,500 million, of which 67% are loans (mortgage loans,
corporate loans, etc.). Off-balance-sheet encumbered
assets amounted to EUR 77,000 million, relating mostly to
debt securities received as security in asset purchase
transactions and re-used. Taken together, these two
categories represent a total of EUR 398,600 million of
encumbered assets, which give rise to EUR 302,500 million
matching liabilities.
730
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
As of December 2019, total asset encumbrance in funding
operations represented 24.1% of the Group’s extended
balance sheet under EBA criteria (total assets plus
guarantees received: EUR 1,655,600 as of December 2019).
This percentage has been decreased from 24.8% that
presented the Group as of December 2018. This reduction is
due, among other reasons, to the fact that the Group has
begun to repay part of the financing received from the
European Central Bank under the TLTRO-II programme.
d) Capital risk
Capital risk, the second line of defence, independently
challenges the business or first line activities mainly
through the following processes:
• Supervision of capital planning and adequacy exercises
through a review of the main components affecting the
capital ratios.
• Ongoing supervision of the Group’s regulatory capital
measurement by identifying key metrics for its
calculation, setting tolerance levels and reviewing capital
consumption and the consistency of the calculations,
including single transactions with an impact on capital.
• Review and challenge of the execution of those capital
actions proposed in line with capital planning and risk
appetite.
The Group commands a sound solvency position, above the
levels required by regulators and by the European Central
bank.
At 1 January 2020, at a consolidated level, the Group must
maintain a minimum capital ratio of 9.69% of CET1 fully
loaded (4.5% being the requirement for Pillar I, 1.5% being
the requirement for Pillar 2R (requirement), 2.5% being the
requirement for capital conservation buffer, 1% being the
requirement for G-SIB and 0.19% being the requirement for
anti-cyclical capital buffer). Santander Group must also
maintain a minimum capital ratio of 1.5% of Tier 1 fully
loaded and a minimum total ratio of 13.19% fully loaded.
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Table of Contents
Regulatory capital
In 2019, the solvency target set was achieved. Santander’s
CET1 fully loaded ratio stood at 11.65% at the close of
the year, demonstrating its organic capacity to generate
capital. The key regulatory capital figures are indicated
below:
Reconciliation of accounting capital with regulatory capital
Million of euros
Subscribed capital
Share premium account
Reserves
Treasury shares
Attributable profit
Approved dividend
Shareholders’ equity on
public balance sheet
2019
8,309
52,446
56,526
2018
8,118
50,993
53,988
2017
8,068
51,053
52,577
(31)
(59)
(22)
6,515
7,810
6,619
(1,662)
(2,237)
(2,029)
Valuation adjustments
(22,032)
(22,141)
(21,777)
Non-controlling interests
10,588
10,889
12,344
Total Equity on public
balance sheet
Goodwill and intangible
assets
Eligible preference shares
and participating
securities
Accrued dividend
110,659
107,361
106,832
(28,478)
(28,644)
(28,537)
9,039
9,754
(1,761)
(1,055)
7,635
(968)
Other adjustments*
(9,923)
(9,700)
(7,679)
Tier 1 (Phase-in)
79,536
77,716
77,283
* Fundamentally for non-computable non-controlling interests and
deductions and reasonable filters in compliance with CRR.
122,103
118,613
116,265
Others
Eligible capital
Million of euros
Eligible capital
2019
2018
2017
Common Equity Tier I
70,497
67,962
74,173
Capital
8,309
8,118
8,068
(-) Treasure shares and own
shares financed
(63)
(64)
(22)
Share Premium
52,446
50,993
51,053
Reserves
57,368
55,036
52,241
Other retained earnings
(22,933)
(23,022)
(22,363)
Minority interests
Profit net of dividends
6,441
3,092
6,981
4,518
7,991
3,621
Deductions
(34,163)
(34,598)
(26,416)
Goodwill and intangible
assets
Additional Tier I
Eligible instruments AT1
T1-excesses-subsidiaries
Residual value of dividends
Others
Tier II
(28,478)
(28,644)
(22,829)
(5,685)
(5,954)
(3,586)
9,039
9,209
(170)
—
—
9,754
9,666
88
—
—
3,110
8,498
347
(5,707)
(27)
11,531
11,009
13,422
Eligible instruments T2
12,360
11,306
9,901
Gen. funds and surplus
loans loss prov. IRB
—
—
3,823
T2-excesses - subsidiaries
(829)
(297)
Others
—
—
(275)
(27)
Total eligible capital
91,067
88,725
90,706
The following table shows the Phase-in capital coefficients
and a detail of the eligible internal resources of the Group:
Note: Santander Bank and its affiliates had not taken part in any State aid
programmes.
Capital coefficients
Level 1 ordinary eligible
capital (million of euros)
Level 1 additional eligible
capital (million of euros)
Level 2 eligible capital
(million of euros)
Risk-weighted assets
(million of euros)
Level 1 ordinary capital
coefficient (CET 1)
Level 1 additional capital
coefficient (AT1)
Level 1 capital coefficient
(TIER1)
Level 2 capital coefficient
(TIER 2)
2019
2018
2017
70,497
67,962
74,173
9,039
9,754
3,110
11,531
11,009
13,422
605,244
592,319
605,064
11.65%
11.47%
12.26%
1.49%
1.65%
0.51%
13.14%
13.12%
12.77%
1.91%
1.86%
2.22%
Total capital coefficient
15.05%
14.98%
14.99%
732
2019 Annual Report
Leverage ratio
The leverage ratio has been defined within the regulatory
framework of Basel III as a measure of the capital required
by financial institutions not sensitive to risk. The Group
performs the calculation as stipulated in CRD IV and its
subsequent amendment in EU Regulation no. 573/2013 of
17 January 2015, which was aimed at harmonising
calculation criteria with those specified in the BCBS
“Basel III leverage ratio framework” and “Disclosure
requirements” documents.
This ratio is calculated as Tier 1 capital divided by leverage
exposure. Exposure is calculated as the sum of the
following items:
• Accounting assets, excluding derivatives and items
treated as deductions from Tier 1 capital (for example,
the balance of loans is included, but not that of goodwill).
• Off-balance-sheet items (mainly guarantees, unused
credit limits granted and documentary credits) weighted
using credit conversion factors.
• Inclusion of net value of derivatives (gains and losses are
netted with the same counterparty, minus collaterals if
they comply with certain criteria) plus a charge for the
future potential exposure.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
55. Explanation added for
translation to English
These consolidated financial statements are presented on
the basis of the regulatory financial reporting framework
applicable to the Group in Spain (see Note 1.b).
• A charge for the potential risk of security funding
transactions.
• Lastly, it includes a charge for the risk of credit derivative
swaps (CDS).
The European Commission’s proposals to modify CRR and
CRD IV on 23 November 2016, foresee a mandatory
requirement of a 3% leverage ratio for Tier 1 capital, which
would be added to the own funds requirements in the
article 92 of the CRR. The proposals for the Commission’s
modification also point to the possibility of introducing a
buffer of leverage ratio for global systemic entities in the
future.
With the publication of Regulation (EU) 2019/876 of 20
May, 2019, amending Regulation (EU) No. 575/2013 as
regards the leverage ratio, the final calibration of the ratio is
set at 3% for all entities and, for systemic entities G-SIBs, an
additional surcharge is also established which will be 50%
of the cushion ratio applicable to the EISM. In addition,
modifications are included in its calculation, including the
exclusion of certain exposures from the total exposure
measure: public loans, transfer loans and officially
guaranteed export credits.
Banks will have to implement the final definition of the
leverage ratio by June 2021 and comply with the new
calibration of the ratio (the surcharge for G-SIBs) from
January 2022.
Million of euros
Leverage
2019
2018
2017
Level 1 Capital
79,536
77,716
77,283
Exposure
Leverage Ratio
1,544,614
1,489,094
1,463,090
5.15%
5.22%
5.28%
Global systemically important banks
The Group is one of 30 banks designated as global
systemically important banks (G-SIBs).
The designation as a systemically important entity is based
on the measurement set by regulators (the FSB and BCBS),
based on 5 criteria (size, cross-jurisdictional activity,
interconnectedness with other financial institutions,
substitutability and complexity).
This definition means it has to fulfil certain additional
requirements, which consist mainly of a capital buffer (1)%,
in TLAC requirements (total loss absorbing capacity), that
we have to publish relevant information more frequently
than other banks, greater regulatory requirements for
internal control bodies, special supervision and drawing up
of special reports to be submitted to supervisors.
The fact that Grupo Santander has to comply with these
requirements makes it a more solid bank than its domestic
rivals.
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734
2019 Annual Report
Appendix
A & L CF June (2) Limited (e) United
0.00%
100.00%
100.00%
100.00% Leasing
Kingdom
A & L CF June (3) Limited (e) United
0.00%
100.00%
100.00%
100.00% Leasing
Table of Contents
Appendix I
Subsidiaries of Banco Santander, S.A. 1
Company
2 & 3 Triton Limited
A & L CF (Guernsey) Limited
(n)
Location
United
Kingdom
Guernsey
A & L CF March (5) Limited
(d)
A & L CF September (4)
Limited (f)
Abbey Business Services
(India) Private Limited (d)
Abbey Covered Bonds
(Holdings) Limited
Abbey Covered Bonds (LM)
Limited
Abbey Covered Bonds LLP
Abbey National Beta
Investments Limited
Abbey National Business
Office Equipment Leasing
Limited
Kingdom
United
Kingdom
United
Kingdom
India
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Abbey National International
Limited
Jersey
Abbey National Nominees
Limited
Abbey National PLP (UK)
Limited
Abbey National Property
Investments
Abbey National Treasury
Services Investments
Limited
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Abbey National Treasury
Services Overseas Holdings
United
Kingdom
Abbey National UK
Investments
Abbey Stockbrokers
(Nominees) Limited
United
Kingdom
United
Kingdom
Administración de Bancos
Latinoamericanos
Santander, S.L.
Aevis Europa, S.L.
AFB SAM Holdings, S.L.
Afisa S.A.
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net Carrying
amount
results
0.00%
100.00%
100.00%
100.00% Real estate
63
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Holding company
-
(b)
-
- Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
-
(b)
-
- Securitisation
(269)
277
0.00%
100.00%
100.00%
100.00% Finance company
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Banking
0.00%
100.00%
100.00%
100.00% Securities
company
0.00%
100.00%
100.00%
100.00% Finance company
0
0
5
0
0
0.00%
100.00%
100.00%
100.00% Finance company
554
0.00%
100.00%
100.00%
100.00% Finance company
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Finance company
7
1
0
(1)
0
0
0
0
0
0
0
0
0
0
6
0
0
0
0
0
12
0
0
0
0
0
0
0
0
0
0
0
7
0
0
163
0
0
0
0
0
0
0
8
0
23
0
0
0
0
1
0
0
0
Abbey Stockbrokers Limited United
0.00%
100.00%
100.00%
Kingdom
0.00%
100.00%
100.00%
100.00% Securities
company
100.00% Securities
company
Ablasa Participaciones, S.L.
Spain
18.94%
81.06%
100.00%
100.00% Holding company
445
(109)
697
Spain
24.11%
75.89%
100.00%
100.00% Holding company
2,532
(11)
1,863
Spain
Spain
Chile
96.34%
0.00%
96.34%
96.34% Cards
1.00%
99.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Fund
management
company
1
0
4
4
30
0
0
0
0
(48)
1
0
4
4
4
ALIL Services Limited
Isle of man
0.00%
100.00%
100.00%
100.00% Services
Aliseda Real Estate, S.A.
Spain
100.00%
0.00%
100.00%
100.00% Real estate
Aljardi SGPS, Lda.
Portugal
0.00%
100.00%
100.00%
100.00% Holding company
1,204
(2)
1,148
736
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
Alliance & Leicester Cash
Solutions Limited
Alliance & Leicester
Commercial Bank Limited
Alliance & Leicester
Investments (Derivatives)
Limited
Location
United
Kingdom
United
Kingdom
United
Kingdom
Alliance & Leicester
Investments (No.2) Limited
United
Kingdom
Alliance & Leicester
Investments Limited
United
Kingdom
Direct
Indirect Year 2019 Year 2018 Activity
0.00%
100.00%
100.00%
100.00% Finance company
0.00%
100.00%
100.00%
100.00% Finance company
0.00%
100.00%
100.00%
100.00% Finance company
0.00%
100.00%
100.00%
100.00% Finance company
0.00%
100.00%
100.00%
100.00% Finance company
Alliance & Leicester Limited United
0.00%
100.00%
100.00%
100.00% Finance company
Kingdom
Alliance & Leicester Personal
Finance Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Finance company
(239)
Spain
100.00%
0.00%
100.00%
100.00% Real estate
(61)
(55)
Capital +
reserves
Net Carrying
amount
results
Altamira Santander Real
Estate, S.A.
Amazonia Trade Limited
AN (123) Limited
Andaluza de Inversiones,
S.A.
ANITCO Limited
Aquanima Brasil Ltda.
Aquanima Chile S.A.
Aquanima México S. de R.L.
de C.V.
Aquanima S.A.
Arcaz - Sociedade Imobiliária
Portuguesa, Lda. (r)
United
Kingdom
United
Kingdom
Spain
United
Kingdom
Brazil
Chile
Mexico
Argentina
Portugal
100.00%
0.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Holding company
0
0
0.00%
100.00%
100.00%
100.00% Holding company
92
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% E-commerce
0.00%
100.00%
100.00%
100.00% Services
0.00%
100.00%
100.00%
100.00% E-commerce
0.00%
100.00%
100.00%
100.00% Services
0.00%
99.91%
100.00%
100.00% Inactive
0
0
0
0
0
0
0
3
3
2
0
3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
27
0
0
0
2
0
0
0
Argenline S.A. (j) (p)
Uruguay
0.00%
100.00%
100.00%
100.00% Finance company
Asto Digital Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Finance company
45
(16)
30
Athena Corporation Limited United
0.00%
100.00%
100.00%
100.00% Financial services
(1)
(2)
Atlantes Azor No. 1
Atlantes Azor No. 2
Kingdom
Portugal
Portugal
Atlantes Mortgage No. 2
Portugal
Atlantes Mortgage No. 3
Portugal
Atlantes Mortgage No. 4
Portugal
Atlantes Mortgage No. 5
Portugal
Atlantes Mortgage No. 7
Portugal
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
0
0
0
0
0
0
0
Atual Serviços de
Recuperação de Créditos e
Meios Digitais S.A.
Brazil
0.00%
89.93%
100.00%
100.00% Financial services
291
Auto ABS Belgium Loans
2019, SA/NV
Belgium
Auto ABS DFP Master
Compartment France 2013
France
Auto ABS French Lease
Master Compartiment 2016
France
Auto ABS French Leases
2018
Auto ABS French Loans
Master
France
France
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
4
0
0
0
0
0
0
0
0
0
0
0
6
0
0
0
0
0
1
0
0
0
0
0
0
0
263
0
0
0
0
0
737
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
Company
Auto ABS French LT Leases
Master
Auto ABS Italian Balloon
2019-1 S.R.L.
Auto ABS Italian Loans
2018-1 S.R.L.
Auto ABS Spanish Loans
2016, Fondo de Titulización
Auto ABS Spanish Loans
2018-1, Fondo de
Titulización
Location
France
Italy
Italy
Spain
Spain
Auto ABS Swiss Leases 2013
Gmbh
Switzerland
Auto ABS UK Loans 2017
Holdings Limited
United
Kingdom
Auto ABS UK Loans 2017 Plc United
Auto ABS UK Loans 2019
Holdings Limited
Kingdom
United
Kingdom
Auto ABS UK Loans 2019 Plc United
Kingdom
Auto ABS UK Loans Holdings
Limited
United
Kingdom
Auto ABS UK Loans PLC
Autodescuento, S.L.
United
Kingdom
Spain
Auttar HUT Processamento
de Dados Ltda.
Aviación Antares, A.I.E.
Aviación Británica, A.I.E.
Aviación Centaurus, A.I.E.
Aviación Comillas, S.L.
Unipersonal
Aviación Intercontinental,
A.I.E.
Aviación Laredo, S.L.
Aviación Oyambre, S.L.
Unipersonal
Aviación Real, A.I.E.
Aviación Santillana, S.L.
Aviación Suances, S.L.
Aviación Tritón, A.I.E.
Aymoré Crédito,
Financiamento e
Investimento S.A.
Banca PSA Italia S.p.A.
Banco Bandepe S.A.
Banco de Albacete, S.A.
Banco de Asunción, S.A. en
liquidación voluntaria (j)
Brazil
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Brazil
Italy
Brazil
Spain
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net Carrying
amount
results
-
-
-
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
0
0
0
0
0
0
0
0
0
0
0
- Securitisation
(5)
0.00%
93.89%
93.89%
- Vehicle purchase
and sale
0.00%
89.93%
100.00%
100.00% Technology
services
99.99%
99.99%
99.99%
0.01%
100.00%
100.00% Renting
0.01%
100.00%
100.00% Renting
0.01%
100.00%
100.00% Renting
100.00%
0.00%
100.00%
100.00% Renting
99.97%
0.03%
100.00%
100.00% Renting
99.00%
1.00%
100.00%
100.00% Air transport
100.00%
0.00%
100.00%
100.00% Renting
99.99%
99.00%
99.00%
99.99%
0.01%
100.00%
100.00% Renting
1.00%
100.00%
100.00% Renting
1.00%
100.00%
100.00% Air transport
0.01%
100.00%
100.00% Renting
0.00%
89.93%
100.00%
100.00% Finance company
0.00%
50.00%
50.00%
50.00% Banking
0.00%
89.93%
100.00%
100.00% Banking
100.00%
0.00%
100.00%
100.00% Banking
1
4
49
15
39
8
82
4
1
11
3
5
29
72
387
1,115
14
0
67
0
0
0
0
0
0
0
(1)
0
(1)
0
(7)
0
1
6
4
3
0
(1)
0
0
2
0
0
3
135
55
54
0
0
0
0
0
0
0
0
0
0
0
0
0
0
18
4
28
6
25
8
63
3
1
11
2
3
19
42
153
1,051
9
0
(1)
30
Paraguay
0.00%
99.33%
99.33%
99.33% Banking
Banco Hyundai Capital Brasil
S.A.
Brazil
0.00%
44.97%
50.00%
50.00% Banking
Portugal
0.00%
100.00%
100.00%
100.00% Banking
1,085
(2)
1,083
Brazil
0.00%
53.96%
60.00%
60.00% Banking
229
113
197
Banco Madesant - Sociedade
Unipessoal, S.A.
Banco Olé Bonsucesso
Consignado S.A.
738
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
Company
Banco PSA Finance Brasil
S.A.
Location
Brazil
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net Carrying
amount
results
0.00%
44.97%
50.00%
50.00% Banking
51
7
26
Banco Santander - Chile
Chile
0.00%
67.12%
67.18%
67.18% Banking
3,553
653
3,168
Banco Santander (Brasil) S.A. Brazil
13.95%
75.99%
90.52%
90.44% Banking
12,313
3,120
10,170
Banco Santander (México),
S.A., Institución de Banca
Múltiple, Grupo Financiero
Santander México como
Fiduciaria del Fideicomiso
100740
Banco Santander (México),
S.A., Institución de Banca
Múltiple, Grupo Financiero
Santander México como
Fiduciaria del Fideicomiso
2002114
Banco Santander (México),
S.A., Institución de Banca
Múltiple, Grupo Financiero
Santander México como
Fiduciaria del Fideicomiso
GFSSLPT
Banco Santander Consumer
Portugal, S.A.
Banco Santander de
Negocios Colombia S.A.
Banco Santander
International
Banco Santander
International SA
Banco Santander México,
S.A., Institución de Banca
Múltiple, Grupo Financiero
Santander México
Mexico
0.00%
91.76%
100.00%
100.00% Finance company
101
17
109
Mexico
0.00%
92.65%
100.00%
100.00% Holding company
8
0
8
Mexico
0.00%
92.66%
100.00%
100.00% Finance company
11
1
11
Portugal
0.00%
100.00%
100.00%
100.00% Banking
Colombia
0.00%
100.00%
100.00%
100.00% Banking
172
120
13
128
2
117
United States
0.00%
100.00%
100.00%
100.00% Banking
969
109
1,078
Switzerland
0.00%
100.00%
100.00%
100.00% Banking
1,034
26
791
Mexico
16.68%
75.08%
91.77%
75.17% Banking
5,519
1,002
6,586
Banco Santander Perú S.A.
Peru
99.00%
1.00%
100.00%
100.00% Banking
Banco Santander Puerto Rico Puerto Rico
0.00%
100.00%
100.00%
100.00% Banking
Banco Santander Río S.A.
Argentina
0.00%
99.30%
99.25%
99.25% Banking
Banco Santander S.A.
Uruguay
97.75%
2.25%
100.00%
100.00% Banking
Banco Santander Totta, S.A.
Portugal
0.00%
99.86%
99.96%
99.96% Banking
Bansa Santander S.A.
BEN Benefícios e Serviços
S.A.
Bilkreditt 4 Designated
Activity Company (j)
Bilkreditt 5 Designated
Activity Company (j)
Bilkreditt 6 Designated
Activity Company (j)
Bilkreditt 7 Designated
Activity Company
Chile
Brazil
Ireland
Ireland
Ireland
Ireland
0.00%
100.00%
100.00%
100.00% Real estate
0.00%
89.93%
100.00%
100.00% Payment services
-
-
-
-
(b)
(b)
(b)
(b)
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
BPE Financiaciones, S.A.
Spain
90.00%
10.00%
100.00%
100.00% Finance company
BRS Investments S.A.
Argentina
0.00%
100.00%
100.00%
100.00% Finance company
Caja de Emisiones con
Garantía de Anualidades
Debidas por el Estado, S.A.
Spain
62.87%
0.00%
62.87%
62.87% Finance company
189
864
619
339
2,998
24
20
0
0
0
0
1
25
0
Cántabra de Inversiones, S.A. Spain
100.00%
0.00%
100.00%
100.00% Holding company
42
15
Cántabro Catalana de
Inversiones, S.A.
Canyon Multifamily Impact
Fund IV LLC (o)
Spain
100.00%
0.00%
100.00%
100.00% Holding company
315
United States
0.00%
98.00%
98.00%
- Real estate
-
0
-
29
59
337
98
500
(1)
(4)
121
923
418
191
3,415
23
14
0
0
0
0
0
2
0
0
0
0
0
1
41
0
31
267
-
739
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
Location
Direct
Indirect Year 2019 Year 2018 Activity
Capital Street Delaware LP
United States
0.00%
100.00%
100.00%
100.00% Holding company
Capital Street Holdings, LLC United States
0.00%
100.00%
100.00%
100.00% Holding company
Capital +
reserves
Net Carrying
amount
results
0
14
0
0
0
14
Capital Street REIT Holdings,
LLC
United States
0.00%
100.00%
100.00%
100.00% Holding company
1,194
25
1,219
Capital Street S.A.
Luxembourg
0.00%
100.00%
100.00%
100.00% Finance company
Carfax (Guernsey) Limited
(n)
Guernsey
0.00%
100.00%
100.00%
100.00% Insurance
brokerage
Carfinco Financial Group Inc. Canada
96.42%
0.00%
96.42%
96.42% Holding company
Carfinco Inc.
Casa de Bolsa Santander,
S.A. de C.V., Grupo
Financiero Santander México
Canada
Mexico
0.00%
96.42%
100.00%
100.00% Finance company
0.00%
99.97%
99.97%
99.97% Securities
company
Cater Allen Holdings Limited United
0.00%
100.00%
100.00%
100.00% Holding company
Cater Allen International
Limited
Cater Allen Limited
Kingdom
United
Kingdom
United
Kingdom
Cater Allen Lloyd's Holdings
Limited
United
Kingdom
Cater Allen Syndicate
Management Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Securities
company
0.00%
100.00%
100.00%
100.00% Banking
581
61
262
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Advisory services
CCAP Auto Lease Ltd.
United States
0.00%
72.40%
100.00%
100.00% Leasing
Centro de Capacitación
Santander, A.C.
Mexico
0.00%
91.76%
100.00%
100.00% Non profit
institute
Certidesa, S.L.
Spain
0.00%
100.00%
100.00%
100.00% Aircraft rental
United States
0.00%
72.40%
100.00%
100.00% Finance company
United States
0.00%
72.40%
100.00%
100.00% Finance company
United States
0.00%
72.40%
100.00%
100.00% Finance company
0
0
62
51
56
0
0
0
0
0
5
3
0
0
0
0
68
45
59
0
0
0
0
1
1
(60)
15
7
0
0
0
(59)
0
(7)
7
(2)
0
14
0
0
0
1
0
0
0
0
0
0
0
0
4
United States
-
(b)
-
- Securitisation
(25)
United States
0.00%
72.40%
100.00%
100.00% Finance company
(66)
(106)
United States
0.00%
72.40%
100.00%
- Finance company
0
35
United States
0.00%
72.40%
100.00%
100.00% Finance company
(44)
Mexico
0.00%
85.00%
100.00%
39.74% Collection
4
services
0
0
France
0.00%
50.00%
100.00%
100.00% Banking
363
87
428
Chrysler Capital Auto
Funding I LLC
Chrysler Capital Auto
Funding II LLC
Chrysler Capital Auto
Receivables LLC
Chrysler Capital Auto
Receivables Trust 2016-A
Chrysler Capital Master Auto
Receivables Funding 2 LLC
Chrysler Capital Master Auto
Receivables Funding 4 LLC
Chrysler Capital Master Auto
Receivables Funding LLC
Cobranza Amigable, S.A.P.I.
de C.V.
Compagnie Generale de
Credit Aux Particuliers -
Credipar S.A.
Compagnie Pour la Location
de Vehicules - CLV
France
0.00%
50.00%
100.00%
100.00% Finance company
20
Comunidad Laboral
Trabajando Argentina S.A.
Comunidad Laboral
Trabajando Iberica, S.L.
Unipersonal
Consulteam Consultores de
Gestão, Lda.
Consumer Lending
Receivables LLC
Argentina
0.00%
100.00%
100.00%
100.00% Services
Spain
0.00%
100.00%
100.00%
100.00% Services
Portugal
86.28%
13.72%
100.00%
100.00% Real estate
United States
0.00%
72.40%
100.00%
100.00% Securitisation
Crawfall S.A. (g) (j)
Uruguay
100.00%
0.00%
100.00%
100.00% Services
Crediperto Promotora de
Vendas e Cobrança Ltda.
Brazil
0.00%
53.96%
100.00%
100.00% Finance company
0
0
0
0
0
2
5
0
0
0
0
0
0
26
0
0
0
0
0
1
740
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
Darep Designated Activity
Company
Location
Ireland
Direct
Indirect Year 2019 Year 2018 Activity
100.00%
0.00%
100.00%
100.00% Reinsurances
Decarome, S.A.P.I. de C.V.
Mexico
0.00%
100.00%
100.00%
- Finance company
0.00%
100.00%
100.00%
- Advisory services
Capital +
reserves
Net Carrying
amount
results
Deva Capital Advisory
Company, S.L.
Deva Capital Holding
Company, S.L.
Deva Capital Investment
Company, S.L.
Deva Capital Management
Company, S.L.
Deva Capital Servicer
Company, S.L.
Digital Procurement
Holdings N.V.
Spain
Spain
Spain
Spain
Spain
100.00%
0.00%
100.00%
- Holding company
55
0.00%
100.00%
100.00%
- Holding company
0.00%
100.00%
100.00%
- Advisory services
0.00%
100.00%
100.00%
- Holding company
Netherlands
0.00%
100.00%
100.00%
100.00% Holding company
Diners Club Spain, S.A.
Spain
75.00%
0.00%
75.00%
75.00% Cards
Dirección Estratega, S.C.
Mexico
0.00%
100.00%
100.00%
100.00% Services
Dirgenfin, S.L., en
liquidación (j)
Spain
0.00%
100.00%
100.00%
100.00% Real estate
Drive Auto Receivables Trust
2015-D
United States
Drive Auto Receivables Trust
2016-A
United States
Drive Auto Receivables Trust
2016-B
United States
Drive Auto Receivables Trust
2016-C
United States
Drive Auto Receivables Trust
2017-1
United States
Drive Auto Receivables Trust
2017-2
United States
Drive Auto Receivables Trust
2017-3
United States
Drive Auto Receivables Trust
2017-A
United States
Drive Auto Receivables Trust
2017-B
United States
Drive Auto Receivables Trust
2018-1
United States
Drive Auto Receivables Trust
2018-2
United States
Drive Auto Receivables Trust
2018-3
United States
Drive Auto Receivables Trust
2018-4
United States
Drive Auto Receivables Trust
2018-5
United States
Drive Auto Receivables Trust
2019-1
United States
Drive Auto Receivables Trust
2019-2
United States
Drive Auto Receivables Trust
2019-3
United States
Drive Auto Receivables Trust
2019-4
United States
Drive Auto Receivables Trust
2020-1
United States
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
0
1
0
9
46
5
10
0
(10)
(5)
(16)
(23)
(14)
(28)
(19)
(32)
(25)
(18)
(35)
(83)
(98)
0
0
0
0
0
(1)
5
0
2
0
0
11
9
19
28
34
32
52
26
29
48
66
59
74
7
0
1
55
0
9
46
1
9
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
741
development
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
(118)
- Securitisation
(108)
(59)
- Securitisation
- Securitisation
- Securitisation
- Securitisation
-
Inactive
0
0
0
0
0
(31)
(45)
(67)
(87)
0
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
EDT FTPYME Pastor 3 Fondo
de Titulización de Activos
Location
Spain
Direct
Indirect Year 2019 Year 2018 Activity
-
(b)
-
- Securitisation
Electrolyser, S.A. de C.V.
Mexico
0.00%
91.76%
100.00%
100.00% Services
Entidad de Desarrollo a la
Pequeña y Micro Empresa
Santander Consumo Perú
S.A.
Erestone S.A.S.
Esfera Fidelidade S.A.
Evidence Previdência S.A.
Financeira El Corte Inglés,
Portugal, S.F.C., S.A.
Financiera El Corte Inglés,
E.F.C., S.A.
Peru
100.00%
0.00%
100.00%
55.00% Finance company
France
Brazil
Brazil
0.00%
90.00%
90.00%
90.00% Real estate
0.00%
89.93%
100.00%
100.00% Services
0.00%
89.93%
100.00%
100.00% Insurance
Portugal
0.00%
51.00%
100.00%
100.00% Finance company
Spain
0.00%
51.00%
51.00%
51.00% Finance company
Capital +
reserves
Net Carrying
amount
results
0
0
24
1
2
153
9
214
0
0
4
0
21
27
1
76
0
0
27
1
21
162
4
140
Finsantusa, S.L. Unipersonal Spain
0.00%
100.00%
100.00%
100.00% Holding company
3,776
(7)
1,020
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Advisory services
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Leasing
0.00%
100.00%
100.00%
100.00% Finance company
-
-
-
-
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
0
0
0
0
0
0
6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6
0
0
0
0
0
0
0
0
0
0
0
0
0
First National Motor
Business Limited
First National Motor
Contracts Limited
First National Motor
Facilities Limited
United
Kingdom
United
Kingdom
United
Kingdom
First National Motor Finance
Limited
United
Kingdom
First National Motor Leasing
Limited
United
Kingdom
First National Motor plc
United
Kingdom
First National Tricity Finance
Limited
United
Kingdom
Fondation Holding Auto ABS
Belgium Loans
Belgium
Fondo de Titulización de
Activos RMBS Santander 1
Fondo de Titulización de
Activos RMBS Santander 2
Fondo de Titulización de
Activos RMBS Santander 3
Fondo de Titulización de
Activos Santander Consumer
Spain Auto 2014-1
Fondo de Titulización de
Activos Santander
Hipotecario 7
Fondo de Titulización de
Activos Santander
Hipotecario 8
Fondo de Titulización de
Activos Santander
Hipotecario 9
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Fondo de Titulización PYMES
Santander 13
Spain
Fondo de Titulización PYMES
Santander 14
Spain
Fondo de Titulización PYMES
Santander 15
Spain
Fondo de Titulización RMBS
Santander 4
Fondo de Titulización RMBS
Santander 5
Spain
Spain
742
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net Carrying
amount
results
-
-
-
-
(b)
(b)
(b)
(b)
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
Uruguay
0.00%
100.00%
100.00%
100.00% Fund
management
company
Fortensky Trading, Ltd.
Ireland
0.00%
100.00%
100.00%
100.00% Finance company
-
(b)
-
- Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
(6)
(125)
0.00%
100.00%
100.00%
100.00% Securitisation
-
(b)
-
- Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
-
-
-
-
(b)
(b)
(b)
(b)
-
-
-
-
- Securitisation
-
Investment fund
204
(5)
-
Investment fund
0
-
Investment fund
45
Location
Spain
Spain
Spain
Spain
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Spain
Brazil
Brazil
Brazil
Company
Fondo de Titulización
Santander Consumer Spain
Auto 2016-1
Fondo de Titulización
Santander Consumer Spain
Auto 2016-2
Fondo de Titulización
Santander Consumo 2
Fondo de Titulización
Santander Financiación 1
Fondos Santander, S.A.
Administradora de Fondos
de Inversión (en liquidación)
(j)
Fosse (Master Issuer)
Holdings Limited
Fosse Funding (No.1)
Limited
Fosse Master Issuer PLC
Fosse PECOH Limited
Fosse Trustee (UK) Limited
FTPYME Banesto 2, Fondo
de Titulización de Activos
Fundo de Investimento em
Direitos Creditórios Atacado-
Não Padronizado
Fundo de Investimentos em
Direitos Creditórios
Multisegmentos NPL
Ipanema V – Não
padronizado (s)
Fundo de Investimentos em
Direitos Creditórios
Multisegmentos NPL
Ipanema VI – Não
padronizado (s)
Gamma, Sociedade
Financeira de Titularização
de Créditos, S.A.
Gesban México Servicios
Administrativos Globales,
S.A. de C.V.
Gesban Santander Servicios
Profesionales Contables
Limitada
Gesban Servicios
Administrativos Globales,
S.L.
Gesban UK Limited
Gestión de Instalaciones
Fotovoltaicas, S.L.
Unipersonal
Portugal
0.00%
99.86%
100.00%
100.00% Securitisation
GC FTPYME Pastor 4 Fondo
de Titulización de Activos
Spain
-
(b)
-
- Securitisation
Mexico
0.00%
100.00%
100.00%
100.00% Services
Chile
0.00%
100.00%
100.00%
100.00% Accounting
services
Spain
99.99%
0.01%
100.00%
100.00% Services
United
Kingdom
0.00%
100.00%
100.00%
100.00% Payments and
Spain
0.00%
100.00%
100.00%
collections
services
100.00% Electricity
production
Gestión de Inversiones JILT,
S.A.
Spain
35.00%
65.00%
100.00%
100.00% Real estate
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
0
0
0
3
0
0
0
0
1
0
0
0
0
0
0
0
0
7
0
1
1
4
1
1
4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
8
0
0
0
1
0
0
5
743
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
Location
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
Gestora de Procesos S.A. en
liquidación (j)
Peru
0.00%
100.00%
100.00%
100.00% Holding company
0
0
0
Getnet Adquirência e
Serviços para Meios de
Pagamento S.A.
Global Diomedes, S.L.
Sociedad Unipersonal
Golden Bar (Securitisation)
S.r.l.
Golden Bar Stand Alone
2015-1
Golden Bar Stand Alone
2016-1
Golden Bar Stand Alone
2018-1
Golden Bar Stand Alone
2019-1
Grupo Empresarial
Santander, S.L.
Grupo Financiero Santander
México, S.A. de C.V.
GTS El Centro Equity
Holdings, LLC (c)
GTS El Centro Project
Holdings, LLC (c)
Guaranty Car, S.A.
Unipersonal
Hipototta No. 4 FTC
Hipototta No. 4 plc
Hipototta No. 5 FTC
Hipototta No. 5 plc
Hipototta No.13
Hispamer Renting, S.A.
Unipersonal
Holbah Santander, S.L.
Unipersonal
Holmes Funding Limited
Holmes Holdings Limited
Holmes Master Issuer plc
Holmes Trustees Limited
HQ Mobile Limited
Hyundai Capital Bank
Europe GmbH
Ibérica de Compras
Corporativas, S.L.
Independence Community
Bank Corp.
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Germany
Brazil
0.00%
89.93%
100.00%
88.50% Payment services
449
130
520
Spain
0.00%
100.00%
100.00%
- Holding company
Italy
Italy
Italy
Italy
Italy
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Spain
99.11%
0.89%
100.00%
100.00% Holding company
2,938
546
2,934
Mexico
100.00%
0.00%
100.00%
100.00% Holding company
4,387
561
4,363
United
States
United
States
Spain
Portugal
Ireland
Portugal
Ireland
Portugal
Spain
0.00%
57.40%
57.40%
56.88% Holding company
0.00%
57.40%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Automotive
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
0.00%
100.00%
100.00%
100.00% Renting
31
31
2
(50)
(4)
(42)
(7)
0
1
102
60
0
(5)
0
9
1
(1)
(1)
1
(1)
(1)
(1)
4
0
0
29
17
2
0
0
0
0
0
1
302
12
530
747
28
0
(2)
0
1,841
0
0
0
0
9
0
10
Holbah II Limited
Bahamas
0.00%
100.00%
100.00%
100.00% Holding company
Spain
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Securitisation
(39)
-
(b)
-
- Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
Holneth B.V.
Netherlands
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Internet
technology
0.00%
51.00%
51.00%
- Banking
219
(17)
134
Spain
97.17%
2.83%
100.00%
100.00% E-commerce
6
0
6
United States
0.00%
100.00%
100.00%
100.00% Holding company
3,853
41
3,894
Inmo Francia 2, S.A.
Spain
100.00%
0.00%
100.00%
100.00% Holding company
53
0
53
744
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
Location
Direct
Indirect Year 2019 Year 2018 Activity
Inmobiliaria Viagracia, S.A.
Spain
100.00%
0.00%
100.00%
100.00% Real estate
Insurance Funding
Solutions Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Finance company
Interfinance Holanda B.V.
Netherlands
100.00%
0.00%
100.00%
100.00% Holding company
99.50%
0.50%
100.00%
100.00% Services
Capital +
reserves
Net
results
Carrying
amount
92
0
0
2
2
0
0
0
93
0
0
2
100.00%
0.00%
100.00%
100.00% Holding company
147
(1)
159
Intermediacion y Servicios
Tecnológicos, S.A.
Inversiones Capital Global,
S.A. Unipersonal
Inversiones Marítimas del
Mediterráneo, S.A.
Investigaciones Pedreña,
A.I.E. (i)
Isla de los Buques, S.A.
Klare Corredora de Seguros
S.A.
Spain
Spain
Spain
Spain
Spain
Chile
Langton Funding (No.1)
Limited
United
Kingdom
Langton Mortgages Trustee
(UK) Limited
United
Kingdom
Langton PECOH Limited
United
Kingdom
Langton Securities (2008-1)
plc
United
Kingdom
Langton Securities (2010-1)
PLC
United
Kingdom
Langton Securities (2010-2)
PLC
United
Kingdom
Langton Securities Holdings
Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Inactive
29
(26)
0.00%
0.00%
0.00%
100.00% Research and
development
99.98%
0.02%
100.00%
100.00% Finance company
0.00%
33.63%
50.10%
-
1
10
-
0
(1)
-
Insurance
brokerage
- Real estate
management
0.00%
100.00%
100.00%
100.00% Securitisation
(66)
39
0.00%
100.00%
100.00%
100.00% Securitisation
-
(b)
-
- Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
-
(b)
-
- Securitisation
Landmark Iberia, S.L.
Spain
16.20%
83.80%
100.00%
1,677
(12)
1,664
Laparanza, S.A.
Spain
61.59%
0.00%
61.59%
61.59% Agricultural
Liquidity Limited
Luri 1, S.A. (m)
Luri 6, S.A. Unipersonal
MAC No. 1 Limited
Master Red Europa, S.L.
Mata Alta, S.L.
Merciver, S.L.
Merlion Aviation One
Designated Activity
Company
Moneybit, S.L.
Mortgage Engine Limited
Motor 2015-1 Holdings
Limited
Motor 2015-1 PLC (j)
Motor 2016-1 Holdings
Limited
United
Kingdom
Spain
Spain
United
Kingdom
Spain
Spain
Spain
0.00%
100.00%
100.00%
100.00% Factoring
holding
46.00%
0.00%
46.00%
36.00% Real estate
100.00%
0.00%
100.00%
100.00% Real estate
investment
-
(b)
-
- Mortgage credit
company
96.34%
0.00%
96.34%
96.34% Cards
0.00%
61.59%
100.00%
100.00% Real estate
99.90%
0.10%
100.00%
100.00% Financial
advisory
Ireland
-
(b)
-
- Renting
Spain
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
100.00%
0.00%
100.00%
100.00% Services
0.00%
100.00%
100.00%
100.00% Financial services
-
(b)
-
- Securitisation
0.00%
100.00%
100.00%
100.00% Securitisation
-
(b)
-
- Securitisation
0
-
1
3
0
0
0
0
0
0
0
16
0
0
0
0
1
1
0
0
28
0
(2)
0
0
0
0
0
0
0
0
2
1,305
77
1,418
0
1
0
1
19
2
(1)
0
0
0
0
0
0
0
4
0
(2)
0
0
0
0
1
0
1
0
2
0
0
0
0
745
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
Company
Motor 2016-1 PLC
Motor 2017-1 Holdings
Limited
Motor 2017-1 PLC
Motor Securities 2018-1
Designated Activity
Company
Multiplica SpA
Naviera Mirambel, S.L.
Naviera Trans Gas, A.I.E.
Naviera Trans Iron, S.L.
Naviera Trans Ore, A.I.E.
Naviera Trans Wind, S.L.
Naviera Transcantábrica,
S.L.
Naviera Transchem, S.L.
Unipersonal
Newcomar, S.L., en
liquidación (j)
Location
United
Kingdom
United
Kingdom
United
Kingdom
Ireland
Chile
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
0.00%
100.00%
100.00%
100.00% Securitisation
-
(b)
-
- Securitisation
Capital +
reserves
Net
results
Carrying
amount
0
0
0
0
0.00%
100.00%
100.00%
100.00% Securitisation
(2)
(4)
-
(b)
-
- Securitisation
0.00%
100.00%
100.00%
- Payment services
0.00%
100.00%
100.00%
100.00% Finance company
99.99%
0.01%
100.00%
100.00% Renting
100.00%
0.00%
100.00%
100.00% Leasing
99.99%
0.01%
100.00%
100.00% Renting
99.99%
0.01%
100.00%
100.00% Renting
100.00%
0.00%
100.00%
100.00% Leasing
100.00%
0.00%
100.00%
100.00% Leasing
40.00%
40.00%
80.00%
80.00% Real estate
0
5
0
17
23
22
3
4
1
1
0
0
0
4
1
2
0
1
0
0
0
0
0
0
5
0
52
21
17
3
4
1
0
Norbest AS
Norway
7.94%
92.06%
100.00%
100.00% Securities
93
(1)
93
investment
Portugal
0.00%
78.63%
78.74%
79.76% Investment fund
298
Novimovest – Fundo de
Investimento Imobiliário
NW Services CO.
Olé Tecnologia Ltda.
Open Bank, S.A.
United
States
Brazil
Spain
0.00%
100.00%
100.00%
100.00% E-commerce
0.00%
53.96%
100.00%
100.00% IT services
100.00%
0.00%
100.00%
100.00% Banking
Open Digital Market, S.L.
Spain
0.00%
100.00%
100.00%
100.00% Services
Open Digital Services, S.L.
Spain
99.97%
0.03%
100.00%
100.00% Services
Operadora de Carteras
Gamma, S.A.P.I. de C.V.
Optimal Investment
Services SA
Optimal Multiadvisors
Ireland Plc / Optimal
Strategic US Equity Ireland
Euro Fund (c)
Optimal Multiadvisors
Ireland Plc / Optimal
Strategic US Equity Ireland
US Dollar Fund (c)
Optimal Multiadvisors Ltd /
Optimal Strategic US Equity
Series (consolidado) (c)
Mexico
100.00%
0.00%
100.00%
100.00% Holding company
Switzerland
100.00%
0.00%
100.00%
100.00% Fund
management
company
Ireland
0.00%
57.20%
54.10%
51.25% Fund
management
company
Ireland
0.00%
44.08%
51.57%
51.57% Fund
management
company
Bahamas
0.00%
56.18%
56.78%
56.34% Fund
management
company
PagoFX Europe S.A.
Belgium
0.00%
100.00%
100.00%
- Payment services
PagoFX HoldCo, S.L.
Spain
100.00%
0.00%
100.00%
- Payment services
PagoFX UK Ltd
United
Kingdom
0.00%
100.00%
100.00%
- Payment services
5
1
216
0
122
7
24
4
5
46
1
16
2
6
1
0
1
0
(98)
1
1
0
0
0
0
(4)
0
238
2
1
221
0
34
0
25
0
0
0
1
16
2
Parasant SA
Switzerland
100.00%
0.00%
100.00%
100.00% Holding company
1,047
(1)
917
PBD Germany Auto 2018
UG (Haftungsbeschränkt)
Germany
PBD Germany Auto Lease
Master 2019
Luxembourg
-
-
(b)
(b)
-
-
- Securitisation
- Securitisation
0
0
0
5
0
0
746
2019 Annual Report
Popular Gestão de Activos –
Sociedade Gestora de
Fundos de Investimento,
S.A.
Popular Seguros -
Companhia de Seguros S.A.
Portal Universia Argentina
S.A.
Portal Universia Portugal,
Prestação de Serviços de
Informática, S.A.
Prime 16 – Fundo de
Investimentos Imobiliário
PSA Bank Deutschland
GmbH
PSA Banque France
PSA Consumer Finance
Polska Sp. z o.o.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
Company
PBE Companies, LLC
PECOH Limited
Pereda Gestión, S.A.
Phoenix C1 Aviation
Designated Activity
Company
Location
United
States
United
Kingdom
Spain
Ireland
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
0.00%
100.00%
100.00%
100.00% Real estate
112
(1)
111
0.00%
100.00%
100.00%
100.00% Securitisation
99.99%
0.01%
100.00%
100.00% Holding company
-
(b)
-
- Renting
0
42
5
0
2
3
0
4
0
PI Distribuidora de Títulos e
Valores Mobiliários S.A.
Brazil
0.00%
89.93%
100.00%
100.00% Leasing
80
(8)
65
Pingham International, S.A. Uruguay
0.00%
100.00%
100.00%
100.00% Services
Portugal
100.00%
0.00%
100.00%
100.00% Management of
funds and
portfolios
Portugal
0.00%
99.91%
100.00%
100.00% Insurance
Argentina
0.00%
75.75%
75.75%
75.75% Internet
Portugal
0.00%
100.00%
100.00%
100.00% Internet
0
1
9
0
0
0
0
1
0
0
0
2
7
0
0
Brazil
0.00%
89.93%
100.00%
100.00% Investment fund
72
(13)
50
Germany
0.00%
50.00%
50.00%
50.00% Banking
471
46
229
France
Poland
0.00%
50.00%
50.00%
50.00% Banking
0.00%
40.24%
100.00%
100.00% Finance company
1,093
1
140
1
PSA Finance Belux S.A.
Belgium
0.00%
50.00%
50.00%
50.00% Finance company
PSA Finance Polska Sp. z
o.o.
Poland
0.00%
40.24%
50.00%
50.00% Finance company
PSA Finance Suisse, S.A.
Switzerland
0.00%
50.00%
100.00%
100.00% Leasing
PSA Finance UK Limited
United
Kingdom
0.00%
50.00%
50.00%
50.00% Finance company
109
34
38
338
PSA Financial Services
Nederland B.V.
PSA Financial Services
Spain, E.F.C., S.A.
Netherlands
0.00%
50.00%
50.00%
50.00% Finance company
73
Spain
0.00%
50.00%
50.00%
50.00% Finance company
416
PSA Renting Italia S.p.A.
Italy
0.00%
50.00%
100.00%
100.00% Renting
PSRT 2018-A
PSRT 2019-A
United
States
United
States
Punta Lima Wind Farm, LLC United
States
Punta Lima, LLC
Recovery Team, S.L.
Unipersonal
United
States
Spain
-
-
(b)
(b)
-
-
0.00%
100.00%
100.00%
- Securitisation
- Securitisation
- Electricity
production
0.00%
100.00%
100.00%
100.00% Leasing
100.00%
0.00%
100.00%
100.00% Finance company
Retop S.A. (f)
Uruguay
100.00%
0.00%
100.00%
100.00% Finance company
Return Capital Serviços de
Recuperação de Créditos
S.A.
Brazil
0.00%
89.93%
100.00%
70.00% Collection
services
6
59
0
0
60
14
10
(2)
15
4
20
55
15
72
4
24
43
0
(11)
(1)
19
2
Return Gestão de Recursos
S.A.
Brazil
0.00%
89.93%
100.00%
100.00% Fund
0
0
0
management
company
747
463
0
42
11
15
129
20
174
3
0
0
0
49
16
63
0
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
Company
Riobank International
(Uruguay) SAIFE (j)
Roc Aviation One
Designated Activity
Company
Roc Shipping One
Designated Activity
Company
Location
Uruguay
Ireland
Ireland
RV Partners S.A.
SAM Asset Management,
S.A. de C.V., Sociedad
Operadora de Fondos de
Inversión
SAM Brasil Participações
S.A.
SAM Investment Holdings
Limited (l)
SAM UK Investment
Holdings Limited
Sancap Investimentos e
Participações S.A.
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
0.00%
100.00%
100.00%
100.00% Banking
-
-
(b)
(b)
-
-
- Renting
- Renting
(3)
(1)
Capital +
reserves
Net
results
Carrying
amount
0
(2)
0
0
0
0
0
29
0
4
1
0
20
25
0
161
Rojo Entretenimento S.A.
Brazil
0.00%
85.08%
94.60%
94.60% Services
Panama
Mexico
0.00%
100.00%
100.00%
100.00% Financial services
0.00%
100.00%
100.00%
100.00% Fund
management
company
Brazil
1.00%
99.00%
100.00%
100.00% Holding company
35
2
37
Jersey
92.37%
7.62%
100.00%
100.00% Holding company
1,087
224
1,306
United
Kingdom
Brazil
92.37%
7.63%
100.00%
100.00% Holding company
(114)
121
6
0.00%
89.93%
100.00%
100.00% Holding company
200
60
207
Santander (CF Trustee
Property Nominee) Limited
United
Kingdom
Santander (CF Trustee)
Limited (d)
Santander (UK) Group
Pension Schemes Trustees
Limited (d)
United
Kingdom
United
Kingdom
Santander Ahorro
Inmobiliario 1, S.A.
Santander Ahorro
Inmobiliario 2, S.A.
Santander Asesorías
Financieras Limitada
Spain
Spain
Chile
Santander Asset Finance
(December) Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Services
-
(b)
-
100.00% Asset
management
0.00%
100.00%
100.00%
100.00% Asset
management
98.53%
0.00%
98.53%
98.53% Real estate rental
99.91%
0.00%
99.91%
99.91% Real estate rental
0.00%
67.44%
100.00%
100.00% Securities
company
0.00%
100.00%
100.00%
100.00% Leasing
0
0
0
1
1
60
66
0
0
0
0
0
1
2
0
0
0
1
1
41
0
Santander Asset Finance plc United
0.00%
100.00%
100.00%
100.00% Leasing
247
24
171
Santander Asset
Management - Sociedade
Gestora de Fundos de
Investimento Mobiliário,
S.A.
Santander Asset
Management Chile S.A.
Santander Asset
Management Luxembourg,
S.A.
Santander Asset
Management S.A.
Administradora General de
Fondos
Kingdom
Portugal
100.00%
0.00%
100.00%
100.00% Fund
management
company
Chile
0.01%
99.94%
100.00%
100.00% Securities
investment
Luxembourg
0.00%
100.00%
100.00%
100.00% Fund
management
company
2
(6)
5
1
0
1
3
0
0
Chile
0.00%
100.00%
100.00%
100.00% Fund
14
11
132
management
company
Santander Asset
Management UK Holdings
Limited
United
Kingdom
Santander Asset
Management UK Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Holding company
193
18
186
0.00%
100.00%
100.00%
100.00% Management of
39
16
201
funds and
portfolios
748
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Capital +
reserves
Net
results
Carrying
amount
Company
Location
Direct
Indirect Year 2019 Year 2018 Activity
Santander Asset
Management, LLC
Puerto Rico
0.00%
100.00%
100.00%
100.00% Management
Santander Asset
Management, S.A., S.G.I.I.C.
Spain
0.00%
100.00%
100.00%
100.00% Fund
management
company
Santander Back-Offices
Globales Mayoristas, S.A.
Santander Banca de
Inversión Colombia, S.A.S.
Spain
100.00%
0.00%
100.00%
100.00% Services
Colombia
0.00%
100.00%
100.00%
100.00% Financial services
5
32
4
1
Santander BanCorp
Puerto Rico
0.00%
100.00%
100.00%
100.00% Holding company
1,014
Santander Bank & Trust Ltd. Bahamas
0.00%
100.00%
100.00%
100.00% Banking
109
3
9
61
167
2
1
66
2
1
1
1,078
22
Santander Bank Polska S.A. Poland
67.47%
0.00%
67.47%
67.47% Banking
5,183
497
4,386
Santander Bank, National
Association
Santander Brasil
Administradora de
Consórcio Ltda.
Santander Brasil Asset
Management Distribuidora
de Títulos e Valores
Mobiliários S.A.
United
States
Brazil
0.00%
100.00%
100.00%
100.00% Banking
11,960
218
12,176
0.00%
89.93%
100.00%
100.00% Services
49
45
85
Brazil
0.00%
100.00%
100.00%
100.00% Securities
34
2
36
investment
Santander Brasil Gestão de
Recursos Ltda.
Brazil
Santander Brasil Tecnologia
S.A.
Brazil
0.00%
100.00%
100.00%
100.00% Real estate
investment
0.00%
89.93%
100.00%
100.00% IT services
Santander Brasil, EFC, S.A.
Spain
0.00%
89.93%
100.00%
100.00% Finance company
Santander Capital
Desarrollo, SGEIC, S.A.
Unipersonal
Santander Capital
Structuring, S.A. de C.V.
Santander Capitalização
S.A.
Santander Cards Ireland
Limited
Santander Cards Limited
Spain
100.00%
0.00%
100.00%
100.00% Venture capital
Mexico
0.00%
100.00%
100.00%
100.00% Trade
Brazil
0.00%
89.93%
100.00%
100.00% Insurance
Ireland
0.00%
100.00%
100.00%
100.00% Cards
United
Kingdom
0.00%
100.00%
100.00%
100.00% Cards
455
80
576
28
775
10
11
42
(8)
98
3
7
(1)
1
34
0
1
4
27
706
8
0
68
0
99
113
Santander Cards UK Limited United
0.00%
100.00%
100.00%
100.00% Finance company
155
Santander Chile Holding
S.A.
Santander Consulting
(Beijing) Co., Ltd.
Kingdom
Chile
22.11%
77.72%
99.84%
99.84% Holding company
1,399
232
1,366
China
0.00%
100.00%
100.00%
100.00% Advisory
8
0
4
Santander Consumer (UK)
plc
United
Kingdom
Santander Consumer Auto
Receivables Funding 2013-
B2 LLC
Santander Consumer Auto
Receivables Funding 2013-
B3 LLC
Santander Consumer Auto
Receivables Funding 2015-
L4 LLC
Santander Consumer Auto
Receivables Funding 2016-
B4 LLC
United
States
United
States
United
States
United
States
0.00%
100.00%
100.00%
100.00% Finance company
620
100
306
0.00%
72.40%
100.00%
100.00% Finance company
37
(177)
0.00%
72.40%
100.00%
100.00% Finance company
(13)
54
0.00%
72.40%
100.00%
100.00% Finance company
81
18
0.00%
72.40%
100.00%
100.00% Finance company
(5)
8
0
0
0
0
749
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
0.00%
72.40%
100.00%
100.00% Finance company
72
27
0.00%
72.40%
100.00%
100.00% Finance company
20
10
0.00%
72.40%
100.00%
100.00% Finance company
29
11
0.00%
72.40%
100.00%
100.00% Finance company
24
12
0.00%
72.40%
100.00%
100.00% Finance company
19
9
0.00%
72.40%
100.00%
- Finance company
0.00%
72.40%
100.00%
- Finance company
0.00%
72.40%
100.00%
- Finance company
0
0
0
(103)
38
28
0
0
0
0
0
0
0
0
Location
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
Germany
0.00%
100.00%
100.00%
100.00% Banking
3,063
454
4,820
Norway
0.00%
100.00%
100.00%
100.00% Banking
2,077
300
2,021
Austria
0.00%
100.00%
100.00%
100.00% Banking
355
51
363
Poland
0.00%
80.48%
100.00%
100.00% Banking
641
120
509
Belgium
0.00%
100.00%
100.00%
100.00% Banking
1,167
16
1,170
Company
Santander Consumer Auto
Receivables Funding 2018-
L1 LLC
Santander Consumer Auto
Receivables Funding 2018-
L2 LLC
Santander Consumer Auto
Receivables Funding 2018-
L3 LLC
Santander Consumer Auto
Receivables Funding 2018-
L4 LLC
Santander Consumer Auto
Receivables Funding 2018-
L5 LLC
Santander Consumer Auto
Receivables Funding 2019-
B1 LLC
Santander Consumer Auto
Receivables Funding 2019-
L2 LLC
Santander Consumer Auto
Receivables Funding 2019-
L3 LLC
Santander Consumer Bank
AG
Santander Consumer Bank
AS
Santander Consumer Bank
GmbH
Santander Consumer Bank
S.A.
Santander Consumer Bank
S.A.
Santander Consumer Bank
S.p.A.
Italy
0.00%
100.00%
100.00%
100.00% Banking
Santander Consumer
Banque S.A.
France
0.00%
100.00%
100.00%
100.00% Banking
816
495
49.00%
34.23%
100.00%
51.00% Finance company
47
81
37
15
603
492
33
0
0.00%
100.00%
100.00%
100.00% Finance company
(37)
(1)
Santander Consumer Chile
S.A.
Chile
Santander Consumer Credit
Services Limited
United
Kingdom
Santander Consumer
Finance Benelux B.V.
Netherlands
0.00%
100.00%
100.00%
100.00% Finance company
132
14
190
Santander Consumer
Finance Global Services, S.L.
Spain
0.00%
100.00%
100.00%
100.00% IT services
5
1
5
Santander Consumer
Finance Oy
Santander Consumer
Finance S.A.S.
Santander Consumer
Finance, S.A.
Santander Consumer
Finanse Sp. z o.o.
Santander Consumer
Holding Austria GmbH
Santander Consumer
Holding GmbH
Finland
0.00%
100.00%
100.00%
100.00% Finance company
211
42
130
Colombia
0.00%
100.00%
100.00%
100.00% Financial
advisory
1
0
1
Spain
100.00%
0.00%
100.00%
100.00% Banking
9,869
508
8,825
Poland
0.00%
80.48%
100.00%
100.00% Services
15
0
12
Austria
0.00%
100.00%
100.00%
100.00% Holding company
364
25
518
Germany
0.00%
100.00%
100.00%
100.00% Holding company
4,926
278
5,827
750
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
Company
Location
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Puerto Rico
0.00%
72.40%
100.00%
100.00% Services
8
1
6
Santander Consumer
International Puerto Rico
LLC
Santander Consumer
Leasing GmbH
Santander Consumer
Mediación Operador de
Banca-Seguros Vinculado,
S.L.
Santander Consumer
Multirent Sp. z o.o.
Santander Consumer
Operations Services GmbH
Santander Consumer
Receivables 10 LLC
Santander Consumer
Receivables 11 LLC
Santander Consumer
Receivables 3 LLC
Santander Consumer
Receivables 7 LLC
Santander Consumer
Receivables Funding LLC
Santander Consumer
Renting, S.L.
Santander Consumer
Services GmbH
Santander Consumer
Services, S.A.
Santander Consumer Spain
Auto 2019-1, Fondo de
Titulación
Santander Consumer
Technology Services GmbH
Santander Consumer USA
Holdings Inc.
Santander Consumer USA
Inc.
Santander Consumer, EFC,
S.A.
Santander Consumo, S.A.
de C.V., S.O.F.O.M., E.R.,
Grupo Financiero Santander
México
Santander Corredora de
Seguros Limitada
Santander Corredores de
Bolsa Limitada
Santander Corretora de
Câmbio e Valores
Mobiliários S.A.
Santander Corretora de
Seguros, Investimentos e
Serviços S.A.
Santander de Titulización
S.G.F.T., S.A.
Santander Digital Assets,
S.L.
Germany
0.00%
100.00%
100.00%
100.00% Leasing
Spain
0.00%
94.61%
100.00%
100.00% Insurance
intermediary
Poland
0.00%
80.48%
100.00%
100.00% Leasing
Germany
0.00%
100.00%
100.00%
100.00% Services
20
1
25
9
United
States
United
States
United
States
United
States
United
States
Spain
0.00%
72.40%
100.00%
100.00% Finance company
753
0.00%
72.40%
100.00%
100.00% Finance company
236
108
0.00%
72.40%
100.00%
100.00% Finance company
279
(22)
0.00%
72.40%
100.00%
100.00% Finance company
375
64
0.00%
72.40%
100.00%
100.00% Finance company
0.00%
100.00%
100.00%
100.00% Leasing
Austria
0.00%
100.00%
100.00%
100.00% Services
Portugal
0.00%
100.00%
100.00%
100.00% Finance company
Spain
-
(b)
-
- Securitisation
Germany
0.00%
100.00%
100.00%
100.00% IT services
0
37
0
8
0
14
0
1
0
2
0
1
54
101
0
1
1
8
0
5
18
0
0
0
0
0
39
0
5
0
22
United
States
United
States
Spain
0.00%
72.40%
72.40%
69.71% Holding company
5,630
885
5,318
0.00%
72.40%
100.00%
100.00% Finance company
4,861
198
3,663
0.00%
100.00%
100.00%
100.00% Finance company
522
102
505
Mexico
0.00%
91.76%
100.00%
100.00% Cards
798
205
921
Chile
Chile
Brazil
0.00%
67.20%
100.00%
0.00%
83.23%
100.00%
0.00%
89.93%
100.00%
100.00% Insurance
brokerage
100.00% Securities
company
100.00% Securities
company
81
52
3
1
56
45
121
22
129
Brazil
0.00%
89.93%
100.00%
100.00% Holding company
570
100
599
Spain
81.00%
19.00%
100.00%
100.00% Fund
5
2
2
management
company
Spain
0.00%
100.00%
100.00%
-
IT services
21
(6)
14
751
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Location
Spain
Direct
Indirect Year 2019 Year 2018 Activity
99.97%
0.03%
100.00%
100.00% Holding company
Capital +
reserves
Net
results
Carrying
amount
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
Spain
United
Kingdom
Spain
Company
Santander Digital
Businesses, S.L.
Santander Drive Auto
Receivables LLC
Santander Drive Auto
Receivables Trust 2015-4
Santander Drive Auto
Receivables Trust 2015-5
Santander Drive Auto
Receivables Trust 2016-1
Santander Drive Auto
Receivables Trust 2016-2
Santander Drive Auto
Receivables Trust 2016-3
Santander Drive Auto
Receivables Trust 2017-1
Santander Drive Auto
Receivables Trust 2017-2
Santander Drive Auto
Receivables Trust 2017-3
Santander Drive Auto
Receivables Trust 2018-1
Santander Drive Auto
Receivables Trust 2018-2
Santander Drive Auto
Receivables Trust 2018-3
Santander Drive Auto
Receivables Trust 2018-4
Santander Drive Auto
Receivables Trust 2018-5
Santander Drive Auto
Receivables Trust 2019-1
Santander Drive Auto
Receivables Trust 2019-2
Santander Drive Auto
Receivables Trust 2019-3
Santander Drive Auto
Receivables Trust 2019-4
Santander Energías
Renovables I, S.C.R., S.A.
Santander Equity
Investments Limited
Santander España Merchant
Services, Entidad de Pago,
S.L. Unipersonal
Santander España Servicios
Legales y de Cumplimiento,
S.L.
Santander Estates Limited
Santander F24 S.A.
Santander Facility
Management España, S.L.
0.00%
72.40%
100.00%
100.00% Finance company
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
-
Inactive
59.66%
0.00%
59.66%
59.66% Venture capital
0.00%
100.00%
100.00%
100.00% Finance company
96
0
53
52
30
35
32
5
(4)
(14)
(41)
(59)
(71)
(67)
(90)
0
0
0
0
16
54
8
4
0
414
41
18
(15)
96
0
17
15
18
24
35
32
42
42
55
52
50
54
69
(33)
(45)
(73)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
9
(3)
47
5
0
(1)
0
0
1
5
185
8
0
0
393
42
1
100.00%
0.00%
100.00%
100.00% Payment services
213
Spain
99.97%
0.03%
100.00%
- Services
United
Kingdom
Poland
Spain
0.00%
100.00%
100.00%
100.00% Real estate
0.00%
67.47%
100.00%
100.00% Finance company
94.33%
5.67%
100.00%
100.00% Real estate
Santander Factoring S.A.
Chile
0.00%
99.84%
100.00%
100.00% Factoring
Santander Factoring
Sp. z o.o.
Poland
0.00%
67.47%
100.00%
100.00% Financial services
752
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
Company
Santander Factoring y
Confirming, S.A., E.F.C.
Santander FI Hedge
Strategies
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Location
Spain
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
100.00%
0.00%
100.00%
100.00% Factoring
155
59
126
Ireland
0.00%
89.93%
100.00%
100.00% Investment
216
(106)
99
company
Santander Finance 2012-1
LLC
United
States
0.00%
100.00%
100.00%
100.00% Financial services
100.00%
0.00%
100.00%
100.00% Finance company
2
0
0
0
3
0
0.00%
100.00%
100.00%
100.00% Banking
383
(8)
396
Puerto Rico
0.00%
100.00%
100.00%
100.00% Finance company
259
(3)
256
Santander Finanse Sp. z o.o. Poland
0.00%
67.47%
100.00%
100.00% Financial services
100.00%
0.00%
100.00%
100.00% Finance company
53
187
6
14
21
117
0.00%
87.83%
100.00%
100.00% Investment fund
1,094
59
1,051
United
Kingdom
United
Kingdom
United
Kingdom
Brazil
Santander Financial
Exchanges Limited
Santander Financial
Services plc
Santander Financial
Services, Inc.
Santander Fintech Limited
Santander Fundo de
Investimento SBAC
Referenciado di Crédito
Privado (h)
Santander Gestión de
Recaudación y Cobranzas
Ltda.
Chile
0.00%
99.84%
100.00%
100.00% Financial services
Santander Global Consumer
Finance Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Finance company
Santander Global Facilities,
S.A. de C.V.
Mexico
100.00%
0.00%
100.00%
100.00% Management of
103
22
124
funds and
portfolios
Santander Global Facilities,
S.L.
Spain
100.00%
0.00%
100.00%
100.00% Real estate
244
(8)
250
100.00%
0.00%
100.00%
100.00% Services
34
18
24
Spain
Spain
Brazil
Chile
Spain
Spain
United
Kingdom
Spain
Spain
Spain
Santander Global
Operations, S.A.
Santander Global Property,
S.L.
Santander Global Services
S.A. (j)
Santander Global Sport,
S.A.
Santander Global
Technology Brasil Ltda.
Santander Global
Technology Chile Limitada
Santander Global
Technology, S.L.
Santander Global Trade
Platform Solutions, S.L.
Santander Guarantee
Company
Santander Hipotecario 1
Fondo de Titulización de
Activos
Santander Hipotecario 2
Fondo de Titulización de
Activos
Santander Hipotecario 3
Fondo de Titulización de
Activos
Santander Holding
Imobiliária S.A.
97.34%
2.66%
100.00%
100.00% Securities
253
investment
Uruguay
0.00%
100.00%
100.00%
100.00% Services
Spain
100.00%
0.00%
100.00%
100.00% Sports activity
0.00%
100.00%
100.00%
100.00% Technology
services
0.00%
100.00%
100.00%
100.00% IT services
100.00%
0.00%
100.00%
100.00% IT services
399
38
346
0.00%
100.00%
100.00%
- Technology
services
26
(2)
24
0.00%
100.00%
100.00%
100.00% Leasing
-
-
-
(b)
(b)
(b)
-
-
-
- Securitisation
- Securitisation
- Securitisation
5
0
0
0
Brazil
0.00%
89.93%
100.00%
100.00% Real estate
62
5
7
1
0
6
7
0
0
(6)
0
1
253
0
23
1
20
0
29
3
25
0
0
0
0
0
3
0
0
0
56
753
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
Company
Santander Holding
Internacional, S.A.
Santander Holdings USA,
Inc.
Santander Inclusión
Financiera, S.A. de C.V.,
S.O.F.O.M., E.R., Grupo
Financiero Santander
México
Santander Insurance
Agency, Inc.
Santander Insurance
Agency, U.S., LLC
Santander Insurance
Services UK Limited
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
99.95%
0.05%
100.00%
100.00% Holding company
2,551
2,075
2,399
100.00%
0.00%
100.00%
100.00% Holding company
18,806
670
12,532
0.00%
91.76%
100.00%
100.00% Finance company
18
(9)
9
Location
Spain
United
States
Mexico
Puerto Rico
0.00%
100.00%
100.00%
100.00% Insurance
brokerage
United
States
United
Kingdom
0.00%
100.00%
100.00%
100.00% Insurance
100.00%
0.00%
100.00%
100.00% Asset
Santander Intermediación
Correduría de Seguros, S.A.
Spain
100.00%
0.00%
100.00%
Santander International
Products, Plc. (l)
Ireland
99.99%
0.01%
100.00%
100.00% Finance company
management
100.00% Insurance
brokerage
8
1
42
21
1
1
0
1
1
0
8
1
43
18
0
Santander Inversiones S.A.
Chile
0.00%
100.00%
100.00%
100.00% Holding company
1,546
184
1,032
Santander Investment Bank
Limited
Bahamas
0.00%
100.00%
100.00%
100.00% Banking
579
(3)
529
Santander Investment Chile
Limitada
Chile
0.00%
100.00%
100.00%
100.00% Finance company
522
14
321
Santander Investment I,
S.A.
Spain
100.00%
0.00%
100.00%
100.00% Holding company
219
(1)
27
Santander Investment
Securities Inc.
United
States
0.00%
100.00%
100.00%
100.00% Securities
company
424
25
449
Santander Investment, S.A. Spain
100.00%
0.00%
100.00%
100.00% Banking
251
1,184
256
Santander Inwestycje Sp. z
o.o.
Poland
0.00%
67.47%
100.00%
100.00% Securities
company
Santander ISA Managers
Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Management of
funds and
portfolios
Santander Lease, S.A., E.F.C. Spain
100.00%
0.00%
100.00%
100.00% Leasing
Santander Leasing Poland
Securitization 01
Designated Activity
Company
Ireland
-
(b)
-
- Securitisation
Santander Leasing S.A.
Poland
0.00%
67.47%
100.00%
100.00% Leasing
Brazil
0.00%
89.93%
99.99%
99.99% Leasing
10
23
43
0
135
1,266
0
7
12
0
5
10
7
6
51
0
30
1,148
Santander Leasing S.A.
Arrendamento Mercantil
Santander Leasing, LLC
Santander Mediación
Operador de Banca-Seguros
Vinculado, S.A.
Santander Merchant
Platform Solutions Brasil
Ltda.
Santander Merchant
Platform Solutions, S.L.
Santander Lending Limited United
0.00%
100.00%
100.00%
100.00% Mortgage credit
238
United
States
0.00%
100.00%
100.00%
100.00% Leasing
7
(6)
0
Kingdom
Spain
100.00%
0.00%
100.00%
100.00% Insurance
intermediary
company
Brazil
0.00%
100.00%
100.00%
100.00% Technology
services
4
1
5
0
0
242
3
1
Spain
100.00%
0.00%
100.00%
100.00% Holding company
25
(7)
25
Santander Merchant S.A.
Argentina
0.00%
100.00%
100.00%
100.00% Finance company
Santander Mortgage
Holdings Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Financial services
0
0
0
0
2
0
754
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
Company
Santander Operaciones
España, S.L.
Location
Spain
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
100.00%
0.00%
100.00%
100.00% Services
32
(17)
11
Santander Paraty Qif PLC
Ireland
0.00%
89.93%
100.00%
100.00% Investment fund
Santander Pensiones, S.A.,
E.G.F.P.
Spain
0.00%
100.00%
100.00%
100.00% Pension fund
management
company
100.00% Pension fund
management
company
(106)
20
99
118
216
19
3
Portugal
100.00%
0.00%
100.00%
Ireland
Ireland
Ireland
Ireland
Ireland
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
Santander Pensões -
Sociedade Gestora de
Fundos de Pensões, S.A.
Santander Prime Auto
Issuance Notes 2018-A
Designated Activity
Company
Santander Prime Auto
Issuance Notes 2018-B
Designated Activity
Company
Santander Prime Auto
Issuance Notes 2018-C
Designated Activity
Company
Santander Prime Auto
Issuance Notes 2018-D
Designated Activity
Company
Santander Prime Auto
Issuance Notes 2018-E
Designated Activity
Company
Santander Private Banking
Gestión, S.A., S.G.I.I.C.
- Securitisation
(29)
- Securitisation
(17)
- Securitisation
(4)
- Securitisation
(7)
(10)
- Securitisation
(2)
0
Spain
100.00%
0.00%
100.00%
100.00% Fund
31
11
35
management
company
100.00%
0.00%
100.00%
100.00% Finance company
33
(1)
32
0.00%
100.00%
100.00%
100.00% Real estate
300
Santander Private Banking
s.p.a. in Liquidazione (j)
Italy
Santander Private Banking
UK Limited
United
Kingdom
Santander Private Real
Estate Advisory &
Management, S.A.
Santander Private Real
Estate Advisory, S.A.
Spain
99.99%
0.01%
100.00%
100.00% Real estate
Spain
100.00%
0.00%
100.00%
100.00% Real estate
Santander Real Estate, S.A.
Spain
100.00%
0.00%
100.00%
100.00% Real estate
Santander Retail Auto Lease
Funding LLC
United
States
Santander Retail Auto Lease
Trust 2017-A
United
States
Santander Retail Auto Lease
Trust 2018-A
United
States
Santander Retail Auto Lease
Trust 2019-A
United
States
Santander Retail Auto Lease
Trust 2019-B
United
States
Santander Retail Auto Lease
Trust 2019-C
United
States
Santander Revolving Auto
Loan Trust 2019-A
United
States
0.00%
72.40%
100.00%
100.00% Securitisation
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
Santander Río Asset
Management Gerente de
Fondos Comunes de
Inversión S.A.
Argentina
0.00%
100.00%
100.00%
100.00% Fund
management
company
Santander Río Servicios S.A. Argentina
0.00%
99.97%
100.00%
100.00% Advisory services
5
12
1
0
73
60
0
0
0
0
3
0
0
7
5
2
3
0
0
0
0
0
0
0
1
0
0
45
29
41
28
30
(87)
3
0
409
4
13
1
0
0
0
0
0
0
0
3
0
755
Santander Securities LLC
Santander Seguros y
Reaseguros, Compañía
Aseguradora, S.A.
Santander Servicios
Corporativos, S.A. de C.V.
Santander Servicios
Especializados, S.A. de C.V.
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
Location
Direct
Indirect Year 2019 Year 2018 Activity
Santander Río Trust S.A.
Argentina
0.00%
99.97%
100.00%
100.00% Services
Santander Río Valores S.A.
Argentina
0.00%
99.34%
100.00%
100.00% Securities
company
Santander S.A. Sociedad
Securitizadora
Chile
0.00%
67.24%
100.00%
100.00% Fund
management
company
Santander Secretariat
Services Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Holding company
Capital +
reserves
Net
results
Carrying
amount
0
3
1
0
0
0
0
0
0
3
0
0
United
States
Spain
0.00%
100.00%
100.00%
100.00% Securities
company
125
(77)
48
100.00%
0.00%
100.00%
100.00% Insurance
1,139
146
1,188
Mexico
0.00%
91.77%
100.00%
100.00% Services
Mexico
0.00%
91.77%
100.00%
100.00% Financial services
6
2
1
0
Santander Technology USA,
LLC
United
States
0.00%
100.00%
100.00%
100.00% IT services
111
(18)
Santander Tecnología
Argentina S.A.
Santander Tecnología
España, S.L.
Santander Tecnología
México, S.A. de C.V.
Santander Totta Seguros,
Companhia de Seguros de
Vida, S.A.
Argentina
0.00%
99.34%
100.00%
100.00% IT services
Spain
100.00%
0.00%
100.00%
100.00% IT services
Mexico
0.00%
91.76%
100.00%
100.00% IT services
2
35
41
Portugal
0.00%
99.91%
100.00%
100.00% Insurance
115
2
(2)
3
26
Santander Totta, SGPS, S.A. Portugal
0.00%
99.91%
99.91%
99.90% Holding company
3,430
436
3,923
Poland
50.00%
33.74%
100.00%
100.00% Fund
4
41
39
Hong-Kong
0.00%
100.00%
100.00%
100.00% Inactive
management
company
6
2
93
2
35
40
47
-
(b)
-
- Charitable
services
77.67%
22.33%
100.00%
100.00% Finance company
15,413
528
19,948
Santander UK Investments United
100.00%
0.00%
100.00%
100.00% Finance company
18
0
0
0
16
0
52
21
0
3
47
17
0.00%
100.00%
100.00%
100.00% Services
0.00%
100.00%
100.00%
100.00% Banking
16,821
395
15,542
0.00%
100.00%
100.00%
100.00% IT services
17
0.00%
91.76%
100.00%
100.00% Finance company
373
11
31
7
371
United
Kingdom
United
Kingdom
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Mexico
Santander Towarzystwo
Funduszy Inwestycyjnych
S.A.
Santander Trade Services
Limited
Santander UK Foundation
Limited
Santander UK Group
Holdings plc
Santander UK Operations
Limited
Santander UK plc
Santander UK Technology
Limited
Santander Vivienda, S.A. de
C.V., S.O.F.O.M., E.R., Grupo
Financiero Santander
México
Santander Vivienda, S.A. de
C.V., S.O.F.O.M., E.R., Grupo
Financiero Santander
México como Fiduciaria del
Fideicomiso Bursa
Santander Wealth
Management International
SA
Mexico
-
(b)
-
- Securitisation
10
(2)
0
Switzerland
0.00%
100.00%
100.00%
- Asset
0
0
0
management
Santusa Holding, S.L.
Spain
69.76%
30.24%
100.00%
100.00% Holding company
7,650
(118)
6,503
756
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
Company
Location
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
SC Austria Finance 2013-1
S.A.
Luxembourg
SC Germany Auto 2014-2
UG (haftungsbeschränkt)
SC Germany Auto 2016-1
UG (haftungsbeschränkt)
SC Germany Auto 2016-2
UG (haftungsbeschränkt)
SC Germany Auto 2017-1
UG (haftungsbeschränkt)
SC Germany Auto 2018-1
UG (haftungsbeschränkt)
SC Germany Auto 2019-1
UG (haftungsbeschränkt)
SC Germany Consumer
2014-1 UG
(haftungsbeschränkt)
SC Germany Consumer
2015-1 UG
(haftungsbeschränkt)
SC Germany Consumer
2016-1 UG
(haftungsbeschränkt)
SC Germany Consumer
2017-1 UG
(haftungsbeschränkt)
SC Germany Consumer
2018-1 UG
(haftungsbeschränkt)
SC Germany Mobility
2019-1 UG
(haftungsbeschränkt)
SC Germany Vehicles
2013-1 UG
(haftungsbeschränkt)
SC Germany Vehicles
2015-1 UG
(haftungsbeschränkt)
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
SC Poland Consumer 15-1
Sp. z.o.o.
SC Poland Consumer 16-1
Sp. z o.o.
SCF Ajoneuvohallinto I
Limited (j)
SCF Ajoneuvohallinto II
Limited
Poland
Poland
Ireland
Ireland
SCF Ajoneuvohallinto KIMI
VI Limited
Ireland
SCF Ajoneuvohallinto VII
Limited
SCF Ajoneuvohallinto VIII
Limited
SCF Eastside Locks GP
Limited
SCF Rahoituspalvelut I
Designated Activity
Company (j)
SCF Rahoituspalvelut II
Designated Activity
Company
Ireland
Ireland
United
Kingdom
Ireland
Ireland
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
0.00%
100.00%
100.00%
100.00% Real estate
-
-
(b)
(b)
-
-
management
- Securitisation
- Securitisation
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
757
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
Location
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
United
States
United
States
Spain
Company
SCF Rahoituspalvelut KIMI
VI Designated Activity
Company
SCF Rahoituspalvelut VII
Designated Activity
Company
SCF Rahoituspalvelut VIII
Designated Activity
Company
SCFI Ajoneuvohallinto
Limited (j)
SCFI Rahoituspalvelut
Designated Activity
Company (j)
Secucor Finance 2013-I
Designated Activity
Company (q)
Services and Promotions
Delaware Corp.
Services and Promotions
Miami LLC
Servicio de Alarmas
Controladas por Ordenador,
S.A.
Servicios Corporativos
Seguros Serfin, S.A. de C.V.
(j)
Servicios de Cobranza,
Recuperación y
Seguimiento, S.A. de C.V.
Sheppards Moneybrokers
Limited
United
Kingdom
Shiloh III Wind Project, LLC United
States
Silk Finance No. 4
Sociedad Integral de
Valoraciones
Automatizadas, S.A.
Portugal
Spain
Solarlaser Limited
Sovereign Community
Development Company
Sovereign Delaware
Investment Corporation
Sovereign Lease Holdings,
LLC
Sovereign REIT Holdings,
Inc.
United
Kingdom
United
States
United
States
United
States
United
States
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Real estate
99.99%
0.01%
100.00%
100.00% Security
Mexico
0.00%
85.30%
100.00%
100.00% Services
Mexico
0.00%
85.00%
85.00%
85.00% Finance company
33
0.00%
100.00%
100.00%
100.00% Advisory services
0
0.00%
100.00%
100.00%
100.00% Electricity
production
-
(b)
-
- Securitisation
100.00%
0.00%
100.00%
100.00% Appraisals
0
(1)
2
0
0
0
63
54
1
0
313
(6)
1
34
31
0
38
0
0
0
0
0
0
2
3
0
0
3
0
8
1
1
23
(1)
0
1
3
7
0
0
0
0
0
0
66
58
1
0
7
0
321
0
1
59
33
0
39
133
217
Socur S.A. (f)
Uruguay
100.00%
0.00%
100.00%
100.00% Finance company
Sol Orchard Imperial 1 LLC
(c)
United
States
0.00%
57.40%
100.00%
100.00% Electricity
production
0.00%
100.00%
100.00%
100.00% Real estate
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Holding company
130
0.00%
100.00%
100.00%
100.00% Financial services
210
0.00%
100.00%
100.00%
100.00% Holding company
7,298
167
7,465
Sovereign Spirit Limited (n) Bermudas
0.00%
100.00%
100.00%
100.00% Leasing
0
0
0
Sterrebeeck B.V.
Netherlands
100.00%
0.00%
100.00%
100.00% Holding company
4,124
1,090
11,291
Suleyado 2003, S.L.
Unipersonal
Super Pagamentos e
Administração de Meios
Eletrônicos S.A.
Spain
Brazil
758
2019 Annual Report
0.00%
100.00%
100.00%
100.00% Securities
investment
0.00%
89.93%
100.00%
100.00% Payment services
23
8
6
1
28
11
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Location
Spain
Direct
Indirect Year 2019 Year 2018 Activity
Capital +
reserves
Net
results
Carrying
amount
0.00%
100.00%
100.00%
100.00% Holding company
14
(2)
12
Spain
0.00%
51.00%
51.00%
51.00% Intermediation
Ireland
-
(b)
-
- Securitisation
6
0
2
56
1
0
8
0
0
0
0
0
Swesant SA
Switzerland
0.00%
100.00%
100.00%
100.00% Holding company
Portugal
0.00%
99.86%
100.00%
100.00% Holding company
Chile
50.00%
50.00%
100.00%
100.00% Holding company
3,026
258
2,484
Company
Superdigital Holding
Company, S.L.
Suzuki Servicios
Financieros, S.L.
Svensk Autofinans WH 1
Designated Activity
Company
Taxagest Sociedade Gestora
de Participações Sociais,
S.A.
Teatinos Siglo XXI
Inversiones S.A.
The Alliance & Leicester
Corporation Limited
The Best Specialty Coffee,
S.L. Unipersonal
United
Kingdom
Spain
0.00%
100.00%
100.00%
100.00% Real estate
100.00%
0.00%
100.00%
100.00% Restaurant
services
- Renting
14
1
0
0
(1)
(1)
Tikgi Aviation One
Designated Activity
Company
Ireland
-
(b)
-
Time Retail Finance Limited
(j)
United
Kingdom
Tonopah Solar I, LLC
TOPSAM, S.A de C.V.
United
States
Mexico
0.00%
100.00%
100.00%
100.00% Services
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Fund
management
company
Toque Fale Serviços de
Telemarketing Ltda.
Tornquist Asesores de
Seguros S.A. (j)
Brazil
0.00%
89.93%
100.00%
100.00% Telemarketing
Argentina
0.00%
99.99%
99.99%
99.99% Advisory services
Totta (Ireland), PLC (h)
Ireland
0.00%
99.86%
100.00%
100.00% Finance company
Totta Urbe - Empresa de
Administração e
Construções, S.A.
Trabajando.com Colombia
Consultoría S.A.S.
Trabajando.com México,
S.A. de C.V.
Portugal
0.00%
99.86%
100.00%
100.00% Real estate
Colombia
0.00%
100.00%
100.00%
100.00% Services
Mexico
0.00%
99.87%
99.87%
100.00% Services
Trabajando.com Perú S.A.C. Peru
0.00%
100.00%
100.00%
100.00% Services
Trabalhando.com Brasil
Consultoria Ltda.
Trabalhandopontocom
Portugal, Sociedade
Unipessoal, Lda - Em
Liquidação (j)
Brazil
0.00%
100.00%
100.00%
100.00% Services
Portugal
0.00%
100.00%
100.00%
100.00% Services
Trade Maps 3 Hong Kong
Limited
Hong-Kong
Trade Maps 3 Ireland
Limited (j)
Trans Rotor Limited (j)
Ireland
United
Kingdom
-
-
(b)
(b)
-
-
- Securitisation
- Securitisation
100.00%
0.00%
100.00%
100.00% Renting
Transolver Finance EFC, S.A. Spain
0.00%
51.00%
51.00%
51.00% Leasing
Tuttle and Son Limited
United
Kingdom
0.00%
100.00%
100.00%
100.00% Payments and
collections
services
Universia Brasil S.A.
Brazil
0.00%
100.00%
100.00%
100.00% Internet
0
5
2
1
0
455
125
0
0
0
0
0
0
0
8
53
0
0
0
0
0
(1)
0
11
6
0
0
0
0
0
0
0
(1)
7
0
0
14
0
0
0
5
1
0
0
450
100
0
0
0
0
0
0
0
5
17
0
0
759
Table of Contents
Subsidiaries of Banco Santander, S.A. 1
% of ownership held by
the Bank
% of voting power (k)
Million euros (a)
Company
Universia Chile S.A.
Location
Chile
Direct
Indirect Year 2019 Year 2018 Activity
0.00%
86.84%
86.84%
86.84% Internet
Universia Colombia S.A.S.
Colombia
0.00%
100.00%
100.00%
100.00% Internet
Universia España Red de
Universidades, S.A.
Spain
0.00%
89.45%
89.45%
89.45% Internet
Capital +
reserves
Net
results
Carrying
amount
0
0
2
0
0
0
1
0
2
Universia Holding, S.L.
Spain
100.00%
0.00%
100.00%
100.00% Holding company
19
(5)
18
Universia México, S.A. de
C.V.
Mexico
0.00%
100.00%
100.00%
100.00% Internet
Universia Perú, S.A.
Peru
0.00%
99.73%
99.73%
96.51% Internet
Universia Uruguay, S.A.
Uruguay
0.00%
100.00%
100.00%
100.00% Internet
W.N.P.H. Gestão e
Investimentos Sociedade
Unipessoal, S.A.
Portugal
0.00%
100.00%
100.00%
100.00% Portfolio
management
0
0
0
0
Wallcesa, S.A.
Wave Holdco, S.L.
Spain
Spain
Waypoint Insurance Group,
Inc.
United
States
Whitewick Limited (j)
WIM Servicios
Corporativos, S.A. de C.V.
Jersey
Mexico
100.00%
0.00%
100.00%
100.00% Financial services
(941)
0.00%
100.00%
100.00%
100.00% Holding company
45
(14)
0.00%
100.00%
100.00%
100.00% Holding company
0.00%
100.00%
100.00%
100.00% Inactive
0.00%
100.00%
100.00%
100.00% Advisory
WTW Shipping Designated
Activity Company
Ireland
100.00%
0.00%
100.00%
100.00% Leasing
0
0
0
0
6
9
0
0
12
0
0
0
1
0
0
0
0
0
31
9
0
0
9
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
Amount per provisional books of each company as of the date of publication of these annexes, generally referred to 31 December 2019 without considering, where
appropriate, the interest dividends that has been made in the year. In the carrying amount (net cost of provision), the Group´s ownership percentage has been
applied to the number of each of the holders, without considering the impairment of goodwill incurred in the consolidation process. The Data from foreign
companies are converted in to euros at the exchange rate at the end of the period.
Companies over which effective control is exercised.
Data from the latest available financial statement as at 31 December 2018.
Data from the latest available financial statement as at 31 March 2019.
Data from the latest available statement as at 30 June 2019.
Data from the latest available financial statement as at 30 September 2019.
Data from the latest available financial statement as at 31 July 2019.
Data from the latest available financial statement as at 30 November 2019.
Company in process of merger or liquidation. Pending of being registered.
Company in liquidation at 31 December 2019.
Pursuant to Article 3 of Royal Decree 1159/2010, of 17 September approving the rules for the preparation of consolidated financial statements, in order to
determine voting power, the voting power relating to subsidiaries or to other persons acting in their own name but on behalf of Group companies was added to the
voting power directly held by the Parent. For these purposes, the number of votes corresponding to the Parent in relation to companies over which it exercises
indirect control is the number corresponding to each subsidiary holding a direct ownership interest in such companies.
Company resident in Spain for tax purposes.
See note 2.b.i
Company resident in the UK for tax purposes.
Company recently incorporated in the Group, without financial statements available.
Data from the latest available financial statement as at 31 May 2019.
Data from the latest available financial statement as at 31 January 2019.
Data from the latest available financial statement as at 31 December 2004.
Data from the latest available financial statement as at 31 October 2019.
1.
Companies issuing shares and preference shares are listed in annex III, together with other relevant information.
760
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Appendix II
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
% of ownership
held by the Bank
% of voting power (k)
Direct
Indirect Year 2019 Year 2018 Activity
-
(h)
-
- Leasing
Type of
company
Joint
venture
Million euros (a)
Capital
+
reserves
Net
results
Assets
-
-
0.00% 13.42%
20.00%
20.00% Payments and
Associated
74
21
collections services
Location
Cayman
Island
Chile
Portugal
0.00% 48.95%
49.00%
49.00% Insurance
Portugal
0.00% 48.95%
49.00%
49.00% Insurance
Joint
venture
Joint
venture
44
17
115
20
12
-
2
5
Portugal
0.00% 19.97%
20.00%
20.00% Inactive
-
0
0
Spain
36.78%
0.00%
36.78%
36.78% Food
Associated
24
(7)
Spain
Spain
Spain
37.23%
0.00%
37.23%
37.23% Technical services
-
-
40.00%
0.00%
40.00%
40.00% Insurance
Associated
2,749
-
80
0.00% 15.00%
15.00%
- Real estate
-
580
110
0
0
-
76
24
Brazil
0.00% 29.98%
33.33%
-
Investment fund
Joint
venture
1,778
1,744
34
Spain
20.00%
0.00%
20.00%
20.00% Advertising
Associated
289
96
3
Morocco
0.00%
5.11%
5.11%
5.11% Banking
Argentina
0.00% 14.17%
14.17%
Poland
0.00%
6.75%
10.00%
14.17% Motorway
concession
10.00% Pension fund
management
company
Aviva Towarzystwo
Poland
0.00%
6.75%
10.00%
10.00% Insurance
Brazil
0.00% 35.88%
39.89%
39.89% Banking
Mexico
0.00% 50.00%
50.00% 100.00% Banking
-
-
-
-
Joint
venture
Joint
venture
47,488
4,073
627
244
19
115
118
109
29
3,508
316
138
2,988
234
57
139
62
6
4
China
0.00% 20.00%
20.00%
20.00% Finance company
Associated
875
99
China
6.54%
0.00%
6.54%
6.50% Banking
-
259,289 18,375
2,310
France
0.00% 30.50%
30.50%
- Custody services
Associated
88,015
3,811
159
761
Company
Abra 1 Limited (k)
Administrador
Financiero de
Transantiago S.A.
Aegon Santander
Portugal Não Vida -
Companhia de
Seguros, S.A.
Aegon Santander
Portugal Vida -
Companhia de
Seguros Vida, S.A.
Aeroplan -
Sociedade
Construtora de
Aeroportos, Lda. (e)
Aguas de
Fuensanta, S.A. (e)
Alcuter 2, S.L. (k)
Allianz Popular, S.L.
(consolidado)
Altamira Asset
Management, S.A.
(b)
Apolo Fundo de
Investimento em
Direitos Creditórios
Arena
Communications
Network, S.L.
(consolidado) (b)
Attijariwafa Bank
Société Anonyme
(consolidado) (b)
Autopistas del Sol
S.A. (b)
Aviva Powszechne
Towarzystwo
Emerytalne Aviva
Santander S.A. (b)
?ycie S.A. (b)
Banco RCI Brasil
S.A.
Banco S3 México,
S.A., Institución de
Banca Múltiple
Bank of Beijing
Consumer Finance
Company
Bank of Shanghai
Co., Ltd.
(consolidado) (b)
CACEIS
(consolidado)
Table of Contents
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
% of ownership
held by the Bank
% of voting power (k)
Direct
Indirect Year 2019 Year 2018 Activity
Million euros (a)
Capital
+
reserves
Net
results
Assets
Type of
company
0.00% 15.84%
17.61%
17.61% Payments and
-
120
53
22
collections services
Location
Brazil
Spain
50.00%
0.00%
50.00%
50.00% Management of
venture capital
Associated
Portugal
0.00% 49.98%
49.98%
49.98% Real estate services
Joint
venture
0
0
Chile
0.00% 22.37%
33.33%
33.33% Payments and
Associated
10
collections services
Spain
0.00% 49.00%
49.00%
49.00% Technology
Associated
3
0
0
7
2
0
0
1
0
Ireland
49.00%
0.00%
49.00%
49.00% Insurance brokerage Associated
940
132
33
Ireland
49.00%
0.00%
49.00%
49.00% Insurance brokerage Associated
1,425
181
50
Ireland
49.00%
0.00%
49.00%
49.00% Services
Associated
29
3
Comder Contraparte
Central S.A
Chile
0.00%
8.36%
12.45%
11.23% Financial services
Associated
101
13
Brazil
0.00% 25.00%
25.00%
25.00% Financial services
Spain
20.18%
0.00%
20.18%
20.18% Finance company
Spain
23.33%
0.55%
23.88%
23.88% Credit insurance
Joint
venture
-
-
1
(1)
137
124
865
356
35
1
1
0
9
Company
Câmara
Interbancária de
Pagamentos - CIP
(b)
Cantabria Capital,
SGEIC, S.A.
CCPT -
ComprarCasa, Rede
Serviços
Imobiliários, S.A.
Centro de
Compensación
Automatizado S.A.
Centro para el
Desarrollo,
Investigación y
Aplicación de
Nuevas
Tecnologías, S.A. (b)
CNP Santander
Insurance Europe
Designated Activity
Company
CNP Santander
Insurance Life
Designated Activity
Company
CNP Santander
Insurance Services
Ireland Limited
Companhia
Promotora UCI
Compañia Española
de Financiación de
Desarrollo, Cofides,
S.A., SME (b)
Compañía Española
de Seguros de
Crédito a la
Exportación, S.A.,
Compañía de
Seguros y
Reaseguros
(consolidado) (b)
Compañía Española
de Viviendas en
Alquiler, S.A.
Compañía para los
Desarrollos
Inmobiliarios de la
Ciudad de Hispalis,
S.L., en liquidación
(l) (e)
Spain
24.07%
0.00%
24.07%
24.07% Real estate
Associated
493
299
28
Spain
21.98%
0.00%
21.98%
21.98% Real estate
development
Condesa Tubos, S.L.
(b)
Spain
36.21%
0.00%
36.21%
36.21% Services
Corkfoc Cortiças,
S.A. (b)
Corridor Texas
Holdings LLC
(consolidado) (b)
Ebury Partners
Limited
(consolidado) (m)
Portugal
0.00% 27.55%
27.58%
27.58% Cork industry
United
States
United
Kingdom
0.00% 33.60%
33.60%
29.47% Holding company
6.39%
0.00%
6.39%
- Payment services
762
2019 Annual Report
-
-
-
-
-
38
(324)
0
96
3
26
20
(1)
0
207
194
(5)
294
39
(22)
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
% of ownership
held by the Bank
% of voting power (k)
Company
Eko Energy Sp. z o.o
(b) (e)
Location
Poland
Direct
Indirect Year 2019 Year 2018 Activity
0.00% 13.12%
21.99%
22.00% Electricity
production
Million euros (a)
Capital
+
reserves
Net
results
Assets
0
21
(21)
Type of
company
-
Spain
50.00%
0.00%
50.00%
50.00% Payment services
Associated
72
57
Portugal
0.00% 36.57%
36.62%
36.62% Real estate
0
1
Euro Automatic
Cash Entidad de
Pago, S.L.
FAFER-
Empreendimentos
Urbanísticos e de
Construção, S.A. (c)
(e)
Federal Home Loan
Bank of Pittsburgh
(b)
United
States
Federal Reserve
Bank of Boston (b)
United
States
0.00%
9.38%
9.38%
6.33% Banking
0.00% 23.56%
23.56%
30.09% Banking
FIDC RN Brasil –
Financiamento de
Veículos
Fondo de
Titulización de
Activos UCI 11
Fondo de
Titulización de
Activos UCI 14
Fondo de
Titulización de
Activos UCI 15
Fondo de
Titulización de
Activos UCI 16
Fondo de
Titulización de
Activos UCI 17
Fondo de
Titulización de
Activos, RMBS
Prado I
Fondo de
Titulización
Hipotecaria UCI 10
Fondo de
Titulización
Hipotecaria UCI 12
Fondo de
Titulización
Structured Covered
Bonds UCI
Fondo de
Titulización, RMBS
Prado II
Fondo de
Titulización, RMBS
Prado III
Fondo de
Titulización, RMBS
Prado IV
Fondo de
Titulización, RMBS
Prado V
Fondo de
Titulización, RMBS
Prado VI
Brazil
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
- Securitisation
-
-
-
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
0
0
95,680
4,477
309
94,001
1,581
(80)
0
(7)
164
439
526
744
629
343
95
236
501
419
347
344
370
401
0
0
0
0
0
0
0
0
0
0
0
0
0
0
7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
763
Table of Contents
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
% of ownership
held by the Bank
% of voting power (k)
Location
China
Direct
Indirect Year 2019 Year 2018 Activity
0.00% 50.00%
50.00%
50.00% Finance company
Million euros (a)
Capital
+
reserves
Net
results
270
41
Assets
2,441
Type of
company
Joint
venture
Spain
35.00%
0.00%
35.00%
35.00% Real estate
Associated
0
0
0
Brazil
0.00% 17.99%
20.00%
20.00% Collection services
Joint
venture
117
69
(16)
Company
Fortune Auto
Finance Co., Ltd
Friedrichstrasse,
S.L.
Gestora de
Inteligência de
Crédito S.A.
Gire S.A.
Argentina
0.00% 57.92%
58.33%
58.33% Payments and
Associated
126
24
16
HCUK Auto Funding
2017-1 Ltd
United
Kingdom
HCUK Auto Funding
2017-2 Ltd
United
Kingdom
Healthy
Neighborhoods
Equity Fund I LP (b)
United
States
Hyundai Capital UK
Limited
United
Kingdom
-
-
(h)
(h)
-
-
collections services
- Securitisation
- Securitisation
Joint
venture
Joint
venture
0
823
0
0
0
0
0.00% 22.37%
22.37%
22.37% Real estate
-
16
17
(1)
0.00% 50.01%
50.01%
50.01% Finance company
Joint
venture
3,920
201
70
Hyundai Corretora
de Seguros Ltda.
Imperial Holding
S.C.A. (e) (i)
Imperial
Management S.à r.l.
(b) (e)
Indice
Iberoamericano de
Investigación y
Conocimiento, A.I.E.
Inmoalemania
Gestión de Activos
Inmobiliarios, S.A.
Innohub S.A.P.I. de
C.V.
Inverlur Aguilas I,
S.L.
Inverlur Aguilas II,
S.L.
Inversiones en
Resorts
Mediterráneos, S.L.
(e)
Inversiones
Ibersuizas, S.A. (b)
Inversiones ZS
América Dos Ltda
Inversiones ZS
América SpA
Brazil
0.00% 44.97%
50.00%
-
Insurance brokerage Joint
Luxembourg
0.00% 36.36%
36.36%
36.36% Securities
investment
Luxembourg
0.00% 40.20%
40.20%
40.20% Holding company
Spain
0.00% 51.00%
51.00%
51.00% Information system
venture
-
-
Joint
venture
Spain
0.00% 20.00%
20.00%
20.00% Holding company
-
Mexico
0.00% 20.00%
20.00%
-
IT services
Associated
Spain
Spain
Spain
0.00% 50.00%
50.00%
50.00% Real estate
0.00% 50.00%
50.00%
50.00% Real estate
Joint
venture
Joint
venture
0.00% 43.28%
43.28%
43.28% Real estate
Associated
0
0
0
2
1
5
0
1
0
0
(112)
0
0
0
0
(4)
(1)
2
5
0
1
0
0
0
(1)
(3)
0
Spain
25.42%
0.00%
25.42%
25.42% Venture capital
-
23
21
Chile
Chile
0.00% 49.00%
49.00%
0.00% 49.00%
49.00%
49.00% Securities and real
estate investment
49.00% Securities and real
estate investment
Associated
306
306
Associated
390
383
2
51
48
J.C. Flowers I L.P. (b) United
States
0.00% 10.60%
0.00%
4.99% Holding company
J.C. Flowers II-A L.P.
(b)
Canada
0.00% 69.40%
4.43%
4.43% Holding company
JCF AIV P L.P. (b)
Canada
0.00%
7.67%
4.99%
4.99% Holding company
JCF BIN II-A (d)
Mauritania
0.00% 69.52%
4.43%
4.43% Holding company
Jupiter III L.P. (b)
Canada
0.00% 96.45%
4.99%
4.99% Holding company
Loop Gestão de
Pátios S.A.
Brazil
0.00% 32.11%
35.70%
35.70% Business services
Luri 3, S.A.
Spain
10.00%
0.00%
10.00%
10.00% Real estate
-
-
-
-
-
Joint
venture
Joint
venture
2
31
83
0
89
9
0
3
(1)
41
(10)
69
1
133
5
0
14
(1)
(43)
(1)
0
764
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
% of ownership
held by the Bank
% of voting power (k)
Direct
Indirect Year 2019 Year 2018 Activity
Million euros (a)
Capital
+
reserves
Net
results
Assets
Type of
company
0.00% 25.73%
25.77%
25.77% Investment fund
Associated
106
100
0.00% 21.60%
21.60%
21.60% Finance company
0.00% 21.51%
21.51%
23.94% Finance company
-
-
67
8
18
17
0
1
1
Company
Lusimovest Fundo
de Investimento
Imobiliário
Massachusetts
Business
Development Corp.
(consolidado) (b)
Location
Portugal
United
States
MB Capital Fund IV,
LLC (b)
United
States
Spain
16.99%
5.80%
22.78%
22.48% Real estate
Associated
12,573
5,547
855
Spain
31.94% 17.52%
49.46%
49.40% Real estate
Associated
2,594
2,393
(9)
development
Luxembourg
0.00%
7.67%
0.00%
0.00% Holding company
Canada
0.00% 99.49%
4.99%
4.99% Holding company
Canada
0.00% 91.89%
4.99%
4.99% Holding company
Spain
Brazil
Brazil
37.23%
0.00%
37.23%
37.23% Technical services
0.00% 19.56%
29.00%
29.00% Holding company
Associated
0.00% 44.97%
50.00%
50.00% Securities company
Poland
0.00% 12.96%
21.73%
21.73% Electricity
production
Brazil
0.00% 18.16%
20.19%
20.19% Technology
-
-
-
-
Joint
venture
-
-
Mexico
0.00% 49.99%
49.99%
49.99% Finance company
Associated
Spain
33.33%
0.00%
33.33%
Spain
92.00%
0.00%
25.00%
- Electricity
production
25.00% Electricity
production
Joint
venture
Joint
venture
Payever GmbH
Germany
0.00% 10.00%
10.00%
10.00% Software
Associated
POLFUND - Fundusz
Poland
0.00% 33.74%
50.00%
50.00% Management
Associated
Portugal
0.00% 39.96%
40.00%
40.00% Real estate
-
4
13
Spain
49.00%
0.00%
49.00%
49.00% Holding company
Associated
9,928
3,930
(714)
Spain
20.00%
0.00%
20.00%
- Holding company
Associated
1,126
353
(34)
Brazil
0.00% 44.97%
50.00%
50.00% Insurance
Malta
0.00% 50.00%
50.00%
50.00% Insurance
Joint
venture
Joint
venture
1
0
0
194
71
15
765
Merlin Properties,
SOCIMI, S.A.
(consolidado) (b)
Metrovacesa, S.A.
(consolidado) (b)
New PEL S.à r.l. (b)
(e)
NIB Special
Investors IV-A LP (b)
NIB Special
Investors IV-B LP (b)
Niuco 15, S.L. (k)
Norchem Holdings
e Negócios S.A.
Norchem
Participações e
Consultoria S.A.
Nowotna Farma
Wiatrowa Sp. z o.o
(b)
Odc Ambievo
Tecnologia e
Inovacao
Ambiental,
Industria e
Comercio de
Insumos Naturais
S.A. (b)
Operadora de
Activos Beta, S.A. de
C.V.
Parque Eólico Tico,
S.L. (b)
Parque Solar
Páramo, S.L.
Kredytowych S.A.
Procapital -
Investimentos
Imobiliários, S.A. (c)
(e)
Project Quasar
Investments 2017,
S.L. (consolidado)
Promontoria
Manzana, S.A.
PSA Corretora de
Seguros e Serviços
Ltda.
PSA Insurance
Europe Limited
68
23
6
-
28
15
45
28
8
-
21
9
99
11
4
4
0
0
26
2
27
0
0
1
1
21
0
(6)
(2)
-
1
0
5
0
0
0
0
0
0
0
Table of Contents
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
% of ownership
held by the Bank
% of voting power (k)
Direct
Indirect Year 2019 Year 2018 Activity
0.00% 50.00%
50.00%
50.00% Insurance
Million euros (a)
Capital
+
reserves
Net
results
Assets
93
10
11
Type of
company
Joint
venture
0.00% 50.00%
50.00%
50.00% Leasing
Associated
5
0.00% 22.44%
33.43%
33.43% Services
20.00%
0.08%
20.08%
20.08% Cards
Associated
Associated
28
124
5
10
60
0
0
9
0.00% 50.00%
50.00%
50.00% Services
41
(41)
(2)
Rías Redbanc S.A.
Uruguay
0.00% 25.00%
25.00%
25.00% Services
Santander Auto S.A. Brazil
0.00% 44.97%
50.00%
50.00% Insurance
Associated
Poland
0.00% 33.06%
49.00%
49.00% Insurance
Associated
296
3
8
1
6
15
0
(1)
16
Poland
0.00% 33.06%
49.00%
49.00% Insurance
Associated
120
37
16
Spain
0.00% 49.00%
49.00%
49.00% Insurance
Joint
venture
405
63
17
Spain
0.00% 49.99%
49.99% 100.00% Inactive
Associated
24
21
(2)
Company
PSA Life Insurance
Europe Limited
Location
Malta
PSA UK Number 1
plc
United
Kingdom
Redbanc S.A.
Redsys Servicios de
Procesamiento, S.L.
(consolidado)
Chile
Spain
Retama Real Estate,
S.A.
Spain
Santander Aviva
Towarzystwo
?ycie S.A.
Santander Aviva
Towarzystwo
Santander
Generales Seguros
y Reaseguros, S.A.
Santander Mapfre
Seguros y
Reaseguros, S.A.
Santander
Securities Services
Brasil Distribuidora
de Títulos e Valores
Mobiliários S.A.
Santander
Securities Services
Brasil Participações
S.A.
Santander
Securities Services
Colombia S.A.
Sociedad Fiduciaria
Santander
Securities Services
Latam Holding , S.L.
Santander
Securities Services
Latam Holding 2,
S.L.
Santander Vida
Seguros y
Reaseguros, S.A.
Saturn Japan II Sub
C.V. (b)
Saturn Japan III Sub
C.V. (b)
Brazil
0.00% 50.00%
50.00% 100.00% Securities
investment
Brazil
0.00% 50.00%
50.00% 100.00% Holding company
Colombia
0.00% 50.00%
50.00% 100.00% Finance company
Spain
0.00% 50.00%
50.00%
- Holding company
Spain
0.00% 50.00%
50.00%
- Holding company
Spain
0.00% 49.00%
49.00%
49.00% Insurance
Netherlands
0.00% 69.30%
0.00%
0.00% Holding company
Netherlands
0.00% 72.72%
0.00%
0.00% Holding company
Joint
venture
-
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
-
-
-
222
172
23
198
175
22
8
9
(1)
715
706
2
2
9
0
412
89
48
25
37
(11)
119
176
(57)
-
18
-
14
-
1
Sepacon 31, S.L. (k) Spain
37.23%
0.00%
37.23%
37.23% Technical services
Servicios de
Infraestructura de
Mercado OTC S.A
Chile
0.00%
8.37%
12.48%
11.25% Services
Associated
SIBS-SGPS, S.A. (b)
Portugal
0.00% 16.54%
16.56%
16.56% Portfolio
management
Siguler Guff SBIC
Fund LP (k)
United
States
0.00% 20.00%
20.00%
-
Investment fund
-
-
135
63
13
-
-
-
766
2019 Annual Report
Company
Sistema de Tarjetas
y Medios de Pago,
S.A.
Sistemas Técnicos
de Encofrados, S.A.
(consolidado) (b)
Sociedad Conjunta
para la Emisión y
Gestión de Medios
de Pago, E.F.C., S.A.
Sociedad de
Garantía Recíproca
de Santander, S.G.R.
(b)
Sociedad de Gestión
de Activos
Procedentes de la
Reestructuración
Bancaria, S.A. (b)
Sociedad Española
de Sistemas de
Pago, S.A. (b)
Sociedad
Interbancaria de
Depósitos de
Valores S.A.
Solar Maritime
Designated Activity
Company
Stephens Ranch
Wind Energy
Holdco LLC
(consolidado) (b)
Tbforte Segurança e
Transporte de
Valores Ltda.
Tbnet Comércio,
Locação e
Administração Ltda.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
% of ownership
held by the Bank
% of voting power (k)
Direct
Indirect Year 2019 Year 2018 Activity
Million euros (a)
Capital
+
reserves
Net
results
Assets
Type of
company
18.11%
0.00%
18.11%
18.11% Payment services
Associated
352
Location
Spain
Spain
27.15%
0.00%
27.15%
27.15% Building materials
-
78
Spain
42.50%
0.00%
42.50%
42.50% Payment services
Joint
venture
117
31
Spain
25.50%
0.23%
25.73%
25.73% Financial services
Spain
22.21%
0.00%
22.21%
22.21% Financial services
Spain
21.32%
0.00%
21.32%
22.24% Payment services
-
-
-
4
2
0
6
2
0
17
11
35,324
2,055
(878)
10
7
5
0
1
1
0
Chile
0.00% 19.66%
29.29%
29.29% Custody
Associated
6
Ireland
-
(h)
-
- Leasing
Joint
venture
27
United
States
0.00% 21.30%
21.30%
28.80% Electricity
production
-
241
241
(6)
Syntheo Limited (e) United
0.00% 50.00%
50.00%
50.00% Payment services
Joint
venture
1
0
0
0.00% 17.82%
19.81%
19.81% Security
Associated
110
73
(5)
Kingdom
Brazil
Brazil
0.00% 17.82%
19.81%
19.81% Telecommunication
Associated
73
76
(5)
s
Tecnologia Bancária
S.A.
Brazil
Teka Industrial, S.A.
(consolidado) (b)
Spain
Tonopah Solar
Energy Holdings I,
LLC (consolidado)
United
States
Trabajando.com
Chile S.A.
Transbank S.A.
U.C.I., S.A.
Chile
Chile
Spain
UCI Hellas Credit
and Loan
Receivables
Servicing Company
S.A.
UCI Holding Brasil
Ltda
UCI Mediação de
Seguros Unipessoal,
Lda.
0.00% 17.82%
19.81%
19.81% ATM
Associated
458
101
0.00%
9.42%
9.42%
9.42% Household
appliances
-
579
163
10
5
0.00% 26.80%
26.80%
26.80% Holding company
Joint
venture
504
153
(71)
0.00% 33.33%
33.33%
33.33% Services
Associated
1
(2)
0.00% 16.78%
25.00%
25.00% Cards
Associated
1,440
50.00%
0.00%
50.00%
50.00% Holding company
Greece
0.00% 50.00%
50.00%
50.00% Financial services
Brazil
0.00% 50.00%
50.00%
50.00% Holding company
Portugal
0.00% 50.00%
50.00%
50.00% Insurance brokerage Joint
venture
Joint
venture
Joint
venture
Joint
venture
83
68
0
(1)
0
370
1
2
0
1
7
(2)
0
0
0
767
Table of Contents
Societies of which the Group owns more than 5% (g), entities associated with Grupo Santander and jointly controlled entities
Company
UCI Servicios para
Profesionales
Inmobiliarios, S.A.
Unicre-Instituição
Financeira de
Crédito, S.A.
Unión de Créditos
Inmobiliarios, S.A.,
EFC
Uro Property
Holdings SOCIMI,
S.A. (b)
VCFS Germany
GmbH
Venda de Veículos
Fundo de
Investimento em
Direitos Creditórios
% of ownership
held by the Bank
% of voting power (k)
Location
Spain
Direct
Indirect Year 2019 Year 2018 Activity
0.00% 50.00%
50.00%
50.00% Real estate services
Million euros (a)
Capital
+
reserves
Net
results
Assets
1
0
0
Type of
company
Joint
venture
Portugal
0.00% 21.83%
21.86%
21.86% Finance company
Associated
398
80
16
Spain
0.00% 50.00%
50.00%
50.00% Mortgage credit
company
Joint
venture
12,742
441
15
Spain
14.95%
7.82%
22.77%
14.95% Real estate
-
1,572
245
12
Germany
0.00% 50.00%
50.00%
50.00% Marketing
Brazil
-
(h)
-
- Securitisation
Joint
venture
Joint
venture
Joint
venture
0
0
0
140
129
11
54
26
14
Webmotors S.A.
Brazil
0.00% 62.95%
70.00%
70.00% Services
Zurich Santander
Brasil Seguros e
Previdência S.A.
Zurich Santander
Brasil Seguros S.A.
Brazil
0.00% 48.79%
48.79%
48.79% Insurance
Associated
14,567
680
236
Brazil
0.00% 48.79%
48.79%
48.79% Insurance
Associated
190
(1)
40
Zurich Santander
Holding (Spain), S.L.
Spain
0.00% 49.00%
49.00%
49.00% Holding company
Associated
940
936
175
Zurich Santander
Holding Dos
(Spain), S.L.
Zurich Santander
Insurance América,
S.L.
Zurich Santander
Seguros Argentina
S.A. (j)
Zurich Santander
Seguros de Vida
Chile S.A.
Zurich Santander
Seguros Generales
Chile S.A.
Zurich Santander
Seguros México,
S.A.
Zurich Santander
Seguros Uruguay
S.A.
Spain
0.00% 49.00%
49.00%
49.00% Holding company
Associated
385
384
108
Spain
49.00%
0.00%
49.00%
49.00% Holding company
Associated
1,493
1,510
298
Argentina
0.00% 49.00%
49.00%
49.00% Insurance
Associated
27
3
8
Chile
0.00% 49.00%
49.00%
49.00% Insurance
Associated
253
34
44
Chile
0.00% 49.00%
49.00%
49.00% Insurance
Associated
209
35
13
Mexico
0.00% 49.00%
49.00%
49.00% Insurance
Associated
660
43
121
Uruguay
0.00% 49.00%
49.00%
49.00% Insurance
Associated
25
10
6
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
Amount per provisional books of each company as of the date of publication of these annexes, generally referred to 31 December 2019, unless stated otherwise
because the Annual Accounts are pending to be formulated. The data from foreign companies are converted into euros at the exchange rate at the end of the period.
Data from the latest available financial statements as at 31 December 2018.
Data from the latest available financial statements as at 31 December 2017 .
Data from the latest available financial statements as at 30 September 2018.
Company in liquidation to 31 December 2019.
Pursuant to Article 3 of Royal Decree 1159/2010, of 17 September approving the rules for the preparation of consolidated financial statements, in order to
determine voting power, the voting power relating to subsidiaries or to other persons acting in their own name but on behalf of Group companies was added to the
voting power directly held by the Parent, For these purposes, the number of votes corresponding to the Parent in relation to companies over which it exercises
indirect control is the number corresponding to each subsidiary holding a direct ownership interest in such companies.
Excluding the Group companies listed in Appendix I and those of negligible interest with respect to the fair presentation that the consolidated financial statements
must express (pursuant to Article 48 of the Spanish Commercial Code and Article 260 of the Spanish Limited Liability Companies Law).
Companies over which the Group holds joint control.
Data from the latest available financial statements as at 31 October 2019.
Data from the latest available financial statements as at 30 June 2019.
Company recently incorporated in the Group, without financial statements available.
Data from the latest available financial statements as at 30 November 2017.
Data from the latest available financial statements as at 30 April 2018.
768
2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Appendix III
Issuing subsidiaries of shares and preference shares
% of ownership held by
the Bank
Million euros (a)
Company
Location
Direct
Indirect
Activity
Capital
Reserves
Emisora Santander España, Spain
S.A. Unipersonal
Santander UK (Structured
Solutions) Limited
United
Kingdom
Sovereign Real Estate
Investment Trust
United
States
100,00%
0,00%
0,00%
100,00%
0,00%
100,00%
Finance
company
Finance
company
Finance
company
2
0
0
0
Cost of
preferred
Net
results
0
0
0
0
5,084
(3,215)
80
31
a. Amount per provisional books of each company as at 31 December 2019, converted into euros (in the case of foreign companies) at the year-end exchange rates.
769
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Appendix IV
Notifications of acquisitions and
disposals of investments in 2019
(Article 155 of the Spanish Limited Liability Companies Law
and Article 125 of the Spanish Securities Market Law)
Below are the notifications of acquisitions and sales of
participations for 2019 in accordance with Article 155 of the
Securities Market Law.
On 30 April 2019, the communication made by Banco
Santander, BANCO BILBAO VIZCAYA ARGENTARIA, S.A.,
BANKIA, S.A., CAIXABANK, S.A., KUTXABANK, S.A.,
LIBERBANK, S.A. and BANCO DE SABADELL, S.A. was
registered with the CNMV ("the Concerted Action") in which
it was reported that the participation of the Concerted
Action in GENERAL DE ALQUILER DE MAQUINARIA, S.A.
("GAM") had fallen below the 10% threshold on 24 April
2019, being Banco Santander stake in this company
8.482%.
This announcement was made as a result of the reduction
of the Concerted Action's stake in GAM from 10% to
8.482%. All the financial institutions participating in the
Concerted Action sold all their shares in GAM, with the
exception of Banco Santander, which sold part of its shares
but kept 2,823,944 shares of GAM, representing 8.482% of
its capital.
On May 10, 2019, the communication made by Banco
Santander was registered with the CNMV stating that its
stake in ABENGOA, S.A. had fallen from the 3% threshold
on February 2, 2019 to 2.836%.
On 19 June 2019, the communication made by Banco
Santander as a result of the dissolution of the Concerted
Action between the aforementioned shareholders of GAM
on 17 June 2019 was registered with the CNMV.
On 19 June 2019, the communication made by Banco
Santander as a result of the dissolution of the Concerted
Action between the aforementioned shareholders of GAM
was registered with the CNMV, informing of the position
held by Banco Santander after the said dissolution (8.482%)
on 17 June 2019.
On 3 December 2019, the communication made by Banco
Santander as a result of the change in the number of voting
rights of the issuer GAM on 2 December 2019 was
registered with the CNMV.
This notification was made as a result of a change in the
issuer's total number of voting rights, which caused Banco
Santander's stake in GAM to fall below the 5% threshold to
4.477%.
In accordance with Article 155 of the Spanish Limited
Liability Companies Law, no acquisitions of more than 5% of
the capital were made in 2019 in companies in which the
Group holds more than 10%.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Appendix V
Other information on the Group’s banks
A) Following is certain information on the share capital
of the Group’s main banks based on their total assets.
1. Santander UK plc
a) Number of financial equity instruments held by the
Group.
At 31 December 2019, the Company was a subsidiary of
Banco Santander, S.A. and Santusa Holding, S.L.
On 12 November 2004 Banco Santander, S.A. acquired the
then entire issued ordinary share capital of 1,485,893,636
Ordinary shares of 10p. each. On 12 October 2008 a further
10 billion Ordinary shares of 10p. each were issued to
Banco Santander, S.A. and an additional 12,631,375,230
Ordinary shares of 10p. each were issued to Banco
Santander, S.A. on 9 January on 2009. On 3 August 2010,
6,934,500,000 Ordinary shares of 10p. each were issued to
Santusa Holding, S.L. With effect from 10 January 2014,
Santander UK Group Holdings Limited, a subsidiary of Banco
Santander, S.A. and Santusa Holding S.L., became the
beneficial owner of 31,051,768,866 Ordinary shares of 10p.
each, being the entire issued ordinary share capital of the
Company, by virtue of a share exchange agreement
between Santander UK Group Holdings Limited, Banco
Santander, S.A. and Santusa Holding, S.L. Santander UK
Group Holdings Limited became the legal owner of the
entire issued Ordinary share capital of the Company on 1
April 2014 and on 25 March 2015 became a public limited
company and changed its name from Santander UK Group
Holdings Limited to Santander UK Group Holdings plc. In
addition to this, there are 325,000,000 Non-Cumulative
Non-Redeemable 10.375% and 8.625% Sterling Preference
Shares of GBP 1.00 each. In addition to this there were
13,780 Series A Fixed (6.222%)/Floating Rate Non-
Cumulative Callable Preference Shares of GBP 1.00 each
which were redeemed and cancelled in their entirety on
24 May 2019. The legal and beneficial title to the entire
issued Preference share capital is held by third parties and
is not held by Banco Santander, S.A.
b) Capital increases in progress
At 31 December 2019, there were no approved capital
increases.
c) Share capital authorised by the shareholders at the
general meeting
The shareholders at the Annual General Meeting held on 2
May 2019 resolved to authorise unconditionally the company
to carry out the following repurchases of share capital:
(1) To buy back its own 8.625% Sterling Preference shares
on the following terms:
(a) The Company may buy back up to 125,000,000
8.625% Sterling Preference shares;
(b) The lowest price which the Company can pay for
8.625% Sterling Preference shares is 75% of the
average of the market values of the preference shares
for five business days before the purchase is made; and
(c) The highest price (not including expenses) which the
Company can pay for each 8.625% Sterling Preference
share is 125% of the average of the market values of
the preference shares for five business days before the
purchase is made.
This authority shall begin on the date of the passing of this
resolution and end on the conclusion of the next Annual
General Meeting of the Company. The Company may agree,
before this authorisation ends, to buy back its own 8.625%
preference shares even though the purchase may be
completed after this authorisation ends.
(2) To buy back its own 10.375% Sterling Preference
shares on the following terms:
(a) The Company may buy up to 200,000,000 10.375%
Sterling Preference shares;
(b) The lowest price which the Company can pay for
10.375% Sterling Preference shares is 75% of the
average of the market values of the preference shares
for five business days before the purchase is made; and
(c) The highest price (not including expenses) which the
Company can pay for each 10.375% Sterling Preference
share is 125% of the average of the market values of
the preference shares for five business days before the
purchase is made.
This authority shall begin on the date of the passing of this
resolution and end on the conclusion of the next Annual
General Meeting of the Company. The Company may agree,
before this authorisation ends, to buy back its own 10.375%
preference shares even though the purchase may be
completed after this authorisation ends.
(3) To buy back its own Series A Fixed / Floating Rate Non-
Cumulative Callable Preference Shares on the following
terms:
(a) The Company may buy up to 13,780 Series A Fixed/
Floating Rate Non-Cumulative Callable Preference
Shares;
(b) The lowest price which the Company can pay for Series
A Fixed/Floating Rate Non-Cumulative Callable
Preference Shares is 75% of the average of the market
values of the preference shares for five business days
before the purchase is made; and
(c) The highest price (not including expenses) which the
Company can pay for each Series A Fixed /Floating Rate
Non- Cumulative Callable Preference Shares is 125%
of the average of the market values of the preference
shares for five business days before the purchase is
made.
This authority shall begin on the date of the passing of this
resolution and end on the conclusion of the next Annual
General Meeting of the Company. The Company may agree,
before this authorisation ends, to buy back its own Series A
Fixed/Floating Rate Non-Cumulative Callable Preference
Shares even though the purchase may be completed after this
authorisation ends.
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
Not applicable.
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e) Specific circumstances that restrict the availability of
reserves
Not applicable.
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Quoted equity instruments
The preference share capital of Santander UK plc is traded
on the London Stock Exchange under the following details:
• 10.375% Sterling Preference - ISIN: GB0000064393
• 8.625% Sterling Preference - ISIN: GB0000044221
2. Santander Financial Services plc (Formerly Abbey
National Treasury Services plc)
a) Number of financial equity instruments held by the
Group
The Group holds ordinary shares amounting to GBP
249,998,000 through Santander UK Group Holdings plc
(249,998,000 ordinary shares with a par value of GBP 1
each).
The Group also holds 1,000 tracker shares (shares without
voting rights but with preferential dividend rights)
amounting to GBP 1,000 and 1,000 B tracker shares
amounting to GBP 1,000 through Santander UK Group
Holdings plc, both with a par value of GBP 1 each.
b) Capital increases in progress
No approved capital increases are in progress.
c) Capital authorised by the shareholders at the general
meeting
Not applicable.
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
Not applicable.
e) Specific circumstances that restrict the availability of
reserves
Not applicable.
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Quoted equity instruments
Not applicable.
3. Banco Santander (Brasil) S.A.
a) Number of financial equity instruments held by the
Group
The Group holds 3,440,170,512 ordinary shares and
3,273,507,089 preference shares through Banco Santander,
S.A. and its subsidiaries Sterrebeeck B.V., Grupo Empresarial
Santander, S.L., Banco Santander, S.A. and Banco Madesant
- Sociedade Unipessoal, S.A.
The shares composing the share capital of Banco Santander
(Brasil) S.A. have no par value and there are no pending
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2019 Annual Report
payments. At 2019 year-end, the bank’s treasury shares
consisted of 16,701,787 ordinary shares and 16,701,787
preferred shares, with a total of 33,403,574 shares.
In accordance with current Bylaws (Article 5.7), the
preference shares do not confer voting rights on their
holders, except under the following circumstances:
a)
b)
In the event of transformation, merger, consolidation or
spin-off of the company.
In the event of approval of agreements between the
company and the shareholders, either directly, through
third parties or other companies in which the
shareholders hold a stake, provided that, due to legal
or bylaw provisions, they are submitted to a general
meeting.
c)
In the event of an assessment of the assets used to
increase the company’s share capital.
The General Assembly may, at any moment decide to
convert the preference shares into ordinary shares,
establishing a reason for the conversion.
However, the preference shares do have the following
advantages (Article 5.6):
a) Their dividends are 10% higher than those
distributed to ordinary shares.
b) Priority in the dividends distribution.
c) Participation, on the same terms as ordinary shares,
in capital increases resulting from the reserves and
profits capitalization and in the distribution of bonus
shares arising from the capitalization of retained
earnings, reserves or any other funds.
d) Priority in the reimbursement of capital in the event
company’s dissolution.
e)
In the event of a public offering due to a change in
control of the company, the holders of preferred
shares are guaranteed the right to sell the shares at
the same price paid for the block of shares
transferred as part of the change of control, i.e. they
are treated the same as shareholders with voting
rights.
b) Capital increases in progress
No approved capital increases are in progress.
c) Capital authorised by the shareholders at the general
meeting
The company is authorised to increase share capital, subject
to approval by the Board of Directors, up to a limit of
9,090,909,090 ordinary shares or preferred shares, and
without need to maintain any ratio between any of the
different classes of shares, provided they remain within the
limits of the maximum number of preferred shares provided
in Law.
As of 31 December 2019, the share capital consists of
7,498,531,051 shares (3,818,695,031 ordinary shares and
3,679,836,020 preferred shares).
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Quoted equity instruments
Not applicable.
At the general meeting held on 21 December 2016 the
shareholders approved the rules relating to the deferred
remuneration plans for the directors, management and
other employees of the company and of companies under
its control. Shares delivery is linked to achievement of
certain targets.
e) Specific circumstances that restrict reserves availability
The only restriction on the availability of Banco Santander
(Brasil) S.A.’s reserves is connected to the requirement for
the legal reserve formation (restricted reserves), which can
only be used to offset losses or to increase capital.
The legal reserve requirement is set-forth in Article 193 of
the Brazilian Corporations Law, which establishes that
before allocating profits to any other purpose, 5% of profits
must be transferred to the legal reserve, which must not
exceed 20% of the company’s share capital.
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Listed capital instruments
All the shares are listed on the São Paulo Stock Exchange
( B3 - Brasil, Bolsa, Balcão) and the shares deposit
certificates (American Depositary Receipts - ADR) are listed
on the New York Stock Exchange (NYSE).
4. Santander Bank, National Association
a) Number of financial equity instruments held by the
Group
At 31 December 2019, the Group held 530,391,043
ordinary shares that carry the same voting and dividend
acquisition rights over Santander Holdings USA, Inc.
(SHUSA). This holding company and Independence
Community Bank Corp. (ICBC) hold 1,237 ordinary shares
with a par value of USD 1 each, which carry the same voting
rights. These shares constitute all the share capital of
Santander Bank, National Association (SBNA). SHUSA holds
an 80.84% ownership interest in SBNA, and the remaining
19.16% belongs to ICBC. ICBC is wholly owned by SHUSA.
There is no shareholders’ meeting for the ordinary shares of
SBNA.
b) Capital increases in progress
At 31 December 2019 there were no approved capital
increases.
c) Capital authorised by the shareholders at the general
meeting
Not applicable.
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
Not applicable.
e) Specific circumstances that restrict the availability of
reserves
Not applicable.
773
• The authorized capital stock of the Bank is
2,457,508,925.00 Mexican pesos.(Two thousand four
hundred fifty seven million five hundred and eight
thousand nine hundred and twenty five Mexican pesos),
represented by a total of 650,000,000 (six hundred and
fifty million) shares with a nominal value of 3.780782962
Mexican pesos (three Mexican pesos
780782962/1000000000) each one; divided in
331,811,068 (three hundred thirty one million eight
hundred eleven thousand and sixty eight) shares “F”
series and 318,188,932 (three hundred eighteen million
one hundred eighty eight thousand nine hundred and
thirty two) shares “B” Series which are kept in the
treasury of the Bank.
Table of Contents
5. Banco Santander México, S.A., Institución de Banca
Múltiple, Grupo Financiero Santander México
a) Number of financial instruments of capital held by the
group.
On September 6 of 2019 was finalized the period for the
exchange offers for up to 1,693,521,302 shares of Banco
Santander México that were not held directly or indirectly by
Banco Santander, S.A., which represented the 24.95% of the
capital stock of Banco Santander México in exchange for up to
570,716,682 shares of Banco Santander, S.A. as a result of the
exchange offer Banco Santander, S.A. increased its position in
Banco Santander México from 74.96% to 91.64%, with the
remaining 8.35% held by minority shareholders or in a
portfolio and 0.01% to SantanderGlobalFacilities, S.A. de C.V..
As a result Grupo Financiero Santander México, S.A. de C.V.
('Grupo Financiero') and Santander Global Facilities, S.A. de
C.V. (México), hold 5.087.801.602 shares which representthe
74.97% of the capital stock of Banco Santander México and
Banco Santander, S.A. holds 1,132’168,074 shares which
represent the 16.68% of such capital stock.
b) Ongoing capital stock increases.
To this date there are not ongoing capital stock increases.
c) Authorized Capital by the Shareholders Meeting.
The capital stock of the Bank is 28,117,661,554.00
Mexican pesos (twenty eight thousand one hundred
seventeen million six hundred sixty one thousand five
hundred and fifty four Mexican pesos) represented by a
total of 7,436,994,357 (seven thousand four hundred thirty
six million nine hundred ninety four thousand three
hundred and fifty seven) shares with a nominal value of
3.780782962 Mexican pesos (three Mexican pesos
780782962/1000000000) each one; divided in
3,796,120,213 (three thousand seven hundred ninety six
million one hundred and twenty thousand two hundred and
thirteen) stocks “F” Series and 3,640,874,144 (three
thousand six hundred and forty million eight hundred
seventy four thousand one hundred and forty four) shares
“B” Series. The capital stock is constituted as follows:
• Paid-in and subscribed capital of the Bank is
25,660,152,629.00 Mexican pesos (twenty five thousand
six hundred sixty million one hundred fifty two thousand
six hundred and twenty nine Mexican pesos) represented
by a total of 6,786,994,357 (six thousand seven hundred
eighty six million nine hundred ninety four thousand
three hundred and fifty seven) shares with a nominal
value of 3.780782962 Mexican pesos (three Mexican
pesos 780782962/1000000000) each one; divided in
3,464,309,145 (three thousand four hundred sixty four
million three hundred and nine thousand one hundred
and forty five) shares “F” Series and 3,322,685,212 (three
thousand three hundred twenty two million six hundred
eighty five thousand two hundred and twelve) shares
Series.
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2019 Annual Report
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The approved debt issuance of Banco Santander México,
S.A., Institución de Banca Múltiple, Grupo Financiero
Santander México is currently composed as follows:
d) Rights incorporated into parts of founder, bonds or debt,
convertible obligations and securities or similar rights.
(i) The Board of Directors on its meeting held on October
22, 2015, was updated regarding the situation of the
debt issuance of Banco Santander Mexico, S.A. , which
had been previously ratified in the meeting held on
October 17, 2013, in order to issue debt for the amount
of 6,500 million dollars in local or international
markets, for a maximum period of 15 years, senior or
subordinated debt including debt instruments
qualifying for purposes of capital in accordance with
the legislation in force, which can be implemented
individually or through several issuance programs.
Instrument
Issuance Program of unsecured bonds and
unsecured certificates of deposit
Type
Revolving
Term
19-Feb-21 55,000 million Mexican pesos, or its $25,621 million Mexican
Available
Amount
equivalent in UDIs, dollars or any
other foreign currency
pesos
Private banking structured bonds Act
Not
Revolving*
16-Ago-34 20,000 million Mexican pesos
Structured bonds without public offering
16-Feb-32 10,000 million Mexican
Senior Bonds
Capital Notes AT1
Capital Notes
pesos
09-Nov-22 1,000 million American
dollars
perpetual
500 million American dollars
1-Oct-2028 1,300 millon American dollars
Not
Revolving
Not
Revolving
Not
Revolving
Con t.c. fix according to
Banxico 31/Dec/ 2019
$14,565 million Mexican
pesos
$10,000 million
Mexican pesos
N/A
N/A
N/A
*
The issuance of the structured private banking bonds isn’t revolving. Once placed the amount laid down in the corresponding brochure a new certificate wll be
issued on the authorized amount.
(ii) The Board of Directors on its meeting held on January
27, 2011 approved the general conditions for the
senior debt issue among international markets. On
October 18, 2012 such issuance was approved on the
amount of 500 and 1000 million American dollars, for
a term of 5 to 10 years. The issuance was approved
with the purpose of obtaining resources to finance the
increase in business assets and the liquidity of the
Bank. Under these agreements adopted by the Board
of Directors, the debt was issued for an amount of
1,000 million American dollars on November 9, 2012.
(iii) On December 27, 2013 Banco Santander México, S.A.,
issued subordinated notes (subordinated notes 2013)
for a total amount of 1,300,000,000 American dollars,
in accordance with the capital requirements
established in the Basilea III criteria for complementary
capital/ Tier 2 at a rate of 5.95% with redemption date
of January, 30, 2024. The controlling shareholder,
Banco Santander, S.A., agreed to buy 975,000,000
American dollars of such notes equivalent to the 75%
of the latter.
Such notes were offered through a private offering only to
qualified institutional buyers, in accordance with Rule 144A
of the U.S. Securities Act of 1933 and it´s modifications, and
outside the U.S. under the Regulation S of the Market Law.
The issuance was approved with the purpose of increasing
the efficiency of the capital of the Bank, to adequate its
capital profile to its main competitors, as well as to increase
the cost effectiveness of resources with the same capital
strength and capacity for growth in risk-weighted assets.
(iv)
The Board of Director on its meeting held on October
27, 2016 approved the issuance in Mexico of debt up
to 500 million American dollars or its equivalent in
Mexican pesos. The Ordinary and Extraordinary
Shareholder´s meeting held on December 5, 2016,
approved to issuance of a financial instrument
complying with the requirements of regulatory capital
established in Basilea III, which was considered as not
fundamental basic capital, for up to 500 million
American dollars.
On December 29, 2016, Banco Santander México made
an overseas private offering of subordinated, non
preferred, perpetual and convertible obligations (“2016
Obligations”) representing the share capital by a total
amount of 500,000,000 American dollars, which had
the character of a ‘mirror issuance‘( back-to-back), as a
guarantee of liquidity of the subordinated non
preferred perpetual and convertible obligations, issued
by Grupo Financiero Santander Mexico.
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It is worth mentioning that in September, 2019, it was
requested before the Registro Nacional de Valores of
the National Banking and Securities Commission
(Comision Nacional Bancaria y de Valores) (“CNBV”),
the registry cancellation of the above mentioned 2016
Obligations, as well as the list cancellation of such
notes in the Bolsa Mexicana de Valores, S.A.B. de C.V.
(“BMV”). By means of official note No.
153/12251/2019 dated November 4, 2019, CNBV
authorized such cancellation.
(v) As a result of the corporate restructure which
included, among others, the merger of Banco
Santander México, as the merging entity with Grupo
Financiero Santander Mexico as the merged entity, the
subordinated obligations referred to in paragraph (iv),
were acquired entirely by Banco Santander México;
therefore the subordinate obligations of Banco
Santander Mexico became extinct by confusion of
rights and obligations, since the Bank as a merging
party met the quality of debtor and creditor in these
instruments at the moment that the merger was
finalized.
Based on the above, the subordinate obligations issued
by Grupo Financiero Santander Mexico, acquired by
several investors, will continue to be in force on behalf
of its owners and managed by Banco Santander
Mexico, preserving substantially the terms and
conditions in which they were issued.
(vi) On September 20, 2018, Banco Santander México,
issued and placed equity instruments, subordinated,
preferential, and not convertible into shares, governed
by foreign law, representative of the complementary
part of the net capital of Banco Santander Mexico (Tier
2 subordinated preferred capital notes), for the amount
of 1,300,000,000.00 American dollars (the
“Instruments”), whose resources were used mainly for
the acquisition of the 94.07% of the Subordinated
Notes 2013.
The amount issued of 1,300,000,000.00 American dollars
covers in full the sum of the repurchase of the Subordinated
Notes 2013, for 1,222,907,000.00 American dollars.
Regarding the acquisition of the Subordinated Notes 2013:
(a) the acquired total amount was 1,222,907,000.00
American dollars (nominal value), at a price of 1,010.50
American dollars and (b) the amount acquired by Banco
Santander, S.A. (Spain), was a nominal 1,078,094,000.00
American dollars.
In connection with the issuance of the Instruments, the total
amount distributed with Banco Santander, S.A. (Spain), was
75% of such issuance; that is, the placed amount was
975,000,000.00.
Therefore, the Bank’s General Extraordinary Shareholder´s
Meeting held on September 10, 2018, among other
subjects, approved to ratify the issuance limit for up to
6,500 million and a term of 15 years, senior or subordinate,
in local and/or international markets, instrumented
individually or through issuance programs, which was
previously authorized by the Board of Directors on its
meeting held on April 26, 2018.
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2019 Annual Report
On January 30, 2019, Banco Santander México paid off the
totalremaining due amountof the Subordinated Notes 2013.
e) Specific circumstances restricting the availability of
reserves.
According to the Law of Financial Institutions, general
dispositions applicable to financial institutions, General
Corporations law and the bylaws, the Bank has to constitute
or increase its capital reserves to ensure the solvency to
protect the payments system and the public savings.
The Bank increases its legal reserve annually accordingly to
the results obtained in the fiscal year (benefits).
The Bank must constitute the different reserves established
in the legal provisions applicable to financial institutions,
which are determined accordingly to the qualification
granted to credits and they are released when the credit
rating improves, or when it is settled.
f) Entities outside the Group which own, directly or
through subsidiaries, a stake equal to or greater than 10%
of the equity.
Not applicable.
g) Equity instruments admitted to trading.
Not applicable.
6. Banco Santander Totta, S.A
a) Number of equity instruments held by the Group
The Group holds 1,256,190,411 ordinary shares through its
subsidiaries: Santander Totta, SGPS, S.A. with
1,241,179,513 shares, Taxagest Sociedade Gestora de
Participações Sociais, S.A. with 14,593,315 shares, and
Banco Santander Totta, S.A. with 417,583 treasury shares,
all of which have a par value of EUR 1 each and identical
voting and dividend rights and are subscribed and paid in
full.
b) Capital increases in progress
At 31 December 2019, there were no approved capital
increases.
c) Capital authorised by the shareholders at the general
meeting
Not applicable.
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
Not applicable.
e) Specific circumstances that restrict the availability of
reserves
Under Article 296 of the Portuguese Companies’ Code, the
legal and merger reserves can only be used to offset losses
or to increase capital.
Non-current asset revaluation reserves are regulated by
Decree- Law 31/98, under which losses can be offset or
capital increased by the amounts for which the underlying
asset is depreciated, amortised or sold.
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
e) Specific circumstances that restrict the availability of
reserves
Not applicable.
g) equity instruments
Not applicable.
7. Santander Consumer Bank AG
a) Number of financial equity instruments held by the
Group
At 31 December 2019, through Santander Consumer
Holding GmbH, the Group held 30,002 ordinary shares with
a par value of EUR 1,000 each, all of which carry the same
voting rights.
b) Capital increases in progress
Not applicable.
c) Capital authorised by the shareholders at the general
meeting
Not applicable.
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
Remittances to foreign investors in relation to investments
made under the Statute of Foreign Investment (Decree-Law
600/1974) and the amendments thereto require the prior
authorisation of the foreign investment committee.
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Quoted equity instruments
All the shares are listed on the Chilean stock exchanges and,
through American Depositary Receipts (ADRs), on the New
York Stock Exchange (NYSE).
9. Santander Bank Polska S.A.
a) Number of financial equity instruments held by the
Group
At 31 December, 2019, Banco Santander, S.A. held
68,880,774 ordinary shares with a par value of PLN 10 each,
all of which carry the same voting rights.
Not applicable.
b) Capital increases in progress
e) Specific circumstances that restrict the availability of
reserves
At 31 December, 2019, there were no approved capital
increases.
Not applicable.
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Quoted equity instruments
Not applicable.
8. Banco Santander - Chile
a) Number of equity instruments held by the Group
The Group holds a 67.18% ownership interest in its
subsidiary in Chile corresponding to 126,593,017,845
ordinary shares of Banco Santander - Chile through its
subsidiaries: Santander Chile Holding S.A. with
66,822,519,695 ordinary shares, Teatinos Siglo XXI
Inversiones S.A., with 59,770,481,573 ordinary shares and
Santander Inversiones S.A. with 16,577 fully subscribed and
paid ordinary shares that carry the same voting and
dividend rights.
b) Capital increases in progress
At 31 December 2019, there were no approved capital
increases.
c) Capital authorised by the shareholders at the general
meeting
Share capital at 31 December 2019 amounted to CLP
891,302,881,691.
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
Not applicable.
c) Capital authorised by the shareholders at the general
meeting
There wasn´t any share capital increase approved by general
meeting in 2019.
d) Rights on founder’s shares, “rights” bonds, convertible
debentures and similar securities or rights
At the general meeting held on 17 May 2017, the
shareholders resolved to approve the “Incentive Scheme VI”
as an initiative to attract, motivate and retain the bank’s
employees. Delivery of the shares is tied to the achievement
of certain targets in the years from 2017 to 2019. The bank
considers that the exercise of these rights might give rise to
the issuance of no more than 250,000 shares.
e) Specific circumstances that restrict the availability of
reserves
Not applicable.
f) Non-Group entities, which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Quoted equity instruments
All the shares of Santander Bank Polska S.A. are listed on
the Warsaw Stock Exchange.
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B) The restrictions on the ability to access or use the
assets and settle the liabilities of the Group, as required
under paragraph 13 of IFRS12, are described below.
In certain jurisdictions, restrictions have been established
on the distribution of dividends on the basis of the new,
much more stringent capital adequacy regulations.
However, there is currently no evidence of any practical or
legal impediment to the transfer of funds by Group
subsidiaries to the Parent in the form of dividends, loans or
advances, repatriation of capital or any other means.
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2019 Annual Report
Auditors'
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Appendix VI
Annual banking report
The Group’s total tax contribution in 2019 (taxes incurred
directly by the Group and the collection of taxes incurred by
third parties generated in the course of its economic
activities) exceeded EUR 16,000 million, of which more than
EUR 6,700 million correspond to taxes borne by the Group
(Corporate income tax, non-recoverable VAT and other
indirect taxes, payments to the Social Security on behalf of
the employer and other taxes on payroll and other taxes and
levies).
This annual banking report was prepared in compliance with
Article 89 of Directive 2013/36/EU of the European
Parliament and of the Council, of 26 June 2013 on access to
the activity of credit institutions and the prudential
supervision of credit institutions and investment firms, and
its transposition into Spanish law pursuant to Article 87 of
Law 10/2014, of 26 June on the regulation, supervision and
capital adequacy of credit institutions.
Following is a detail of the criteria used to prepare the
annual banking report for 2019:
a) Name(s), nature of activities and geographical location
The aforementioned information is available in Appendices I
and III to the Group’s consolidated financial statements,
which contain details of the companies operating in each
jurisdiction, including, among other information, their
name(s), geographical location and the nature of their
activities.
As can be seen in the aforementioned Appendices, the main
activity carried on by the Group in the various jurisdictions
in which it operates is commercial banking. The Group
operates mainly in ten markets through a model of
subsidiaries that are autonomous in capital and liquidity
terms, which has clear strategic and regulatory advantages,
since it limits the risk of contagion between Group units,
imposes a double layer of global and local oversight and
facilitates crisis management and resolution. The number of
Group offices totals 11,952 -the largest commercial
network of any international bank-, and these offices
provide our customers with all their basic financial needs.
b) Turnover and income before tax
For the purposes of this report, turnover is considered to be
gross income, and income before tax, gross profit or loss
before tax, both as defined and presented in the
consolidated income statement that forms part of the
Group’s consolidated financial statements.
c) Number of employees on a full time equivalent basis
The data on employees on a full time equivalent basis were
obtained from the average headcount of each jurisdiction.
d) Tax on profit or loss
In the absence of specific criteria, the amount of taxes
actually paid in respect of those taxes whose effect is
recognised under “Income Tax” in the consolidated income
statement (EUR 2,951 million in 2019, with an effective tax
rate of 23.5%) has been included.
Taxes effectively paid in the year by each of the companies
in each jurisdiction include:
• Supplementary payments relating to income tax returns,
normally for prior years.
• Advances, prepayments, withholdings made or borne in
respect of tax on profit or loss for the year. Given their
scantly representative amount, it was decided that taxes
borne abroad would be included in the jurisdiction of the
company that bore them.
• Refunds collected in the year with respect to returns for
prior years that resulted in a refund.
• Where appropriate, the tax payable arising from tax
assessments and litigation relating to these taxes.
The foregoing amounts form part of the cash flow
statement and therefore differ from the income tax expense
recognised in the consolidated income statement (EUR
4,427 million in 2019, representing an effective rate of
35.3%, or, if extraordinary results are discounted, EUR 5,103
million, which represents an effective rate of 34.2% (see
note 52.c)). This is so because the tax regulations of each
country establish:
• The time at which taxes must be paid. Normally, there is a
timing mismatch between the dates of payment and the
date of generation of the income bearing the tax.
• Its own criteria for calculating the tax, defining temporary
or permanent restrictions on expense deduction,
exemptions, relief or deferrals of certain income, thereby
generating the related differences between the
accounting profit (or loss) and taxable profit (or tax loss)
which is ultimately taxed; tax loss carry forwards from
prior years, tax credits and/or relief, etc. must also be
added to this. Also, in certain cases special regimes are
established, such as the tax consolidation of companies in
the same jurisdiction, etc.
e) Public subsidies received
In the context of the disclosures required by current
legislation, this term was interpreted to mean any aid or
subsidy in line with the European Commission’s State Aid
Guide and, in such context, the Group companies did not
receive public subsidies in 2019.
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The detail of the information for 2019 is as follows :
Turnover (million of euros)
Employees
Gross profit or loss before
tax (million of euros)
Tax on profit or loss (million
euros)
2019
Jurisdiction
Germany
Argentina
Austria
Bahamas
Belgium
Brazil 1
Canada
Chile
China
Colombia
Spain 2
United States
Denmark
Finland
France
Hong Kong
Ireland
Isle of Man
Italy
Jersey
Luxemburg
Malta
Mexico
Norway
The Netherlands
Peru
Poland
Portugal
Puerto Rico
United Kingdom
Singapore
Sweden
Switzerland
Uruguay
1,416
1,304
176
26
85
13,742
55
2,576
35
35
6,635
7,352
188
108
648
69
87
13
447
24
106
13
4,081
318
92
86
2,108
1,417
259
5,007
5
154
116
446
4,397
8,868
355
39
202
45,089
202
11,522
69
207
37,097
15,858
245
178
954
153
3
58
851
72
18
—
20,140
516
289
181
14,667
6,995
941
24,485
11
304
243
1,588
196,797
534
420
86
16
37
5,273
8
1,184
19
(2)
(1,684)
1,220
94
53
355
3
52
9
207
10
99
13
1,421
169
34
50
746
746
24
1,053
1
60
42
191
12,543
98
107
17
—
17
1,321
1
186
—
3
(271)
39
40
9
76
—
—
1
81
3
6
—
396
20
106
12
210
37
11
369
—
21
3
32
2,951
Consolidated Group total
49,229
1.
2.
Including the information relating to a branch in the Cayman Islands the profits of which are taxed in full in Brazil. The contribution of this branch profit before tax
from continuing operations 2019 is EUR 691 million.
Includes the corporate center. In Tax on profit or loss, it includes EUR 358 million of monetizable deferred taxes converted from Banco Popular Español, S.A.U.
At 31 December 2019, the Group’s return on assets (ROA)
was 0.54%.
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General
information
Corporate information
Banco Santander, S.A. is a Spanish bank, incorporated as
sociedad anónima in Spain and is the parent company of
Grupo Santander. Banco Santander, S.A. operates under the
commercial name Santander.
The Bank’s Legal Entity Identifier (LEI) is
5493006QMFDDMYWIAM13 and its Spanish tax
identification number is A-390000013. The Bank is
registered with the Companies Registry of Cantabria, and its
Bylaws have been adapted to the Spanish Companies Act by
means of the notarial deed instrument executed in
Santander on 29 July 2011 before the notary Juan de Dios
Valenzuela García, under number 1209 of his book and filed
with the Companies Registry of Cantabria in volume 1006
of the archive, folio 28, page number S-1960, entry 2038.
The Bank is also registered in the Official registry of entities
of Bank of Spain with code number 0049.
The Bank’s registered office is at:
Paseo de Pereda, 9-12
39004 Santander
Spain
The Bank’s principal executive offices are located at:
Santander Group City
Avda. de Cantabria s/n
28660 Boadilla del Monte
Madrid
Spain
Telephone: (+34) 91 259 65 20
Corporate history
The Bank was established in the city of Santander by public
deed before the notary José Dou Martínez on 3 March 1856,
which was later ratified and amended in part by a second
public deed dated 21 March 1857 executed before the
notary José María Olarán. The Bank commenced operations
upon incorporation on 20 August 1857 and, according to
article 4 of the Bylaws, its duration shall be for an indefinite
period. It was transformed into a credit corporation
(sociedad anónima de crédito) by public deed, executed
786
2019 Annual Report
before notary Ignacio Pérez, on 14 January 1875 and
registered in the Companies Registry Book of the
Government’s Trade Promotion Section in the province of
Santander. The Bank amended its Bylaws to conform to the
Spanish public companies act of 1989 by means of a public
deed executed in Santander on 8 June 1992 before the
notary José María de Prada Díez and recorded in his notarial
record book under number 1316.
On 15 January 1999, the boards of directors of Santander
and Banco Central Hispanoamericano, S.A. agreed to merge
Banco Central Hispanoamericano, S.A. into Santander, and
to change Banco Santander’s name to Banco Santander
Central Hispano, S.A. The shareholders of Santander and
Banco Central Hispanoamericano, S.A. approved the merger
on 6 March 1999, at their respective general meetings and
the merger became effective in April 1999.
The Bank’s general shareholders’ meeting held on 23 June
2007 approved the proposal to change back the name of the
Bank to Banco Santander, S.A.
As indicated above, the Bank brought its Bylaws into line
with the Spanish Companies Act by means of a public deed
executed in Santander on 29 July 2011.
The Bank’s general shareholders’ meeting held on 22 March
2013 approved the merger by absorption of Banco Español
de Crédito, S.A.
On 7 June 2017, Santander acquired the entire share capital
of Banco Popular Español, S.A. in an auction in connection
with a resolution plan adopted by the European Single
Resolution Board (the European banking resolution
authority) and executed by the FROB (the Spanish banking
resolution authority) following a determination by the
European Central Bank that Banco Popular was failing or
likely to fail, in accordance with Regulation (EU) 806/2014
establishing a framework for the recovery and resolution of
credit institutions and investment firms. On 24 April 2018,
the Bank announced that the boards of directors of Banco
Santander, S.A. and Banco Popular Español, S.A.U. had
agreed to an absorption of Banco Popular by Banco
Santander. The legal absorption was effective on 28
September 2018.
Customer service department
Calle Princesa, 25
Edificio Hexágono, 2ª planta
28008 Madrid
Spain
Telephone: (+34) 91 759 48 36
atenclie@gruposantander.com
Banking Ombudsman in Spain (Defensor del cliente en
España)
Mr José Luis Gómez-Dégano
Apartado de Correos 14019
28080 Madrid
Spain
Shareholder and investor relations
Santander Group City
Pereda, 2ª planta
Avda. de Cantabria, s/n
28660 Boadilla del Monte
Madrid
Spain
Telephone: (+34) 91 259 65 14
investor@gruposantander.com
Hard copies of the Bank’s annual report can be requested by
shareholders free of charge at the address and phone
number indicated above.
Media enquiries
Santander Group City
Arrecife, 2ª planta
Avda. de Cantabria, s/n
28660 Boadilla del Monte
Madrid
Spain
Telephone: (+34) 91 289 52 11
comunicacion@gruposantander.com
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