2020
Annual report
Unless otherwise specified, references in this annual report to
other documents, including but not limited to other reports and
websites, including our own, are for information purposes only.
The contents of such other documents and websites are not
incorporated by reference in this annual report nor otherwise
considered to be a part of it.
Unless the context requires otherwise, 'Banco Santander' means
Banco Santander, S.A., and 'Santander', 'the Group' and
'Santander Group' mean Banco Santander, S.A. and subsidiaries.
Consolidated directors' report
6 Business model and strategy
310 Economic and financial review
14 Responsible banking
16 Our approach
32 The new business environment
64 Inclusive and sustainable growth
112 Key metrics
123 Further information
312 Economic, regulatory and competitive context
315 Group selected data
317 Group financial performance
357 Financial information by segments
401 Research, development and innovation
(R&D&I)
403 Significant events since year end
124 Non-financial information Law content index
404 Trend information 2021
129 UNEP FI Principles for Responsible Banking
412 Alternative performance measures (APM)
reporting index
137 Global Reporting Initiative (GRI) content index
420 Risk management and compliance
160 Sustainability Accounting Standards Board
(SASB) content index
164 Independent verification report
422 Risk management and compliance overview
428 Risk management and control model
437 Credit risk
168 Corporate Governance
461 Market, structural and liquidity risk
170 2020 Overview
177 Ownership structure
476 Capital risk
479 Operational risk
182 Shareholders. Engagement and general
486 Compliance and conduct risk
meeting
190 Board of directors
238 Management team
241 Remuneration
264 Group structure and internal governance
267 Internal control over financial reporting (ICFR)
275 Other corporate governance information
492 Model risk profile
494 Strategic risk
Auditor's report and consolidated
financial statements
504 Auditor's report
496 Glossary
516 Consolidated annual accounts
840 General information
533 Notes to the consolidated
annual accounts
796 Appendix
Annual report 2020
Contents
2020 consolidated
directors’ report
This report was approved unanimously by our
board of directors on 22 February 2021.
Our approach to this document
We changed the layout of our consolidated directors’ report in
2018 by including the contents previously provided in these
documents which we ceased to prepare separately:
– Annual report
– Consolidated directors’ report
– Annual corporate governance report (CNMV format
document)
– Report of the board committees
– Sustainability report
Auditors’ reviews
As required by law, contents of our 2020 consolidated
directors’ report has been subjected to three types of reviews
by our independent statutory auditors,
PricewaterhouseCoopers Auditores, S.L., summarized as
follows:
– PricewaterhouseCoopers Auditores, S.L. has verified that
the information in this report is consistent with our
consolidated financial statements, and that its contents
comply with the applicable regulations. For more details,
see ‘Other information: Consolidated management report
section of the 'Auditor’s report' within 'Auditor's report and
consolidated annual accounts'.
– Annual report on our directors’ remuneration (CNMV format
document)
The consolidated directors’ report also includes all
information required by Spanish Act 11/2018 on non-financial
information and diversity. It can be found in the 'Responsible
banking' chapter, which constitutes the consolidated non-
financial information statement.
This report's format presents information more clearly,
avoiding repetition and raising the level of disclosure.
– PricewaterhouseCoopers Auditores, S.L. has issued a
verification report, with limited assurance, on the non-
financial and diversity information required by Spanish Act
11/2018 included in this report. To read that report, see the
'Independent verification report' in the 'Responsible
banking' chapter.
– PricewaterhouseCoopers Auditores, S.L. has issued an
independent reasonable assurance report on the design and
effectiveness of Banco Santander's internal control over
financial reporting, found in section 8.6 of the 'Corporate
governance' chapter.
Non-IFRS and alternative performance measures
This report contains, in addition to financial information
prepared in accordance with International Financial Reporting
Standards (IFRS) and derived from our consolidated financial
statements, 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. These financial measures that qualify as APMs and
non-IFRS measures have been calculated with information
from Santander Group; however, those financial measures are
not defined or detailed in the applicable financial reporting
framework nor have been audited or 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
our management and investors to compare operating
performance between accounting periods.
Nonetheless, these APMs and non-IFRS measures should be
considered supplemental information to, and are not meant
to substitute IFRS measures. Furthermore, companies in our
industry and others may calculate or use APMs and non-IFRS
measures differently, thus making them less useful for
comparison purposes.
For more details on APMs and non-IFRS measures, see section
8 of the 'Economic and financial review'.
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Economic
and financial review
Risk management
and compliance
Forward-looking statements
Banco Santander advises that this annual report contains
“forward-looking statements” as per the meaning of the US
Private Securities Litigation Reform Act of 1995. These
statements may be identified by words like expect, project,
anticipate, should, intend, probability, risk, target, goal,
objective, estimate, future and similar expressions. Found
throughout this report, they include (but are not limited to)
statements on our future business development, economic
performance and shareholder remuneration policy. However,
a number of risks, uncertainties and other important factors
may cause actual developments and results to differ
materially from our expectations.
The following important factors, in addition to others
discussed elsewhere in this annual report, could affect our
future results and could cause materially different outcomes
from those anticipated in forward-looking statements:
– general economic or industry conditions of areas where we
have significant operations or investments (such as a worse
economic environment; higher volatility in capital markets;
inflation or deflation; changes in demographics, consumer
spending, investment or saving habits; and the effects of
the covid-19 pandemic on the global economy);
– exposure to various market risks (particularly interest rate
risk, foreign exchange rate risk, equity price risk and risks
associated with the replacement of benchmark indices);
– potential losses from early repayments on our loan and
investment portfolio, declines in value of collateral securing
our loan portfolio, and counterparty risk;
– political stability in Spain, the United Kingdom, other
European countries, Latin America and the US;
– changes in legislation, regulations, taxes, including
regulatory capital and liquidity requirements, especially in
view of the UK exit of the European Union and increased
regulation in response to financial crisis;
– our ability to integrate successfully our acquisitions and
related challenges that result from the inherent diversion
of management’s focus and resources from other strategic
opportunities and operational matters; and
– changes in our access to liquidity and funding on acceptable
terms, in particular if resulting from credit spread shifts or
downgrades in credit ratings for the entire group or
significant subsidiaries.
Numerous factors could affect our future results and could
cause those results deviating 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.
Our forward-looking statements speak only as at date of
approval of this annual report and are informed by the
knowledge, information and views available as at the date of
this report. Banco Santander is not required to update or
revise any forward-looking statements, regardless of new
information, future events or otherwise.
Past performance is not indicative of future results
Statements about historical performance or accretion must
not be construed to indicate that future performance, share
price or earnings (including earnings per share) in any future
period will necessarily match or exceed those of any prior
period. Nothing in this annual report should be taken as a
profit forecast.
XHTML electronic format and XBRL tags
This annual report has been prepared in eXtensible HyperText
Markup Language (XHTML) format, and the consolidated
financial statements it includes have been tagged with
eXtensible Business Reporting Language (XBRL), in
accordance with Directive 2004/109/EC and Commission
Delegated Regulation (EU) 2019/815.
No offer
Neither this annual report nor any of the information
contained herein constitutes an offer to sell, or the solicitation
of an offer to buy, any securities.
Banco Santander has elected to follow these requirements for
the 2020 financial year, albeit they will take effect for
accounting periods from 1 January 2021.
To view the XBRL tags, you must open this document using an
appropriate viewer. You can find this document with an XBRL
viewer on Banco Santander's corporate website.
5
Annual report 2020
Contents
Business model
and strategy
The Santander Way remains unchanged...
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 and Fair
… continuing to deliver for all our stakeholders
An engaged
and motivated
team…
… generates
customer
loyalty…
We create value for
all our stakeholders
… so we can support
our
communities
…leading to
strong financial
results for our
shareholders…
For further information about our corporate culture, see chapter 1 'Responsible Banking'. In this chapter, data as of 2020, unless indicated otherwise.
6
Responsible
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Corporate
governance
Economic
and financial review
Risk management
and compliance
Helping people and businesses prosper whilst adopting ESG practices
Environmental: supporting the green transition
Helping customers go green
Going green ourselves
EUR 33.8 bn
Green Finance since
2019
EUR 6.9 bn
AUM Social Responsible
Investment
EUR 1 bn
green bond issued (2nd
since 2019)
Carbon neutral
in our own operations
Social: building a more inclusive society
Financially empowering people
Supporting society
4.9 mn
people
1
since 2019
EUR 469 mn
Credit to microentrepreneurs
in 2020
4.0 mn
people helped
since 2019
225 k
scholarships granted
since 2019
1. People financially empowered through Santander initiatives.
Creation of a solidarity fund to face the covid-19 impact
Communities
We contribute more than
ever to the wellbeing of
society at large
EUR 54 mn donated by employees and the bank to provide
essential health equipment and materials
EUR 30 mn through Santander Universities
EUR 21 mn to support vulnerable communities
Governance: doing business the right way
A strong culture
An independent, diverse Board
86%
employees proud to work
for Santander
40%
women on Group
board
>60%
Independent directors
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Annual report 2020
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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
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-20 including only private owned banks. UK benchmark covers mortgage market.
2. Customer focus
→ We serve 148 million customers, in markets with a
total population of more than one billion people.
Personal relationships
that increase customer
loyalty
→ We have over 100,000 people talking to our
customers every day in our extensive branch
network and contact centres.
→ Digital sales represented 44% of total. Increasing
digital adoption (mobile customers +6.1 mn YoY)
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
→ Balanced geographic diversification between
mature and emerging markets.
→ Business diversification between customers
segments (individuals, SMEs, mid-market
companies and large corporates).
→ Global businesses that strengthen our local
franchises.
Note. Underlying attributable profit contribution by region, excluding Santander Global Platform (which will upgrade to PagoNxt) and Corporate Centre.
Resilient profit
generation
throughout the
cycle
In 2020, Grupo Santander delivered a
resilient operating income within the
environment arising from the covid-19
crisis, supported by a disciplined capital
allocation in accordance with our strategic
priorities
Net operating income = Total income - Operating expenses.
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Risk management
and compliance
The Santander of Tomorrow – 3 priorities for profitable growth
Building on our technology to further strengthen our customers’ loyalty and access new
fee-based revenue pools
1 One Santander
2 PagoNxt
3 Digital
Consumer
Bank
New operating model leveraging our global scale to deliver a
better customer experience, supported by common culture and
higher degrees of commonality, technology being one
Our Group technology “backbone” solutions with payments
at the core
Openbank and Santander Consumer Finance driving profitable
growth in Europe and new markets
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Annual report 2020
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1. One Santander:
Creating a better bank for our customers with a new operating model…
Improving our
customer service…
… strengthening our
relationship with
customers…
… by creating a
common operating
model
Simplify mass market
value proposition
New distribution model
-
Shared processes and best
in-class technology
Medium term goal:
Medium term goal:
Medium term goal:
Top 3 NPS in 9 countries
Digital sales/total >50%
Efficiency ratio A
c.40%
…in order to drive customer growth and higher productivity and profitability
B
Europe
North
America
→ Focus on capital efficient growth opportunities
→ Leverage PagoNxt global solutions with particular focus on SMEs
and merchants
→ Re-invent our branch network (Work Cafés), expand Santander
Personal, deploy common mobile app
→ Expand collaboration to Commercial Banking, Auto and other retail
segments
→ Build shared services
South
America
→ Expand Getnet and Superdigital to other countries
→ Common operating model for Consumer Finance
→ Focus on revenue growth opportunities (e.g. Agribusiness)
Medium term goals:
C
Underlying RoTE
:
10%-12%
A
Efficiency ratio
:
c.45%
Underlying RoTE
C D
:
11-13%
A
Efficiency ratio
:
c.40%
C
Underlying RoTE
:
19%-21%
A
Efficiency ratio
:
c.35%
A. Medium term goals for the efficiency ratio do not represent guidance. The actual efficiency ratio may vary materially in the medium term.
B. Excluding SCF+Openbank, which would have an efficiency ratio of c.39% and a RoTE of 13%-15%. Europe, including SCF+Openbank, would have an efficiency ratio
of c.43% and a RoTE of 12%-13%.
C. Medium term goals for underlying RoTE do not represent guidance. The actual underlying RoTE may vary materially in the medium term.
D. Adjusted RoTE for excess capital in the US.
We have integrated ESG criteria into our new strategic priorities: One Santander Europe
has focused on 2020 on rebuilding after covid-19, supporting people (especially more
vulnerable communities, in financial distress) and helping customers transition to the
green economy.
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Economic
and financial review
Risk management
and compliance
2. PagoNxt:
PagoNxt will help Santander banks deliver payment solutions seamlessly,
faster and with better value
Payments is a sizeable and fast growth market in which Santander already has significant scale
Our key assets for
growth acceleration
We serve more
customers than
any other bank
148 mn
Customers
→ Single, autonomous company providing payment
solutions to merchants and consumers
→ Targeting Santander’s existing ecosystem and open
market
→ Technology-focused to deliver differentiated user
experiences
→ Strategic, close partner of Santander local banks
Leveraging on
Scale
|
Efficiency
|
Global reach
Focused in 3 business verticals to accelerate growth, leveraging on scale,
‘being global’ and efficiency
Goal
To become a world leading acquirer providing end-to-end best-in-class solutions
for in-store and online merchant payments
1
MERCHANT
Our merchant payment
services on one global
platform are now being used
across the Group as Getnet
Market growth
Santander’s scale
+11%
Expected annual
growth
in e-commerce
EUR 80 bn
Merchant acquiring
global revenue pool
>1.1 mn
Active Merchant
business
customers
c.60 mn
Active credit and
debit cards
2
TRADE
Goal
To deliver fast, efficient trade finance, supply chain and FX payments solutions
for international SMEs that were once only accessible to corporates
Market growth
Santander’s scale
Significant investments in 4
key assets: Ebury, One Trade,
Mercury and PaymentsHub
+3%
Annual growth
international trade
EUR 350 bn
International trade
revenue pool
>4 mn
Group SME
customers
>200k
Group SME
customers trading
int.
3
Goal
To deliver simple, highly engaging payment solutions for individuals
in order to become embedded in our customers’ daily lives
CONSUMER
Leveraging our Superdigital
proposition
Solution for the unbanked in
Latin America
With a high growth in active
customers and transactions
value in 2019
We have integrated ESG criteria into our new strategic priorities: Developed consumer
solutions (such as Superdigital) within PagoNxt scope will benefit individual lives
through financial inclusion and domestic and international payments for all.
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Annual report 2020
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3. Digital Consumer Bank:
Combining the scale and leadership of SCF in Europe with the platform of Openbank.
Our vision is to become the largest digital consumer bank in the world
Openbank
Santander Auto
Global consumer financing
business serving offline and
e-commerce merchants
Largest full-service global
digital bank in the world
+ Auto loan and leasing business
serving OEMS and dealers
>55k Merchant POS
c.EUR 20 bn Loans
1.2 mn Customers
c.EUR 10 bn Deposits
>75k Dealer & OEM POS
c.EUR 85 bn Loans
Digital Banking APIs
(SaaS model)
Openbank technology and data capabilities grow revenues
by adding services and improving productivity
A
Our ambition: to grow revenues and x2 PAT
in the medium term and build the most
innovative consumer lending business in Europe
Great potential…
… to build a new paradigm…
… and deliver strong
financial results
c.18 mn
Active
customers
4.5
Avg. products
per customer
→ Common apps, data and systems
infrastructure across regions
Medium term goals
→ Single streamlined operating
model across auto, consumer
lending and retail in 15+ countries
c.15% Underlying RoTE
B
→ Simplified license and common
compliance model
39% Efficiency ratio
C
→ New auto, consumer lending and
retail banking country launches
A. Underlying.
B. Medium term goals for underlying RoTE do not represent guidance. The actual underlying RoTE may vary materially in the medium term.
C. Medium term goals for the efficiency ratio do not represent guidance. The actual efficiency ratio may vary materially in the medium term.
We have integrated ESG criteria into our new strategic priorities: Digital Consumer
Bank is developing business solutions with a positive environmental impact. We have
developed green finance solutions for consumers, such as clean vehicles, solar panels
or heating systems amongst others.
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and compliance
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Annual report 2020
Contents
Responsible
banking
2020 Consolidated non-financial information statement
14
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Our approach
What our stakeholders tell us
Challenges and opportunities
Governance and priorities
Our response to covid-19
2020 highlights
The new business environment
A strong and inclusive culture
A talented and motivated team
Acting responsibly towards customers
Responsible procurement
Shareholder value
Inclusive and sustainable growth
Meeting the needs of everyone in society
Supporting the green transition
Environmental and social risk analysis
Financial inclusion and empowerment
ESG investment in Wealth Management and Insurance
Supporting communities
Higher education
Community investment
Tax contribution
Key metrics
Further information
Non-financial information law content index
UNEP FI Principles for Responsible Banking reporting index
Global Reporting Initiative (GRI) content index
Sustainability Accounting Standards Board (SASB) content index
Independent verification report
16
18
20
22
26
28
32
34
38
52
60
62
64
66
71
87
91
101
100
102
108
110
112
123
124
129
129
160
164
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Annual report 2020
Contents
Our approach
By delivering on our purpose to help people and
businesses prosper, we grow as a business and can help
society address its challenges.
"At Santander, we've always known we have a
responsibility to support society – and I have no doubt
that we'll continue to fulfil it. We are determined to help
businesses and communities across the world build back
better – and use this as an opportunity to address global
challenges such as inequality and climate change. This is
the right thing to do – the responsible thing to do, and
the path to generate value for our shareholders.
In 2020, the covid-19 pandemic forced us to face yet
another challenge – an economic crisis that devastated
millions. As we look ahead, governments and companies
must come together to build back better, so that we
emerge from this crisis stronger, supporting inclusive and
sustainable growth around the world. Banks have a
critical role to play. We are part of the solution. We have
a crucial duty and an essential role: to support our
employees, our customers, and to deliver sustainable
returns to you, our shareholders".
Ana Botín, Group executive chairman.
By being responsible, we build loyalty
People
Customers
… Santander
treats me
responsibly
In our day-to-day business, we make
sure we don't just meet our legal and
regulatory requirements, but also
exceed people's expectations by being
Simple, Personal and Fair in all we do.
Communities
Shareholders
I'm loyal to Santander because…
… Santander
acts responsibly
in society
We focus on areas where our activity
can have a major impact on helping
people and businesses prosper.
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Corporate
governance
Economic
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Risk management
and compliance
How we helped people and businesses prosper in 2020
People
EUR 10,783 million
Staff costs
A
95%
of employees are full-time
53.7%
of employees are women
Customers
EUR 916,199 million
loans outstanding (net)
EUR 497,987
million to households
EUR 319,853
million to companies
EUR 21,227
million to government
agencies
EUR 469 million
to microenterprises via
microfinance programmes
EUR 77,132
million to others
B
Shareholders
EUR 477 million
Total shareholder
remuneration
C
EUR 44,011 million
market value at year end, second highest bank in the
eurozone
Communities
EUR 204 million
invested in communities
EUR 110 million
invested in universities
EUR 94 million
invested in community
programmes and projects
Suppliers
EUR 5,230 million
paid to suppliers
D
Tax contribution
4,592
suppliers selected under our global procurement
model
94.7%
D
local suppliers
EUR 6,443 million
Total taxes paid by the group
EUR 2,946 million
corporate income tax
EUR 3,497 million
other taxes
A. From group consolidated financial statements.
B. Including financial business activities and customer prepayments.
C. The maximum allowed in accordance with the limits set by the European Central Bank (ECB) in its recommendation last December.
D. Data refers exclusively to purchases negotiated by Aquanima.
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Annual report 2020
Contents
What our stakeholders tell us
To build a more responsible bank, understanding and
responding to all our stakeholders is fundamental.
Listening to our stakeholders and
creating value
Loyalty is key to lasting value. Earning and retaining it
depends on our ability to understand all our stakeholders'
concerns and respond to their needs. By listening to them and
measuring their perceptions of Grupo Santander, we not only
identify issues, but also find opportunities to add value.
Grupo Santander has several approaches to gauging
stakeholder opinion. We run surveys and speak-up channels
for our employees. We engage our customers through
interactive platforms. We also respond to demands from top
analysts, investors and indexes interested in environmental,
social and governance (ESG) matters.
We keep pace with new regulations and best practices
worldwide. We take part in consultations with authorities,
sector associations and other organizations that influence
sustainable development policymaking. We assess
externalities to identify risks and opportunities to our
business, appraise our impact on the community and create
value for society and the environment.
We are also involved in major local and international
initiatives to support inclusive and sustainable growth (see
‘Joint initiatives to promote our agenda’ in ‘Governance and
priorities’).
83%
of employees think
Santander provides
the flexibility they
need to be
productive
86%
of employees feel
Santander's
response to the
pandemic is
effective
22,500
employees surveyed
in the 2020 global
pulse survey
4,390
complaints through
ethical channels
People
Customers
1,432
agreements with
universities and
academic
institutions
Key dialogue channels
for stakeholders
2,283
partnerships with
social institutions
and entities
322
social media
profiles and 23
million followers
Communities
Shareholders
3 millions
of surveys to
measure customer
satisfaction
42,670
banked individuals
surveyed about
Santander being
Simple, Personal and
Fair
464,310
complaints received
15,260
shareholders
surveyed about
Santander being
Simple, Personal
and Fair
27,446
shareholders and
investors participated
in studies and
qualitative surveys
132,857
queries handled by
email, phone,
WhatsApp and
online
210
meetings with
shareholders and
1,137 contacts with
institutional investors
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Economic
and financial review
Risk management
and compliance
Materiality assessment: Identifying the
issues that matter
Grupo Santander analyses the environmental, social and
governance issues our stakeholders care about the most.
Every year, we run quantitative and qualitative assessments
of our value chain, gathering information from internal and
external sources, including the dialogue channels mentioned
above. We weight inputs on their level of materiality, which is
revised every year to reflect reality.
The matrix below, which shows the topics our stakeholders
consider most relevant for Santander, helps us focus our
priorities, initiatives and programmes across the Group. In
2020, we addressed these issues in order to strengthen our
responsible business practices and ethical behaviour, tackle
climate change, support the transition to a low-carbon
economy, promote financial inclusion and create a diverse
and talented team, while managing and developing it.
Group material topics matrix
A
Analysis inputs
→ External
• 2020 megatrends (WBCSD)
• Customer satisfaction (Net Promoter Score drivers)
• ESG analyst and index evaluations (including roadshows)
• Public opinion (social media and digital press analysis)
• Reporting trends in the banking sector (peers' material
issues, RepRisk Rating and others)
• Requirements of regulators and international institutions
(World Bank, WEF, UNEP FI, ...)
• ESG reporting standards requirements (GRI, SASB)
→ Internal
• Santander’s strategic view (public commitments, internal
communications, workshops, top risk analysis)
• Responsible banking agenda (responsible banking,
sustainability and culture committee; Culture, and Inclusive
and Sustainable Banking steering groups, messages from
the chairman and CEO)
• Employee feedback (surveys)
Changes in the analysis from 2019
We've redefined certain material topics:
• Talent Management and Development includes incentives
linked to ESG criteria.
• Diversity, Inclusion and Wellbeing includes health and
welfare-related aspects.
• Financial Inclusion and Empowerment includes financial
literacy.
• Simple, Personal and Fair (SPF) products and services refers
to responsible practices towards customers.
• Climate Strategy covers the integration of climate change
into the climate change risks & business opportunities
strategy.
We've added inputs to the materiality assessment: 2020
megatrends from the World Business Council for Sustainable
Development (WBCSD), social media, Net Promoter Score
(NPS) drivers for customers, new employee surveys and
insights from Responsible Banking workshops.
Three topics – Diversity, Inclusion and Wellbeing, ESG
Products and Services, and Financial Inclusion and
Empowerment – gained significance in 2020.
A. Issues such as food waste, light and noise pollution, and biodiversity are not
material to the group.
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Annual report 2020
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Challenges and opportunities
Grupo Santander operates in a fast-changing world, full of new challenges and
opportunities. Our materiality assessment identified two core challenges: the new
business environment, and inclusive and sustainable growth. By addressing these,
we embed our approach to the environment, society and governance in all we do.
Challenge 1
New business environment
Adapting to an evolving world
The economy is changing fast. Digital technology is
transforming markets as well as business models. In
this highly competitive environment, companies
must work in new ways to ensure responsible
business practices.
Challenge 2
Inclusive and sustainable growth
Helping society achieve its goals
Growth should satisfy the needs of today without
hampering future generations' ability to meet their
own. A balance should always be struck between
economic growth, social welfare and environmental
protection. Financial institutions can contribute to
this by managing their operations responsibly, and
lending responsibly to help society achieve its goals.
Santander, like all businesses, needs a
motivated, diverse and skilled
workforce that is able to deliver
what customers want, while
harnessing the power of new
technology. We operate in a fast-
moving highly regulated business
environment. Our task is to exceed our
stakeholders' expectations by doing 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.
We can play a major role to promote
inclusive and sustainable growth.
'Inclusive' means meeting customer
needs, helping people open businesses
and create jobs, promoting financial
empowerment and getting people the
education they need. 'Sustainable'
means financing renewable energy and
smart infrastructure and tech to tackle
climate change. We take the social and
environmental risks and rewards of our
operations into account, contributing to
greater balance in the economy and
society.
For more details on our strategy, see
'Challenge 1: New business environment'
in this chapter.
For more details on our strategy, see
'Challenge 2: Inclusive and sustainable
growth' in this chapter.
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Integrating ESG issues that matter into our strategy to meet the two identified challenges.
Challenge 1
New business
environment
Material issues
Impact on our value chain
Corporate governance
Robust, diverse and transparent corporate governance leads to more
responsible and sustainable strategies.
Ethical behaviour
A strong corporate culture and policies and procedures ensure we behave
ethically and safeguard all our stakeholders' interests.
Compliance and risk
management
Well-defined compliance and risk management procedures help reduce the
risks an organization faces. The participation of all employees in risk
management is crucial and reinforces the risk culture (Risk Pro).
Talent management and career
velopment
The right talent management and career development programmes inspire
loyalty and cement responsible banking practices.
Diversity, inclusion and
wellbeing
A diverse workforce that reflects the make-up of society is critical to success in
an ever-changing environment. Our employees wellbeing must be a priority.
Innovation and digitalization
Investing in technology puts us at the cutting edge of our industry and
strengthens our value proposition.
Customer satisfaction
Focus on customer experience drives us to improve our services and builds
loyalty.
SPF products and services
Responsible products and services tailored to customers in a way that is
Simple, Personal and Fair promote inclusiveness and lasting loyalty.
Cybersecurity and data
protection
Innovative and robust cybersecurity mechanisms protect customer data and
boost confidence in our business.
Human rights
Preventing the risk of our activities having a negative impact on human rights is
key to the development of a responsible business model.
Challenge 2
Inclusive and
sustainable
growth
Financial inclusion and
empowerment
Climate strategy
A financial system that is accessible and understandable to all builds trust,
bolsters the economy and creates new business opportunities, helping
communities prosper.
Banks play a key role in the transition to a low-carbon economy by managing
their financial risks and helping finance the green agenda. Our contribution is
vital under the Paris Agreement framework.
ESG products and services
Financial products and services with social and environmental value added
criteria help us do business responsibly. Funding renewable energy and green
initiatives better positions our bank and society to counter the effects of
climate change.
Environmental footprint
Environmental footprint reduction helps us lead the transition towards a low-
carbon economy.
Community investment
Our commitment to education and the wellbeing of the communities we serve
contributes to growth and progress across broader society.
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Governance and priorities
All our activity is guided by principles, frameworks and policies
to ensure we behave responsibly in all we do. We revised and
strengthened our responsible banking governance to help us
tackle the two challenges we identified.
Core policies that integrate ESG criteria into our business model, to make us a more responsible bank
General code
of conduct
Corporate
culture policy
A
General
sustainability
policy
Human rights
policy
Brings together
the ethical
principles and
rules of conduct
all Group
employees must
follow, and is
central to our
compliance
function.
Establishes the
guidelines and
standards to
ensure a consistent
group culture.
Sets out how we
protect human
rights, in line with
the UN Guiding
Principles on
Business and
Human Rights.
Outlines our
general
sustainability
principles and
voluntary
commitments
aimed at
generating long-
term value for our
stakeholders.
Environmental,
social & climate
change risk
management
B
policy
Details how we
identify and
manage
environmental,
social and climate
change risks, in oil
and gas, energy,
mining and metals,
and in soft
commodities.
Sensitive sectors
policy
Provides
guidelines for
assessing and
deciding on our
participation in
industries which
carry reputational
risk.
Other policies that support our responsible banking strategy
Consumer
protection
C
policy
Code of
conduct in
security
markets
Cybersecurity
policy
Third-party
certification
D
policy
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. It replaces the sectoral policies on energy, mining and metals and soft commodities.
C. Includes financial consumer protection principles.
D. Includes principles on the responsible behaviour of suppliers.
The responsible banking function's
core policies can be found on our
corporate website.
Policy changes in 2020
All local boards adopted our
General sustainability, Corporate
culture and Human rights policies.
In addition to update them as
every year, we merged the policies
on oil and gas, energy, mining and
metals, and soft commodities into
the Environmental, social and
climate change risks
management policy.
We published our Financing of
political parties policy and the
Policy on contributions for social
purpose on our corporate website.
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Strategic framework
Governance
→ The board of directors approves and supervises the general policies and strategies on our corporate culture, values,
responsible business and sustainability. It also makes sure all the group‘s employees act ethically by following the
laws, customs and good practices of the industries and countries where we operate.
→ The responsible banking, sustainability & culture committee assists the board with oversight of the group's
responsible banking agenda and strategy.
The committee is supported by two steering groups:
• The Culture steering group promotes our culture, The Santander Way, is
embedded in all we do and ensure consistency in corporate and local actions.
• The Inclusive & Sustainable Banking steering group reviews initiatives on social
and financial inclusion; promotes education and training; supports the transition
to a low-carbon economy; and backs investments to benefit society.
See section 4.9 ‘Responsible
banking, sustainability and
culture committee activities in
2020’ in the 'Corporate
Governance' chapter.
Responsible banking network
→ The corporate responsible banking unit coordinates and drives the responsible banking agenda. A senior advisor on
responsible business practices supports this unit and reports directly to the executive chairman.
→ Our subsidiaries' sustainability and culture units execute their responsible banking agendas, ensuring they are
aligned with our corporate strategy and policies.Their responsible banking governance is led by a senior manager,
who is part of the group-wide Responsible banking network.
→ Guiding principles for subsidiaries and global business units ensure our responsible banking agenda is embedded
across the group.
→ The Responsible Banking network meets every two months. In addition, the corporate responsible banking unit and
local units hold regular bilateral meetings. In 2020, the network ran the second Responsible Banking workshop with
responsible banking representatives from all businesses and geographies.
→ New working groups ensure we focus, and promote collaboration on financial education, sustainable finance,
climate change, simplification and other areas.
Strategic priorities: Embedding ESG in our busines model
What?
(E) Contribute to the Paris
Agreement and a low-
carbon economy
How?
→ Pursuing a climate strategy that plays a part in achieving the Paris Agreement goals
→ Helping our customers transition to a low-carbon economy with value-added
products and services to manage environmental and social risks
→ Minimizing our environmental footprint
(S) Have a best-in-class,
inclusive proposition to
maximize our social impact
→ Cultivating a workplace that attracts and retains diverse talent
→ Providing value propositions to meet the needs of our broad customer base
→ Fostering financial inclusion and empowerment
→ Supporting society through Santander Universities and other community programmes
(G) Do things the right way
through robust and
transparent processes
→ Promoting our strong culture, The Santander Way
→ Listening to our stakeholders
→ Applying best-in-class policies based on ethical behaviour
→ Ensuring sound corporate governance and risk management
→ Implementing Simple, Personal and Fair practices with customers and suppliers
We have 11 targets that place responsible banking at the heart of our business strategy (see section '2020 highlights'
in this chapter).
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Helping society tackle global challenges:
2030 agenda
Our activity and investments contribute to several United
Nations' Sustainable Development Goals and support the
Paris Agreement's aim to fight climate change.
We ran an analysis of the contribution of our agenda to SDGs.
It also has revealed which goals are most relevant to Grupo
Santander’s activity, commitments, strategic focus, and other
external factors.
SDGs where our activity and community investment carry the most weight
We want to reduce poverty and boost the
welfare and economy of the countries we
operate in. Our financial inclusion products and
services and community investment
programmes empower millions each year.
Our pioneering Santander Universities
programme helps universities and students
prosper, promoting education,
entrepreneurship and employment. Also,
Santander Scholarships is one of the world's
largest private education grant funds.
We promote an inclusive and diverse
workplace, ensuring equal opportunity as a
strategic priority. We also run initiatives to
drive diversity.
We're the global leader in renewable energy
financing, and also finance energy efficiency
projects; low-emission, electric and hybrid
vehicles; and other cleaner transport solutions.
Our skilled and committed team allows us to
respond to customers' needs, help
entrepreneurs create businesses and jobs, and
strengthen local economies.
Our products and services give society's most
vulnerable better access to financial services,
and we teach them the concepts and skills
they need to manage their finances effectively.
We finance sustainable infrastructure and
promote access to affordable housing to
guarantee basic services and inclusive
economic growth.
We tackle climate change by reducing our own
carbon footprint and helping our customers
transition to a sustainable economy.
We promote transparency, the fight against
corruption and the need for robust institutions
for sustainable development. We have policies
and codes of conduct that regulate our activity
and behaviour, and frame our commitments
towards more a more responsible banking
system.
We participate in prominent local and
international initiatives and working groups.
A. In the coming months we will publish a detailed analysis and results of this analysis on our corporate website.
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Joint initiatives to promote our agenda
We drive our responsible banking agenda through a number
of local and international initiatives and working groups,
including:
• UNEP Finance initiative. We are a founding signatory to the
• CEO Partnership for Economic Inclusion. We're part of a
United Nations Principles for Responsible Banking and
signed up to the Collective Commitment to Climate Action
(CCCA) to transition the financial sector to a low-carbon
economy faster. In 2020, we participated in Phase II of the
UNEP FI project on the TCFD's recommendations for banks,
alongside 38 other financial institutions from six
continents. We also reported on the progress made to
accelerate the adoption of low-carbon and climate-resilient
technologies and business models in society.
• United Nations Global Compact. We've been part of the
Global Compact network since 2002. In 2020, we joined the
United Nations Global Compact's gender equality
programme. We also joined the Target Gender Equality
(TGE) programme, launched in 19 countries with the goal of
increasing the number of women on company boards and
in executive roles.
• World Business Council for Sustainable Development
(WBCSD). Our Group Executive Chairman, Ana Botín, sits on
the WBCSD's executive committee. In 2020, we supported
the Vision 2050 and Future of Work initiatives and signalled
our intention to participate in the new Scaling Positive
Agriculture project under the Food, Land & Water
Programme.
• Banking Environment Initiative (BEI). We continued to
participate in the Bank 2030 initiative, aimed at building a
roadmap for the banking industry to help society in the
transition towards a low-carbon economy.
private-sector alliance for financial inclusion, led by Queen
Máxima of the Netherlands, Special Representative of the
United Nations, to promote inclusive financing for
development. Amid the covid-19 pandemic, we attended a
meeting with participants' CEOs to explore ways to make
low-income customers and small businesses more resilient
to the crisis.
• Equator Principles. We analyse the environmental and
social risks of our lending according to the Equator
Principles and help draw up common criteria.
We joined the Green Recovery Alliance of the European
Union and the Consultative Group of the Taskforce on
Scaling Voluntary Carbon Markets.
Santander Brasil drew up a comprehensive plan with Itaú
Unibanco and Bradesco to promote the sustainable
development of the Amazon. The plan includes ten measures
targeting the three areas considered the top priority for the
region: environmental conservation and the development of a
bioeconomy; investment in sustainable infrastructure; and
the guarantee of basic human rights.
Santander US joined the Hispanic Promise, a non-legally
binding sign of intention to create a more inclusive and
equitable work environment for Hispanic workers. This
initiative launched at the 2019 World Economic Forum and
has been endorsed by more than 150 companies.
Other international and local initiatives that Santander supports
UN Women's Empowerment Principles
International Wildlife Trade Financial
Taskforce
The Valuable 500
Round Table on Responsible Soy
UN Principles for Responsible
Investment
Working group on Sustainable Livestock
CDP (Carbon Disclosure Project)
Climate Leadership Council
UN Global Investors for Sustainable
Development (GISD) Alliance
The Wolfsberg Group
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Our response to covid-19
As a responsible bank, in 2020 we did all we could to
protect the health of our teams and customers, while
helping reduce the economic impact of the crisis.
Contingency plans:
Our Comprehensive Special Situation
Corporate Framework centralizes
governance in crises like covid-19
Ensuring business continuity:
As an essential service, we guaranteed our
operations would continue with the same standards
of quality
Special Situations Management
Committee for conducting and
monitoring the management of events.
A
Regular dry runs to raise awareness of,
and prepare for, certain stress situations.
Special measures in all our countries:
• Social distancing and shift patterns
• Designation of critical staff
• Segregation of technology infrastructure
People:
Our priority was to keep our 191,000
employees healthy and safe
Teleworking: more than 100,000
employees at the height of the pandemic,
gradual returns to the workplace with
safety measures, and more flexible work-
life balance policies.
Support measures: Salary advances and
other financial provisions, office equipment
and healthcare supplies delivered to
homes, and psychological support.
Health and safety protocols: Testing and
health monitoring, as well as track and
trace on mobile apps.
#SafeTogether
See section ‘A talented and
engaged team’ in this chapter.
Customers:
We supported our customers in three areas:
Preserving their health, guaranteeing
uninterrupted service on all channels and
promoting their financial resilience
Stronger channels:
Call centres
New digital solutions
Easy access to government-backed lines of
credit.
Branches: Special business hours, shifts,
selective closures and spaces adapted to
safety measures.
Support for the most vulnerable: Liquidity
and credit facilities; grace periods and
payment holidays; reduced fees; and
covid-19 cover in health insurance policies.
See sections ‘Acting responsible towards our customers’,
‘Meeting the needs of everyone in society’ and ‘Financial
inclusion and empowerment’ in this chapter.
See section ‘3.3 covid-19 credit risk management’ in
the 'Risk management and compliance' chapter.
A. Both the Corporation and relevant Subsidiaries shall constitute this Committee. And shall be invoked by the top senior executive to strategically steer and
manage a Special Situation
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We delivered a co-ordinated response across the Group, and
created a common branding - All. Together. Now.
Communities:
We collaborated on global initiatives to
tackle the pandemic, raising more than
EUR 100 million
Shareholders:
We met our obligations towards
shareholders.
Together Solidarity Fund for
healthcare supplies.
Senior management commitment:
Pay cut taken by the Group executive
chairman, CEO, board directors and
top two executive segments in the
Group
Support through Santander
Universidades to projects facing
health and educational challenges
due to the crisis.
Online scholarships
#YoMeQuedoEnCasa for more than
20,000 young people
Cooperation with the public sector:
Tracing app in Mexico (with BBVA)
and management of ICO loans.
See section ‘Supporting communities’ in this
chapter.
We held a virtual April 2020 AGM.
We adapted our dividend policy to ECB
recommendations.
We held a hybrid October 2020 AGM, where
we approved a new remuneration proposal
charged against the 2019 and 2020 results.
more than
30,000
new shareholders
since Dec. 2019
See section ‘Shareholder value’.
See section 1.3 ‘Alignment of executive compensation
with the Group objetives and the covid-19 crisis’ in the
Corporate governance chapter.
Euromoney recognized
Santander's management of
covid-19 and support for SMEs
→ Always informed: www.santander.com
→ Ask Ana: Regular talks and Q&As with employees
hosted by the Group executive chairman. We held
10 meetings, which attracted 140,000 connections/
views
→ Work Café: 65 online events with more than
200,000 attendees
→ Esto lo superamos juntos (We'll get through this
together): Local websites with helpful information
and resources to navigate the crisis
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2020 highlights
Our 11 public commitments to build a more
responsible bank
Grupo Santander works to maintain a strong culture,
developed by a skilled, motivated and diverse workforce, able
to deliver the right solutions for our customers’ needs while
improving the communities we serve. We offer financing our
customers can afford and support education that increases
their financial resilience. We also strive to foster the global
transition to the green economy, while reducing our own
environmental footprint.
Our public commitments
In 2019, we disclosed 11 public commitments which reflect
our ambitions for the responsible banking agenda. Our
pledges help us integrate ESG aspects into business
management, and are set out to be SMART (Specific,
Measurable, Achievable, Realistic and Time-bound) so we can
fulfil the UN SDGs intrinsic to our operations, and make
progress towards the targets set out in the Paris Agreement
on climate change.
In 2020, we made significant progress, achieving carbon
neutrality and fulfilling four of our 2021 commitments one
year early.
2018
2019
2020
2021
2025
Top 10 company to work for
A
4 > > > > > 5 > > > > 6 ✔
6
Women on the board
33% > > > 40% > > > 40% ✔
40% - 60%
B
(%)
Women in senior leadership positions
20% > > > 22.7% > 23.7% > > > > > > > > > > > 30%
Equal pay gap
C
Financially empowered people
D
E
(EUR)
Green finance raised and facilitated
3% > > > > 2% > > > 1.5% > > > > > > > > > > > ~0%
2.0mn
4.9mn
19bn
33.8bn
10mn
120bn
F
Electricity used from renewable energy sources
43% > > > 50% > > > 57% > >
60% > > > > > > 100%
G
Becoming carbon neutral in our own operations
> > > > > 0% ✔
Reduction of unnecessary single-use plastics in
corporate buildings and branches
Scholarships, internships and entrepreneurship
programmes I
H
> > > > > > 75% > > > 98% > > >
100%
69k
225k ✔
200k
J
People helped through our community programmes
1.6mn
4.0mn ✔
4mn
Cumulative target > > > > From… to…
A. According to external indexes in each country (Great Place to Work, Top
F. In countries where we can confirm electricity from renewable sources at
Employer, Merco, etc.).
properties occupied by Grupo Santander.
B. Senior leadership positions make up 1% of the total workforce.
C. Equal pay gap based on same jobs, levels and functions.
D. Unbanked, underbanked or financially vulnerable individuals receive tailored
finance solutions and can increase their knowledge and resilience through
financial education.
E. Includes Grupo Santander's contribution to green finance: project finance;
syndicated loans; green bonds; capital finance; export finance, advisory
services, structuring and other products, to help customers transition to a
low-carbon economy. EUR 220bn committed from 2019 to 2030.
G. In our core geographies (G10).
H. The reported percentage takes our core geographies (G10) into account.
Specific measures taken to cope with the covid-19 situation that might have
involved use of plastics has not been penalized in the calculation of this
percentage
I. Beneficiaries of Santander Universities (students given a Santander
scholarship will do a work placement in an SME or take part in
entrepreneurship programmes Grupo Santander endorses).
J. Beneficiaries of our community investment programmes (not including
Santander Universities and financial education initiatives).
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We continue to tackle the new
business environment...
…and promote inclusive and
sustainable growth
• The corporate culture policy approved by the Group
board in December 2019 was approved by all local
boards in 2020.
• Our new 5-year D&I strategy raises awareness and
introduces new enablers to cultivate an inclusive
workforce in terms of gender, LGBTI, people with
disabilities, age, ethnicity, religion and educational
background.
• Our new, simple and easy-to-access escalation
channel, Canal Abierto, is available in all our
countries, offering full anonymity to users.
• Our new global simplification network mapped all
our simplification initiatives and introduced
consistent plans, KPIs and qualitative ways of
measuring progress and impact.
• Our new pilot programme offers better assessment
and onboarding for c. 400 core suppliers based on
ESG criteria.
• We updated our climate strategy, committing to: i)
aligning our power generation portfolio with the
Paris Agreement by 2030; ii) stop providing financial
services to power generation customers with a
revenue dependency on coal of over 10% in 2030;
iii) reduce our worldwide exposure to coal mining
production to zero by 2030; iv) and the ambition to
be net zero carbon emissions by 2050.
• Local boards approved the most recent
sustainability and human rights policies.
• Our second EUR 1 billion green bond launched
under our Sustainable & Green Bonds framework.
We also released an initial report on the first
issuance.
• We offset our all emissions from our operation, thus
become carbon neutral.
• We released our first reports for the UNEP FI
Collective Commitment on Climate Action.
• Salesforce remuneration scheme: we significantly
• We joined the Green Recovery Alliance of the
increased the weight of conduct/quality on variable
remuneration (40% or more). Customer satisfaction
and service quality are the basic pillars of this
model.
• Thematic reviews on overdrafts, packaged accounts
and revolving cards.
European Union and the Consultative Group of the
Taskforce on Scaling Voluntary Carbon Markets.
• We mapped solutions and products for our new
Green Book.
• Santander CIB created a new ESG team to expand
our ESG solutions.
• Santander Brasil partnered with Bradesco and Itaú
Unibanco on sustainable development in the
Amazon.
• Our global financial education site further
reinforced our financial empowerment objectives.
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Our efforts have been recognized the world over
Member of Dow Jones Sustainability Index
The Dow Jones Sustanibility Index (DJSI World) listed
Grupo Santander for the 20th year in a row, with top
marks in financial inclusion, crime prevention, tax
strategy, customer relationship management,
environmental reporting, operational eco-efficiency and
social reporting. We also improved our FTSE4Good and
Sustainalytics scores.
Among top 10 in Bloomberg Gender- Equality Index
Grupo Santander 7th in the Bloomberg Gender- Equality Index
(BGEI) scoring above average in every category. Top score
achieved in equal pay and gender pay parity. The BGEI is a
golden seal for companies around the world that show a firm
public commitment to equality and women in the workplace
through policymaking, visibility and transparency.
One of the world’s best places to work
Great Place to Work put Grupo Santander among the
world's 25 best workplaces for the second year, out of
more than 10,000 organizations worldwide that ensure
exceptional employee experiences and high-trust
relationships rooted in fairness and equality. The institute
also named us one of the Best Places to Work in Latin
America.
Top Employers 2020
Top Employers recognizes the excellent work environment of
our bank in Spain, Poland, the UK and Chile, and of Santander
Consumer Finance in Germany, the Netherlands, Austria, Italy,
Poland and Belgium. As Santander has won awards in more
than five European countries, it also received the Top
Employers Europe certification.
Best bank for diversity and inclusion,
and for SMEs
Euromoney gave Santander its global ‘Best Bank for
Diversity and Inclusion’ award for the first time, in
addition to our third global ‘Best Bank for SMEs’ award in
five years. The magazine highlighted the breadth and
ambition of our diversity and inclusion programmes. It
also presented us with its "Excellence on Leadership"
award for our covid-19 response in Europe.
One of the 100 most valuable brands in the world
Thanks to our work helping communities prosper in a way that
is Simple, Personal and Fair, we have been recognized as the
biggest bank in the eurozone and the sixth bank in
Interbrand’s 2020 Best Global Brands ranking.
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Local Awards
UK
Argentina
The Times listed Santander UK as one of the Top 50
employers for Women 2020.
Great Place to Work named Santander Argentina one of the
five best companies for women.
Chile
Brazil
Santander Chile was named a Leading Company in
Sustainability by ALAS20, as well as being made a
member of DJSI Chile, DJSI MILA Pacific Alliance and DJSI
Emerging Markets
Santander Brasil was chosen by Great Place To Work as one of
the 10 best companies for women and for the 11th year
running featured in the Índice de Sustentabilidade Empresarial
(ISE) portfolio.
Mexico
Poland
Santander Mexico placed ninth in TOP Companies' Súper
Empresas 2020 ranking. It is a member of the new S&P/
BMV Total Mexico ESG Index and DJSI MILA Pacific
Alliance. It was also named by International Finance
magazine as the Best Bank for Financial Inclusion in
Mexico for the TUIIIO microfinance programme, which
also received socially responsible company honours from
Centro Mexicano para la Filantropía (Cemefi) and Alianza
por la Responsabilidad Social Empresarial (AliaRSE).
Santander Polska featured among Wprost magazine's “best
employers in times of crisis”.
Portugal
Great Place To Work named Santander Portugal the “Best
Bank to work for in Portugal” and we ranked third overall in its
category for companies with over 1,000 employees.
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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 and
inclusive culture:
The Santander Way
A strong corporate culture is
critical to succeeding in today's
competitive, fast-moving
environment.
A talented and
engaged team
The more prepared and motivated
our workforce is, the stronger its
commitment to helping people
and business prosper will be. Our
team reflects the diversity of the
communities where we operate.
Acting responsibly
towards our customers
We develop our products and
services responsibly, and aspire to
deliver excellent customer
service.
Responsible
procurement
Our procurement processes apply
ethical, social and environmental
criteria to ensure we operate in a
sustainable way.
Shareholder value
We have clear and robust
governance that manages risks
and opportunities prudently and
devises long-term strategy to
safeguard the interests of our
shareholders and broader society.
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A strong and inclusive culture:
The Santander Way
The Santander Way is our purpose, our aim and
how we do business. It's our bedrock for building
a more responsible bank.
Being more responsible requires
a strong culture
Santander's corporate culture is critical to building a more
responsible bank. By fulfilling our purpose of helping people
and businesses prosper, our business grows and creates value
for everyone.
The Santander Way
Our
purpose
To help people and
businesses prospers.
Our
"how"
Our
aim
To be the best open
financial services
platform by acting
responsibly and earning
the lasting loyalty of our
people, customers,
shareholders and
communities.
Our values
Simple | Personal | Fair
Corporate behaviours
Show
respect
Truly
listen
Talk
straight
Keep
promises
Actively
collaborate
Bring
passion
Support
people
Embrace
change
Leadership commitments
Being open and inclusive
Encouraging the team to
prosper
Inspiring and executing
transformation
Leading by example
To live The Santander Way and be Simple, Personal and Fair
in everything we do, we have eight corporate behaviours
embedded in every stage of the employee lifecycle, from
recruitment and training to performance reviews and
compensation. In addition, our principles on diversity and
inclusion (D&I) strengthen our relations with our broad base
of stakeholders, making sure we are fully inclusive.
“Just as important as what we do is
how we do it”
Ana Botín, Group Executive Chairman
34
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Cultural transformation:
an ongoing journey
We understand a strong culture takes time to embed. Since
The Santander Way launched in 2015, we've strived to ensure
everything we do for our customers, employees, shareholders
and communities is Simple, Personal and Fair. This ambition
is reflected in the standards we uphold across Grupo
Santander.
By virtue of our talented and engaged workforce, guided by
clear governance, we've made great strides to strengthen our
culture and values. Our employee engagement scores have
increased by 12 percentage points (pp) since 2014. 86% of
employees said they felt proud to work for Santander (+8 pp
since 2014). 81% would recommend working at Santander
(+10 pp since 2014), and 84% (+13 pp vs 2014) said their job
gives them purpose and motivation to build a bank that is
even more Simple, Personal and Fair.
Culture plan 2020: objectives and achievements
Objectives
Diversity and
inclusion
Drive our D&I strategy with
enablers of an inclusive
workplace
Implement global minimum
standards on parental leave
Speaking up
Implement ethical channels in
our core markets
Uphold customer protection
principles
Lay down corporate guidelines
on vulnerable customers
Acting
responsibly
towards our
customers
Responsible
procurement
Simplification
Identify and map out projects
that streamline processes
Improve metrics about
simplification
Achievements
• Women make up 23.7% of senior management
(up from 22.7%) and 40% of the board of
directors.
• Cultural diversity increased from 50% to 66%
among senior managersA
.
• The percentage of employees with disability rose
from 1.8% to 1.9%.
• The board approved a D&I strategy.
• Among top 10 in the 2021 Bloomberg Gender-
Equality Index and named the World's Best Bank
for D&I by Euromoney.
• Our ethical channels with global minimum
standards were implemented across our
footprint.
• We mapped out initiatives and rolled out
guidelines on vulnerable customers in our core
countries.
• Responsible Banking unit´s 3-year strategic plan
incorporated progress indicators to measure
responsible practices towards customers.
• We implemented covid-19 measures for
customers, sharing best practices.
• We completed our 3-year plan to include
customer satisfaction indicators within salesforce
remuneration schemes.
suppliers according to environmental, social and
governance (ESG) criteria.
• We improved our risk management model.
• Our global simplification network mapped 115
projects.
• Key performance indicators applied to 100% of
projects.
• 100% of the projects align with how we measure
simplification through our Global Engagement
survey or Net Promoted Score (NPS) results.
• We developed a global project in Legal within 10
countries with more than 30 initiatives that
managed to shorten some contracts in 50%,
procedures in 20% and have also reduced the
number of contractual models.
Roll out an ESG pilot programme • Our pilot programme assessed c. 400 key
for suppliers
Enhance governance for critical
suppliers
A. Cultural diversity considers race and ethnicity, nationality, age, experience and career background locally and abroad.
For more details on diversity and inclusion and speaking up, see the next section titled "A talented and engaged team". Further information on the Simple, Personal
and Fair approach towards customers and suppliers can be found under the "Acting Responsible Towards Customers" and "Responsible procurement" sections
respectively.
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Annual report 2020
Contents
Risk management: The bedrock of a responsible bank
Grupo Santander's risk management and compliance model,
driven by our core values, culture, ethical behaviours and
responsible banking strategy, consists of three lines of
defence:
1. Business and support units
2. Risk management and compliance
3. Internal audit
The board of directors is in charge of controlling risks and
setting risk appetite. It receives expert support from its risk
supervision, regulation and compliance committee.
Building a responsible bank rests on our analysis and
handling of risks to our reputation, regulatory compliance,
conduct, digitalization, society, the environment and climate
change. In 2020, Grupo Santander continued efforts to
identify, analyse and spread awareness on climate-change
risks on the TCFD's recommendations (for more details, see
the section on sustainable finance).
For more details on environmental and social risks,
see section 2.5 in the 'Risk Management and
Control' chapter.
For more details on our prevention of corruption, bribery,
money laundering and terrorism financing, see section 7.2.
'Compliance and conduct risk management' in the 'Risk
management and compliance' chapter.
For more details on MyContribution model see
'Performance review and remuneration' in 'A talented and
engaged team' section.
Risk pro: Our risk culture
Prudent risk management is essential to any responsible
bank. This requires clear policies, processes and lines of
accountability. Over the years, banks have been subject to
greater scrutiny by the European Central Bank (ECB) and
other regulators who pay close attention to how the financial
institutions they oversee understand risk at all levels.
Therefore, at Santander we make risk management
everyone’s business.
While risks and regulatory requirements for banks often
change tune,Grupo Santander’s risk management has
consistently ensured excellent, sustainable growth, owing to
our robust risk culture called Risk pro (or I AM Risk in the UK
and the US).
In Risk pro, everyone is responsible for managing the risks
they encounter,regardless of level or role. Therefore, 10% of
our common performance management model,
MyContribution, is based on daily risk management.
As one of the common standards of our corporate culture
policy, Risk pro instils prudence and vigour into our risk
management, proving more effective than ever in the
covid-19 crisis.
Promoting and enhancing our risk culture
In 2020, Grupo Santander's risk culture grew stronger. The
Risk and the Compliance & Conduct divisions worked together
to embed Risk pro in recruitment, onboarding, day-to-day
operations and leadership across all businesses.
Communications and mandatory training have acted as key
levers that continue to drive the importance of ethical
behaviours in our day-to-day work.
We do this through such initiatives as Risk Pro Heroes (to
recognize employees' efforts to escalate risk); the speak up
channels in place across our footprint to encourage the
reporting of reputational and business risks; and the Risk pro
Week/Month. In 2020, we ran a joint Risk pro Week for the
first time involving the UK, Mexico, Chile, Argentina, Peru,
Colombia and the Corporate Centre in Spain, cultivating
employees' appreciation for risk management in everyday
functions with informative materials, messages, videos and
webinars.
To measure our progress in embedding Risk pro in Grupo
Santander, we reviewed risk profile assessments (RPAs)
completed by local teams and simplified the metrics of the
Risk pro dashboard, which gave us better insight into local
adoption of our risk culture across our footprint. We also
improved group-wide cooperation and shared best practices
thanks to six new working groups that devised an operating
model based on local risk management.
36
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Cybersecurity
Cybersecurity is critical in the digital age. Cyber attacks and
fraud pose systemic risks to financial services. Customers
expect their data to be secure and ethically processed.
Cybersecurity is built into our culture to foster crucial
behaviours that protect our bank and our customers'
information. The group culture steering approved an initiative
to include cyber security as part of the 10% risk objective of
the employees' performance management. With global
cyber threats on the rise, we gave training to payment
operators, developers, executives and board members, and
launched an updated version of our mandatory
cybersecurity training course. Our awareness initiatives on
digital channels help customers and our communities stay
safe online. We started a global cybersecurity campaign
under the UEFA Champions League and Copa Conmebol
Libertadores sponsorship, using football analogies to share
our five cyber tips. We continue raise cyber awareness for
personal and business customers through our websites, social
media and online workshops.
Cybersecurity is the
responsibility of everyone who
works with Santander
We work with public and private organizations to promote
knowledge sharing and collaboration on cybersecurity. We
lead efforts in key geographies to increase information
exchanges with government agencies and financial
institutions. We also champion the creation of international
exchange mechanisms to help combat cyber crime.
Our cybersecurity and IT conduct policy is fundamental in our
cybersecurity endeavours to protect our bank and our
customers. It outlines how Santander equipment and
Information Technology (IT) services should be used. It
highlights areas of risk and misconduct. It explains how our
rules can avoid, mitigate and manage reputational and
commercial risks. It also sets out how Grupo Santander and
subsidiaries must handle the technology, work tools and
information we provide employees with to prevent legal,
reputational and cyber-related incidents.
For more details on employees'
cybersecurity training, see the
section 'A talented and engaged
team' in this chapter.
For more details on our
cybersecurity plan, see section
'6.2 Operational risk
management' in the 'Risk
management and compliance'
chapter.
93%
of employees can
identify risks in their job
every day
91%
of employees see cyber
security as a top priority
75%
of employees feel
encouraged by managers
to report important
information, even bad
news
79%
of employees say they
can report unethical
conduct without fear of
retaliation
Source: Global Engagement survey 2019. Next survey expected in May 2021
37
Annual report 2020
Contents
A talented and engaged team
Our team reflects the diversity of our communities and
adapts to the new business environment, inspiring
customer loyalty and meeting society's needs.
Our people, the cornerstone of our strategy
Talent management
Performance reviews and remuneration
Robust talent management means attracting and
retaining the best talent while encouraging our
people to learn and develop.
Our performance reviews and remuneration
align with our culture.
Diversity and inclusion
Employee experience
A diverse and inclusive workforce is
pivotal to our cultural transformation
and to delivering our strategy.
A motivated workforce builds the best
work environment that promotes
wellbeing, flexible working schemes and
speaking up.
Our goal
Achievement in 2020
Treating our employees responsibly builds stronger teams willing to go
the extra mile for our customers and guarantees the returns our
shareholders expect. This way, we can invest more in our communities
while making our people proud to be part of Grupo Santander in a
virtuous circle of loyalty that drives our success.
Last year, we set out to be among the top 10 companies
to work for in 6 of our geographies by 2021.
A
Top 10
company in
6 geographies
B
A. According to a leading external source in each country (Great Place to Work, Top Employer,
B. Spain, Portugal, Argentina, Mexico, Uruguay and Chile, using
Merco, etc.).
38
the latest publications at our disposal. In Portugal and
Argentina the rankings used only consider companies with
more than 1,000 employees.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Talent management
Our talent management strategy helps us attract and retain
the most talented and skilled employees. It also contributes
to accelerating our transformation by fostering their
continuous development. Several projects further this
objective:
• Strategic Workforce Planning (SWP) identifies employee
challenges and gaps in skills and expertise. It helps us
create action plans to make sure each area has the skills it
requires.
• Skill Model helps define common job profiles across the
group. As the skills we require become increasingly similar
across geographies, it is an opportunity to define common
role requirements that can help our employees understand
what is critical in their jobs and focus on new areas to drive
our transformation.
• Dojo tackles the transformational challenge of our training
and career development. It brings all our global
subsidiaries under one training platform that up-skills and
re-skills employees faster.
• Workday is our new global HR platform. It gives us an
overview of people's skills and expertise, and allows us to
collaborate and communicate more easily.
These programmes are complemented by local initiatives to
cultivate talent according to each geography's specific
requirements.
Talent attraction
We must attract talent that will drive our transformation
while boosting skills and streamlining processes.
In 2020 we integrated our countries into our global career
website, where applicants can now find our openings across
the globe in just one place.
We also relaunched a section in our intranet, Global Job
Posting, which opens internal vacancies from our countries to
all our employees. Our new search engine simplified
employee experience and increased access to more than 800
job descriptions in various geographies, fostering the
functional and geographical mobility that is key to talent
development. We also explored innovative technology
solutions to support our digital transformation, maximize
efficiency in recruitment processes and enhance applicants'
experience.
Talent management figures
A
Total employees (thousand)
% employees with a permanent contractA
% employees working full timeA
Employees joining/leaving (turnover)
% of workforce promoted
Average length of service (years)A
% coverage of collective agreementsA
A. At year end
2020
191
97.9
94.9
12.6
6.7
10.2
74.5
2019
196
97.9
94.9
17.6
8.3
10.2
74.5
For more details, see the
‘Key metrics’ section in this
chapter.
Attracting tech/digital professionals
Our employee value proposition, The Santander Effect, drives
the impact the tech and digital experts we recruit can have on
our organization.
Santander Global Technologies launched Be Tech! with
Santander, an initiative to find and onboard 500 new
employees with different digital backgrounds and degrees in
STEM disciplines. The critical in-house knowledge and skills
we are gaining, as well as new ways of thinking and problem-
solving, is enriching our capabilities in Cloud, Data and
Cybersecurity.
In Poland, our SantanderTech programme offers a six-month
work experience to students and recent graduates with
projects that give them a unique advantage in their career
development.
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Annual report 2020
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Corporate mobility
Mobility is vital to developing our employees and making our
teams more diverse. Our main mobility programmes are:
• Global Job Posting offers employees the chance to apply
for jobs in other countries, companies and divisions of
Grupo Santander. Since 2014, it has posted over 5,700
openings.
• Division Talent Mobility Programmes: CIB, Accounting and
Control, Internal Audit and other businesses and functions
have international mobility programmes to expose
employees to new realities and projects, boosting their
career development.
• Mundo Santander has been one of Grupo Santander's
flagship talent programmes since 2008. It supports the
development of +2,000 employees who have taken part in
strategic assignments in other countries for 3 to 6 months.
Due to current travel restrictions, Mundo Santander was re-
designed in 2020, so participants could work virtually on
international projects in the future to foster their career
development under these new circumstances.
"Mundo Santander was a fantastic opportunity
to connect with colleagues from other countries,
and learn different perspectives on how we do
business"
Styvenson Peña, Corporate Centre
Furthermore, Santander México ranked ninth in TOP
Companies' Súper Empresas 2020 ranking. The Times listed
Santander UK as one of the Top 50 employers for Women
2020, and Santander Polska featured among Wprost
magazine's best employers in times of crisis.
Career development
Santander’s transformation is boosted by our continuous
learning approach. Our training and development
programmes help employees acquire new skills, sharpen old
ones, increase performance and productivity, and become
better leaders.
These are our main talent and career development
programmes:
• Talent reviews to assess our employees’ potential and
support the professional growth of highly promising
individuals.
• Succession planning: Our strategic approach is critical to
ensuring Santander’s future success by identifying potential
replacements for key roles and provide them with valuable
development opportunities.
• Action Learning Programme Santander (ALPS) for senior
managers. ALPS fosters business leadership and problem-
solving in a collaborative environment. 2020 marked its
third year, with 35 executives taking part.
• Young Leaders engages 280 emerging leaders from 22
countries who possess outstanding expertise in digital and
innovation, and uphold our Simple, Personal and Fair (SPF)
culture. Participants work with senior managers to
implement Santander’s strategy and share new ideas.
• Top Talent focuses on accelerating the development of our
most senior leaders. Participants reflect on their managerial
style and are given individual feedback and support to
create a development plan based on their key strengths and
areas of improvement.
Santander, a great company to work for
In 2019, we set the target to be a top 10 employer in six of
the countries we operate in by 2021. We changed our target
from being a "top bank" to being a "top company to work for"
to stay ahead of the competition in attracting the best talent.
We featured in the Great Place To Work list of the 25 best
companies to work for in the world for the second year in a
row, out of more than 10,000 organizations from 92
countries. We are also the highest ranked bank worldwide.
The ranking considered us one of the Best Places to Work in
Latin America, as well as naming Santander Argentina one of
the five best companies for women and Santander Brasil one
of the ten best companies for women.
We received the Top Employers 2020 certification in Chile,
Spain, Poland, the UK and in our SCF units in Germany, the
Netherlands, Austria, Italy, Poland and Belgium. This honour
recognizes excellent working conditions and contributions to
personal and professional development. Thanks to the
achievements made in Europe, we obtained the Top
Employers Europe 2020 certification.
40
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Learning and development
We value continuous learning so our employees can adapt to
a fast-paced, ever-changing environment. We have a global
induction, training and development policy to:
• transform our business.
• manage talent, encourage innovation, share knowledge and
identify key employees in various areas.
• embed our culture in line with the governance standards of
Grupo Santander, which include the corporate culture policy
and the code of conduct.
In 2019, we laid the groundwork for two transformational
projects, Skill Model and Dojo, to support our Strategic
Workforce Planning and enhance the skills required to future-
proof the workforce. Skill Model identifies common job
profiles across our markets to drive simplification and
consistency, leveraging internal know-how and helping
Santander track what their employees know to facilitate
talent management. Dojo tackles transformational training
and development challenges by creating common learning
paths and learning objectives and bringing all our
geographies under one global training platform through
academies and badges (certifications) to up-skill and re-skill
employees faster.
In 2020, Dojo launched and, by October, it had reached 2,167
employees from Retail and Consumer in 11 geographies with
a minimum viable product (MVP) that includes three initial
academies (Agile, Engineering and Cloud), a Customer &
Commercial Academy (to launch in the first quarter of 2021),
and the first Badges (certifications) in Agile framework
fundamentals, Agile for Teams, Agile Metrics, and Scaling
Agile at Santander. Today, Dojo covers 243 skills with more
than 38,000 learning activities.
Global training
Our main initiatives are:
→ The Risk Pro Banking School and Academy and other
risk management centres help establish the best
strategies for our employees and promote a strong,
uniform risk culture.
→ The Global School of Internal Audit offers practical
solutions designed to adapt to business and regulatory
changes.
→ The Technology & Operations School has rolled out the
Agile, Engineering Excellence and Cloud Academies at
Dojo, as well as the first virtual Advanced Operations
Programme and the Cybersecurity programmes for key
roles within Grupo Santander.
→ Global mandatory online training strengthens our
commitment to complying with financial regulation.
Available in all of our countries, we integrate it into
performance and incentive schemes. Courses cover
topics such as cybersecurity, Risk pro, financial crime,
data protection, conduct risk (i.e. Cyber Heroes, an
online programme to reinforce the direct role we all play
in protecting Santander, our people and our customers).
Each local unit has other mandatory courses based on
local regulations and requirements.
In 2020, we trained employees in third-generation human
rights issues, namely diversity and inclusion, health and
safety, relations with customers and suppliers, the
environment and the fight against corruption.
Likewise, and as a result of the covid 19 pandemic, Banco
Santander has promoted the use of digital channels to
continue the training of its employees
Main Group data
Millions invested in training
Investment per employee (euros)
% employees trained
Hours of training per employee
Employee satisfaction (over 10)
For more details, see the
‘Key metrics' section in
this chapter.
2020
61.3
320.7
100.0
30.9
8.2
2019
102.6
522.3
100.0
40.7
9.3
→ Leaders‘ Experience is an executive business and cultural
transformation programme to help participants (849 senior
leaders and 280 young leaders) acquire the tools and skills
they need to accelerate the transformation of Grupo
Santander.
→ The Faro Community has been created to leverage our
global footprint and direct our executives’ focus to
accelerate Grupo Santander's transformation.Grupo
Santander
→ Through our Responsible Banking endeavours, we've
designed a new e-Learning course that raises awareness
about the damaging effects of climate change on the
economy. We also began a series of virtual talks by leading
experts about climate change and what it means for banks,
to which all senior managers were invited. In addition, our
board members received climate-related training.
Some subsidiaries and global units had additional training
on climate change, as well as on sustainability, sustainable
finance, and diversity and inclusion.
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Annual report 2020
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Sharing best practice
We leveraged our global scale to improve our performance
faster with these group-wide initiatives:
→ Risk Pro/I AM Risk Culture Workshop to discuss
subsidiaries' progress and establish a global Risk Pro
Culture collaboration model.
→ First Workshop to create global communities and
promote a collaborative culture across Grupo Santander,
adding value through knowledge sharing. The workshop
was organized by the Compliance and Conduct
Collaboration Community
→ Non-Financial Risk Workshops on topics pertaining to
Santander Consumer Finance.
→ Managing Retail Credit Risk through the covid-19 crisis to
share core lessons learned from the payment holidays
offered to retail customers.
Social dialogue and restructuring
Grupo Santander promotes and upholds all employment
regulation and trade union rights, including the International
Labour Organization’s main standards, on freedom of
association and the right to collective bargaining. We are in
constant dialogue with employees’ legal representatives,
with bilateral meetings and special committees where parties
can share information, raise concerns and queries, and
negotiate.
Our restructuring processes are an example of how we
promote social dialogue. In recent years, Grupo Santander has
had to undergo restructuring in Spain, Argentina, Portugal,
Poland, the UK and other core geographies, consistently
implementing internal and external flexibility measures to
lessen the impact on employees and support their transition
to new employment:
nd
→ 2
Responsible Banking Workshop to outline Grupo
Santander’s future responsible banking strategy. Our
Responsible Banking team also holds regular video
conferences with country teams to introduce new initiatives
and share best practices.
→ Our global D&I network, which shared their local good
practices and voted on one initiative to implement globally.
→ Common Culture Workshop focused on setting priorities
and learning from best practices.
→ Simplification network established to identify and share
local initiatives globally, enabling us to set a common
simplification methodology while tracking progress
towards clear targets.
→ Customer Experience (CX) community created to support
subsidiaries in achieving the public commitment to be in
Top 3 NPS. It acts as a forum to share best practices
towards customers, contents and tools. It also helps
implement local customer experience plans.
Assisting off-boarded employees
Santander Poland executed a restructuring plan to adapt to
the new landscape. To ease the transition to new
employment and provide emotional support, we created a
protection package to help leavers realise their potential. It
gives them information on the job market and ways to search
for opportunities, as well as encouraging them to contact
prospective employers.
We launched communication campaigns, with webinars,
online consultations and new helplines. We also offered
support to managers through a change experience
framework, which they could draw on to outline their
employees' journey.
Restructuring
External relocation programme
When restructuring affects jobs, we always:
→ Negotiate with local trade unions and legal representatives
to ensure employees' rights are upheld.
→ Pay severance above the amount required by law, in
keeping with agreements with trade unions.
→ Help employees find new roles in Santander or other
companies.
→ Consider employees' special circumstances (i.e. disability,
children with severe disease, etc.) and offer special support.
We restructured the organization in 2016 and 2018 alongside
strategic partner Lee Hecht Harrison (LHH) to help those
affected decide what to do after leaving the company. The
A
and
programme committed to achieving 100% reassignment
also assisted employees interested in retirement, starting up
a business, specialized training and other options. The
measures were available to all leavers and their closest
relatives free of charge and for as long as it took them to find
a new job.
Due to the pandemic, in early 2020 the bank committed to
not placing any employees on furlough (known as ERTE in
Spain).
In December, we announced further workforce restructuring,
set for completion in 2021. Around 3,500 employees will
leave organization and another 1,500 employees will be
reassigned within the Group.
A. In 2016 and 2018, 100% of active job seekers found employment through
our outplacement programmes.
42
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Performance review and remuneration
Our comprehensive remuneration framework combines fixed
and variable schemes based on employees’ and company
achievements. Short- and long-term variable remuneration
reflects what we have accomplished (group-wide quantitative
and qualitative targets, as well as individual and team
targets) and how (e.g., behaviour, leadership, sustainability,
commitment, growth and risk management), in addition to
pension plans, banking products and services, life insurance
and medical insurance and other competitive benefits our
employees can choose. Fixed remuneration schemes reflect
local market conditions. To set pay, we strictly apply the
benchmarks and collective agreements in force in each
country and community.
To comply with EU regulations on compensation, we class
1,389 employees who make decisions that may have a
material impact on Grupo Santander’s capital as identified
staff. They are subject to a variable remuneration deferral
policy that defers a significant amount of their variable pay
(40%-60% depending on their responsibilities) for three to
seven years in accordance with internal and local regulations.
50% is delivered in shares and subject to potential reduction
(malus) or recovery (clawback).
MyContribution
MyContribution is our common performance management
model. Performance management is key to enriching our
culture and ensuring colleagues perform to the best of their
abilities in keeping with their career goals. Our model applies
to senior managers; employees who take risks deemed
"critical" under policies on governance, regulations and
remuneration; and employees at the Corporate Centre and in
Spain, Brazil, Mexico and Santander Consumer Finance. We
plan to implement it in other core markets in 2021.
MyContribution has three components:
• What: 50% is based on employees' individual goals set in
line with group-wide strategy.
Main initiatives in 2020:
→ Inclusion of our responsible banking targets (including
being a "top-10" company to work for; women senior
managers, financially empowered people; green finance;
and ethical channel standards) as a qualitative metric in
our executive remuneration bonus scorecard.
→ Mitigation of remuneration-related risks.
→ Increase awareness of fair pay practices in terms of equal
pay and gender pay gap reduction.
For more details on
remuneration data, see the ‘Key
metrics’ section of this chapter.
For more details on board
remuneration, see section 6 of
the 'Corporate governance
chapter'.
• How: 40% is based on how employees deliver on objectives
and foster the values of Simple, Personal and Fair, the eight
corporate behaviours and the four leadership
commitments, which combine to form The Santander Way.
• Risk: 10% is based on how employees manage risk in their
day-to-day role.
MyContribution is updated regularly. It now highlights our risk
culture with a separate category created in 2020 to assess it.
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Diversity and inclusion
Our commitment to a diverse and inclusive work environment
is a cornerstone of our corporate strategy. Our global D&I
executive working group and D&I expert network of local
representatives perform a vital role in driving and cascading
the importance of diversity and inclusion across Grupo
Santander.
To recruit, manage and develop talent that reflects broader
society, we developed a diversity and inclusion (D&I)
strategy in 2020. It sets out to consolidate an inclusive
workforce in terms of gender, LGBTI, people with disabilities,
and cultural diversity (age, ethnicity and race, nationality,
educational and professional background, and international
experience) by:
• encouraging leaders to get involved: their commitment to
being open and inclusive and to promoting diversity will
help consolidate our diverse and inclusive culture.
• increasing awareness: promoting diversity and shaping our
culture through global standards and actions such as
FlexiWorking, parental leave, training, employee networks
and the celebration of international days.
• promoting balance: special focus on increasing the number
of women in management and in development
programmes.
53.7%
23.7%
of employees are women of senior managers are
A
-1 pp vs 2019
,+1 pp vs 2019
women
39.2
1.9%
Average age of the
workforce, + 0.6 pp vs
2019
Data at year end.
A. Senior managers are 1% of total headcount
B. Data from Mexico not included as it is confidential information.
of employees have a
B
, +0.1 pp vs 2019
disability
86%
of employees believe Santander treats employees fairly
regardless of their age, family, marital status, gender
identity, disability, race, colour, religion or sexual
orientation. +1 pp vs 2018.
C
C. 2019 Global engagement survey. Next survey expected in May 2021
Euromoney gave Santander its first-
ever global ‘Best Bank for Diversity
and Inclusion’ award, highlighting
the breadth and ambition of our
diversity and inclusion programmes
Initiatives and achievements in 2020
Gender
Cultural
LGTBI
→ 3-year roll-out of maternity and
paternity leave minimum standards:
Maternity standards improved in
Argentina as well as in Mexico, where
we also implemented secondary parent
leave. In 5 geographies, our standards
have been met or exceeded; roll-out
will continue in other markets until 2022
→ An objective to achieve gender balance
in training and development
programmes
→ GPTW named Santander one of the Best
Workplaces for women 2020 in Brazil
and Argentina
→ First global meeting of the Santander
Women Network held with
representatives from Spain, Argentina,
Chile, the US, the UK, Santander
Consumer Germany and Santander
Consumer Nordics. Our objective is to
extend the network to all subsidiaries to
act as a counseling body regarding local
gender initiatives
→ New communication guide in
Argentina, which covers gender and
includes a protocol against gender
violence
→ Management skill programme for
Women launched in Chile to incorporate
more women managers
→ Our definition of cultural diversity
expanded to include race, age and
international background
→ Cultural diversity in senior managers
increased from 50% to 66%
→ Black inclusion action plan rolled out in
the UK to raise the number of Black
senior managers
→ "Through our eyes" talks organized in
the US for employees to share
experiences, encouraging often hard
conversations about racial and social
injustice. This initiative was voted to be
rolled out globally in 2021, adapted to
local circumstances
→ Embrace network leaders from each
geography met together in July to share
best practices and set the first global
LGBTI network objectives for 2021
→ Survey conducted in Mexico to find out
how LGBTI individuals feel in the bank,
in addition to LGBTI inclusivity
workshops
→ Collaboration with the Office of Ethics
and Employee Relations in Poland to
encourage speaking up
People with disabilities
Empowerment
→ Global mapping to share countries' best
→ Compulsory online diversity and
practices for people with disabilities
→ Celebration of the People with
disabilities week across the group
→ Paid work experience launched in UK, in
addition to tailored career support
programme for students with autism
→ Inclusive recruitment methodology
applied in Portugal
inclusion training for senior managers
to promote inclusive leadership and raise
awareness
→ Panels organized in Mexico on positive
masculinity and inclusive leadership
→ Monthly seminars on D&I and gender
diversity in Argentina
For more details on our D&I initiatives, see the
Diversity and Inclusion report in our corporate
website.
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Risk management
and compliance
Gender equality
Grupo Santander continues to prioritize equal opportunity for
men and women. Although 53.7% of employees are women,
we recognize the figure is lower in leadership roles and we're
taking significant measures to bring in more women leaders
at all levels.
A
In 2019, we set diversity targets for senior managers
; in
2020 our initiatives continued to promote gender equality,
covering issues ranging from work-life balance and parental
leave standards, to recruitment, career development, equal
pay and awareness. Across our footprint, we applied the
global minimum standards for parental leave approved at the
end of 2019. They include initial paid maternity leave of at
least 14 weeks in Argentina, Mexico and the US as well as
secondary parental leave of at least 4 weeks in Brazil, Chile,
Mexico, Poland and Uruguay.
Grupo Santander is also taking measures to fight sexual
harassment, which has been explicitly included within our
global code of conduct. In Spain, we have an equality plan
with protocols against sexual and gender-based harassment.
A. Senior managers are 1% of total headcount.
Grupo Santander is one of the
leading companies in the
Bloomberg Gender-Equality
Index, achieving the top score in
equal pay and gender pay parity.
Equal pay
Our strategy also prioritizes pay parity between men and
women, which we measure in terms of the equal pay gap
and the gender pay gap.
Gender pay gap: 31.7%
Equal pay gap: 1.5%
What it measures:
The equal pay gap gauges "equal pay for equal work" for
women and men in the same job at the same level. Our
comparison does not consider certain factors, such as tenure,
years of service, previous experience or background.
Our progress:
Grupo Santander set up fair pay programmes to reduce the
equal pay gap. They include systematic reviews tied to
remuneration cycles (merit-based promotions and bonuses),
work reorganization and career development plans to recruit,
engage, and retain diverse talent.
Our equal pay gap, which stood at 2% in 2019, declined this
year as a result of our strong commitment and wide-ranging
action plans across the organization. We will continue
conducting robust reviews and analyses of pay data to detect,
understand and act on any gaps.
What it measures:
The gender pay gap measures differences in compensation
between women and men in an organization, business, industry
or the broader economy, irrespective of the type of work. At
Santander, fewer women hold senior and business
management roles than men (something we are focussed on
addressing), while more women work in retail banking and
support roles.
We calculate the gender pay gap as the difference of median of
remuneration paid to male and female employees expressed as
a percentage of the male remuneration. Our remuneration
schemes factor in base salary and variable pay, but not
corporate benefits/in-kind compensation or local allowances.
Our progress:
Santander addresses the gender pay gap with a methodology
based on best practices and common guidelines for the group
and local units. We are extremely committed to fostering a
diverse and inclusive working environment. We maintain
rigorous standards for promotions, recruitment, succession
planning, implicit bias training and talent pipelines to
strengthen diversity, with communications from executives as
well as mentoring, networking and other actions aimed at
achieving greater balance in the organization. Local units have
action plans in place based on their own characteristics and
conditions.
The gender pay gap slightly increased from 31% in 2019, owing
to a larger sample size coming from enhancements to our
methodology and its comprehensiveness.
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People with disabilities
Grupo Santander has plans in place to include, and increase
accessibility for, people with disabilities, which we believe is a
question of talent, ethics and responsibility. While their
inclusion promotes their independence, freedom and dignity,
it also enriches the teams they join.
In 2020, these global initiatives increased the number of
employees with disabilities in Grupo Santander from 1.8% in
2019 to 1.9%:
• A global mapping to share countries' best practices across
the group.
Our D&I strategy sets two objectives to foster the inclusion of
people with disabilities:
• Recruitment of talent with disability benchmarks through
trainee programmes.
• To meet (or exceed) the legal quota for employees with
• Volunteering and mentoring for people with disabilities.
disabilities in a direct way, increasing the 2019 headcount
of employees with disabilities by 1% in countries without a
A
.
legal quota by 2025
• To comply with local accessibility laws, requiring the AA-
level accessibility standards dictated by the Web
Accessibility Initiative (WAI) for all new digital products.
• Awareness campaigns.
• AA-level digital accessibility criteria required in the
validation of Grupo Santander websites and apps.
Fundación Universia is a core partner in Grupo Santander's
efforts to include people with disabilities.
A. This measure exempts countries where it is not legal to collect disability
data.
Promoting the inclusion of people
with disabilities
Santander Argentina carried out a series of initiatives to raise
awareness and promote the inclusion of people with
disabilities:
→ We ran training for blind people and people with
intellectual disabilities.
→ We included training about disability and ran sign language
courses for employees on our education platform,
Academia.
→ We implemented initiatives on adapted sports, sign
language and inclusive design to celebrate the People with
Disabilities Week.
→ We created a network for colleagues with disabilities and
allies to share experiences, propose ideas and act as their
own ambassadors.
Differently abled
Since 2018, the Differently abled programme has been
preparing organizations to employ people with disabilities to
promote inclusive and diverse workplaces. This year, the
project focused on spreading awareness about the rights and
needs, and benefits of employees with disabilities, in addition
to tearing down barriers and creating an environment where
they could feel free to talk about their disability.
Differently abled's recruitment and other activities, which
help strengthen our brand as a socially responsible employer,
include:
→ workshops, webinars, guides and articles on the Intranet
for employees and hiring managers (e.g., on how to recruit
people with disabilities, best practices, rights of people
with disabilities).
→ benefits for employees with disabilities (one-off financial
support for health-related purposes.
→ assistance with disability certificate applications.
→ cooperation with universities, foundations and other
external organizations to employ people with disabilities.
→ awareness campaigns to mark the International Day of
Persons with Disabilities inside and outside Grupo
Santander.
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Risk management
and compliance
Employee experience
Our motivated workforce is vital to ensuring
commitment and success in helping people and
businesses prosper
1. Speaking up, active listening and taking action
As a responsible bank, everyone should feel able to suggest
better ways of doing things and alert management when
things go wrong or they suspect misconduct.
Promoting speak up without fear
This means:
Protect
Innovate
Engage
What we do:
Management of risks and ethical
concerns, internal governance
How we do it:
Ethical channels and whistleblowing
lines, committees and forums
Ideas, solutions, simplification, improved
processes
Agile working, Validate (open innovation
platform)
Recognition, performance management,
feedback
StarMeUp, MyContribution; Employee
pulse surveys
Our listening strategy
In line with our corporate behaviours, we truly listen to
colleagues and encourage them to speak up and talk straight.
We take action driven by feedback, data and experience,
rather than process, with advanced reporting and network
analysis to bring about change. The many large-scale internal
listening exercises we undertake, such as all-employee
surveys (our Global engagement survey is bi-annual), pulse
surveys (global and local) and crowdsourcing initiatives
(such as Validate, our open innovation platform) are
supplemented by performance check-ins and appraisals,
exit interviews, incident tracking and whistleblowing
channels. We're also reviewed by Top Employer, Great Place
To Work and other certifications that place importance on
how we listen to our employees.
In 2020, our listening approach covered financial crime, covid
and other topics. Additionally, employees participated in a
global pulse survey on our corporate purpose, employee
Net Promoter Score (eNPS), simplification, collaboration
and covid. Simplification and collaboration had been the two
areas with the lowest scores on the 2019 Global engagement
survey.
According to the results of our global pulse survey, our
employees are committed to our purpose to help people and
business prosper, and believe Santander responded
effectively to the pandemic's economic and business-related
challenges, and the bank has been taking appropriate action
to ensure employees stay safe and healthy. Our people also
indicated a willingness to retain some mode of remote
working in the future, which our global FlexiWorking
framework will support.
In terms of simplification and collaboration, the main areas of
improvement were streamlining processes, improving IT
capabilities, access on internal portals to find information and
clearer guidelines and procedures.
Amid the first wave of the pandemic in March, we held open,
virtual Ask Ana meetings with Group Executive Chairman Ana
Botín so everyone could remain up to date with current affairs
at the bank and ask questions on pressing matters. Although
most meetings highlighted the pandemic, they also looked at
strategy, business, diversity and other topics. In 2020, we
held 10 Ask Ana meetings, which attracted 140,000
connections/views.
86% of employees
agree Santander's response
to economic and business
challenges has been
effective during the
pandemic
78% of employees
say they're open to
remaining under some
type of remote working
model
+ 22,500
employees surveyed, of which
51% responded
A
A. 2020 global pulse survey results
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Ethical channels
We have Canal Abierto, our ethical channel model, in place
in our core markets. In 2020, it was launched in Portugal and
Argentina and at Openbank. Its purpose is to enable
employees to report violations of the general code of
conduct and actions that fail to uphold our corporate
behaviours. It promotes eight minimum standards, including
easy access, anonymity, third-party management and
awareness. In 2020, we focused on implementing them
across Grupo Santander, especially through:
• support and sponsorship by the Group executive chairman
and local CEOs for employees to use the channels to speak
up about misconduct;
• acceptance of complaints about non-ethical conduct that
runs counter to Simple, Personal and Fair behaviour;
• Enhanced measures to prevent conflicts of interest during
investigations; and
• the common minimum standards were part of the criteria
on the Responsible Banking executive remuneration
scorecard.
For uniform channel management and reporting, Grupo
Santander enacted the Canal Abierto policy in 2020. It
includes common standards, management criteria,
guarantees for users and local initiatives all channels must
meet to promote the channel's use among employees. It also
sets a taxonomy of cases that can be reported, including
sexual harassment.
Canal Abierto helped us hear and handle approximately 300
concerns from employees about covid-19 in 2020 (7% of
total complaints). Overall, they were about hygiene
Types of issues received
measures, non-compliance with social distancing, quarantine,
staff resources and managers' responses to the pandemic.
189 were deemed substantiated, and 25 led to disciplinary
action. This improved our crisis management and other
internal procedures.
In 2020, we received 4,390 issues mainly related to labour
relations (+3 pp vs 2019), including 28 that alleged workplace
discrimination (six of which led to sanctions, including three
dismissals); fraud and conflicts of Interest (-7 pp vs 2019) and
products and financial services marketing (no change yoy). On
average, issues were processed in 35 days. No cases of
corruption or human rights violations were confirmed.
Mexico
In 2020, our Mexico team's Línea Ética (ethical channel)
added a covid category for employees to report violations of
internal health protocols, hygiene measures and potential
infections. This was driven by a strong communications
campaign, timely follow-ups on filed complaints, action plans
and disciplinary measures.
Approximately 147 complaints were received and resolved
during the pandemic. The number of complaints fell
significantly in the final months as a result of mitigating
actions. Internal controls helped remind everyone of the
company's and employees' obligations and disciplinary
measures. In the most serious cases, those engaged in
behaviours increasing the risk of contagion were warned,
suspended or dismissed.
Issues received
Issues deemed well-founded for
investigation
Disciplinary actions
which led to dismissal
2020
2019
4,390
4,473
3,787
3,534
1,083
315
920
294
n Labour relations
n Fraud and Conflicts of Interest
n Products and financial services
marketing
n AML and Terrorism
financing
n Corporate Behaviours
n Others
48
68%12%9%7%3%1%
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Corporate
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Economic
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Risk management
and compliance
2. Corporate benefits
We offer several benefits for employees across all
geographies. Each country establishes programmes adapted
to local conditions. Benefits range from free services for
employees and family members, to discounts on products
and services. During the pandemic, we extended those
services to guarantee our employees' wellbeing in all our
countries to help our people stay physically and mentally
healthy during lockdown. We adapted health cover to new
circumstances and needs. In Spain, we reinforced our medical
services and launched a new advice programme with health,
social and legal experts. In Brazil, we had a 24-hour remote
medical assistance service available for all employees and
their relatives.
For more details on our initiatives
promoting employees' wellbeing, see
"Our wellbeing" in this section
3. The way we work
We promote our employees' work-life balance through
flexible working and health and wellbeing programmes.
FlexiWorking
Our global FlexiWorking framework consists of formal and
informal measures addressing where, when and how much
we work:
• "Where we work" incorporates home/remote working and
other measures.
• "When we work" considers compressed hours/days, flexible
start/end and break times, and alternative working
patterns.
• "How much we work" is about part-time working, special
leave, flexible holidays, job sharing and other measures.
The agreements we have signed with major trade unions
provide measures to improve employees’ work-life balance.
We made a pledge to promote practical time management
and the use of technology that helps our employees better
organize work and upholds their right to ”disconnect
digitally” when they are away from the workplace.
As part of our covid-19 response in Spain, we implemented
automated tools advising employees to avoid sending emails
or hosting meetings outside working hours. FlexiWorking
ultimately enabled over 100,000 employees to work
remotely during the peak of the pandemic, while
maintaining strong levels of wellbeing (as seen through our
regular pulse surveys).
Corporate benefits in Argentina
Santander Argentina offers benefits to employees in different
areas:
→ Family: Nursery subsidies, schools camps and scholarships
for employees' children.
→ Health: Excellence plan for all employees, with permanent
access to doctors, dentists, psychologists, social welfare
officers and other health professionals.
→ Financial products: Reduced interest rates, credit cards
without extra costs, access to mortgages with beneficial
conditions, etc.
During covid-19, they also offered discounts at supermarkets
and petrol stations, favourable lending conditions to buy cars
and motorcycles, discounts on internet bills and material to
facilitate remote working.
83%
of employees say Santander is
providing the appropriate flexibility
they need to be effective and
productive.
A
A. 2020 global pulse survey results.
To adapt the way we work and fulfil employee expectations,
we are working on a project to review our global flexible
working proposal according to subsidiaries' realities, gaining
flexibility in the workplace and with new digital capabilities.
Changes will be gradually implemented in 2021 and
afterward.
Agile methodologies
We implement agile methodologies to foster collaboration,
accelerate decision-making and drive change through remote
teams in several countries. In 2020, we focused on
implementing them in Brazil, Portugal and Poland.
In Poland, 1,400 employees are now working in agile units.
The significant improvements this brought about include
greater cooperation between IT and business areas, higher
engagement and transparency.
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4. Volunteering
Volunteering builds a strong team spirit and a sense of
purpose, while helping the communities we serve. The
corporate volunteering standard in our corporate culture
policy entitles employees to spend a certain number of
working hours each month or year volunteering.
We hold two important group-wide volunteering events for
employees each year: our Santander Week, observed in all
our countries at the same time, and International
Volunteering Day. Locally, the group’s subsidiaries organize
multiple volunteering programmes as part of their
community investment commitments.
We continued supporting communities despite
the pandemic
Our collaboration and commitment to social organizations did
not waver during the pandemic. Our volunteers in every
market continued to devote their time to promote a more
inclusive society. When we couldn't run our regular
volunteering programmes face-to-face, we delivered them
virtually. We also launched several social initiatives covering
new needs.
Santander also set up the Together solidarity fund to raise
money for the most urgent needs generated by the pandemic,
such as medical equipment and research. Employees in all our
countries made personal contributions to this fund.
For more details, see the 'Supporting
Communities' section in this report.
Volunteering initiatives during covid-19
Mães da Favela programme
In 2020, more than 46,000 collaborators from Santander
Brasil participated in the Mães da Favela project, organized
by the NGO Central Única des Favelas (CUFA). They put
together a 12-hour live festival to help single mothers from
disadvantaged communities. More than 20 TV and radio
channels streamed the event, which raised over R$3 million.
Santander Brasil matched this amount to bring the total to
R$7.2 million. The initiative benefited 11,000 women across
the country.
+26,000
employees participating
in community activities
+56,000
hours volunteered
In Uruguay, we gave talks
through Santander Universities to
groups affected by the pandemic.
They included a session on “How to
do business during the covid-19
crisis”, where leading business school
figures shared content and useful
insights into how to cope in this new
landscape.
In Spain, the Minutos en
compañía campaign (together with
Adopta un abuelo and Fundación
United Way) gave training to 75
volunteers who called elderly people
living alone or in care homes or
hospitals to lift their spirits (12,300
minutes in one month).
In Poland, our people sewed over
15,000 protective masks and donated
them to health centres, care homes and
other institutions. The material used to
make the masks was sent to employees'
homes.
In Chile, volunteers provided
online guidance and support to
students from disadvantaged
communities to continue their
education.
In Argentina, volunteers
provided assistance to the elderly,
buying them food, and providing
emotional support and assistance.
Volunteers also gave talks on financial
education to different audiences and
mentored young people in social
vulnerability situations.
In the UK, over 2,500 employees
volunteered with Alzheimer’s Society and
Age UK to make social phone calls to
lonely and vulnerable people, pledge
social actions to support people affected
by dementia, support local services , and
help older people get online and develop
their digital skills.
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Risk management
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5. Our wellbeing
Keeping our employees safe, healthy and well has always
been a core priority for us – and especially in 2020. On top of
the measures we took to protect our employees, we have
collective bargaining and other sector and bank agreements
that include provisions on employee health and occupational
risk prevention such as check ups and testing on a regular
basis or following prolonged absence.
Our structure and resources are designed to mitigate work-
related risks. We have appointed a global head of health and
safety to coordinate and centralize all initiatives on
employees' wellbeing. We also work with employee
representatives to regularly revise our occupational risk
prevention plans, which we implement through:
• regular workplace assessments of health and safety risks
and preventative measures to eliminate or control them.
• considering health and safety issues when designing,
contracting for or acquiring offices, furniture, equipment,
products and IT equipment.
• procedures to control and guarantee safe working
conditions, which are developed by the Occupational Risks
prevention area in collaboration with other units. They
consist of the identification of risk factors affecting
employees' health and safety; the assessment of risks that
cannot be avoided; and the adoption and scheduling of
preventive measures.
• information and theoretical/practical learning for
employees.
• integration of occupational risk prevention into
management to embed it in all operations that may impact
on employees' health and safety.
In 2020, to guarantee our employees' wellbeing during the
covid-19 pandemic, our protocols and prevention measures
consisted in:
• delivering masks, gloves and protective screens to office
and branch-based employees; applying strict personal
hygiene protocols; and reorganizing spaces to ensure social
distancing. In Spain, we committed EUR 15 million to
sanitary material purchases and disinfection activities, and
performed more than 70,000 tests. In addition, we
provided employees and their families with less expensive
tests and protective equipment.
• offering information and training on covid-19 prevention,
with a specific site on our corporate Intranet featuring
coronavirus updates and Q&A sessions with our executive
chairman.
• executing a corporate de-escalation plan with prevention
measures and guidelines for all geographies that fit local
government indications and included monitoring of
employees' health via apps, tests and surveys.
BeHealthy
We are committed to being one of the healthiest companies
in the world. We offer employees health and wellness
benefits, and raise awareness through our global BeHealthy
wellness programme.
BeHealthy has four key dimensions: Know Your Numbers, Eat
Well, Move and Be Balanced.
In response to covid-19, we created the BeHealthy at Home
brand to empower and enable colleagues to be healthy and
look after their families. Our teams gave advice on working
and exercising at home and on nutrition. In the UK, we created
a podcast series called The Wellbeing Podcast, which featured
leaders discussing key topics during the pandemic. In Poland
the CEO launched a challenge to burn more calories than him
in a steps challenge.
Our global partnership with Gympass saw the launch of
Gympass W (a digital platform to access 1:2:1 live sessions
with fitness trainers, cooking classes and much more).
We also launched a series of videos based on the book by
Chief Wellbeing Officer Dr MacGregor, with messages about
wellbeing and encouraging action through experiments,
quizzes and other activities.
87%
of employees say Santander is taking
appropriate steps to ensure
employees stay safe and healthy
A
A. 2020 Global Pulse survey results
3.1%
absenteeism
A,B
10,305
thousand hours missed
due to non-
occupational illness and
accidents
B
0.07
Severity rate
C
For more details on absenteeism data, see
the 'Key metrics' section in this chapter.
A. Days missed due to work-related accidents and non-occupational illness or accidents for every 100 days worked.
B. Santander UK does not count hours not worked due to covid-19 as absences so they will not affect the remuneration objectives set prior to the health crisis.
C. Hours missed due to occupational accidents involving leave for every 100 hours worked.
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Acting responsibly
towards our customers
Being responsible means offering our customers products
and services that are Simple, Personal and Fair. We need to
do the basics brilliantly and solve problems fast, while
learning from mistakes.
As a responsible bank, our customers are at the centre of everything we do
We focus on
our customers
We protect
our customers
We manage
their complaints
We listen to them and
enhance their experience
with us.
By identifying vulnerabilities
and avoiding product
mis-selling.
In case something goes wrong,
we act and learn from it.
• Community: Working as one team helps us serve our
customers better. We created a global CX community to
generate synergies and share best practices, knowledge
and tools across Grupo Santander.
• CX plans: We helped devise and execute local plans to
improve customer experience. We also focused on
improving customers' emotional experience through
Emotional hub in Mexico, the C+ Santander model in
Argentina and other initiatives.
Transforming customer experience
In 2020, we reinforced our customer experience (CX) strategy
to ensure we offer the best service, always. The diverse CX
initiatives we ran focused on active listening.
We aim to become a leader in customer satisfaction (top 3 in
NPS) in all our geographies. Supported by our new global
multidisciplinary team, we prioritize projects with the
greatest impact on NPS, and oversee improvements to the
customer experience wherever we operate.
We created that team based on four pillars:
• Strategy: To unify Grupo Santander's CX vision, we started
to create common CX guidelines that will boost customer
journeys and touchpoints, ensuring customers remain at the
centre of our efforts.
• Analytics: To enhance the team's performance and bearing
on our business, we evolved CX metrics in line with local
initiatives to ensure all our plans are customer-centric,
based on data and action-driven.
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Risk management
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Emotional hub
C+Santander model
The C+Santander (Customer+Santander) is a data-driven
model for decision-making to create memorable customer
experiences by transforming perceptions into data; data into
knowledge; and knowledge into action. We measure every
touch point via NPS to keep a close track of customer claims.
We then correlate them with business performance
indicators, generating a constant flow of data each area can
use to focus on delivering customer strategies that can make
the greatest difference.
Thanks to this approach, we moved into the top 3 in NPS in
2020. We also developed experience guidelines on how to
approach customers in personal and digital interactions.
Poland, a case study on simplification
As part of our Agile transformation, Santander Polska
simplified products and processes. This significantly improved
how we design and market our products and services, while
solving customers' problems with easier processes. So far, we
have:
→ developed new digital cash loans, reducing the time and
steps to complete the transaction and vastly increasing
new cash lending.
→ set up a new way to open accounts in branches that only
takes 2.5 minutes (as opposed to the 33 minutes
previously) and only requires a signature for completion,
halving the number of clicks.
→ created 15-minute SME smart loans (down from 90
minutes) without a loan application. The process is
omnichannel and can be completed in a single tool.
The Emotional hub initiative seeks to listen to our customers
to understand and improve their emotional experience. We
combine customer and employee interviews with design-
thinking to build an emotional map that helps us uncover
sensitive issues which we can address. We identified much-
needed enhancements for full service, customization, and
product and process simplification. We listened to 600,000
customers and more than 1,000 employees, who gave us a
holistic view of their emotional experience.
We use interactive channels to listen to, and better
understand, our customers. Our customer centres in Chile,
Mexico, Spain and Portugal enable us to get to know more
about what they think of our products and services and the
way we do things. Meanwhile, our corporate Consumer
Protection function shares best practices across Grupo
Santander through CuVo (Customer Voice), a monthly global
working group formed by all our customer-facing areas.
In 2020, we continued to simplify our processes and product
catalogue. In Portugal, we streamlined our product portfolio
by reducing the number of accounts and bank cards from 141
in 2019 to 38 in 2020. We also created the Santander One
account, which brought together several accounts into one
and helped increase transparency, offering subscription-
based plans and free, essential services to loyal customers; it
was launched in Spain and will be progressively implemented
in all our European units.
Expanding our new branch models
and promoting inclusiveness
We are constantly adapting our branches to customer
needs. In 2020, we opened Work Cafés in Poland and the
US, and took steps to make our branches and channels
more accessible and inclusive. In Spain and Portugal, we
use universal design principles (induction loops, tactile
paving, accessible toilets, etc.) to fit out our Smart Red
branches and Work Cafés. Santander Polska’s Barrier-Free
Service includes branch accessibility measures and sign-
language video calls with customer service advisers.
We are working tirelessly to adapt our ATMs for the visually
impaired: 95% of Santander Brasil’s machines are braille-
enabled; 1,286 have been adapted in Argentina; more than
2,000 in Portugal are equipped with voice command; and
1,300 in Poland are speaker-driven and braille-enabled.
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Customer satisfaction
Our strategy sets out to inspire loyalty in our customers. We
conduct more than a million customer surveys per year to
monitor their opinions and experiences with Santander and
see how we can adapt our products and services to improve
their experience.
To measure customer loyalty and satisfaction, Santander
uses the Net Promoter Score (NPS). NPS is an indicator that
summarizes our relationship with customers. It depends on
three main drivers we care about and constantly work to
improve: service, product and price, and image. It contributes
to the variable remuneration schemes of most employees. In
2020, our NPS was in the top 3 in 6 out of 9 geographies.
Loyal customers in 2020 are 22.8 million, up 6% from last
year.
Our customers' expectations changed largely because of
covid-19. Therefore, we focused on improving our service at
contact centres and digital channels (which have been the
most widely used channels during the pandemic). We also
worked on simplification, which we found to have a profound
impact on NPS.
Top 3
6 of 9 countries
A
A.Santander US has a different objective and does not account for the metric.
South America
Europe
North America
2018
2019
2020
5º
4º
3º
3º
2º
2º
3º
2º
1º
2º
2º
3º
3º
3º
2º
5º
4º
5º
3º
3º
1º
1º
2º
6º
3º
4º
4º
9º
9º
9º
Internal NPS benchmark to measure customer satisfaction, audited by Stiga / Deloitte
Main peers by country: Argentina: Galicia, BBVA, ICBC, HSCB, Macro and Nación; Brazil: Itaú, CEF, Bradesco, Banco do Brasil; Chile: BCI, Banco de Chile, Itaú, BBVA,
Banco Estado; Uruguay: Brou, Itaú, BBVA, Scotiabank; Spain: BBVA, Caixabank, Sabadell, Bankia; Poland : ING, Millenium, MBank, Bank Polski, Bank Pekao; Portugal:
BPI, Millenium BCP, CGD, Novo Banco; UK: NationWide, Barclays,Halifax, Natwest, Lloyds, HSBC, TBS, RBS; Mexico: Scotiabank, Banorte, Bancomer, HSBC, Banamex;
US: JP Morgan, Bank of America, Capital One, PNC, M&T Bank, TD Bank, Citigroup, Ctizens, Wells Fargo.
We monitor
all NPS
drivers
SERVICE
Branch
Channels
Personal
Simple
General service, waiting time, branch assistance, layout
Mobile, internet, ATM, CDM, contact centre, personal manager
Personal attention, kindness, employee professionalism
User-friendliness, speed and agility
Communications Clear statements, information on offers and deals, coherent information
Problems
Others
IMAGE
Percieved issues
Data protection
Strong and sound, social responsible, innovative, trustworthy, transparent
PRODUCT & PRICE Simple product and service proposition, fees and charges, benefits, credit cards
Group NPS by channel
A
56
Branch
45
Contact Center
60
Internet
68
Mobile
Branch: Does not include Chile
Internet: Does not include UK, Chile and Uruguay
Mobile: Does not include Uruguay
A.Based on the results of surveys made to customers 48h after their interaction with the Bank. It presents a pondered average of the Group's active customers.
54
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Protecting consumers and helping
vulnerable customers
with fees and ATM issues) and develop plans to tackle them.
We plan to add artificial intelligence to the process to gain
insights we can use to increase customer protection.
Being responsible means offering our customers products and
services that are Simple, Personal and Fair. Our daily
operations must be brilliant, and we must go beyond legal
minimums to give our customers an exceptional experience.
Consumer protection policy and principles
To further embed our customer focus, the Compliance &
Conduct function implemented the consumer protection
policy. It sets out principles we expect our teams to follow,
ensuring high ethical standards in our relationship with
customers.
Consumer protection principles
To apply our consumer protection principles to our day-to-day
practices – reflecting our aspiration to be Simple, Personal
and Fair in all we do – this year we implemented a reporting
process in all geographies. By using customer voice and
business indicators, it allows us to identify customer
outcomes and local gaps (e.g., poor assistance, incidences
Consumer protection principles
The Compliance and Conduct function repeatedly identifies
potential risks to customer protection from new regulations
or problems with products or services. It carries out thematic
reviews for the entire group, assesses the situation and
makes decisions to improve and mitigate risks. In 2020,
thematic reviews focused on responsible business practices in
account packages, revolving cards, and overdrafts. Their
findings and suggested best practices for transparency,
disclosure to customers, sales, commissions, loan approval
and credit conditions, were shared across geographies. Next
year, we expect subsidiaries to close the gaps identified
against the group's responsible business standards. In
general, all subsidiaries are well positioned to fulfil those
standards.
We also ran awareness campaigns and workshops on
product governance and consumer protection that matched
strategic priorities.
Treat customers 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
Our global vulnerable customers and over-indebtedness
prevention guidelines, approved in 2019, aim to ensure a
consistent group-wide approach in guaranteeing fair
treatment to customers, with empathy according to their
particular circumstances, and in avoiding over-indebtedness.
For example, when validating a product or service, we must
specify if we can offer it to a vulnerable customer.
Although most countries have laws that state when a
customer can be considered vulnerable, our definition is
wider and covers circumstances beyond financial stress,
mindful of the various personal factors that lead to a state of
vulnerability.
By the end of 2020, all subsidiaries had locally approved the
vulnerable customers guidelines. This puts us in a good
position to face regulatory trends as we continue to build a
more solid vulnerable customer model.
"Here & Now" for our elderly customers
To support elderly customers during the covid-19 pandemic
(especially those unfamiliar with digital channels), Santander
Portugal launched Here & Now. This initiative is a personal
contact and community programme and free service for
employees to help elderly customers with digital channels,
payments, and daily tasks like making purchases at the
chemist. We contacted more than 55% of our customers over
the age of 65 (more than 150,000 people), many of whom
told us things like “You've called me more than two of my
three children” and “I thought that this type of service was
only given to rich people”.
We also distributed 580 tablets and communication cards to
care homes across the country, so residents could talk to their
families during the Christmas holidays.
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Product governance
Santander’s governance structure enables us to protect
customers' interests.
Our Product Governance and Consumer Protection function
in our Compliance & Conduct division sets standards to
manage products and consumer protection properly. Our
product governance forum, which involves the Responsible
Banking unit, ensures the products and services we market
meet the needs of identified target segments, are available
on the right channels and deliver the desired outcomes for
customers. Our product validation assesses whether a
product can be categorized as ESG and is considerate of
vulnerable customers.
Salesforce cultural transformation
We include customer satisfaction indicators in our
remuneration schemes so the first line of defence are
incentivized to meet customers' rising expectations. Our
three-year transformation plan (which started in 2018)
continued to revise the remuneration of our salesforce.
Corporate Compliance & Conduct, with the collaboration of
HR and local teams, monitored the implementation of local
action plans to confirm significant improvements. The action
plan covers governance; variable/fixed remuneration ratios;
linear business objectives that do not promote specific
products; the weighting of quality components against
adequate diversification of conduct metrics; and other topics.
Conduct in collections and recoveries
In 2020, our product governance focused on:
• digital contracting and contents: This includes the scope,
consistency, presentation format and access to information
on digital channels (Online Banking/Mobile Banking). We
paid special attention to pre-contractual information,
withdrawal rights, complaints handling and post-sale
information.
• responsible consumer credit lending: To ensure credit
terms are reasonable and prevent over-indebtedness, we
focused on revolving cards and drafted an internal guide to
regulate conduct standards that must be observed.
In executing this plan (especially in 2020), we have
significantly increased the weight of conduct/quality on
variable remuneration (equal to or above 40%). Customer
satisfaction and quality are the basic pillars of this model.
Our employees' knowledge and skills are key to ensuring the
highest quality customer service. As part of our continuous
improvement process, in 2020, several group subsidiaries
updated their conduct risk with customer training material
(part of global mandatory employee training) and a specific
course on conduct standards in collection and recovery.
In the first half of 2020, we developed plans in all
geographies to increase focus on collections and recoveries
conduct. This improved our conduct in that regard, while
strengthening controls over transparency, data protection,
vulnerable customers, training and remuneration practices in
collections and recoveries.
• enhancing quality assurance and third party risk
management to ensure a fair customer journey with
qualitative conduct indicators.
• providing specific conduct training to all employees
involved in debt collection.
Our plans focus on:
• boosting controls to mitigate conduct risks (fair treatment
to customers and end-to-end customer management).
• re-designing communications with customers to make
them more transparent and to enhance data protection
controls.
• identifying and referring vulnerable customers.
Our efforts accelerated owing to covid-19. With the
pandemic, defaults are likely to increase, making it even more
important that our processes ensure our customers are
treated fairly.
For more details on product governance,
consumer protection and conduct and collection
& recovery, see section 7.2. 'Compliance and
conduct risk management' in the 'Risk
management and compliance' chapter.
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and financial review
Risk management
and compliance
Data protection
Grupo Santander is committed to collecting, storing and
processing personal data safely and securely. Our compliance
programme guarantees robust risk-related management of
data. It includes:
• corporate-based criteria as general lines of action to meet
regulatory requirements.
• local subsidiaries' responsibility to fulfil the General Data
Protection Regulation (GDPR) and local regulation on data
protection.
• a solid governance model (available on the corporate
website), consisting of:
• corporate and local policies.
• a data protection officer (DPO) and/or managers in each
unit where necessary. We formally disclosed appointees
to local authorities.
• a corporate oversight programme based on a bi-annual
monitoring forum chaired by the Group chief compliance
officer, where subsidiaries report on compliance status,
management indicators and half-year evaluations.
Other items that bolster our commitment to personal data
protection are:
• a homogeneous group-wide monitoring model, which
includes monthly reporting on performance indicators.
• data protection integrated into the annual Internal Audit
review programme. The number of units reviewed by
internal audit since 2018 is 38 (and counting).
• a corporate data protection management tool that records
group-wide data protection activities (c. 6,000 treatments).
• promotion of corporate initiatives and the exchange of best
practices among units, including workshops and training
courses.
• special training for DPOs and privacy "champions".
• constant monitoring of regulatory developments to update
and consolidate criteria, methodologies and documentation.
• employee training and awareness.
Principles of action in our relationship with political parties
In our goal to be a responsible bank, Grupo Santander
maintains a good relationship with all its stakeholders. Grupo
Santander is governed by principles of transparency, honesty
and impartiality in its interactions with political parties and
other entities with public and social purposes that are also
political in nature.
Since 2016, our policy on financing political parties
(available on our corporate website), which our board’s
executive committee approved, applies to all our subsidiaries
worldwide. It prohibits making monetary or in-kind election
donations and contributions. In the commercial relationship,
Grupo Santander prohibits full or partial debt forgiveness for
political parties and their affiliates, even though they can
negotiate the terms of debt with our subsidiaries at interest
that can never be below market rate. Furthermore, this policy
applies to political parties’ electoral candidates to the extent
local laws provide.
Grupo Santander rejects any and all acts of corruption by
employees and managers in our relations with political
parties and any other entities with public and social purposes.
According to our policy, in 2020 Grupo Santander did not
make any donations or contributions to political parties.
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Delivering for customers during the covid-19 crisis
Through this unprecedented crisis, Grupo Santander has
worked hard to help our customers overcome financial
challenges. In addition to facilitating regulatory and
governmental assistance, the measures we took to maintain
high-quality, accessible services and relieve financial distress
included:
• expanding the terms and scope of grace periods and
payment holidays for all customers (beyond legal
requirements).
• helping channel government liquidity to SMEs and
businesses.
• expanding insurance cover for pandemic-related claims in
line with payment holidays.
• making sure we continued to deliver quality service to
customers during lockdowns, mainly through better online
channels (at call centres, ATMs and on new apps) and
branch recalibration.
Our Product Governance and Consumer Protection teams
verified those measures locally to ensure transparency and
avoid additional costs for customers, which special concern
for our most vulnerable customers.
Health and safety
We implemented measures to guarantee our customers'
health and safety at all times. We adapted our branches and
encouraged the use of digital channels via "Stay at home"
notices, tools, tutorials and cyber tips, plus coronavirus
helplines for frequently asked questions. We undertook
initiatives to support and protect elderly customers, people in
rural areas, at-risk patients and other special groups. We set
up priority services and business hours for elderly customers.
We increased our call centres' capabilities through plans in all
countries to facilitate working from home and channel
deflection, optimize resource use and anticipate customers'
needs. This increased our global service volume by 21% on
average.
Customer approach during covid-19 in the UK
Santander UK provided product support such as payment
holidays on mortgages, credit cards and personal loans; early
access to savings with no penalties; and waivers and reduced
rates on overdrafts. We also undertook these initiatives to
ensure vulnerable customers could access services and to
help relieve their financial challenges:
→ Reaching Out, a programme where branch employees
made thousands of phone calls to customers who might be
vulnerable or at risk of financial exclusion, check on their
wellbeing and provide additional support. We provided
these calls from April-November 2020, reaching over
81,500 customers.
→ A coronavirus helpline for customers unable to visit
branches or access the Internet.
→ A new and improved online chat service on the Santander
website, mobile app and online banking, providing easy-to-
access information and keeping phone lines free for
customers who needed to use them.
→ Access to cash for self-isolating customers, whereby an
authorized third party could obtain cash on their behalf.
→ Guidance to identify the signs of domestic/financial abuse
and inform customers on ways of reaching out for help.
For more details, see 'Meeting the needs of
everyone in society' and 'Financial inclusion
and empowerment' in this chapter and 3.3
'Covid-19 credit risk management’ in the Risk
chapter.
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governance
Economic
and financial review
Risk management
and compliance
Complaints management
Our complaints management and analysis sets standards for
all units to properly handle complaints, ensuring regulations
are met and complaints and interaction logging is firmly
embedded in all customer contact channels to provide the
best possible service. More than this, we use complaints to
improve our service and products, so that complaints do not
arise in the first place.
In 2020, we focused on resolving complaints at the first point
of contact with customers and better complaints handling
based on customer feedback. We also improved mitigation
plans, governance and root-cause analysis to effectively
identify opportunities for issue reduction and proactive
resolution. We worked to boost the capability of not only our
specialist teams, but all teams, to increase reporting. We
took 267 corrective and preventive actions involving ATMs,
fraud, web/ mobile app access and use, and more customer-
centric debt collections.
We closely monitored our subsidiaries to analyze complaints
trends driven by the pandemic and, as relief measures expire,
to take actions to ensure the best possible outcome for our
customers.
We closely monitored our subsidiaries to analyze complaints
trends driven by the pandemic and, as relief measures expire,
to take actions to ensure the best possible outcome for our
customers.
Our performance during the crisis proved successful.
Covid-19-related complaints (2-4% of complaints group-
wide) were very low compared with the number of relief
measures we managed to implement in short timeframe. In
addition to adjusting systems and tools, we closely monitored
our subsidiaries to analyse complaint trends driven by the
pandemic and take actions ensuring the best possible
outcome for our customers once relief measures expired.
For more details on complaints management, see
section 7.2. 'Compliance and conduct risk
management' in the `Risk management and
compliance' chapter and our Culture report in our
corporate website.
Type of complaints
A
(%)
Average resolution time
A
(%)
Resolution
A, B
(%)
Banking
procedures
Loans
Investments
Payments
methods
Others
Insurance
1 - 5 days
15 - 30 days
In favour of the Bank
5 - 10 days
10 - 15 days
More than
30 days
In favour of the customer
A. Personal Protection Insurance (PPI) Complaints excluded from the volume, distribution by product, and resolution term figures. Regarding uphold ratio, UK has
been fully excluded since PPIs represent about 80% of the formal complaints received.
B. Complaints metric follows the criteria established by the Group, homogeneous in all geographies.
Process enhancement
Santander UK continued to improve customer
issues resolution in 2020. Complaints and
dissatisfaction inflow reduced 25% YoY. A
dedicated knowledge tool that provides customer-
facing employees with better access to information
and enables them to solve customer problems
faster, helped enhance customer experience via
first-line contact in branches and telephone
channels.
The strategy followed cases escalated by
customers to the Financial Ombudsman Service. An
ongoing collaborative relationship with the
Ombudsman resulted in an overturn reduction of
6% in H1'20 vs H2'19 to 24%. Inflows also declined
by 14% to 5,200 cases in the same period.
At Santander US, we monitored customer complaints
closely, with bi-weekly reports issued to senior
managers and regulatory agencies (OCC and CFPB) in
order to assess customer impacts and implement
service changes. Complaint volumes remained stable
throughout the year, with fluctuations correlating
with servicing changes.
Santander prioritizes support for vulnerable
populations and developed processes to manage
complaints from service members, elderly customers
and people with disabilities. Specialized training and
partnerships with the legal team for response review
were key to ensuring the correct resolution of
complaints.
59
21.6%36.0%1.6%28.9%9.5%2.3%37.6%20.4%9.7%22.3%10.1%67.3%32.7%
Annual report 2020
Contents
Responsible procurement
Our suppliers have an impact on society and the environment.
That’s why we expect them to act responsibly and uphold
ethical, social and sustainable standards just as we do.
Being responsible also
involves our suppliers
Third-party certification policy
Responsible behaviour principles for suppliers
Risk control
Whistleblowing channels
Our third-party certification policy sets out a common
methodology for all countries to select, approve and evaluate
suppliers. In addition to price, quality of service and other
traditional criteria, it includes ESG (environmental, social and
governance) factors, such as diversity and inclusion, human
rights and sustainability, which are covered by its responsible
behaviour principles for suppliers. These principles apply to
our 8,651 critical suppliers each year.
A
. 21.8% were certified for the first time in 2020
Grupo Santander works with 8,651 certified suppliers (-12%
vs 2019)
B
(+5.1 pp vs 2019). Through Aquanima
, we entered into 8,875
agreements (+ 2% vs 2019) with 4,592 suppliers (-3% vs
2019), of whom 94.7% are companies that operate in the
same geographical area of service. 96.5% of our total services
(+0.8 pp vs. in 2019) are locally sourced, reflecting our
support for local economies.
We are working to implement various controls and/or audits
to make sure suppliers comply with our policy and corporate
values. In 2020, to reinforce our commitment, we launched
two pilot initiatives to assess ESG performance:
• ESG criteria in third-party on-boarding: We assessed
approximately 400 selected suppliers according to ESG
criteria in Spain, Portugal, the UK, Poland, the US, Mexico,
Brazil, Argentina and Chile. The questionnaire consisted of
18 new ESG questions including carbon footprint; gender
and disability inclusion; flexible working; minimum wage;
and good corporate governance practices. As a result of the
pilot, ESG criteria will be implemented in critical suppliers'
on-boarding from 2021.
• ESG criteria in third-party negotiations: We used the
questionnaires from bidding processes to collect
information on suppliers' ESG impact in labour-intensive
service categories (such as travel and energy).
We have escalation channels for suppliers in our core
markets, and plan to roll this out to all geographies in the
coming period.
During the covid-19 pandemic, we took actions to address the
most urgent needs of our suppliers, particularly vulnerable
suppliers. These included continuing to pay for basic services,
providing liquidity through lines of credit, paying invoices
early and reducing payment periods. We prepared
recommendations for subsidiaries based on local best
practices to make sure these efforts were consistent
throughout the group.
A. An internal audit in 2020 to condense the group's external suppliers led to a
reduction in the percentage of approved suppliers against 2019.
B. Aquanima is a Santander subsidiary specialized in procurement.
60
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Corporate
governance
Economic
and financial review
Risk management
and compliance
Risk control
→ In 2020, we launched a new supplier risk management
platform in our core markets. It is designed to streamline
and integrate third-party management and key
information. It allows us to combine all supplier
B
certification data.
It currently collects data available on
10,252 third parties and18,789 services. It has 5,366
internal users.
Collaborating with suppliers to tackle
covid-19
During the pandemic, the measures Santander España took to
support suppliers and communities included:
→ maintaining payments to suppliers even when the service
could not be provided, to make sure their employees
continued to receive wages.
→ We unified and grew our group-wide supplier risk
assessment team. The team analyses the behaviour of our
most important suppliers in Cybersecurity, Business
Continuity, Physical Security, Facilities and Data Privacy.
→ continuing to purchase meals from our caterers (even
though our employees were working remotely) and serving
them to healthcare professionals at makeshift hospitals in
Madrid.
→ We keep records of our key suppliers and service providers
by geography based on those five risk areas.
→ using our internal transport services to take healthcare
professionals from hotels to hospitals.
→ We closely monitor, and regularly report on, the status of
our 'high-risk' suppliers to senior managers.
B. Pending completion in the UK and US. Poland currently operates its own
system.
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Annual report 2020
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Shareholder value
We build lasting loyalty among our four million shareholders
by delivering profitable and sustainable growth
Communication with shareholders
Banco Santander shares
We aim to align our interests with our shareholders', creating
long-term value and maintaining their trust and the trust of
broader society. We provide shareholders and investors with
information that meets their expectations and upholds our
values and corporate culture. We communicate with them
continually, making sure their opinions are taken into account
by the Board.
Shareholder remuneration
In December, shareholders received the new shares related to
the share capital increase, equivalent to EUR 0.10 per share,
as a complementary payment from 2019. Each shareholder
received a free allotment right of new shares for each share
they hold and had the option of either selling in the market or
receiving new shares. As a result, total remuneration for
2019 rose to EUR 0.20 per share.
With regard to the dividend payment against 2020, the
board of directors intends to pay a cash dividend of EUR
2.75 cents per share, the maximum allowed in accordance
with the limits set by the European Central Bank (ECB) in its
recommendation last December.
The board’s intention is to restore a payout of 40-50% of the
underlying profit, in cash, in the medium term. With respect
to the remuneration against the 2021 earnings, the
intention is to resume payments once the European Central
Bank recommendations so allow, in line with the
announcement of April 2020.
Banco Santander is listed on five markets: Spain, Mexico and
Poland; the US (as American Depository Shares), and the UK
(as CREST Depository Interest).
>4
million
shareholders
(+30,000 vs 2019)
For further details about Santander Group's
communication with shareholders, see
sections 1.4 'Active communication with
shareholders during the pandemic' and 3.1
'Shareholder engagement' in the Corporate
Governance chapter.
For further details on Santander Group's
shareholder remuneration, see section '3.3
Dividends' in the Corporate Governance
chapter.
Fot further details on Santander share, see
section '2.6 "Stock market information'in the
Corporate Governance chapter.
Share capital ownership
Geographical distribution of chare capital
n Board
A n Retail shareholders
n Institutional
investors
n Americas n Europe n Rest of the world
A. Shares owned or represented by directors. For more details on shares owned and represented by directors, see 'Tenure and equity ownership' in section 4.2 and
subsection A.3 in section 9.2 'Statistical information on corporate governance required by the CNMV' of the 'Corporate Governance' chapter.
For more information, see
section 2.1. 'Share capital' in
the Corporate Governance
chapter.
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1.05%40.85%58.10%22.32%76.03%1.65%
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Engagement with shareholders, investors and analysts
In 2020, the Shareholder and Investor Relations team
prioritized:
→ digital transformation: simpler online platform to
delegate and cast votes at general meetings; new
electronic channels for participating in general meetings
(such as telephone lines and digital platforms at branches);
means provided/help for shareholders to exercise their
rights at the October 2020 AGM in accordance with
Directive (EU) 2017/828; new virtual forums and events to
report on Grupo Santander's strategy and quarterly results,
and improvements to virtual service channels and
WhatsApp Business.
→ constant, clear communication with shareholders,
investors, analysts and rating agencies.
→ reporting about the group and share performance.
→ offering personal attention to shareholders via online
and face-to-face channels and gather their opinions with
diverse surveys.
→ exclusive products and benefits on
yosoyaccionista.santander.com. Grants for shareholders
and relatives with disability (60 grants given in 2020) and
other initiatives.
→ enhancement of Grupo Santander’s image in the markets.
Shareholders and Investors Relations area dedication has
been recognized by important publications of the sector, as
IR Magazine and Institutional Investor. Our efforts in the
integration of new channels (Whatsapp business) were
recognized by AEERC and OZ.
ESG indices and analysts
Our sustainability performance is regularly assessed by
renowned indices and ESG analysts. We use their findings
internally to identify improvement opportunities.
For 20 years in a row, Banco Santander has featured on the
Dow Jones Sustainability World Index (DJSI World). In 2020, we
are again among the 25 banks included in the index made up of
323 companies. Our score was 83 points out of 100, just six
points below the leader, ranking us 14th
score (100) in financial inclusion, anti-corruption policy and
measures, fiscal strategy, customer relationship management,
environmental reporting, and social reporting.
. We obtained the top
Sustainalytics improved our ESG risk rating score. From 32.7,
considered high risk, to 27.1 medium risk. It recognized us for
above average preparedness measures to address resilience,
human capital, data privacy and security issues.
In 2020, Santander improved CDP by two notches, from C to B,
reaching "Management level" in the financial sector group, which
implies a coordinated action on climate issues.
th
In 2021, Santander is leading among our global peers in the
Bloomberg Gender-Equality Index (BGEI). We are 7th
5
above financial services scores (+16.93 pp), with top mark in
equal pay and gender pay parity.
among banks. This remains well above average (+18.67) and
overall and
We have, once again, been named a constituent of the
FTSE4Good Index Series, raising our score to 4.3 out of 5.
Furthermore, according to the ISS-ESG Corporate Rating, our ESG
performance is above the sector-specific Prime threshold. We are
also assessed by other ESG analysts such as MSCI and V.E (Vigeo
Eiris.
27,446
opinions from
shareholders, analysts
and investors through
studies and qualitative
surveys
1,137
contacts with institutional
investors (including 19
meetings with ESG investors
and analysts, and 58 calls
about corporate governance)
210
events with
shareholders
132,857
queries managed by email,
phone, WhatsApp and virtual
meetings
>1,300
communications using
mainly digital channels
For further details, see
sections 1.4 'Active
shareholder engagement
during the pandemic’ and
3.1 'Shareholder
engagement’ in the
Corporate Governance
chapter.
ESG analyst valuations
A
Rating/Scoring
2020
Vs.last
year
S&P Global
CSA
83 q
2019
86
Vs. Sector average
95th
percentile, 14
out of 253 banks
th
B
MSCI
Sustainalytics
V.E (Vigeo
Eiris)
ISS-ESG
CDP
BGEI
BBB Average among 192
banks
BBB =
27.1 p 32.7 30
th
th
percentile, 289 of
978 banks
74
of
percentile, 8
31 diversified banks
th
62 q 63
C
B
85.13
=
p
q
C
C
Decile rank of 2 out of
285 banks, equivalent
to 80th percentile
Among 28% of all
banks scoring a B
90.39
st
global bank and 5
1
from 126 financial
institutions
th
A.Source:Most recent ratings for each ESG analyst in 2020.
Sustainalytics has developed a new methodology for measuring risk. Thus, a
higher score indicates higher risk. 1st percentile is the lowest risk.
V.E (Vigeo Eiris) conducted an “ESG Performance Review” in which key ESG
indicators are updated. A comprehensive assessment will take place in 2021.
B. Please review page 123 for MSCI disclaimer
For more details 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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Supporting green
transition
We contribute to the
transition towards a more
sustainable economy by
managing climate-related
risks and opportunities,
building a comprehensive
sustainable and green finance
proposition; and reducing our
environmental footprint.
ESG investment
in Wealth
Management
and Insurance
Working under the highest
international ESG standards,
we embed ESG in our
decision-making, offering a
sustainable value proposition
for customers, and an active
ESG engagement.
Meeting the needs
of everyone in
society
We develop innovative,
simple and personalized
solutions to respond to
customer demands and meet
the needs of everyone in
society.
Financial inclusion
and empowerment
We help people who are at
risk of financial exclusion by
giving them access to basic
financial services, boosting
entrepreneurship and
employment, and providing
them with the skills they
need to manage their
finances efficiently
Tax
contribution
We pay our fair share in taxes
everywhere we operate,
contributing to the growth
and progress of our
communities.
Environmental and
social risk analysis
We manage the
environmental and social
risks of our customers'
activities in sensitive sectors
such as energy, mining and
metals, and soft
commodities.
Supporting
communities
We support education and
social welfare in the
communities where we
operate, with a special focus
on higher education as the
driving force behind society's
progress. We also run
multiple social and cultural
support programmes.
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Meeting the needs
of everyone in society
We want to increase loyalty through products and services that enable all
our customers to manage their finances in the best possible way, while
helping them make more sustainable decisions.
Our value proposition aims to meet the broad needs of our customers
Innovative, simple and personalized solutions
+
.
Households
SMEs
Large
companies
Public
sector
Total customers
148 million
Loyal customers
22.8 million
Customer loans
EUR 916 billion
Customer deposits
EUR 849 billion
We bolstered our digital proposition for retail customers
and corporates, focusing the lion's share of our efforts on
expanding Openbank and our mobile payment services.
Against the backdrop of the economic and social crisis caused
by covid-19, we resolved to provide customers with solutions
for them to continue pursuing their goals and navigate such
testing times.
We ran ambitious initiatives to protect our customers' health;
to ensure that services continued; and to offer tailored
financial solutions to provide liquidity to people and
companies affected by the pandemic. We rapidly facilitated
state-backed lines of credit and adapted various products and
services to local circumstances. We also eased financing
conditions with payment holidays of up to several months in
most of our geographies.
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Covid-19: Supporting our customers
The key during the crisis was to maintain financing levels to
combat the effects of covid-19, meet our customers' most
pressing needs and implement measures to protect our most
vulnerable customers, which included:
• providing liquidity and credit facilities with favourable terms
and conditions;
• suspending certain banking fees and commissions;
• temporarily increasing credit card and overdraft limits;
• granting mortgage payment holidays; and
• proactively supporting vulnerable customers and opened a
new helpline for all customers.
By the end of the year, these initiatives had supported more
than 6 million customers in all our geographies, including
payment holidays to 4.8 million customers worth EUR 112
billion, which represents 12% of our lending portfolio.
In 2020, loans and advances to customers fell 3% (excluding
the exchange rate impact, loans were up 5% against 2019).
By segment, household lending decreased 4.2% year on year;
and lending to enterprises and entrepreneurs remained at
2019 levels.
HouseholdsA
Loans to customers at 31 December 2020, net of impairment losses
Residential
Consumer loans
Other purposes
Total
Companies and entrepreneurs
A
Large companies
SMEs and entrepreneurs
Other purposes
Total
EUR million
324,152
157,118
16,717
497,987
EUR million
167,390
132,359
20,104
319,853
A. See note 10. 'Loans and advances to customers' of the Auditor's report and
consolidated financial statements.
For more details, see 'Financial inclusion and
empowerment' in this chapter and 3.3
'Covid-19 credit risk management’ in the Risk
chapter.
Specific measures individual countries took as part of our covid-19 response
Spain: Advanced pensions to retirees and lent nearly
EUR 100 billion to entrepreneurs, sole traders, SMEs
and companies through internal resources and ICO
lines of credit (in which we have the biggest share).
Poland: Pledged PLN 2 billion to support SMEs in
fighting covid-19 and deferred selected fees and
charges for customers who suspended their business
operations.
Portugal: Channelled EUR 120 million (31%) on the
first covid-19 state-backed aid line "Capitalizar 2018",
as well as EUR 4 billion in lending to SMEs for short-
term treasury needs, with no changes to the spread or
related fees.
UK: Participated in the government-backed
Coronavirus Business Interruption Loan Scheme
(CBILS) and the Bounce Back Loan Scheme (BBLS),
with no interest to be paid on either loan for the first
12 months.
Argentina: Lent ARS 1 billion (EUR 14.2 million) to
SMEs to support teleworking.
Chile: Gave USD 6 billion in pre-approved lending for
consumer, mortgage and business customers.
Brazil: Launched A Gente Banca, a new product to
provide newsstands with loans to renovate their
premises.
Mexico: Participated in government-backed lines of
credit to help one million micro-enterprises, in
addition to four-month loan repayment deferrals.
US: Lent USD 25 million to Community Development
Financial Institutions (CDFIs) to benefit small
businesses.
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Working with multilateral institutions
We continued our work with multilateral entities to offer our
customers more lines of credit under better conditions.
In Spain, we signed seven agreements worth a total of EUR
1.205 billion with the EIB Group (including the European
Investment Fund, or “EIF”), combining senior loans with
portfolio guarantees and synthetic securitization transactions.
Those agreements allowed Santander to provide additional
liquidity and investment capacity for SMEs and mid-caps to
tackle the pandemic, renew their transport fleet or become
more sustainable.
In Portugal, a guarantee agreement with the EIF is allowing
us to furnish agricultural and agro-industry companies and
entrepreneurs with up to EUR 100 million in working capital
and investment capacity in the processing, marketing and
development of agricultural products, and to help young
farmers invest in their business. The EIB Group also
participated in the Banco Santander Consumer Portugal's first
STS securitisation in the Portuguese market, providing EUR
587 million for SMEs and mid-caps to renew their transport
fleets, including the acquisition of less-polluting vehicles.
Digital solutions for better financial management
We are constantly developing smarter and more accessible
products and services for our customers, and enhancing
existing ones, including our fully digital bank Openbank and
our mobile payment services (Global Trade Services, Global
Merchant Services, Superdigital, Pago FX).
Openbank
Openbank continued to grow in 2020 by broadening its
proposition in Portugal, Germany and the Netherlands.
Customers in those countries are now able to trade shares in
4,000 companies listed on 25 markets, as well as dealing in
exchange-traded funds. They can also use the Digital Wealth
Manager (for new and experienced investors), which includes
funds that follow socially-responsible investment criteria.
All Openbank cards are linked to charitable causes our
customers can choose from among the bank's selected
organizations. Every time customers pay with their Solidarity
Card, they can round their payments up and donate the
difference.
In Brazil, a USD 100 million loan facility from the IFC supports
projects that promote the use of renewable energy and
energy efficiency, as well as Santander’s working capital
lending programme to Brazilian SMEs, with at least 10% of
the proceeds earmarked for female entrepreneurs.
In Poland, a synthetic securitization agreement signed with
the EIB Group is allowing us to provide around PLN 2.8 billion
in new funding to SMEs and mid-caps against the backdrop of
the covid-19 outbreak.
In the last four years, Grupo Santander has signed
agreements worth EUR 11.1 billion with the European
Investment Bank Group (EIB), the European Bank for
Reconstruction and Development (EBRD), the International
Finance Corporation (IFC), the Multilateral Investment
Guarantee Agency (MIGA), the Council of Europe
Development Bank (CEB) and the Development Bank of Latin
America (CAF).
Global Trade Services
Grupo Santander helps SMEs access trade finance, supply
chain, payments, foreign exchange and other global services.
In 2020, we strengthened our SME international trade
operations by investing in Ebury, one of the world's leading
payment, FX and cash management platforms for SMEs,
providing them with the necessary tools for cross-border
expansion.
We also invested EUR 30 million to become the majority
shareholder in Mercury TFS, an innovative company
specializing in digital trade finance solutions, with 130
employees and operations in Spain, Mexico, Chile and
Colombia.
Global Merchant Services
We also give online and offline retailers the ability to accept
various forms of payment, helping them better manage and
grow their businesses. These value-added services are based
on Getnet, a leading platform in Latin America, giving
merchants from micro-enterprises to multinationals a unique
experience.
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Santander Cash Nexus: global connectivity for Banco Santander's largest
multinational corporate customers
Through Santander Cash Nexus, Santander Corporate &
Investment Banking (SCIB) offers a standardized digital
service in our core geographies. It helps customers be more
efficient with greater control over their transactions.
In 2020, it launched Santander Cash Nexus Sign, which gives
access to Santander Cash Nexus on any mobile device so
customers can sign for transactions safely, anywhere and
anytime.
We offer a simple, competitive solution that digitalizes and
centralizes cash management for international businesses.
Customers in more than 15 countries have a single point of
entry to streamline their operations and make payments in
the formats and channels that best fit their models.
In March, Global Finance magazine named Santander Cash
Nexus the "Best Payment Hub Solution" in its “Best Treasury
& Cash Management Providers” category.
Mouro Capital. Helping fintechs grow.
Mouro Capital, the successor to Santander Innoventures, is an
independent venture capital firm that invests in fintechs and
adjacent businesses (artificial intelligence, payment solutions,
access to credit and financial inclusion).
With USD 400 million in allocated funds, it will manage the
portfolio of Santander Innoventures, which since 2014 has
invested in 36 startups in Europe and the Americas.
The fund will continue to deploy capital and remain a key
driver of our ambition to be the best banking partner to
startups, generating tangible value through strategic
collaborations. Today, 70% of the fund’s current portfolio
companies work with Santander.
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Supporting the green transition
Tackling climate change is a key objective at Grupo Santander. We support the
climate change goals of the 2015 Paris Agreement. Our ambition is to achieve net
zero by 2050 and we have set our first decarbonization targets.
Main lines of action
Aligning our portfolio to meet
the Paris Agreement goals
Supporting our customers
in the green transition
Reducing
our environmental impact
We have the ambition to achieve
net zero by 2050 supported by
first decarbonization targets:
eliminate all exposure to
thermal coal mining worldwide
and align power generation
portfolio by 2030.
We are building a complete
Sustainable and Green finance
proposition across the group. We
are a world leader in the financing
of renewable energy projects.
We are strongly committed to
protecting the environment by
reducing our footprint and have
become carbon neutral.
Target
To help our customers make the transition to the
green economy and to raise or facilitate the
mobilization of EUR 120 bn between 2019 and 2025,
and EUR 220 bn between 2019 and 2030, in green
finance to help tackle climate change.
A. Includes our overall contribution to green finance: project finance,
A
syndicated loans, green bonds, capital finance, export finance, advisory
services, structuring and other products to help our customers in the
transition to a low-carbon economy.
Climate change is a global issue that the Paris Agreement of
December 2015 seeks to combat by accelerating the actions
and investments needed for a sustainable, low-carbon future.
Progress
Green finance
Raised or facilitated
B
33.8 bn
2019
120 bn
2025
B. 2020 SCIB's contribution to the green finance target includes: Project Finance
(lending): 5.1 bn; Financial Advisory: 3.2 bn; Green bonds (DCM): 2.8 bn; Project
Bonds (renewables): 0.9 bn; Export Finance (ECA): 0.8 bn; M&A: 2.3 bn; Equity
Capital Markets: n/a. For a total of 15,2 bn. Information obtained from public
sources, such as Dealogic, Inframation news, TXF or Mergermarket league
tables. All roles undertaken by Banco Santander in the same project are
accounted for. Other sustainable finance components, such as financial inclusion
and entrepreneurship, are excluded.
While climate risk is not new, it's an emerging driver of risk
that impact banks' credit, market and operational risks,
among others. The transition to a low-carbon economy
presents banks with a big opportunity; according to the OECD,
annual investment of USD 6.9 trillion to 2030 will be required
to meet the Paris Agreement goals.
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Our approach
Santander recognizes the actions we take this decade will be
key to address the climate emergency. To contribute in a
practical and tangible manner, we will focus on aligning our
portfolio to Paris Agreement goals, starting with most
material sectors as regards climate exposure. To drive
alignment, we will continue working to better understand
sectors and portfolio transition pathways, step by step
towards our ambition of net zero by 2050. To achieve this we
will support our customers in the green transition, engaging
with them and developing financial products and services.
Lastly, we will ensure that Santander’s own operations
remain being carbon neutral, by continuing to reduce our
own emissions, increasing the use of renewable energy and
offsetting remaining emissions by using certified providers as
we started to do in 2020.
Our Strategy
• We publicly support the Paris Agreement and joined the
UN Collective Commitment to Climate Action (CCCA). Our
ambition is to achieve net zero carbon emissions across
the Group by 2050.
Central to our climate strategy are:
◦ setting sector portfolio alignment targets to fulfill the
CCCA.
◦ the green finance target: to raise or facilitate EUR
120bn in green finance between 2019 and 2025 and
EUR 220bn by 2030.
◦ the pledge to be carbon neutral in 2020 and to source
our entire electricity supply from renewable energies by
2025.
▪ We are now working on a roadmap to be Net zero by 2050
prioritizing the most climate material sectors where data
and methods are available. We will share progress on this
ambitious goal in our Climate Finance Report at the end of
1st half of 2021.
• In 2020, we fine-tuned our internal risk taxonomy and
updated our heat map, which plots each sector’s climate-
related risks (transition and physical) on a five-point scale
to measure the materiality of those sectors on the group's
balance sheet. This enables us to manage the emergence
and concentration of climate change risks by sector, and it
has been a critical input when defining our strategy. For
more details on the materiality assessment, please see the
Risk management section below.
We made strides to fulfil regulatory requirements by working
to implement the European Banking Authority (EBA)
guidelines and standards as well as supervisory expectations
of the European Central Bank in particular their Guide on
climate-related and environmental risks disclosed in 2020
Disclosing our approach is key to helping markets and other
stakeholders assess how we incorporate climate within our
processes and policies and report on our climate
performance. We take the Task force on Climate-related
Financial Disclosures (TCFD) as the guiding reference in this
regards. Our Climate finance report 2019-June 2020
included information on, and expanded on, TCFD. Later in the
year we will disclose our updated Climate finance report.
See our latest update on the TCFD's four-pillar framework
(Strategy, Governance, Risk management and Metrics &
Targets ) below.
Further details on our Climate
Report 2019-June2020
available at our corporate
website.
• As part of the initial steps in building a roadmap towards
our net zero ambition and to fulfil our CCCA, we have until
September 2022 to (1) issue a statement indicating the
sector(s) we are proposing to align with the Paris
Agreement, and (2) set specific alignment targets. After
analysing a number of inputs, based on the materiality
A
as an
assessment and using the PACTA methodology
initial approximation, we have committed to aligning our
power generation portfolio with the Paris Agreement by
2030. To deliver on this commitment, we are devising a
two-pronged coal phase-out strategy: (1) Stop providing
financial services to power generation customers with a
revenue dependency on thermal coal of over 10% by
2030; and (2) Reduce our exposure to thermal coal mining
to zero by 2030. For more details, see the 'Aligning our
portfolio to meet Paris Agreement Goals' section.
• Going forward, we will continue to assess the alignment of
the most concerning sectors regarding climate change (oil
and gas, mining and Metals, and car manufacture within
Transport) in view of the data and methodologies
becoming available and robust.
A. PACTA (Paris Agreement Capital Transition Assessment) from 2 Degrees
Investing Initiative.
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▪ In 2020, to help deliver on our green finance target we
• In our own operations we have reduced CO2 emissions and
raised or facilitated EUR 15.2 bn (EUR 33.8 bn since 2019)
and harnessed climate finance opportunities by working on
diverse initiatives. For more details see next section
"Supporting our customers in the green transition."
◦ SCIB created an ESG solutions team to boost its
sustainable finance proposition, reinforcing their long-
standing leadership in renewables financing and advisory
services.
◦ We set up a sustainable finance working group co-led by
SCIB and Responsible Banking, aimed at providing key
insights on four areas: green buildings, clean mobility,
renewables and sustainable agro.
◦ We made great progress in developing an internal Green
Book compiling all the green features of our products, as
well as an internal classification system to identify ESG in
general purpose lending.
◦ We issued our second EUR 1 billion green bond, which
will be used to finance and refinance renewable wind and
solar power.
offset the emissions we have been unable to reduce,
becoming carbon neutral in 2020. Furthermore, 57% of our
electricity supply comes from renewables energies. Please
see "Environmental Footprint" section below for more
details.
• We defined climate-related timescales and embedded them
in our strategic process; short term is up to a year aligned
with budget; medium term is 3-4 years aligned with
financial planning; long term is 5-7 years aligned with
strategic planning; and, for ad hoc analysis, longer term is
over 7 years.
◦ Our three-year planning includes climate risks and
opportunities to embed climate change in our long-term
business strategy for the Group.
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Governance
• The responsible banking, sustainability and culture
committee (RBSCC) helps the board oversee the
Responsible Banking strategy, which includes climate
change. It meets every quarter and in 2020 was formed of
eight board members: seven external directors (majority
independent) and the executive chairman; its chair is an
independent board member. All members are appointed in
light of their knowledge and experience relating to the
committee's mission.
• In 2020, the RBSCC held four meetings, three of which
included climate change as a topic (the minimum is two
meetings covering climate). The committee also conducted
reviews of climate-related financial risks and
opportunities, roadmaps to fulfil TCFD and ECB
expectations, our sustainable finance proposition (to
ensure we help our customers transition to a low-carbon
economy), plans for business lines and the progress of our
carbon footprint and green finance commitments. The
committee issues a yearly report on the actions taken and
reviewed. For more details, see the 'Corporate governance'
chapter.
• The board took part in a second climate change training
programme that included modules on the Paris Agreement
and Net Zero. In Santander UK, the board and executive
committee attended a climate change workshop delivered
by external experts, which covered climate science,
regulatory requirements and the TCFD recommendations.
See below details on staff and management training.
• The executive management of the Responsible Banking
agenda lies with the Inclusive & Sustainable Banking
Steering group (I&SBS), which promotes the transition to a
low-carbon economy and fosters sustainable consumption.
The I&SBS feeds into the RBSCC and meets every six weeks
aprox. It is formed of nine permanent executive members
and two rotating members (country heads). In 2020, the
I&SBS held seven meetings and addressed topics such as
ESG performance, TCFD progression, smart infrastructures,
climate change, sustainable finance in specific geographies
and carbon offsetting.
• The management committee of the Group discuss twice a
year on the progress of the Responsible Banking agenda
(including climate change), with a focus on TCFD
implementation and ESG business opportunities.
• In 2020, the strategy committee of the Group approved
the climate change project as one of the bank’s strategic
projects, the progress of which will be reviewed twice a
year according to the established roadmap.
• We included responsible banking objectives as a qualitative
metric in our 2020 executive remuneration scorecard,
aligning it with our public commitments, including the
Green Finance target.
• Climate change is also part of our general sustainability
policy, which we reviewed in 2020 and linked to the
environmental, social & climate change risk management
policy, where we set out the climate-specific lending criteria
described further in the Risk management section.
• The climate change agenda and governance, and the
implementation of TCFD recommendations, are designated
to specialist working groups (see box below).
• The climate working group, co-led by SCIB, Risk and
Responsible Banking, met regularly in 2020 to monitor and
make headway with the climate project, based on a
roadmap with defined milestones. With members from
different functions and geographies, it receives feedback
from executive directors as part of the I&SBS.
• In Q1 2020, the Risk division completed a review of its
governance in relation to climate change. The review
considered the terms of reference of governing bodies, their
forward-looking agendas and the risk framework. In the
annual review, all policies and internal procedures were re-
examined, and specific references to climate change risk
management were introduced.
For more details on the RBSCC, see section
4.9 'Operations of the responsible banking,
sustainability and culture committee' in the
Corporate governance chapter.
For more details on our policies and
governance, see the 'Governance and
priorities' section of this chapter.
Our General sustainability policy is available
at our corporate website.
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Climate-related working groups
Climate working group
comprises key functions and
geographies to support the
implementation of the TCFD
and CCCA roadmap.
Public Policy
Sustainability working
group
advises on regulatory
developments and
coordinates the group's
response to public
consultations.
Risk division climate
change working group
involves different risk areas
to develop and implement
the risk-specific tasks set
out in the TFCD roadmap.
Santander UK climate
change working group
coordinates the plan to
comply with the PRA's
supervisory statement on
climate change risk
management.
SCIB ESG working group
has a broad agenda that
includes climate-based
business positioning and
opportunities.
Sustainable finance
working group
incorporates areas and
countries to provide key
insights on green buildings,
clean mobility, renewable
energies and sustainable
agro.
Sustainable bond
steering group
oversees the issuance,
management and reporting
of Grupo Santander´s
sustainable bonds.
Footprint working group
looks at how we measure
and reduce our internal
carbon footprint, as well as
offsetting our remaining
CO2 emissions.
Management and staff training
To help the management team deliver on the challenges
ahead and on our pledge to support customers in their
transition towards a greener economy, we launched the
“Climate Dialogues” programme for senior managers to
discuss critical climate-related topics with renowned experts.
In 2020, we held three sessions, with up to 940 participants in
one single session, including 12 Promontorio executives. The
programme will continue throughout 2021, with the first
session held in January.
Based on the Banking Environment Initiative's (BEI) Bank
2030 vision, Santander, BEI and the University of Cambridge
organized a workshop on “How to accelerate the financing
of the low-carbon economy”, attended by more than 100
people mainly from SCIB and Risk. The session provided a
complete picture of the financial sector's role in the energy
transition and encouraged participants to come up with ideas
to make the most of the opportunities arising from a low-
carbon economy.
Furthermore, we released a climate change eLearning
module, available to all geographies to raise awareness of
the negative impact climate change has on the economy.
To boost knowledge and expertise within the bank, we also
created briefings on climate-related financial risks and
opportunities for the power, oil and gas, mining, and steel
industries. The aim is to support areas that make strategic
climate change-related decisions, as well as identifying and
exploring relevant topics regarding the impact on credit
(including policy and regulation), the markets and technology.
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Risk management
▪ Grupo Santander's regularly updated framework for the
identification, assessment, management and reporting of
climate change-related financial risks helps increase our
understanding of the risks and opportunities in our
portfolios and enhances our forward-looking analysis.
▪ The correct assessment of environmental and climate
change risks helps shape business strategy, deploy capital
efficiently and meet the expectations of European
regulators and supervisory authorities, as well as the
Financial Stability Board and the United Nations.
▪ Our top risk identification and assessment includes climate
change and is updated quarterly to reflect the
environmental agenda.
▪ The general risk framework categorizes Grupo Santander's
key risks, with environmental and climate-related financial
risks (physical or transition-led) identified as factors that
could impact the existing risks in the medium and long
term.
▪ In 2020, we adapted our risk appetite and related policies
to reflect the group's strategy in this regard.
▪ Our internal risk taxonomy identifies sectors that are
exposed to climate change risks through physical and/or
transition impacts, while our heat map assesses each
sector’s climate-related vulnerability on a five-point scale.
▪ This risk classification, based on the main activity of our
code) and
A
customers (according to the NACE
complemented with exposure data for each of the sectors
and geographies, is the basis for the quantitative and
qualitative measurement of the most relevant climate
change-related risks, and is used to develop relevant risk
metrics and to inform decision making on climate change-
related risks.
▪ Based on an in-depth review of our exposures to climate
change-related transition risk, we conduct a quarterly
materiality assessment focusing on the group's main
portfolios.
▪ The assessment shows that the most concerning sectors
exposed to climate change are conventional power, oil and
gas, mining and metals, and transport, while SCIB
represents approximately 90% of our total exposure to
rated companies. See figure on the top right.
▪ Other sectors classified as medium risk in the assessment
are manufacturing, construction, agriculture and water
supply. In SCIB, its exposure amounts to ~EUR 57bn. SCIB
exposure represent ~70% of the total exposure to rated
corporates.
▪ Retail mortgages and real estate represent exposure of
approximately EUR 350bn (of which EUR 308.5 bn are retail
mortgages, mainly in the UK and Spain), and are classified
as moderate risk.
A. NACE: Statistical Classification of Economic Activities in the European
Community.
▪ In 2020, Santander UK analysed the climate-related risks
of its mortgage portfolio using scenarios from the UK
Climate Programme. When assessing the most viable
physical risk - flooding -, we found that 95% of our
mortgage lending is on properties with negligible or very
low risk of flooding. See table below.
Flood Risk
C
High; >1:30
Medium: between 1:30 and 1:100
Low; >1:1000
Very low; >1:10,000
Negligible ; <1;10,000
Total Properties
Number of properties
2,906
10,021
49,678
69,523
1,102,435
%
0.24
0.81
4.02
5.63
89.3
1,234,563
100.00
C. Flood Risk is expressed as a ratio, where 1 in 30 year (1:30) flood event
refers to the likelihood of flooding occurring in a given year.
▪ Our Economic Research department analyses climate
scenarios and the economic impact of climate change
(current and future global warning) by reviewing external
sources such as information published by the Network for
Greening the Financial System, as well as its own
assumptions. It uses Integrated Assessment Models and
internal tools to create feasible scenarios and data
including GDP, energy consumption and emissions.
For more details on our risk management
approach and progress, see section 2.6
'Environmental and social risk' of the Risk
management and compliance chapter.
Further details on our Climate Report 2019-
June2020 available at our Corporate Website.
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Contents
Metrics and targets
We produce climate-related metrics to disclose data
regarding our business operations; our loan portfolio in
relation to the most concerning sectors; our position in
market rankings; green financing; and impact metrics such as
the emissions we counteract in financing renewable energy.
We now include metrics based on the results of our climate
materiality assessment, disclosing our exposure to the most
concerning sectors (see data above).
Our report sets out metrics that track our performance and
the achievement of our objectives, as well as how we manage
climate-change related risks and opportunities. We continue
to identify and develop new metrics for future disclosures.
Regarding our own operations, we disclose performance data
on scope 1, 2 and 3 emissions as mentioned in the
Environmental Footprint section, along with other climate
relevant metrics like energy consumption. We also report
against our targets on renewables and carbon neutrality.
In 2020, Santander became carbon neutral in its own
operations, by continuing to reduce its own
emissions, by increasing the use of renewable energy
and by offsetting the remaining emissions.
Aligning our portfolio to meet the Paris
Agreement goals
Santander publicly supports the Paris Agreement on climate
change. We joined the UN Collective Commitment to Climate
Action (CCCA) when it launched in 2019. Further to this we
are now setting the ambition to be net zero by 2050. Later
on the year, and in particular in our climate finance report
which will be published after the first semester of 2021, we
will provide further details on the roadmap towards this
ambition which we will be improving in scope and detail as
we progress on this journey.
We aim to contribute in a practical and tangible manner to
Paris by aligning our portfolio with Paris. Alignment means
embedding climate into our strategy and governance, in how
we manage risks and opportunities. We are committed to
supporting people and businesses in their transition towards
a green economy.
Managing climate change risk and opportunity requires
collaboration between internal functions and with external
stakeholders to build and acquire knowledge. We are joining
forces with financial authorities and sector associations by
participating in formal consultations and industry forums. We
also collaborate with peers and take part in debates to come
up with financial solutions that support the UN Sustainable
Development Goals and the Paris Agreement.
Progress on the Collective Commitment to Climate Action
To fulfil UNEP FI Collective Commitment to Climate Action
(CCCA), we need to set and publish sector-specific, scenario-
based targets to align our portfolio with the Paris Agreement
goals. Santander has been working towards this aim and in
September 2020 published its first CCCA progress report.
76
Concerning our business activity, the next section of this
chapter provides information about our performance and
support to our customers in their transition to a low carbon
economy. It does also include progress against our
commitments, namely regarding our green finance target.
In 2020, to help deliver on our green finance target
we raised or mobilized EUR 15.2 bn (33.8 bn EUR
since 2019).
Regarding our scope 3 emissions related to financing, in 2020
we engaged with data providers, methodology-setting
organizations and peers to further our understanding towards
developing useful metrics. We are adopting a granular
approach and providing emissions intensity data for the
power generation sector (see below), where we will focus
our efforts initially. Further below we provide information
about our second PACTA exercise and more details about
decarbonization targets as part of our TCFD disclosures.
We continue to apply the methodology from the PACTA (Paris
Agreement Capital Transition Assessment) 2 Degrees
Investing Initiative, which focuses on high climate impact
sectors. We undertook a second exercise to analyse our SCIB
power generation portfolio (a material sector within our
portfolio from a climate risk perspective).
For that second analysis, we focused on our SCIB loan book
with our power generation corporate customers, excluding
project finance. Our power generation project finance
portfolio, which represents 32% of our total power
generation portfolio, is made up of 92% renewable energy.
Ultimately, we chose to focus on corporate customers as it's a
key area for us to engage with customers and further support
them in their transition to a low-carbon economy.
Our power generation portfolio compares well against the
A
, with a larger share of renewables
corporate economy
(Santander 21% vs corporate economy 15%) and hydro (27%
vs 19%) and a smaller percentage exposure to coal (12% vs
29%). Projecting our portfolio to 2025 (using the PACTA
methodology), our position improves when compared to
corporate economy with increased share in renewables (27%
vs 18%) and also lower share in coal (9% vs 26%), which is
fairly consistent with a Paris aligned pathway.
Our first CCCA progress report is available at
www.unepfi.org/wordpress/wp-content/
uploads/2020/09/Santander_CCCA-
report_website092020.pdf
A. Corporate economy: represents the aggregate/combined production of all
assets in the Asset Resolution's 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.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Power Generation
Production capacity across technologies (%)
2020
2025
A. Corporate Economy: represents the aggregate/combined production of all assets in the Asset Resolution's 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.
Power Generation portfolio alignment
Following our analysis and with the approval of the board:
We committed to aligning our power generation portfolio
with the Paris Agreement by 2030.
As part of this, we're taking further steps by committing to:
Stop providing financial services to power generation
clients with a revenue dependency on thermal coal of over
10% in 2030.
We will also work on a future pathway in line with the UNEP
FI CCCA approach, where we will continue assessing
alignment for our most concerning sectors with respect to
climate, considering the data and methodologies available,
and participating in working groups to further the
development of alignment methodologies and approaches in
the financial sector.
The carbon intensity of our current power
generation portfolio for corporate customers is of
309.6 grCO2/KWh
B
as a measure of physical intensity
B. Includes top 20 companies representing 85% of power generation portfolio.
S&P Trucost Limited © Trucost 2021 has been used as the primary source of
information for 2019 emission and production metrics, complemented with
public information obtained directly from companies’ annual reports.
By comparison, the world average carbon intensity of electricity generation
is of 475 gCO2/kWh according to the International Energy Agency
Coal phase-out
We took further steps to reduce our exposure to coal-related
sectors and committed to cut our worldwide exposure to
thermal coal mining to zero by 2030.
Net Zero by 2050
Our ambition is to be net zero carbon emissions by 2050 in
terms of its own operations (Scope 1 and 2, which are already
carbon neutral) and Scope 3 emissions across our the Groups.
Later on the year, and in particular in our climate finance
report to be disclosed by end the first semester, we will
provide further details on the roadmap towards this ambition.
UNEP FI engagement on the TCFD Pilot project and the
Collective Commitment to Climate Action
We remain engaged with the UNEP FI on climate. Since 2018,
we have participated in the TCFD recommendations pilots I &
II, making headway with an internal methodology to assess
climate change-related impacts on our credit risk exposures,
and are very much looking forward to continuing our
involvement in the next stages of the pilot. As part of the
Collective Commitment to Climate Action, we participate in
the working groups aimed at strengthening the initiative and
further developing it.
For more details, see 2.6 'Environmental and
social risk' section of the Compliance and
conduct risk management.
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29%12%26%9%10%5%3%5%3%3%26%25%26%24%23%19%27%20%29%25%6%12%5%8%11%15%21%18%27%28%CoalOilGasHydroNuclearRenewableCorporateEconomy (A)SantanderCorporateEconomy (A)SantanderParis AlignedPathway
Annual report 2020
Contents
Supporting our customers
Corporate and Investment Banking
Santander Corporate and Investment Banking (SCIB) aims to
become a reference point in sustainable finance by providing
ESG solutions in all our markets.
Santander Corporate and Investment Banking
(SCIB) aims to become a reference in sustainable
finance through ESG solutions.
Leveraging a solid track record in renewable energies and
strong product capabilities, SCIB is branching out to fully-
integrated ESG advisory services across all sectors and
products, serving an increasing appetite from corporates and
investors.
Strengthening our long-standing leadership in renewable
energy financing and advisory services
For the last 10 years, we have been the leading bank in
financing renewable energies, and rank in the Top 3 by
number of deals and Top 5 by deal value globally. Within this
period, we have participated in 143 renewable energy finance
deals, investing a total of more than USD 6 billion.
Global Renewable Energy Project Finance Volume by MLA -
FY 2020
A
Rank Mandated Arranger
1
2
3
4
5
6
7
8
9
10
Banco Santander
Bank 1
Bank 2
B
Peer 1
Bank 3
Bank 4
Bank 5
Peer 2
Peer 3
Bank 6
Vol. (USDm)
6,284
5,638
5,511
3,779
3,737
3,436
2,962
2,601
2,589
2,313
Nº. %share
6.7
143
6.0
73
5.9
63
4.0
76
4.0
52
3.7
54
3.2
28
2.8
32
2.8
40
2.5
24
A. As indicated by Dealogic and Bloomberg New Energy Finance league tables
for project financing within the Lead Arranger category.
B. Peers are banks that due to their size and market capitalization are
comparable to Santander, including BBVA, BNP Paribas, Citi, HSBC, ING, Itaú,
Scotia Bank and UniCredit.
Banco Santander issues second green bond worth EUR 1 billion
In 2019, we created a Global Sustainable Bonds Framework
and a Global Green Bonds Framework in line with the 2018
Green and Social Bond Principles. These frameworks are
aligned with, and support, our Responsible Banking strategy,
reflecting our intention to deploy additional capital for green,
social and sustainable projects.
In June 2020, we issued a second green bond; a seven-year,
EUR 1 billion senior non-preferred issuance. The net proceeds
will be divided between existing wind and solar assets on our
balance sheet and new assets that will be added in our core
markets (Europe, US and Latin America). The re-financing
share will be less than 50% during the term of the bond.
In October 2019, we set our global sustainable issuance plan
in motion with a seven-year, EUR 1 billion green bond to fund
wind and solar power projects, in line with UN Sustainable
Development Goals 7 and 13.
Banco Santander, S.A. Green Bonds Framework and the Banco
Santander, S.A. Global Sustainable Bond Framework (updated in
2020) are available at our corporate website.
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Corporate
governance
Economic
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Risk management
and compliance
Renewable energy projects
In 2020, we helped finance greenfield renewable energy
projects with a total installed capacity of 13,765 MW,
A
preventing the emission of 60 million tons of CO2
. We also
contributed to the expansion, improvement and maintenance
of existing renewable energy infrastructure projects
(brownfield), with a total installed capacity of 8,106 MW
(further details in the graphs below).
Our renewable energy project finance portfolio (greenfield
and brownfield) totalled EUR 11.6 billion at the end of the
year, approximately half of our project finance portfolio and
spread over 307 transactions.
The renewables projects have a generation
capacity equivalent to the yearly consumption of
B
10.3 million households.
A. Emissions which the MW financed in 2020 will prevent over the course of the
projects’ useful lifespans. International Energy Agency emissions factors
(source updated in 2019 with data from 2017) have been used.
B. Calculated using data on final electricity consumption for the residential
sector by country published by the International Energy Agency (source
updated in 2020 with data from 2018).
Financing of renewable
energy (greenfield)
(MW financed)
C
Financing of renewable
energy (brownfield)
(MW financed)
C
Breakdown of MW financed by type of renewable energy
Wind
energy
77% --
2018
77% 35%
2019
77% 46%
2020
Solar
energy
22% 100%
2018
22% 54%
2019
18% 33%
2020
D
Others
1% --
2018
1% 11%
2019
5% 21%
2020
Greenfield Brownfield
E
Breakdown of renewable MW financed by country in 2020
(greenfield and brownfield)
3,796 MW
681 MW
USA
5,455 MW
630 MW
United
Kingdom
706 MW
2,169 MW
Spain
882 MW
0 MW
Chile
1,587 MW
17 MW
Brazil
497 MW
0 MW
France
242 MW
0 MW
Poland
0 MW
3,510 MW
Portugal
0 MW
306 MW
Germany
C. In 2020, the MW attributable to Banco Santander according to its share in each project was: 19% of total for greenfield and 23% for brownfield.
D. Others greenfield: Taiwan (600 MW). Others brownfield: Italy (61 MW); Uruguay (52 MW); The Netherlands (600 MW); Sweden (80 MW)
E. Includes biomass for 2018 and hydropower for 2019, and solar-wind energy for 2020.
Renewable energy projects financed in 2020
We closed one of the largest deals in the Spanish
renewable energy market worth EUR 567.8 million,
under a hybrid structure format, including a bank
loan and project bonds.
We participated in the financing of an Offshore Wind
Farm, which will become the world's biggest. It will
generate 2.4 GW of green energy to supply c. 3.3% of
the UK’s demand, powering four million homes per
year.
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Evolving our ESG product offering
We demonstrate our commitment to inclusive and
sustainable growth and to the transition to a low-carbon
economy through various products and services.
Incorporating ESG into financial instruments for sustainable
projects has extended to traditional bank loans, revolving
credit facilities, bonds and even derivatives.
In 2020, we participated in 53 Green and ESG loan
transactions in Europe, and ranked third in Refinitiv's
European league table.
Green and ESG Loans, Europe - 2020 YTD
Rank
1
2
3
4
5
6
7
8
9
10
Lender
Peer 1
Peer 2
Banco Santander
Bank 1
Bank 2
Bank 3
Bank 4
Bank 5
Bank 6
Peer 3
Vol. (EUR m)
Total Deals
99,308
72,532
70,622
70,293
64,691
56,151
53,997
52,648
50,503
49,790
81
56
53
50
30
32
24
33
34
47
In recent years, we have developed frameworks that
are the building blocks of our ESG product offering:
→ Sustainable Guarantees Framework, with a second party
opinion from VIGEO (2019)
→ Social Loans Framework in Argentina, with a second party
opinion from Sustainalytics (2020)
Our aim is to support our customers in defining
and executing their strategy to transition
towards sustainable models. As part of this, we
have intensified and upgraded our dialogue and
engagement on topics ranging from
sustainability strategy to disclosure, financing
needs, ESG ratings, specific solutions and new
technologies.
Landmark deals in 2020
First ESG-linked facility in the aerospace
sector
SCIB acted as ESG Coordinator, supporting the company in
setting targets, developing pricing mechanisms, and on
communication to banks and the wider market.
First ever gender bond in Mexico
SCIB acted as joint lead manager and bookrunner in the
financing of a portfolio of new and existing loans targeting
women as beneficiaries in three areas: financial inclusion,
employment and entrepreneurship.
First Polish sustainability bond and swap
SCIB took on the roles of coordinator, lead arranger and
bookrunner in financing a Polish group's transformation to
zero-emission power generation.
First sustainability linked bond in Brazil
SCIB acted as a bookrunner for the first sustainability linked
bond in Brazil, and second globally, for a pulp and paper
producer aiming to reduce GHG emissions.
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Economic
and financial review
Risk management
and compliance
Retail and commercial banking
In 2020, we completed our internal Green Book, which
compiles all products with specific green features of the
Group according to international standards such as the Green
Bond Principles. This initial classification will be enhanced
with the EU Taxonomy and other global guidelines.
Green book
Products for individuals and/or
SMEs /corporates
Countries
Green mortgages
The Green Book products are specifically tailored to two main
segments: individuals and SMEs/Corporates.
Loan for energy efficiency
This enables us to identify how much finance we direct
towards green assets through products with specific green
features, and to promote green finance to our retail customer
base.
In parallel, we are developing an internal classification
system based on the EU Taxonomy and other international
standards, to identify and manage the volumes of green
financing in our standard credit.
Loan/lease for renewable
energy installations
Loan/lease for clean transportation
Loan for low carbon agriculture
Loan to foster circular economy
Eko leasing
Product for electric and
hybrid vehicles with
benefits such as financing
up to 36 months, 30% off
the first lease fee, customer
support, insurance, etc.
CDC Sustentável
Solar
Financing for renovations
and projects using
renewable energy and
energy efficient
installations, as well as
accessibility, ergonomic and
air quality upgrades.
AENOR sustainability seal for small
and medium-sized companies
Santander España created the first AENOR-assessed seal that
gives Spanish SMEs' a sustainability rating to set them apart
in the eyes of their customers and suppliers.
Some of these green products include:
Hipoteca Fija/
Variable Online
Crédito Pessoal
para energias
renováveis
Product that gives benefits
for acquiring proprieties
with an A or A+ energy
efficiency certificate.
Loan that incentivizes the
acquisition of renewable
energy generation or energy
efficient equipment.
Multilateral financing for energy efficiency and
renewable energy projects
In Spain, thanks to the EIF’s involvement in a synthetic
securitization initiative, we aim to provide EUR 10 million in
new climate-related investments. Similarly, we will allocate
up to EUR 51 million to low-carbon and zero-emission
vehicles in Portugal with the EIF's support. We are also
helping renewable energy and energy efficiency projects in
Brazil with a USD 50 million loan facility alongside the IFC.
In 2020, we entered into three financing agreements with
MDBs to contribute EUR 104 million to green financing
projects. In the last four years, the Group has signed
agreements with multilaterals such as the EIB (European
Investment Bank), EBRD (European Bank for Reconstruction
and Development, IFC (International Finance Corporation),
MIGA (Multilateral Investment Guarantee Agency ), CEB
(Council of Europe Development Bank) and the CAF-
Development Bank of Latin America to provide over EUR
1,360 million in support of green finance in Spain, Poland,
Portugal, Brazil and Peru.
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Embedding ESG in all key areas of the bank
Leveraging on a solid track record in renewable energy and
strong product capabilities across our platform, we are now
moving towards fully-integrated ESG solutions, serving an
increasing appetite from corporate and institutional
customers. To better support our customers in achieving their
own ESG objectives, in 2020 SCIB created a dedicated team to
boost its sustainable finance proposition.
This new global team works closely with product teams such
as Global Transaction Banking, Project Finance and Markets,
to provide strategic solutions as well as product and financing
structures tailored to specific industries, geographies and
market sectors, helping our customers in their transition
towards a more sustainable business model.
"The creation of this team further reinforces our
contribution to Grupo Santander's responsible
banking commitment to support inclusive and
sustainable growth. We want to back our
customers in their ESG transformation journey,
helping them define and achieve their global
sustainability objectives.”
José M. Linares, SEVP (Senior Executive Vice President) and
Global Head of Santander CIB
Playing an active role in shaping the external environment
→ We shared insights on sustainable finance practice with the Banking Environment Initiative (BEI) to help with
its Bank 2030 research report, which seeks to shed light on how banks can accelerate the transition to a low-
carbon economy and to create a vision for the banks of 2030.
→ The report is a significant contribution to the banking sector as it identifies barriers and opportunities for
banks in the transition, which requires asset and behavioural transformation. We also work with the BEI on
the 'Soft Commodities' Compact and the fight against deforestation.
→ Grupo Santander participates in the Paris Agreement Capital Transition Assessment (PACTA) bank pilot led by
the 2 Degrees Investing initiative (2Dii), which aims to provide information on the alignment of selected
portfolios with regard to climate scenarios as proxies to the Paris Agreement.
→ Our Credit Risk team worked alongside SCIB and Responsible Banking to supply 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.
→ We are an active member of the Global Investors for Sustainable Development Alliance (GISD Alliance), a
working group created as part of the UN's strategy for Financing the 2030 Agenda for Sustainable
Development.
→ SCIB collaborates on analysing how to invest in Colombia's clean energy, water and sewage sectors, as well
as how to structure SDG-linked financing in the 4G road infrastructure programme. It is also involved in the
call for action around covid bonds.
→ We participate in the EBF-UNEP FI working group created to develop voluntary guidelines for banks on
applying the EU taxonomy to their lending portfolios.
Additionally, SCIB hosted key panels related to sustainability
to raise awareness among its customers and investor network
at events:
→ January 2021: 25th Santander Latin American Conference -
New frontiers for sustainable finance and ESG as an asset
class
→ October 2020: Santander International Banking Conference
- A sustainable and resilient Recovery, meeting the climate
challenge while addressing economic and social needs
→ December 2020: Santander Chile ESG Webinar - Moving
towards a sustainable capital market
→ February 2021: XXVII Santander Iberian Conference - ESG,
An opportunity for industrial companies
→ February 2021: UN PRI Panel - Deforestation as a Credit
Risk - with Santander invited speaker (Santander Global
Head of E&S Risk)
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Environmental footprint
We are strongly committed to protecting the environment by
reducing our environmental footprint. Our environmental
management strategy focuses on three main areas:
• Reduce CO2 emissions and offset the emissions we have
been unable to reduce.
• Reduce and responsibly manage our waste.
• Increase awareness of environmental issues among
employees and other stakeholders.
Since 2001, we've been measuring our environmental
footprint through energy consumption, waste and emissions.
And, since 2011, we've used strict criteria to draw up energy
efficiency and sustainability plans to ensure we keep
environmental impact to a minimum, yielding these results:
• Energy consumption reduced by 21%.
• Atmospheric emissions reduced by 61%.
• Paper consumption reduced by 75%.
We have also made two commitments involving all G10
countries:
• From 2020 on, Grupo Santander will be carbon neutral by
investing in projects to offset our emissions.
• By 2025, 100% of the electricity we consume will come
A
.
from renewable sources
A. In those countries where it is possible to certify renewable sourced electricity
for the properties occupied by the Group.
Projects to offset CO2 emissions
Becoming carbon neutral
Grupo Santander's plan to become carbon neutral comprises
five projects in five countries that provide us with the carbon
credits we need to offset emissions. We drew up an internal
plan and put out a call to tender to select the projects to
obtain the required carbon credits. We then assigned to each
country unit a project through which it could offset its
emissions.
Projects include renewable energies, reforestation and fuel
switching and are certified under the sector's most
recognized international standards, like the Gold Standard,
the Verified Carbon Standard (VCS) or the Clean Development
Mechanism (CDM). This collaborative, international initiative
reflects our commitment to protecting the environment,
fighting climate change and reducing our environmental
footprint.
Use of energy from renewables sources
57% of the energy used in our buildings is renewable, with
100% green energy in Germany, Spain, Portugal and the UK.
We continue to work towards 60% target for 2021 and 100%
by 2025.
Thanks to the purchase of green energy, the emissions
reduction due to electricity consumption was 21%. In terms of
total emissions, this acquisition enabled us to reduce our
emissions by 12%.
Reforestation
Wind energy
Hydropower
Planting of native species in over 1,000
hectares scorched by forest fires in
Alcoroches (Guadalajara).
Reduction of N2O
emissions
Eradication of the N2O produced at a
nitric acid plant, reducing its impact on
the atmosphere.
Wind farm with 309 MW of installed
capacity, including a social project to
aid the development of local
communities in Oaxaca.
Recovering energy from
greenhouse gases
Capture of the methane produced at a
landfill site in Spartanburg (South
Carolina) to be converted into biogas
for clean energy.
Hydropower plant with a capacity of
182 MW that helps the community
through job creation.
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Certified environmental management system
A
We measure and manage the direct
environmental impact of
our activities through environmental management systems
implemented in most of our buildings, which are externally
audited under ISO 14001.
B
We also have:
▪ LEED PLATINUM certification in three buildings in Poland
(Atrium I, Warszawa Atrium II and Poznan Business
Garden).
▪ LEED GOLD certification in ten buildings in: Germany
(Santander Platz and An der Welle 5), Brazil (Torre
Santander and the two Campinas Data Centres), Spain
(Tripark, Abelias, Luca de Tena and the Santander North
Data Centre) and Poland (Robotnicza, 11 Street).
LED lighting
In 2020, we replaced 4,500 fluorescent lamps with LED lights
in our Alhambra and Montepríncipe corporate buildings in
Spain, reducing our energy consumption reduction by
400,000 kWh.
Single-use plastics
The #Plasticfree project is part of Grupo Santander's public
responsible banking commitments. It aims to eliminate
unnecessary single-use plastics in our offices and buildings in
2021.
At the end of 2020 we met 98% of our target, with all G10
countries working together.
Environmental awareness
The group organizes global and local awareness campaigns to
involve employees in reducing consumption and waste.
Via our internal Santander Today channel, we provide them
with guides and other information to enable them to join the
challenge of reducing the organization's environmental
impact.
We also participated for the eleventh consecutive year in
Earth Hour, an international initiative to raise awareness of
the impact we as people have on our environment, by turning
off the lights in our most iconic buildings.
A. Aspects such as light or noise pollution are not considered material.
B. The bank has buildings with ISO 14001 certification in Argentina, Brazil, Chile, Spain, Mexico and the UK.
2020 environmental footprint
C
3
2,064,113 M
water consumed from
the supply system
920 MILL. KWH
total electricity
8,902 T
total paper consumed
5,926,139 KG
paper and cardboard waste
Var. 2019-2020 (%)
Var. 2019-2020 (%)
-29.7
194,159 T CO2 teq
total emissions (market based)
-41.6
-13.5
Scope 1
24,818 T CO2 teq
direct emissions
57%
renewable
energy
83%
recycled or
certified paper
-46.0
-38.9
Scope 2
128,633 T CO2
indirect electricity emissions
(market based)
282,216 T CO2 teq
indirect electricity emissions
(location based)
40,708 T CO2 teq
indirect emissions from employees
travelling to work
3,758,225 GJ
total internal energy consumption
-13.1
Scope 3
C. The environmental footprint table, with two-year historical data and the consumptions and emissions per employee, can be found in section ‘Key Metrics’ on this
chapter.
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Environmental and social
risk analysis
We give great importance to managing the environmental and social risks that could arise
from our customers' activities in sensitive sectors such as energy, mining and metals, and
soft commodities.
Environmental, social & climate change risk
management policy
The group's environmental, social & climate change risk
management policy sets out the principles and criteria for
identifying and analysing these risks in the oil and gas,
electricity, and mining and metals sectors, as well as for soft
commodity businesses. It also specifies activities within those
sectors that we will not support (prohibited activities), as well
as those which require detailed assessments of their
environmental and social impact.
The policy replaces our separate sector policies on energy, oil
and gas, energy, mining and metals, and soft commodities,
and is aligned with, and applied alongside, the Group's
human rights and sustainability policies (available at our
Corporate Website).
We also have a defence sector policy outlining the criteria for
the group's operations with companies that perform defence-
related activities.
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.
E&S risk governance and management
Grupo Santander has full-time E&S risk and green analysts
whose work includes annual E&S reviews of Santander
Corporate & Investment Banking (SCIB) customers in every
market where we operate.
The E&S risk management (ESRM) area has three functions:
Project analysis under the Equator Principles: in 2020, we
updated our socio-environmental project risk analysis
procedure, which are based on three lines of defence and
integrated into credit admission process.
When an opportunity is identified, the business team uses a
set of internal tools updated by the ESRM team to carry out a
preliminary project screening that determines:
• the risk level and a preliminary classification under the
Equator Principles´ categorization system.
• if socio-environmental due diligence is required, as well as
its scope according to the potential risks the project entails.
◦ For medium-risk projects, the business unit uses a set of
analytical tools designed by ESRM in accordance with
applicable international guidelines like the IFC
Performance Standards, which also oversees the process.
▪ High-risk projects are directed to the ESRM team for
analysis in accordance with applicable international
guidelines like the IFC Performance Standards.
Annual customer analysis: We analyse SCIB customers under
the scope of the E&S Risk Management Policy at the moment
of onboarding and during the annual renewal of credit limits.
The analysis is initiated by the business managers, supported
by questionnaires designed by the ESRM team. The local
green analyst then reviews the questionnaires and conducts
any further analysis required, before issuing a
recommendation. The E&S risk global team oversees this
entire process.
In 2020, these analyses included a detailed review of climate
change-related items. In Argentina, Brazil, Peru and Uruguay,
we conducted analyses on customers from sectors other than
those covered under the environmental, social & climate
change risk policy.
Other operations: ESRM also supports the business and risk
teams on the analysis of other operations that may entail
environmental or social risks, such as mergers and
acquisitions, trade finance in high-risk sectors and all other
project finance operations that are not covered by the Equator
Principles.
In Brazil, the team also analyses operations related to
guarantees, mortgages and customers' property portfolios.
For more details on the policies and their
governance, see the 'Risk management
and compliance' chapter.
The environmental, social & climate
change risk management policy will be
available on our corporate website.
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Equator Principles
Project Finance
Equator Principles
In 2020, we continued adapting our tools and procedures to
the Equator Principles IV, which entered into force in October.
We trained our business teams on the changes that those
new procedures may entail when analysing and evaluating
project finance operations.
We continue to contribute to the development of the
Principles through participation in working groups.
We analysed 68 projects that fell within the Equator
Principles scope.
Protecting human rights
Grupo Santander's corporate culture respects and promotes
human rights. We are a signatory to the United Nations
Global Compact and the Equator Principles, as well as a
founding member of the Wolfsberg Group.
Our human rights policy is inspired by our general code of
conduct, consumer protection policy, corporate culture policy
and environmental, social & climate change risk management
policy. It sets out principles and commitments on actions and
operations with a potential impact on human rights,
underscoring:
• zero tolerance for discrimination against employees,
customers and suppliers or for forced labour and child
exploitation;
• respect for employees’ freedom of association, collective
bargaining, health and working conditions; and
Category
TOTAL
Sector
Infrastructure
Oil & gas
Energy
Region
Americas
United States
Chile
Brazil
Europe
Spain
United Kingdom
France
Poland
Asia
Taiwan
Type
Designated countries
Non-designated countries
A
A
1
0
1
0
0
0
1
0
0
0
0
0
1
0
0
1
B
59
1
0
58
9
4
0
26
14
1
2
1
58
1
57
2
C
8
0
0
8
0
0
0
8
0
0
0
0
8
0
8
0
• support for our communities alongside government
agencies, civilian organizations, international bodies and
other institutions with a view to ensuring a healthy, clean
and safe environment while fighting corruption.
Yes
No
Independent review
Human rights protection in our financing operations
When analysing the environmental and social risks of
operations, we follow the best practices defined by the
Equator Principles to identify any threats to, or impact on,
human rights.
According to the risk category projects must comply with the
IFC Performance Standards, observing employment rights
and impact management on local communities. For projects
with an identified impact on human rights, specific mitigation
measures must be implemented as a condition for accessing
the finance, and regular reviews are carried out to ensure
compliance.
With the entry into force of the Equator Principles IV, we have
aligned our due diligence processes with the United Nations
Guiding Principles on Business and Human Rights.
A. In accordance with the definition of designated countries included in the
Equator Principles, i.e, those considered to have a solid framework of
environmental and sociaI governance, legislation and institutional capacity to
protect their inhabitants and the environment.
Further details on how we manage
human rights through our value
chain, see 'Learning and
development' and 'Ethical channels'
in 'A talented and engaged team
section'. You can also find out more
in the 'Responsible procurement'
section.
For more details on our human
rights policy, visit our corporate
website.
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Ensuring full compliance with human rights in our operations
Energy project in Southeast Asia
Energy project in the Middle East
The financing for the construction and operation of an
energy generation plant was approved in January 2020.
Before Financial Close and with the construction already
started, several gaps were identified against local legislation
and IFC Performance Standards related with contractor’s
working conditions and labour rights.
In order to correct this situation, Financial Close was
conditioned to the commitment of the client to implement a
Remedial Action Plan to address these issues within a
reasonable timeline. This situation was closely monitored by
ESRM during 2020 with the support of an Independent E&S
Consultant that conducted on-site inspections. Most of the
items in the Remedial Action Plan were fully implemented
by the end of 2020.
We finance this project as part of a syndicate. During its
implementation, we detected working conditions in breach of
both local legislation and the IFC Performance Standards (pay
less than minimum wage, excessive overtime, lack of proper
lodgings, etc.).
The syndicate held a meeting with the company to draw up a
remedial action plan (RAP), and the company created a team
to conduct regular, systematic due diligence including
contractors´ operations.
On-site inspections were carried out in early 2020 and
significant progress was noted.
Protecting the Amazon
Our environmental, social & climate change risk policy also
details the following procedures to analyse and measure the
potential impact of our customers on the environment,
including the illegal deforestation of the Amazon in Brazil:
• All loan requests by farmers and ranchers to Santander
Brasil are checked for government-issued embargoes due
to illegal deforestation. If the financing is granted, we then
check for new deforestation-related embargoes daily.
• The requests are screened to make sure that the
properties do not overlap with officially-recognized
indigenous peoples’ reserves and parks.
• Annual ESG reviews of more than 2,000 customers,
including meat processors, soy traders and farmers, as
well as logging companies.
• There is constant dialogue with major Brazilian companies
on the challenges posed by deforestation.
• Santander Brasil’s requirement for all lumber companies
in the Amazon to carry the Forest Stewardship
Certification (FSC) or an equivalent in order to be a
customer, becoming the first bank to require it.
• Involvement in forums that debate on, and propose,
solutions to stop deforestation in Brazil. In July 2020, we
announced a plan to promote sustainable development in
the Amazon, including better controls over the value chain
of meat processing firms and to enlist them to help end
deforestation. Dubbed Plano Amazonia, it is a collaboration
effort between the three largest private banks in Brazil, and
it opened a constructive dialogue with the Government
around this agenda.
• The plan prioritizes three things: preserving the
environment and promoting the bio-economy; investing in
sustainable infrastructure; and guaranteeing the
fundamental rights of those living in the Amazon.
Following an update to the environmental, social & climate
change risk management policy in 2020, special care must
now be taken when financing retail customers carrying out
farming and ranching activities within the Amazon biome.
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Financial inclusion and
empowerment
We help people get access to the financial system, set up and grow
micro-businesses, and acquire the skills to manage their finances
through financial education. Our aim is to financially empower 10
million people between 2019 and 2025.
Santander Finance for All is Grupo Santander’s initiative to support financial inclusion
and empowerment, comprising three areas:
Access
Finance
Resilience
We help people access and
use basic financial services
through simple payment
platforms and cash-in/cash-
out services in remote and
small communities.
825,454 people financially
empowered in 2020
We provide tailored finance to
individuals and SMEs with
difficulties obtaining credit or in
financial distress.
2,023,411 people financially
empowered in 2020
We help people improve their
financial knowledge, making
economic concepts more
understandable and helping
them make better decisions.
716,071 people financially
empowered in 2020
Progress
Target
We believe 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. We aim to financially
empower 10 million people between 2019 and
2025.
A. To assess our contribution to financial inclusion, we use a methodology that sets out the principles, definitions and criteria for counting people who have been
Financially
empowered people
4.9mn
2019
2020
B
A
10 mn
2025
financially empowered through our initiatives, products and services.
B. Accumulated figure since 2019. In 2020, the perimeter of the information was expanded to include information from Santander Consumer Finance Nordic and
Santander Consumer Finance Portugal.
In 2020, we focused on addressing the impact of the covid-19
pandemic, especially on the most vulnerable groups.
Our strategy targets the unbanked and underserved;
individuals and SMEs across Europe, Latin America and the US
who face difficulties obtaining credit; have limited financial
understanding; or are in financial distress.
In Latin America, we focus on giving people access to the
financial system. In mature markets, we seek to ensure that
no one needs to leave the financial system.
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Access
We aim to make sure everyone can access basic financial
services by promoting the use of payment digital platforms
that make transactions easier, giving access to financial
propositions targeted at the base of the pyramid, providing
cash in/cash out services in remote areas and small
communities, and offering targeted financial support.
Supporting access to the banking system and payment
accounts.
We help financially underserved people access the banking
system through digital platforms so they can make payments,
use basic, tailored financial services, overcome barriers, take
greater control of their finances and enjoy faster and more
secure transactions.
825 thousand
people empowered
through access
initiatives in 2020
Superdigital - banking without a bank
Superdigital is Grupo Santander’s flagship mobile platform
for cash deposits, withdrawals and payments, driving
sustainable financial inclusion among the unbanked and
underserved in Brazil, Mexico and Chile. Developed with our
own technology, building on growing smartphone ownership
and better network coverage in Latin America, it helps
communities through basic, user-friendly products that give
customers a unique banking experience.
Our aim is for it to have five million customers by 2023 in
Latin America. So far, it has financially empowered 197,026
people, allowing those without a bank account to make
online financial transactions, split bills with others and
receive automated alerts about their finances.
A
Its largest market is Brazil, where users range from micro-
entrepreneurs who can pay suppliers and receive payments
from customers, to companies with sizeable headcounts that
large banks tend not to serve. In 2020, Santander Brasil
allocated BRL 7 million (more than EUR 1 million) to
Superdigital to give support to 20,000 households.
Find out more at Superdigital Brazil
Superdigital Mexico and
Superdigital Chile.
A. Not all Superdigital customers are counted as financially empowered. Only
those with a reported income below the country's minimum salary are
considered.
Other products and services that help us uplift those at the “base of the pyramid”
Cuenta Life
Empowering the base of the pyramid
Since 2018, the Cuenta Life account has been opening up
banking to everyone, serving 370,000 people. It drives
financial inclusion through special products for the
underserved, and its revamped value proposition features
a life cycle that better suits young and elderly customers,
with better prices and tailored customer content and
perks. In 2020, Cuenta Life assisted more than 232,470
people.
Santander Mexico's banking services financially empower the
elderly and retirees with income of less than MXN 11,000 a
month (EUR 190). It tailors products and services to their
needs, including consumer credit with custom insurance,
fraud monitoring, and a separate credit admission policy and
sales channel, fostering the financial inclusion of more than
955 customers.
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Guaranteeing access to financial inclusion
Grupo Santander seeks to provide access to basic products
while making sure customers know how to use them. We
have cash-in/cash-out services in place and offer financial
support to special groups.
Cash-in/cash-out services help achieve financial inclusion in
remote and sparsely populated areas through our dedicated
branches. Also, our agreements with private and state-run
entities widen our footprint to ensure underserved
communities can have bank accounts and get cash virtually
anywhere.
Branches in underbanked and remote regions
Financial inclusion branches
and remote agents
Branches in sparsely
populated regions
Branches in small
villages
Our eight financial inclusion branches
serve 23,000 people in underbanked
neighbourhoods in Buenos Aires that
previously had no banking services,
including Santa María, Castelar Sur, La
Juanita and Don Orione. These basic
services now benefit 250,000 people
daily, helping fight social exclusion.
694 agent offices, 504 branches and
ATMs provide access to finance and
fight social exclusion in communities
with under 10,000 inhabitants.
We have 79 branches in small
towns. They provided financial
services to 37,224 customers in
2020. 27 branches are in the Azores
and Madeira archipelagos, serving
15,192 customers.
Partnerships to reach unserved communities.
Correos postal service
Partnered retailers
Our collaboration with Correos, the state-run postal service,
sets up basic financial services at 4,675 rural post offices.
From January 2021, customers can withdraw and deposit
cash, and postal workers deliver money to any address in
Spain. Through this service, Grupo Santander reaches 75%
more branchless towns of fewer than 1,000 people and
66% more customers who previously didn't have cash
services nearby.
Santander's partnerships with retailers let customers carry
out basic transactions in more than 26,769 convenience
stores, such as 7 Eleven and Oxxo.
Promotion and training in the use of digital channels
Branch outbound calling
Here & Now
During the covid-19 pandemic, many elderly people became
at risk financially by not being able to visit their branch or
manage their finances as usual. In response, our employees
reached out to make sure they could continue to look after
their finances easily and securely from home.
To increase digital literacy among the elderly, our
employees assisted customers in using digital channels to
make payments.
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Finance
Grupo Santander seeks to provide tailored finance to those
who have difficulty in accessing credit, and to offer solutions
to individuals and SMEs who are in financial distress.
In 2020, the great efforts Banco Santander has made to ease
the covid-19 pandemic, which had a profound effect on
society in 2020, have increased the number of customers
benefitting from our initiatives.
In Latin America, our microfinance proposals target micro-
entrepreneurs, offering them a complete value proposition. In
mature markets, we support low-income households by
financing their basic needs, such as affordable housing. We
also support SMEs and individuals through debt renegotiation
and cash injections.
2.3 million
people empowered by
initiatives tailoring financial
solutions to their needs
since January 2019
Finance for SMEs and entrepreneurs with difficulties obtaining credit
Since 2002, we've offered micro-finance services to help
bridge Latin America's significant social divide and promote
financial inclusion. We aspire to help low-income and
underbanked entrepreneurs grow their businesses, which
drive the economy and social mobility.
Our extensive product line includes tailor-made micro-loans
that help micro-entrepreneurs generate income and meet
their working capital needs, as well as savings products,
current accounts, cards and micro-insurance.
A large part of our lending goes to women, who are less likely
to obtain financial services in developing countries.
Our micro-finance programmes in Latin America
EUR 231 million
outstanding credit to
microentrepreneurs at the end of
A
2020 (-17%
vs. 2019)
1.1 million
micro-entrepreneurs supported in
2020 (+27% vs 2019)
59%
of microentrepreneurs
supported are women
A. The year-end total outstanding loan volume declined due to the exchange rate effect. Nonetheless, outstanding loans with each microfinance programme grew at
year-end in local currency (e.g., 8.4% in Brazil and 7.7% in Mexico).
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Prospera
Prospera Santander helps micro-businesses and other small
enterprises grow, benefitting low-income communities. It
grants income-generating loans to micro-entrepreneurs, who
collectively share the obligation to repay them. A team of
loan officers who live in the community provide financial
advice to guide borrowers throughout the term of their loans.
With 99 branches, it plans to open 30 more and take on 300
employees in the first months of 2021.
All Prospera products have a digital component, making
borrowers' operations more efficient while improving
customer experience. For example, customers can get loan
applications approved in under 10 minutes.
In the first wave of covid-19, Prospera's programmes, such as
eight-week payment deferrals (in March and April) and
Seguro Responsa micro-insurance, gave customers extra
support to cope with not being able to work.
When businesses reopened in Q4, Prospera achieved a new
accounts record (+18,000 in October), with over 540,000
active customers. It also granted BRL 2 billion in loans in
2020.
More details at
www.santander.com.br/
campanhas/microcredito
Tuiio
In Mexico, Tuiio offers low-income households and the
underbanked digital services and products, including tailor-
made loans, savings accounts and insurance. It has 85
branches and more than 72,000 customers in the
communities it serves.
In 2020, Tuiio launched a new medical assistance proposition
to help build a culture of prevention is the best cure, and to
facilitate access to specialist doctors. It also helped its
customers mitigate the effects of the pandemic by granting
grace periods of up to eight weeks and loan term extensions
from the previous four months to eight months, as well as
keeping life and health insurance premiums at low prices for
32 weeks.
More details at
www.tuiio.com.mx/
International Finance Magazine named
Santander Best Bank for Financial
Inclusion in Mexico for Tuiio
Mercedes Cruz
After the pandemic left her jobless, Mercedes Cruz, a cook,
set up a kitchen with her mother-in-law to sell food door-to-
door. Tuiio gave her a loan and financial education to start her
venture, El Sazón de Ángel, and generate income to support
her family.
"What we like most about Tuiio is that they gave us a debit
card so we can save, buy goods and keep making headway.
Knowing I have money on the card, I don't have to worry.
Without this loan, we couldn't have got business off the
ground. We started from scratch with that money. I would like
to thank you for helping us build something and move
forward."
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Prosperá
Prosperá was launched in Uruguay in 2019 as a pilot
programme in the Salto region, offering loans and insurance
to local entrepreneurs, and has since expanded throughout
the country. Its value proposition features "Recommended
Client", in which past Prosperá customers refer new
entrepreneurs, thereby generating an interconnected
entrepreneurship ecosystem. It also offers savings accounts,
payment solutions and other products and services. Due to
covid-19, Prosperá deferred fees and debt financing for
entrepreneurs, and set up remote management services.
Other local initiatives
Small business administration loans
Santander US' "Inclusive Communities" plan provides
financial assistance to struggling communities. It will
mobilize USD 11 billion in loans, investments and charity
donations from 2017 through 2021. Its lines of action
include the Small Business Administration Loans initiative
to fund small businesses with less restrictive requirements.
In 2020, Santander lent more than USD 1.2 billion through
the Small Business Administration's Paycheck Protection
Programme (PPP), which helped save over 126,000 jobs.
Loans backed by MGIs for SMEs with
limited means
In Spain, Banco Santander works with mutual guarantee
institutions (MGIs) to lend to SMEs and entrepreneurs with
limited means and help them secure lines of credit. In 2020,
each MGI ran covid-19 relief initiatives.
Superclub Comprometidos, Via Bana, Formar
and Potrero Digital
In Argentina, Banco Santander empowers customers and non-
customers financially through Superclub Comprometidos, a
loyalty programme where customers can connect to sell
social and environmentally-friendly products; Vía Bana social
ice cream parlours that offer basic banking and financial
services and financial education; and Formar and Potrero
Digital, two digital financial education programmes aimed at
young people in vulnerable communities.
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Financing basic needs for low-income households
We offer products and services that enable low-income
households to access housing and meet other basic financial
needs.
Affordable housing programmes
Social housing fund
Santander US's Inclusive Communities plan includes
affordable housing and home improvement programmes that
help over 39,000 people though low-interest mortgages,
lender-paid mortgage insurance and investment in projects
for low-income homebuyers.
Banco Santander currently has 1,594 social homes for rent
in Spain, of which 1,364 are allocated to the Fondo de
Viviendas Sociales (Social Housing Fund). In addition, we
have 624 homes available to rent at reduced rates.
Special programmes for SMEs and individuals in financial distress
Payment holidays
Since 2012, we've undertaken more than 69,000
social and mortgage debtor protection actions;
granted 12,163 mortgages under the Code of
Good Practice (which includes debt restructuring
and deed in lieu of foreclosure); renegotiated
27,457 mortgages under the loan repayment
moratorium; and suspended 10,966 foreclosures
(we haven't repossessed any homes since
November 2012).
During the 2020 crisis, we offered our customers
solutions in a proactive way, often taking a more
flexible approach than the authorities. We
suspended payments on 207,000 loans
(including 160,000 within the sector agreement).
IRIS solutions to
manage impairments
Agreements with
multilateral entities
Our IRIS debt renegotiation
programme analyses the
situation of customers who are
struggling financially and lends
them a hand to meet their
payment obligations. Since
2019, we've renegotiated the
debt of 28,875 customers and
supported 51,250 customers
with our payment holiday
solutions.
In Brazil, Spain, Poland and
Portugal, the bank has signed
agreements with entities such
as the EIB, EIF and IFC to offer
lines of credit with
advantageous conditions to help
mitigate the effects of the
pandemic (see more in 'Meeting
the needs of society' in this
chapter).
Further collaboration: investing in fintechs
Through Mouro Capital (formerly Santander Innoventures) we
support the growth of startups whose business models target
emerging markets and people without access to financial
services. In recent years, we've invested in the following
companies, among others:
• PayJoy. Founded in 2015 in San Francisco (US), it provides
access to smartphones and basic consumer financial
services to reduce the number of underbanked and
underserved communities in emerging markets. It aims to
spread the use of digital tools and technology to remove the
need for cash and to fight predatory lending.
• ePesos. Founded in 2014 as a digital project of Mexican
microfinance company Quantum Capital, it provides
financial services to those most excluded by Mexico's
banking system. It focuses on creating new payment
methods for individuals and companies with few financial
services, while offering low-cost lines of credit without the
need for a bank account. In 2017, it offered the first salary
advance, and since then has been helping Mexican
companies take better care of their employees' finances.
For more details, see 'Meeting
the needs of everyone in society'
in this chapter.
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Promoting financial education
We believe education is part and parcel of financial inclusion
and customer protection, which is why it’s at the core of our
Responsible Banking agenda. In 2020, we committed more
than EUR 3 million to 61 initiatives that helped financially
empower 716,000 people in the countries where we operate.
To fulfil our goals of making financial concepts easier to
understand, protecting the most vulnerable through special
tactics, and promoting market stability, our programmes
include content on financial and money management, digital
banking, training for SMEs, behavioural economics and other
topics for all groups (especially children, young people, senior
citizens and vulnerable customers). We run programmes
through face to face education, websites, videos, simulators,
contests and games. We are using apps and other channels
to make financial education more accessible and to maximize
the impact of our initiatives.
In 2020, we launched a global financial education page on
our corporate website. It showcases our learning initiatives
from across the world under a common narrative and
approach. It has a broad variety of contents and resources to
help users make informed financial decisions and better their
financial management.
716,000
people helped from
financial education
initiatives in 2020
61
initiatives supported in
2020
Content type
→ Basic financial concepts
→ Products and services
→ Personal finance management
→ Digital banking
→ Entrepreneurship/training for SMEs
→ Sustainable finance
→ Behavioural economics
Target audience
→ General public
→ Children (up to 13 years old)
→ Adolescents and young adults (14-20 years old)
→ Elderly people (from 65 years old)
→ University students
→ Santander employees
→ Vulnerable customers
→ SMEs and entrepreneurs
South America
In South America, our initiatives – which aim to serve everyone – put special focus on vulnerable groups,
university students and persons with disabilities. They include Fundación Techo in Chile and Vía Bana in
Argentina. Mostly run online, their most popular topics include basic financial concepts and personal
finance management.
Europe
In Europe, most initiatives cater for the general public, especially young people. Online initiatives
increased amid covid-19, and many of them are now hybrid. Digital is one of the most popular topics, with
special initiatives aimed at the elderly, such as Formación Pioneros in Spain and Go Digital in the UK.
North America
In North America, we focus on contents about personal finance management. Our initiatives, which
prioritize vulnerable groups, include Tuiio for low-income households in Mexico and Santander US'
volunteer service to boost financial empowerment. In 2020, we shifted to a virtual service model to run our
initiatives in a safe environment.
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Best practices
Pioneros
This initiative in Spain trains customer
service and branch employees online on
teaching elderly customers at branches
to use our app and go digital.
Anti-fraud training
workshops
Santander Scam Avoidance School
(SAS) is a unique programme in the UK
designed to equip customers with the
tools to detect and prevent common
acts of fraud. Before moving online via
webinars due to covid, it was run in-
branch by trained employees, and
covers scams, the digital footprint,
online safety and other topics.
Santander Life
Santander Life is an innovative value
proposition promoting good
financial conduct among customers.
It rewards correct answers about
banking commitments with merits
for customers to access payment
deferrals, lower fees, payment date
changes and other benefits.
Tuiio
Tuiio in Mexico runs several initiatives to promote customers' financial education. In
2020, it launched its own financial education website using content and materials
developed in-house. Since the beginning of the pandemic, Tuiio has shared advice on
financial management in times of crisis, health tips and audio stories for children,
among others, through instant messaging platforms, social media and the website.
Through this initiative, it has financially empowered almost 200,000 people.
Visit tuiio.com.mx/educacion-
financiera for more details.
CAMPUS-Santander
Akana
SCF in Spain launched Akana, a tool for
customers to check their finances
easily. It analyses their transaction
data and gives them tips to improve
their finances, regardless of their
bank.
Avançar
Avançar is an entrepreneurial
programme with an exclusive value
proposition for customers. Its web
platform provides SMEs with
contents and solutions relating to
management and innovation,
internationalization, team building
and other relevant topics.
Visit
santandernegocioseempresas.c
om.br/ for more details.
Financial literacy blog
Santander Portugal's new financial
literacy blog offers articles and tips
to help customers make more
informed decisions about their
finances. Topics include how to save
better and how to draw up a
budget.
Visit www.akana.es/FRONT/#/
home for more details.
Visit santander.pt/conta-em-
ordem for more details.
This site runs several financial
education initiatives for customers in
Argentina, including Cuenta Blanca for
health workers, Duo for finance and
business, and Nova on daily life skills. It
also provides finance courses aimed at
women, SMEs and students.
Visit santander.com.ar/banco/
online/campus-santander for
more details.
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Forging partnerships to boost financial
inclusion
Our global networks consist of partnerships to further embed
financial inclusion across our footprint. Those partnerships
are important for sharing knowledge, learning best practices,
and developing innovative approaches to bridging the
financial inclusion gap. Alongside the CEO Partnership for
Financial Inclusion (CEOP), we made progress on a number of
initiatives that can help expand financial services at scale.
Santander BEST Africa
Santander BEST (Building Equality through Sustainable
Tourism) Africa, is the first development cooperation
programme promoted by Fundación Santander. This initiative
seeks to contribute to social and economic development in
Africa by supporting women entrepreneurs and their local
areas in the tourist industry, which has been severely
impacted by the covid-19 crisis.
Santander BEST Africa fosters a sustainable tourism network
based on providing technical and financial assistance to
entrepreneurship aimed at promoting and employing women,
as well as environmental and social sustainability. The
programme looked to secure the continuity of businesses and
employment through the pandemic, and to encourage
knowledge sharing and training between female
entrepreneurs to strengthen the future economic
sustainability of their industry.
CEO Partnership for Economic Inclusion
Founded by the United Nations Secretary-General’s Special
Advocate for Inclusive Finance for Development, Her Majesty
Queen Máxima of the Netherlands, the CEOP brings together
an influential group of CEOs from a variety of industries who
work together to boost financial inclusion around the world.
Many of the beneficiaries are vulnerable women who
promote or participate in the entrepreneurship selected by
Santander BEST Africa due to their contribution to the
preservation of the environment and the inclusive
development of the community.
The programme is founded on two premises: the direct link
between gender equality and sustainable development, and
the potential of responsible tourism as a driver of economic
and social progress in Africa post-covid-19.
Since its launch in October 2020, 17 projects across Gambia,
Senegal and Morocco have received economic and technical
support from Santander BEST Africa.
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ESG investment in Wealth
Management & Insurance
Our aim is to become the best responsible wealth manager in Europe and
Latin America based on a sustainable value proposition for customers,
active engagement and the highest international ESG standards.
In the past few years, ESG (environmental, social and
governance) has become increasingly important in
investment. More and more investors’ assessments of risk-
adjusted medium- to long-term returns are taking
environment and social issues into consideration, while
interest in ESG solutions among clients, employees and other
stakeholders is also growing.
We have been embedding ESG factors into our decision-
making for some time and, in 2020, reinforced our ESG
strategy.
Santander Asset Management (SAM)
As a signatory to the UN Principles for Responsible
Investment (PRI) and the Institutional Investors Group on
Climate Change (IIGCC), we follow high-level international
criteria and standards. We are also the only asset manager in
Spain with a team exclusively dedicated to ESG in our
investment unit.
We have developed our own ESG methodology, which we
extended to Private Banking and Insurance. This helps us
assign most of our funds a rating, based on the data of 15,000
companies and 190 governments. We also embedded ESG
criteria in our investment, voting and engagement policies.
We offer a complete line of ESG products, holding around EUR
6.9 billion in assets under management in 21 ESG products
and 50 mandates in six countries. Over the last six years, our
solidarity funds have donated more than EUR 18 million.
In addition, Santander GO, a collection of products managed
by external investment managers through partnerships,
includes the Santander Global Equities ESG sustainable fund
(managed by Boston Partners - Robeco). Also, we’re working
to apply ESG criteria to all our individual and collective
pension funds and plans, which add up to EUR 20 billion.
We also engage with several companies to improve their
transparency and ESG performance.
SAM ESG Product offering
Best-in-class ESG products in our core geographies
San Sostenible RF 1-3
San Sostenible Bonos
San Respons Solidario
Inveractivo Confianza
San Sostenible 1
San Sostenible 2
San Sost. Acciones
San Equality Acciones
7 Pension Funds
57 Mandates
San Ethical Ações
Go Global Equity
ESG
San Sustentàvel
SAM RV Global
ESG
Go Global Equity
ESG
Acciones Global
Desarrollado
n Fixed income n Balanced n Equity n
Portfolios
In 2021, SAM signed up to Climate Action 100+, an
investor-led initiative that aims to promote
cooperative dialogue urging the world's largest
corporate greenhouse gas emitters to take action on
climate change. It is coordinated by five regional
investor networks, including two to which SAM is a
signatory: Institutional Investors Group on Climate
Change (IIGCC) and Principles for Responsible
Investment (PRI).
For more details, see
www.santanderassetmanagement.es
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Private banking
In private banking, we aim to embed ESG in our advisory
services, as we have done with investment, risks and other
areas. In 2020, our bankers and advisers across our footprint
(over 1,100 experts), received special ESG training from our
ESG dedicated team in SAM and Private Banking Global Team.
Our wide range of ESG products includes funds, alternative
products, and ETFs. We are working on adding new products
across all asset classes while we are developing an impact
investment offering, in order to round off our value
proposition. In addition, Private Banking has launched Future
Wealth, a joint initiative with SAM, our thematic investment
approach focusing on the trends with the strongest tailwinds,
with environment as one of the key elements. On this sense,
Future Wealth, offers our clients a complement to traditional
investing strategies by seeking to capture innovative sources
for growth and performance based on sustainability plus
innovation.
It is important to note that SAM's ESG methodology allows us
to also analyze 100% of the third- party funds we market.
Furthermore, we are also providing tailored-made ESG
reports to our clients, providing a powerful portfolio look
through, including information about their investments CO2
and water consumption footprint, as well as how it performs
according to our internal ESG methodology
Insurance
We focused our efforts on two main actions: working with our
JVs to maximize the portion of our life-savings premiums
invested under the ESG standards set by SAM; and working
with our partners to adopt the UN’s Principles for Sustainable
Insurance (PSI) and to develop specific strategies in financial
education and inclusion-related issues in the geographies
where we operate.
For details on private banking, visit
www.pb-santander.com
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Supporting communities
In addition to support through business solutions, we also drive inclusive
and sustainable growth through education, social entrepreneurship,
employability and wellbeing initiatives in the communities we serve.
Our commitment and progress
Support higher education
Community investment
EUR110 million
invested
156,748
scholarships and grants
EUR94 million
invested
2.4 million
people helped
Our 2019-2021 commitment
Our 2019-2021 commitment
→ To finance 200,000 scholarships/internships and
→ To help four million people through various social
programmes for entrepreneurs.
action programmes.
Covid-19 response in communities
more than105 mn
invested to help tackle the pandemic
A
As a bank, we commit to sustainable economic and social
development to build more balanced and inclusive societies.
Grupo Santander provides more support to higher education
than any other private company in the world. Through
Santander Universities, we have created a unique network of
more than 1,300 universities to help students, researchers
and entrepreneurs.
We also promote and participate in numerous initiatives with
the third sector (NGOs and other social organizations) and run
the majority of them locally to adapt to the circumstances and
reality of each region.
As part of this work, and through contributions from the
group's senior managers, employees and customers, we
mobilized EUR 105 million worldwide to support initiatives in
the fight against covid-19.
A. This amount incorporates part of the bank's contribution to community investment and part of the bank's contribution to its commitment to higher education, plus
contributions from third parties such as employees and customers.
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Over EUR 105 million to solidarity initiatives to help combat the covid-19 pandemic
We mobilized over EUR 105 million worldwide to fund initiatives to combat covid-19. The funds are being used throughout our
core markets to provide essential medical equipment and supplies, to support vulnerable communities and to support research
into the virus through collaboration with universities and other bodies.
All Together Fund to support the health crisis
Santander raised EUR 54 million to provide essential materials to support the global effort to fight the pandemic.
The funds came from senior managers' salary reductions and board compensation, direct donations from the bank and
employee and customer donations.
Spain
Brazil
Masks, non-invasive ventilators,
blankets, protective clothing, etc.
for various hospitals and
government bodies.
Five million rapid tests, CT scanners
and 200 ventilators, with the support
of two other banks.
Mexico
Alliance with five other companies
and donation to the Héroes con
Bata initiative (INER and Fundación
Gigante).
Portugal
Poland
Joined the Portuguese Banking
Association initiative to donate
100 ventilators and 100
monitors to the national health
service.
Support to hospitals dedicated to
treating covid-19 patients by
purchasing equipment and material
(ventilators, tests, masks, sanitizers,
etc.).
Chile
Support to the Confederation of
Production and Trade (CPC)
through donations of medical
supplies such as diagnosis tests,
hospital equipment, etc.
Further efforts to support vulnerable communities
As part of their community support plans, our local units redirected EUR 21 million to support communities and
vulnerable groups particularly affected by covid-19. For more details, see the 'Community investment' section.
Santander Universities
Through its agreements with more than 1,000 higher education institutions, Santander Universities allocated more
than EUR 30 million of its annual budget to support their response to covid-19 (health, education and social issues);
to promote online education; and to mobilize entrepreneurs to identify solutions to the challenges posed by the
pandemic. For more details, see the 'Supporting higher education' section.
Digital solutions
We developed various platforms, digital repositories and apps to support and keep society safe and informed during
the pandemic.
Overcome Together
An open space for individuals and companies with
information and resources to support the fight against
covid-19, as well as country-specific websites
circulating local authority advice.
Covid-19 platform
An app and dashboard developed to help governments and
companies make informed decisions in managing covid-19
contagion with real-time data. Adapted for the Mexican
Government, Spanish regional governments and the
general public.
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Supporting higher education
Banco Santander is one of the private companies that most supports higher
education in the world. We harness our efforts through Santander
Universities, a unique and pioneering global programme with educational,
entrepreneurial and vocational opportunities for students.
110
million euros to
universities
1,432
partner universities and
institutes in 31
countries
156,748
beneficiaries of scholarships,
internships and
entrepreneurial programmes
We focus on three areas:
Education
Entrepreneurship
Employability
We support university students
and graduates in developing
their skills.
48,804
Santander Scholarship
beneficiaries
We help university
entrepreneurs share solutions,
give visibility to new projects,
find investors, etc.
32,707 university students
supported and around 224
programmes and awards
We offer internships, training
programmes and career
guidance services to university
students.
75,237
beneficiaries of internship grants
Target
Progress
We believe that education is the bedrock of a fair
society and strong economy. Through our world
leading Universities programme, we aim to fund
200,000 scholarships, internships and
entrepreneurship programmes between 2019 and
2021.
Scholarships, internships
and entrepreneurship programmes
xxxxxxxxxxxxxxxxxxx
2019
A
225k
200k
2021
A. The sharp increase compared to 2019 is due to the impact of the covid-19 pandemic, which led to a change of focus in Santander Universities' 2020 roadmap.
Traditional scholarships (face-to-face studies) and mobility grants were replaced by online scholarships, with much greater reach.
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Covid-19 response
As covid-19 tested universities' ability to safely continue
teaching and supporting students during the pandemic, we
launched several initiatives to help them. So far, more than
100,000 people have benefited from the work carried out by
Santander Universities, backed by EUR 30 million in funding.
Fondo Supera covid-19 allocated EUR 8.5 million to projects
on virus research and prevention, social impact and enhancing
ICT capacity to reduce the digital divide between students. We
also awarded 30,435 scholarships to vulnerable young people
and to boost the employability and development of students
and professionals affected by the pandemic.
Santander Scholarships in response to covid-19
Some students’ courses were suspended and their job
prospects affected. To overcome those challenges, we ran
several initiatives in collaboration with universities.
Boosting employability and development
In 2020, we launched Santander Scholarships for the online
training initiatives #YoMeQuedoEnCasa and #InvierteEnTi,
benefiting 23,725 students and graduates. The aim was to
support the development of digital skills, women leadership,
languages and soft skills to heighten their future
employability. It also helped professors deliver virtual
lectures through the #YoMeQuedoEnCasa programme.
Supporting students affected by the covid crisis
Over 2,000 people received assistance from
Santander Universities in Portugal thanks to the e
Bolsas Santander Digitalizaçao to help those
affected by the covid-19 crisis.
Superamos Juntos supported more than 1,000
Brazilian students in financial difficulty.
Through the Ponte la Verde ante la covid-19
initiative, we awarded 5,800 scholarships to 1,435
projects at 340 universities to tackle the health
crisis and support the worst-hit communities.
Entrepreneurship: post covid-19 solutions
Santander X Tomorrow Challenge
We committed EUR 400,000 in awards and other benefits to
20 entrepreneurial projects from many countries. They came
up with innovative solutions to soften the pandemic's blow to
society and the economy. The four challenges involved
developing new job skills, creating jobs, adapting business
models, reopening businesses and finding real market
opportunities, including:
→ Re-Skill category: Edward Espinoza, CEO and co-founder of
Arcux. E-learning in architecture, design and construction.
→ Re-Invent category: Sascha Kaczmarek, CCO and co-
founder of Motion Miners. Analysis of manual process
automation through sensors and artificial intelligence.
For more information on the other two challenges, please see
the 'Entrepreneurship' section below.
IT and data reinforcement plans for universities
In Spain, Fondo Supera helped supply around 5,000
computers and 10,000 Internet connectivity
solutions and webcams to university students.
In Argentina, around 30% of Santander Universities'
funds were allocated to covid initiatives such as
connectivity scholarships for students, programmes
to provide teachers with remote tools and IT
security, and research scholarships.
In Chile, more than 46,226 people were helped
with connectivity scholarships to continue their
studies online from home. Besides, 2,400
computers and tablets were provided to students in
disadvantaged areas.
"We have supported not only teachers, so they can learn
new educational approaches, but also students. Even if
they're digital natives, they're unaware of how to
enhance their technological knowledge to improve
learning" Óscar Jerez, Director of the Centre for Teaching and
Learning, School of Business and Economics, Universidad de
Chile. Senior Advisor on Innovation in Higher Education,
LASPAU affiliated to Harvard University.
“It helped us position ourselves in our industry and in
the entire entrepreneurial ecosystem, and we're
confident this award will help us seize other
opportunities to grow”. Edward Espinoza, co-founder/CEO
of Arcux, winner of the Re-Skill category.
“We're confident Santander will also be a great ally in
the post-launch phase." Sascha Kaczmarek, co-founder/
CEO of Motion Miners, winner of the Re-Invent category
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Santander Scholarships
Although many scholarship programmes have been disrupted
by the pandemic, Santander Universities continued to fulfil
(and even raise) its commitment to training university
students and young professionals, facilitating their access to
higher education and promoting excellence, equal
opportunities and employability.
The scholarships are divided into seven categories:
→ Santander Tech, to promote new technology-based
learning, programming and innovation to gain an
understanding of digital languages and technology such as
blockchain, machine learning, cloud & DevOps and product
design strategies.
→ Santander Skills, to promote the development of cross-
cutting skills (soft and hard skills) that are essential to
making headway in the job market.
→ Santander Women, to promote the professional
development, leadership and negotiation skills of the next
generation of women leaders.
→ Santander Studies, to help students complete their studies
through grants to strike a balance between academic
excellence and a lack of resources.
→ Santander Language, to strengthen the command of
foreign languages in working environments.
→ Santander Internship, to drive students' employability
through internships and offer recent graduates
opportunities to find a good-quality first job.
→ Santander Research, to give undergraduates,
postgraduates and PhD students the means to start or
continue their research plans.
Julia Prieto, Santander IE Digital DNA Scholarship, Spain
"Who doesn't need basic information on how to go
digital? I would recommend this a thousand times to all
students who have an ambition to be part of the digital
and technological revolution we're set to witness in the
coming years".
Scholarships platform
The scholarships we offer, in collaboration with universities
and higher education institutions, can be found at
www.becas-santander.com. In 2020, there were 323,591
applications and 43,704,351 visits registered on the platform.
Our programmes included:
Bolsas Graduação
One of Brazil's benchmark programmes, it provides financial
support to university students in vulnerable situations, so
they can continue their studies (tuition fees, educational
materials, food, transportation, etc.).
Santander Idiomas Scholarship | English Up
Thanks to collaboration between Banco Santander and the
British Council, 11,100 Spanish university students can enjoy
the online and in-person programmes on offer at British
universities. The aim of this initiative is to acknowledge
academic excellence and foster the employability of students
through English learning.
Santander for MIT Leading Digital
Transformation Scholarships
In 2020, 2,500 scholarships were handed out to provide
specialized training and develop digital skills in collaboration
with the Massachusetts Institute of Technology (MIT), which
is considered one of the world's best universities.
Lisa Moutinho Teixeira, Bolsa Santander Ibero Americana,
Portugal
"Soft skills, resilience and self-confidence are key to
creating teachers with strong values and greater
problem-solving and team-working capacities, as a way
of meeting our professional and daily objectives".
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Global initiatives
Banco Santander upholds its commitment to high-impact
student entrepreneurship through its international Santander
X project. It sets out to guide and support young
entrepreneurs on their journey. In 2020, it launched three
global initiatives.
Santander X Global Award
The top award for student entrepreneurs received 500
submissions from five countries. Winners included high-
impact projects that sought to accelerate growth and new
solutions in the early stages of business development. The two
winners were awarded USD 150,000 and USD 50,000,
respectively, plus guidance from expert mentors.
→ Best ScaleUp category: Miguel Ángel Torrero, COO and co-
founder of Rated Power. pvDesign software for designing
utility-scale photovoltaic plants.
→ Best StartUp category: José Luis Ayala, CEO of BrainGuard.
Digital solution for predicting migraine attacks
“Our idea was long-term development, but
this award has given us a great push to
become the go-to software in the
international photovoltaic industry”.
Miguel Ángel Torrero, co-founder/COO of Rated
Power, winner of Best ScaleUp.
Young People with Solutions Explorer Lab
This training programme helps potential entrepreneurs create a
sustainable, viable and robust solution to problems addressed
by the United Nations' SDGs.
“We were very excited when we brought the
team together, but we didn't know how to
manage it. Everyone at Explorer helped us
find our way with their support, closeness
and care, making for an incredible
experience".
Carlos Garces García, co-founder/CEO of Shellock.
Monitors maritime containers, in real time, through
reusable geolocation stamps.
Ecosystem Mapping workshops in collaboration
with the MIT D-Lab
In collaboration with the MIT D-Lab department and the Global
Ecosystem Dynamics Initiative, Santander Universities took part
in mapping the most promising start-ups in the local innovation
ecosystems of six different countries.
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Local initiatives
To promote innovative startups with high growth potential,
we held five local award events in Argentina, Mexico, the UK,
Chile and Uruguay, which had received more than 1,500
projects submitted by student entrepreneurs from over 300
universities.
XVI Entrepreneur X Award
XV Santander X Award for Business Innovation
"Virtual reality was already here, but the pandemic
caused us to move faster. My team and I now want to
take it to the next level to help people improve their
personal and working lives".
Tomás Malio, CEO and
co-founder of COVREL, a virtual reality training platform.
“This award is a huge step that will give us invaluable
resources to press ahead with our research and achieve
our aims”.
Arian Marín, CEO of Bifrost Biotech, which develops an
artificial cornea for use in transplants.
X Santander Universities Entrepreneurship
Awards
II Santander Ideas X award
Jamie Bankhead, CEO of Konglomerate Games,
development of healthcare-related video games
“We are so pleased to have won the Santander
Universities Entrepreneurship Award. It was such a
fantastic competition, and the prize will enable us to
focus on developing our project".
Lewis Loane, founder of Torann, which is developing a
device that provides the highest sound quality for
musicians who play amplified instruments.
"The support from the Santander Universities Emerging
Entrepreneurs programme has allowed us to sharpen
our business model and strengthen our business plan".
David Jerez, founder and creator of X- Torch,
technological solutions for individuals and companies
"The funds we received from Santander X enabled us to
maximize our online presence and reduce costs by 60%,
all while enhancing the technology we use."
Ricardo Flores ,CEO of Body Defense, an educational
video game that integrates biological and
pedagogical methodologies.
“Our Ideas X mentor was pivotal to the process. The
footing, sales and partnerships we've gained are all
down to this programme”.
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Universia
Founded 20 years ago, Universia is now the world's largest network of
universities, involving 822 institutes from 21 countries.
Academic guidance
This online service gives students and professionals advice on their education
and training. It's a one-stop shop for internships, job postings, specialist
courses and information on universities and programmes the world over.
Employment
We strive to become the benchmark in managing young talent digitally by
overseeing the relationship between universities and companies, opening up
to international job options and providing support both online and through
other means to smooth the transition into the world of work. We run several
initiatives to achieve this:
• Universia Jobs: a job posting and internship platform available in seven
countries.
• #jobstogether: a knowledge sharing movement to boost candidates'
chances of landing a job through direct contact between students,
universities and companies.
Digitalization at universities
It has taken just two years for MetaRed to become the largest network of
university IT leads, involving over 1,500 professionals at more than 800
universities across Spain, Portugal and Latin America. The project has so far
helped train over 500 middle-managers, held over 50 webinars and assessed
the IT skills of more than 10,000 university lecturers.
Universia launches new website with
Spain's most sophisticated search
function
Banco Santander and the CRUE association's
new university portal enables users to
search for over 19,000 degrees, master's
degrees, courses and internships. The site is
Spain's biggest gateway to information on
education and employment for
undergraduates, graduates, lecturers and
researchers.
For more details, visist www.universia.net.
Fundación Universia
Fundación Universia is a not-for-profit organization that
works to forge inter-university and job networks with a
special focus on educational advice, diversity, equality and
developing IT skills.
It is a leading light in graduate employment and placing
burgeoning, diverse talent in companies that champion
inclusive and sustainable growth. It also promotes
continuous, experiential, digital and global learning geared
towards the transition to the job market.
Its strategy centres around these three Sustainable
Development Goals: Quality Education (SDG 4), Decent Work
and Economic Growth (SDG 8) and Partnerships for the Goals
(SDG 17).
619
scholarships
to students with
disabilities
70
persons
with disability
placed in
companies
82
grants
to sole traders
on disability
grounds
For more details, visit www.universia.net.
Diana de Arias, overcoming the odds
At just 23, Diana de Arias suffered a stroke that resulted in
an acquired brain injury. After gruelling rehabilitation, she
created Decedario, a tool to help improve the lives of
persons with disabilities. Thanks to Fundación Universia's
aid programme for self-employed persons with disabilities,
she's now boosting her company's digital footprint through
an initiative featured in Forbes' list of alternative top 100
fortunes in Spain.
Despite the daily efforts of people like Diana, the covid-19
pandemic has left many SMEs in dire straits. Launched in
May 2020, the aid programme promotes sustainability and
inclusivity in Spain with equal opportunity and diversity.
So far, Fundacion Universia and Banco Santander have
offered robust and innovative solutions to 80 self-employed
men and women in Spain, aspiring to uplift one of the
groups hit hardest by the pandemic.
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Community investment
We foster inclusive and sustainable growth through initiatives that
support access to education, social entrepreneurship, employability
and welfare in the communities we serve.
EUR 94 million 2,366
in community investment
partnerships with NGOs
and social welfare
institutions
2.4
million people
helped
22,630
A
volunteers
A. Refer to Challenge 1 for more details about volunteers and volunteering hours.
Main lines of action
Support for
children’s education
Support for
social wellfare
Support for the
arts and culture
We support various projects to
provide equal opportunities
and access to quality
education, especially in Latin
America.
We promote and collaborate
with numerous programmes
that aim to impove the lives
of people at risk of exclusion,
poverty and vulnerability.
We encourage culture and
knowledge through programmes
and initiatives that promote art,
literature, education and talent.
Target
Progress
We believe we can play a major role in improving
lives in the communities where we operate, and aim
to help four million people through our community
programmes between 2019 and 2021.
B
B. The bank devised a methodology tailored to its requirements and
specific model to contribute to society. Reviewed by an external auditor,
it identifies a series of principles, definitions and criteria to consistently
track those who have benefitted from the community investment
programmes we promote. The number of people helped though art and
culture programmes is excluded.
People helped
through community investment (millions)
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
2019
C. Cumulative figure since 2019. In 2020, the scope was expanded by
incorporating information from Santander Consumer Finance Benelux,
Santander Consumer Finance Nordic and Santander Consumer Finance
Portugal.
C
4mn
4 mn
2021
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Corporate
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Economic
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Risk management
and compliance
Key initiatives by country
We maintained most of our programmes during the health
crisis, while also allocating resources to new projects and
adapting some initiatives to the new landscape.
Commitment to child and youth education
Education is at the core of our social investment strategy. In
addition to supporting university and financial education, we
run programmes that mainly focus on promoting equal
opportunities and access to quality education for children and
the youth.
470 thousand
children helped by
education programmes
Fundación Belén
Educa
Korky.tv
Amigo do Valor
Special Edition
In Chile, we collaborate with
Fundación Belén Educa on
various initiatives that foster
educational excellence for
children and young people.
Korki.tv is an educational TV
programme aimed at final-year
high school students. It was
created to help young people
prepare for exams during the
pandemic, using advanced
teaching methods.
65 projects to support children
and adolescents. Due to the
pandemic, the programme
coined a new version, Amigo de
Valor covid, aimed at
supporting five hospitals in Säo
Paulo and Río de Janeiro.
Design the Future
We promote a digital guidance
platform that cross-references
young people's profiles with
training and academic courses to
help them choose the best
options.
Social welfare support
We run initiatives to improve the quality of life of those facing
hardship due to age, ill-health, disability, financial difficulty,
etc.
1.8 million
people helped by social welfare
programmes
Santander Ayuda
We launched a special edition
to find 20 NGOs working with
the most vulnerable groups
during the crisis. Each NGO will
receive EUR 5,000.
Alzheimer Society
and Age UK
The Santander Foundation
donated GBP 3m split equally
between the Alzheimer’s
Society and Age UK, enabling
them to continue providing
support for those in need during
the pandemic.
Fundación AMA -
Familias
vulnerables
This programme aimed to help
more than 15,500 people who
were affected by the pandemic,
providing them with personal
hygiene kits and food supplies
throughout June.
Communities
impacted by covid
Santander US is committed to
supporting our communities
impacted by the covid-19
pandemic, mobilizing USD 15
million in donations to support
non-profit partners that
provide essential services.
Promoting culture
Banco Santander recognizes art and culture as essential
elements to support people's all-round development.
Fundación Banco
Santander
Works to build a more equitable, inclusive
and sustainable society. With this premise,
it develops projects that cover three main
lines of action: culture, environment and
research and social action.
It launched Santander BEST Africa, a
development cooperation programme to
support African enterprises that promote
the employment of women and contribute
to community progression.
More details at
www.fundacionbancosantander.com
Farol Santander
Cultural and entrepreneurial centres in Sao
Paulo and Porto Alegre. It promotes
contemporary art exhibitions, some of
which are interactive, to raise awareness
of community issues, as well as discussion
forums and events related to start-ups and
innovation.
More details at
www.farolsantander.com.br
Santander Argentina
Foundation
The foundation works on the promotion
and development of art and culture, and to
bring them closer to the community. In the
so-called Arts District, the foundation runs
a multidisciplinary programme with
exhibitions and seminars.
More details at www.santander.com.ar/
banco/online/fundacion-santander
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Tax contribution
We pay our fair share of tax in the markets we operate in.
For more details on Grupo Santander's tax
strategy, visit our Corporate Website.
Grupo Santander pays its fair share of taxes in the
jurisdictions where we operate. Our board-approved tax
strategy (available online) sets out the principles that apply to
the entire organization.
All the group’s entities must comply with its tax risk
management and control system in accordance with the
internal control model.
Since 2010, we've abided by the Code of Good Tax Practices in
Spain and by the Code of Practice on Taxation for Banks in the
United Kingdom. Furthermore, we've participated in
cooperative compliance initiatives led by various tax
authorities. Since 2015, we've voluntarily submitted the
annual Tax Transparency Report to Spain's Tax Authority.
Tax contribution
To contribute to the communities in our geographies, we pay
all taxes borne directly by the group (taxes paid by the
A
) and collect others' taxes originating from our
group
B
).
business operations (taxes from third parties
In 2020, our tax contribution totalled EUR 14,496 million,
including EUR 6,443 million in taxes directly paid by the
group.
Core principles of Grupo Santander’s tax strategy
→ Satisfy our tax obligations based on a reasonable
interpretation of tax laws, grounded on their spirit and
intention.
→ Respect the rules on transfer pricing and pay taxes in each
jurisdiction in accordance with our functions, assumed risks
and profits.
For every 100 euros in total income, EUR 33 are taxed,
including:
→ Not give customers tax advice or planning strategies when
marketing and selling financial products and services.
• EUR 18 in taxes collected from third parties;
• EUR 15 in taxes paid directly by Santander.
→ Communicate Santander's total tax contribution clearly,
distinguishing between taxes borne by the group and by
third parties for each jurisdiction.
→ Not create or acquire entities registered in offshore
jurisdictions without board of directors' approval; and
adequately monitor and gradually reduce the group's
operations in such territories.
C
→ Maintain a good working relationship with tax authorities
based on the principles of transparency and mutual trust to
avoid disputes and minimize litigation.
A. Including net corporation tax payments, VAT and other non-recoverable
indirect taxes, employer's social security contributions and other withholding
taxes, as well as other charges and tariffs.
B. Including net payments for salary withholdings and employees' social
security contributions, recoverable VAT, tax deducted at source on capital,
non-resident taxes and others.
C. By the end of 2020, we had two subsidiaries and three branches in offshore
jurisdictions, having liquidated a subsidiary in Jersey and closed a branch in
the Cayman Islands. See detailed information on offshore entities in note 3 c)
of the notes to the consolidated financial statements.
110
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and compliance
The taxes recorded in our annual income statement mainly
stem from corporation tax accrued during the accounting
period (EUR 5,632 million in 2020 or, deducting the
D
extraordinary results, EUR 3,516 million
). They also include
non-recoverable VAT, employers' social security contributions
and other charges. These taxes are recorded as they are
generated, irrespective of when payment is made.
The taxes Grupo Santander pays directly (see the table below)
are included in the cash flow statement. In addition to
corporation tax, the total taxes the group pays include non-
recoverable indirect taxes, contributions to social security
services and taxes that are exclusively levied on banks and
financial transactions (such as in Spain, the UK, Poland,
Portugal, Brazil and Argentina, amongst others).
Tax disclosure by jurisdiction
EUR million
The taxes we accrue and the amounts we pay do not usually
match because the laws in some countries dictate a different
payment date than when income was generated or an
operation was taxed.
We pay taxes in the jurisdictions where we earn a profit. Thus,
the profits obtained, and the taxes accrued and paid,
correspond to the countries where we operate.
D. See notes 27 and 51c of the consolidated annual accounts.
Jurisdiction
Spain
UK
Portugal
Poland
Germany
Rest of Europe
Total Europe
Brazil
Mexico
Chile
Argentina
Uruguay
Rest of Latin America
Total Latin America
United States
Other
TOTAL
3,035
1,092
610
623
332
638
6,330
2,530
1,223
660
2,625
131
35
7,204
951
11
Total
taxes paid by the
Group
Third-party
taxes
Total
contribution
Corporate
income tax
342
204
175
267
161
333
2020
Other
taxes paid
1,210
453
184
207
54
250
1,482
2,358
764
189
365
104
30
22
374
239
64
285
71
5
1,552
1,483
657
359
474
215
583
3,840
1,138
428
429
389
101
27
435
251
149
117
55
2,490
1,392
795
231
2,236
30
8
1,474
1,038
2,512
4,692
(14)
4
99
2
85
6
866
5
2,946
3,497
6,443
8,053
14,496
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Key metricsA
A. Indicators' regional distribution was modified in 2020 to adapt to the Group's regional distribution. As a consequence, the break-down of data is now Europe/North
America and South America, instead of Continental Europe, United Kingdom and Latin America and other regions
Employees
1. Employees by geographies and gender
A
Geographies
Spain
Brazil
Chile
Poland
ArgentinaB
Mexico
Portugal
UK
USA
SCF
Others
Total
C
employees
0
N
2020
29,504
42,767
10,491
10,388
9,058
21,572
6,015
20,945
15,677
13,359
11,413
191,189
2019
29,078
46,248
11,267
10,902
8,254
19,673
6,255
22,561
17,005
12,406
12,770
196,419
% men
2020
52
46
46
31
53
45
54
43
42
47
53
46
2019
52
43
46
31
49
45
54
41
43
47
51
45
% women
2020
48
54
54
69
47
55
46
57
58
53
47
54
2019
48
57
54
69
51
55
46
59
57
53
49
55
% graduates
2020
69
66
41
85
53
56
57
18
11
31
49
51
2019
70
72
56
82
40
61
55
16
15
34
46
53
A. Data at year end. 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.
B. The number of Santander Argentina employees increased between 2019 and 2020 because it added new companies into its reporting perimeter.
C.The number of Santander México employees increased between 2019 and 2020 because it added new companies into its reporting perimeter and included
outsourcing among its own staff.
2.1 Functional distribution by gender 2019
A
Senior managers
Women
Men
Total
Men
Other managers
Women
Total
Men
Other employees
Women
Total
Europe
North America
South America
Group total
1,030 76.5%
316 23.5%
1,346
7,201 63.8%
4,078
36.2% 11,279
33,954 44.1%
43,095
55.9%
77,049
246 82.0%
54 18.0%
284 76.6%
87 23.5%
300
371
983 69.1%
439
30.9%
1,422
15,467 42.9%
20,593
57.1%
36,060
3,550 59.8%
2,389
40.2%
5,939
26,192 41.8%
36,461
58.2%
62,653
1,560 77.3%
457 22.7%
2,017
11,734 63.0%
6,906
37.1% 18,640
75,613 43.0% 100,149
57.0% 175,762
2.2 Functional distribution by gender 2020
A
B
Senior managers
Women
Men
Total
Men
Other managers
Women
Total
Men
Other employees
Women
Total
Europe
North America
South America
Group total
1,115 75.3%
365 24.7%
1,480
7,350 63.1%
4,290 36.9%
11,640
32,937
44.0%
41,998 56.1%
74,935
228 82.0%
50 18.0%
319 76.0%
101 24.1%
278
420
956 67.9%
453 32.2%
1,409
15,816
43.1%
20,875 56.9%
36,691
3,247 59.0%
2,257 41.0%
5,504
26,614
45.2%
32,218 54.8%
58,832
1,662 76.3%
516 23.7%
2,178
11,553 62.3%
7,000 37.7%
18,553
75,367
44.2%
95,091 55.8% 170,458
A. Data at year end.
B. The higher number of women classified as Senior Managers is the result of the progress made on the public commitment of Responsible Banking on women in
leadership roles, which aims for 30% of senior managers to be women by 2025.
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3.1. Workforce distribution by age bracket 2019
Number and % of total
A
Europe
North America
South America
Group total
aged <= 25
aged 26 - 35
aged 36 - 45
aged 46 - 50
age over 50
6,195
4,203
6,129
16,527
6.91%
11.12%
8.89%
8.41%
18,696
15,714
32,324
66,734
20.85%
41.59%
46.87%
33.98%
32,609
8,932
20,494
62,035
36.36%
23.64%
29.72%
31.58%
13,492
3,290
4,756
21,538
15.05%
8.71%
6.90%
10.97%
18,682
5,643
5,260
29,585
20.83%
14.94%
7.63%
15.06%
3.2. Workforce distribution by age bracket 2020
Number and % of total
A
Europe
North America
South America
Group total
aged <= 25
aged 26 - 35
aged 36 - 45
aged 46 - 50
age over 50
4,871
4,704
4,141
13,716
5.53%
12.26%
6.39%
7.17%
17,996
15,597
29,498
63,091
20.44%
40.64%
45.55%
33,00%
31,827
9,317
20,796
61,940
36.14%
24.28%
32.11%
32.40%
13,484
3,279
5,072
21,835
15.31%
8.54%
7.83%
11.42%
19,877
5,481
5,249
30,607
22.57%
14.28%
8.11%
16.01%
A. Data at year end.The under-25 age group declined between 2019 and 2020 because of few new hires and the higher average age.
4.1. Distribution by type of contract 2019
A
Europe
North America
South America
Group total
Europe
North America
South America
Group total
Permanent / Full time
Men
Women
39,976 51.1%
16,479 44.6%
29,718 43.8%
86,173 47.1%
38,329 49.0%
20,476 55.4%
38,140 56.2%
96,945 52.9%
Total
78,305
36,955
67,858
183,118
Permanent / Part-time
Men
847 11.2%
158 22.4%
255 26.6%
1,260 13.6%
Women
6,747 88.9%
547 77.6%
704 73.4%
7,998 86.4%
Total
7,594
705
959
9,258
Temporary / Full time
Temporary / Part-time
Men
1,166 37.6%
57 46.7%
54 37.5%
1,277 37.9%
Women
1,936 62.4%
65 53.3%
90 62.5%
2,091 62.1%
Total
Men
3,102
122
144
3,368
196 29.1%
0
0.0%
1 50.0%
197 29.2%
Women
477 70.8%
0
0.0%
1 50.0%
478 70.8%
Total
673
0
2
675
4.2. Distribution by type of contract 2020
A
Europe
North America
South America
Group total
Europe
United Kingdom
South America
Group total
Permanent / Full time
Men
Women
39,325 50.9%
37,957 49.1%
16,681 44.9%
20,500 55.1%
Total
77,282
37,181
Permanent / Part-time
Men
Women
Total
874 11.7%
6,576 88.3%
7,450
135 24.9%
499 78.7%
29,927 46.9%
33,861 53.1%
63,788
232 25.6%
676 74.4%
85,933 48.2%
92,318 51.8%
178,251
1,241 13.8%
7,751 86.2%
8,992
Temporary / Full time
Temporary / Part-time
Men
992 37.4%
184 32.7%
21 35.0%
1,197 36.6%
Women
Total
1,658 62.6%
379 67.3%
39 65.0%
2,076 63.4%
2,650
563
60
3,273
Men
211 31.4%
0
0%
0
0%
211 31.4%
Women
462 69.0%
0
0%
0
0%
462 69.0%
Total
673
0
0
673
634
908
A. Data at year end. There were fewer temporary employment contracts in Latin America and elsewhere between 2019 and 2020 because of changes to hiring policies
in Mexico requiring new contracts to be permanent, barring certain cases.
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5. Annual rate of contracts by gender
Employees with permanent /full time contract
Employees with permanent/part-time contracts
Employees with temporary/full-time contracts
Employees with temporary/part-time contracts
Group Total
Men
2020
Women
Total
Men
2019
Women
Total
85,796
94,435
180,231
87,111
97,701
184,813
1,155
1,441
211
7,717
2,291
470
8,872
3,732
681
1,251
1,813
225
8,075
2,761
526
9,326
4,574
752
88,603
104,913
193,516
90,401
109,064
199,465
6.1. 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
Group Total
aged <= 25
aged 26-35
12,787
60,831
aged 36-45
59,303
aged 46-50
20,586
1,200
1,294
247
2,635
3,854
269
2,534
745
151
902
174
32
aged over 50
31,307
2,056
325
53
Total
184,813
9,326
4,574
752
15,527
65,771
62,733
21,694
33,740
199,465
6.2. Annual rate of contracts by age bracket 2020
Employees with permanent /full time contract
Employees with permanent/part-time contracts
Employees with temporary/full-time contracts
Employees with temporary/part-time contracts
Group Total
7. Annual rate of contract by category
aged <= 25
aged 26-35
10,668
58,474
aged 36-45
59,343
aged 46-50
20,825
1,099
1,001
209
2,360
1,621
252
2,426
652
143
887
159
26
aged over 50
30,922
2,100
298
51
12,977
62,707
62,564
21,898
33,370
Total
180,231
8,872
3,732
681
193,516
2020
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
Total Grupo
Senior
Other
Other
Managers Managers employees
159,169
18,911
2,150
Other
Total Managers Managers Employees
Senior
Other
Total
180,231
2,022
18,418
164,373
184,813
7
13
154
83
8,711
3,636
8,872
3,732
0
2,170
16
19,164
665
172,182
681
193,516
4
12
0
227
88
165
9,095
4,474
9,326
4,574
587
752
2,038
18,898
178,528
199,465
8. Employees who work in their home country
%
A,B
Europe
North America
South America
Group total
Managers
2020
88.45
91.01
91.19
89.30
2019
88.24
89.86
90.96
89.09
Other employees
Total
2020
95.38
99.75
98.25
97.24
2019
96.13
98.92
98.03
97.34
2020
95.27
99.69
98.21
97.15
2019
96.02
98.85
98.00
97.26
A. Data at year end.
B. Data from US is not included as it is confidential information.
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9.1 Differently-abled employees ratio by region
%
Europe
North America
South America
Group total
A,B
9.2. Differently-abled employees
Number of employees
Spain
Rest of the Group
Total Group
A,B
2020
1.64
0.21
3.27
1.90
2020
386
3,191
3,577
2019
1.63
0.20
3.19
1.84
2019
361
3,223
3,584
A. Data at year end.
B. Data from Mexico not included as it is confidential information.
10. Coverage of the workforce by collective agreement
A
B
Countries
Spain
Brazil
Chile
Poland
Argentina
MexicoC
Portugal
UK
US
SCF
Other business units
Total Group
2020
%
99.80
99.19
100.00
0.00
72.64
30.34
99.14
100.00
0.00
98,63
60.01
74.49
0
N
Employees
29,444
42,422
10,491
0
6,580
6,544
5,963
20,945
0
13,176
6,849
142,414
2019
%
0
N
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
21,294
0
11,663
8,459
144,800
A. Data at year end.
B.The decrease in the variation between 2019 and 2020 in the number of employees covered by collective bargaining agreements in Santander Argentina is due to the
inclusion of new companies in the perimeter that do not have collective bargaining agreements.
C.The increase in the variation between 2019 and 2020 in the number of employees covered by collective bargaining agreements in Santander Mexico is due to the
incorporation of new companies in the reporting perimeter, as well as the integration of outsourced personnel as part of the bank’s own staff.
11.1. Distribution of new hires by age bracket 2019
% of total
Europe
North America
South America
Group total
11.2. Distribution of new hires by age bracket 2020
% of total
A
Europe
North America
South America
Group total
aged <= 25
41.43
30.78
22.95
31.84
aged 26-35
35.42
36.64
54.73
42.62
aged 36-45
14.30
15.42
18.71
16.18
aged over 45
4.40
5.12
2.19
3.82
aged > 50
4.46
12.04
1.42
5.53
aged <= 25
25.93
36.49
19.67
28.84
aged 26-35
39.57
39.29
50.67
42.05
aged 36-45
23.55
14.75
22.18
19.58
aged over 45
6.13
4.50
3.97
4.95
aged > 50
4.82
4.97
3.51
4.58
A. New hires declined between 2019 and 2020 as a result of the covid-19 pandemic.
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11.3. Distribution of new hires by gender
Europe
North America
South America
Group total
12. Distribution of dismissals
by gender
A
B
Men
%
30 1.81%
470 4.07%
4,267 5.66%
4,767 5.38%
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
Men
7.79%
18.14%
9.03%
10.20%
2020
Women
6.24%
19.55%
3.98%
8.25%
Total
6.97%
18.92%
6.34%
9.15%
Men
10.56%
18.62%
15.76%
13.67%
2019
Women
9.50%
18.69%
10.48%
11.78%
Total
9.98%
18.66%
12.78%
12.63%
2020
Women
B
%
4 0.78%
225 3.21%
5,466 5.75%
5,695 5.55%
B
Total
%
34 1.56%
695 3.75%
9,733 5.71%
10,462 5.47%
Men
B
%
2019
Women
B
%
45 2.88%
12 2.63%
Total
57
752
6.4%
342 4.95%
1,094
6,945 9.19%
8,245 8.23%
15,190
B
%
2.82%
5.86%
8.64%
7,742 8.71%
8,599
8%
16,341
8.32%
2020
Women
363
1,878
1,932
553
970
5,696
Men
342
1,502
1,286
499
1,137
4,766
Total
705
3,380
3,218
1,052
2,107
C
10.462
2019
Women
535
2,603
2,710
866
1,885
8,599
Men
451
1,963
1,878
696
2,754
7,742
Total
986
4,566
4,588
1,562
4,639
16,341
A. 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.
B. Percentage expressing the number of dismissals over the total number of employees in each group.
C. Dismissals declined between 2019 and 2020 because of Banco Santander’s commitment to maintaining employment during the coronavirus outbreak, barring
certain cases with due justification.
13. External turnover rate by gender
% of total
A
Europe
North America
South America
Group total
Men
8.71
19.92
14.54
12.77
2020
Women
9.46
16.88
14.11
12.51
Total
9.11
18.22
14.31
12.63B
Men
16.61
23.27
18.16
18.38
2019
Women
16.23
21.76
15.38
16.99
Total
16.40
22.43
16.62
17.61
A. Excludes temporary leaves of absence and transfers to other Group companies.
B. The rate of rotation was smaller between 2019 and 2020 because the covid-19 pandemic caused voluntary and involuntary rotation to decline in Banco Santander.
A
2019
14.1 External turnover rate by age bracket
% of total
Europe
North America
South America
Group total
aged <= 25
39.37
38.64
16.30
30.39
aged 26-35
18.55
24.60
15.09
18.31
aged 36-45
10.43
15.73
14.91
12.75
aged 46-50
7.77
18.43
17.02
11.56
aged over 50
22.84
18.01
31.43
23.52
Total
16.40
22.43
16.62
17.61
A. Excludes temporary leaves of absence and transfers to other Group companies.
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14.2. External turnover rate by age bracket
% of total
Europe
North America
South America
Group total
aged <= 25
26.36
32.53
15.50
25.20
aged 26-35
10.58
17.52
14.15
13.83
aged 36-45
6.17
14.91
12.96
9.76
aged 46-50
5.48
13.45
12.91
8.40
aged over 50
10.58
16.38
20.88
13.38
Total
9.11
18.22
14.31
12.63
A. Excludes temporary leaves of absence and transfers to other Group companies.
15. By function, gender and region
A
Senior managers
B
Other managers
C
Europe
North America
South America
Group total
Total remuneration (average)A
Group Total 2019
Variation 2020 vs 2019
Europe
North America
South America
Group total
A
Total remuneration (average)
Group Total 2019
Variation 2020 vs 2019
By Age Brackets
Total remuneration (average)A
Group Total 2019
Variation 2020 vs 2019
GPG ratio
D
(Median)
19.00%
9.70%
29.00%
24.60%
Men
118,418
184,548
70,366
117,441
Men
432,989
580,190
404,829
446,707
Women
323,492
460,619
221,953
318,957
415,975
408,598
1.8%
Women
89,361
149,855
52,097
90,286
107,477
101,520
5.9%
Other employees
C
Men
50,980
45,344
24,032
40,145
Women
38,524
33,125
19,153
30,295
Ratio GPG
D
(Median)
20.7%
17.6%
15.2%
26.3%
34,602
34,372
0.7 %
Men
69,701
63,805
31,064
55,151
55,151
54,123
Women
44,070
38,437
20,628
34,476
34,476
34,273
GPG Ratio
D
(Median)
23.6%
21.6%
18.9%
31.7%
31.7 %
30.8 %
1.9 %
0.6 %
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
16,140
17,597
(8.30)
26,943
27,563
(2.20)
47,253
47,221
0.10
64,868
62,574
3.70
69,482
66,216
4.90
A. Data at 2020 year-end. Employees' average total remuneration includes their annual base salary, pensions and variable remuneration paid in the year.
B. Includes group sr. executive vp, executive vp and vice-president.
C. The variation includes the effect of internal reclassification between employee categories in different geographies.
D. GPG Ratio (median) includes annual base salary and variable remuneration paid in the year.
16. Average remuneration Senior officers
Thousands euros
Executive officers
Non-executive officers
Senior officers
Men
6,247
239
3,610
2020
Women
7,239
207
2,288
Total
6,743
227
3,362
Men
6,571
354
3,693
2019
Women
9,952
251
3,902
GPG Ratio
D
(Median)
16.2%
15.6%
26.5%
17.2%
Total
employees
56,050
49,626
25,269
43,867
43,867
43,262
1.4 %
Total
43,867
43,262
1.40
Total
7,698
292
3,740
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16.1 Ratio between the Bank’s minimum annual salary and the legal minimum
annual salary by country and gender 2019
% Legal Minimum Wage
Germany
Argentina
Brazil
Chile
US
Spain
Mexico
Poland
Portugal
UK
Men
225.00%
338.00%
182.00%
175.00%
207.00%
176.00%
128.00%
100.00%
200.00%
130.00%
Women
193.00%
338.00%
182.00%
136.00%
207.00%
176.00%
128.00%
100.00%
200.00%
130.00%
% legal minimum
wage
209.00%
338.00%
182.00%
155.43%
206.00%
176.00%
128.00%
100.00%
200.00%
130.00%
16.2 Ratio between the Bank’s minimum annual salary and the legal minimum
annual salary by country and gender 2020
% Legal Minimum Wage
Germany
Argentina
Brazil
Chile
US
Spain
Mexico
Poland
Portugal
UK
17. Training
A
Total hours of training
% employees trained
Total attendees
Hours of training per employee
Total investment in training
Investment per employee
Cost per hour
% female participants
% of e-learning training attendees
% of e-learning hours
Employee satisfaction (up to 10)
Men
100.32%
380.69%
178.62%
179.14%
236.45%
175.29%
160.09%
101.54%
188.98%
176.26%
Women
100.32%
380.69%
178.62%
144.15%
236.45%
175.29%
160.09%
100.00%
188.98%
176.26%
% legal minimum
wage
100.32%
380.69%
178.62%
161.64%
236.45%
175.29%
160.09%
100.77%
188.98%
176.26%
2020
5,913,435.04
100.00
5,939,158
30.93
61,304,729
320.65
10.37
53.66
91.97
48.06
8.18
2019
8,002,784
100.0
6,024,981
40.70
102,586,146
522.28
12.82
54.2
84.6
48.1
9.3
A.There were fewer hours of training in 2020 than in 2019 because the covid-19 pandemic forced
in-person courses (which accounted for most training hours until 2019) to be cancelled.
18. Hours of training by category
Senior officers
Managers
Other employees
Group total
2020
2019
Hours
65,274
940,619
4,907,542
5,913,435
Average
29.97
50.7
28.79
30.93
Hours
77,861
678,335
7,246,558
8,002,784
Average
38.6
36.39
41.23
40.74
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19. Hours of training by gender
Men
Women
Group total
2020
Average
31.76
30.21
30.93
2019
Average
41.49
40.13
40.74
20. Absenteeism by gender and region
A,B ,C,D
Europe
North America
South America
Group total
Men
2.60
0.81
2.07
2.08
2020
Women
5.00
1.56
3.99
3.97
Total
3.89
1.23
3.12
3.11
Men
2.55
0.71
1.62
1.90
2019
Women
5.44
1.88
3.26
4.00
Total
4.14
1.36
2.53
3.06
A.Days missed due to occupational accidents. non-work related illness and non-work related accident for every 100 days worked.
B. Santander UK oes not count hours not worked due to covid-19 as absences so they will not affect the remuneration objectives set prior to the health crisis.
C. The sick leave employees took because of covid-19 led to a higher rate of absences in 2020 than in 2019.
D. Banco Santander Brazil only considers the accidents that after an internal specialist investigation were recognized as work-related and had a Communication of
work-related accident ("CAT") registered in the Brazilian Social Security in 2020. Likewise, this indicator only considers the cases that had 15 or more days of
absence due to non-work-related accidents or common illness.
21. Accident rate
%
A,B
Europa
Norteamérica
Sudamérica
Group total
Men
0.04
0.01
0.02
0.03
2020
Women
0.12
0.02
0.05
0.07
Total
0.08
0.01
0.04
0.05
Men
0.08
0.01
0.27
0.14
2019
Women
0.20
0.02
0.48
0.27
Total
0.14
0.02
0.39
0.21
A. Hours missed due to occupational accident involving leave between the number of total hours worked. The hours worked are theoretical hours. This includes
accidents in Itinere.
B. Banco Santander Brazil only considers the accidents that after an internal specialist investigation were recognized as work-related and had a Communication of
work-related accident ("CAT") registered in the Brazilian Social Security in 2020Banco Santander Brazil only considers the accidents that after an internal specialist
investigation were recognized as work-related and had a Communication of work-related accident ("CAT") registered in the Brazilian Social Security in 2020
22. Occupational health and safety
A,B,C
D
Frequency rate
Severity rateE
No. of fatal occupational accidents
F
Work related illness
Men
1
0.03
1
0
2020
Women
2
0.1
0
0
Total
2
0.07
1
0
Men
1.61
0.14
0
0
2019
Women
2.41
0.27
1
0
Total
1.77
0.21
1
0
A.The 2019 figure is an estimation. The number of accidents and working hours will be reported in the next accounting period.
B.Recordable work-related injuries are reported without distinguishing cases with major consequences.
C. Banco Santander Brazil only considers the accidents that after an internal specialist investigation were recognized as work-related and had a Communication of
work-related accident ("CAT") registered in the Brazilian Social Security in 2020.
D. Days not worked due to accidents at work with and without leave for every 1,000 hours worked. The hours worked are theoretical hours. In itinere accidents are
included.
E. Days not worked due to work accident with leave for every 1,000 hours worked. The hours worked are theoretical hours. In itinere accidents are included.
F. 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 customers
A
Europa
España
Portugal
Reino UnidoB
Polonia
SCFC,D
Resto Europa
Norte América
México
Estados Unidos
Sudamérica
Brasil
Chile
Argentina
Resto Sudamérica
SGPE
Total
2020
65,080,571
13,970,512
3,047,020
25,156,638
5,213,476
17,598,056
94,869
24,034,601
18,898,106
5,136,495
56,929,320
48,347,665
3,605,104
3,913,086
1,063,465
2,211,543
2019
66,278,825
13,711,173
3,062,608
25,078,945
5,047,909
19,286,148
92,042
23,395,482
18,134,468
5,261,014
53,933,059
46,089,431
3,415,807
3,548,366
879,455
1,187,935
148,256,035
144,795,301
var.
(2)%
2%
(1)%
—%
3%
(9)%
3%
3%
4%
(2)%
6%
5%
6%
10%
21%
86%
2%
A. 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".
B. Includes SCF.
C. SCF includes all European countries, except UK.
D.The decrease in SCF customers is mainly due to three countries:
-SC Spain reported that the decline in customers is due to the COVID-19 effect and the termination of Orange's direct product.
-SC Poland: the decrease is mainly due to a change in methodology (terminated contracts not taken into account in 2020 onwards) and decrease in PLN portfolio
causing a decrease in the number of active contracts.
-SC Germany: the decrease is due to a reduction in auto and durables.
E. The annual variation in SGP is due to the incorporation of Superdigital, which was previously in Brazil.
24. Dialogue by channel
Branches
Number of branches
ATMs
Nº ATMs
Digital banking
Users
Visits
Monetary transactions
A
B
C
2020
2019 Var .2020/2019 %.
11,236
11,952
40,451
39,593
42.36
9,860
2,803
36.8
7,907
2,251
(6.0) %
2.2 %
15.1 %
24.7 %
24.5 %
A. Santander Consumer Finance not included.
B. Counts once for users of both Internet and mobile banking.
C. Millions.
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25. Total complaints received
SpainA
Portugal
B
C
United Kindom
Poland
Brazil
Mexico
Chile
ArgentinaE
US
SCF
D
2020
150,298
4,036
22,625
6,057
146,067
80,031
8,328
3,512
4,292
39,064
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
Compliance metrics according to group-wide criteria, which may not match local criteria such as
that of the UK's Financial Conduct Authority (FCA) or in Brazil.
A. In December 2020, the number of claims increased significantly, affecting the total number of
claims received throughout the year. This was due to a public notice that made reference to the
publication by the Ministry of consumption that the deadline to claim the mortgage expenses
ended on 21 January 2021.
B. The fall was due to improvements to systems, customer reporting and controls that enable the
close monitoring of customer issues.
C. The decline was the result of initiatives to improve complaints handling (resolution at touch
points, enhanced root cause analysis, etc.) as well as fewer transactions due to the pandemic.
Personal protection insurance (SPP) claims are not included.
D. In Chile, the rise in complaints was due to the effects of covid-19, particularly in loan
restructuring and customers’ understanding of certain campaigns and relief measures.
E. In Argentina, the drop owed mainly to root-cause action plans, including improvements to self-
service complaints handling and resolution, and preventive system maintenance.
F. The increase stemmed from finance industry issues in Italy and Poland relating to the refund of
interest on early loan repayments.
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Environment and climate change
26. Environmental footprint 2019-2020
A
Consumption
B
)
/employee)
3
Water (m
Water (m3
Normal electricity (millions of kwh)
Green electricity (millions of kwh)
Total electricity (millions of kwh)
C
Total internal energy consumption (GJ)
Total internal energy consumption (GJ/employee)
Total paper (t)
Recycled or certified paper (t)
Total paper (t/employee)
Waste
4
Paper and cardboard waste (kg)
Paper and cardboard waste (kg/employee)
Greenhouse gas emissions
E,F
Direct emissions (CO2 teq)
G
Indirect electricity emissions (CO2 teq)-MARKET BASED
Indirect electricity emissions (CO2 teq)-LOCATION BASED
Indirect emissions from displacement of employees (CO2 teq)
Total emissions (CO2 teq)- MARKET BASED
Total emissions (CO2 teq/employee)
Average number of employees
H, I
2020
2019
Var. 2019-2020 (%)
2,064,113
11.07
395
526
920
3,758,225
20.16
8,902
7,348
0.05
5,926,139
31.79
24,818
128,633
282,216
40,708
194,159
1.04
186,429
2,938,024
15.20
548
517
1,064
4,322,838
22.37
16,497
13,784
0.09
9,705,579
50.22
27,673
183,745
322,414
120,969
332,387
1.72
193,261
-29.7
-27.1
-27.9
1.8
-13.5
-13.1
-9.9
-46.0
-46.7
-44.1
—
-2.1
-1.7
—
-10.3
-30.0
-12.5
-66.3
-41.6
-39.4
-3.5
A. 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 decreases in consumption, waste generation and emissions data have been mainly caused by the pandemic covid-19
situation.
B. Information is provided exclusively on water withdrawal from the public network.
C. It is also reported that the external energy consumption resulting from employee travel and business trips has been: 579,155 GJ in 2020 and 1,721,139 GJ in 2019.
D. The data for 2019 and 2020 do not include waste from the commercial network in Brazil. Also, the data for 2019 do not include waste for Argentina.
E. These emissions include those derived from the direct consumption of energy (natural gas and diesel, and additionally, in the particular case of Mexico, gasoline and
diesel for automobiles and LPG) and correspond to scope 1, defined by the GHG Protocol standard. To calculate these emissions, the emission factors DEFRA 2020
for 2020 and DEFRA 2019 for 2019 were applied
F. These emissions include those derived from electricity consumption and correspond to the scope 2 defined by the GHG Protocol standard. In both 2020 and 2019
the IEA (International Energy Agency) emission factors for 2017 have been used.
- Indirect Electricity Emissions - Market-based: zero emissions have been considered for green electricity consumed in Germany, Spain, Portugal and UK; also, it has
been considered that in Argentina, Brazil, Chile, Poland and USA, part of electricity consumption is green energy. This altogether has meant a reduction of 153,582
tons of CO2 equivalent in 2020 and 138,660 in 2019. 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 IEA corresponding to each country has been applied to the total electricity consumed,
regardless of its source (renewable or non-renewable).
G. The reduction in indirect electricity emissions has been mainly due to the increase in the purchase of green energy in 2020 in the countries that make up the G10
H. 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 2020 for 2020 and DEFRA 2019 for 2019 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) and Luca de Tena - Data on business trips by car from 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.
I. Indirect emissions from displacement of employees have suffered a significant decrease. The main factors for this decrease are the reduction in mobility because of
the covid-19 pandemic, as well as the development of teleworking among employees at the most critical moments of the pandemic.
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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.
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) and the Financial Services sector
disclosures of the GRI G4 guidelines. Furthermore, we also
applied the 2018-10 industry standards of the Sustainabilty
Accounting Standards Board (SASB) for the first time.
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 eighteenth annual document that
Santander Group has published, giving account of its
sustainability commitments, and refers to the period from 1
January to 31 December 2020. 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 2019
sustainability report are significant, these are reflected in the
corresponding section of the report and the GRI Content
Index.
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.
In addition, as part of our commitment to transparency, we
have committed to begin reporting under the International
Business Council of the World Economic Forum's (IBC-WEF)
Stakeholder Capitalism metrics for the 2021 annual report.
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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Annual report 2020
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 Correspondence
report where the info is available
with GRI indicators
GRI 102-1
GRI 102-2
GRI 102-3
GRI 102-4
GRI 102-6
GRI 102-7
GRI 102-14
GRI 102-15
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 Governance and priorities. Environmental
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):
and social risk analysis
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.
Governance and priorities. Responsible
business practices.
GRI 103-2
GRI 103-3
GRI 103-2
GRI 103-3
0. General
Information
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.
Supporting the green transition, Acting
responsibly towards customers,
Environmental and social risk analysis. Risk
management and compliance chapter.
GRI 102-15
GRI 102-30
Supporting the green transition
Environmental footprint.
Environmental and social risks analysis
At the end of the 2020 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 102-29
GRI 102-31
GRI 201-2
GRI 103-2 (GRI of
environmental
dimension)
GRI 102-11
GRI 102-29
GRI 102-11
GRI 102-11
124
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Description of the metric/concept included in the 11/2018
Law to be disclosed
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:
Chapters/section of the Consolidated
report where the info is available
directors Correspondence
with GRI indicators
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. Key metrics
Consumption of raw materials and measures taken to
improve the efficiency of its use.
Environmental footprint. Key metrics
1.
Environmental
Information
Energy: direct and indirect consumption, measures
taken to improve energy efficiency, use of renewable
energies
Environmental footprint. Key metrics
Climate change:
Important elements of greenhouse gas emissions
generated as a business activity (including goods and
services produced)
Environmental footprint. Key metrics
Measures taken to adapt to the consequences of
climate change
Supporting the green transition.,
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 303-5
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
Employment:
Chapters/section of the Consolidated directors
report where the info is available
Correspondence
with GRI indicators
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 403-9
GRI 103-2
(GRI 401)
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.
Average remuneration and its progression broken down
by gender, age and professional classification
Key Metrics.
Key Metrics.
Salary gap and remuneration of equal or average jobs in
society
A talented and motivated team, Diversity and
Inclusion section.
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)
Implementation of work disconnection policies
Employees with disabilities
Organisation of work:
Organisation of work time
Number of absent hours
Measures designed to facilitate work-life balance and
encourage a jointly responsible use of said measures by
parents
Health and safety:
Conditions of health and safety in the workplace
Occupational accidents, in particular their frequency and
severity, as well as occupational illnesses. Broken down
by gender.
Social relations:
Organisation of social dialogue (including procedures to
inform and consult staff and negotiate with them)
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, 3. The way
we work section.
Key metrics. A talented and motivated team,
section 5: Our wellbeing.
A talented and motivated team, 3. The way
we work section.
Key Metrics. A talented and motivated team,
section 5: Our wellbeing.
A talented and motivated team, 3. The way
we work section.
A talented and motivated team, section 5:
Our wellbeing.
GRI 102-41
Key Metrics. A talented and motivated team,
section 5: Our wellbeing.
GRI 403-9
GRI 403-10
What our stakeholders tell us. A talented and
motivated team, Social dialogue and
restructuring section. Acting responsibly
towards customers
Key Metrics.
GRI 103-2
(GRI 402)
GRI 102-41
A talented and motivated team, section 5:
Our wellbeing.
GRI 403-6
GRI 403-9
The policies implemented in the field of training
A talented and motivated team, Talent
management section.
Total number of hours of training by professional
categories.
Accessibility:
Key Metrics.
GRI 103-2
(GRI 404)
GRI 404-2
GRI 404-1
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, People with
disabilities section. Acting responsibly
towards customers. Higher education.
GRI 103-2
(GRI 405)
A talented and motivated team, Diversity and
Inclusion section.
GRI 103-2 (GRI 405
and 406)
Higher education.
2. Social
126
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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
Application of due diligence procedures in the field of
Human Rights
Governance and priorities. Environmental
and social risk analysis. Responsible
Procurement.
Correspondence
with GRI indicators
GRI 102-16
GRI 102-17
GRI 103-2
(GRI 412)
Prevention of the risks of Human Rights violations and,
where appropriate, measures to mitigate, manage and
repair any possible abuses committed
Governance and priorities. Environmental
and social risk analysis. Responsible
Procurement.
GRI 410-1
GRI 412-1
GRI 412-3
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.
A talented and motivated team, , 1.
Speaking up, active listening and taking
action.
GRI 406-1
A talented and motivated team, Social
dialogue and restructuring section
GRI 103-2
(GRI 406)
3. Human
Rights
Measures taken to prevent corruption and bribery
4. Fight against
corruption
Measures to combat money laundering
Governance and priorities. Risk
management and compliance chapter,
section 7.2 Compliance and conduct risk
management
Governance and priorities. Risk
management and compliance chapter,
section 7.2 Compliance and conduct risk
management
Contributions to non-profit foundations and entities
Community investment.
GRI 102-16
GRI 102-17
GRI 103-2
(GRI 205)
GRI 205-1
GRI 205-2
GRI 205-3
GRI 413-1
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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
Commitments of the company to sustainable
development:
The impact of the company’s activity on employment
and local development
The impact of the company’s activity on local towns
and villages and in the country.
Higher education. Community investment.
Financial inclusion and empowerment.
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
Higher education. Community investment. GRI 102-12
GRI 102-13
Higher education. 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
Outsourcing and suppliers:
Inclusion of social, gender equality and environmental
issues in the procurement policy
Responsible procurement.
5.Information
on the
company
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
Systems for complaints received and resolution thereof
Tax information:
The profits obtained country by country
Taxes earned on benefits paid
Public grants received
Any other relevant information:
Acting responsibly towards customers. Risk
management and compliance chapter,
section 7.2 Compliance and conduct risk
management
Acting responsibly towards customers.
Key metrics. Risk management and
complince chapter, section 7.2 Compliance
and conduct risk management. GRI content
index.
Auditor's report and annual consolidate
accounts.
Tax contribution.
GRI content index.
GRI 103-2
(GRI 201)
GRI 201-4
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
*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, 207-1, 207-2, 207-3, 207-4, 302-1, 302-3, 303-1, 307-1, 308-2, 401-2, 402-1, 403-1, 403-2, 403-3, 403-4, 403-5, 403-8, 404-3, 405-2,
411-1, 414-2, 415-1, 417-3, 419-1.
128
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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
2020 Annual Report:
• Our approach
• Business model and
strategy
Other references:
Corporate website:
• Financial report 2020
• 2020 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.
To this end, we integrate environmental, social and
corporate governance (ESG) criteria into our business
model.
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.
Building on our technology to further strengthen our
customers’ loyalty and access new fee-based revenue
pools.
Our value proposition includes a broad variety of
solutions. Products and services are tailored to meet the
needs of our customers, taking advantage of global best
practices, but adapted to local singularities.
We strive to exceed our stakeholders´ expectations and
carry out our activity in a responsible way.
Our activity allow us to contribute to several of the UN
Sustainable Development Goals and support the Paris
Agreement to fight climate change.
In order to contribute effectively to their achievement,
we have carried out an analysis to identify and align our
strategy with the SDGs on which Banco Santander has
the greatest impact. This analysis has highlighted the
most relevant goals for Grupo Santander, both in terms
of its activity, commitments and strategic focus, as well
as the different external factors considered. We have
identified six SDGs in which the Group has the greatest
impact (7, 8, 10, 11, 13 and 16) and four more to which
we also make a very significant contribution through our
activity and our social programmes (1, 4, 5, 17)
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Contents
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:
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:
a) 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.
b) 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
account the most relevant challenges and priorities
related to sustainable development in the countries/
regions in which it operates.
d) 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.
Grupo 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 2020, 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 2020 we have focused on: incorporating
responsible business practices; tackling climate change
and supporting the ecological transition; enhancing
financial empowerment and inclusion proposal and
fostering a diverse and skilled team of professionals.
In particular with regard to climate change, we have
developed a climate risk heatmap including both
transitional and physical risks on a five-point scale in
order to measure the materiality of the sectors on the
Group's balance sheet.
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.
2020 Annual Report-
Responsible banking
chapter
• What our
stakeholders tell us
• Challenges and
opportunities
• Supporting green
transition
• Environmental and
social risk analysis
2019 Annual Report
Risk management and
compliance chapter
• 1.2 Santander Top
and emerging risks
Other references:
• Stakeholder
engagement &
material concerns
report
A
A
• Culture report
• Financial
empowerment
A
report
• Climate finance
B
report
A. (These reports are from
2019 and are available
in our Corporate
Website)
B. (This report is produced
after the Annual Report
and will be available
throughout the month
of June 2021)
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.
130
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
2020 Annual Report-
Responsible Banking
chapter
-2020 highlights
-Supporting the green
transition
-Environmental and
social risk analysis
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. 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.
Additionally we updated our climate strategy,
committing to: i) aligning our power generation
portfolio with the Paris Agreement by 2030; ii) stop
providing financial services to power generation
customers with a revenue dependency on coal of over
10% in 2030; iii) reduce our worldwide exposure to coal
mining production to zero by 2030; iv) and the ambition
to be net zero carbon emissions by 2050.
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.
Show that your bank has put in place the means to
measure and monitor progress against the set
targets. Definitions of key performance indicators,
any changes in these definitions, and any rebasing
of baselines should be transparent.
The Responsible Banking unit and its network, in
collaboration with the remaining areas and local units,
defines short, medium and long term action plans to
achieve the objectives. These actions are described
through the different sections of the Responsible
Banking chapter.
The monitoring and follow-up of these actions is carried
out through the KPIs defined in these plans.
Commitments are embedded and part of the Group
financial planning, which a three year plan with yearly
forecast.
2020 Annual Report-
Responsible Banking
chapter
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Plans for Target Implementation and Monitoring.
Grupo Santander has defined at corporate and local level, various action plans to boost our commitments.
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Contents
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)
2020 Annual Report-
Responsible Banking
chapter - 2020
highlights
Grupo Santander reports, annually, the achievements
and scopes of its responsible banking strategy and
targets.
In 2020, we made significant progress, achieving carbon
neutrality and fulfilling four of our 2021 commitments
one year early. Here is a summary of the 2020 results of
each of the 11 targets set:
• 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 2020: Top 10 in 6 geographies.
• To have between 40-60% women on our board by
2021. In 2020: 40%
• To have 30% women in our senior leadership
positions by 2025. In 2020: 23.7%
• To eliminate the equal pay gap by 2025. In 2020: 1.5%
• To financially empower 10 million people between
2019 and 2025. Since 2019: 4.9 million
• To finance or facilitate mobilization of €120 billion
between 2019 and 2025 to tackle climate change.
Since 2019: 33,800 billion
• To use 100% of our electricity from renewable
sources in our buildings by 2025. In 2020: 57%
• To eliminate unnecessary single use plastic in our
branches and corporate buildings by 2021. In 2020:
98% of reduction.
• Carbon neutral in our own operations in 2020
• To fund 200,000 scholarships, internships and
entrepreneur programmes between 2019 and 2021.
Since 2019: 225,000 scholarships
• To help four million people through our community
programmes between 2019 and 2021. Since 2019: 4
million
Please provide your bank’s conclusion/statement if it has fulfilled the requirements regarding Progress on Implementing Targets
In 2020 the Group has made positive progress in achieving the various commitments made
132
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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.
Corporate website
www.santander.com
• Policies
Annual report 2020 -
Responsible banking
chapter
• What our
stakeholders tell us
• Governance and
priorities
• Acting responsible
towards customers
• Supporting the green
transition
• ESG investment in
Wealth Management
and Insurance
• Financial inclusion
and empowerment
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:
• 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.
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.
We increasingly incorporate ESG criteria within our SCIB and
commercial customer conversations and product offering.
We develop various environmental and social value-added
products and services. We are a leader in renewable energy
financing, and have various microfinance and financial
empowerment programmes.
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.
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Contents
Principle 4: Stakeholders
We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
Annual report 2020 -
Responsible banking
chapter
• Governance and
priorities
• What our
stakeholders tell us
Other references:
- Stakeholder
engagement & material
concerns report
A
A. (These report is from
2019 and is available in
our Corporate Website.)
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.
In addition, we also regularly analyse the most relevant
environmental, social and 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.
134
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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.
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.
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.
Corporate website:
www.santander.com
-About us
-Our approach
2020 Annual Report-
Responsible Banking
chapter
-What our stakeholders
tell us
-Challenges and
Opportunities
-Governance and
priorities
-A strong and inclusive
culture
2020Annual Report-
Corporate Governance
chapter
-Responsible Banking,
sustainability and
culture, Committee
activities
Other references:
-2019 Stakeholder
engagement & material
concerns report
-2019 Culture thematic
report
A
A
A. (These reports are from
2019 and are available in
our corporate website:
www.santander.com)
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.
135
Annual report 2020
Contents
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.
2020 Annual Report-
Responsible Banking
chapter
-Governance and
priorities
-Further information
Other references:
-2019 Stakeholder
engagement & material
concerns report
A
A. (These report is from
2019 and is available at
our Corporate Website.)
The Responsible Banking chapter of our 2020 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 2020.
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)
and Sustainability Accounting Standards Board (SASB)
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.
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.
136
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Global Reporting Initiative
(GRI) content index
GRI Standards: GENERAL DISCLOSURES
GRI Standard
GRI 101: FOUNDATION
GRI 102: GENERAL DISCLOSURES
Disclosure
Page
Omission
102-1 Name of the organization
Business model and strategy
102-2 Activities, brands, products, and
services
102-3 Location of headquarters
102-4 Location of operations
102-5 Ownership and legal form
102-6 Markets served
102-7 Scale of the organization
102-8 Information on employees and other
workers
102-9 Supply chain
102-10 Significant changes to the
organization and its supply chain
102-11 Precautionary Principle or approach
102-12 External initiatives
102-13 Membership of associations
Business model and strategy
Business model and strategy
Business model and strategy
Business model and strategy
Business model and strategy
Business model and strategy. Key Metrics
Key metrics
Responsible procurement
Responsible procurement
Environmental and social risk analysis,
Environmental and social risk management
policy section
Governance and priorities, Joint initiatives to
promote our agenda section. Shareholder value,
ESG indices and analysts section.
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
102-16 Values, principles, standards, and
norms of behaviour
102-17 Mechanisms for advice and concerns
about ethics
A strong and inclusive culture: The Santander
Way. What our stakeholders tell us. Supporting
the green transition. Risk management and
compliance chapter.
Governance and priorities. A strong and inclusive
culture: The Santander Way. Acting responsibly
towards customers.
A talented and engaged team, section 1.
Speaking up, active listening and taking action.
Acting responsibly towards customers. Risk
management and compliance.
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-
-
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-
-
-
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ORGANISATIONAL PROFILE
STRATEGY
ETHICS AND INTEGRITY
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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
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.
102-22 Composition of the highest governance body
and its committees
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 consolidated annual accounts.
What our stakeholders tell us. Shareholder value.
Corporate Governance chapter of the annual report.
Auditor's report and consolidated annual accounts.
What our stakeholders tell us. Corporate Governance
chapter of the annual report. Auditor's report and
consolidated annual accounts.
Shareholder value. Corporate Governance chapter of
the annual report. Auditor's report and consolidated
annual accounts.
Shareholder value. Corporate Governance chapter of
the annual report. Auditor's report and consolidated
annual accounts.
Shareholder value. Corporate Governance chapter of
the annual report. Auditor's report and consolidated
annual accounts.
Auditor's report and consolidated annual accounts.
Risk management and compliance. Supporting the
green transition
Challenge2: Inclusive and sustainable growth. Risk
management and compliance chapter.
102-31 Omission of economic, environmental, and
social topics
Risk management and compliance chapter. Auditor's
report and consolidated annual accounts.
102-32 Highest governance body’s role in
sustainability reporting
102-33 Communicating critical concerns
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
Santander´s Board approved this report on February,
23th 2021 related to the 2020 period, and the
Corporate Governance Chapter of the Annual Report
published in 2021.
Auditor's report and consolidated annual accounts.
Principles and governance. Acting responsibly towards
customers.
A talented and engaged team, Diversity and inclusion
section, equal pay subsection. 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 supervisory, risk and regulations
committee.
What our stakeholders tell us. Shareholder's value.
Corporate Governance Chapter of the Annual Report.
Report of the supervisory, risk and regulations
committee.
GOVERNANCE
102-38 Annual total compensation ratio
102-39 Percentage increase in annual total
compensation ratio
102-40 List of stakeholder groups
102-41 Collective bargaining agreements
102-42 Identifying and selecting stakeholders
102-43 Approach to stakeholder engagement
102-44 Key topics and concerns raised
A talented and engaged team.
A talented and engaged team.
What our stakeholders tell us.
What our stakeholders tell us.
What our stakeholders tell us.
What our stakeholders tell us.
What our stakeholders tell us.
STAKEHOLDER
ENGAGEMENT
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-
-
-
-
-
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-
-
-
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2
2
-
-
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138
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
GRI Standard
Disclosure
Page
Omission
REPORTING
PRACTICE
102-45 Entities included in the consolidated financial
statements
102-46 Defining report content and topic Boundaries
102-47 List of material topics
102-48 Restatements of information
102-49 Changes in reporting
102-50 Reporting period
102-51 Date of most recent report
102-52 Reporting cycle
102-53 Contact point for questions regarding the
report
102-54 Claims of reporting in accordance with the GRI
Standards
102-55 GRI content index
Further information section of this chapter. Auditor's
report and consolidated annual accounts.
Our approach. Further information sections of this
chapter.
What our stakeholders tell us.
Further information section of this chapter
Further information section of this chapter
Further information section of this chapter
Further information section of this chapter
Further information section of this chapter
General information chapter.
Further information section of this chapter
GRI Content Index.
102-56 External assurance
Further information section of this chapter.
-
-
-
-
-
-
-
-
-
-
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GRI Standards: Topic-specific diclosures
Material
aspect
Identified
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 "Material aspect boundary" of GRI
its boundary
Content Index
GRI 103:
MANAGEMENT
APPROACH
103-2 The
management
approach and its
components
103-3 Evaluation of
the management
approach
Ethical
behaviour and
risk
management /
Compliance and
adapting to
regulatory
changes
Internal and
external
GRI 201:
ECONOMIC
PERFORMANCE
201-1 Direct
economic value
generated and
distributed
Principles and governance "Page"
of the GRI 201: Economic
Performance"
Principles and governance "Page"
of the GRI 201: Economic
Performance"
€ million
Economic value generated1
Gross income
Net loss on discontinued operations
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
Economic value distributed
Dividends
Other administrative expenses
(except taxes)
Personnel expenses
Income tax and other taxes
CSR investment
2
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.
2020
44,543
44,600
0
114
-171
24,156
0
7,537
10,783
5,632
204
20,387
-
-
-
-
-
-
Group
-
140
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Group
Group
-
-
-
Page
Scope
Omission
Supporting the green transition.
Key metrics
Group
GRI Standards: Topic-specific diclosures
Material
aspect
boundary
Identified
material aspect
GRI Standard
Disclosure
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
2020 year-end amounted to EUR
3,976 million. Endowments and
contributions to the pension funds
in the 2020 financial year have
amounted to EUR 359 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 2020. 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
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
A strong and inclusive culture:
The Santander Way Column “Page”
of the GRI 201: Economic
Performance.
A strong and inclusive culture:
The Santander Way. Column
“Page” of the GRI 201: Economic
Performance.
103-3 Evaluation of
the management
approach
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
GRI 202:
MARKET
PRESENCE
Key metrics.
Group
Key metrics . The Group Corporate
Human Resources Model aims to
attract and retain the best
professionals in the countries in
which it operates.
Group
excluding
USA
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
GRI 203:
INDIRECT
ECONOMIC
IMPACT
103-2 The
management
approach and its
components
103-3 Evaluation of
the management
approach
203-1 Infrastructure
investments and
services supported
203-2 Significant
indirect economic
impacts
Financial inclusion and
empowerment Community
investment.
Financial inclusion and
empowerment Community
investment.
Higher education. Community
investment.
Higher education. Community
investment.
-
-
-
Group
Group
-
-
-
-
-
-
-
-
-
-
-
-
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Contents
Disclosure
Page
Scope
Omission
Responsible procurement.
Group
3
103-1 Explanation of
the material topic and
its boundary
What our stakeholders tell us and
column "Material aspect boundary"
of GRI Content Index.
103-2 The
management
approach and its
components
103-3 Evaluation of
the management
approach
204-1 Proportion of
spending on local
suppliers
Responsible procurement.
Responsible procurement.
103-1 Explanation of
the material topic and
its boundary
What our stakeholders tell us and
column "Material aspect boundary"
of GRI Content Index.
2020 highlights. A strong and
inclusive culture: The Santander
Way
2020 highlights. A strong and
inclusive culture: The Santander
Way
Risk management and compliance
chapter
Risk management and compliance
chapter
-
-
-
-
-
-
-
-
-
Group
Group
-
-
-
-
-
Risk management and compliance
chapter
Group
4
GRI Standards: Topic-specific diclosures
Material
aspect
Identified
material aspect
boundary
PROCUREMENT PRACTICES
GRI Standard
Ethical
behaviour and
risk
management
External
GRI 103:
MANAGEMENT
APPROACH
Ethical
behaviour and
risk
management
External
GRI 204:
PROCUREMENT
PRACTICES
ANTI-CORRUPTION
Ethical
behaviour and
risk
management /
Compliance and
adapting to
regulatory
changes /
Corporate
governance-
transparency
Internal and
External
GRI 103:
MANAGEMENT
APPROACH
GRI 205: ANTI-
CORRUPTION
103-2 The
management
approach and its
components
103-3 Evaluation of
the management
approach
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
142
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material Material aspect
aspect
ANTI-COMPETITIVE BEHAVIOR
boundary
GRI Standard
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
103-3 Evaluation
of the
management
approach
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
-
-
-
-
-
-
Group
5
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
2020 highlights. A strong and inclusive
culture: The Santander Way, and column
“Page” of the GRI 206: Anti-competitive
Behaviour.
2020 highlights. A strong and inclusive
culture: The Santander Way, and column
“Page” of the GRI 206: Anti-competitive
Behaviour.
• The Italian Competition Authority (“ICA”)
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.
On 21 October 2020, the administrative
court of Lazio has annulled in its entirety
the ICA´s decision about the car financing
cartel. As a result of this judgement, the
decision is annulled in its entirety, and
all charges against PSA and against SCF
Italy are no longer valid. ICA has
appealed before the Consiglio di Stato.
The possible appeal decision would be
issued by Q4 2021.
• On 23rd September 2020 the UOKiK
(office of competition and consumer
protection in Poland) published its
decision in which a clause used by
Santander Bank Poland in annexes to
agreements on residential mortgage
loans indexed to foreign currencies, was
declared abusive. The clause relates to
FX exchange rate (method of its
determination). Fine: EUR 5,2 million.
The bank has appealed decision.
In addition, information on litigation and
other Group contingencies can be found in
Auditor’s report and annual consolidated
accounts.
143
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Contents
Identified material
aspect
Material aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
Compliance and
risk management /
Ethical behaviour
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
GRI 207: TAX
ENVIRONMENTAL STANDARDS
MATERIALS
Internal
environmental
footprint
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
Internal
environmental
footprint
Internal and
external
GRI 301:
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
207-1 Approach to
tax
207-2 Tax
governance,
control, and risk
management
207-3 Stakeholder
engagement and
management of
concerns related
to tax
207-4 Country-by-
country reporting
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
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
2020 highlights. A strong and inclusive
culture: The Santander Way,and column
“Page” of the GRI 207: Tax.
2020 highlights. A strong and inclusive
culture: The Santander Way,and column
“Page” of the GRI 207: Tax.
Tax contribution
Tax contribution
Tax contribution
Information breakdown is not available,
work is under way to present this
information.
What our stakeholders tell us, and column
"Material aspect boundary" of GRI Content
Index.
Supporting the green transition.
Environmental footprint.
Supporting the green transition.
Environmental footprint.
-
-
-
Group
Group
Group
-
-
-
-
Environmental footprint. Key metrics.
Group
The percentage of the environmentally-
friendly paper consumption with respect to
the total consumption is 83%. This
percentage includes both recycled and
certified paper.
Group
-
-
-
-
-
-
-
-
-
-
6
6
Not applicable due to the type of Group
financial activity.
Group
-
144
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material
aspect
ENERGY
Material aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
Internal
environmental
footprint
Internal and
external
WATER
Internal
environmental
footprint
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
GRI 302: ENERGY
GRI 103:
MANAGEMENT
APPROACH
GRI 303: WATER
AND EFFLUENTS
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
302-4 Reduction
of energy
consumption
302-5 Reductions
in energy
requirements of
products and
services
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
303-1 Interactions
with water as a
shared resource
303-2
Management of
water discharge-
related impacts
303-3 Water
withdrawal
303-4 Water
discharge
303-5 Water
consumption
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Supporting the green transition.
Environmental footprint.
Supporting the green transition.
Environmental footprint.
-
-
-
Environmental footprint. Key metrics.
Group
Key metrics.
Key metrics.
An specific analysis of cause and effect
relation for the implemented measures
and of the obtained reduction is not
available.
Group
Group
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.
Supporting the green transition.
Environmental footprint.
Supporting the green transition.
Environmental footprint.
Environmental footprint.
Not applicable due to the type of Group
financial activity.
-
-
-
Group
Group
Environmental footprint. Key metrics.
Group
Not applicable due to the type of Group
financial activity.
Environmental footprint.
Group
Group
-
-
-
6
6
6
-
-
-
-
-
-
-
6
-
-
145
Annual report 2020
Contents
Identified material
aspect
BIODIVERSITY
Material aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
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
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
Not material
Not material
Not material
-
-
-
Not material
Group
Not material
Not material
Not material
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Supporting the green transition.
Environmental footprint.
Supporting the green transition.
Environmental footprint.
Group
Group
Group
-
-
-
-
-
-
-
-
-
-
-
-
-
EMISSIONS
Internal
environmental
footprint
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
146
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material Material aspect
aspect
boundary
GRI Standard
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
Disclosure
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
Page
Scope
Omission
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.
Supporting the green transition.
Environmental footprint.
Supporting the green transition.
Environmental footprint.
-
-
-
Not applicable due to the type of Group
financial activity.
Group
6
6
6
6
-
-
-
-
-
-
-
Environmental footprint and Key metrics.
Group
6
Not applicable due to the type of Group
306-3 Significant
spills
financial activity.
306-4 Transport of Not applicable due to the type of Group
hazardous waste
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
ENVIRONMENTAL COMPLIANCE
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory changes
Internal and
external
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
307-1 Non-
compliance with
environmental
laws and
regulations
GRI 103:
MANAGEMENT
APPROACH
GRI 307:
ENVIRONMENTAL
COMPLIANCE
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A strong and inclusive culture:
The Santander Way
A strong and inclusive culture:
The Santander Way
-
-
-
The Bank has not received final
sanctionsfor this concept. In addition,
information on litigation and other Group
contingencies can be found in Auditor’s
report and annual consolidated accounts.
Group
5
147
-
-
-
-
-
-
Annual report 2020
Contents
Identified material
aspect
SUPPLIER ENVIRONMENTAL ASSESSMENT
Material aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
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
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Responsible procurement.
Responsible procurement.
-
-
-
-
-
-
Responsible procurement.
Group
3, 7
Responsible procurement.
Group
3, 7
148
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Material aspect
boundary
Identified material
aspect
SOCIAL STANDARDS
EMPLOYMENT
GRI Standard
Disclosure
Page
Scope
Omission
GRI 103:
MANAGEMENT
APPROACH
GRI 401:
EMPLOYMENT
GRI 103:
MANAGEMENT
APPROACH
GRI 402: LABOR/
MANAGEMENT
RELATIONS
Attracting and
retaining talent /
Diversity
Internal
LABOUR/MANAGEMENT
RELATIONS
Attracting and
retaining talent /
Diversity
Internal
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 engaged team, talent
management section.
A talented and engaged team, talent
management section.
-
-
-
A talented and engaged team, talent
management section. Key metrics.
Group
Benefits detailed in "A talented and
engaged team", section "Corporate
benefits" are regarding only full-time
employees.
Information breakdown is not available,
work is under way to present this
information.
Group
Group
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"
-
-
-
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 engaged team. Column
"Page" of the GRI 403: Occupational Safe
and Safety.
A talented and engaged team. Column
"Page" of the GRI 403: Occupational Safe
and Safety.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
149
Contents
Scope
Omission
Page
Banco Santander has occupational health
and safety management systems in place in
all the geographies in which it operates,
complying with the legal requirements of
each country regarding occupational risk
prevention.
Group
A talented and engaged team, section 5:
Our wellbeing.
Group
A talented and engaged team, section 5:
Our wellbeing.
Group
At Banco Santander SA, the percentage of
Representation in the Security Committee is
100%.
Banco
Santander
S.A. and
SCF
A talented and engaged team, section 5:
Our wellbeing.
A talented and engaged team, section 5:
Our wellbeing.
Group
Group
Not applicable due to the type of Group
financial activity.
Group
100% of Banco Santander employees are
covered by health and safety management
systems at work.
A talented and engaged team, section 5:
Our wellbeing. Key metrics.
Key metrics.
Group
Group
Group
-
-
-
-
-
-
1
1
1
Annual report 2020
Identified material Material aspect
aspect
boundary
GRI Standard
Attracting and
retaining talent /
Diversity
Internal
GRI 403:
OCCUPATIONAL
HEALTH AND
SAFETY
Disclosure
403-1
Occupational
health and safety
management
system
403-2 Hazard
identification, risk
assessment, and
incident
investigation
403-3
Occupational
health services
403-4 Worker
participation,
consultation, and
communication on
occupational
health and safety
403-5 Worker
training on
occupational
health and safety
403-6 Promotion
of worker health
403-7 Prevention
and mitigation of
occupational
health and safety
impacts directly
linked by business
relationships
403-8 Workers
covered by an
occupational
health and safety
management
system
403-9 Work-
related injuries
403-10 Work-
related ill health
150
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material Material aspect
aspect
TRAINING AND EDUCATION
boundary
GRI Standard
Disclosure
Page
Scope
Omission
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
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
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
405-1 Diversity of
governance bodies
and employees
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
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and engaged team. “Page” of the
GRI 404: Training and education.
A talented and engaged team. “Page” of the
GRI 404: Training and education.
-
-
-
A talented and engaged team, "Talent
management" section. Key metrics.
Group
Banco Santander offers management
programmes and continuous training skills
that foster the employees´ employability
and that, sometimes, help them manage
the end of their professional careers. A
talented and engaged team. Key metrics.
A talented and engaged team, "Talent
management" section. Regular
performance and career development are
received by the 100% of the employees.
Group
Group
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and engaged team. "Diversity
and Inclusion" section.
A talented and engaged team. "Diversity
and Inclusion" section.
-
-
-
A talented and engaged team. "Diversity
and Inclusion" section. Key metrics.
Corporate governance chapter of the
Annual Report.
Group
-
-
-
-
-
-
-
-
-
-
A talented and engaged team. "Diversity
and Inclusion" section. Key metrics.
Group
8
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
A talented and engaged team. "Diversity
and Inclusion" section
A talented and engaged team. "Diversity
and Inclusion" section.
-
-
-
GRI 406: NON-
DISCRMINATION
406-1 Incidents of
discrimination and
corrective actions
taken
A talented and engaged team, section 1:
"Speaking up, active listening and taking
action". Risk management and compliance
chapter.
Group
-
-
-
-
151
Annual report 2020
Contents
Identified material Material aspect
aspect
FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING
GRI Standard
boundary
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
103-3 Evaluation
of the
management
approach
Not material
Not material
Not material
Not material
Not applicable
-
-
-
407-1 Operations
and suppliers in
GRI 407:
which the right to
FREEDOM OF
freedom of
ASSOCIATION
association and
AND COLLECTIVE collective
BARGAINING
bargaining may be
at risk
Not material
Group
CHILD LABOR
GRI 103:
MANAGEMENT
APPROACH
Not material
Not applicable
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
Not material
Not material
Not material
GRI 408: CHILD
LABOR
408-1 Operations
and suppliers at
significant risk for Not material
incidents of child
labor
-
-
-
Group
-
-
-
-
-
-
-
-
Identified material Material aspect
aspect
FORCED OR COMPULSORY LABOR
boundary
GRI Standard
Disclosure
Page
Scope
Omission
Not material
Not applicable
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
409-1 Operations
and suppliers at
significant risk for
incidents of forced
or compulsory
labor
GRI 103:
MANAGEMENT
APPROACH
GRI 409:
FORCED OR
COMPULSORY
LABOR
Not material
Not material
Not material
-
-
-
Not material
Group
-
-
-
-
152
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material
aspect
SECURITY PRACTICES
Material aspect
boundary
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
GRI Standard
Disclosure
Page
Scope
Omission
GRI 103:
MANAGEMENT
APPROACH
GRI 410:
SECUTIRY
PRACTICES
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
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
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Column "Page" of the GRI 410: Security
Practices.
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 2020, a total of 68
operations were evaluated in this respect.
-
-
-
-
-
-
-
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
412-1 Operations
that have been
subject to human
rights Omissions
or impact
assessments
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
All the Bank’s financing operations under
the Equator Principles are subject to social
and environmental risk assessments
(which includes human rights aspects). In
2020, a total of 68 operations were
evaluated in this respect.
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes
External
GRI 412:
HUMAN RIGHTS procedures
ASSESSMENT
412-2 Employee
training on human A talented and engaged team, Learning
rights policies or
and development section.
412-3 Significant
investment
agreements and
contracts that
include human
rights clauses or
that underwent
human rights
screening
The Third-party Certification policy was
Last year, the third-party approval policy
was updated. This policy includes an
appendix with the "principles of
responsible conduct for suppliers". These
principles are mandatory for all Banco
Santander suppliers and include human
rights aspects, amongst others.
Group
9
-
-
-
-
-
-
Group
9
Group
10
Group
10
153
Annual report 2020
Contents
Identified material Material aspect
aspect
LOCAL COMMUNITIES
boundary
GRI Standard
Disclosure
Page
Scope
Omission
GRI 103:
MANAGEMENT
APPROACH
GRI 413: LOCAL
COMMUNITIES
GRI 103:
MANAGEMENT
APPROACH
GRI 414:
SUPPLIER
SOCIAL
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
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
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
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Financial inclusion and empowerment,
Supporting higher education, Community
investment and Supporting the green
transition.
Financial inclusion and empowerment,
Supporting higher education, Community
investment and Supporting the green
transition.
Financial inclusion and 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.
Group
Group
Group
Group
Environmental and social risk analysis
Group
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Responsible procurement.
Responsible procurement.
-
-
-
-
-
-
-
-
-
-
-
Responsible procurement.
Group
3, 7
Responsible procurement.
Group
3, 7
Community
investment
External
SUPPLIER SOCIAL ASSESSMENT
Control and
management of
risks, ethics and
compliance
Internal and
external
154
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material
aspect
PUBLIC POLICY
Material aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
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
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
GRI 415: PUBLIC 415-1 Political
POLICY
contributions
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
2020 highlights,A strong and inclusive
culture: The Santander Way. A talented
and engaged team. Government and
priorities “Page” of the GRI 415: Public
Policy.
2020 highlights,A strong and inclusive
culture: The Santander Way. A talented
and engaged team. Government and
priorities “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
of the material
topic and its
boundary
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Acting responsibly towards our customers,
protecting consumers and helping
vulnerable customers section.
Acting responsibly towards our customers,
protecting consumers and helping
vulnerable customers section
103-2 The
management
approach and its
components
103-3 Evaluation
of the
management
approach
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.
GRI 103:
MANAGEMENT
APPROACH
GRI 416:
CUSTOMER
HEALTH AND
SAFETY
-
-
-
Group
-
-
-
Group
-
-
-
-
-
-
-
-
MARKETING AND LABELING
Products and
services that are
transparent and
fair
Internal and
external
GRI 103:
MANAGEMENT
APPROACH
416-2 Incidents of
non-compliance
concerning the
health and safety
impacts of
products and
services
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
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
5
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
Acting responsibly towards our customers,
protecting consumers and helping
vulnerable customers section.
Acting responsibly towards our customers,
protecting consumers and helping
vulnerable customers section.
-
-
-
-
-
-
155
Annual report 2020
Contents
Identified material Material aspect
aspect
boundary
GRI Standard
Products and
services that are
transparent and
fair
Internal and
external
GRI 417:
MARKETING
AND LABELING
Scope
Omission
Group
-
Group
5
Group
5
Disclosure
417-1
Requirements for
product and
service
information and
labeling
417-2 Incidents of
non-compliance
concerning
product and
service
information and
labeling
417-3 Incidents of
non-compliance
concerning
marketing
communications
Page
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 of the National
Securities Market Commission for
violation of the provisions foreseen in
art 214 Law Securities Market, in
relation to the information collected
from retail clients for the evaluation of
convenience.
• 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 has been
dismissed. Fine: 900.000 euro
• Sanctioning file of the Basque Consumer
Institute (Kontsumobide) for the alleged
abusiveness of the expense clause of
the mortgage loan contracts. Firm
sanction. Fine: 120.00 euros.
• In December 2020, Santander Consumer
Finance Oy (“SCF Finland”, a subsidiary
of Santander Consumer Bank AS)
received a request for information from
the Finnish Competition and Consumer
Authority (“FCCA”) related to a
marketing campaign published by a
distributor automobile / automobile
partner of SCF Finland in a Finnish
national newspaper. The FCCA considers
that the advertisement does not comply
with the regulatory requirements for
transparency and protection, prior to the
publication of the advertisement. SCF
Finland is required to provide
information in Q1 2021.
In addition, information on litigation and
other Group contingencies can be found in
Auditor’s report and annual consolidated
accounts.
156
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material
aspect
CUSTOMER PRIVACY
Material aspect
boundary
GRI Standard
Disclosure
Page
Scope
Omission
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.
Acting responsibly towards our customers,
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
5
What our stakeholders tell us and column
"Material aspect boundary" of GRI Content
Index.
2020 highlights,A strong and inclusive
culture: The Santander Way. A talented
and motivated team. Acting responsibly
towards customers and column “Page” of
the GRI 419: Socioeconomic Compliance.
2020 highlights,A strong and inclusive
culture: The Santander Way. A talented
and engaged team. Acting responsibly
towards customers 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
5
157
Annual report 2020
Contents
GRI Standards - financial services sector disclosures
Identified material Material aspect
aspect
G4 Standard
boundary
FINANCIAL SERVICES SECTOR DISCLOSURES
PRODUCT PORTFOLIO
Disclosure
Page
Scope
Omissi
on
FS1
FS2
FS3
FS4
FS5
FS6
FS7
FS8
Policies with specific
environmental and Governance and priorities, Supporting the
social components
applied to business
lines
green transition and Environmental and
social risks analysis.
Procedures for
assessing and
screening
environmental and
social risks in
business lines
Governance and priorities, Supporting the
green transition and Environmental and
social risks analysis
Processes for
monitoring clients´
implementation of
and compliance with Governance and priorities, Supporting the
environmental and
social requirements
included in
agreements of
transactions
green transition and Environmental and
social risks analysis.
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
Supporting the green transition,
Management and staff training section.
2020 highlights. Governance and priorities,
Joint initiatives to promote our agenda
section. Shareholder value. Risk
management and compliance chapter.
Percentage of the
portfolio for
business lines by
specific region, size Meeting the needs of everyone in society.
(e.g. micro/ SME/
large) and by sector
Acting responsibly towards customers.
Moneraty 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
servicies designed to
deliver a specific
environmental
benefit foir each
business line broken
down by purpose
Supporting the green transition. ESG
investment in Wealth Management and
Insurance.
Supporting the green transition. ESG
investment in Wealth Management and
Insurance.
Group
Group
Group
-
-
-
Group
-
Group
Group
Group
Group
-
-
-
-
Ethical behaviour
and risk
management /
Compliance and
adapting to
regulatory
changes / Products Internal and
and services that
are transparent
and fair / Products
and services
offering social and
environmental
added value
external
158
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Identified material
aspect
AUDIT
Material aspect
boundary
G4 Standard
Disclosure
Page
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
Coverage and
frequency of audits
to assess
implementation of
environmental and
social policies and
risk assesment
procedures
Percentage and
number of
companies held in
the instituition´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 servicies
for disadvantaged
people
Policies for the fair
design and sale of
financial products
and servicies
Initiatives to
enhance financial
literacy by type of
beneficiary
Scope
Omissi
on
Group
-
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,
during the previous year the first review of
the governance and procedures applied by
the corporate function of Responsible
Banking was carried out.
Environmental and social risks analysis
Group
9
Environmental and social risks analysis
Group
9
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
Acting responsibly towards customers
Group
Acting responsibly towards customers
Group
-
-
-
-
-
1.Only information regarding owned employees is disclosed. 2. The indicator is not reported because it is confidential information. 3. Data refers exclusively to
centralised purchases data in Aquanima. 4. Information is provided on the total number of complaints conflicts of interest and corruption 5. 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. 6. The scope and limitations of this indicator are described on Key Metrics. 7. Only total amount of approved
suppliers is included. 8. Only the ratio for total compensation is reported. 9. 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. 10. Only qualitative information is disclosed. 11.
Information is provided on programmes and their direct impacts of the ten main countries of the Group, instead on centres.
159
Annual report 2020
Contents
Sustainability Accounting Standards
Board (SASB) content index
This is the first year in which Santander has decided to report
in accordance with the Sustainability Accounting Standards
Board (SASB), following its Industry Standards Version
2018-10 issue.
The relevant standards disclosed in this section have been
selected according to a materiality-driven analysis, focusing
on the industries that are most closely aligned with our
businesses within the “Financials sector”: Asset Management
& Custody Activities (FN-AC), Commercial Banks (FN-CB),
Consumer Finance (FN-CF), Investment Banking & Brokerage
(FN-IB).
Acknowledging that SASB has a US-based approach, we have
done our best efforts for translating it to our European
standards.
Currently, we do not disclose all metrics included in the
aforementioned industry standards, but we will continue to
evaluate additional metrics in the future, enhancing our
reporting under SASB framework for meeting the needs of
our growing base of stakeholders and investors.
Unless otherwise is noted, all data and descriptions are
reported for the Santander Group, if applicable, on a
consolidated basis, and not just the segments relevant to the
particular industry. The information will refer to the 2020
fiscal year, unless otherwise is specified.
Sustainability Accounting Metrics
Topic
Data Security
Industry
Commercial
Banks
Consumer
Finance
Accounting Metric
(1) Number of data
breaches, (2) percentage
involving personally
identifiable information
(PII), (3) number of
account holders affected.
Code
FN-CB-230a.1
FN-CF-230a.1
Response
Refer to ‘Litigation and other matters‘ in the
note 25 of the Consolidated accounts in the
Auditor's report and consolidated financial
statements.
Commercial
Banks
Consumer
Finance
Description of approach
to identifying and
addressing data security
risks.
FN-CB-230a.2
FN-CF-230a.3
Refer to ‘Risk Pro’ in section 'A strong and
inclusive culture' of this chapter; and to
‘Relevant mitigation actions’ in section 6.2 of
'Risk management and compliance chapter'.
160
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Financial
Inclusion &
Capacity Building
Commercial
Banks
Commercial
Banks
Commercial
Banks
Commercial
Banks
(1) Number and (2)
amount of loans
outstanding qualified to
programs designed to
promote small business
and community
development.
(1) Number and (2)
amount of past due and
nonaccrual loans
qualified to programs
designed to promote
small business and
community
development.
FN-CB-240a.1 Refer to ‘Meeting the needs of everyone in
society‘ section of this chapter.
For more detail see note 10. ‘Loans and
advances to customers´ in the Auditor's report
and consolidated financial statements.
Additionally, all the information related to
microfinance programmes are available on the
‘Financial inclusion and empowerment‘ section
of this report.
FN-CB-240a.2 Refer to ‘Amounts past due‘ and ‘Impairment of
financial assets‘ in 3.4 'Key metrics' section of
the Risk management and compliance chapter.
Also refer to notes 2.g and 10.d of the
consolidated accounts in the Auditor's report
and consolidated financial statements.
Number of no-cost retail FN-CB-240a.3 Refer to ‘Financial inclusion and empowerment‘
checking accounts
provided to previously
unbanked or
underbanked customers.
section of this chapter.
Number of participants
in financial literacy
initiatives for unbanked,
underbanked, or
underserved customers.
FN-CB-240a.4
In 2020, Grupo Santander has financially
empowered 3.6 million people.
For further information refer to ‘Financial
inclusion and empowerment‘ section of this
chapter.
Incorporation of
Environmental,
Social, and
Governance
Factors in Credit
Analysis
Commercial
Banks
Commercial and
industrial credit
exposure, by industry.
FN-CB-410a.1 Refer to ‘Concentration risk‘ in section 3.6
'Other credit risk details' of the Risk
Management and compliance chapter.
Commercial
Banks
Description of approach
to incorporation of
environmental,
social,and governance
(ESG) factors in credit
analysis.
FN-CB-410a.2 Refer to the ‘Environmental and social risk
analysis’ section of this chapter, and the
‘Environmental and social risk‘ section of the
Risk management and compliance chapter.
For further information see our ‘General
Sustainability Policyc and our ‘Environmental,
social & climate change risk management
Policy’, available both on our corporate website.
Incorporation of
Environmental,
Social, and
Governance
Factors in
investment
Banking &
Brokerage
Activities
Investment
Banking &
Brokerage
Investment
Banking &
Brokerage
(1) Number and (2) total FN-IB-410a.2 Refer to ‘Supporting the green transition’
value of investments and
loans incorporating
integration of
environmental, social,
and governance (ESG)
factors, by industry.
section of this chapter.
Description of approach
to incorporation of
environmental, social,
and governance (ESG)
factors in investment
banking and brokerage
activities.
FN-IB-410a.3 Refer to ‘Supporting the green transition‘
section of this chapter.
For further information see our ‘General
Sustainability Policy‘, and our ‘Environmental,
social & climate change risk management
policy‘, both available on our corporate website.
161
Annual report 2020
Contents
Business Ethics
Asset
Management
& Custody
Activities
Commercial
Banks
Investment
Banking &
Brokerage
Total amount of
monetary losses as a
result of legal
proceedings associated
with fraud, insider
trading, anti-trust, anti-
competitive
behavior,market
manipulation,
malpractice, or other
related financial industry
laws or regulations.
FN-AC-510a.1 Refer to GRI 206-1 discloses legal actions for
FN-CB-510a.1 anticompetitive behavior, anti-trust, and
FN-IB-510a.1 monopoly practices.
For further information, refer to ’Litigation and
other matters’ section on the Auditor's report
and consolidated financial statements.
Description of
Asset
Management whistleblower policies
& Custody
Activities
and procedures.
FN-AC-510a.2 Refer to ‘Ethical Channels’ in the section 'A
FN-CB-510a.2
FN-IB-510a.2
talented and engaged team' of this chapter.
For further information, see our ‘General Code
of Conduct’, available on our website.
Commercial
Banks
Investment
Banking &
Brokerage
Systemic Risk
Management
Commercial
Banks
Global Systemically
Important Bank (G-SIB)
score, by category
FN-CB-550a.1.
FN-IB-550a.1.
Investment
Banking &
Brokerage
According to the ‘2020 list of global
systemically important banks (G-SIBs)’ released
by the Financial Stability Board, Santander´s G-
SIB buffer is 1.0 %. (G-SIBs as of November
2020)
According to the G-SIB Scores Dashboard from
the Basel Committee on Banking Supervision
(BCBS), Santander Group´s scores are
(end-2019 data):
• Score: 199
• Complexity: 92
• Cross-jurisdictional: 480
•
Interconnectedness: 169
• Size: 194
• Substitutability: 61
Commercial
Banks
Investment
Banking &
Brokerage
Description of approach
to incorporation of
results of mandatory and
voluntary stress tests
into capital adequacy
planning, long-term
corporate strategy, and
other business activities
FN-CB-550a.2.
FN-IB-550a.2.
Refer to ‘Capital planning and stress tests’ in
the section 3.5 'Capital management and
adequacy. Solvency ratios' of the Economic and
Financial Review.
162
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Employee
Diversity &
Inclusion
FN-AC-330a.1
FN-IB-330a.1
Commercial
Banks,
Investment
Banking &
Brokerage
Percentage of gender
and racial/ethnic group
representation for (1)
executive management,
(2) non-executive
management, (3)
professionals, and (4) all
other employees
Activity metrics
Commercial
Banks
(1) Number and (2) value FN-CB-000.A
of checking and savings
accounts by segment: (a)
personal and (b) small
business.
Refer to ‘Key metrics’ section of this chapter.
For further information, refer to ‘Diversity &
Inclusion’ section of ‘A talented and engaged
team’ this chapter.
For further information about our diversity and
inclusion principles, see our ‘Corporate Culture
Policy’, available on our corporate website.
Refer to ‘Consolidated annual accounts‘ in
Auditor's report and consolidated financial
statements.
Commercial
Banks
(1) Number and (2) value FN-CB-000.B
of loans by segment: (a)
personal, (b) small
business, and (c)
corporate.
Refer to ‘Consolidated annual accounts‘ in
Auditor's report and consolidated financial
statements.
163
Annual report 2020
Contents
Independent verification
report
164
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
165
Annual report 2020
Contents
166
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
[This page has been left blank intentionally]
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Annual report 2020
Contents
Corporate
governance
168
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
1. 2020 Overview
Statement from Bruce Carnegie-Brown
1.1 Board skills and diversity
1.2 Board effectiveness
1.3 Alignment of executive compensation with the
Group objetives and the covid-19 crisis
1.4 Active shareholder engagement during the
pandemic
1.5 Achievement of our 2020 goals
1.6 Priorities for 2021
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
3. Shareholders. Engagement
and general meeting
3.1 Shareholder engagement
3.2 Shareholder rights
3.3 Dividends
3.4 April 2020 AGM
3.5 October 2020 AGM
3.6 Our coming 2021 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 2020
4.5 Audit committee activities in 2020
4.6 Nomination committee activities in 2020
4.7 Remuneration committee activities in 2020
4.8 Risk supervision, regulation and compliance
committee activities in 2020
4.9 Responsible banking, sustainability and culture
committee activities in 2020
4.10 Innovation and technology committee activities
in 2020
4.11 International advisory board
4.12 Related-party transactions and conflicts
of interest
170
170
170
171
172
173
174
177
177
177
178
178
179
180
182
182
184
185
187
188
189
190
192
198
203
211
212
217
221
225
229
233
235
235
Structure of our corporate governance report
On 12 June 2018, the CNMV (Spanish stock market authority)
approved new models for annual reports on corporate governance
and remuneration, allowing companies to draft them in an open
format.
Thus, our corporate governance report (comprising this chapter)
follows since then an open format. This includes:
→ Legally-required content for the corporate governance report.
→ Reports on the activities of board committees. See sections 4.4 to
4.10.
→ Annual report on directors’ remuneration, which we are required to
prepare and submit to a non-binding vote at our 2021 annual
general meeting. See section 6 'Remuneration'.
→ Directors’ remuneration policy. See section 6.4 'Directors’
remuneration policy for 2021, 2022 and 2023 submitted to a
binding shareholder vote'.
5. Management team
6. Remuneration
6.1 Principles of the remuneration policy
6.2 Remuneration of directors for supervisory and
collective decision-making duties: policy applied
in 2020
6.3 Remuneration of directors for executive duties
238
241
241
241
244
6.4 Directors' remuneration policy for 2021, 2022
and 2023 submitted to a binding shareholder vote
255
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
7.1 Corporate centre
7.2 Internal governance
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 withw the CNMV's corporate
governance report model
9.2 Statistical information on corporate governance
required by the CNMV
9.3 Table on compliance with or explanations of
recommendations on corporate governance
9.4 Reconciliation to the CNMV's remuneration
report model
9.5 Statistical information on remuneration required
by the CNMV
261
261
263
264
264
264
267
267
268
269
270
271
271
275
275
279
300
302
303
→ Cross references to find the information for each section of the
corporate governance and remuneration reports in the CNMV's
required format in this and other chapters of the annual report. See
sections 9.1 'Reconciliation with the CNMV’s corporate governance
report model' and 9.4 'Reconciliation with the CNMV’s
remuneration report model'.
→ Cross references to find the information supporting each response
to all recommendations in the CNMV'S Good Governance Code for
Listed Companies (Spanish Corporate Governance Code) in the
2020 corporate governance and other chapters of this annual
report. See section 9.3 'Table on compliance with and explanations
of recommendations on corporate governance'.
169
Annual report 2020
Contents
1. 2020 Overview
'Maintaining high standards of governance is critical to enabling our strategy and long-
term success. The covid-19 global health crisis has resulted in economic and social
distress on a scale that we have not seen in generations. The board acted swiftly and
decisively from the outset of the pandemic in support our customers, maintain the
strength of capital and liquidity position and ensure the effectiveness of the risk
management and compliance processes. The response of the Group provided positive
affirmation of its business and governance model in the face of extraordinary challenges
Despite the crisis, we continued to progress our governance goals and preserve strong
governance disciplines demonstrating effective oversight and control across the Group.
Board refreshment continued during the year, strengthening our skills and diversity with
the appointment of Luis Isasi, Sergio Rial, R. Martín Chávez and Gina Díez. On behalf of
the board, I would like to thank Ignacio Benjumea, Esther Giménez-Salinas, Rodrigo
Echenique and Guillermo de la Dehesa for their invaluable service to the board and the
Group.
As part of our commitments of maintaining high governance standards, this year we
engaged an external independent expert to conduct the assessment of the board and its
committees which has provided a fresh perspective on areas for improvement.
Effective succession planning of our board directors and members of senior
management remains a priority. This year we refreshed our senior managers succession
policy and commissioned a review of our succession plans methodology from an
external independent advisor who confirmed that our processes are aligned with best
industry practice.
We introduced new governance models for the One Santander in Europe initiative and
for PagoNxt to promote key strategic goals and support our growth plans.
We will remain committed to working together effectively to improve our governance,
providing robust oversight of the Group to achieve our purpose'.
Bruce Carnegie-Brown, Lead independent director
1.1 Board skills and diversity
Appointments in 2020
In 2020 a number of changes were made to the board’s
composition to further enhance its diversity and strengthen
its skills, specifically those identified as desirable in prior
board evaluations. As at December 2020, the board
comprised 40% of women, meeting its target of 40-60%
minimum and maximum representation of either gender,
ahead of the 2021 timeline. The main board changes in 2020
were as follows:
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• Luis Isasi was appointed external director at our annual
general meeting held on 3 April 2020 (April 2020 AGM) to
fill the vacancy left by Guillermo de la Dehesa. See section
3.4 'April 2020 AGM'. Mr Isasi has a strong track record in
finance, retail and investment banking, and capital markets.
He held executive roles at JP Morgan in New York and 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 for Spain. He has vast experience in many sectors and
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international markets, as well as a wide institutional
network within Spain. See section 4.1 'Our directors'.
• Sergio Rial was appointed executive director at the April
2020 AGM to fill the vacancy left by Ignacio Benjumea. See
section 3.4 'April 2020 AGM'.
Mr Rial joined Santander in 2015 as chairman of the board
of directors of Banco Santander (Brasil), S.A. He is currently
the regional head for South America as well as chief
executive officer (CEO) and vice-chairman of Banco
Santander (Brasil), S.A. He brings extensive executive
experience in banking and finance, and has a deep
understanding of Latin American markets, especially Brazil.
His nationality and background in multinational groups
across geographical areas and sectors, such as Cargill Inc.,
Seara Foods and Marfrig Global Foods, increase the board’s
international diversity and experience and give it a valuable
perspective on environmental and social issues. See section
4.1 'Our directors'.
• R. Martín Chávez was appointed independent director at the
annual general meeting held on 27 October 2020 (October
2020 AGM) to fill the vacancy left by Esther Giménez-
Salinas. See section 3.5 'October 2020 AGM'.
Mr Chávez was Chief technology officer (CTO) and co-
founder of Quorum Software Systems, global head of
energy derivatives at Credit Suisse Financial Products and
CEO and co-founder of Kiodex. In 2005, he joined Goldman
Sachs, where he was a partner from 2006 to 2019 and held
various executive positions during his tenure. He brings
extensive knowledge of the global financial and information
technology (IT) sectors to enhance the board's digital
capabilities. He also enhances the geographical and
international diversity. See section 4.1 'Our directors'.
• Gina Díez was co-opted as an independent director on 22
December 2020 to fill the vacancy left by external director
Rodrigo Echenique. The board submitted her nomination to
our annual general meeting called for 25 or 26 March 2021,
at first or second call respectively (2021 AGM) for
ratification. See section 3.6 'Our coming 2021 AGM'.
Ms Díez is the founder and president of Grupo Diarq and
Universidad Centro and served as an independent director
of Banco Santander México. She contributes to the board’s
gender and geographic diversity, and brings broad
international experience. She has substantial knowledge of
one of the group’s key strategic markets, Mexico. Her
expertise spans numerous sectors (real estate, education,
banking), and responsible business and sustainability. See
section 4.1 'Our directors'.
The above changes have enhanced the board’s financial,
technological and digital capabilities and international
diversity, bolstering experience in very significant markets for
the group (such as Brazil, the US and Mexico) and ensuring
the board is well placed to deliver on our current and future
strategies.
With the addition of Gina Díez, 40% of the board members
are women, in line with the gender equality target set by the
board for 2021, which was first achieved in 2019. The
proportion of independent board members has risen to
66.67%.
Renewal of the board
Stepping down
Guillermo de la Dehesa (external)
Ignacio Benjumea (external)
Esther Giménez-Salinas
(independent)
Taking up role
Luis Isasi (external)
Sergio Rial (executive)
R.Martín Chávez (independent)
Rodrigo Echenique (external)
Gina Díez (independent)
The board’s renewal is underpinned by a structured induction
programme tailored for each newly appointed director to
support them in assuming their new role in Banco Santander,
whilst addressing any development needs identified, where
applicable, during the recruitment process. See 'Training of
directors and induction programmes for new directors' in
section 4.3.
Strong succession planning
Succession planning is a key element of our good governance
as it ensures orderly leadership transitions, as well as board
continuity and stability. It is a yearly cycle with a well-defined
methodology and timelines, and a clear allocation of
responsibilities. We also use specific performance indicators
and review them each year. The nomination committee and
board provide input to the plans and review performance as
part of regular updates. The strength of the pipeline for each
position is based on the number of candidates and how
immediately qualified they are, with development and
training plans in place where required.
We refreshed our succession policy for managerial roles
throughout the group and our policy for the selection,
suitability assessment and succession of directors. The
changes aim to boost talent pipelines across functions, with
diversity a priority. We also assessed succession plans for key
geographies and implemented a new selection process for
top executives.
Given the importance that the Group places in succession
planning, an external opinion was sought in relation to our
succession policy and associated succession processes. The
review concluded that succession arrangements and
framework for the board and critical roles throughout the
Group meet regulatory requirements and align with industry
best practice. See section 1.5 ‘Achievement of our 2020
goals’.
1.2 Board effectiveness
Covid-19
In 2020, the pandemic’s unprecedented effect on health and
the global economy required a rapid, coordinated and
sustained response from Grupo Santander to safeguard the
interests of our business and broader stakeholders.
The board and its committees, which continued their
oversight of planned business initiatives, held extraordinary
meetings to check on immediate, tactical crisis management
efforts:
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at Banco Santander (Brasil), S.A. Homaira Akbari at Santander
Consumer USA Holdings Inc. and Bruce Carnegie-Brown at
Santander UK plc and Santander UK Group Holdings plc. See
section 7. 'Group structure and internal governance'.
Furthermore, and as in the previous year, the audit committee
chairman held two virtual conventions with fellow committee
members and subsidiary audit committee chairs:
• On 15 July, the session covered group internal audit
challenges, financial information process and internal
Sarbanes-Oxley control, independent external audit
challenges and reflections on 2021 priorities.
• On 19 November, the session covered the membership and
profile of group audit committees, risk provisioning and
emerging trends for group audit committees.
Similar meetings followed in previous years with subsidiary
risk committee chairs in September 2018 and audit
committee chairs in May 2019.
Feedback from participants has reinforced the value of the
meetings, confirming that they foster the group’s coordinated
approach and cross-border collaboration on key issues. More
meetings are planned for 2021 onwards.
Action plan 2020 following the board's assessment
The board undergoes a yearly performance review. Its 2019
assessment covered its composition and organization,
dynamics and internal culture, and committees’ performance,
as well as each director’s performance and contribution. The
resulting action plan enhanced the board’s performance in
2020 with:
• More expertise in finance, auditing, technology and
coverage of Latin American markets in its composition.
• Balanced focus on regulatory compliance and strategy in an
increasingly demanding and uncertain economic and
geopolitical environment.
• The timeliness of circulating relevant documents submitted
to the board for analysis on the board and the committees,
facilitating effective challenge and debate.
• Training and upskilling programmes for directors to ensure
the proper performance of their duties and give
opportunities to interact with executives.
• Optimal contribution from each board committee.
The action plan which was completed in 2020 was supervised
by the nomination committee. The board was regularly
informed about its progress.
• The board approved the voluntary 50% reduction of the
chairman and CEO maximum remuneration (salary and
bonus) for 2020 in relation to their remuneration in 2019
and the 20% reduction in board of directors' annual
allotment and attendance fees for the balance of 2020, with
effect from 1 April 2020, with the amounts saved being
allocated to finance relief efforts to address the impact of
covid-19. See section 1.3 'Alignment of executive
compensation with the Group objectives and the covid-19
crisis'.
• The board cancelled the final dividend for 2019 and the
dividend policy for 2020 on 2 April, on the European Central
Bank (ECB)’s recommendation to financial institutions amid
unparalleled uncertainty.
• Shareholders gave their approval to resume dividend
payments at the October 2020 AGM with a dividend for the
equivalent of EUR 0.10 per share in newly issued shares
against the 2019 results, as well as a payment in 2021 of up
to EUR 0.10 per share as remuneration against 2020. The
latter is contingent on the ECB's approval and
recommendations, a common equity tier 1 (CET1) ratio
maintained within or above our target range of 11-12%,
and the total payment not exceeding 50% of our
consolidated ordinary (underlying) profit. On 3 February
2021, Banco Santander made public its 2020 results and the
board's intention to pay a cash dividend of €2.75 cents per
share as shareholder remuneration for 2020, the maximum
allowed in accordance with the limits set by the ECB
recommendations. This dividend will be paid under the
resolution of the October 2020 AGM mentioned above. See
section 3.3 'Dividends'.
• In June, the audit committee approved the internal audit
covid-19 edition plan. It adds flexibility and rigour to
oversight whilst recognizing the impact of covid-19 on
group-wide internal audit.
Digital transformation
Given the impact of the new disruptive platforms on the
transformation of many industries, Grupo Santander aims to
become the best open financial services platform, acting
responsibly and earning the lasting loyalty of our people,
customers, shareholders and communities in a way that is
Simple, Personal and Fair.
During 2020, we ramped up our digital strategy through the
approval of One Santander, which provides a common, group-
wide business and operational platform with an initial focus
on Europe; and with PagoNxt, which combines our most
disruptive payment businesses into a single, autonomous
company.
Group and subsidiary board connectivity
Strengthening the links between the group board of directors
and the subsidiaries is key to effective governance oversight
and common values, ethics, controls and key business
matters. In 2020, the global pandemic heightened the need
for effective cross-border collaboration, which our proven
Group Subsidiary Governance Model (GSGM) supports. This
governance model is strengthened by the fact that a number
of Group non-executive directors also sit on the boards of our
principal units: Luis Isasi at Santander España, Álvaro Cardoso
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1.3 Alignment of executive compensation
with the Group objectives and the
covid-19 crisis
In 2020, the board of directors worked to ensure that the
Group’s financial position was secure, complying with the
regulatory requirements for capital and risk, and at the same
time directly supported the communities in which the Group
is present. As regards compensation, the quantitative and
qualitative metrics in our variable remuneration scorecard
have allowed the Board of directors and the remuneration
committee to fix variable remuneration that is aligned with
the risks, capital, clients’ base and ordinary results situation of
the Group.
In addition, the Group has aligned its governance and
practices in 2020 to ensure that compensation is managed in
a conservative way. The board, upon recommendation from
the remunerations committee, approved the voluntary 50%
reduction of the chairman and CEO maximum remuneration
(salary and bonus) for 2020 in relation to their remuneration
in 2019 and the 20% reduction in board of directors' annual
allotment and attendance fees for the balance of 2020, with
effect from 1 April 2020, with the amounts saved being
allocated to finance relief efforts to address the impact of
covid-19. In addition, to ensure that remuneration aligns with
the results delivered, budget targets and metrics were not
adjusted for covid-19 conditions. This resulted in a 74%
reduction of the executive chairman's variable remuneration
and in a 79% reduction of the chief executive officer's variable
remuneration, after the exceptional adjustment agreed by the
board to comply with the reduction commitment mentioned
above, and 32.6% reduction of bonus pools for the top two
executive segments in the Group (c.250 employees).
1.4 Active shareholder engagement
during the pandemic
Since the beginning of the health crisis we have put in place
mechanisms to enable the full exercise by shareholders of
their rights while at the same time protecting their health and
maintaining engagement with them.
The pandemic struck hard in March, when we had already
called our April 2020 AGM, forcing us to make exceptional
decisions to adapt to the restrictions imposed by the
authorities.
Our board’s monitoring of the pandemic, and its speed in
making the right call as restrictions on movement and
meetings were imposed, was key to providing our
shareholders with all necessary April 2020 AGM-related
information.
The strength and flexibility of our corporate governance,
which has allowed remote attendance at the annual general
meetings since 2005 through our software application, made
it possible to hold the April 2020 AGM exclusively remotely,
avoiding the damage that would have been caused by
cancelling it, as well as complying with all our corporate
obligations without detriment to the rights of our
shareholders. Thanks to this, shareholders were able to
request clarifications, take the floor and put forward
proposals for items not included on the agenda at the April
2020 AGM. See section 3.4 'April 2020 AGM'.
In October 2020, we held another general meeting to approve
the application of the 2019 results. This item was removed
from the April 2020 AGM agenda and deferred to a later
general meeting on the recommendation of the ECB due to
the health and economic crisis. See sections 3.3 'Dividends'
and 3.5 'October 2020 AGM'.
The October 2020 AGM was held in a context of restrictions
on capacity, movement and non-essential activities in which
authorities advised against moving around. Although some
shareholders decided to attend in person, the option to do so
remotely allowed them to participate remotely on this
occasion as well with a real-time connection to the meeting
location, as well as to exercise their rights as they saw fit. The
protocol followed at the October 2020 AGM to deal with the
covid-19 restrictions was certified by AENOR.
In addition, shareholders were also able to participate in the
April 2020 AGM and October 2020 AGM (2020 AGMs)
through our channels of proxy-granting and distance voting
by electronic means, which include our digital platform,
mobile application and telephone line, as well as a live
broadcast on our website.
Our digital transformation and advances in IT over recent
years in our remote assistance application and distance
participation channels for the general meetings allowed us to
react to the covid-19 crisis with maximum efficiency.
In addition, during the pandemic we increased our
communication to shareholders through all our information
disclosure channels. The Shareholder and Investor Relations
team organized meetings, virtual events and specific
campaigns with our shareholders to maintain direct
communication with them and encourage their informed
participation in the 2020 AGMs, but at the same time
mitigating their exposure to the health risks of the pandemic.
This allowed us to retain shareholder confidence, as reflected
in the voting on the proposals submitted to the 2020 AGMs.
See sections 3.4 'April 2020 AGM' and 3.5 'October 2020
AGM'.
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1.5 Achievement of our 2020 goals
The 2019 annual report disclosed our corporate governance goals and priorities for 2020. The following chart describes how we
delivered on each priority.
2020 goals
Santander share
With a view to creating long-term value for
shareholders, the board will supervise and
support the managers in applying our
strategy to make sure total shareholder
returns properly reflect the Group’s
solvency, results, corporate culture and
sustainable growth.
Strong succession plans
In 2020, succession planning will continue
to be a key priority in order to ensure a
reliable pipeline of candidates at all times.
We will proactively identify successors,
implement any training plans needed to
handle any succession event effectively.
Performance indicators in our succession
plans will continue to help us deliver
intended outcomes and supervise risks
implied in the succession of directors and
other key roles constantly. Regular
reporting to the board keeps it informed
about the process, its risks and its results at
all times.
How we have delivered
The uncertainty caused by covid-19 had a short-term impact on our share price.
But we delivered solid results thanks to our scale, our focus on customers and
our diversification, highlighting our good credit quality, strong capital
generation capacity and our work to help customers and communities cope with
the crisis.
Amid the pandemic, Banco Santander’s share price fell 29.0%, while the Stoxx
Europe 600 Banks index fell 24.5%. Several vaccines announced since
November brought a wave of optimism, causing investment capital to rotate
towards more cyclical industries, particularly banking. In Q4, the Stoxx Europe
600 Banks index rose 30.9%, with Santander’s share price rising 65.6%.
Succession planning remained a priority in 2020. We reinforced the strength of
the pipeline of candidates to ensure effective and robust succession planning
through the assessment of them in core geographies, refreshing succession
plans for senior managers.
In 2020, key governance bodies held functional succession meetings, building a
strong pipeline of candidates with 24% more women identified as successors
than in 2019. Succession plans were set for 340 roles across the group, up from
335 in 2019. 89% of the positions covered have a strong succession pipeline (an
increase from 84% in 2019). We have at least two successors who could be
immediately ready, or one successor who could be immediately ready and two
successors who could be ready in one to two years.
A review conducted on board and executive succession planning by an
independent third party confirmed their alignment with regulatory
requirements and industry best practice.
Remuneration policies adapted to the new business environment
The remuneration structures and schemes
for our executives must consider
environmental, social and governance-
related performance indicators that are
simple, transparent, measurable and
aligned with our public responsible
banking commitments.
During 2020 we have maintained a strong governance of remuneration in light
of covid-19 conditions (see section 1.3 ‘Alignment of executive compensation
with the Group objectives and the covid-19 crisis’). In addition, the remuneration
committee and the board of directors have taken into account responsible
banking factors for setting the 2020 remuneration through the qualitative
adjustments provided for in the remuneration policy.
Likewise, we have simplified the executive compensation framework that will
apply from 2021, by reducing the number of metrics used in the pool calculation
from 7 to 4, combining simplicity with the acknowledgment of the most
relevant aspects for clients, results, financial strength and the appropriate
management of the risk of the entity.
Remuneration policies that are effective
and adapted to our culture and values as
well as the expectations of investors and
other stakeholders, are essential to our
strategy for sustainable growth.
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How we have delivered
2020 goals
Communication with shareholders and investors as part of their engagement with the Group
Closer engagement and dialogue through
the channels and engagement activities
mentioned in our policy on communication
and engagement with shareholders and
investors will both encourage them to
exercise their rights and give them the
information they expect and provide them
with new opportunities to be involved in
our corporate governance in an effective
and sustainable manner in the long term,
in accordance with the laws transposing
the EU directive on shareholders’ rights and
related implementing regulations.
The nomination committee oversaw communication with shareholders and
proxy advisors, as well as the results of votes at the 2020 AGMs, to further
improve our corporate governance system. Our corporate communication
framework, which establishes the key processes on communication of
economic-financial, non-financial and corporate information throughout Group,
helps maximize the disclosure and quality of the information we make available
to the market. See section 3.1 'Shareholder engagement'.
The pandemic stood out in our communication and engagement with
shareholders and investors in 2020. In application of our internal policy
(updated in February 2020), we implemented specific actions to meet our retail
and institutional shareholders’ expectations, facilitating their involvement in our
corporate governance despite the circumstances. See section 1.4 'Active
shareholder engagement during the pandemic'.
If we maximise the disclosure and quality
of the economic-financial information we
publish in a transparent and effective
manner, we can retain the long-term trust
of our investors and society.
Strategy to address climate-change risks and opportunities
We will supervise the fulfilment of our
public climate change commitments, add
environmental criteria to the group’s
governance and risk management, and
report on our progress transparently.
Transition towards a green economy by
financing sustainable projects, namely
renewable energy projects, that promote 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 the best national and international practices
In 2020, we will continue to heed
recommendations from supervisors and
guidelines of national and international
organizations so that the operations and
internal regulations of our governing
bodies always follow best practice.
In particular, we will review any
amendments to the Spanish Corporate
Governance Code that may be approved. Its
initial proposal is in line with our corporate
governance framework in regard to
communication and engagement with
shareholders and investors, director
diversity and suitability assessments,
executive committee composition, board
organization and sustainability.
The responsible banking, sustainability and culture committee discussed climate
change throughout 2020 to ensure we were upholding our climate
commitments (see section 'Sustainable finance' in the 'Responsible banking'
chapter). This includes embedding climate change considerations in our risk
management policies and processes, as well as in developing products and
engaging with our customers to support their journey towards a low-carbon
economy.
In particular, the responsible banking, sustainability and culture committee
closely monitored how we were addressing our commitments regarding our
own environmental footprint and green finance, and developing and
implementing a strategy to fulfil the Collective Commitment to Climate Action
to align our portfolios to the Paris Agreement on climate change.
The responsible banking, sustainability and culture committee also oversaw the
definition and implementation of a road map to act on the recommendations
from the Task Force on Climate-related Financial Disclosures (TCFD) and
supervisors and regulators' expectations and requirements.
See section 4.9 'Responsible banking, sustainability and culture committee
activities in 2020' and the 'Responsible banking' chapter for more details.
We closely followed the recommendations from supervisors and guidelines of
national and international organizations. In particular, we complied with all ECB
recommendations on dividend distribution. See section 3.3 'Dividends'.
Likewise, we adapted our corporate governance framework to the revision of
the Spanish Corporate Governance Code, made in June 2020. Among the salient
actions we carried out were the revision of the Rules and regulations of the
board, and modification of the composition of the responsible banking,
sustainability and culture committee, now formed entirely by non-executive
directors. See 'Rules and regulations of the board' in section 4.3. We also
adapted our whistleblowing channel, now accessible from our website and to
anyone related to Banco Santander.
These actions allowed us to fully comply with 60 of the 61 recommendations of
the Spanish Corporate Governance Code that apply to us, and partial compliance
with the remaining recommendation. See section 9.3 'Table on compliance with
or explanations of recommendations on corporate governance'.
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1.6 Priorities for 2021
Our board’s priorities for 2021 are:
• Long-term shareholder value
Focusing on long-term shareholder value as well as
supervising and supporting the management team in
implementing our strategy, so that shareholder returns
appropriately reflect the group's solvency, results, corporate
culture and sustainable growth.
• Covid-19
Overseeing our response to the pandemic and our risk
management of the economic crisis. It will prioritize the
wellbeing of our employees, customers and shareholders by
supporting our communities and continuing to build trust,
underpinned by the strength of our business model, our
strategy and the robust leadership of our teams.
• Strategic growth initiatives
Working on the group’s strategic growth priorities, which are
critical to becoming the world’s best open financial services
platform. Our initiatives include: One Santander, which is a
common operational and business model created to
transform the way we serve our customers, providing a
simpler and enhanced customer experience; PagoNxt, which
is an autonomous global payment platform to combine our
payments businesses and banks around the world,
accelerating the deployment of payment solutions to our
customers globally, and is critical to building One Santander;
and the digital consumer bank, integrating our fast-growing
consumer lending business, Santander Consumer Finance
(SCF), with Openbank to transform our digital proposition.
• Responsible Banking – embedding ESG in all we do
Driving Santander’s efforts to deliver profit with a clear
purpose, to help people and businesses prosper in the years
ahead, and to build a more responsible bank. It will also
oversee the implementation of its decisions to support the
Paris Agreement targets and focus on delivering the targets
we set for ourselves; to raise and facilitate EUR 120 billion in
green finance, and to financially empower 10 million people,
by 2025.
• High governance standards
Maintaining high standards of governance to fulfil our
strategy and ensure long-term success. This will help ensure
our ongoing effectiveness and alignment with best practice.
In particular, it will continue to instil strong governance
disciplines as a key enabler to effective oversight and control
across the group, making sure our corporate governance
framework takes into account supervisory body
recommendations as well as national and international
guidelines.
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2. Ownership structure
→ Broad and 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, each with
a par value of 0.50 euros. All shares belong to the same class
and carry the same rights, including voting and dividends.
There are no bonds or securities that can be converted into
shares other than contingent convertible preferred securities
(CCPS), which are mentioned in section 2.2 'Authority to
increase capital'.
At 31 December 2020, Banco Santander had a share capital of
EUR 8,670,320,651 represented by 17,340,641,302 shares.
The share capital was amended only once in 2020, through a
capital increase on 3 December to allow for remuneration of
EUR 0.10 per share in newly issued shares. This was
announced by the board on 29 July after it had postponed in
March the decision on the application of results for the 2019
financial year on the ECB’s 27 March recommendation in light
of the covid-19 pandemic. With this increase, which had been
approved at the October 2020 AGM, Banco Santander issued
a total of 722,526,720 new shares representing 4.35% of the
share capital. These new shares began trading on 11
December. See section 3.5 'October 2020 AGM'.
We have a broad and balanced shareholder structure. At 31
December 2020, Banco Santander’s had 4,018,817
shareholders, distributed by type of investor, geographic
region and number of shares as follows:
Type of investor
A
Board
Institutional
Retail
Total
% of share capital
1.05 %
58.10 %
40.85 %
100 %
A. Shares owned or represented by directors. For further details on shares
owned and represented by directors, see 'Tenure and equity ownership' in
section 4.2 and subsection A.3 in section 9.2 'Statistical information on
corporate governance required by the CNMV'.
Continent
Europe
Americas
Rest of the world
Total
Number of shares
1-3,000
3,001-30,000
30,001-400,000
Over 400,000
Total
% of share capital
76.03 %
22,32%
1.65 %
100 %
% of share capital
8.76 %
17.71 %
12.55 %
60.98 %
100 %
2.2 Authority to increase capital
Under Spanish law, only shareholders at the general meeting
have the authority to increase share capital. However, they
may delegate the authority to approve or execute capital
increases to the board of directors. Our Bylaws are fully
aligned with Spanish law and do not establish any different
conditions for share capital increases.
As of 31 December 2020, our board of directors had received
authorisation from shareholders to approve or carry out the
following capital increases:
• Authorised capital to 2023: at our April 2020 AGM, the
board was authorised to increase share capital on one or
more occasions by up to EUR 4,154,528,645.50 (50% of
capital at the time of the April 2020 AGM or approximately
8.3 billion shares representing 47.92% of the share capital
at 31 December 2020). The board was granted this
authorisation for three years (until 3 April 2023).
Consequently, the board can issue shares for cash
consideration with or without pre-emptive rights for
shareholders, and for capital increases to back any
convertible bonds or securities issued under its authority
granted by the April 2020 AGM.
Shares without pre-emptive rights under this authority can
be issued up to EUR 830,905,729 (10% of capital at the time
of the April 2020 AGM or approximately 1,661 million
shares representing 9.58% of the share capital at 31
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December 2020). However, this limit on issuing shares
without pre-emptive rights do not apply to capital increases
to convert CCPS (which can only be converted into newly-
issued shares when the CET1 ratio falls below a
predetermined threshold). Thus far, the board has not used
this authority up to date.
• Capital increases approved for contingent conversion of
CCPSs: we issued contingent convertible preferred
securities that qualify as regulatory Additional Tier 1 (AT1)
instruments and would be converted into newly-issued
shares if the CET1 ratio fell below a predetermined
threshold. Each issue is therefore backed by a capital
increase approved under the authorisation granted to the
board by shareholders. The chart below shows the
outstanding CCPSs at the time of this report, with details
about the capital increase resolutions that back them. These
capital increases are therefore contingent and have been
delegated to the board of directors. The board of directors is
authorised to issue additional CCPSs and other convertible
securities and instruments in accordance with the annual
Issues of contingent convertible preferred securities
general meeting held on 12 April 2019 (2019 AGM)
resolution that allows convertible instruments and
securities to be issued for up to EUR 10 billion or an
equivalent amount in another currency (of which EUR 1.5 bn
were issued on 14 January 2020 as shown in the table
below). Any capital increase to allow any such CCPS or other
convertible instruments or securities to be converted would
be approved under the authority mentioned in this section
under 'Authorised capital to 2023' or under a future renewal
of such authority.
• Scrip dividend authority: at our April 2020 AGM,
shareholders approved a capital increase against reserves
for a potential scrip issue (under the Santander Dividendo
Elección scheme) as part of the shareholder remuneration
against 2020 earnings, delegating the power to execute this
increase to the board of directors within one year. As
explained in section 3.3 'Dividends' the remuneration
against 2020 earnings will be in cash. Thus, the board of
directors intention is not to use this authorization and let it
expire on 3 April 2021.
Date of issuance Nominal amount
11/09/2014
25/04/2017
29/09/2017
19/03/2018
08/02/2019
14/01/2020
EUR 1,500 million
EUR 750 million
EUR 1,000 million
EUR 1,500 million
USD 1,200 million
EUR 1,500 million
Discretionary remuneration per annum
6.25% for the first seven years
6.75% for the first five years
5.25% for the first six years
4.75% for the first seven years
7.50% for the first five years
4.375% for the first six years
Conversion
If, at any time, the CET1 ratio of
Banco Santander or the Group is
less than 5.125%
A
Maximum number
of shares in case
of conversion
299,401,197
207,125,103
263,852,242
416,666,666
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 these 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 antidilution adjustments and
the resulting conversion ratio).
2.3 Significant shareholders
At 31 December 2020, no shareholder held more than 3% of
Banco Santander’s total share capital (which is the threshold
generally provided under Spanish regulations for a significant
holding in a listed company to be disclosed). Even though at
31 December 2020, certain custodians appeared in our
shareholder registry 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 whom exceeded that
threshold individually. These custodians were State Street
Bank (13.54%),The Bank of New York Mellon Corporation
(8.25%), Chase Nominees Limited (7.74%), EC Nominees
Limited (3.55%), BNP Paribas (3.07%) and Caceis Bank
(3.01%).
On 24 October 2019 BlackRock Inc., asset manager, reported
to the CNMV its significant holding of voting rights in Banco
Santander (5.426%). It also specified that it was holding
shares on behalf of a number of funds or other investment
entities, none of which exceeded 3% individually. No changes
have been communicated since then. There may be some
overlap in the holdings declared by the above mentioned
custodians and asset manager.
178
At 31 December 2020, neither our shareholder registry nor
the CNMV's registry showed any shareholder residing in a tax
haven with a shareholding equal to, or greater than, 1% of
our share capital (which is the other threshold applicable
under Spanish regulations).
Our Bylaws and the Rules and regulations of the board of
directors lay down 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, various persons linked to the Botín-Sanz de
Sautuola y O’Shea family entered into a shareholders’
agreement that set up a syndicate for their shares in Banco
Santander. CNMV was informed of this agreement and the
subsequent amendments the parties made. This information
can be found on the CNMV website.
The main provisions of the agreement are:
• Transfer restrictions: except when the transferee is also a
party to the agreement or the Fundación Botín, any transfer
of Banco Santander shares expressly included in the
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Corporate
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Risk management
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agreement requires prior authorisation from the syndicate
meeting, which can freely authorise or reject it. These
transfer restrictions apply to the shares they expressly cover
under the agreement and to shares subscribed for, or
acquired by, syndicate members in exercising any
subscription, bonus share, grouping or division,
replacement, exchange or conversion rights that pertain or
are attributed to, or derive from, those syndicated shares.
• Syndicated voting: under the agreement, the parties will
syndicate and pool the voting rights attached to all their
shares in Banco Santander, so that syndicate members may
exercise them and, in general, act towards Banco Santander
in a concerted manner, in accordance with the instructions
and indications and the voting criteria and orientation
established by the syndicate. This covers the shares subject
to the transfer restrictions mentioned above as well as any
voting rights attached to any other Banco Santander shares
held either directly or indirectly by the parties to the
agreement, and any other voting rights assigned to them 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 will be
the chairman of the Fundación Botín (currently, Javier Botín,
one of our directors and our Group executive chairman's
brother).
The agreement initially terminates on 1 January 2056, but
will be automatically extended for additional 10-year periods
unless one of the parties notifies of their intention not to
extend six months before the initial term or extension period
ends. The agreement may only be terminated early if all the
syndicated shareholders agree unanimously.
At 31 December 2020, the parties to the shareholders'
agreement held 100,025,942 shares in Banco Santander
(0.58% of its capital), which were therefore subject to the
voting syndicate. They include 80.355.819 shares (0.46% of
its capital) that are also subject to the 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 relevant
information filed with CNMV.
2.5 Treasury shares
Shareholder approval
The acquisition of treasury shares was last authorized at our
April 2020 AGM, for five years and subject to the following
provisions:
Treasury shares policy
On 27 October 2020, the board approved the current treasury
shares policy, which dictates that treasury share transactions
may be carried out for these purposes:
• Provide liquidity or supply of securities in the market for
Banco Santander shares, which gives this market depth and
minimizes any temporary imbalances in supply and
demand.
• Take advantage for the benefit of all shareholders of
weakness in the share price in relation to its medium-term
outlook.
• Meet our obligations to deliver shares to our employees and
directors.
• Serve any other purpose authorized by the board within the
limits set at the general meeting.
Among other things, the policy also provides for:
• The principles to uphold in treasury share trades, which
include protecting financial markets' integrity and
prohibiting market manipulation and insider trading.
• The operating rules on how treasury share trades must be
carried out, unless in exceptional circumstances as per the
policy. These rules include:
• Responsibility for execution of these trades, which falls
on the Investments and Holdings department, kept
separate from the rest of Santander.
• Venues and types of trades. Trades must generally be
carried out in the orders market of the mercado continuo
(continuous market) of Spanish stock exchanges.
• Volume limits, which in general must not exceed 15% of
the average daily trading volume for Banco Santander
shares in the previous 30 sessions in the mercado
continuo.
• Price limits. In general, (a) buy orders should not exceed
the greater of the price of the last trade in the market
between independent parties or the highest price in a buy
order in the order book and (b) sell orders should not be
lower than the lesser of the price of the last trade in the
market by independent parties and the lowest price in a
sell order in the order book.
• Time limits, including a 15-day black-out period that
applies before each quarterly results presentation.
• Treasury shares held at any time cannot exceed 10% of
• Disclosure to the markets of treasury shares trading.
Banco Santander's share capital, which is the legal limit set
under the Ley de Sociedades de Capital (Spanish Companies
Act).
• The purchase price cannot be lower than the nominal value
of the shares nor exceed 3% of the last trading price in the
Spanish market for any trades in which Banco Santander
does not act on its own behalf.
• The board may establish the purposes for and the
procedures through which the authorization may apply.
The policy applies to the discretionary trading of treasury
shares. It does not apply to transactions in Banco Santander
shares carried out to hedge market risks or provide brokerage
or hedging for customers.
The full treasury shares policy is at Banco Santander's
corporate website.
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Contents
Activity in 2020
As of 31 December 2020, Banco Santander and its
subsidiaries held 28,439,022 shares, which represented
0.164% of share capital (compared to 8,430,425 at 31
December 2019, then representing 0.051% of share capital).
The chart below summarizes the monthly average proportion of treasury shares to share capital throughout 2020 and 2019.
Monthly average of daily positions in treasury shares
% of Banco Santander’s share capital at month end
January
February
March
April
May
June
July
August
September
October
November
December
2020
0.09%
0.06%
0.11%
0.17%
0.17%
0.15%
0.15%
0.17%
0.17%
0.18%
0.17%
0.16%
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%
In 2020, the Group's treasury share trades consisted of the following values:
Acquisitions and transfers of treasury shares in 2020
Acquisitions
Transfers
EUR (except
number of
shares)
Discretionary
trading
Client induced
A
trading
Number of
shares
Total par
value
Total cash
amount
Average
purchase
price
Number of
shares
Total par
value
Total cash
amount
Average
purchase
price
Profit (loss)
net of taxes
51,678,265
25,839,133
143,415,000
2.83
31,669,373
15,834,687
104,550,000
3.30
1,193,000
250,301,349
125,150,675
614,843,000
Total
301,979,614
150,989,807
758,258,000
2.46
2.51
250,301,349
125,150,675
614,843,000
281,970,722
140,985,361
719,393,000
2.46
2.56
0
1,193,000
A. Transactions in Banco Santander shares carried out to hedge market risks or provide brokerage or hedging for customers.
The chart below shows significant changes in treasury shares
that required disclosure to the CNMV in the year. Companies
must report to the CNMV when purchases of treasury shares
exceed 1% of the total voting rights (without discounting
sales or transfers) or there is a change in the number of total
voting rights.
Significant changes in treasury shares in 2020
A
% of voting rights represented by shares
held at
reference date
of notice
transferred
since last notice
acquired since
last notice
1.032%
1.002%
0.162%
0.89%
1.048%
0.184%
0.23%
0.185%
0.157%
Reported on
25/03/2020
B
11/11/2020
21/12/2020
2.6 Stock market information
Markets
Banco Santander shares are listed on Spanish stock
exchanges (Madrid, Barcelona, Bilbao and Valencia, under the
trading symbol 'SAN'), the New York Stock Exchange (NYSE)
as American Depositary Shares (ADS) under the trading
symbol 'SAN' (each ADS represents one Banco Santander
share), the London Stock Exchange as Crest Depositary
Interests (CDI) under trading symbol 'BNC' (each CDI
represents one Banco Santander share), the Mexican Stock
Exchange under the trading symbol 'SAN', and the Warsaw
Stock Exchange under the trading symbol 'SAN'.
A. Percentages calculated with share capital at the date of disclosure.
B. This notice was corrected by disclosures dated 26 March 2020 and 11
November 2020. Data shown as corrected.
Share price performance
Government measures to contain the health crisis ensuing
from the rapid spread of covid-19 had a very severe economic
effect that caused GDP to plummet in the first half of the year
like never before. Monetary policies quickly adopted by
180
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Corporate
governance
Economic
and financial review
Risk management
and compliance
central banks and the fiscal stimulus packages governments
put in place countered the economic slowdown and reduced
financial tensions.
Relaxation of lockdowns helped market confidence and
economic activity recover in the third quarter. Still, activity
was slower than expected owing to new outbreaks and fears
of new lockdown measures, which dragged the stock markets
down.
During the year, the main indices performed better than the
banking sector, which was under the influence of
recommendations the ECB, the Bank of England, the Federal
Reserve and other central banks had issued at the start of the
pandemic to limit dividend payouts and share buybacks.
In this context, the Ibex 35 in Spain declined 15.5%; the DJ
Stoxx 50 in Europe, 8.7%; DJ Banks, 24.5% and the MSCI
World Banks,14.2%.
Market capitalisation and trading
By 31 December 2020, Santander’s market capitalization of
EUR 44,011 million was the second largest in the eurozone
and 32
largest in the world among the financial institutions.
nd
19,080 million shares traded in the year for an effective value
of EUR 45,034 million and a liquidity ratio of 115%.
The Banco Santander share
Shares (million)
Price (EUR)
Closing price
A
Change in the price
Maximum for the period
Date of maximum for the period
A
Minimum for the period
Date of minimum for the period
A
A
Average for the period
End-of-period market capitalisation
(EUR million)
Trading
2020
2019
17,340.6
16,618.1
2.538
-29.0 %
3.575
-6.1 %
3.799
17/2/2020
1.439
24/9/2020
4.487
17/4/2019
3.244
9/3/2019
2.288
44,011
3.798
61,986
Total volume of shares traded
(million)
Average daily volume of shares traded
(million)
Total cash traded (EUR million)
Average daily cash traded (EUR
million)
19,334
19,334
74.2
75.8
45,034
77,789
175,2
305,1
A. Data adjusted to the December 2020 capital increase.
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Contents
3. Shareholders. Engagement
and general meeting
→ One share, one vote, one dividend
→ No takeover defences in our Bylaws
→ High participation and engagement of shareholders in our general meetings
3.1 Shareholder engagement
Policy on communication and engagement with
shareholders and investors
Banco Santander aims to ensure its interests are in line with
shareholders’, long-term share value and the long-term
confidence of investors and society. We provide information
to shareholders and investors that satisfies their expectations
and upholds our culture and values. We also communicate
and engage with them regularly so that their views will be
considered by senior managers and governance bodies.
On 27 February 2020, the board of directors approved a
review of the policy on communication and engagement with
shareholders and investors. The policy also applies to
relations with the agents shareholders and investors seek for
advice, recommendations or orientation, such as financial,
environmental, social and governance analysts, proxy
advisors and rating agencies, because they are essential to
engaging with shareholders and investors.
Banco Santander’s policy dictates the following principles for
engagement and communication with shareholders and
investors:
• Protection of rights and lawful interests of all
shareholders. We facilitate their rights to be exercised,
provide them with information and give them opportunities
to be involved in our corporate governance effectively.
• Equal treatment and non-discrimination. We treat
investors equally in accordance with status.
• Fair disclosure. We make sure our disclosure of
information in interactions with investors is transparent,
truthful and symmetrical. Any inside or relevant information
given to investors will have been previously disclosed
except when applicable regulation provides otherwise.
• Appropriate disclosure of information. We report the right
information to meet our investor’s needs and expectations.
We make sure to give investors clear, concise and reliable
information in a way that is tailored to shareholders.
• Compliance with our Bylaws and corporate governance
rules, as well as the principles of cooperation and
transparency with the competent regulators and
supervisors, in accordance with internal guidelines. We
182
adhere closely to the laws and regulations on insider and
price-sensitive information in addition to our own 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 Banco Santander’s main
bodies and functions involved in communication and
engagement with shareholders and investors.
• The channels for disclosing information and
communicating with shareholders and investors.
• The ways Banco Santander engages with shareholders and
investors, which are covered below.
Our policy on communication and engagement with
shareholders and investors can be found in our corporate
website.
In addition, Banco Santander has board-approved frameworks
on brand, sustainability and communications, and accounting
and financial information and management. They set out the
general principles, roles and key processes on the
communication of economic-financial, non-financial and
corporate information at group level, helping ensure that all
our shareholders and other stakeholders are properly
informed about our strategy, goals and results, as well as
about our culture and values, maximizing the disclosure and
quality of the information available to the market.
Engagement with shareholders in 2020
In keeping with our policy, we engaged with our shareholders
as follows:
• The annual general meeting. Our annual general meeting
is our most important annual event for our shareholders.
We strive to encourage all our shareholders to be informed,
attend and participate. See 'Participation of shareholders at
general meetings' and 'Right to receive information' in
section 3.2.
At the annual general meeting, the chairman reports on the
year’s most significant changes to the group’s corporate
governance, supplementing the corporate governance
report. She also addresses any questions raised by
shareholders about the matters included in the agenda.
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The chairmen of the audit, nomination and remuneration
committees also report to the annual general meeting on
their operations and elaborate on the related information
provided in this chapter.
Shareholders have the right to attend the annual general
meeting in person or remotely. We broadcast our annual
general meeting live on our corporate website. This allows
shareholders not in attendance, investors and all
stakeholders to be fully informed of debates and results.
The outsanding quorum and voting results in our April 2020
AGM show the importance we put on shareholder
engagement through the annual general meetings. See
section 3.4 'April 2020 AGM'.
In 2020 we held another annual general meeting. It also
had a very high quorum and broad support for the proposed
resolutions submitted for approval. See section 3.5 'October
2020 AGM'.
Banco Santander's management system for the 2020 AGMs
received AENOR certification for sustainable events in
compliance with the UNE-ISO 20121:2013.
• Quarterly results presentations. Every quarter we present
our results on the same day we make them public. Our
presentation can be followed live, via conference call or
webcast. We release the related financial report and
presentation material before market open. During the
presentation, questions can be asked or emailed to:
investor@gruposantander.com.
Our most recent event was our 2020 Results Presentation
on 3 January 2021. In 2020, we gave our first, second and
third quarter results presentations on 28 April, 29 July and
27 October, respectively.
• Investor and strategy days. We also organise investor and
strategy days, where senior managers explain our strategy
for investors and stakeholders in a broader context than in
results presentations. Investors can also directly interact
with senior managers and some directors, which is
increasingly important and attests to our strong
governance. As recommended by the CNMV, we publish
announcements about meetings with analysts and investors
and related documentation in advance. We held our last
Investor Day on 3 April 2019 in London. The information
made available during the investor day is not incorporated
by reference in this annual report nor considered part of it.
• Meetings and conferences. Our Shareholders and Investors
Relations team discusses financial and other issues at
meetings with investors at conferences organised by third
parties.
Notwithstanding the principle of equal treatment and non-
discrimination, we have learned that one size does not fit all
when engaging with investors. Therefore, we tailor the
following engagements to meet the needs and expectations
of especially our institutional investors, but also fixed-
income investors, analysts and rating agencies, as well as
retail shareholders:
• Lead independent director engagement with key
investors. Our lead independent director, Bruce Carnegie-
Brown, is regularly in contact with investors in Europe and
North America, particularly in the months prior to our
annual general meeting. We gather their insights and form
an opinion about their concerns, especially regarding our
corporate governance. In 2020 and early 2021, he met with
43 investors, who accounted for 44.58% of share capital, in
eight cities. In our annual board assessment, board
members highly value Mr Carnegie-Brown's role in
integrating new international best practices in corporate
governance, fostering tailored relations with our
institutional investors. The nomination committee considers
the feedback received from investors.
• Investor roadshows. Our Shareholders and Investors
Relations department is constantly in direct contact with
institutional investors and analysts to promote all-round
discussion on shareholder value, better governance and
remuneration structures, and sustainability matters.
In 2020 Shareholder and Investor Relations had 1,137
interactions with 473 institutional investors in 139
locations, and 19 meetings focus in environmental, social
and governance aspects. It engaged with 36.96% of share
capital, which is over 65% of the capital held by institutional
investors.
We issued over 1,300 communications in 2020 to increase
dialogue and transparency with shareholders and investors
about the group’s performance, results and the Banco
Santander share.
• Interaction with retail shareholders. We also offer other
special means of communication for retail shareholders
regardless of the size of their stake. In 2020 the
Shareholders and Investors Relations team organized 210
events with retail shareholders.
The team also responded to 132,857 queries received via
our shareholder and investor helplines, mailboxes,
WhatsApp and bilateral meetings on the Virtual Customer
Channel. Satisfaction surveys revealed 95% would
recommend the attention service.
Lastly, we received 27,446 shareholder and investor
opinions through quality surveys and studies.
Communication with proxy advisors and other analyst and
influencers
Lastly, we have always recognised the value our investors
place on open and proactive dialogue with proxy advisors,
ESG analysts, and other influential entities. We make sure
they understand our corporate governance, responsible
banking and sustainability priorities and messages in order to
convey them properly to the investors.
In particular, the dialogue with proxy advisors is significantly
more important because they are increasingly setting
corporate governance standards. Therefore, we ensure they
have an in-depth understanding of our corporate governance
and remuneration practices and our markets.
In 2020, we had an appropriate communication and
engagement with the main proxy advisors and took into
account their opinions about corporate governance. We duly
reported on and explained proposed resolutions submitted
for the 2020 AGMs so they could make voting
recommendations.
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Corporate website
Our corporate website enables an effective communication
with shareholders and all our global stakeholders. Its design
enables us to be transparent and improves the experience of
users in obtaining quality information about Santander.
Our corporate website includes information on corporate
governance as required by law. In particular, (i) the key
internal regulations of Banco Santander (Bylaws, Rules and
regulations of the board, Rules and regulations for the
general meeting, etc.); (ii) information on the board of
directors and its committees as well as directors’ professional
biographies and (iii) information on general meetings.
The address of our information on corporate governance is:
https://www.santander.com/en/shareholders-and- investors/
corporate-governance. (It is included for reference purposes
only. The content of our corporate website is not incorporated
by reference in this annual report or otherwise considered
part of it).
3.2 Shareholder rights
Our Bylaws provide for only one class of share (ordinary
shares) and grants all shareholders the same rights. Each
Banco Santander share entitles holders to one vote.
Banco Santander’s Bylaws do not have any defensive
mechanisms and fully conform to the notion of one share, one
vote, and one dividend.
This section highlights certain key rights our shareholders
have.
No restrictions on voting rights or the free transfer of
shares in our Bylaws
The law and the Bylaws only place restrictions on voting
rights as a result of violation of regulations, as indicated
below.
There are no non-voting or multiple-voting shares, shares
giving preferential treatment in dividend pay-outs, shares
limiting the number of votes a single shareholder can cast, or
quorum requirements or qualified majorities other than those
the law dictates.
There are no restrictions on the free transfer of shares other
than those the law dictates, as indicated further in this
section.
Neither our Bylaws nor any laws or regulations restrict the
transferability of shares. Our Bylaws also do not restrict
voting rights (except if they were acquired in violation the law
or regulations).
Furthermore, our Bylaws do not include any neutralisation
provisions as defined in the Ley del Mercado de Valores
(Spanish Securities Market Act), which would apply in tender
offers or takeover bids.
Please note that the shareholders’ agreement mentioned in
section 2.4 'Shareholders' agreements' contains transfer and
voting restrictions on shares that are subject to it.
184
Legal and regulatory restrictions on the acquisition of
significant holdings
There are legal and regulatory provisions applicable to the
Banco Santander 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. As Banco Santander is a listed company, a tender
offer or a takeover bid for its shares must be launched to
acquire control and for 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 Market Act.
• Act 10/2014, of 26 June, on the organization, 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 Banco Santander may
also require approval by (i) other domestic and foreign
regulators with supervisory powers over Banco Santander or
its subsidiaries' operations, shares listings or other actions
concerning such regulators or subsidiaries and (ii) other
authorities pursuant to foreign investment regulations
(including those imposed due to covid-19) in Spain or other
countries where we operate.
Shareholder participation at general meetings
All registered holders of shares found on record at least five
days prior to the day of general meetings are entitled to
attend. Banco Santander allows shareholders to exercise their
rights to attend, delegate, vote and participate in general
meetings using remote communications systems.
The electronic shareholders’ forum is another
communications channel available on Banco Santander’s
website at the time of the meeting. Shareholders can post
items they propose to add to the agenda in the meeting
notice, requests for support for their proposals, initiatives to
reach the percentage required to exercise minority
shareholder rights legally, as well as offers or requests to act
as a voluntary proxy.
Supplement to the annual general meeting notice
Shareholders representing at least 3% of share capital may
request the publication of a supplement to the annual general
meeting notice stating the names of shareholders exercising
this right, the number of shares they hold, as well as any
items to be added to the agenda with an explanation or
substantiated proposal for resolutions and any other relevant
documentation.
Shareholders representing at least 3% of share capital may
also propose reasoned resolutions about any matters that
have been, or should be, added to the agenda of a called
annual general meeting.
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Corporate
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To exercise these rights, shareholders must send a certified
notice to Banco Santander’s registered office within five days
after the annual general meeting announcement notice is
posted.
Right to receive information
From the time the general meeting notice is posted until the
fifth day before the general meeting date on first call,
shareholders can submit written requests for information or
clarification, or any written questions they deem relevant to
the items on the meeting agenda. In addition, within the same
period, shareholders can submit written requests for
clarification about price-sensitive information Banco
Santander has furnished for the CNMV since the last general
meeting or about auditor’s reports. Banco Santander posts
any information or answers it provides on its corporate
website.
Shareholders may also exercise their right to receive
information at the meeting. Even if it cannot be asserted in
the course of the meeting, or requests are made by
shareholders attending remotely, they will be given the
appropriate information in writing within seven days after the
general meeting.
Quorum and majorities for passing resolutions at general
meeting
The quorum and majorities set out in our Bylaws and Rules
and regulations for general meeting in order to hold a valid
meeting and adopt corporate resolutions is according to
Spanish law.
On first call, shareholders representing at least 25% of
subscribed share capital with voting rights must be in
attendance (except for certain matters mentioned
subsequently). If a sufficient quorum cannot be
constituted,general meetings will be held on second call,
which does not require a quorum.
In accordance with our Rules and regulations for general
meeting, shareholders voting by mail or electronically before
the meeting are counted as present in order to determine the
general meeting quorum.
With the exception of certain matters mentioned below,
general meeting resolutions pass when shareholders in
attendance or by proxy cast more votes in favour than
against.
The quorum and majorities required to amend the Bylaws,
issue shares and bonds, make structural changes and vote on
other significant resolutions permitted by law are set out
below. Furthermore, laws applying to credit institutions
dictate that, if over 50% of the share capital is present at
general meetings, a qualified two-thirds majority is required
to raise the proportion of variable remuneration components
to fixed components for executive directors and other top
executives above 100% (up to 200%); otherwise, a three-
quarters majority will be necessary.
Our Bylaws do not require shareholder approval at general
meetings for any decisions about acquiring core assets,
selling them off or transferring them to another company or
similar corporate transactions, unless it is required by law.
Rules for amending our Bylaws
The general meeting is the competent body to approve any
amendment to the Bylaws. However, only the board can
decide to change the registered office within Spain.
The board or, where appropriate, the shareholders who have
drafted a proposed amendment to the Bylaws must write it
out completely, in addition to a report justifying it; and
provide them to shareholders at the time the meeting to
debate proposed amendment is announced.
The general meeting notice must clearly state the items to be
amended as well as the rights of all shareholders to examine
the full text of a proposed amendment and the related report
at Banco Santander’s registered office, and order these
documents delivered or sent to them free of charge.
If shareholders are convened to debate amendments to the
Bylaws, the quorum on first call will be constituted if 50% of
subscribed share capital with voting rights is present. If a
sufficient quorum cannot be constituted, the general meeting
will be held on second call, where 25% of subscribed share
capital with voting rights must be present.
When less than 50% of subscribed share capital with voting
rights are present, resolutions on amendments to the Bylaws
can only be validly adopted if two-thirds of shareholders
attending the meeting in person or by proxy vote for them.
However, when 50% or more of subscribed share capital with
voting rights is present, resolutions may validly pass with an
absolute majority.
Resolutions to amend the Bylaws that involve new
obligations for shareholders must be accepted by those
affected.
The Single Supervisory Mechanism (SSM) must authorise us
to amend our Bylaws. However, amendments that are
exempt from authorisation but must still be reported to the
SSM include any to change the registered office within Spain,
raise share capital, add imperative or prohibitive laws or
regulations to the wording of the Bylaws, or change the
wording in order to comply with court or administrative
rulings and any others the SSM has declared exempt due to a
lack of materiality in response to prior consultations.
3.3 Dividends
Remuneration against the 2019 results
• Precovid. In February 2019, the board of directors
announced its plans for a mid-term payout ratio of 40-50%
of underlying profit (up from 30-40%); an in-cash dividend
rate not lower than in 2018; and two payments against the
2019 results (as announced at the 2018 annual general
meeting).
Consequently, the board in September 2019 approved an
interim cash dividend of EUR 0.10 per share against the
2019 results, paid on 1 November 2019. Furthermore, in
February 2020, it decided to put to a vote at the April 2020
AGM a second payment against the 2019 results of 0.13
euros per share, with a final cash dividend of 0.10 euros per
share (Final Cash Dividend) and a scrip dividend (under the
Santander Dividendo Elección (SDE) scheme) that would pay
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Contents
0.03 euros per share in cash to opting-in shareholders (see
'Scrip dividend authority' in section 2.2 and section 3.4 'April
2020 AGM').
If that proposal had been carried out, 46.3% of the 2019
underlying attributable ordinary profit would have been
paid out to shareholders, and the cash dividend rate would
have been 89.6%, assuming 20% of cash options in the SDE
scheme, in line with the objectives announced at the start of
2019. The cash dividend would have increased by 3% year-
on-year, in contrast to the one paid against the 2018 results
(EUR 0.195 per share in 2018 versus EUR 0.20 per share in
2019), even without considering the cash payout under the
SDE scheme.
• Covid-19 and the first ECB recommendation. On 27 March
2020 the ECB issued a recommendation for all European
credit institutions under its supervision to refrain from
paying out dividends against the 2019 and 2020 results
until at least 1 October 2020 to preserve capital (ECB
Recommendation I).
Considering the ECB Recommendation I and in view of
Santander’s mission to help people and businesses prosper,
on 2 April 2020 the board of directors cancelled the
payment of the 2019 final dividend and the dividend policy
for 2020, removed the Final Cash Dividend and the SDE
scheme proposals from the agenda for the already
announced April 2020 AGM and deferred the decision on
the application of the 2019 results to a meeting to be held
no later than 31 October 2020.
• Second ECB recommendation and October 2020 AGM. On
27 July 2020, the ECB issued a second recommendation
extending the term of ECB Recommendation I. It asked the
European credit institutions under its supervision to refrain
from paying out dividends against the 2019 and 2020
results or from making irrevocable commitments to pay
them until 1 January 2021 (ECB Recommendation II).
In September 2020, the board of directors called the
October 2020 AGM, proposing to the shareholders to (a) in
accordance with ECB Recommendation II, allocate the
entirety of Banco Santander’s 2019 results to increasing the
voluntary reserve, except for the portion already applied to
pay the interim dividend (which had been paid out before
ECB Recommendation I) and (b) increase capital with a
charge to reserves to permit a final remuneration for 2019,
in addition to the interim dividend, for the equivalent of
0.10 euro per share in the form of newly-issued shares and
without a cash alternative.
Shareholders approved both proposals at the October 2020
AGM as indicated in section 3.5 'October 2020 AGM'. Thus,
50.6% of our underlying attributable profit in 2019 was
paid out to shareholders, and the proportion of cash over
the total dividend was 49.4%.
Remuneration against the 2020 results
• Precovid. The board of directors' originally set about for
remuneration against the 2020 results to maintain the
announced mid-term pay-out ratio target of 40-50% of
underlying profit; make sure the in-cash dividend rate was
no lower than in 2019; and to make two payments against
the 2020 results. The board proposed to shareholders to, at
186
our April 2020 AGM, set shareholder remuneration with the
same flexibility as 2019 by (a) retaining the option of using
the SDE scheme (scrip dividend) (in view of its wide
acceptance, especially among our retail shareholders) to
take advantage of profitable growth opportunities in our
markets and (b) renewing the authorization to acquire
treasury shares with the option of running share buy-backs
to reduce outstanding shares under favourable market
conditions. See section 3.4 'April 2020 AGM'.
• Covid-19 and ECB Recommendation I. As mentioned above,
ECB Recommendation I led the board of directors to cancel
the dividend policy for 2020 on 2 April 2020.
• ECB Recommendation II and October 2020 AGM.
Following ECB Recommendation II which extended the term
of ECB Recommendation I to 1 January 2021, the board of
directors proposed to shareholders at the October 2020
AGM a payment in 2021 of up to 0.10 euros per share
against share premium as remuneration against 2020
results, contingent on the ECB's approval and
recommendations, a CET1 ratio maintained within or above
our target range of 11-12%, and the total distribution not
exceeding 50% of our consolidated ordinary (underlying)
profit.
The proposal aimed to apply a 100% cash dividend policy
and to make a payment to shareholders with respect to
2020 in line with the one announced in early 2020 (40-50%
of the group’s consolidated ordinary (underlying) profit) as
soon as market conditions normalized and subject to
regulatory recommendations and approvals.
Shareholders approved the proposal at the October 2020
AGM, as indicated in section 3.5 'October 2020 AGM'.
• Third ECB recommendation. On 15 December 2020, the
ECB recommended that all credit institutions under its
supervision limit shareholder remuneration until 30
September 2021 to the lowest between 15% of the
adjusted profit for 2020 (and 2019 but only for those
entities that, as opposed to Banco Santander, did not make
any dividend payments against the 2019 results) and the
equivalent of 20 basis points of the CET1 ratio.
On 3 February 2021, Banco Santander made public its 2020
results and the board's intention to pay a cash dividend of
€2.75 cents per share as shareholder remuneration for
2020, the maximum allowed in accordance with the limits
set by the last ECB recommendation. This dividend will be
paid under the resolution of the October 2020 AGM for the
distribution of share premium mentioned above.
Remuneration against the 2021 results
The board aims to restore a payout ratio of 40-50% of
underlying profit, in cash, in the medium term. With respect
to the remuneration against the 2021 earnings, the intention
is to resume payments once the ECB recommendations so
allow. The ECB has said it intends to repeal the
recommendation in September 2021 in the absence of
materially adverse developments. In the meantime, and in
line with the announcement of April 2020, the dividend policy
will remain suspended.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
3.4 April 2020 AGM
On 3 April 2020 we held our customary ordinary general
shareholders' meeting which, due to covid-19, was the first
shareholders' meeting of Banco Santander held exclusively by
remote means (see section 1.4 'Active shareholder
engagement during the pandemic'). The pandemic and the
recommendations issued by the ECB as a consequence also
meant that the board of directors had to withdraw, once the
meeting had been called, points 2 (application of results) and
7A (share capital increase to implement a Santander
Dividendo Elección scheme) from the agenda (see section 3.3
'Dividends'). The application of results for year 2019 was later
submitted to the October 2020 AGM (see next section 3.5
'October 2020 AGM')
Quorum and attendance
The quorum (among shareholders present and represented)
was 65.0% broken down as follows:
Quorum breakdown
In person and virtual attendance
By proxy
Cast by post or direct delivery
By electronic means
Remote voting
Cast by post or direct delivery
By electronic means
Total
0.091 %
49.410 %
13.193 %
0.600 %
1.711 %
65.005 %
Voting results and resolutions
All items on the agenda (as amended as indicated above)
were approved. Votes in favour of the board’s proposals
averaged 98.2%. 99.68% of votes approved corporate
management for 2019 and 93.77% of votes approved the
2019 annual report on directors' remuneration. None of the
agenda items listed in the notice convening the meeting
received more than 6.93% of votes against.
The following chart summarizes the resolutions approved and voting results:
1. Annual accounts and corporate management
1A. Annual accounts and directors’ reports for 2019
1B. Consolidated statement of non-financial information for 2019
1C. Corporate management 2019
E
2. Application of results
3. Appointment, re-election or ratification of directors
3A. Setting of the number of directors
3B. Appointment of Luis Isasi Fernández de Bobadilla
3C. Appointment of Sergio Agapito Lires Rial
3D. Ratification of the appointment and re-election of Pamela Ann Walkden
3E. Re-election of Ana Patricia Botín-Sanz de Sautuola y O'Shea
3F. Re-election of Rodrigo Echenique Gordillo
3G. Re-election of Esther Giménez-Salinas i Colomer
3F. Re-election of Sol Daurella Comadrán
4. Re-election of the external auditor for Financial Year 2020
5. Authorization to acquire treasury shares
6. Authorization granted to the board to increase share capital
E
7A. Increase in share capital. Offer to acquire bonus share rights at a guaranteed price
7B. Increase in share capital. Offer to acquire bonus share rights at a guaranteed price
8. Delegation to the board of the power to increase share capital to issue all kinds of
fixed-income securities, preferred interests or similar, non-convertible similar debt
instruments (including warrants)
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 executive directors' total
remuneration
12. Remuneration plans that include that inclthe delivery of shares or share options:
12A. Deferred multiyear objectives variable remuneration plan
12B. Deferred conditional variable remuneration plan
12C. Digital Transformation Award
12D. Group buy-out policy
VOTES A
B
C
Blank
Against
B
For
C
Abstention
D
Quorum
99.74
99.75
99.68
–
99.64
99.38
98.65
99.63
98.31
96.38
99.40
99.21
99.73
98.03
93.07
–
0.26
0.25
0.32
–
0.36
0.62
1.35
0.37
1.69
3.62
0.60
0.79
0.27
1.97
6.93
–
0.03
0.04
0.04
–
0.03
0.04
0.04
0.04
0.03
0.04
0.03
0.04
0.03
0.03
0.03
–
3.08
2.86
3.14
–
2.89
2.92
2.90
2.89
2.86
2.90
2.89
2.88
2.85
2.87
2.85
–
65.00
65.00
65.00
–
65.00
65.00
65.00
65.00
65.00
65.00
65.00
65.00
65.00
65.00
65.00
–
99.41
0.59
0.03
2.84
65.00
99.49
94.40
95.87
0.51
5.60
4.13
0.03
0.03
0.03
2.85
3.28
3.31
65.00
65.00
65.00
98.78
1.22
0.03
3.28
64.65
96.13
97.49
99.40
98.89
3.87
2.51
0.60
1.11
0.03
0.03
0.03
0.04
3.28
3.29
3.29
3.32
65.00
65.00
65.00
65.00
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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
F
15. Corporate action to demand director liability
16 to 30. Dismissal and removal of directors
G
B
For
99.26
99.70
93.77
0.00
0.00
VOTES A
B
Blank
C
Against
Abstention
C
Quorum
D
0.74
0.30
6.23
100.00
100.00
0.03
0.03
0.03
0.00
0.00
3.28
2.85
3.45
0.13
0.13
65.00
65.00
65.00
62.69
62.69
A. Each Banco Santander share grants one vote.
B. Percentage of votes for and against.
C. Percentage of share capital present and attending by proxy at the April 2020 AGM.
D. Percentage of Banco Santander's share capital on the date of the April 2020 AGM.
E. Item withdrawn from the agenda as indicated above.
F. Item not included on the agenda.
G. Items 16 to 30 (not included on the agenda) were put to a separate vote. Each item refers to the proposal to dismiss and remove each acting director at the April
2020 AGM.
The full texts of the resolutions passed at the April 2020 AGM can be found on our corporate website and on the CNMV’s website,
as they were filed as other relevant information on 3 April 2020.
3.5 October 2020 AGM
Banco Santander held another ordinary general shareholders' meeting on 27 October 2020 to decide, among other matters, on
the application of results obtained during financial year 2019 which had been deferred after the ECB Recommendation I (see
section 3.3 'Dividends'). This meeting was hybrid, i.e. allowing attendance in person and by remote means (see section 1.4 'Active
shareholder engagement during the pandemic').
Quorum and attendance
The quorum (among shareholders present and represented) was 60.34% broken down as follows:
Quorum breakdown
In person and virtual attendance
By proxy
0.167 %
Cast by post or direct delivery
By electronic means
Remote voting
Cast by post or direct delivery
By electronic means
Total
Voting results and resolutions
7.441 %
35.845 %
0.589 %
16.300 %
60.342 %
All items on the agenda were approved. Votes in favour of the board’s proposals averaged 99.15%. The following chart
summarizes the resolutions approved and voting results:
1. Application of results
2. Appointment, re-election or ratification of directors
2A. Setting of the number of directors
2B. Appointment of R. Martín Chávez Márquez
3A. Examination and approval of the balance sheet as at 30 June 2020
3B. Increase in share capital with a charge to reserves
4. Conditional distribution of share premium reserve
5. Authorisation to implement the resolutions approved
6 to 20. Dismissal and removal of directors
E
B
For
99.52
98.96
98.58
99.57
98.43
99.41
99.58
VOTES A
B
Blank
C
Against
Abstention
C
Quorum
D
0.48
0.06
3.26
60.34
1.04
1.42
0.43
1.57
0.59
0.42
0.09
0.10
0.08
0.06
0.03
0.08
0.00
3.42
3.42
3.37
3.26
3.18
3.29
0.30
60.34
60.34
60.34
60.34
60.34
60.34
43.45
0.00
100.00
A Each Banco Santander share affords one vote.
B. Percentage of votes for and against.
C. Percentage of share capital present and attending by proxy at the October 2020 AGM.
D. Percentage of Banco Santander's share capital on the date of the October 2020 AGM.
E. Items 6 to 20 (not included on the agenda) were put to a separate vote. Each item refers to the proposal to dismiss and remove each acting director at the October
2020 AGM.
The full text of the resolutions passed at the October 2020 AGM can be found on our corporate website and on the CNMV’s
website, as they were filed as other relevant information on 27 October 2020.
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3.6 Our coming 2021 AGM
The board of directors agreed to call the 2021 AGM for 25 or
26 March on first and second call respectively, with the
following proposed resolutions.
• Annual accounts and corporate management. For approval
of:
• The annual accounts and the directors’ reports of Banco
Santander and its consolidated Group for the financial
year ended on 31 December 2020. For further
information, see 'Consolidated Annual Accounts'.
• The consolidated non-financial statement for the financial
year ended on 31 December 2020 is part of this
consolidated directors' report. See the 'Responsible
banking' chapter.
• The corporate management for the financial year 2020.
• The application of results obtained during financial year
2020. See section 3.3 'Dividends'.
• Appointment of directors.
• Setting the number of directors at 15, within the
maximum and minimum limits set in the Bylaws.
• Ratification of the appointment of Gina Díez as an
independent director (see section 1.1 'Board skills and
diversity') and re-electing Homaira Akbari, Álvaro
Cardoso, Javier Botín, Ramiro Mato and Bruce Carnegie-
Brown for a three-year period. See section 4.1 'Our
directors'.
• External auditor. Re-electing the firm
PricewaterhouseCoopers Auditores, S.L. as external auditor
for financial year 2021. See 'External auditor' in section 4.5.
• Bylaws. Approve these main amendments:
• To make the board of directors the competent body to
issue non-convertible debt.
• To make the board of directors the competent body to
approve equity remuneration plans for employees, as
permitted by the Spanish Companies Act since 2015.
• To hold fully-virtual general meetings where permitted by
law.
• Rules and regulations of the general meeting. Approve the
amendment of certain articles to coordinate them with the
proposed Bylaw amendments and to incorporate technical
improvements.
• Authority to issue non-convertible securities. Delegating
to the board of directors the authority to issue debentures,
bonds, preferred interests and other similar debt
instruments that cannot be converted into shares of Banco
Santander.
• Remuneration policy. Approving the director remuneration
policy for 2021, 2022 and 2023. For further information,
see section 6.4 'Directors’ remuneration policy for 2021,
2022 and 2023 submitted to a binding shareholder vote’.
• Director remuneration. Approving director’s fixed annual
remuneration. For further information, see section 6.4
'Directors’ remuneration policy for 2021, 2022 and 2023
submitted to a binding shareholder vote’.
• Variable remuneration. Approving a maximum ratio of
200% of variable components to fixed components of 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 2021,
2022 and 2023 submitted to a binding shareholder vote’.
• Remuneration plans. Approving remuneration plans that
involve the delivery of shares or share options or are share-
value based. For further information, see section 6.4
'Directors’ remuneration policy for 2021, 2022 and 2023
submitted to a binding shareholder vote’.
• Annual directors’ remuneration report. Holding a non-
binding vote on the annual directors’ remuneration report.
For further information, see section 6. 'Remuneration'.
The related documents and information will be available for
consultation on our corporate website on the date the
meeting notice is published. We will also broadcast our 2021
AGM live, as was done for the 2020 AGMs.
Since attendance at the 2021 AGM is not paid, a general
policy in this regard is not necessary. However, Banco
Santander offers attendees a commemorative courtesy gift,
as has been tradition for decades.
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4. Board of directors
A balanced and diverse board
Effective governance
→ 15 directors, including 12 non-executive and 3
→ Specialised committees advising the board
executive
→ The responsible banking, sustainability and culture
→ Majority of independent directors (66.67%)
committee shows the board's commitment to this matter
→ Balanced presence of men and women (40%-60%)
→ Complementary functions and power balance: executive
chairman, CEO and lead independent director
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ò Executive committee
ò Audit committee
¢ Nomination committee
¢ Remuneration committee
p Risk supervision, regulation and compliance
comittee
p Innovation and technology committee
Ÿ Responsible banking, sustainability
and culture committee
P Chairman of the committee
R. Martín Chávez
Member
Non-executive director
(independent)
¢¢ppP
Belén Romana
Member
Non-executive director
(independent)
òòppŸ
Ramiro Mato
Member
Non-executive director
(independent)
òòpŸP
Henrique de Castro
Member
Non-executive director
(independent)
ò¢p
Luis Isasi
Member
Non-executive director
ò¢p
Álvaro Cardoso
Member
Non-executive director
(independent)
pPŸ
Pamela Walkden
Member
Non-executive director
(independent)
òP
José Antonio Álvarez
Vice chairman and CEO
Executive director
òp
Homaira Akbari
Member
Non-executive director
(independent)
òpŸ
Sergio Rial
Member
Executive director
Sol Daurella
Member
Non-executive director
(independent)
¢¢Ÿ
Gina Díez
Member
Non-executive director
(independent)
Ana Botín
Executive chairman
Executive director
òP p
Bruce Carnegie-Brown
Vice chairman and lead
independent director
Non-executive director
(independent)
ò¢P¢Pp
Javier Botín
Member
Non-executive director
Jaime Pérez Renovales
General secretary and
secretary of the board
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4.1 Our directors
Information is presented as at 31 December 2020.
Ana
Botín-Sanz de Sautuola y O’Shea
GROUP EXECUTIVE CHAIRMAN
Executive director
Ms Botín 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: Ms Botín 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 Santander’s expansion into 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.
José Antonio
Álvarez Álvarez
VICE CHAIRMAN &
CHIEF EXECUTIVE OFFICER
Executive director
Mr Álvarez joined the board in 2015.
Nationality: Spanish. Born in 1960 in León, Spain.
Education: Degree in Economics and Business
Administration. MBA from the University of Chicago.
Experience: José Antonio Álvarez 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 Finance, S.A. and Santander Holdings US,
Other positions of note: Ms Botín is a 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 the Empieza por Educar Foundation (the Spanish
subsidiary of the international NGO, Teach for All), and sits on
the advisory board of the Massachusetts Institute of Technology
(MIT). In February 2021, she was appointed president of the
European Banking Federation.
Positions in other Group companies: Ms Botín is a non-
executive director of Santander UK plc and Santander UK Group
Holdings plc; a non-executive chairman of Universia España Red
de Universidades, S.A. and Universia Holding, S.L; and a non-
executive director of Santander Holding USA, Inc., Santander
Bank, N.A. and PagoNxt, S.L.
Membership of board committees: Executive committee
(chairman), and innovation and technology committee.
Skills and competencies: Extensive international experience in
banking, having held the highest executive roles. She has also
led the transformational, strategic and cultural change of Grupo
Santander. Moreover, she has shown an ongoing commitment
to sustainable and inclusive growth, as demonstrated by her
philanthropic activities.
Inc. He also sat on the supervisory boards of Santander
Consumer AG, Santander Consumer Bank GmbH and Santander
Bank Polska, S.A. He was a board member of Bolsas y Mercados
Españoles, S.A.
Other positions of note: None.
Positions in other Group companies: Mr Álvarez is non-
executive director of Banco Santander (Brasil), S.A. and PagoNxt,
S.L.
Membership of board committees: Executive committee, and
innovation and technology committee.
Skills and competencies: Mr Álvarez is a highly qualified and
talented leader with a distinguished career in banking. He brings
significant strategic and international management expertise, in
particular financial planning, asset management and consumer
finance. He has vast experience with, and a strong reputation
among, key stakeholders such as regulators and investors.
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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: Mr Carnegie-Brown was non-executive
chairman of Moneysupermarket.com Group plc
(2014-2019), non-executive director of Jardine Lloyd
Thompson Group plc (2016-2017) and non-executive chair
of AON UK Ltd (2012-2015). He was 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
at Close Brothers Group plc (2006-2014) and Catlin Group Ltd
(2010-2014). He previously worked at JP Morgan Chase for 18
years and Bank of America for four years.
Other positions of note: Mr Carnegie-Brown is the non-
executive chairman of Lloyd’s of London and Cuvva Limited.
Positions in other Group companies: Mr Carnegie-Brown is
non-executive director of Santander UK plc and Santander UK
Group Holdings plc.
Membership of board committees: Executive committee,
nomination committee (chairman), remuneration committee
(chairman), and innovation and technology committee.
Skills and competencies: Mr Carnegie-Brown has a lengthy
background in banking (particularly investment banking) and
considerable expertise in insurance. He also possesses
significant international experience in Europe (UK), the Middle
East and Asia. His top-management insight provides the board
with know-how in regard to remuneration, appointments and
risk. As lead independent director, he has also gained an
excellent understanding of investors’ expectations, as well as
managing relations with them and financial entities.
Homaira
Akbari
Non-executive director
(independent)
Ms Akbari joined the board in 2016.
Nationality: American and French. Born in 1961 in Tehran,
Iran.
Education: PhD in Experimental Particle Physics from Tufts
University and MBA from Carnegie Mellon University.
Experience: Homaira Akbari was non-executive director of
Gemalto NV and 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. She has also held various
posts at Microsoft Corporation and Thales Group.
Other positions of note: Ms Akbari is chief executive officer of
AKnowledge Partners, LLC and an independent director of
Landstar System, Inc. and Temenos, AG.
Positions in other Group companies: Ms Akbari is non-executive
director of Santander Consumer USA Holdings Inc. and PagoNxt,
S.L.
Membership of board committees: Audit committee, innovation
and technology committee, and responsible banking,
sustainability and culture committee.
Skills and competencies: Ms Akbari brings significant executive
experience from technology companies. Her knowledge about
digital transformation challenges is an asset to the board. She
also has extensive experience in various geographies and
knowledge about water, energy and waste management and
treatment, which are of particular value to the group.
Javier
Botín-Sanz de Sautuola y O’Shea
Non-executive director
Advisers, S.V., S.A. (2000-2008). Previously, he had been a legal
adviser within the International Legal Department of Banco
Santander, S.A. (1998-1999).
Other positions of note: In addition to the financial sector, Mr
Botín works with several not-for-profit organisations. He has
been chairman of the Botín Foundation since 2014 and is also a
trustee of the Princess of Girona Foundation.
Mr Botín joined the board in 2004.
Positions in other Group companies: None.
Nationality: Spanish. Born in 1973 in Santander, Spain.
Membership of board committees: None.
Education: Degree in Law from the Complutense University
of Madrid.
Experience: Javier Botín founded JB Capital Markets,
Sociedad de Valores, S.A.U in 2008 and has been its
executive chairman ever since. He was co-founder and
executive director of the equities division of M&B Capital
Skills and competencies: Mr Botín brings international and
managerial expertise to the board, particularly in finance and
banking. He also brings a deep understanding of Grupo
Santander, its operations and its strategy from his tenure as a
non-executive director.
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Álvaro
Cardoso de Souza
Non-executive director
(independent)
Mr de Souza 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 São
Paulo, MBA-Management Program for Executives from the
University of Pittsburgh, and a graduate of the Investment
Banking Marketing Program at Wharton Business School.
Experience: Álvaro Cardoso de Souza has held various roles
in Citibank Group, including CEO of Citibank Brazil, as well
as senior roles in the US relating to consumer finance,
private banking and Latin America.
Sol
Daurella Comadrán
Non-executive director
(independent)
Ms Daurella joined the board in 2015.
Nationality: Spanish. Born in 1966 in Barcelona, Spain.
Education: Degree in Business and MBA from ESADE.
Experience: Sol Daurella Comadrán served on the board of
the Círculo de Economía and was 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: Ms Daurella is chairman of
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 & Management (Portugal) and
MBA from the University of Lausanne (Switzerland).
Experience: Henrique de Castro was an independent
director at First Data Corporation and chief operating
officer at Yahoo.
194
He was a board member at AMBEV. S.A., Gol Linhas Aéreas, S.A.
and Duratex, S.A. He was chairman of WorldWildlife Group
(WWF) Brazil, a board member at 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: Mr de Souza is the 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: Mr de Souza possesses broad
international experience in banking, particularly in Brazil. He has
a solid understanding of strategy and risk management, which is
key to his role as chairman of our risk supervision, regulation
and compliance committee. In addition, his active involvement
with several environmental foundations and NGOs brings with
him very useful knowledge about sustainability.
Coca-Cola European Partners plc and executive chairman of
Olive Partners S.A. She also holds several roles at Cobega Group
companies and is chairman of the board of trustees of the FERO
Oncology Research Foundation.
Positions in other Group companies: None.
Membership of board committees: Nomination committee,
remuneration committee, and responsible banking,
sustainability and culture committee.
Skills and competencies: Ms Daurella brings to the board
excellent strategy and high-level management skills from her
international top-executive experience at listed and large
privately-held entities, particularly distributors. She has vast
knowledge of corporate governance as the former chair of
several boards. She also possesses audit experience, having
served on several audit committees. In addition, as a trustee at
various health, education and environmental foundations, Ms
Daurella contributes responsible business and sustainability
insight to the board.
Previously, he had been the manager of worldwide devices,
media and platforms at Google, European sales and business
development manager at Dell Inc. and a consultant at McKinsey
& Company.
Other positions of note: Mr de Castro is an independent director
of Fiserv Inc.
Positions in other Group companies: Mr de Castro is a non-
executive director of PagoNxt, S.L.
Membership of board committees: Audit committee,
remuneration committee, and innovation and technology
committee.
Skills and competencies: Due to his executive roles in the
world’s top technology companies, Mr de Castro brings valuable
experience in technological and digital strategy from a wide
range of geographies.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Gina
Díez Barroso
Non-executive director
(independent)
Ms Díez joined the board in 2020.
Nationality: Mexican. Born in 1955 in Mexico City, Mexico.
Education: Degree in Design from Centro de Diseño,
Mexico City.
Experience: She has over 20 years' experience in the real
estate and education sectors. Until April 2020, she was an
independent director of Banco Santander México, S.A. and
several Grupo Santander companies in Mexico. She has
been member of the board of directors of Americas
Luis
Isasi Fernández de Bobadilla
Non-executive director
Mr Isasi joined the board in 2020.
Nationality: Spanish. Born in 1956 in Jerez de la Frontera,
Spain.
Education: Degree in Economics and Business
Administration and MBA from Columbia Business School.
Experience: With broad experience in the financial and
securities market sectors, Mr Isasi began his career at
Abengoa, before holding various executive positions at JP
Morgan in New York and First National Bank of Chicago in
London.
Ramiro
Mato García-Ansorena
Non-executive director
(independent)
Mr Mato joined the board in 2017.
Nationality: Spanish. Born in 1952 in Madrid, Spain.
Education: Degree in Economics from the Complutense
University of Madrid and graduate of Harvard Business
School’s Management Development Programme.
Experience: Ramiro Mato held several roles in Banque BNP
Paribas, including chairman of BNP Paribas Group in Spain.
Previously, he had held several top roles in Argentaria. He
was a member of the Spanish Banking Association (AEB),
Society/Council of the Americas, Laurel Strategies and Qualitas
of Life Foundation.
Other positions of note: She is the founder and president of
Grupo Diarq, S.A. de C.V. and Centro de Diseño y Comunicación,
S.C. (Universidad Centro). In addition, she is a member of the
board of Dalia Women, S.A.P.I de C.V. (Dalia Empower), member
of Comité de 200 (C200) and represents Mexico at the W20, the
G20 womens' initiative. She founded and is a trustee of the Pro-
Educación Centro and Diarq foundations.
Positions in other Group companies: None.
Membership of board committees: None.
Skills and competencies: Ms Díez possesses vast experience in
the real estate and education sectors, and has extensive
knowledge of responsible business and sustainability as a result
of having been a charter member and trustee of foundations
focusing on education, gender diversity and social support.
In 1987, he joined Morgan Stanley as managing director of
investment banking for Europe and, from 1997 to February
2020, held the role of chairman and country head for Spain. He
is now a senior adviser there. He has also been director of
Madrileña Red de Gas, S.A. and Sociedad Rectora de la Bolsa de
Madrid, S.A., as well as an independent director of Grifols, S.A.
Other positions of note: Mr Isasi is a non-executive chair of
Santander España and an independent director of Compañía de
Distribución Integral Logista Holdings, S.A. (Logista).
Positions in other Group companies: None.
Membership of board committees: Executive committee,
remuneration committee, and risk supervision, regulation and
compliance committee.
Skills and competencies: Mr Isasi has vast experience in a wide
range of sectors and international markets, as well as a strong
institutional network within Spain.
Bolsas y Mercados Españoles, S.A. (BME) and the board of
trustees of the Fundación Española de Banca para Estudios
Financieros (FEBEF).
Other positions of note: Mr Mato is chairman of Ansorena, S.A.
and vice-chairman of the board of trustees of Fundación
Esperanza y Alegría.
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: Mr Mato has had an extensive career
in banking and capital markets. He has held senior executive and
non-executive roles and brings considerable expertise in top
management, audit, risk and strategy, mainly within the
financial sector. He has also been active on the boards of
trustees of several education foundations.
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Ramón Martín
Chávez Márquez
Non-executive director
(independent)
Mr Chávez joined the board in 2020.
Nationality: American. Born in 1964 in Alburquerque, New
Mexico (US).
Education: A.B. magna cum laude in Biochemical Sciences
and Master of Computer Science from Harvard University.
PhD in Medical Information Sciences from Stanford
University.
Experience: Mr Chávez was Chief technology officer (CTO)
and co-founder of Quorum Software Systems (1989-1993),
global head of energy derivatives at Credit Suisse Financial
Products (1997-2000) and CEO and co-founder of Kiodex
(2000-2004). In 2005, he joined Goldman Sachs, where he
was a partner from 2006 to 2019 and where he held
various executive positions, including global co-head of the
securities division, Chief information officer (CIO) and CFO.
He was also member of the management committee from
2012 until 2019, when he left the firm.
Sergio
Rial
Executive director
Mr Rial joined the board in 2020.
Nationality: Spanish and brazilian. Born in 1960 in Rio de
Janeiro, Brazil.
Education: Degree in Law and Economics and postgraduate
studies from the Instituto Brasileiro do Mercado de
Capitais, Insead, Harvard Business School and Wharton
Business School.
Experience: Mr Rial joined the Group as chairman of the
board of Banco Santander (Brasil), S.A. in 2015, becoming
its CEO and vice-chairman in 2016. He has been a director
of Banco Santander International since 2018 and, since
April 2019, regional head for South America. He held
various executive positions at ABN Amro group between
1982 and 2004, including CEO for Asia and member of the
global ExCo.
Furthermore, he has been director of PNM Resources, Inc., the
International Swaps and Derivatives Association (ISDA) and the
Santa Fe Opera, and a member of the board of trustees of
amfAR (the Foundation for AIDS Research).
Other positions of note: Mr Chávez is an independent director
of Recursion Pharmaceuticals, Inc., Paige.AI, Inc. and Mount
Sinai Genomics, Inc. DBA Sema4. He is also member of the
Harvard University Board of Overseers, member of the board of
trustees of the Institute for Advanced Study of Princeton (New
Jersey) and of the Los Angeles Philharmonic, as well as a
member of the Stanford University School of Medicine Board of
Fellows.
Positions in other Group companies: Mr Chávez is a non-
executive director of PagoNxt, S.L.
Membership of board committees: Nomination committee,
remuneration committee, risk supervision, regulation and
compliance committee and innovation and technology
committee (chairman).
Skills and competencies: Mr Chávez brings extensive
experience in the global financial and IT sectors, which will
enhance the board's digital capabilities.
He also held various executive positions at Cargill Inc. between
2004 and 2012, including executive vice-chairman, member of
the board of directors and global CFO. He has also been CEO at
Seara Foods and Marfrig Global Foods and a director of Mosaic
Fertilizers.
Other positions of note: Mr Rial is an independent director of
Delta Airlines Inc. and non-executive chairman of Ebury Partners
Limited.
Positions in other Group companies: Mr Rial is a non-executive
director of Banco Santander International (USA), SAM
Investment Holding Limited, PagoNxt, S.L. and Santander Global
Trade Platforms Solutions, S.L., and non-executive chairman of
Universia Brasil, S.A.
Membership of board committees: None.
Skills and competencies: Mr Rial brings extensive executive
experience in banking and finance. He also has a deep
understanding of Latin American markets, especially Brazil. His
previous experience in multinational groups across geographical
areas and sectors increases the board’s diversity and gives it a
valuable perspective on environmental and social issues.
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Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Belén
Romana García
Non-executive director
(independent)
Belén Romana joined the board in 2015.
Nationality: Spanish. Born in 1965 in Madrid, Spain.
Education: Degree in Economics and Business
Administration from Universidad Autónoma de Madrid and
State Economist.
Experience: Belén Romana was formerly senior executive
vice-president of Economic Policy, director-general of the
Treasury of the Spanish Ministry of Economy, and director
at Banco de España and the CNMV. She was also a director
at the Instituto de Crédito Oficial and other entities on
behalf of the Spanish Ministry of Economy. She served as a
non-executive director at Banco Español de Crédito, S.A.
and as 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 independent director of SIX Group AG and Bolsas y
Mercados Españoles, Sociedad Holding de Mercados y Sistemas
Financieros, S.A.U. Furthermore, she is a member of the board of
trustees of the Rafael del Pino Foundation and co-chair of the
Global Board of Trustees of the Digital Future Society, and
member of the advisory board of GFI, España and TribalData.
Positions in other Group companies: None.
Membership of board committees: Executive committee, audit
committee, risk supervision, regulation and compliance
committee, innovation and technology committee, and
responsible banking, sustainability and culture committee.
Skills and competencies: Given her background as a
government economist and overall executive and non-executive
experience in finance (particularly from serving on the audit
committees of listed companies), Ms Romana is a recognised
financial expert. Having held important positions in Spanish
credit institutions and in the field of capital markets, she can
also provide strategic insights into banking, financial regulations
and government relations.
Pamela
Walkden
Non-executive director
(independent)
Mrs Walkden joined the board in 2019.
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: Mrs Walkden 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 in Economics from Cambridge
University.
Membership of board committees: Audit committee
(chairman).
Experience: Pamela Walkden has had an extensive career
in banking. She has served in a number of senior
management positions at Standard Chartered Bank,
including as Group Head of Human Resources, Chief Risk
Officer, Group Treasurer,
Skills and competencies: Ms Walkden is a recognised financial
expert in view of her broad, international experience in banking
and auditing.
Jaime
Pérez Renovales
General secretary and secretary
of the board
Jaime Pérez Renovales joined the group in 2003.
Nationality: Spanish. Born in 1968 in Valladolid, Spain.
Education: Degree in Law and Business Administration
from Universidad Pontificia de Comillas (ICADE E-3) and
state attorney.
Experience: Jaime Pérez Renovales was director of the office of
the second deputy prime minister for Economic Affairs and
Minister of Economy, deputy secretary to the Spanish Prime
Minister, chairman of the Spanish State Official Gazette and the
committee for Government Reform. Previously, he had been vice
general counsel and vice-secretary of the board. He was also
head of Grupo Santander’s legal department, general counsel
and secretary of the board at Banco Español de Crédito, S.A. and
deputy director of legal services at the CNMV. He sits on the jury
for the Princess of Asturias Awards for Social Sciences and is
chairman of the ICADE Business Club.
Mr Pérez is the secretary of all board committees.
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Term of independent directors
Other external directors
• Javier Botín
• Luis Isasi
These directors cannot be classified as independent directors
for the following reasons:
• Mr Botín has been director for over 12 years.
• Although the nomination committee and the board believe
that Mr Isasi meets the requirements to be classed as an
independent director - in view of his remuneration as non-
executive chair of Santander España, his entitlements as a
director and the special nature of this body as supervisor of
a business unit without its own corporate identity separate
to Banco Santander - under prudent criteria it is considered
preferable to classify him as an external director. This aligns
to sub-sections 2 to 4 of article 529 duodecies of the
Spanish Companies Act and to article 6.2 of the Rules and
regulations of the board.
Our board composition
4.2 Board composition
Size
At 31 December 2020, the board of directors was made up of
the 15 members whose profile and background are described
in section 4.1 'Our directors'. The Bylaws allow it to have
between 12 and 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. Each director’s status has been
verified by the nomination committee and submitted to the
board.
Executive directors
• Ana Botín, Group executive chairman
• José Antonio Álvarez, Group vice-chairman and chief
executive officer
Section 4.3 provides a more detailed description of their roles
and duties under 'Group executive chairman and chief
executive officer'.
• Sergio Rial
Independent directors
• Bruce Carnegie-Brown (lead independent director)
• Homaira Akbari
• Álvaro Cardoso
• R. Martín Chávez
• Sol Daurella
• Henrique de Castro
• Gina Díez
• Ramiro Mato
• Belén Romana
• Pamela Walkden
Every year, the nomination committee verifies and informs
the board about the category of independent directors. It
takes all the circumstances of each case into account,
particularly any possible significant business relationships
that could affect their independence. This analysis is
described further in section 4.6 'Nomination committee
activities in 2020'.
Independent non-executive directors account for 66.7% of
board members. This conforms to best corporate governance
practices as well as the board’s Rules and regulations, which
require that the board be predominantly made up of non-
executive directors with at least 50% independent directors.
At the end of 2020, the average term of independent non-
executive directors was 3.02 years.
198
7.33.03.43.013.563.423.022014201520162017201820192020Independentdirectors66.67%Executivedirectors20.00%Other externaldirectors13.33%
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Tenure and equity ownership
A
Board of
directors
Executive
chairman
Vice chairman
and chief
executive
officer
Tenure
C
Banco Santander shareholding
Date of first
appointment
Date of last
appointment
End date
B
Direct
Indirect
Shares
represented
Total
% of
share
capital
Ana Botín
04/02/1989
03/04/2020
03/04/2023
1,138,675 28,612,074
29,750,749
0.172%
José Antonio Álvarez
25/11/2014
12/04/2019
12/04/2022
1,820,754
1,820,754
0.010%
Vice chairman Bruce
Carnegie-Brown
25/11/2014
12/04/2019
12/04/2022
59,940
59,940
0.000%
Homaira Akbari
27/09/2016
23/03/2018
23/03/2021
67,826
45,913
113,739
0.001%
Javier Botín
25/07/2004
12/04/2019
12/04/2022
5,502,083
19,466,853 123,904,169
D
148,873,105
0.858%
Álvaro Cardoso
1/04/2018
01/04/2018
23/03/2021
R. Martín Chávez
27/10/2020
27/10/2020
27/10/2023
0
0
Sol Daurella
25/11/2014
03/04/2020
03/04/2023
149,483
476,837
Members
Henrique de Castro
17/07/2019
17/07/2019
12/04/2022
2,982
Gina Díez
Luis Isasi
Ramiro Mato
Sergio Rial
22/12/2020
22/12/2020
03/04/2023
19/05/2020
19/05/2020
03/04/2023
0
0
28/11/2017
12/04/2019
12/04/2022
156,860
30/05/2020
30/05/2020
03/04/2023
171,913
Belén Romana
22/12/2015
12/04/2019
12/04/2022
208
4
Pamela Walkden
29/10/2019
03/04/2020
03/04/2023
2,608
0
0
0.000%
0.000%
626,320
0.004%
2,982
0.000%
0
0
0.000%
0.000%
156,860
0.001%
171,913
0.001%
212
0.000%
2,608
0.000%
Total
9,073,332 48,601,681 123,904,169 181,579,182 1.047%
General
secretary and
secretary of
the board
Jaime Pérez Renovales
A. Figures from 31 December 2020.
B. For more details, see 'Election, renewal and succession' in section 4.2. The periods provided do not take into account the additional period that may apply under
article 222 of the Spanish Companies Act nor the annual renewal of one-third of the board established in article 27.1 of the Bylaws.
C. Banco Santander’ shareholding policy aims to align our executive directors and shareholders’ long-term interests. It includes the obligation for each executive
director to maintain a significant investment in Banco Santander's shares while performing executive duties, equivalent to twice their annual salary. Executive
directors have five years from the time they were appointed to reach the required level of investment. Until they do so, any shares they receive as remuneration are
subject, in addition to the regulatory obligation not to sell them for one year from delivery, which applies to all cases, to a mandatory three-year holding period
from their date of delivery, unless they already hold the mentioned investment equivalent.
D. Includes shares owned by Fundación Botín (chaired by Javier Botín) and syndicated shares. It does not include shares corresponding to Ana Botín and Javier Botín
because 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 adapted this information to the CNMV’s format and, therefore, added all the syndicated shares as Javier Botín’s shareholdings. See 2.4
'Shareholders’ agreements'.
For more details, see section 9.2 'Statistical information on corporate governance required by the CNMV'.
Diversity
A diverse board of directors is essential to its effectiveness.
The combination of skills and experiences creates an
environment with varied points of view that improves the
quality of decision-making. Thus, we seek to achieve a sound
balance of technical skills, expertise and perspectives.
Our policy on the selection, suitability assessment and
succession of directors helps make our board more diverse
from different perspectives, for instance, in terms of gender,
age, geographical provenance, experience and knowledge,
without implicit bias that could lead to any form of
discrimination based on gender, age, disability, race or ethnic
origin. It was amended in July 2018 in line with European
legislation on the disclosure of non-financial and diversity
information and the European Banking Authority (EBA) and
the European Securities and Markets Authority (ESMA) joint
guidelines on suitability assessments of board members and
key functions holders. In 2019, the new gender equality
target of 40%-60% representation of either gender in the
board by 2021, was included. It was later amended in
December 2020, after the CNMV amended the Spanish
Corporate Governance Code in June 2020 to include age
diversity as a factor to take into account. Banco Santander
applies this policy to select candidates for any vacancy on the
board.
Our selection policy aims to diversify the board of directors in
different terms. In particular, and without limiting the
foregoing:
• Country of origin or international education: selection
considers cultural diversity and international education,
especially in the Group's main geographies.
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further updated in October 2020 to disclose the board's
diversity in terms of age, on the back of the CNMV's approval
of the revised version of the Spanish Corporate Governance
Code.
This year's matrix follows the structure introduced last year:
• We distinguish between thematic and horizontal skills.
• We include a separate diversity section which details
diversity in terms of gender, country of origin and/or
education abroad and, as of this year, in terms of age.
Finally, we also include a board tenure section.
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 to this
matrix.
We also include an additional chart (entitled 'Committees
skills and diversity matrix') that provides a clear view of the
balance of skills, not only at board level as a whole, but for
each board committee. This enables the overall effectiveness
of the board committees to be evaluated by referring to the
significant presence of skills relevant to the scope of each
committee.
• Gender equality: the nomination committee and the board
of directors understand the importance of fostering equal
opportunity between men and women as well as the need
for women board members who possess the necessary
skills, suitability and commitment to the role. They make a
conscious effort to find women candidates with the
required profile. Our policy fosters a selection of directors
which maintains a balanced presence of women and men
on the board.
On 26 February 2019, the board changed its minority
gender target, set at 30% in 2016 by the nomination
committee, to a gender equality target in the board, which
implies a minimum and maximum representation of either
gender of 40% to 60% by 2021. By November 2019, the
board met this target and, at year-end, women already
accounted for 40% of board members.
The board’s number of women members is well above the
average for large listed companies in Spain and Europe.
According to figures published by the CNMV in July 2020,
based on the annual corporate governance reports for 2019,
the percentage of female directors in IBEX 35 companies in
Spain was on average 27.5%. Furthermore, according to
data published by Eurostat (the European Commission's
statistical office) in March 2019, the percentage of female
directors in large listed companies was, on average, 27% for
all European Union countries.
• Age: the selection policy on the selection, suitability
assessment and succession of directors also considers that
selection processes must promote age diversity. There are
no age limits for becoming a director or holding any role on
the board, including the chairman and the chief executive
officer.
• Education and career: selection ensures that candidates are
qualified and suitable to understand our Group’s
businesses, structure and geographies individually and
collectively; and that they fit within the Santander culture.
The appointment process ensures that candidates will have
banking and finance skills as well as expertise in other areas
deemed important on our board skills and diversity matrix.
Therefore, it takes into account education and work
experience.
• Our policy has no implicit bias that could lead to
discrimination due to race, disability and/or ethnicity.
Section 1.1 'Board skills and diversity' describes the result of
these diversity standards in 2020.
Board skills and diversity matrix
The board’s skills matrix reflects the balance of the
knowledge, skills, qualifications, diversity and experience
required to pursue our long-term strategy in an ever-
changing market.
We updated it in 2018 to make it simpler, more transparent
and comprehensive. It contains more information for our
investors and other stakeholders, who demand that certain
skills be more visible on our board. We also took into account
recommendations from the EBA and ESMA guidelines on the
suitability assessment of board members and key functions
holders, which came into effect in June 2018. It has been
200
Resposible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Executive
José Antonio
Álvarez (vice
chairman -
CEO)
Ana Botín
(chairman)
Sergio Rial
Bruce
Carnegie-
Brown (vice
chairman and
lead
independent
director)
Independent
Other external
Homaira
Akbari
R. Martín
Chávez
Sol
Daurella
Henrique
de Castro
Álvaro
Cardoso
Gina Díez
Barroso
Ramiro
Mato
Belén
Romana
Pamela
Walkden
Javier
Botín
Luis
Isasi
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Continental Europe (80%)
US/UK (93.3%)
Latam (73.3%)
Others (46.7%)
Continental Europe (60%)
US/UK (80%)
Latam (20%)
Others (6.7%)
Less than 55 (13.3%)
From 55 to 65 (73.4%)
More than 65 (13.3%)
Board skills and diversity matrix
SKILLS AND EXPERIENCE
THEMATIC SKILLS
Banking (86.7%)
Other financial services (66.7%)
Accounting, auditing and financial literacy (100%)
Retail (80%)
Digital & information technology (53.4%)
Risk management (86.7%)
Business strategy (100%)
Responsible business & sustainability (80%)
Human resources, culture, talent & remuneration (93.3%)
Legal and regulatory (13.3%)
Governance and control (86.7%)
International experience
HORIZONTAL SKILLS
Top management (100%)
Government, regulatory and public policy (6.7%)
Academia and education (46.7%)
Significant tenure (86.7%)
DIVERSITY
Female (40%)
Country of origin / international education
Age (years old)
BOARD TENURE
0 to 3 years (53.4%)
4 to 11 years (33.3%)
12 years or more (13.3%)
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Annual report 2020
Contents
Committees skills and diversity matrix
SKILLS AND EXPERIENCE
THEMATIC SKILLS
Banking
Other financial services
Accounting, auditing and financial literacy
Retail
Digital and information technology
Risk management
Business strategy
Responsible business and sustainability
Human resources, culture, talent and remuneration
Legal and regulatory
Governance and control
International experience
HORIZONTAL SKILLS
Top management
Government, regulatory and public policy
Academia and education
Significant tenure
DIVERSITY
Female
Country of origin / international education
Age (years old)
BOARD TENURE
0 to 3 years
4 to 11 years
12 years or more
Continental Europe
US/UK
LatAm
Others
Continental Europe
US/UK
Latam
Others
Less than 55
From 55 to 65
More than 65
Executive
committee Audit committee
Nomination
committee
Remuneration
committee
Risk supervision,
regulation and
compliance committee
Innovation and
technology
committee
Responsible banking,
sustainability and culture
committee
100 %
100 %
100 %
100 %
66.7 %
100 %
100 %
83.3 %
100 %
16.7 %
100 %
100 %
100 %
66.7 %
33.3 %
100%
16.7%
50%
100%
33.3 %
83.3 %
100 %
–
–
–
83.3 %
16.7 %
33.3 %
50 %
16.7 %
60 %
60 %
100 %
80 %
60 %
80 %
100 %
60 %
100 %
20 %
80 %
80 %
100 %
60 %
60 %
100 %
20 %
40 %
80 %
60 %
60 %
80 %
–
20 %
–
80 %
20 %
60 %
40 %
–
100 %
33.3 %
100 %
66.7 %
66.7 %
100 %
100 %
100 %
100 %
33.3 %
100 %
100 %
100 %
33.3 %
100 %
100 %
–
100 %
66.7 %
33.3 %
33.3 %
66.7 %
–
–
33.3 %
66.7 %
–
33.3 %
66.7 %
–
80 %
40 %
100 %
80 %
60 %
80 %
100 %
60 %
100 %
20 %
80 %
100 %
100 %
60 %
80 %
100 %
–
60 %
80 %
20 %
60 %
60 %
–
–
20 %
80 %
–
60 %
40 %
–
100 %
60 %
100 %
80 %
40 %
100 %
100 %
80 %
100 %
40 %
100 %
80 %
100 %
80 %
40 %
100 %
20 %
40 %
80 %
20 %
60 %
100 %
20 %
–
–
60 %
40 %
80 %
20 %
–
71.4 %
71.4 %
100 %
71.4 %
85.7 %
85.7 %
100 %
85.7 %
100 %
28.6 %
85.7 %
100 %
100 %
71.4 %
42.9 %
100 %
14.3 %
57.1 %
85.7 %
42.9 %
57.1 %
85.7 %
–
14.3 %
–
100 %
–
28.6 %
57.1 %
14.3 %
80 %
60 %
100 %
80 %
40 %
100 %
100 %
100 %
100 %
20 %
100 %
80 %
100 %
60 %
40 %
100 %
20 %
60 %
100 %
60 %
60 %
80 %
20 %
20 %
20 %
40 %
40 %
40 %
60 %
–
202
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Election, renewal and succession of directors
Election of directors
Our directors are appointed for three-year terms. However,
one-third of board members are renewed each year in order
of their tenure, based on when they were appointed.
Outgoing directors may be re-elected. Each appointment, re-
election and ratification is submitted to a separate vote at the
general meeting.
Procedures for appointing, re-electing, evaluating and
removing directors
Our internal policy for the selection, suitability assessment
and succession of directors dictates standards for the board’s
quantitative and qualitative composition, how it is revised and
how new candidates are identified, selected and appointed.
Shareholders appoint and re-elect directors at the general
meeting. If directors step down during the term of office, the
board of directors may provisionally designate another
director by co-option until the general meeting confirm or
revoke the appointment at the earliest subsequent meeting.
The nomination committee must issue a report and a
reasoned opinion in advance of any proposal the board will
make to shareholders to appoint, re-elect and ratify any
category of director, as well as in advance of any board
resolution about co-option.
Proposals must include a duly substantiated report prepared
by the board containing an assessment of the qualifications,
experience and merits of the proposed candidate. Re-election
and ratification proposals will provide an assessment of the
work and dedication to the position during the last period in
which the proposed director held office. If the board
disregards the nomination committee's opinion, it must
explain its decision and record its reasons in meeting minutes.
Directors must meet specific requirements dictated by laws
for credit institutions and our Bylaws. Upon taking office, they
must formally undertake to fulfil the obligations and duties
prescribed therein and in the Rules and regulations of the
board.
Our directors must be of renowned business and professional
integrity, and have the knowledge and experience needed to
perform their role and exercise good governance. Director
candidates will also be selected on the basis of their
professional contribution to the entire board.
For more details, see section 4.1 'Our directors' and the
'Board skills and diversity matrix' in section 4.2.
The board of directors will endeavour to have significantly
more external or non-executive directors than executive
directors, and for the number of independent directors to
make up at least half of all members.
Our directors shall cease to hold office when the term for
which they were appointed ends (unless they are re-elected);
when the general meeting so resolves; or when they resign.
When a director ceases to hold office prior to the end of his or
her term (i.e. by general meeting resolution or by
resignation), the director shall sufficiently explain the reasons
for the resignation or, in the event of non-executive directors,
their opinion on the reasons for their cessation in office by the
general meeting in a letter to the other board members. In
addition, when appropriate, Banco Santander will publicly
disclose the cessation in office, including sufficient
information on the director's reasons or circumstances
provided by the director.
Directors must tender their resignation to the board and
formally resign from their position if the board, on
recommendation of the nomination committee, deems it
appropriate to do so in cases that may adversely affect to the
board's functioning or to Banco Santander’s creditworthiness
and reputation and, in particular, if they are find themselves
in any of the circumstances of ineligibility or prohibition
provided by law, irrespective of Royal Decree 84/2015, which
implements Act 10/2014 on the organisation, supervision and
solvency of credit institutions, on the honourability
requirements for directors and the consequences of directors
subsequently failing to meet such requirements.
Directors must notify the board, as soon as possible, of any
circumstances affecting them, whether or not related to their
performance in Banco Santander, that might damage its
creditworthiness or reputation, especially when under
criminal investigation, and the progress of any criminal trial.
When the board is informed or becomes aware in another
way of any of the mentioned situations, the board shall
examine the case as soon as possible and, attending to the
particular circumstances, decide, following a report from the
nomination committee, whether or not to adopt any
measures, such as opening an internal investigation, calling
on the director to resign or proposing his or her cessation in
office.
Proprietary non-executive directors must also tender their
resignation when the shareholder they represent sells off or
significantly reduces its equity holding.
Finally, succession planning for the main board members is
key to Banco Santander’s good governance. It ensures that
leadership transitions are orderly and the board remains
stable. The nomination committee and the board prioritize
member succession planning, with sound and appropriate
plans in place that are regularly revisited.
4.3 Board functioning and effectiveness
The board is the highest decision-making body and focuses
on supervision
Banco Santander’s board of directors is our highest decision-
making body, except in matters reserved to shareholders at
the general meeting. It performs its duties with unity of
purpose and independent judgement.
The board’s policy is to designate executive bodies and
managers to run Group’s day-to-day operations and apply its
strategy. It focuses on general supervision and other
203
Annual report 2020
Contents
functions it cannot delegate by law, under the Bylaws and the
Rules and regulations of the board, including:
• General policies and strategies (including capital and
liquidity, new products, operations and services;
corporate governance, culture and values including
policies on responsible business and sustainability (in
particular, on environmental and social matters); risk
control; remuneration policy; and compliance).
• In supervision and taking important decisions in the audit,
nomination, remuneration and risk supervision, regulation
and compliance committees.
• A board secretary, who supports the board, its committees
and our chairman, and is also general secretary of the
group.
Rules and regulations of the board
• Financial reporting, and general information reported to
shareholders, investors and the general public, as well as
the processes and controls that ensure full disclosure.
The board is governed by the rules set out in the Bylaws and
the Rules and regulations of the board, both of which are
available at our corporate website.
• Policies on reporting and communication with
shareholders, markets and public opinion, and
supervision of the disclosure of information and
communications about Group.
• 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 transactions and investments.
• Calling the general shareholders’ meeting.
• Governance-related matters in general, including
related-party transactions.
• Banco Santander and Group’s corporate and internal
governance, including the GSGM, corporate frameworks
and internal regulations.
Structure of the board
The board’s governance structure ensures that it discharges
its duties effectively. This section provides further details
about this structure, which can be split into four dimensions:
• Group executive chairman and chief executive officer, who
are the most senior executives in Group’s strategic and
ordinary management, which the board is responsible for
overseeing, ensuring that their roles are clearly separated
and complementary.
• A lead independent director who is responsible for
coordinating non-executive directors effectively and making
sure they serve as an appropriate counter- balance to
executive directors.
• A board committee structure, which supports the board in:
• Managing Group by exercising decision-making powers in
the executive committee.
• Formulating strategy for core areas in the responsible
banking, sustainability and culture committee, and in the
innovation and technology committee.
204
• Bylaws: dictate the basic rules that apply to the
composition and operation of the board and its members'
duties and are supplemented and implemented by the Rules
and regulations of the board. They can be amended only by
the general meeting. See ' Rules for amending our Bylaws'
in section 3.2.
• Rules and regulations of the board: set the rules for
running and internally organizing the board of directors and
its committees through the development of applicable laws
and Bylaws' provisions. They set out the principles
governing the actions of the board and its committees and
the rules of conduct its members must follow.
The board amended its Rules and regulations on 22
December 2020 to (i) adapt them to the Spanish Corporate
Governance Code revised in June 2020, and to show our
alignment with it; (ii) formally reflect specific Banco
Santander’s long-standing good practices; and (iii) include
specific technical improvements and other minor changes.
The main amendments were:
• Formally including the objective of gender equality in the
board, agreed in 2019, as well as the promotion of age
diversity in the qualitative composition of the board and in
directors' selection procedures.
• Stipulating that the responsible banking, sustainability
and culture committee must be composed of non-
executive directors only.
• Amending the composition of the innovation and
technology committee to allow non-executive directors to
chair it.
• Specifying that the risk management skills to be taken
into account in the appointment of audit committee
members and its chair include both financial and non-
financial risks.
• Regulating the coordination of the supervision of the
whistleblowing channel by the audit committee and the
risk supervision, regulation and compliance committee
and extending its use to other persons linked to Banco
Santander in addition to employees.
• Including collaboration between the responsible banking,
sustainability and culture committee and the audit
committee in the supervision and evaluation of the
process of preparing and presenting non-financial
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
information and attributing expressly the supervision and
evaluation of the environmental and social policies to the
responsible banking, sustainability and culture
committee.
• Expressly contemplating the board of director’s power to
set up advisory boards – composed by members external
to the Group – other than the international advisory
board.
• Amending the obligation for directors to notify the board
of any criminal investigations which they are subject to, as
well as their progress, and expressly contemplating its
assessment by the board based on a report from the
nomination committee and information, if any, in the
annual corporate governance report.
• Adapting the provisions on shareholders and investor
relations in the context of the general meeting to our
internal policy on communication and engagement with
shareholders and investors, updated in February 2020,
and setting out the obligation for the board to analyse the
voting results at the general meeting and any significant
opposition to a specific resolution.
The Rules and regulations of the board adhere to all legal
requirements as well as the principles set out in the Spanish
Corporate Governance Code revised in June 2020; the
Corporate Governance Principles for Banks of the Basel
Committee on Banking Supervision of July 2015; and 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. It also complies with the US
regulations because our shares are listed as ADS on the NYSE,
in particular, with Rule 10A-3 under the Securities Exchange
Act (SEA) introduced by the Sarbanes-Oxley Act of 2002 (SOX)
on requirements for companies’ audit committees.
Our rules on the nomination and the remuneration
committees also adhere to the recommendations and good
operating practices set out in the CNMV’s Technical Guide
1/2019 on Nomination and Remuneration Committees.
Group executive chairman and chief executive officer
Our executive chairman is Ana Botín and our chief executive officer is José Antonio Álvarez.
The roles of our Group executive chairman and chief executive officer are clearly separated, as follows:
Roles of the executive chairman and the chief executive officer
Executive chairman
• The chairman is the highest-ranking officer in Grupo
Chief executive officer
• The chief executive officer is entrusted with the day-to-day
Santander and its main representative with regulators,
authorities and other major stakeholders.
• The chairman´s direct reports are the chief executive officer
and the senior managers in charge of long-term strategy of
Grupo Santander (such as Corporate Development), the
corporate functions (such as Communications and General
secretariat) and control (including Risk and Internal Audit,
without prejudice to their reporting to the audit and risk
supervision, regulation and compliance committees) 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 Santander Group.
The duties of the group executive chairman, the chief
executive officer, the board, and its committees are clearly
separated. Various checks and balances properly balance
Grupo Santander’s corporate governance structure. In
particular:
• The board and its committees supervise both the group
executive chairman and the chief executive officer.
• The board of directors has delegated all its powers to the
executive chairman and the chief executive officer, except
for those that cannot be delegated by law and under the
Bylaws and the Rules and regulations of the board. The
board directly exercises those powers to perform its general
supervisory function.
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 lead independent director leads for the group executive
chairman’s appointment, succession planning and
assessment, and plays a key role in our corporate
governance, as detailed below.
• The audit committee is chaired by an independent director
who is considered a ‘financial expert’ as defined in
Regulation S-K of the Securities and Exchange Commission
(SEC).
• The group executive chairman may not simultaneously act
as Banco Santander’s chief executive officer.
• The corporate risk, compliance and internal audit functions
report as independent units to a committee or a member of
the board of directors, and have direct, unfettered access to
the board.
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Annual report 2020
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Lead independent director
The role of the lead independent director is key to our governance. The lead independent director coordinates non-executive
directors and makes sure they serve as an appropriate counter-balance to the executive directors.
The following chart illustrates the functions of the lead independent director:
Duties of the lead independent director and activities during 2020
Duties
Facilitate discussion and open dialogue among independent
directors, even by coordinating meetings of non-executive
directors; and engage with them to consider their views.
Activities in 2020
Held three meetings with non-executive directors without
executive directors present, where they were able to voice
concerns and opinions. The meetings were also a valuable
opportunity to discuss other matters such as board training
topics, executive director performance and the operation of
board committees.
Direct the regular assessment of the chairman of the board of Leadership in the annual assessment of the chairman in order
directors and coordinate her succession plan.
to determine her variable pay.
Engagement with shareholders and other investors with the
purpose of gathering information on their concerns, in
particular, with regard to Banco Santander´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.
Request that a meeting of the board of directors be called or
that new items be added to the agenda for a meeting of the
board.
See section 3.1'Shareholder engagement'.
Although lead independent director did not replace the chair of
the board in any meetings he was fully committed with its
proper functioning.
Whilst no such meetings where called by the lead independent
director, he remained fully informed on board meeting content.
Structure of board committees
The board currently has seven committees and one international advisory board with the following characteristics:
Mandatory committees
(required by Law, under Bylaws or under the Rules and regulations of the board)
Voluntary committees
(permitted under Bylaws)
Decision-making
powers
Supervision, information advice and recommendations regarding
functions in risk, financial reporting and audit, nomination and
remuneration matters
Audit
committee
Nomination
committee
Support and proposal
in strategic areas
Responsible banking,
sustainability and
culture committee
Risk supervision,
regulation and
compliance committee
Remuneration
committee
Innovation and
technology committee
International advisory
board (members are non-
directors)
Board
committees
Executive
committee
External
advisory
board
206
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Secretary of the board
Jaime Pérez Renovales is the secretary of the board. He
assists the chairman and ensures the formal and substantial
legality of all the board’s actions. He also makes sure good
governance recommendations and procedures are observed
and regularly reviewed.
The board’s secretary is also general secretary of Banco
Santander. He acts as the secretary of all board committees
and thus facilitates a fluid and effective relationship between
the committees and the different units of the Group that must
collaborate with them. It is not necessary to be a director to
be secretary.
The nomination committee must issue an opinion before
submitting proposals to appoint or remove the secretary to
the board.
The lead independent director is also authorised to request a
board meeting or that new items be added to the agenda for a
meeting that has already been called.
Directors must attend meetings in person and make sure to
limit absences to cases of absolute necessity. The nomination
committee checks that no less than 75% of directors attend
board and committee meetings. For further information, see
'Board and committee attendance' in this section 4.3.
If directors are unable to be present at meeting, they can
designate another director as their special proxy for each
meeting in writing to act on their behalf. Proxies are granted
with instructions. Non-executive directors may only be
represented by other non-executive directors. One director
can hold more than one proxy.
The board also has a deputy secretary of the board, Óscar
García Maceiras. He acts as the deputy secretary on all board
committees. He also assists the secretary and substitutes him
in the event of his absence, inability to act or illness.
The board may meet in various rooms at the same time,
provided that interactivity and communication among them in
real time can be secured by audio-visual means or by
telephone to hold the meeting concurrently.
Board meetings
The board of directors held 20 meetings in 2020, including 11
ordinary meetings and nine extraordinary meetings. The
Rules and regulations of the board dictate that it must hold at
least nine annual ordinary meetings and one quarterly
meeting.
Although board meetings follow an annually set calendar and
a provisional agenda of items to discuss, new items can be
added to the agenda and additional meetings can be called in
accordance with new business needs. Directors may also
propose items to be added to the agenda and are duly
informed of changes to the calendar and meeting agendas.
The board also keeps a formal list of matters only it can
address. It prepares a plan to distribute them among the
ordinary meetings scheduled in the provisional calendar it has
approved.
Directors are given relevant documents sufficiently in
advance of each meeting of the board. This information sent
to them via secure electronic means is specifically for
preparing meetings and, in the board’s opinion, it is thorough
and sent sufficiently in advance.
The Rules and regulations of the board of directors also
expressly recognise directors’ right to request and obtain
information on anything related to Banco Santander and its
domestic and foreign subsidiaries. They also recognise their
right to inspect the books, files, documents and any other
records of corporate transactions, in addition to premises and
facilities. Furthermore, directors can request and obtain any
information and advice they deem necessary from the
secretary in order to perform their duties.
The board meets at the chairman’s discretion or at the request
of at least three directors.
Board meetings are validly quorate when more than half of its
members attend in person or by proxy.
Resolutions are adopted by absolute majority of directors in
attendance. The chairman has the casting vote in the event of
a tie. The Bylaws and the Rules and regulations of the board
only require qualified majorities according to the law.
The board secretary keeps the board’s documents on file. He
records the content of meetings in meeting minutes. Meeting
minutes of the board and committees include statements
members expressly request to be put on record.
The board may hire legal, accounting or financial advisers and
other experts at Banco Santander’s expense for assistance
with their duties.
The board should encourage communication between its
committees, especially the risk supervision, regulation and
compliance committee and the audit committee. It should
also promote dialogue between the risk supervision,
regulation and compliance committee and the remuneration
committee and the responsible banking, sustainability and
culture committee, given the relevance of their respective
work with each other.
Some committees hold joint meetings throughout the year.
Although they cannot vote, any director can attend and
participate in meetings of committees on which they do not
serve if invited by the board chairman of the board and the
chairman of the respective committee, after having asked the
chairman of the board. Furthermore, all board members who
are not executive committee members may attend executive
committee meetings at least twice a year, for which they are
to be called by the chairman.
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Annual report 2020
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Committee meetings
Committee meetings follow a calendar, which includes at
least four meetings (except for the innovation and technology
committee, which holds at least three meetings) and an
annual work plan established yearly. Each committee meets
as often as is required to fulfil its duties.
Committee meetings are quorate if more than half of its
members are present in person or by proxy. Committee
resolutions pass with a simple majority of votes. In the event
of a tie, the committee chairman has the casting vote.
Committee members may grant a proxy to another member;
however, non-executive directors can only be represented by
other non-executive directors.
Committee members are given relevant documents
sufficiently in advance of each meeting to ensure
effectiveness.
Committees have the authority to summon executives, who
will appear at meetings at the invitation and under the terms
dictated by the chairman. Furthermore, committees also may
address, a request to the general secretary, for the hiring of
legal, accounting or financial advisers or other experts at
Banco Santander’s expense for assistance with their duties.
The other committees may also do so with the board’s
approval.
The role of committee secretary is non-voting and falls on the
general secretary and secretary of the board. This fosters a
fluid and efficient relationship with the units that must work
with, and report to, committees.
Committee chairmen report on committees’ meetings and
activities at all board meetings. Furthermore, all board
members are given a copy of committees’ meeting minute
and all documents provided for meetings.
During the year, directors that are not members of the
executive committee attended 11 of the total of 46 meetings
held.
Comparison of number of meetings held
A
Board
Executive committee
Audit committee
Nomination
committee
Remuneration
committee
Risk supervision,
regulation and
compliance
committee
Santander
20
Average
US
UK
Spain average average
7.7
7.9
11.0
46
15
13
13
10.1
8.5
6.7
6.7
—
8.2
4.5
5.9
—
5.7
4.1
5.1
13
13.8
NA
5.6
Source: Spencer Stuart Board Index 2020 (Spain, United States and United
Kingdom).
NA: Not available.
The following chart shows the board’s approximate time
allocation to each function in 2020.
Approximate allocation of the board’s time in 2020
208
Internal andexternal auditand review ofthe financialinformation 3%Businessperformance29%Riskmanagement 20%Generalpolicies andgovernance 21%Capital& liquidity 6%Strategy 21%
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Board and committee attendance
The table below shows the attendance rate of board and committee meetings.
Attendance to the board and committee meetings in 2020
Committees
Directors
Average attendance
Individual attendance
Ana Botín
José Antonio Álvarez
Bruce Carnegie-Brown
Homaira Akbari
A
Ignacio Benjumea
Javier Botín
Álvaro Cardoso
B
R. Martin Chávez
Sol Daurella
Henrique de Castro
C
Guillermo de la Dehesa
D
Gina Díez
Rodrigo Echenique
Esther Giménez-SalinasE
Luis IsasiF
Ramiro Mato
G
Sergio Rial
Belén Romana
Pamela Walkden
Board
98%
Executive
94%
Audit
97%
Nomination
100%
Remuneration
100%
Risk
supervision,
regulation and
compliance
97%
Innovation
and
technology
93%
Responsible
banking,
sustainability
and culture
97%
20/20
20/20
20/20
20/20
10/10
20/20
18/20
3/3
20/20
20/20
7/7
1/1
20/20
17/17
10/10
18/20
10/10
20/20
20/20
44/46
46/46
42/46
_
_
_
_
15/15
20/20
_
_
_
_
_
13/13
_
_
_
27/27
43/46
_
39/46
_
_
_
_
_
_
14/15
_
_
_
_
_
14/15
_
15/15
15/15
_
_
_
_
13/13
13/13
_
_
_
_
_
13/13
_
3/3
_
13/13
10/10
_
_
_
_
_
_
6/6
_
_
3/3
13/13
13/13
3/3
_
_
_
8/8
_
_
_
_
_
_
_
_
5/5
_
12/13
3/3
_
_
_
_
_
10/10
9/9
14/14
_
12/13
_
4/4
4/4
4/4
4/4
2/2
_
_
1/1
_
2/4
1/1
_
_
_
_
_
_
4/4
_
4/4
_
_
4/4
2/2
_
3/4
_
4/4
_
_
_
_
4/4
_
4/4
_
4/4
_
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. Left the board and all the committees where he was a member on 30 May 2020.
B. Member of the board and member of the remuneration, risk supervision, regulation and compliance and innovation and technology committee since 27 October
2020. Member of the nomination committee since 22 December 2020.
C. Left the board and all the committees where he was a member on 3 April 2020.
D. Member of the board since 22 December 2020.
E. Left the board and all the committees where she was a member on 27 October 2020.
F. Member of the board and member of the executive committee, remuneration committee and risk supervision, regulation and compliance commitee since 19 May
2020.
G. Member of the board since 30 May 2020.
This table shows the average dedication of our directors to the board and committees:
Average dedication of directors to the board and committees
Meetings per
year
Board
Executive committee
Audit committee
Nomination committee
Remuneration committee
Risk supervision regulation
and compliance committee
20
46
15
13
13
13
Responsible banking sustainability
and culture committee
Innovation and
technology committee
4
4
hours per
A
member
132B
hours per
B
chair
264B
230
150
52
52
130
20
16
460
300
104
104
260
40
32
A. Includes hours of meeting preparation and attendance.
B. Of the 11 ordinary meetings held.
On average, each director dedicated approximately 58 days
per year to their role (including their participation in
committees), and 5 days to each board meeting, working 8
hours daily.
Directors must report any professional activity or post for
which they will be nominated to the nomination committee
so it can assess the time commitment to the group and check
for possible conflicts of interest.
The annual suitability reassessment our nomination
committee conducts every year (see in section 4.6
'Nomination committee activities in 2020') allows us to keep
all information on the estimated time dedicated by directors
to other roles and/or professional activities up to date and
confirm their capacity to exercise good governance as
directors of Banco Santander.
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Annual report 2020
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Overall, Banco Santander is able to verify compliance with the
maximum number of company boards on which the law
allows our directors to serve at once (i.e., up to one executive
and two non-executive roles, or four non-executive roles;
roles in the same group are considered a single role and roles
in not-for-profit or non-commercial organisations are not
included).
Training of directors and induction programmes for new
directors
The board promotes its directors’ continued development
through an annual board training programme with contents
the board chooses based on its performance reviews as well
as economic, geopolitical and regulatory issues.
In 2020, these workshops, which typically follow board
meetings, were run for all directors:
• Application Programming Interface development and use
within Santander.
• Machine Learning and its potential for Santander.
• Cyber risk review covering core disciplines and new
developments.
• Financial crime regulatory requirements and best practice
guidance for senior management including anti money
laundering and sanctions.
• Climate change and Santander’s response.
• Risk Appetite Statement annual review covering material
risks, calibration of limits and cascade across the Group and
future enhancements proposed for 2021 Risk Appetite
Statement development.
In addition, the board has robust induction and development
programmes so new directors can better understand the
Grupo Sanander’s business and governance rules. They
typically run between six to twelve months, from time a
director is formally appointed by the board with regulatory
approval. Key group managers provide detailed information
on their areas of responsibility, addressing special needs
found in director suitability assessments.
In 2020, these directors completed induction programmes
with additional areas of focus:
• Pamela Walkden. who received additional deep-dive
sessions with the audit committee chairs of certain
subsidiaries and other key Grupo Santander positions given
her transition to audit committee chair.
• Luis Isasi, who received additional deep-dive sessions
covering Santander España after being appointed non-
executive chairman.
• R. Martín Chávez and Gina Díez, who commenced their
induction after being formally appointed and are expected
to finish in 2021.
These programmes had been tailored to their experience and
particular induction needs found when their suitability was
being assessed.
210
Board assessment in 2020
The board undergoes a yearly assessment of its performance
and effectiveness, composition, quality of its work and
individual performance of its members. The assessment
includes its committees and is conducted at least every three
years by an external independent consultant, whose
independence is assessed by the nomination committee.
In 2020, the assessment was conducted by an external
independent expert.
External consultant independence
A robust selection process was undertaken to identify an
external independent consultant to conduct the board
assessment with a fresh perspective. A high degree of focus
was placed on consultants with an in-depth understanding of
Spanish and banking markets, and of the effectiveness of the
boards of directors.
On 29 September, the board appointed Egon Zehnder to
conduct the board assessment, following a favourable report
of the nomination committee, which assessed and verified the
consultant's independence.
Egon Zehnder, as a reference leader in its field, advised the
Group in 2020 —occasionally and never exclusively— on
processes related to the identification, selection and review of
skills and potential of managers. The amounts paid to Egon
Zehnder in 2020 for these services were:
Country
United Kingdom
Argentina
Brazil
Chile
B
Spain
Total
Total amount in local
currency
GBP 52,500
ARS 5,602,905
BRL 228,125
CLP 48,871,337
EUR 1,137,781
A
Total amount in EUR
58,029
54,246
35,703
55,751
1,137,781
EUR 1,341,510
A. The amounts in EUR have been calculated based on exchange rates as at 31
December 2020.
B. Excluding the amounts received for the Banco Santander board of directors'
2020 review.
The nomination committee does not consider the referred
amounts material in the context of the overall budget for
such services, nor that they represent a significant proportion
of Egon Zehnder’s total fees.
For more details, see 4.6 ‘Nomination committee activities in
2020’.
Process, methodology and scope of the assessment
The lead independent director and the executive chairman
organized and coordinated the assessment alongside the
nomination committee.
The assessment methodology agreed with Egon Zehnder and
endorsed by the nomination committee comprised:
• An anonymous questionnaire completed by all board
members.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
• Structured, detailed and confidential interviews with
individual board members and select members of the
executive team, covering their qualitative and quantitative
assessment of key areas.
• Board and committee meeting observations to assess the
quality of debate, dynamics and culture.
The process focused on board and committee structure,
composition, processes and behaviours, including:
• The quality and efficiency of their functioning.
• Their size, composition and diversity.
• The performance of each director, general secretary and
committee chairmen.
• The frequency and duration of meetings; content of the
agenda and time dedicated to each item; quality of the
information received; and decision making.
The objective of the exercise was to identify areas of
continuous improvement therefore optimizing board impact
in the future.
Findings and action plan
On 15 February 2021, Egon Zehnder shared the findings with
the board, which included, among others, that:
• The board is appropriately composed, engages in healthy
debate and makes decisions effectively.
• The committee structure, composition and operation is fit
for purpose taking into account Banco Santander’s scale and
complexity.
• The executive chairman, CEO, lead independent director and
general secretary performed positively and effectively.
• The board´s governance and logistics are well covered.
• A review of meeting frequency and agenda contents can
help boost efficiency, striking a further balance between
productivity and fulfilling regulatory expectations.
The board discussed the assessment and associated findings
at its meeting held on 15 February 2021, and concluded that
it was satisfied with its and its committees' performance and
effectiveness.
Taking into account the Egon Zehnder findings, the board will
develop and execute an action plan to address the identified
areas of improvement, applicable to both the board and its
committees. The action plan will specifically focus on
improving efficiency of operation at both a board and
committee level, at all times meeting regulatory and good
governance expectations. In addition, committees will each
be engaged on specific actions relevant to their ongoing
effective and efficient operation.
The agreed action plan will be executed during 2021 under
the supervision of the nomination committee, with regular
progress reports to the board.
4.4 Executive committee activities in 2020
Composition
Position
Chairman Ana Botín
Category
Executive
Appointed on
11/12/1989
José Antonio Álvarez
Executive
3/01/2015
Bruce Carnegie-Brown Independent
12/02/2015
Members Luis Isasi
Other external 20/05/2020
Ramiro Mato
Independent
28/11/2017
Belén Romana
Independent
01/07/2018
Secretary
Jaime Pérez Renovales
A. Committee chair 10 September 2014.
In 2020, Ignacio Benjumea and Guillermo de la Dehesa
stepped down from the committee, with Luis Isasi appointed
on 20 May.
Functions
The executive committee is a key governance body of the
Group and is delegated to exercise all the board’s powers
except those that cannot be delegated by law or under the
Bylaws and the board’s rules and regulations. The executive
committee meets every week to ensure that key decisions can
be made timely and efficiently, allowing the board to focus on
general supervision. The executive committee regularly
reports to the board on its core matters, providing all
directors with the minutes from its meetings and related
documents.
Committee performance
The board of directors, supported by its nomination
committee, sets the executive committee’s size and
qualitative composition based on efficiency standards and
guidelines for board composition. However, because the
committee’s size must allow it to perform its functions
expeditiously with all executive directors present, the
executive committee does not have the same qualitative
composition as the board of directors. It has a majority of
external directors, including three independent directors. This
composition ensures a balance of opinions, as well as internal
and external perspectives. It also complies with
Recommendation 37 of the Spanish Corporate Governance
Code, which stipulates that there must be at least two non-
executive directors, one of whom should be independent. The
secretary of the board is also the secretary of the executive
committee.
The executive committee can meet as many times as its
chairman (or, in her absence, vice-chairman) convenes it.
However, it generally meets once a week.
‘Committee meetings' in section 4.3 further describes the
general rules that apply to these sessions.
Main activities in 2020
The executive committee handled several matters relating to
the business of Santander, its main subsidiaries, risks and
corporate transactions, in addition to the core issues it
subsequently elevates to the full board of directors:
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Annual report 2020
Contents
• Earnings: the committee was kept up to date on group
earnings and investors and analysts’ reactions to them.
• Business performance: the committee received reports on
management and specific subjects related to the
performance of Santander’s business areas.
• Information from the chairman: the board’s chairman
presides over the executive committee and regularly
reported on group management, strategy and institutional
issues.
• Information reported by the chief executive officer: the
Group chief executive officer reported key aspects relating
to Group performance, budget and strategic business plans.
• Corporate transactions: the committee analysed and,
where applicable, approved some corporate transactions
(investments and divestments, joint ventures, capital
transactions, etc.).
• Covid-19: the committee was kept up to date on pandemic-
related developments, actively participating in decision-
making aimed at mitigating its impact on the Group, as well
as on the global economy and health of employees,
customers and the general public.
• Risks: the committee was regularly informed about the
Group’s risks. Under the risk governance model, it took
decisions about transactions that it had to approve owing to
their amount or significance. Due to covid-19, risk
presentations specifically focused on providing updated
information on health indicators, as well as on the
estimation and close monitoring of the impacts of the
pandemic on liquidity, provisions, risks, etc.
• Subsidiaries: the committee received reports on the
performance of the various units and business lines, with a
specific focus on the impact of the pandemic on their credit
portfolios. As per internal procedures, it authorised
transactions and appointments of directors and key
managers at subsidiaries.
• Capital and liquidity: from time to time, the committee
received reports on capital ratios and the measures taken to
optimize them. It also revised regulatory plans.
• Supervisors and regulators: the committee was frequently
informed of regulatory developments, as well as projects to
follow recommendations and new regulations.
• Governance models: the committee discussed and, where
relevant, approved new governance model proposals for
initiatives such as PagoNxt, as well as more established
units such as Santander Corporate and Investment Banking
(SCIB) and Wealth Management and Insurance (WM&I).
• Issues under board delegation: under the delegation
conferred by the April 2020 AGM, and the subsequent sub-
delegation of the board of directors' powers in its favour,
the committee resolved to issue certain securities non-
convertible in shares.
The executive committee held 46 meetings in 2020. 'Board
and committee attendance' in section 4.3 provides
information on executive committee members’ attendance at
meetings as well as the estimated average time each
committee member spent on preparing for, and participating
in, meetings.
212
4.5 Audit committee activities in 2020
'In a volatile and uncertain environment, it has been
key for us, as a board audit committee, to continue
doing the basics extremely well and to maintain our
vigilance on new priorities. The covid-19 crisis has
had a high impact on our 2020 agenda, but we have
also remained focused on our fundamental
responsibilities, including the oversight of the
integrity of financial reporting and controls, the
effectiveness of our internal audit function and the
relationship with the external auditors.
The committee has maintained the focus on
transparency, particularly around the difficult
decisions we had to make during the year. We have
also reflected and acknowledged how critical it is, in
the current circumstances, to enhance cross-country
collaboration and work in partnership with the
executives and the external auditor.
Finally, I would like to thank Belén Romana for her
service over the last four years as chair of the
committee (of which she remains a member) until I
took over in April'.
Pamela Walkden
Chairman of the audit committee
This section is the report the audit committee prepared on its
activities on19 February 2021. The board of directors
approved it on 22 February 2021.
Composition
Position
Chairman Pamela Walkden
Members
Homaira Akbari
Henrique de Castro
Ramiro Mato
Belén Romana
Secretary
Jaime Pérez Renovales
A. Committee chair since 26 April 2020.
Category
Appointed on
Independent 29/10/2019A
Independent 26/06/2017
21/10/2019
Independent
Independent
Independent 22/12/2015
28/11/2017
The board of directors appointed the committee’s members
based on how their expertise, skills and experience fit within
its purview.
For more details, see section 4.1 'Our directors' and 'Board
skills and diversity matrix' and 'Committees skills and
diversity matrix' in section 4.2.
Pamela Walkden was appointed chairman of the committee
with effects from 26 April 2020 replacing Belén Romana, who
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
The committee assessed the auditor's independence based on
their personal situation and the financial relationship that the
auditor or persons performing the audit have with the Group,
analysing possible threats and establishing the appropriate
safeguarding measures.
The committee also used the information found under the
'Duties and activities in 2020' section on the auditor’s
remuneration for audit and other services as well as
considering written confirmation from the external auditor
regarding its independence from Banco Santander in
accordance with European and Spanish law, SEC rules and the
rules of the Public Company Accounting Oversight Board
(PCAOB).
Proposed re-election of the external auditor for 2021
As indicated in section 3.6 'Our coming 2021 AGM', the board
of directors proposed re-electing PwC as external auditor for
2021 at the 2021 AGM on the recommendation of the audit
committee.
Time allocation
In 2020, the audit committee held 15 meetings. 'Board and
committee attendance' in section 4.3 provides information on
committee members’ attendance and the estimated average
time they spent on preparing for, and participating in,
meetings.
The chart below shows the committee’s approximate time
allocation to each function in 2020.
stepped down at the end of the maximum period permitted
under Spanish law.
According to SEC Regulation S-K, new committee’s chairman,
Pamela Walkden, is considered a financial expert based on
her training and experience in accounting, auditing and risk
management, as well as the various leadership positions she
held at entities where knowledge of accounting and risk
management was essential, not to mention her international
experience - focussed on the UK and Asia.
External auditor
Our external auditor is PricewaterhouseCoopers Auditores,
S.L. (PwC). Its registered office is at paseo de la Castellana,
no. 259 B, Madrid, and its Tax ID Code is B-79031290. It is
registered with the Registro Oficial de Auditores de Cuentas
(Official Registry of Account Auditors) of the Instituto de
Contabilidad y Auditoría de Cuentas (Accounting and Audit
Institute or ICAC) of the Spanish Ministry of the Economy
under number S0242.
The lead partner is Alejandro Esnal, who has more than 25
years’experience in audits in the Spanish banking sector. He
has also led a large number of projects in Spain, London and
New York, both in connection with auditing and with internal
control activities at financial institutions. Mr Alejandro Esnal
participates actively in the committees and working groups of
the audit sector and collaborates with regulators in matters
relating to the improvement of the practices and regulations
of financial institutions.
Since the previous incumbent has reached the end of the
maximum legal term of five years, Julián González will be the
lead audit partner in 2021. Mr González has experience as a
global group audit partner (mainly in Spain and the UK) and a
strong track record in the Spanish financial sector. He also
participates in various international banking supervisory and
regulatory forums.
Report on the independence of the external auditor
The audit committee confirmed the independence of the
external auditor on 19 February 2021, before the 2020
auditor’s report on the financial statements was issued, in
accordance with section 4.f) of article 529 quaterdecies of the
Spanish Companies Act, and article 17.4.c) (iii) of the Rules
and regulations of the board. It found no objective reasons to
doubt the independence of the external auditor.
213
Internal Audit52%FinancialStatements &ExternalAuditor28%Internal ControlSystems 13%Others7%
Annual report 2020
Contents
Duties and activities in 2020
This section summarises the audit committee’s activities in 2020.
Duties
Actions taken
Financial statements and other financial and non-financial information
Review the financial
statements and other
financial and non-financial
information
Report to the board about
applied tax policies
• Reviewed the individual and consolidated financial statements and directors´ reports for 2020 and endorsed
their content, prior to their authorization for issue by the board. 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 over financial
reporting (ICFR).
• Endorsed the quarterly financial statements dated 31 December 2019, 31 March, 30 June and 30 September
2020, respectively, before they were approved by the board and released to the markets and supervisors.
• Analysed and endorsed other financial information such as the annual corporate governance report; shares
registration document filed with the CNMV; Form 20-F filed with the SEC with 2019 financial information; the
half-yearly financial information filed with the CNMV and in Form 6-K with the SEC; and Santander’s specific
interim consolidated financial statements for Brazil.
• Reviewed the balance sheet on the basis of the proposal of a capital increase to distribute of new shares
equivalent to EUR 0.10 per share, as a complementary payment for 2019.
• Analysed the goodwill attributed to Santander UK plc, Santander Bank Polska, S.A. and Santander Bank, N.A.
and determined the need for an asset impairment in accordance with the applicable accounting rules. The
committee acknowledged the effects of the pandemic, the uncertainty in the macroeconomic situation,
expected returns and market premiums, amongst others.
• Analysed the proposed EUR 1.6 billion overlay provisions based on the expected deterioration of the
macroeconomic conditions due to the covid-19 health crisis.
• Oversaw and assessed the preparation and reporting of non-financial information in accordance with
applicable regulations and international benchmarks. In particular, reviewed the annual 'Green Bond Report'
about the use of proceeds of each Green Bond issuance that was approved by the board.
• Received information from the group’s tax advisory unit about applied tax policies in compliance with the Code
of Good Tax Practices and submitted it to the board of directors, expressly stating that, as part of the
cooperative relationship encouraged by this code, the Agencia Estatal de Administración Tributaria (AEAT) Tax
transparency report for the financial year 2019 was submitted.
Relationship with the external auditor
Receive information on the
audit plan
• Obtained confirmation from the external auditor that it had full access to all information to conduct the audit.
• Discussed improvements in financial reporting based on new accounting standards and best international
practices.
• Analysed detailed information on the planning, progress and execution of the audit plan.
• Analysed the auditor’s reports about the annual financial statements before the external auditor submitted
them to the board of directors.
Relations with the external
auditor
• The external auditor attended all committee meetings in 2020, allowing the audit committee to act as a
communication channel between the external auditor and the board.
• The committee met twice in private session with the external auditor without Grupo Santander executives
present.
Assessment of the
auditor’s performance
• Evaluated the external auditor and its contribution to the integrity of financial reporting on account of its work
and opinions from units and the chairpersons of audit committees of different group's companies. During this
assessment, the auditor informed the committee of the findings of regulators’ inspections of PwC and the
committee analysed those, as well as the information about any investigations involving PwC.
214
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Duties
Independence
PwC’s remuneration for
audit and non- audit
services
Actions taken
• Monitored PwC’s remuneration, including the following fees for audit and non-audit services provided to the
group
EUR million
2020
2019
2018
0.9
6.8
6.0
0.8
0.7
1.2
7.8
93.9
95.8
102.4
Audit
Audit-related services
Tax advisory services
Other services
Total
105.0
The 'Audit' heading mainly includes audit fees for the individual and consolidated financial statements of Banco
Santander, S.A., and of some group companies; the integrated audits prepared in order to file Form 20-F for the
annual report with the US SEC in relation to any entities currently required to do so; the internal control audit
(SOX) for required group entities; the audit of the consolidated financial statements as of 30 June; and the
regulatory auditor’s reports for Grupo Santander’s geographies.
Tax advisory services provided by PwC (mainly on tax and compliance) totalled EUR 40,000 for Spain and EUR
780,000 for other group subsidiaries.
The main fees under 'Audit-related services' include, amongst others, comfort letters, verifying financial and
non-financial information (as required by regulators), and reviews of the documents to be submitted to domestic
or foreign securities market authorities.
The fees paid for non-audit services and their proportion to all fees invoiced to Banco Santander and/or its group
are as follows:
103.8
113.2
2.3
3.4
Non-audit services. Assess
threats to the
independence and
protective measures
Group
companies
Total
Company
487
Amount of non-audit work (thousands of EUR)
Amount of non-audit work as a % amount of audit work
In 2020, Santander arranged for services provided by audit firms other than PwC. EUR 172.4 million (EUR 227.6
and 173.9 million in 2019 and 2018, respectively).
• Reviewed services rendered by PwC and confirmed its independence. For those purposes:
1,513
1.4 %
0.5%
2,000
1.9 %
• Confirmed that all services rendered by Grupo Santander’s auditor (audit and audit-related services, tax
advisory and other services detailed in the section above) met regulatory independence requirements.
• Confirmed 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, which for 2020 stood at 1.9%.
• Average non-audit and audit-related fees paid to auditors in 2020 amount to 11% of total audit fees
according to available information on the leading listed companies in Spain.
• Confirmed the ratio of fees paid for all items relating to the services provided to the group to total fees
charged by PwC in 2020. This ratio is less than 0.3% of PwC’s total revenue worldwide.
• Reviewed financial relations with companies related to PwC and persons who participate in audit works,
concluding that financial relations could compromise PwC’s independence.
• Since the publication of the (EU) Regulation 537/2014 of the European Parliament and of the Council of 16
April 2014 on specific requirements regarding statutory audit of public-interest entities, Banco Santander
meets the requirement that for a period of three or more consecutive years, total fees received for non-audit
services do not exceed 70% of the average fees paid in the last three consecutive years for the audit of Group
entities.
External auditor
independence report
Re-election of the external auditor
• After considering the information detailed above, the committee issued the 'Report on the independence of the
external auditor', which is described at the beginning of this section 4.5.
Re-election of the external
auditor
• Submitted proposal to the board (for subsequent submission to the 2021 AGM to re-elect of PwC as the
external auditor of Banco Santander and its consolidated group in 2021.
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Duties
Internal audit function
Assess the performance of
internal audit function
Internal control systems
Monitor internal control
systems
Actions taken
• Regularly supervised the impact of covid-19 on core activities on a regular basis, closely monitoring the
changes to the original 2020 internal audit plan.
• Received reports on progress with the internal audit plan, allowing the committee to exert strict controls over
internal audit recommendations and ratings of units and corporate divisions. The chief audit executives (CAE)
of core units and corporate divisions reported to the committee at least once in 2020.
• The CAE and representatives of the Internal Audit division attended all the audit committee meetings in 2020;
one meeting was with the CAE without other executives or the external auditor present.
• Proposed the 2020 internal audit budget, making sure the function had the necessary material and human
resources. In particular, the committee was kept informed of the creation of audit hubs and their associated
schedule, as well as on digital initiatives related to the Internal Audit division.
• Reviewed the annual audit plan for 2020-2023 based on a comprehensive risk assessment and submitted it to
the board for approval.
• Received regular information about internal audit activities in 2020. The overall distribution of audit ratings
improved owing in part to continued efforts to build a stronger control environment. All issued audit reports
were subject to additional scrutiny by the committee and certain business areas were required to present their
action plans to it.
• Reviewed the application of the measures in the 2020-2023 strategic internal audit plan.
• Assessed the internal audit function’s success in fulfilling its purpose and the CAE’s performance in 2020, and
reported its findings to the remuneration committee to set his variable pay.
• Received information on the evaluation of the group’s 2019 Internal Control Model (ICM) and analysed its
effectiveness according to regulations from the CNMV (ICFR) and the SEC (SOX). To fulfil its main objective of
reducing risks associated with risk control, it put specific remediation plans in place and regularly updated the
committee.
• Reviewed the effectiveness of Grupo Santander's internal controls over the preparation of the financial
statements filed in the US with Form 20-F for 2019 pursuant to the SOX. In its opinion, Grupo Santander's
internal controls over said financial information were effective in all significant aspects.
Whistleblowing channel
• Received information from the Compliance and Conduct division about the whistleblowing channel (Canal
Abierto), particularly regarding questionable financial and accounting practices, financial reporting, auditing
and internal controls. It confirmed that no claim regarding these issues had been filed through this channel.
• The committee was informed about the changes made to the whistleblowing channel that enable
communications from employees and from other people not related to Banco Santander, such as
shareholders, customers, suppliers and other third parties guaranteeing their confidentiality and allowing
anonymous communications. See section 8.1.
Coordination with Risk
• Took action to make sure the internal audit plan is properly coordinated with the oversight of significant group
Other activities
risks and attended joint meetings with board’s risk supervision, regulation and compliance committee to
report on model risk, group's risk management, complaints submitted to Canal Abierto, vendor risk
management, legal risk, internal auditing in the Risk and Compliance division, and other matters.
• Took part in the appointment of new CAE for the subsidiaries in accordance with the group's internal
regulations upholding the correct supervision and control of such appointments in conjunction with the
nomination committee was ensured.
Related-party and corporate transactions
Creation of special-
purpose vehicles or
entities based in countries
considered tax havens
Approval of related party
transactions
• The head of Tax informed the committee about the group’s offshore entities in accordance with Spanish
regulations. See note 3.c in the 'Notes to the consolidated annual accounts'.
• Confirmed if related-party transactions required or not the approval from the governing bodies according to
the law and the board’s rules and regulations.
• No board member direct or indirectly carried out any transactions with Banco Santander that were deemed
significant or under unusual market conditions. The committee examined the related-party transactions
disclosed in the financial statements. See section 4.12 'Related-party transactions and conflicts of interest'.
Transactions involving
structural or corporate
changes
• Reviewed the transactions involving structural or corporate modifications planned by the group during 2020
prior to the submission to the board of directors, analysing their economic conditions and the accounting and
internal audit impact.
Information for general meetings and corporate documentation
Reporting to shareholders
• At our April 2020 AGM, Belén Romana, as committee chairman, reported to shareholders on the matters and
activities within the committee’s scope.
Corporate documents for
2020
• Drafted this committee report for 2020, 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
2021 identified following the assessment carried out by the board and its committees.
216
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governance
Economic
and financial review
Risk management
and compliance
Annual assessment of the committee and its achievement
of 2020 objectives
The committee's effectiveness review for 2020 was part of an
external independent consultant's review of the board. It
covered the committee's structure, composition, processes
and behaviours, concluding that it is fit for purpose and
effective. For more details about the findings resulting from
the assessment see ‘Board assessment in 2020’ in section 4.3.
The committee addressed all the priorities that were
identified for 2020. Among the salient actions, it:
• Appointed a new committee chair in line with robust
succession planning, ensuring a smooth transition and
continued focus on committee effectiveness.
• Strengthened the coordination and sharing of information
with the main units and divisions through committee chair
participation in country audit committee meetings,
reciprocated by country reporting and attendance of country
audit committee chairs at the group audit committee, as
well as holding two audit committee conventions to
facilitate coordination, raise awareness of global initiatives
and expectations, and to discuss relevant topics.
• Remained focused on, and debated, critical areas such as
internal control, risk assessment, digital transformation and
relationships with suppliers.
2021 priorities
The committee identified these priorities for 2021:
• Continue to evolve the communication between Group audit
committees to ensure there is effective sharing of
knowledge and concerns.
• Monitor the execution of the internal audit plan, taking into
consideration planned adjustments as well as tracking risks
caused by covid-19 and reviewing management’s of those
risks.
• Continue to promote the involvement of the first line of
defence and review internal audit recommendations.
• Support the further improvement of the internal risk
assessment and controls, with particularly focus on the
Group's key strategic projects.
• Ensure proper coordination with other board committees,
especially the risk supervision, regulation and compliance
committee.
4.6 Nomination committee
activities in 2020
'The committee has continued its work on
overseeing the process on key appointments to the
board and senior management roles, supported by
its work on robust succession planning. Focus has
remained on the collective skills and experience of
the board and ensuring that gender and broader
diversity remain front of mind in our succession
planning. In addition, we have continued our work
on improving our overall effectiveness through
commissioning an external evaluation of the board
and its committees.
Corporate and internal governance of the subsidiary
governance has been a key feature in the year,
driving continuous improvement across the Group
and ensuring adequate oversight and control of
subsidiary operations. The committee has tracked
governance developments (trends, regulation, and
best practices) and the implications for the Group,
and kept these under continuous review.
There have been four changes to the membership of
the committee during the year: Guillermo de la
Dehesa, Esther Giménez-Salinas and Rodrigo
Echenique left the committee upon their resignation
from the board and R. Martín Chávez became a
member in December 2020. I would like to take this
opportunity to thank Guillermo, Esther and Rodrigo,
on behalf of the committee, for their hard work and
commitment to our discussions and to welcome
Marty who brings relevant skills and experience to
the committee, including technology and digital
expertise'.
Bruce Carnegie-Brown
Chairman of the nomination committee
This section is the report the nomination committee prepared
on its activities on 19 February 2021. The board of directors
approved it on 22 February 2021.
• Ensure the effectiveness of the committee, taking into
account any areas of continuous improvement and allowing
sufficient time for quality debate on key topics and internal
audit issues.
Composition
Position
Category
Chairman Bruce Carnegie-Brown Independent
Appointed on
12/02/2015A
2/12/2020
R. Martín Chávez
Independent
Members
Sol Daurella
Independent
23/02/2015
Secretary Jaime Pérez Renovales
A. Committee chair since 12 February 2015.
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Annual report 2020
Contents
The chart below shows the committee’s approximate time
allocation to each function.
The board of directors appointed the committee’s members
based on how their expertise, skills and experience fit within
its purview.
Further information can be found in section 4.1 'Our directors'
and 'Board skills and diversity matrix' and 'Committees skills
and diversity matrix' in section 4.2.
In 2020, Guillermo de la Dehesa, Esther Giménez-Salinas and
Rodrigo Echenique stepped down from the committee, with R.
Martín Chávez appointed in 22 December.
Time allocation
In 2020, the nomination committee held 13 meetings. 'Board
and committee attendance' in section 4.3 provides
information on committee members’ attendance and the
estimated average time they spent on preparing for, and
participating in, meetings.
Duties and activities in 2020
This section summarizes the nomination committee’s activities in 2020.
Duties
Composition of the board and its committees
Actions taken
Selection, suitability
assessment and succession
policy and renewal of the
board and its committees
• Reviewed the selection, suitability and succession practices with an external consultant and implemented
findings through the updated selection, suitability assessment and succession of directors policy. The review
concluded that these activities were conducted in line with industry best practices.
• Ensured that board member selection guaranteed the individual and collective suitability of directors, fostered
diversity of gender, experience and expertise, and assessed the skills, time and dedication needed for the role.
• Continued to oversee the appointment of board and committee members and top executives, and planning
their succession.
• Assessed board committee composition to balance members’ skills and experience appropriately.
• Checked board members’ general skills and competence to cover Santander’s strategic markets in addition to
their experience and expertise in technology, digital strategy, banking, finance, regulations and other areas.
• Oversaw appointments to key roles and regularly reviewed succession plans from a strategy perspective.
• Made sure that nominations, interviews and appointments of directors consider diversity.
• Checked that the overall composition and skills of the board and its committees were appropriate, and
identified necessary areas of expertise and experience based on the skills matrix in order to select members.
• Assessed candidates, as well as their credentials, and evaluated their skills and suitability for the position, in
accordance with the procedure outlined in the selection, suitability assessment and succession of directors
policy.
• Recommended to the board, for subsequent submission to the general meeting the appointment of Luis Isasi,
Sergio Rial, R. Martín Chávez and Gina Díez as new board members (these appointments would make the
board more diverse in terms of skills and background) and the re-election as directors of the directors whose
term of office expired.
• Recommended to the board changing the composition of committees to further enhance their performance
and support to the board in their respective areas, in accordance with best international practices and the
board’s rules and regulations.
• Acknowledged the resignation of Guillermo de la Dehesa, Esther Giménez-Salinas and Rodrigo Echenique
before the end of their tenure, and the reasons given in a letter to the board, namely personal issues related to
the length of time they had been directors and to board renewal.
• Submitted a proposal to the board, upon completion of one year of their term of office and in accordance with
the Bylaws, the re-election of the members of the international advisory board. See section 4.11 'International
advisory board'.
• Received and analyzed information on succession planning for executive directors, senior management and
key positions throughout the Group. Ensured plans are in place for the orderly succession of senior managers
and that there is a structured, rigorous and transparent procedure based on merit and objective criteria,
promoting diversity in its broadest sense.
• Reviewed an external expert’s report on this topic, which concluded that Santander’s overall succession
arrangements and framework for the executive directors, senior management and key positions throughout
the Group meet regulatory requirements and align with best industry practices.
• Analyzed proposals to update the selection, suitability assessment and succession policy for directors
approved by the board on 27 February 2020 and 22 December 2020.
Appointment, re-election,
confirmation and removal
of directors and committee
members
Succession planning
Succession planning for
executive directors and
senior managers
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Appointments andsuitabilityassessments24%Board and boardcommitteescomposition,successionplanning andeffectiveness33%Governance18%Seniormanagement,successionplanning andrelated activities25%
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Duties
Director status verification
Annual director status
confirmation
Regular assessment
Annual suitability
assessment of directors
and key roles
Actions taken
• Confirmed each director’s status (as executive, independent and other external) and submitted its
recommendation to the board of directors in order to confirm or revise it in the annual corporate governance
report and at the annual general meeting. See section 4.2 'Board composition'.
• Evaluated directors’ independence and confirmed that the Group had no significant business relations with
companies where they are or were significant shareholders or directors, particularly in terms of financing
extended to them by the Group. Ultimately, the committee found no significant relations because (i) financing
transactions (a) did not make these companies financially dependent since they could substitute it with
funding from other banks and entities, and (b) are aligned with Grupo Santander’s share of the relevant
market, and (ii) relations did not reach comparable price-sensitive thresholds used in other jurisdictions as a
reference (e.g. NYSE, Nasdaq and the Canadian Bank Act).
• Assessed the suitability of board members and senior managers, as well as holders of internal control
functions and key roles in the Group, and confirmed their business and professional integrity, suitable skills
and experience to perform their duties, and ability to make decisions independently for the Group’s benefit.
• Furthermore, the committee found that directors are suitable to exercise good governance at Banco
Santander. It noted that, on average, directors attend approximately 98.65% of the meetings of the board and
committees on which they serve, and that the committee has not been compelled to take any action regarding
attendance because no director’s attendance is below the 75% minimum.
• In 2020, the committee was not informed by any director of Banco Santander, and had no awareness to the
best of its knowledge, of any circumstance or situation that could harm the Group creditworthiness and
reputation, whether or not related to their performance in Santander, or criminal cases in which they are
investigated, that should be assessed by the committee for its report to the board.
Conflicts of interest and
other directors'
professional activities
• Examined the information provided by the directors regarding other professional activities or positions to
which they had been proposed and the time to be dedicated to them, concluding that such obligations did not
interfere with the dedication required as directors and that there was no conflict of interest that could affect
the performance of their duties.
Board self-assessment
• In coordination with the executive chairman and the lead independent director, the committee tracked the
Senior Management
Appointment of key
positions
Talent and director training
execution of the action plan defined in the 2019 self-assessment, which was performed internally.
• Led by the executive chairman and the lead independent director, the committee monitored the 2020 board
evaluation review, conducted by an independent external consultant, whose independence was verified by the
committee upon analyzing its business relations with the Group and, in particular, the services rendered and
the amounts received. The scope of the assessment included the board and all its committees, as well as its
members and the general secretary. See 'Assessment of the board' in section 4.3.
• Updated the board skills and diversity matrix and submitted it to the board for approval. See section 'Board
skills and diversity matrix' in section 4.2.
• Issued favourable opinions on the following appointees, approved by the board:
• António Simões as new regional head of Europe.
• Alexandra Brandão as the new global head of Human Resources, replacing Jaime Pérez Renovales, who
continues as general and board secretary, and Roberto di Bernardini, who was appointed chief talent officer.
• Also issued favourable opinions on director and senior manager appointments within the core subsidiaries of
Grupo Santander.
• Received information about the global knowledge and talent strategy, aimed at transforming our workforce to
ensure it is ready for digital transformation, and conducted activities on the Group’s cultural transformation.
• Reviewed the director induction, information, training, development and knowledge refreshment
programmes in line with the Rules and regulations of the board, EBA Guidelines, Spanish Corporate
Governance Code and supervisory body requests, making sure that these programmes take into account each
director's circumstances and needs.
Corporate governance and Internal governance
Corporate governance
• Supervised the internal governance system, evaluated the corporate governance system to ensure that it
fulfils its mission of promoting the corporate interest and takes into account the legitimate interests of the
other stakeholders, and verified the information on corporate governance that was made public.
• Analyzed new governance regulations, emerging trends and best governance practices and analyzed their
implications for the Group, and reported on the adaptation of the Rules and regulations of the board and other
internal regulations to the Spanish Corporate Governance Code revised in June by the CNMV.
• Supervised the strategy on communication and engagement with shareholders and investors and other
stakeholders, receiving information on the meetings held between them and the lead director and
Shareholders and Investors Relations team, as well as on their opinion of Banco Santander and its group’s
corporate governance.
• Received an overview of the highlights and outcomes of the 2020 AGMs, focusing on their format as virtual
(April 2020 AGM) and hybrid (in-person and virtual, October 2020 AGM) meetings due to covid-19 measures
and restrictions, ensuring shareholders' rights at all stages: delegation, voting, attendance, information,
participate and proposed resolutions.
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Annual report 2020
Contents
Duties
Internal governance
oversight
Actions taken
• Assessed the suitability for certain appointments and re-elections at subsidiaries subject to Grupo Santander’s
appointments and suitability procedure, and checked that the composition of subsidiaries’ boards of directors
was appropriate.
• Checked subsidiaries’ application of the GSGM in regard to the structuring of their boards and board
committees, as well as the alignment of their functions with best practices.
• Issued favourable opinions on the appointment of subsidiary board members that properly represent Banco
Santander with a full understanding of their functions and duties.
Information for the general meeting and corporate documentation
Reporting to shareholders
• At our April 2020 AGM, Bruce Carnegie-Brown, as committee chairman, reported to shareholders on the
matters and activities within the committee’s scope.
Corporate documents for
2020
• Drafted this report on the committee’s activities in 2020, which includes an analysis of its performance and
the priorities identified for 2021 following the effectiveness assessment of the board and its committees.
• Revised the annual corporate governance report.
2021 priorities
The committee identified the following priorities for 2021:
• Continued review of succession plans, having regard to the
current and future strategy of the Group and potential
challenges the business may face when identifying future
leadership needs and the development of internal
succession.
• Continue to ensure that gender and broader diversity
remains a key priority in our succession planning and
appointments, acknowledging that building a more diverse
and inclusive workforce is a critical component to
developing a sustainable and successful business.
• Continue to monitor board members’ skills and experience,
in particular training needs and ongoing training and
development for the whole board.
• Ensure that the review findings, suggested actions and the
lessons learned from the external board effectiveness
review are embedded and closely monitor progress against
the action plan.
• Keep the corporate governance framework under constant
review and monitor compliance, ensuring that the interests
of all stakeholders are considered. For this purpose, the
committee will closely monitor the engagement with
shareholders and, together with the lead independent
director, will receive and embed their feedback and insights.
Annual assessment of the committee and its achievement
of 2020 objectives
The committee's effectiveness review for 2020 was part of an
external independent consultant's review of the board. It
covered the committee's structure, composition, processes
and behaviours, concluding that it is fit for purpose and
effective. For more details about the findings resulting from
the assessment see ‘Board assessment in 2020’ in section 4.3.
The committee addressed all the priorities that were
identified for 2020. Among the salient actions, it:
• Remained focused on driving continuous corporate
governance improvement across the Group, facilitated
through the appointment of Luis Isasi, Sergio Rial, Gina Díez
and R. Martín Chávez to the board, bolstering its skills and
experience. Those appointments also enabled the
refreshment of certain committees and increased the
number of female board members to 40%.
• Received regular updates on how the units within the group
are meeting governance expectations, as well as overseeing
key governance matters applicable to the entire Group. This
included the review of subsidiary board composition and the
adaptation to regulatory developments.
• Continued its focus on effective succession planning (board
members and senior managers). This included a refresh of
the senior manager succession policy and a review of the
succession planning methodology with an external advisor,
which concluded that these activities were conducted in line
with industry best practices.
• Played an active role in commissioning the annual board
and committee’s effectiveness review, led by an external
firm.
• Received information about the global knowledge and
talent strategy, focused on leading the workforce
transformation of Santander to ensure it is ready for the
challenges of digitalization.
220
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Corporate
governance
Economic
and financial review
Risk management
and compliance
The board of directors appointed the committee’s members
based on their skills and expertise pertaining to matters
within its purview.
For more details, see 4.1 'Our directors' as well as the 'Board
skills and diversity matrix' and 'Committees skills and
diversity matrix' in section 4.2.
Ignacio Benjumea and Guillermo de la Dehesa stepped down
from the committee in 2020. Furthermore, Luis Isasi and R.
Martín Chávez were appointed to the committee on 19 May
and 27 October 2020, respectively.
Time allocation
In 2020, the remuneration committee held 13 meetings.
'Board and committee attendance' in section 4.3 provides
information on committee members’ attendance and the
estimated average time they spent on preparing for, and
participating in, meetings .
The chart below shows the committee’s approximate time
allocation to each function in 2020.
4.7 Remuneration committee
activities in 2020
'During 2020, we have maintained oversight of the
application and implementation of remuneration
policies and frameworks for the group and have
been focused on simplifying executive remuneration
within the regulatory parameters that apply. This
has included shaping compensation schemes
consistent with the Group’s values of Simple,
Personal and Fair. In addition, and in the light of the
pandemic, we supported a reduction to executive
and non-executive directors’ compensation to help
finance contributions to a fund created to provide
medical equipment and supplies to help limit the
spread of the virus in the countries in which the
Group operates.
There have been several changes to the membership
of the Committee during the year: Guillermo de la
Dehesa and Ignacio Benjumea left the Committee
upon their resignation from the board and Luis Isasi
and R. Martín Chávez became members in May and
October 2020, respectively. I would like to take this
opportunity to thank Guillermo and Ignacio, on
behalf of the committee, for their hard work and
commitment to our discussions and to welcome Luis
and Marty.'
Bruce Carnegie-Brown
Chairman of the remuneration committee
This section is the report the remuneration committee
prepared on its activities on 19 February 2021. The board of
directors approved it on 22 February 2021.
Composition
Position
Category
Chairman Bruce Carnegie-Brown Independent
R. Martín Chávez
Independent
Appointed on
12/02/2015A
27/10/2020
Members
Sol Daurella
Independent
23/02/2015
Henrique de Castro
Independent
29/10/2019
Luis Isasi
Other external 19/05/2020
Secretary Jaime Pérez Renovales
A. Committee chair since 12 February 2015.
221
Governance / Others21%Remunerationof the boardmembers13%Remunerationof seniormanagementand other keyexecutives45%Remunerationschemes andpolicies21%
Annual report 2020
Contents
Duties and activities in 2020
This section summarises the remuneration committee’s activities in 2020.
Duties
Remuneration of directors and senior management
Action taken
Individual remuneration of
directors in their capacity
as such
• Analyzed the individual remuneration of directors in their capacity as such, based on the positions they held on
the collective decision-making body, their membership on, and attendance at, the various committees, and
any other objective circumstances evaluated by the board.
• Submitted a proposal to the board to reduce the board's 20% annual allotment and attendance fees cut for
the balance of 2020, with effect from 1 April 2020, with a view to contributing to the financing of the fund set
up to provide medical equipment and supplies to help limit the spread of the covid-19.
Individual remuneration for
executive directors
• Proposed to the board the individual remuneration for executive directors, based on the proposal of the 50%
reduction of the chairman and chief executive officer's salary and bonus.
• The committee has also applied the same prudence approach in the current situation to propose that the fixed
components of the remuneration be maintained for the following year.
Individual variable
remuneration for executive
directors
• Proposed to the board immediately payable and deferred amounts of variable remuneration of the preceding
year. A portion of deferred variable pay is capped and contingent on executive directors' long-term objectives.
In light of customer, risk, capital and earnings metrics set by the board, the proposed variable remuneration
was less than in the previous year. Its value also decreased further on account of the executive chairman and
chief executive officer’s waiver of half of their fixed pay and bonus for the year.
• Submitted a proposal, as part of the directors´ remuneration policy for the annual performance indicators and
targets used to calculate the annual variable remuneration for 2021, subject to board approval. In addition, it
also proposed the achievement scales for annual and multi-year performance targets and their associated
weightings.
• Informed favourably the board and submitted a proposal regarding the executive chairman and the chief
executive officer's contracts which have been updated to ensure they are aligned with the recommended
limitations, payments arising from the termination of its contracts (including the unconsolidated amounts of
long-term savings systems and those received for non-compete commitments). This was to fully comply with
new recommendation 64 of the revised Spanish Corporate Governance Code. By virtue of these amendments,
pre-retirement in these contracts will disappear.
Share plans
• Submitted a proposal to the board, for subsequent vote at the April 2020 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; a plan for employees of Santander UK Group Holdings plc and other Group companies in the
UK).
• Analyzed and submitted to the board a proposal for the Digital Transformation Award, which was designed
and implemented to provide the Group with a tool to attract and retain key talent to drive long-term share
value creation through the achievement of key digital milestones.
• Authorised to increase the mandatory share holding period for executive directors from one to three years to
fully comply with new recommendation 62 of the revised Spanish Corporate Governance Code, while this
retention period only applies as long as they do not hold shares equivalent to two years of fixed salary, this is
imperative in accordance with Group's policy. This new period will be included in the 2020 directors’
remuneration annual report and also included in the Group's new Policy on directors’ remuneration in 2021,
2022 and 2023 submitted to shareholders for a binding vote.
• Drafted and proposed to the board the annual directors' remuneration report for it to be put to a non-binding
vote at the April 2020 AGM.
• Assisted the board of directors in monitoring compliance with the director remuneration policy.
• Received information from the lead independent director about contact with key shareholders and proxy
advisers on executive director remuneration issues.
• Held a joint session with the risk supervision, regulation and compliance committee to verify that
remuneration schemes factor in risk, capital and liquidity, and do not offer incentives to assume risk that
exceeds the level tolerated by Banco Santander, therefore promoting and being compatible with adequate and
effective risk management.
Propose the annual
directors' remuneration
report to the board
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senior management and
other key executives
• Encouraged on simplify the executive remuneration by configuring compensation plans in line with our values
of Simple, Personal and Fair.
• Submitted to the board for approval proposals for the determination or modification of fixed and variable
annual remuneration of certain members of senior management, in accordance with Group policies and
applicable regulations.
• Determined the global annual variable remuneration for 2019 -payable immediately- and the deferred
remuneration of the main executive segments, in line with the achievement of the quantitative and qualitative
targets set, for this purpose, a joint meeting was held with the risk supervision, regulation and compliance
committee to ensure that the management of the various risks is adequately considered. In addition, proposed
to the board the remuneration of senior management, based on their individual achievement of the annual
performance targets and their weightings outlined by the board and. in particular, determined the variable
remuneration of (i) the CAE, once the audit committee assessed its performance and communicated its
conclusions to that effect to it; and (ii) the chief risk officer (CRO) and the chief compliance officer (CCO), after
assessing their performance at the joint meeting with the risk supervision, regulation and compliance
committee.
• Analysed and discussed the Group's general remuneration policy, including that of senior manager, presented
by the Compensation function on the basis of applicable legal or regulatory requirements, recommendations
from regulators and the inputs received from stakeholders, providing their comments on the matter for
consideration when it is updated.
• Proposed to the board the annual performance indicators used for the calculation of variable remuneration for
2021 to be approved by the board, with the aim of simplifying to the extent possible the bonus pool scorecard.
• Established, for submission to the board, the achievement scales for the annual and multi-year performance
targets and weightings.
Remuneration of other executives whose activities may have a significant impact on the Group’s risk profile (Identified Staff)
Remuneration for other
executives who are
Identified Staff but not
senior management
• Reviewed the fixed and variable remuneration ratios for control functions to ensure alignment with regulation
and overall consistency with their control objectives.
• Set key remuneration elements for Identified Staff.
• Reviewed and updated the composition of Identified Staff to recognize employees who qualify for inclusion in
Assist the board of
directors in supervising
compliance with
remuneration policies
Gender pay
Internal governance
Governance
this category.
• Submitted a proposal to the board, for subsequent submission to the 2020 AGM, regarding the approval for
maximum variable remuneration of up to 200% of the fixed component for group employees whose activities
have a material impact on the Banco Santander or Group’s risk profile, this includes executive directors.
• Reviewed certain compensation schemes to support the attraction and retention of key talent to help drive
digitalization, as well as the application of different incentives implemented across the Group, and the level of
achievement of the long term metrics associated with past deferred remuneration.
• Reviewed director remuneration programmes to align with the Group’s results, culture and risk appetite; and
that no incentives are offered to assume risk above the tolerated level by the Banco Santander, therefore
promoting effective risk management.
• Reported to the board on an external adviser’s remuneration policy assessment in view of Act 10/2014, which
dictates that a credit institution’s remuneration policy will be subject, at least once a year, to an independent
internal review to confirm compliance with remuneration guidelines and procedures adopted by the board of
directors.
• Continued the implementation of the diversity and inclusion strategy on remuneration, including progress
against gender targets to support reducing the gender pay gap. Reviewed gender and equal pay data within
the Group, comparing year-on-year data and against the set targets, promoting measures to improve them.
The gender pay gap (average pay comparison between men and women) and the equal pay gap (comparison
of pay for the same job, level, and/or area: 'equal pay for equal work'), remain key areas of focus within the
Group's strategy. See section 'A talented and engaged team' in the 'Responsible banking' chapter, for
additional information.
• Supervised the alignment of the Group's companies with Banco Santander's commitment during the covid-19
in remuneration practises and in remuneration on local boards reduction.
• Assessed the impact of compensation regulation changes, in particular, the definition, impact and expected
timeline of the European Union agreement to revise executive remuneration rules (compensation chapter of
Capital Requirement Directive “CRD V”, updating "CRD IV").
Information for the general shareholders' meeting and corporate documentation
Reporting to shareholders
• At our April 2020 AGM, Bruce Carnegie-Brown acting as the committee’s chair, reported to the shareholders
on the matters and activities within the purview of the committee during 2019.
Corporate documents for
2020
• Drafted this report on the committee’s activities in 2020, which includes an analysis of its performance and
the priorities identified for 2021 following the effectiveness assessment of the board and its committees.
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Annual assessment of the committee and its achievement
of 2020 objectives
The committee's effectiveness review for 2020 was part of an
external independent consultant's review of the board. It
covered the committee's structure, composition, processes
and behaviours, concluding that it is fit for purpose and
effective. For more details about the findings resulting from
the assessment see 'Board assessment in 2020’ in section 4.3.
The committee addressed all the priorities that were
identified for 2020. Among the salient actions, it:
• Remained focused on leading remuneration practices and
how these were applied across the Group. This included
compensation schemes that support the attraction and
retention of critical skillsets needed to drive Santander’s
strategy, as well as simplifying executive remuneration to
ensure that structures were Simple, Personal and Fair, and
consider ESG factors. Insights provided by the lead
independent director about his contact with key
shareholders and proxy advisors on remuneration aided the
committee’s work in this regard.
• Supported executive and non-executive director pay cuts to
contribute to the fight against the covid-19. This also led to
certain subsidiaries reducing board fees in light of Banco
Santander’s commitment during the pandemic.
• Addressed the importance of the gender pay gap and equal
pay by overseeing the implementation of the diversity and
inclusion strategy on remuneration, including progress
against gender targets.
Based on its analysis and supervision of the remuneration
policy, the remuneration committee believes that the director
remuneration policy for 2021, 2022 and 2023 (found in
section 6.4 below) conforms to the principles of Banco
Santander’s remuneration policy and the remuneration
system set out in the Bylaws.
This policy now considers, among others, the simplification of
the executive framework, by reducing the number of metrics
used in the pool calculation from 7 to 4 (NPS, CET1, ROTE and
Cost of Credit), combining simplicity with the
acknowledgment of the most relevant aspects for clients,
results, financial strength and the appropriate management
of the risk of the entity, as well as compliance with ESG goals.
2021 priorities
The committee identified the following priorities for 2021:
• Keep incentive measures under continuous review to ensure
they continue to align with our strategic aims and drive the
right culture and behaviours; balancing the needs of our
people, customers, communities, shareholders and
regulators.
• Continue to enhance our employee value proposition with a
view to attracting and retaining key talent for the Group.
• Ongoing constant coordination with the remuneration
committees of the Group subsidiaries: monitoring the
implementation and application of the corporate policies
regarding remuneration to ensure a consistent approach in
this respect.
The director remuneration policy report
• Manage and improve pay equality across the Group.
Pursuant to section 2 of article 529 novodecies of the Spanish
Companies Act, the remuneration committee issues this
report in respect of the proposed director remuneration policy
for 2021, 2022 and 2023. It will be submitted by the board of
directors at the next 2021 AGM as a separate item on the
agenda and is an integral part of this report. See section 6.4
'Directors' remuneration policy for 2021, 2022 and 2023
submitted to a binding shareholder vote'.
This remuneration policy is prepared by the Compensation
function of Banco Santander with the input received during
the year from the remunerations committee and the board of
directors on the matters covered by it. Each January a first
draft of this policy is submitted to the remuneration
committee for analysis and discussion. This meeting
considers the inputs received, through its chairman and lead
director, from shareholders and other stakeholders in the
dialogue held with them during the year, in order to obtain
their opinion on our corporate governance and, in particular,
our remuneration structures.
Regulatory recommendations and legal or regulatory
requirements that may have been established since the last
time the director remuneration policy was submitted for
approval by the annual general meeting are also taken into
account. In addition, the committee oversees that the policy is
aligned with the Group's culture and values in accordance
with our Simple, Personal and Fair values. After that, the
Compensation function prepares the final draft policy for its
final report by the remuneration committee and approval by
the board of directors in February.
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4.8 Risk supervision, regulation and
compliance committee activities in 2020
'During 2020, the committee has supported and
advised the board of directors in defining and
assessing risk policies affecting the Group and in
determining the current and future risk appetite and
the strategy and culture in this area, the
identification of the various types of financial and
non-financial risk, and the measures planned to
mitigate the impact of identified risks in the event
that they materialise.
This year, the committee has been deeply involved
in the monitoring of the actions and risks derived
from the covid-19 situation and has received
updates in this regard. The committee has continued
discharging its core role as set out in the Rules and
regulations of the board, focused not only on the
day to day risks, but also on the more strategic non-
traditional risks whilst doing so in full coordination
with the board and its committees. In this regard,
the committee held a strategic session in October
2020, fully focused on strategic risks, supported by
external speakers. This approach will continue in
2021.
There have been two changes to the membership of
the committee during the year: Luis Isasi and R.
Martin Chávez joined the committee in May 2020
and October 2020 respectively, acknowledging the
fact that Ignacio Benjumea and Esther Giménez-
Salinas left the committee upon their resignation
from the board. I would like to take this opportunity
to thank Ignacio and Esther, on behalf of the
committee, for their hard work and contribution and
to welcome Luis and R. Martin, who bring a diverse
range of skills and experience to the committee.'
Álvaro Cardoso de Souza
Chairman of the risk supervision, regulation and compliance
committee
This section is the report on the activities of the risk
supervision, regulation and compliance committee. It was
prepared by the committee on 19 February 2021 and
approved by the board of directors on 22 February 2021.
Composition
Position
Category
Chairman Álvaro Cardoso
Independent
R. Martín Chávez
Independent
Appointed on
23/04/2018A
27/10/2020
Members
Luis Isasi
Other external 19/05/2020
Ramiro Mato
Independent
28/11/2017
Belén Romana
Independent
28/10/2016
Secretary Jaime Pérez Renovales
A. Committee chair since 1 October 2020.
The board of directors appointed the committee's members
based on their skills and expertise pertaining to matters
within its purview.
Further information can be found in section 4.1 'Our directors'
and 'Board skills and diversity matrix' and 'Committees skills
and diversity matrix' in section 4.2.
In 2020 Ignacio Benjumea and Esther Giménez-Salinas
stepped down from the committee. Luis Isasi and R. Martín
Chávez became members on May and October 2020,
respectively, to fill their vacancies.
Time allocation
In 2020, the committee held 13 meetings. 'Board and
committee attendance' in section 4.3 provides information on
committee members’ attendance and the estimated average
time they spent on preparing and participating in meetings.
The chart below shows the committee’s approximate time
allocation to each function in 2020A.
A. All topics about regulatory and supervisory relations discussed in 2020 are
included in each task provided in the chart.
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Capital& Liquidity9%Complianceand Conduct21%Governance4%Risk66%
Annual report 2020
Contents
Duties and activities in 2020
This section summarizes the risk supervision, regulation and compliance committee’s activities in 2020.
Duties
Risk
Assist the board in (i)
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
Covid-19
Risk management and
control
Actions taken
• Carried out an overview of the Group's risks, conducted specific analyses by unit and risk type and assessed
proposals, issues and projects relating to risk management and control. The Group's main subsidiaries and
businesses presented an update on their risks to this committee.
• Submitted to the board the approval of the risk appetite statement, including proposals for new metrics.
Carried out quarterly reviews on compliance with the risk appetite limits.
• Coordinated with the responsible banking, sustainability and culture committee the supervision and
evaluation of the alignment of risk appetite and limits with corporate culture and values.
• Received information on the proper management and control of risks within the Santander Group , particularly
the risk profile assessment (RPA) and the risk control self-assessment (RCSA), two of the main tools for
controlling these risks. As part of the overall risk strategy, the RPA continued to evolve with a focus on the
control environment component, mainly in non-financial risks. The RCSA discussion provided an overview of
the main risks identified for the Group and reported on the progress and next steps of the integration
between RCSA, control certification and other risk assessments.
• Oversaw the update of our social and environmental policies (in coordination with the responsible banking,
sustainability and culture committee), which set out the financing criteria and prohibited actions in specific
sectors such as energy, mining and soft commodities.
• Monitored, in full coordination with the innovation and technology committee, risks stemming from
technological obsolescence and cybersecurity, including data leakage, incident and vulnerability detection,
patch management, network security and access control, amongst others. Received reports on major IT
developments and projects.
• Supervised the risks associated with the main corporate transformation programs analysed by Banco
Santander and the measures proposed to mitigate them. In particular, it monitored the risks associated with
PagoNxt (the new payments platform of Banco Santander), One FCC (the strategic project to address FCC risk)
and our enhanced internal model risk management.
• Reviewed the 2020 recovery plan, assessed the group's resilience in severe stress scenarios and submitted it
to the board of directors for approval.
• Reviewed the risks associated with the 5-year strategic plan, S25 (until 2025) and the 3-year strategic
financial plan, P-23 (from 2021 to 2023), which analyses the Group’s priorities and projects and quantifies a
financial plan for the next three years. It also reviewed the alignment of these plans with the Group's risk
appetite.
• Reviewed the macroeconomic landscape and the impact on 2020 provisions due to covid-19.
• Received regular updates on the most affected portfolios and those under moratoria programmes and holiday
payments across the different subsidiaries. Oversaw the monitoring carried out to proactively identify
customers with credit issues in the areas of recoveries and collections, ensuring that prudent practices were in
place to mitigate compliance and conduct and reputational risks associated to recoveries whilst providing
support to our clients.
• Received regular updates on the top risks being managed and the adequacy of mitigating controls.
• Analysed the emerging risks and how they affect to the different geographies and risk areas. Held a strategic
session attended by the chair of the responsible banking, sustainability and culture committee to discuss
Banco Santander' top emerging risks with deep dives into climate change and demographics.
• Received, along with other board members, a specific training session on climate change which contributed to
the committee's work in this regard in full coordination with the responsible banking, sustainability and
culture committee.
• Supported the board in conducting stress tests of Banco Santander. It assessed the scenarios and assumptions
to be used in such test, analyzing the results and the measures proposed by the Risk function. Ensured that
Banco Santander' stress test programme aligned with EBA Guidelines 2018/04.
• Special focus continued on non-performing loans and non-performing assets.
• Received periodic information about market and structural risk of Banco Santander and reviewed counterparty
risk.
• Monitored non-financial risks, including legal, vendor and climate-related risks, which remained key areas of
focus.
• Continuously examined the Brexit situation, including its impact on risk to Santander UK and the Group and
our preparedness to reduce and mitigate such risks.
Supervise the Risk function
• Ensured the independence and effectiveness of the Risk function and that sufficient human resources were
duly provided.
• Assessed the Risk function and the performance of the CRO in joint session with the remuneration committee,
to inform the board in order to establish his variable pay.
• Reviewed new appointments to key positions in the Santander Group' Risk function.
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Duties
Collaboration to establish
rational remuneration
policies and practices
Capital and liquidity
Assist the board in
approving capital and
liquidity strategies and
supervising their
implementation
Compliance and conduct
Supervise the Compliance
and Conduct function
Actions taken
• Held a joint session with the remuneration committee to confirm that remuneration schemes factor in risk,
capital, and liquidity and that offered no incentives to assume risks above the level tolerated by Banco
Santander in line with adequate and effective risk management.
• Analyzed with the remuneration committee the factors used to determine the ex-ante risk adjustment of total
variable pay assigned to the units based on how previously assessed risks materialised.
• Revised the 2020 bonus pool and results of the annual exercise to identify employees whose work had a
material impact on the group’s risk profile.
• Reviewed the internal capital adequacy assessment process (ICAAP) prepared by the finance department and
reviewed by the risk function, in accordance with industry best practices and supervisory guidelines, and
submitted it to the board for approval. Moreover, reviewed a capital plan based on the scenarios envisaged
over a three-year period.
• 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 capital and risk management and provides an overview of the
function, base capital and prescribed capital requirements, policies for managing the risks undertaken by
Banco Santander from a capital consumption standpoint, the composition of the Group’s portfolio and its
credit quality, measured in terms of capital, and the roll-out of advanced internal models.
• Reviewed the internal liquidity adequacy assessment process (ILAAP) and assessed the liquidity plan in view of
the Group’s business model, and submitted it to the board for approval.
• Continuously monitored capital levels and capital management, including the 2020 securitizations plan.
• Reviewed and approved the 2020 Compliance program (Group and local units) and new SCIB Compliance and
Conduct operating model.
• Acknowledged, challenged and endorsed the new Compliance and Conduct strategy (One Compliance).
• Endorsed the appointment of the Group's new CCOs (among others, the new CCO of the project One
Santander in Europe) prior to its final submission to and approval by the nomination committee.
• Received monthly reports on conduct and compliance matters as part of the risk and compliance monthly
report, covering regulatory issues, product governance and consumer protection, reputational risk, internal
and external events, notifications and inspections by supervisors, covid-19 updates, among others.
• Assessed the Compliance and Conduct function (including its staffing and resourcing suitability) as well as the
Group chief compliance officer’s performance in a joint session with the remuneration committee, with the
purpose of informing the board to set her variable pay.
Regulatory compliance
• Monitored compliance with regulatory requirements regarding:
• The Dodd Frank Title VII update.
• Adaptation to the Volcker Rule compliance programme in line with recent amendments, continuing the
oversight of this regulation in 2020.
Regulatory compliance -
Supervise the
whistleblower channel
(Canal Abierto)
• Received an annual update on the Canal Abierto (the model of whistleblowing channel in Grupo Santander)
and was informed of its changes, aimed at permitting the communication of irregularities not only by
employees but also by other persons related to Banco Santander, such as directors, shareholders, suppliers,
contractors and subcontractors, guaranteeing confidentiality and allowing for anonymous communications.
• Helped to ensure that the Group’s culture is embedded through increasing awareness on the importance of
Financial crime compliance
(FCC)
Product governance and
consumer protection
Speaking Up.
• Reviewed the measures taken in the different countries on the back of incidents reported through
whistleblowing channels, in particular in relation to breaches of regulatory requirements, codes of conduct
and implementing regulations as well as breaches of corporate values and irregularities of potential
significance of any nature, other than whose power is attributed to the audit committee.
• Oversaw the Group’s observance with FCC regulations as well as the activities carried out by the function. In
particular:
• Received an overview of its strategy, including the Group' priorities and associated peer benchmarking.
• Received monthly updates on the most relevant FCC risks and other matters relevant to its four main pillars
of the function (Governance, Know Your Customer, Transaction Monitoring and Sanctions).
• Obtained monthly quantitative information on risk appetite metrics and other indicators considered critical
to its performance, being aware of the indicators that were in excess of the proposed thresholds and the
corresponding action plans.
• Received the recommendations and observations stemming from the annual independent expert report
about Banco Santander in accordance with the Spanish Law 10/2010 and Royal Decree 304/2014 (on anti-
money laundering and terrorism financing).
• Held on a bi-annual basis specific sessions on the status of the FCC function.
• Received an update on the status of customer complaints in 24 countries and 9 SCIB branches, as well as on
the associated action plans to address deficiencies and mitigate detriment to customers.
• In a joint session with the remuneration committee, learned about the progress of the local action plans
regarding internal sales force remuneration and received an overview of the assessment on the external sales
force regarding its potential conduct risk impact.
• Received information on the main risks identified, concerns, priorities, actions taken by the product
governance and consumer protection unit to mitigate conduct risks with retail customers, including product
governance activity and monitoring.
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Duties
Governance
Corporate governance and
internal governance
Regulators and supervisors
Regulatory and supervisory
relations
Actions taken
• Received quarterly updates from the chairman of the responsible banking, sustainability and culture
committee on the matters discussed by such committee.
• Worked alongside the audit committee, with which it held a joint meeting to share information on common
issues, including the Group's risk management, risk model, complaints submitted to Canal Abierto, vendor risk
management, legal risk, and internal auditing in the Risk and Compliance division.
• Received regular updates on regulatory and supervisory relations and maintained focus on the most relevant
developments related to the SSM, the Single Resolution Board (SRB), the supervisors of all the Group’s
subsidiaries and the Supervisory Review and Evaluation Process (SREP).
Information for the general shareholders' meeting and corporate documentation
Corporate documents for
2020
• Drafted the report on its activities in 2020, which includes an analysis of its performance and the priorities
identified for 2021 following the assessment of the board and its committees.
Annual assessment of the committee and its achievement
of 2020 objectives
The committee's effectiveness review for 2020 was part of an
external independent consultant's review of the board. It
covered the committee's structure, composition, processes
and behaviours, concluding that it is fit for purpose and
effective. For more details about the findings resulting from
the assessment see ‘Board assessment in 2020’ in section 4.3.
In 2020, the committee addressed all the priorities that were
identified for 2020. Among the salient actions, it:
• Monitored the Group’s risks and risk indicators, especially
relevant to monitor the impacts of the pandemic, and
ensured that risk profiles remained within the risk appetite
limits set by the board. In particular, it devoted additional
efforts to the analysis of the potential risks derived from the
macro-economic situation in the different geographies
where the Group operates, backed up by regular country
reporting on key risks relevant to their jurisdiction.
• Focused on the analysis of Banco Santander's emerging
risks and held a strategic session (attended by external
speakers) to review top strategic risks.
• Coordinated with other board committees, to ensure full
alignment and to share matters of mutual interest.
• Ensured that the Risk and Compliance and conduct
functions remained effective and appropriately resourced.
2021 Priorities
The committee has identified the following priorities for
2021:
• Continuing focus on Group’s top risks, early warning
indicators, impacts and mitigation actions in order to assure
that risks are appropriately managed with risks profiles
remaining within the risk appetite limits approved by the
board.
• Remaining alert to emerging and non-traditional risks to
enable key strategic changes in the business environment
to be anticipated. These risks will be discussed at at least
one strategic meeting of the committee in 2021.
• Proactively support economic recovery after the covid-19
crisis, in particular by overseeing the Group's credit-related
policies to help our customers and foster their economic
resilience during the crisis, while maintaining the strength
of Banco Santander’s capital and liquidity.
• Ongoing focus on the main business units, geographies and
new businesses (including new digital platforms), with an
additional focus on emerging business strategically relevant
for the Group.
• Continuing close coordination with other board committees
to ensure they are all aware of and leverage areas of
mutual interest.
• Continuing working on the committee’s effectiveness to
make sure that its role is discharged in the most tangible
and effective manner, following the recommendations of
the institutional effectiveness assessment.
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
This section is the report on the activities of the responsible
banking, sustainability and culture committee. It was
prepared by the committee on 16 February 2021 and
approved by the board on 22 February 2021.
Composition
Position
Category
Chairman
Ramiro Mato
Independent
Appointed on
A
01/07/2018
Homaira Akbari
Independent
01/07/2018
Members
Álvaro Cardoso
Independent
24/07/2018
Sol Daurella
Independent
01/01/2018
Belén Romana
Independent
01/07/2018
Secretary
Jaime Pérez Renovales
A. Committee chair since 1 July 2018.
The board of directors appointed the committee’s members
based on their skills and expertise pertaining to matters
within its purview.
Further information can be found in section 4.1 'Our directors'
and 'Board skills and diversity matrix' and 'Committees skills
and diversity matrix' in section 4.2.
Ignacio Benjumea and Esther Giménez-Salinas stepped down
from the committee in 2020. Furthermore, Ana Botín stepped
down from the committee in December 2020, in line with
best corporate governance practices, which recommend that
the committee is made up solely of non-executive directors.
Time allocation
In 2020, the responsible banking, sustainability and culture
committee held four meetings. 'Board and committee
attendance' in section 4.3 provides information on committee
members’ attendance and the estimated average time they
spent on preparing for, and participating in, meetings.
The chart below shows the committee’s approximate time
allocation to each ESG criteria in 2020.
4.9 Responsible banking, sustainability and
culture committee activities in 2020
'During 2020, the committee has continued assisting
the board of directors in fulfilling its oversight
responsibilities with respect to the responsible
business strategy and sustainability issues. The
committee has had a special focus this year on the
sustainable finance and green agenda across the
main regions and businesses of the Group, climate
change strategy, culture (maintaining our
commitment on our Simple, Personal and Fair way
of doing business), proactively being part of the
solution and monitoring responsible business
practices in relation to the covid-19 pandemic
(including, among others, the interaction with
customers, monitoring the practices associated with
the government programs and recoveries and
collection activities, as well as with other different
stakeholders, such as investors, vendors,
shareholders, employees, and the public opinion in
general).
The committee has continued its coordination
activities, not only with the board of directors, but
also with the main committees such as the risk
supervision, regulation and compliance committee,
remuneration committee, audit committee and
nomination committee.
During 2020, Ignacio Benjumea and Esther Giménez-
Salinas left the committee upon their resignation
from the board. I would like to take this opportunity
to thank Ignacio and Esther, on behalf of the
committee, for their contributions. Finally, the
executive chairman has left the membership of the
committee due to the adaptation of the Rules and
regulations of the board to fully comply with the
revised Spanish Corporate Governance Code, which
recommends that the committee shall be composed
solely of non-executive directors. I would like to
take this opportunity to also thank Ana Botín for her
invaluable contribution as a member of this
committee'.
Ramiro Mato
Chairman of the responsible banking, sustainability
and culture committee
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Governance (G)43%Environmental (E)33%Social (S)24%
Annual report 2020
Contents
Duties and activities in 2020
This section summarizes the responsible banking, sustainability and culture committee’s activities in 2020 based on ESG criteria.
Duties
Environmental (E)
Sustainable banking
Environmental and climate
change
Actions taken
• Engaged on the group’s climate change strategy, as well as on the plan and associated actions, in line with
our external commitments, and provided feedback to members of the senior management and the board of
directors.
• Reviewed climate-related risks and opportunities and analyzed new climate change regulations
• Reviewed and discussed the materiality assessment identifying sector exposures to potential climate
transition and physical risks and reviewed roadmap to embed climate in banking processes.
• The chair engaged in the annual strategy session of the risk supervision, regulation and compliance
committee on, among other issues, climate change in which the latest developments of the industry,
regulators and in the Group were discussed.
• Received, along with other board members, a training session on climate change covering the latest industry
developments and our group’s strategy, climate-related business risks and opportunities, commitments
related to climate change, next steps to fulfil the United Nations Collective Commitment to Climate Action
supporting the transition to a net zero economy.
Sustainable finance
• Reviewed sustainable finance, which refers to that of activities that have a positive impact on the
environment including climate finance which includes that of assets or technologies that entail a reduction in
CO2 emissions (e.g. renewable energy, refurbishment to increase energy efficiency, clean technologies and
CO2 capture and storage).
• Reviewed Banco Santander´s current sustainable finance proposal and the opportunities identified to present
a vision across the Group, after working with countries, global businesses and corporate areas.
• Reviewed the proposal of the new global sustainable framework to issue green, social and sustainable bonds,
the rationale for issuing them and the key features of the same.
• Reviewed and discussed (i) the direct environmental impact of the group’s operations and the implementation
status of its new energy efficiency and sustainability plan to reduce the carbon footprint; and (ii) the proposed
new initiatives.
• Reviewed the 2020 emissions’ offsetting corporate plan, which will allow the Group to fulfil the goal of
becoming a carbon-neutral organization, in regards to its own operations.
Santander environmental
footprint
Social (S)
Inclusive banking
Sustainable finance and
financial inclusion
• Reviewed strategies and plans on responsible banking with a focus on sustainable finance (including financial
inclusion) for the regions of North and South America, and the global businesses of SCF, WM&I and SCIB.
Support for higher
education
• Reviewed the current and future contribution to the group’s responsible banking strategy of Santander
Universidades, which is one of its key strategic components along with sustainable finance and financial
inclusion.
Governance (G)
Responsible banking strategy
Policies
• Monitored, supervised and evaluated the policies on responsible business and sustainability and, in particular,
on environmental and social matters with the purpose of fulfilling their mission of promoting corporate
interest and taking into account, as appropriate, the legitimate interests of the other stakeholders.
• Participated, together with the risk supervision, regulation and compliance committee in the update of the
environmental and social risk management policy, evaluating and making proposals to the board as to
advisable changes. This policy establishes how the environmental and social risks are identified in the oil and
gas, energy, mining and metals and in soft commodities sectors.
• Coordinated with the other committees on issues relating to culture and values, responsible banking practices
and sustainability in order to ensure that adequate and effective control processes were in place and that risks
and opportunities relating to sustainability and responsibility were identified and managed in accordance
with the responsible banking principles approved by the board.
• Received regular updates from corporate functions, global businesses and regional units of the different
initiatives to drive the responsible banking agenda, enhancing communication and sharing best practices and
concerns.
• The chair maintained close communication with the chair of the risk supervision, regulation and compliance
committee and the members of both committees had access to the materials presented to each, as well as to
regular reports of both committees to the board of directors to obtain a global overview of key risks and
opportunities relating to responsible banking matters. An example of this collaboration has been the
participation of committee members and the representatives of the responsible banking function in the
annual strategy session of the risk supervision, regulation and compliance committee, to review the potential
risks and opportunities of climate change.
Governance
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Risk management
and compliance
Duties
Responsible banking
initiatives and challenges
Commitment to
sustainability goals
Culture and values
Culture
Actions taken
• Reviewed the responsible banking approach in response to key stakeholders (customers, suppliers and
communities) in the context of covid-19 and challenges ahead and discussed the alignment of Banco
Santander’s activities and priorities with the expectations of society and how Banco Santander can help
rebuild a more resilient and inclusive economy moving forward.
• Received reports from the compliance and conduct function regarding its oversight of potential reputational
impacts arising from environmental and social matters. In particular, the status of the emerging conduct and
reputational risks due to covid-19 were considered, as well as the level of implementation of corporate
recommendations related to conduct with customers and other initiatives impacting the perception of other
stakeholders (shareholders, regulators, employees and communities).
• Received reports on initiatives for facing the challenges relating to the new banking environment and
inclusive and sustainable growth.
• Reviewed metrics and targets, the progress made on priorities, the agenda and proposed commitments
relating to responsible banking and the disclosure of such information to the public.
• Assisted the board in making sure responsible banking targets, metrics and commitments were embedded
across the Group and measured effectively.
• Received reports on the progress made on the implementation plans relating to responsible banking priorities
approved for 2020 and the priorities defined with local units for 2020 to 2022.
• Discussed and validated the scorecard to be proposed to the remuneration committee and the board with
specific metrics of responsible banking, which have been taken into account to make specific qualitative
adjustments on the quantitative variables of the 2020 bonus pool.
• Monitored public commitments relating to sustainability goals, including climate change objectives for
2021-2025, in order to adapt to the new business environment and support inclusive and sustainable growth.
• Coordinated with the remuneration committee in its review of the alignment of remuneration schemes with
corporate culture and values.
• Coordinated, through its chairman and other committee members, with the risk supervision, regulation and
compliance committee in the supervision and evaluation of (i) the alignment of risk appetite and limits with
corporate culture and values; and (ii) the non-financial risks.
• Reviewed The Santander Way, which is our global culture approved by the board in January 2015, aligned
with the group’s strategy and complementing Santander's ambition to build a more responsible banking.
Since 2015, a common language and behaviour has resulted in our values Simple, Personal and Fair ( Simple,
Personal and Fair (SPF) permeating all units. Our corporate policy is an important factor in developing
coherent initiatives and enabling us to measure our values SPF progress and impact through a strengthened
group culture governance, centralized culture coordination within the responsible banking unit and improved
measurement. Significant progress continues both globally and locally, resulting in positive tangible results
for our people, customers, shareholders and communities.
• Assisted the board in promoting and embedding corporate culture and values across the Group, monitoring its
level of adherence and ensuring that the corporate culture is aligned with the purpose and values of the
Group.
SPF with employees
• Engaged on the global 2020 diversity and inclusion strategy and the actions proposed to drive continued
improvement in this regard; and drove actions associated with the inclusion of individuals with disabilities in
order to progress towards 2025 targets. Diversity and inclusion are key elements of the entire corporate
strategy that affects Santander’s relationship with all its stakeholders.
• Updated on The Santander Way, which contained Santander´s public commitments to build a more
responsible bank. Our activities and investments help us address a number of the United Nations' Sustainable
Development Goals and support the Paris Agreement’s objective of combatting climate change and adapting
to its effects.
• Reviewed and discussed the evolution of the former whistleblowing channel to the Canal Abierto model as a
means of boosting the group´s cultural transformation, promoting an environment in which our employees
feel free to speak up without fear. The Canal Abierto was launched in 2019 within the Top 10 subsidiaries of
the group and there are currently anonymous channels available in most of the group’s units.
SPF with customers
• Engaged on the group’s ten consumer protection principles for promoting our values SPF with customers, as
well as the methodology used to measure them and standards for engaging vulnerable customers.
• Reviewed responsible business practices towards customers, which was a priority of the responsible banking
agenda for 2020. The aim of contributing to an increased in customer satisfaction and support loyalty was
discussed in connection with two key levers: (i) increasing standards of remuneration practices and
awareness across first and second lines of defence; and (ii) training our sales force. The committee reviewed
the implementation status of the action plans associated with these two levers.
• Reviewed the status of the reputational risks due to covid-19.
SPF with suppliers
• Reviewed details of a pilot program during 2020 to introduce further ESG criteria within our processes of
supplier certification and offer review and contracting. The results of the pilot program will be used to assess
the risk appetite in connection with introducing greater ESG criteria within our supply chain management in
the future.
SPF with general society
• Reviewed progress of responsible banking and non-financial information communications and marketing.
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Duties
Stakeholders engagement
Non-financial information
Indexes and ratings
Shareholders and other
stakeholders
Actions taken
• Coordinated with the audit committee in its supervision and evaluation of the process of preparing and
presenting the non-financial information, in accordance with the applicable regulations and leading
international standards.
• Reviewed the 2020 Group’s statement of non-financial information, including the independent expert’s
report, which are set out in the ‘Responsible banking’ chapter of this annual report.
• Analyzed global and national awards, rankings and indexes relating to sustainability.
• Reviewed the reports of the relevant ESG analysts and its ratings and indexes, our position within them
compared to our peers, and discussed our action plan to maintain our position in selected ESG ratings and
indexes.
• Reviewed key metrics.
• Supervised and monitored corporate reputation and engagement with stakeholders, and helped measure
related initiatives.
• Worked with the nomination committee in the supervision and evaluation of the communication and
engagement with shareholders and other stakeholders, ensuring the dissemination and the quality of the
information available to them.
Information for the general shareholders' meeting and corporate documentation
Corporate documents
for 2020
• Drafted this report on the committee’s activities in 2020, which includes an analysis of its performance and
the priorities identified for 2021 following the effectiveness assessment of the board and its committees.
Annual assessment of the committee and its achievement
of 2020 objectives
The committee's effectiveness review for 2020 was part of an
external independent consultant's review of the board. It
covered the committee's structure, composition, processes
and behaviours, concluding that it is fit for purpose and
effective. For more details about the findings resulting from
the assessment see ‘Board assessment in 2020’ in section 4.3.
The committee addressed all the priorities that were
identified for 2020. Among the salient actions, it:
• Continued to focus on embedding the responsible banking
agenda throughout the Group, with emphasis on
sustainable financing and inclusive banking; monitored the
risks and opportunities of climate change, further
integrating them into Banco Santander’s strategy and
governance through feedback to senior managers and the
board; and collaborated on the review of Banco Santander’s
commitments regarding coal power generation.
• Closely followed issues related to Banco Santander's
reputation through the risk, compliance and conduct and
communication functions. In particular, the potential
impacts of the pandemic on vulnerable customers, together
with how Banco Santander committed to be part of the
solution as a responsible bank, attracted the attention of
the committee.
• Continued to coordinate with other committees, such as the
remuneration committee on the alignment of remuneration
schemes with our corporate culture and values.
2021 Priorities
The committee identified the following priorities for 2021:
• Assisting the board in setting our climate change strategy,
managing the risks this entails and harnessing opportunities
and developing sustainable finance proposals towards a
lower carbon economy.
• Monitoring responses to the covid-19 crisis, including the
status of payment holidays upon expiry, vulnerable
customers and the recovery and collection functions, to
ensure responsible banking practices are embedded in our
customer-centric strategy.
• Monitoring proposed initiatives, targets and metrics to
achieve the commitments on diversity and inclusion,
financial inclusion, talent management and ethical
behaviour.
• Promoting diversity and inclusion and overseeing how our
culture, including SPF values, are embedded in the Group.
• Promoting the communication of progress and
achievements of the Group to further develop Santander´s
reputation as one of the world’s most sustainable banks.
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and compliance
The board of directors appointed the committee’s members
based on their skills and expertise pertaining to matters
within its purview.
Further information can be found in section 4.1 'Our directors'
and 'Board skills and diversity matrix' and 'Committees skills
and diversity matrix' in section 4.2.
Ignacio Benjumea and Guillermo de la Dehesa stepped down
from the committee in 2020. R. Martín Chávez became a
member of the committee on 27 October 2020, and chairs the
committee since 22 December 2020.
Time allocation
In 2020, the innovation and technology committee held four
meetings. 'Board and committee attendance' in section 4.3
provides information on committee members’ attendance and
the estimated average time they spent on preparing for, and
participating in, meetings.
The chart below shows the committee’s approximate time
allocation to each function in 2020.
4.10 Innovation and technology committee
activities in 2020
'Through 2020, the committee has reviewed the IT
strategy (based on the pillars of agile, cloud, core
system evolution, deep technology skills –e.g. API
and artificial intelligence– and data) and its
execution progress towards the ambition of
becoming the leading global financial services open
platform. Additionally, the committee received
periodic progress updates on group digital priorities
and cybersecurity. Given the additional risks of the
pandemic, those reviews acquired additional
relevance in 2020.
There have been some changes to the membership
of the committee during the year: Guillermo de la
Dehesa and Ignacio Benjumea left the committee
upon their resignation from the board and I became
board member and the chair of this committee in
October and December, respectively, replacing Ana
Botín who remains a member of this committee. I
would like to take this opportunity to thank Ignacio,
Guillermo and Ana, on behalf of the committee, for
their contributions'.
R. Martín Chávez
Chairman of the innovation and technology committee
This section is the report on the activities of the innovation
and technology committee. It was prepared by the committee
on 27 January 2021 and approved by the board of directors
on 22 February 2021.
Composition
Position
Category
Chairman R. Martín Chávez
Independent
Appointed on
A
27/10/2020
Ana Botín
Executive
23/04/2007
Homaira Akbari
Independent
27/09/2016
Members
José Antonio Álvarez
Executive
23/02/2015
Bruce Carnegie-Brown Independent
23/02/2015
Henrique de Castro
Independent
23/07/2019
Belén Romana
Independent
19/12/2017
Secretary Jaime Pérez Renovales
A. Committee chair since 22 December 2020.
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Annual report 2020
Contents
Duties and activities in 2020
This section summarizes the innovation and technology committee’s activities in 2020.
Duties
Innovation
Innovation
Cybersecurity
Cybersecurity
Digital
Digital
Technology and operations
Technology and operations
Data management
Data management
Actions taken
• Oversaw the implementation of the group’s innovation agenda, reported to the board on plans and activities
relating to innovation and identified major challenges and capabilities relating to innovation.
• Identified opportunities to accelerate innovation and increase the rate of success of new business models,
technologies, systems and platforms in the Group, for which the strategy for the creation of PagoNxt was
reviewed.
• Identified other group initiatives to accelerate digital transformation, such as coaching programs, greater links
with start-ups, innovation labs and the creation of a testing environment for new projects (sandbox).
• Built up mechanisms to combat increasing threats, such as controls and automated security.
• Analyzed the main data loss incidents in other major entities.
• Supervised the group’s cybersecurity threat level and global cybersecurity transformation plan for 2020.
• Monitored together with the board of directors and the risk supervision, regulation and compliance
committee the group’s cybersecurity risks (internal data leakage and potential external threats, e.g.
ransomware and third party management of customer data), IT strategy (the evolution of the core banking
system) and the situation of the compliance systems for financial crime prevention.
• Reviewed the implementation of the Group’s global cybersecurity plan, in addition to major risks and controls
to mitigate them.
• Received updates on employee’s cybersecurity training and awareness and identified key areas for future
plans.
• Received an update on the digital strategy (Santander Digital and PagoNxt), forward-looking commitments for
2021 and its execution plans.
• Checked on the collaboration between local units and business units to undertake digital initiatives,
monitoring its execution.
• Monitored metrics for the digital transformation in terms of return on investments, evolution of the unit cost
per product/service/data storage, time-to-market and customer attraction.
• Reviewed primary digital strategies for transforming and accelerating the growth of new businesses.
• Reviewed the global technology strategy plan, and its implementation, and reported to the board on plans
and activities relating to technology and operations.
• Informed on the group’s main strategic technological priorities, particularly in regard to the implementation of
agile, cloud, core system evolution, deep technology skills (e.g. API and AI) and data, partnering global
businesses, support functions and retail and small and medium enterprises (SMEs) units (local and regional)
while, at the same time, improving cost efficiency and reducing IT risk.
• Made sure the technology and operations strategy properly addressed relevant issues and the group’s
priorities.
• Received reports about the international advisory board’s deliberations about technology and innovation.
• Received updates on the new model and data unit, which resulted from combining Santander Analytics
(models) and the former data unit teams in order to have a single point of contact and leverage all existing
talent with an end-to-end and cross-functional view of the models and the data value chain.
• Ensured that the data function’s resources were sufficient, validating the adequacy and readiness of the same.
Information for the general shareholders' meeting and corporate documentation
Corporate documents
for 2020
• Drafted this report on its activities in 2020, which includes an analysis of its performance and the priorities
identified for 2021 following the effectiveness assessment of the board and its committees.
Annual assessment of the committee and its achievement
of 2020 objectives
The committee's effectiveness review for 2020 was part of an
external independent consultant's review of the board. It
covered the committee's structure, composition, processes
and behaviours, concluding that it is fit for purpose and
effective. For more details about the findings resulting from
the assessment see ‘Board assessment in 2020’ in section 4.3.
The committee addressed all the priorities that were
identified for 2020. Among the salient actions, it:
• Refreshed its composition, which includes the addition of R.
Martín Chávez initially as a member and, with effect from
22 December 2020, as committee chair.
• Contributed to highlight the importance of the group’s IT
strategy and its execution, acknowledging the ambition to
become the leading open global financial services platform.
• Supervised the implementation of the policies and actions
to mitigate the cybersecurity risks, data management and
analytical capabilities of the Group's businesses, taking into
account the recommendations and opinions of the
international advisory board.
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2021 Priorities
The committee identified the following priorities for 2021:
• Supporting the board on the group’s innovation strategy,
monitoring and responding to trends resulting from new
business models, technologies, currencies and products.
• Focusing on the execution of the technology and operations
transformation model, implementing a business-led
evolution, and cybersecurity monitoring.
• Prioritizing digital strategy and monitoring its delivery, as
well as providing recommendations on cross-sectional
projects for the Group.
• Supervising that data management is effective and that the
new model and data unit run smoothly and has appropriate
resources.
• Optimizing the committee’s role, functioning and scope in
view of the work carried out by the international advisory
board.
4.11 International advisory board
Members
The members are all external and not members of the board.
Composition
Chairman Larry Summers
Sheila C. Bair
Mike Rhodin
Positions
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
Marjorie Scardino Former CEO of Pearson and
director of Twitter
Members
Francisco D’Souza CEO of Cognizant and director of
General Electric
James Whitehurst Chairman and CEO of Red Hat
George Kurtz
CEO and co-founder of CrowdStrike
Blythe Masters
Former CEO of Digital Asset
Holdings
Nadia Schadlow
Former deputy National Security
Advisor for Strategy and Assistant
to the President of the United
States
Secretary
Jaime Pérez Renovales
Functions
Banco Santander’s international advisory board was formed in
2016 to provide strategic insight into future challenges and
opportunities for the group’s businesses, particularly in
respect of innovation, digital transformation, cybersecurity
and new technologies, capital markets, corporate
governance, brand and reputation and regulation and
compliance.
Its members are prominent and respected leaders who
possess extensive experience with strategic challenges and
opportunities, particularly in terms of innovation, digital
transformation and the US market.
Meetings
The international advisory board meets at least twice a year.
In 2020, it met in the spring and autumn.
Rationale
The international advisory board affords the Group structured
and recurrent insights from international leaders who, due to
other commitments, are not able to support it as board
members.
4.12 Related-party transactions and
conflicts of interest
Related-party transactions
Directors, senior managers and significant shareholders
This subsection includes the report on related-party
transactions mentioned under recommendation six of the
Spanish Corporate Governance Code.
As per the Rules and regulations of the board, the board of
directors must analyze transactions between Banco
Santander or Group companies and directors; shareholders
holding a significant individual interest or with others,
including shareholders represented as board members in
Banco Santander or other Group companies; or people related
to them.
Related-party transactions are subject to a favourable opinion
issued by the audit committee and approval by the board,
except in cases where the law requires that they should be
approved at a general meeting. In cases of emergency, they
may be authorised exceptionally by the executive committee
and subsequently confirmed by the board.
Related-party transactions are to be assessed for its
authorization according to the principle of equal treatment
and market conditions.
Nonetheless, the board is not required to authorize
transactions that simultaneously meet the following three
conditions:
• Are carried out under agreements with basic standard terms
that usually apply to customers contracting the product or
service in question.
• Are entered into prices or rates set by the party acting as
supplier of the goods or service in question, or arm’s length
terms and conditions for commercial relations with similar
customers, where the goods or services are not subject to
set rates that already exist.
• Equal an amount that does not exceed 1% of Banco
Santander’s annual income.
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In 2020, following due enquiry, no board member, person
represented by a director or shareholders that own, whether
individually or together with others, a significant interest, or
persons related to them carried out transactions with Banco
Santander that were considered significant or under non-
market conditions.
The audit committee confirmed that all related-party
transactions completed during the year fully complied with
the abovementioned conditions so as not to require approval
from the governing bodies as mentioned in the audit
committee activities report under section 4.5 'Audit
committee activities in 2020'.
Banco Santander also has a policy for the admission,
authorization and monitoring of loans, credits and guarantees
for directors and senior managers. It sets out the procedure in
place for risk transactions of which they or their related
parties like spouse or other person with similar relationship;
minor children or those of legal age who are economically
dependent; or companies controlled by directors or senior
managers whose activity is limited to the mere holding of
assets and the management of personal or family assets.
Furthermore, it outlines general rules in terms of maximum
borrowing, interest rates and other similar conditions to those
that apply to other employees. In accordance with this policy
and with banking regulations, the policy provides that loans,
credits or guarantees to be granted to Banco Santander's
directors and senior managers or to their related parties must
be authorized by the board and subsequently by the ECB,
except in the cases listed below:
• Transactions are subject to a collective agreement signed by
Banco Santander, with similar conditions to those of
transactions granted to any employee.
• Transactions are carried out under agreements with
standard conditions that generally apply to a large number
of customers, provided that the amount granted to the
beneficiary or its related parties does not exceed EUR
200,000.
Note 5.f of the 'consolidated financial statements' lists the
Santander Group's direct risks in the form of loans, credits
and guarantees extended to directors and senior managers in
the ordinary course of business as of 31 December 2020. The
terms and conditions of these transactions are the same as
those performed under market conditions or applied to other
employees, and the corresponding benefits in kind are
imputed to them, where applicable.
Intra-group transactions
Intra-group transactions are performed under the same rules,
approvals and procedures as transactions with customers in
addition to mechanisms to ensure they are subject to market
prices and conditions
Note 52 ('Related parties') in the 'Consolidated financial
statements' and note 47 ('Related parties') in the individual
financial statements specify the amounts of the transactions
with other group entities (subsidiaries, associates and jointly-
held entities), directors, senior managers and related parties.
Conflicts of interest
Banco Santander has standards and procedures to prevent
conflicts of interest resulting from our activities and
functions, or between us and our directors and senior
managers. We also have an internal policy that provides the
Santander Group’s employees, directors and entities with
criteria to prevent and manage conflicts of interest resulting
from their activities.
Directors and senior managers
Our directors must adopt the necessary measures to avoid
situations in which their direct or indirect interests may enter
into conflict with corporate interests or their obligation
towards Banco Santander.
Directors’ duty to avoid conflicts of interest requires them to
fulfil certain obligations, and they must refrain from using the
Banco Santander name or their role to exert undue influence
on private transactions. They cannot use corporate assets and
confidential information for private purposes, nor take
advantage of Banco Santander’s business opportunities.
Moreover, they are barred from obtaining benefits or
remuneration (other than courtesies) from third parties in
connection with their role; or carrying out activities, on their
own behalf or that of others, that place them in a situation of
effective or potential competition or permanent conflict with
Banco Santander.
Directors must report direct or indirect conflicts of interest
they or their related parties may have with Banco Santander
to the board. Such conflicts will be disclosed in the financial
statements.
In 2020, no director reported having any conflict of interest
with the Group, despite abstaining on 43 occasions from
deliberations and votes on matters at board and committee
meetings. On 20 occasions, directors abstained owing to
proposals to appoint, re-elect or remove directors, or appoint
them to board committees or to the boards of Grupo
Santander companies. On 10 occasions, the matter under
consideration related to remuneration, loans or credits and on
1 occasion, the matter was a risk transaction between Banco
Santander and a company related to a director. Lastly, on 12
occasions, directors abstained in respect of the annual
verification of their status and suitability.
As directors and senior managers are subject to the Policy on
conflicts of interest and the Code of Conduct in Securities
Markets, they must provide Compliance function with a
statement on any relations they hold, which they must keep
up to date. Directors and senior managers must also report
any potential conflict of interest owing to their relations or
any other reason to the Compliance function. Furthermore,
where a conflict does exist, they must abstain from making
decisions or casting votes, in addition to notifying anyone who
is to take the respective decision.
The chief officer of the area in question is responsible for
resolving conflicts of interest. Conflicts that involve several
areas must be resolved by the common senior officer.
However, if none of the foregoing rules apply, the Compliance
function will designate someone to resolve the conflict. In the
event of doubt, the Compliance function should be consulted.
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The Code of Conduct in Securities Markets describes control
mechanisms and bodies for resolving conflicts of interest
related to securities markets. This code can be found on the
Santander Group’s corporate website. It dictates that
directors, senior managers or related parties may not carry
out (i) counter-transactions on Santander Group’s securities
within 30 days from the time they are acquired or sold; or (ii)
transactions on Santander Group securities 30 days before
the quarterly, half-year or annual results are announced and
until they are published.
Group companies
Because Banco Santander is the only group company listed in
Spain, no mechanisms must be in place to resolve conflicts of
interest with subsidiaries listed in Spain.
If such conflicts do arise, Banco Santander, as the parent
company, must consider the interests of all its subsidiaries
and how they contribute to the long-term interest of the
entire group. Subsidiaries should also consider the interests
of Grupo Santander examine how the decisions they take may
affect the Group.
Banco Santander, 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'.
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5. Management team
The table below shows the profiles (Senior Executive Vice President —SEVP—) of the Banco Santander’s senior managers
(other than the executive directors described in section 4.1 ‘Our directors’) as of 31 December 2020.
Rami Aboukhair
COUNTRY HEAD – SANTANDER
SPAIN
Lindsey Argalas
HEAD OF SANTANDER DIGITAL
Alexandra Brandão
GLOBAL HEAD OF HUMAN
RESOURCES (*)
Juan Manuel Cendoya
GROUP HEAD OF
COMMUNICATIONS,
CORPORATE MARKETING AND
RESEARCH
José Doncel
GROUP HEAD OF ACCOUNTING
AND FINANCIAL CONTROL
Keiran Foad
GROUP CHIEF RISK OFFICER
Born in 1967, Rami Aboukhair joined Grupo Santander in 2008 as a
director of Santander Insurance and head of Products and Marketing.
He had also served as managing director of products, marketing and
customers at Banco Español de Crédito, S.A. (Banesto) and managing
director and head of Retail Banking at Santander UK. In 2015, Mr
Aboukhair was appointed country head of Santander España. In
2017, he was named chief executive officer of Banco Popular
Español, S.A. until it merged with Banco Santander, S.A. He is
currently country head of Santander España.
Born in 1974, Lindsey Argalas joined the group in 2017 as senior
executive vice-president and group head of Santander Digital.
Previously, she had served as principal of The Boston Consulting
Group (BCG) (1998-2008) and as senior vice-president and chief of
staff to the CEO of Intuit Inc. (2008-2017).
Born in 1978, Alexandra Brandão joined Grupo Santander in 2003 as
head of Products and Services for Individuals at Santander Totta.
From 2012 to 2016, she was global head of Knowledge and
Development at the Grupo Santander Corporate Centre; head of
Human Resources from 2016 to 2018; and head of Commercial
Management and Segments at Santander Portugal from 2019 to
2020. Ms Brandão is member of the board of directors of Banco
Santander Uruguay.
Born in 1967, Juan Manuel Cendoya joined Banco Santander in July
2001 as group senior executive vice-president and head of the
Communications, Corporate Marketing and Research division. In
2016, Mr Cendoya was appointed vice-chairman of the board of
directors and head of Institutional and Media Relations of Santander
España. He is also a member of the board of directors of Universia
España Red de Universidades, S.A. Previously, he had been head of
the legal and tax department of Bankinter, S.A. He is a government
lawyer and a non-executive director at Arena Communications
Network, S.L.
Born in 1961, José Doncel joined Grupo Santander in 1989 as head of
Accounting. Previously, he had served as head of accounting and
financial management at Banco Español de Crédito, S.A. (Banesto)
(1994-2013). Mr Doncel was appointed senior executive vice-
president and head of the Internal Audit division in 2013 and group
head of Accounting and Financial Control in 2014. He currently
serves as the Group’s chief accounting officer.
Born in 1968, Keiran Foad joined Grupo Santander in 2012 as deputy
chief risk officer at Santander UK. Previously, he held risk and
corporate leadership roles at Barclays Bank plc (1985-2011) and
served as chief risk officer at Northern Rock plc. In 2016, he was
appointed senior executive vice-president and deputy chief risk
officer of Banco Santander, before being appointed the group chief
risk officer in 2018.
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José Antonio García
Cantera
GROUP CHIEF FINANCIAL
OFFICER
Born in 1966, José Antonio García joined Grupo Santander in 2003 as
senior executive vice-president of Global Wholesale Banking of
Banco Español de Crédito, S.A. (Banesto). In 2006, he was appointed
chief executive officer of Banesto. Previously, Mr García had served
on the executive committee of Citigroup EMEA, as well as 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. He currently serves as the
group chief financial officer.
Juan Guitard
GROUP CHIEF AUDIT EXECUTIVE Born in 1960, Juan Guitard joined Grupo Santander in 1997 as head
José María Linares
GLOBAL HEAD OF CORPORATE &
INVESTMENT BANKING
Mónica López-Monís
GROUP HEAD OF SUPERVISORY
AND REGULATORY RELATIONS
Javier Maldonado
GROUP HEAD OF COSTS
of Human Resources at Santander Investment, S.A. Previously, he
had been general counsel and secretary of the board of Santander
Investment, S.A. and Banco Santander de Negocios, S.A. In 2013, Mr
Guitard was head of Banco Santander’s Risk division. In November
2014, he was appointed head of the Internal Audit division.
Currently, he serves as the group chief audit executive. He is also a
state attorney.
Born in 1971, José María Linares joined Grupo Santander in 2017 as
senior executive vice-president and global head of Corporate and
Investment Banking. Previously, he served as an equity analyst at
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), as well as senior director
Latin America TMT equity analyst at Société Générale, New York &
São Paolo (1997-1999). Mr Linares joined JP Morgan in 1999 and
was subsequently appointed 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 Grupo
Santander and global head of Corporate and Investment Banking.
Born in 1969, Mónica López-Monís joined Grupo Santander in 2009
as general counsel and secretary of the board of Banco Español de
Crédito, S.A. (Banesto). Previously, she had been general counsel at
Aldeasa, S.A. and Bankinter, S.A., as well as independent director at
Abertis Infraestructuras, S.A. In 2015, Ms López-Monís was
appointed senior executive vice-president of Santander and group
chief compliance officer. She has been the group’s head of
Supervisory and Regulatory Relations since September 2019 and is a
state attorney.
Born in 1962, Javier Maldonado joined Grupo Santander in 1995 as
head of the International Legal division of Banco Santander de
Negocios, S.A. Mr Maldonado held several roles at Santander UK and
in 2014 was appointed senior executive vice-president of Santander
and head of Coordination and Control of Regulatory Projects. He
currently serves as group senior executive vice-president and head of
Costs.
Dirk Marzluf
GROUP HEAD OF TECHNOLOGY Born in 1970, Dirk Marzluf joined Grupo Santander in 2018 as senior
AND OPERATIONS
executive vice-president and head of IT and Operations. Previously,
he had served as CIO at AXA Group since 2013, leading the insurance
group’s technology and information security transformation and co-
sponsoring its digital strategy. Mr Marzluf also held global roles at
Accenture, Daimler Chrysler and Winterthur Group.
Víctor Matarranz
GLOBAL HEAD OF WEALTH
MANAGEMENT & INSURANCE
Born in 1976, Víctor Matarranz joined Grupo Santander in 2012 as
head of Strategy and Innovation at Santander UK. In 2014, he was
appointed senior executive vice-president and head of the Executive
Chairman’s Office and Strategy. Previously, Mr Matarranz had held
several roles at McKinsey & Company, where he had become
partner. He currently serves as global head of Wealth Management
& Insurance.
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José Luis de Mora
GROUP HEAD OF STRATEGY AND
CORPORATE DEVELOPMENT
AND OF CONSUMER FINANCE
(SANTANDER CONSUMER
FINANCE)
Jaime Pérez Renovales
Javier San Félix
GROUP HEAD OF GENERAL
SECRETARIAT AND HUMAN
RESOURCES (*)
HEAD OF SANTANDER GLOBAL
PAYMENTS
António Simões
REGIONAL HEAD OF EUROPE
Marjolein van Hellemondt- GROUP CHIEF COMPLIANCE
Gerdingh
OFFICER
Born in 1966, José Luis de Mora joined Grupo Santander in 2003.
Since then, he has been in charge of the group’s Strategic Plan
Development and Acquisitions. In 2015, he was appointed group
senior executive vice-president and group head of Financial Planning
and Corporate Development. He was appointed head of Santander
Consumer Finance on 1 January 2020 and CEO of the same entity on
17 December 2020.
See profile in section 4.1 'Our directors'.
Born in 1967, Javier San Félix joined Grupo Santander in 2004 as
head of strategic planning in the Consumer Finance division. He was
appointed director and executive vice-president of Santander
Consumer Finance in Spain in 2005 and chief operating officer of the
Santander Consumer Finance division in 2006. 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. From 2016 to 2018, he served as senior executive vice-
president and head of retail and commercial banking at Santander
UK. He currently serves as head of Santander Global Payments.
Born in 1975, António Simões joined Grupo Santander in 2020 as
regional head of Europe. He was previously at HSBC, where he held
roles including chief executive officer of global private banking,
member of the group management board and group executive
committee, and chief executive of HSBC Bank plc and chief executive
of Europe, encompassing all UK and European operations for HSBC
Group.
Born in 1964, Marjolien van Hellemondt-Gerdingh joined Santander
Group in 2019 as senior executive vice-president and chief
compliance officer. Previously, she had been chief compliance officer
of several banking and financial entities such as NN Group, Zurich
Insurance Company and De Lage Landen International B.V.
(*) Jaime Pérez Renovales continued as head of Human Resources supporting Alexandra Brandão until February 2021, when he leaved the Human Resources function.
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6. Remuneration
Sections 6.1, 6.2, 6.3, 6.4, 6.5, 6.7, 9.4 and 9.5 comprise 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 sets out the directors' remuneration
policy for 2021, 2022 and 2023, which is to be put to a vote at
the general shareholders' meeting.
The annual report on directors' remuneration and the
directors' remuneration policy for 2021, 2022 and 2023 were
approved by our board of directors on 22 February 2021,
without any votes against or abstentions.
The current remuneration policy for directors is available on
our corporate website.
6.1 Principles of the remuneration policy
The remuneration committee and the board enlisted the
assistance of Willis Towers Watson to:
• Compare relevant data with that on markets and
comparable entities on account of the group’s size,
characteristics and operations.
• Analyse and confirm compliance with certain quantitative
metrics required to evaluate accomplishment of objectives.
• Estimate the fair value of variable remuneration linked to
long-term objectives.
6.2 Remuneration of directors for
supervisory and collective decision-making
duties: policy applied in 2020
Director remuneration in their capacity as such
A. Composition and limits
The board of directors sets the individual remuneration of
directors (including executive directors) for the performance
of supervisory and collective decision-making duties within
the amount fixed by shareholders and commensurately with
the roles they perform on the collective decision-making
body, their committee membership and attendance, and
other objective circumstances the board might consider.
Remuneration of directors for executive duties
Banco Santander’s remuneration policy for executive duties
dictates that:
1. Remuneration must be in line with shareholders' interests,
conducive to creating long-term value and compatible with
our rigorous risk management, long-term strategy and
values.
2. Fixed remuneration must make up a significant proportion
of total compensation.
3. Variable remuneration must reward individuals for their
role in achieving set goals within the framework of prudent
risk management.
4. The global remuneration package and its structure must be
competitive in order to attract and retain talent.
5. Remuneration decisions must avert conflicts of interest and
discrimination.
According to our Bylaws, the remuneration of directors in
their condition as such consists of a fixed annual amount set
at the general shareholders' meeting. This amount remains in
effect until shareholders vote to amend it, even though the
board may reduce it in the years it deems appropriate. At the
annual general shareholders' meeting, remuneration for
2020 was set at EUR 6 million, which included (a) annual
allotment and (b) attendance fees.
Santander has taken out a civil liability insurance policy for
directors subject to usual terms proportionate to its
circumstances.
Directors can receive shares, share options or share-linked
compensation, subject to prior approval at the general
shareholders' meeting. Directors can also 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 Banco Santander, whether
they are the duties of an executive director or otherwise in
addition to their oversight and collective decision-making as
board members.
Lastly, non-executive directors do not have the right to
receive any benefit on the occasion of their removal from
office.
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B. Annual allotment
Each director received the amounts for serving on the board and its committees included in the chart below for 2019 and 2020.
As a gesture of responsibility in view of the situation created by the health emergency the board of directors agreed on 5 May
2020 to reduce their allotments by 20% for the balance of 2020, with effect from 1 April 2020, and propose that amounts saved
thereby be used to finance the initiatives of Banco Santander to fight against the covid-19 pandemic.
Accordingly, the applicable amounts in 2020 and 2019 were:
Amount per director in euros
Members of the board of directors
Members of the executive committee
Members of the audit committee
Members of the appointments committee
Members of the remuneration committee
Members of the risk supervision, regulation and compliance committee
Members of the responsible banking, sustainability and culture committee
Chairman of the audit committee
Chairman of the appointments committee
Chairman of the remuneration committee
Chairman of the risk supervision, regulation and compliance committee
Chairman of the responsible banking, sustainability and culture committee
Lead director
Non-executive vice chairmen
2020
1 Apr to 31 Dec
1 Jan to 31 Mar
49,500
93,500
22,000
13,750
13,750
22,000
8,250
38,500
27,500
27,500
38,500
27,500
60,500
16,500
22,500
42,500
10,000
6,250
6,250
10,000
3,750
17,500
12,500
12,500
17,500
12,500
27,500
7,500
2019
90,000
170,000
40,000
25,000
25,000
40,000
15,000
70,000
50,000
50,000
70,000
50,000
110,000
30,000
A. Since 2015, Bruce Carnegie-Brown has been allocated EUR 700,000 in minimum total annual pay (including annual allowances and attendance fees) for services to
the board and its committees, particularly as chairman of the appointments and remuneration committees and lead independent director; and for the required time
and dedication to perform these roles. However, in line with the board of directors' decision to reduce their allotments and fees with effects from 1 April 2020
explained above, which is shared by Mr. Bruce Carnegie-Brown, the same reduction shall be applied to this amount. Accordingly, the amount assigned for 2020 will
be EUR 595,000.
C. Attendance fees
Pursuant to resolutions approved by the board on the remuneration committee’s recommendations, attendance fees for board
and committees meetings (not including the executive committee, for which no fees are set) totalled the amounts included in the
chart below for the last two years.
The amounts applied until 31 March 2020 were the same as in 2019. On 5 May 2020, as a gesture of responsibility in view of the
situation created by the health emergency, the board of directors agreed to reduce their attendance fees by 20% for the balance
of 2020, with effect from 1 April 2020, and propose that the amounts saved thereby be used to finance the initiatives of Banco
Santander to fight against the covid-19 pandemic.
Attendance fees per director per meeting in euros
1 Apr to 31 Dec 1 Jan to 31 Mar
2020
Board of directors
Audit committee and risk supervision, regulation and compliance committee
Other committees (excluding executive committee)
2,080
1,360
1,200
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2,600
2,600
1,700
1,700
1,500
1,500
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D. Breakdown of bylaw-stipulated emoluments
Total director bylaw-stipulated emoluments and attendance fees received in 2020 amounted to EUR 4.1 million (EUR 4.9 million
in 2019). This is 31% less than the amount approved at the general meeting. Each director earned the following amounts for
these items:
Exec
utive
Non-
executi
ve
N
Board
Amount in euros
2020
Annual allotment
EC
AC
ASC
RC
RSRCC RBSCC
Total
2019
Board and
committee
attendance
fees
ipula
emoluments
and
attendance
fees
—
—
I
I
N
I
I
I
I
I
N
I
—
I
I
N
N
N
I
I
76,500 144,500
76,500 144,500
—
—
—
—
—
—
326,380 144,500
— 21,250 21,250
— 12,750
233,750
55,220
288,970
333,800
—
—
—
221,000
48,620
269,620
312,800
—
513,380
81,620
595,000
700,000
76,500
—
34,000
—
—
— 12,750
123,250
79,040
202,290
225,900
76,500
—
—
—
—
—
—
76,500
44,720
121,220
136,800
136,000
8,086
76,500
—
—
—
—
—
—
34,000 12,750
182,750
60,420
243,170
275,500
—
548
5,269
8,430
—
22,333
15,120
37,453
—
—
21,250
21,250
—
12,750
131,750
81,920
213,670
239,700
76,500
—
34,000
—
21,250
—
131,750
85,040
216,790
86,746
1,973
—
44,389
83,847
—
—
—
—
—
1,973
2,080
4,053
— 12,361
19,790
—
160,387
42,640
203,027
—
—
—
—
119,000 144,500
34,000
42,000
—
—
98,044 144,500
34,000
114,454
—
34,000
—
—
—
—
74,724
—
— 20,757
—
—
—
—
—
34,000 12,750
344,250
86,160
430,410
500,300
—
—
42,000
20,800
62,800
—
34,000 12,750
323,294
93,980
417,274
524,600
—
—
—
148,454
66,140
214,594
33,915
—
95,481
60,020
155,501
219,134
34,500
65,167
—
—
9,583
15,333
5,750
130,333
43,140
173,473
432,700
23,100
43,633
—
6,417
6,417
—
—
79,567
28,180
107,747
398,800
63,532
—
—
—
— 17,648
—
28,236 10,589
120,005
71,400
191,405
228,768
—
—
—
—
—
—
—
—
213,249
1,545,182 915,147 170,000 87,870 97,380 173,789 92,839 3,082,207 1,066,260
4,148,467
4,862,712
Directors
Ms Ana Botín-
Sanz de Sautuola
y O’Shea
Mr José Antonio
Álvarez Álvarez
Mr Bruce
Carnegie-Brown
Ms Homaira
Akbari
Mr Francisco
Javier Botín-Sanz
de Sautuola y
A
O’Shea
Mr Álvaro Antonio
Cardoso de
B
Souza
que
Mr Ramón Martín
Chávez MárquezC
Ms Sol Daurella
Comadrán
Manuel
Drummond
Borges Cirne de
D
C
Ms Gina Díez
E
Barroso
Mr Luis Isasi
Fernández de
F
Bobadilla
Mr Ramiro Mato
García-Ansorena
Mr Sergio RialG
Ms Belén Romana
García
Mrs Pamela Ann
WalkdenH
Mr Rodrigo
Echenique
I
Gordillo
Mr Ignacio
Benjumea Cabeza
J
de Vaca
Mr Guillermo de
la Dehesa
Romero
K
Ms Esther
Giménez-Salinas i
L
Colomer
Mr Carlos
Fernández
M
González
Total
A. All amounts received were reimbursed to Fundación Botín.
B. Director since 1 April 2018.
C. Director since 27 October 2020.
D. Director since 17 July 2019.
E. Director since 22 December 2020.
F. Director since 19 May 2020
G. Executive director since 30 May 2020
H. Director since 29 October 2019.
I. Stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020
J. Stepped down as director on 5 May 2020.
K. Stepped down as director on 3 April 2020.
L. Stepped down as director on 27 October 2020
M. Stepped down as director on 28 October 2019
N Includes emoluments for chairing committees and other roles.
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.
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6.3 Remuneration of directors
for executive duties
The policy on directors’ remuneration for executive duties in
2020 was approved by the board of directors and put to a
binding vote at the general shareholders' meeting on 3 April
2020, with 94,40% of the votes in favour. The table below
summarises the policy and its implementation for Ana Botín
and José Antonio Álvarez.
In the case of Sergio Rial, who was appointed director on April
2020, he has not received any remuneration for executive
duties in Banco Santander, S.A. during 2020, but he qualifies
as an executive director pursuant to section 529 duodecies of
the Spanish Companies Act (Ley de Sociedades de Capital),
because of his role as CEO and vice-president of Banco
Santander (Brasil) S.A. (Santander Brasil).
Component
Gross annual
salary
Variable
remuneration
Type
Fixed
Variable
Implementation in 2020
• Ana Botin: EUR 3,176 thousand.
• José Antonio Álvarez: EUR 2,541 thousand.
• See section 6.3 B ii) for details on annual metrics
and assessment.
• See section 6.3 B iv) for details on long-term
metrics.
• See section 6.3 B iii) for details on individual
variable pay.
Policy
• Paid in cash on a monthly basis.
• Individual benchmark reference.
• Calculated against annual quantitative metrics
and a qualitative assessment on account of
individual performance.
• 50% of each payment is shares withheld for
three years, unless the director already holds
shares for an amount equivalent to twice their
fixed remuneration. The number of shares is set
at the time of the award.
• 40% paid in 2021;
• 60% deferred in five years.
◦ 24% paid in equal parts in 2022 and 2023.
◦ 36% paid in equal parts in 2024, 2025 and
2026, provided certain long-term objectives
are met (2020-2022).
Fixed
Pension scheme
Variable
• Annual contribution of 22% of base salary.
• No change since 2018
• Annual contribution of 22% of 30% of the
average of variable remuneration in the last three
years
• See section 6.3 C for details on annual
contributions and pension balance.
Fixed
Other
remuneration
Shareholding
policy
N/A
• Includes life, accident and medical insurance, and • No change for Ana Botín or José Antonio Álvarez
other in-kind compensation.
since 2018.
• Includes a fixed remuneration supplement in
cash (not considered salary or pensionable) since
supplementary death and disability benefits were
eliminated.
• Payment for non-compete commitment
• N/A.
• Policy updated during 2020 to assure
compliance with recommendation 62 to the
Good Governance Code for Listed Companies of
the CNMV
• In addition to the regulatory obligation to hold
shares for one year from their grant date,
executive directors also have the obligation to
hold them for three years from their award date,
unless the director already holds shares for an
amount equivalent to 200% of their fix annual
remuneration.
• Ana Botín and José Antonio Alvarez have the
obligation to accumulate this 200% within a
period of five years since 2016 to demonstrate
the shareholding.
A. Gross annual salary
The board resolved to maintain the same gross annual salary
for Ana Botín and José Antonio Álvarez for 2020 as in 2019.
Executive directors’ gross annual salary and fixed annual
contribution to pension for 2020 and 2019 were as follows:
It also maintained the fixed pension contribution of 22% of
gross annual salary it had declared in 2019 for 2020.
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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
—
5,717
2020
Fixed annual
pension
contribution
699
559
—
1,258
Total
3,875
3,100
—
6,975
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
A. Stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020. Figure includes his gross annual salary until
he ceased to be an executive director.
B. Variable remuneration
i) General policy for 2020
The board approved the executive directors’ variable
remuneration on the remuneration committee’s
recommendation, according to its policy:
• Variable components (including the variable part of the
contributions to the benefit systems) of executive directors’
total remuneration in 2020 should amount to less than
200% of fixed components, as established by resolution of
the annual general shareholders' meeting on 3 April 2020.
• At the beginning of 2021, on the remuneration committee’s
recommendation, the board approved the final amount of
the 2020 incentive, based on the set bonus pool in
accordance with the directors' remuneration policy
approved at the general shareholders' meeting of 3 April
2020, in consideration of:
• A group of short-term quantitative metrics measured
against annual objectives.
• A qualitative assessment that cannot adjust the
quantitative result by more than 25 percentage points
upwards or downwards.
• Any exceptional adjustment that must be supported by
evidence.
• The final figure is adjusted to executive directors’
individual variable remuneration benchmark in
accordance with the current model as well as (i) their
individual objectives, which generally match the group’s
and cover financial, risk management, client satisfaction
and social impact metrics, such as being among the Top
10 companies to work for in the group’s main geographies
or financial empowerment objectives; and (ii) how they
achieve them, with consideration for how they manage
employees and have adhered to corporate values.
A. Any exceptional adjustment supported by evidence
Quantitative metrics and qualitative assessment aspects are
described below.
• Payment of the approved incentive is split equally into cash
and shares. 40% is paid in 2021, once the final amount has
been set. The remaining 60% will be deferred in equal parts
over five years (subject to long-term metrics) as follows:
• The deferred amount payable in 2022 and 2023, (24% of
the total) will be paid if none of the malus clauses
described below are triggered.
• The deferred amount payable in 2024, 2025 and 2026,
(36% of the total) will be paid if the malus clauses are not
triggered and the multi-year targets described below are
reached. These targets can only reduce these amounts
and the number of deferred shares (which can be lower
but not higher).
• When the deferred amount is paid in cash, the beneficiary
may be paid the amount adjusted for inflation up to the
date of payment.
• All payments in shares will be withheld for three years
after being delivered, unless the director already holds
shares for an amount equivalent to twice his/her annual
salary.
• 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 time
they are received.
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The payment schedule of the incentive is illustrated below.
All deferred payments can be subject to malus, even if they
are not subject to long-term objectives. Similarly, Santander
can claw back paid incentives in the scenarios and for the
period dictated in the group’s malus and clawback policy.
ii) Quantitative metrics and qualitative assessment for 2020
Executive directors’ variable remuneration for 2020 has been
based on the corporate centre executives' common bonus
pool, which calculation comes from the quantitative and
qualitative metrics approved by the board at the beginning of
2020 on the remuneration committee’s recommendation.
This also takes into account the input received from the
human resources committee, which for these purpose counts
on the participation of the senior management in charge of
the group's risk, compliance, audit, human resources and
general secretariat and financial accounting and control
functions, who among others provided input on risk, solvency,
liquidity, results' quality and recurrence, and other
compliance and control aspects. The quantitative and
qualitative results for the bonus pool resulting from the
process above, which are considered by the board, upon
recommendation from the remunerations committee, are
included in the chart below.
It is worth noting that none of the metrics and targets below
have been modified in any manner, despite the exceptional
crisis circumstances created by the covid-19 pandemic:
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Category
and
(weight)
Customers
(20%)
Metrics
Net
Promoter
Score (NPS)
C
Quantitative metrics
Qualitative
% Achievement over target Assessment
81.3 %
Target: TOP3 in 6 countries.
Achieved: TOP3 in 6 countries
D
Weighted A
assessment
Component
8.13 % Evaluation of the
robustness of the
governance, culture
and management of
conduct risk with our
clients
Number of
loyal
D
customers
Target: 22,719,800
Achieved: 22.838.300
100.5 %
10.05 %
Risks (10%) Non-
performing
loans ratio
% Target: 3.08%
% Achieved: 3.21%
95.6 %
4.78 % Assessment of the
control environment
and appropriate
management
of risk appetite and
excesses recognised.
Cost of
Credit Ratio
(IFRS9)
% Target: 1.02%
% Achieved: 1.28%
0.0 %
0.00 %
Capital
(20%)
Capital ratio
(CET1)
% Target: 11.90%
% Achieved: 12.10%
180.0 %
36.00 % Efficient capital
management.
Return
(50%)
Ordinary net
profit
(ONP)
E
Target: €8,243.2 million
Result: €4,581.15 million
G
0.0 %
% Target: 11,34%
% Achieved: 6.71%
G
0.0 %
RoTE -
Return on
Tangible
Equity
0.00 % Suitability of
business
growth compared to
the
previous year,
considering
the market
environment
and competitors.
0.00 % Sustainability and
solidity of results.
Efficient cost
management and
achievement of
efficiency
goals.
Progress in the
commitments
assumed to promote
the Group's
Responsible Banking
agenda and
incorporate it into its
business strategy
(additional indicator
in 2020)
Total
weighted
B
score
20.33 %
6.23 %
39.10 %
5.41 %
Assessment
+2.15% - Strength in
governance, especially
in the approval of
products, and relevant
improvements in
remuneration models,
while some aspects of
culture and
management by the
first line of defense are
still under
development.
+ 1.45% -
Improvement of the
control environment,
key in managing the
risks derived from the
health and economic
crisis. No relevant non-
compliance in risk
appetite.
+ 3.10% - Reinforced
capital ratio and above
the target, despite the
significant increase in
provisions due to the
context of the year
+1.83% - Solid and
sustainable results
despite global crisis
context, with focus this
year on on new
origination and
protecting spreads,
managing costs in an
efficient manner.
+ 0.30% - Sustainable
growth in a global
crisis environment,
with more efficient use
of capital in term of
profitability.
+ 3.28% - Progress
exceeding forecasts in
most of the Group's
responsible banking
agenda commitments.
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.
TOTAL
The underlying business performance resulted
in a final bonus calculation of 71.08% of the
target bonus. The board of directors, upon
recommendation from the remuneration
committee, exercised its discretion to reduce
this target bonus to 67.32%, which was the
original target submitted to the board in
December 2020 and resolved that the amount
saved would be contributed to the Santander
fund set up to support the fight against
Covid-19
(3.75) %
67.32 %
A. The weighted assessment is the result of multiplying each objective’s assessment by its weighting per category. Each category has same weighting, except as
described under Note E below.
B. Result of adding or subtracting the qualitative assessment to/from the weighted assessment.
C. The net promoter core (NPS) measures customers' willingness to recommend Santander. The assessment is based on the number of the group's core markets
where Santander’s NPS scores in the top 3, as well as on its performance against competitors. In 2020.
D. The achievement amount is calculated by adding the weight each country where the target is met has over the total of Santander Group clients.
E. For this purpose, ONP is attributed ordinary net profit, adjusted upwards or downwards for transactions the board believes have an impact not connected to the
performance of evaluated directors, for which extraordinary profit, corporate transactions, special allowances, or accounting or legal adjustments that may occur in
the year are evaluated. The specific weight of ONP in the total scorecard is 20% and RoTE is 30%.
F. 2020 underlying profit attributable to the Group is €5,081 million, but restructuring costs have been applied to it for the purpose of calculating scorecard results,
reducing this figure to €4,581 million
G. 2020 ordinary RoTE is 7.44%, but restructuring costs have been applied to it for the purpose of calculating scorecard results, reducing this figure to 6.71%.
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The following section details the individual variable
remuneration approved by the board.
iii) Determination of the individual variable remuneration
for executive directors set in 2020
The board approved executive directors’ variable
remuneration on the remuneration committee’s
recommendation based on the policy mentioned in the
paragraphs above and the result of the quantitative metrics
and qualitative assessment described above, and taking into
account the commitment made by Ana Botín and José Antonio
Alvarez on 23 March 2020 to reduce the total on their salary
and variable remuneration in 50% described below.
The board also verified that none of the following
circumstances have occurred:
1
• The Group’s ONP
for 2020 was not more than 50% less
than for 2019. Otherwise, variable remuneration would not
have been greater than 50% of the benchmark incentive.
• The group’s ONP was not negative. Otherwise, the incentive
would have been zero.
The board voted to maintain the same benchmark incentive
for Ana Botín and José Antonio Álvarez in 2020 as in 2019.
Variable contributions to pensions were not modified in 2020,
so the amounts are the 22% of the 30% of the last three
assigned bonus' average.
Voluntary Reduction of Executive Remuneration (Chairman and
CEO)
On 23 March 2020, given the health crisis created by the
covid-19 pandemic, Ana Botín and José Antonio Álvarez
proposed to reduce their 2020 total compensation (salary and
bonus) by 50% and use the amounts saved to finance the
Santander covid-19 relief fund. This proposal was supported
by the remuneration committee and approved by the board of
directors.
To achieve the 50% reduction compared to 2019, the board of
directors decided to apply an additional adjustment to Ana
Botín’s and José Antonio Alvarez’s variable compensation,
reducing the variable compensation by 74% in the case of Ana
Botín and 79% in the case of José Antonio Álvarez.
Ana Botín’s total salary and bonus for 2019 was EUR 9,688
thousand, with EUR 3,176 thousand salary and EUR 6,512
thousand bonus (of which EUR 4,168 thousand was the sum
of immediately payable and deferred -not linked to long-term
objectives- variable remuneration, and EUR 2,344 thousand
was deferred variable remuneration linked to long-term
objectives at face value). Accordingly, the total of her salary
and bonus for 2020 has been established at EUR 4,844
thousand, with EUR 3,176 thousand salary and EUR 1,668
thousand bonus (of which EUR 1,068 thousand is the sum
immediately payable and deferred -not linked to long-term
objectives- variable remuneration, and EUR 600 thousand is
deferred variable remuneration linked to long-term objectives
at face value).
José Antonio Álvarez’s total salary and bonus for 2019 was
EUR 6,893 thousand, with EUR 2,541 thousand salary and
EUR 4,352 thousand bonus (of which EUR 2,786 thousand
was the sum of immediately payable and deferred -not linked
to long-term objectives- variable remuneration, and EUR
1,566 thousand was deferred variable remuneration linked to
long-term objectives at face value). Accordingly, the total of
his salary and bonus for 2020 has been established at EUR
3,446.5 thousand, with EUR 2,541 thousand salary and EUR
906 thousand bonus (of which EUR 580 thousand is
immediately payable and deferred -not linked to long-term
objectives- variable remuneration, and EUR 326 thousand is
deferred variable remuneration linked to long-term objectives
at face value).
The chart below shows the comparison between the amounts
received in 2019 and those received in 2020:
2019
2020
Salary Bonus
Total Salary Bonus
Total
Chairman
CEO
3,176
6,512
9,688
3,176
1,668
4,844
2,541
4,352
6,893
2,541
906
3,447
% Var.
2020
vs
2019
(50) %
(50) %
Additionally, Ana Botin has made a personal decision to
donate the full amount of the cash bonus paid this year for
2020 to Banco Santander's Euros de tu nómina program,
through which employees can give up part of their pay to
projects sponsored by a group of charities voted for by
employees and Banco Santander matches the employees
donation, and to Empieza por Educar, the Spanish affiliate of
Teach for All.
Breakdown of immediately payable and deferred
remuneration
The immediately payable variable remuneration in deferred
amounts not contingent on long-term metrics and variable
remuneration deferred and contingent on long-term
objectives approved by the board of directors, following a
proposal by the remuneration committee resulting from the
aforementioned process are:
1
For this purpose, ONP is attributed ordinary net profit, adjusted upwards or downwards for transactions the board believes have an impact not connected to the
performance of evaluated directors, for which extraordinary profit, corporate transactions, impairments, or accounting or legal adjustments that may occur during
the year are evaluated. The exclusion in the calculation for these purposes of goodwill impairments is aligned with the supervisors' criteria on their
recommendations on dividend distributions.
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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
In cash
534
290
—
824
2020
In shares
534
290
—
824
Total
1,068
580
—
1,648
In cash
2,084
1,393
640
4,117
2019
In shares
2,084
1,393
640
4,117
Total
4,168
2,786
1,280
8,234
A. Stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020. Immediate and deferred variable
remuneration not contingent on long-term objectives included until he stepped down.
B. The share amounts in the foregoing table correspond to a total of 307 thousand shares in Banco Santander (1,122 thousand shares in 2019).
The following chart states deferred variable remuneration at fair value, which will only be received in 2024, 2025 and 2026,
provided that long-term multi-year targets are met
(see section 6.3 B iv)), beneficiaries continue to be employed at Santander Group, in accordance with the terms approved in the
2
:
general shareholders' meeting, and no circumstances triggering malus clauses occur
Deferred variable remuneration linked to long-term objectives (fair value)
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
2020
2019
In cash
In shares
Total
In cash
In shares
210
114
—
324
210
114
—
324
420
228
—
648
821
548
252
821
548
252
1,621
1,621
Total
1,642
1,096
504
3,242
A. Stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020. Variable remuneration contingent on long-
term objectives included until he stepped down.
B. The number of shares in the table total 121 thousand shares in Banco Santander (442 thousand shares in 2019).
Fair value has been determined on the grant date based on the valuation report of an independent expert, Willis Towers Watson.
Based on the design of the plan for 2020 and success levels of similar plans at peer entities, the expert found a range of
60%-80% reasonable to estimate the initial success ratio. Therefore, fair value was considered to be 70% of the maximum value.
The maximum number of shares to be delivered under the
plan (480 thousand shares not adjusted for fair value) is
within the limit of 4,283 thousand shares authorised in the
annual general meeting on 3 April 2020 for executive
directors. This limit was calculated with the weighted average
daily volume of weighted average listing prices of Santander
shares in the 15 trading sessions prior to the Friday (not
inclusive) before 2 February 2021 (the date on which the
board approved the 2020 bonus for executive directors),
which was EUR 2.685 per share.
iv) Multi-year targets linked to the payment of deferred
amounts in 2024, 2025 and 2026
The multi-year targets linked to the payment of the deferred
amounts payable in 2024, 2025 and 2026 are:
A
B
C
Metrics
Earnings per share (EPS) growth in 2022
vs 2019
A
Relative Total Shareholder Return (TSR)
in 2020-2022 within a peer group
Fully loaded target common equity Tier 1
B
ratio (CET1)
for 2022
33 %
Weight Target and compliance scales (metrics ratios)
If EPS growth ≥ 15%, then metric ratio is 1.5
C
If EPS growth ≥ 10% but < 15%, then metric ratio is 1 – 1.5
C
If EPS growth ≥ 5% but < 10%, then metric ratio is 0 – 1
If EPS growth < 5%, then metric ratio is 0
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 – 1
If ranking of Santander below percentile 33, then metric ratio is 0
If CET1 is ≥ 12%, then metric ratio is 1
E
If CET1 is ≥ 11% but < 12%, then metric ratio is 0 – 1
If CET1 is < 11%, then metric ratio is 0
33 %
33 %
D
A. TSR refers to the difference (%) between the final and initial values of capital invested in ordinary shares of Banco Santander. The final value is calculated based on
the dividends or other similar concepts (such as the Santander Scrip Dividend programme) shareholders receive for this investment during the corresponding period
-as if they had invested 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
2
Corresponds to the fair value of the maximum amount to be received over a total of 3 years, subject to continued service -with certain exceptions-, non- applicability
of malus clauses and compliance with set goals. Fair value was estimated at the plan award date on account of several scenarios for the variables in the plan
during the measurement periods.
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average share price at that date. To calculate TSR, the weighted average daily volumes of the weighted average listing prices for the fifteen trading sessions prior to
1 January 2020 (exclusive) is considered (to calculate the initial value) and the fifteen trading sessions prior to 1 January 2023 (exclusive) (to calculate the final
value). The peer group consists of BBVA, BNP Paribas, Citi, Crédit Agricole, HSBC, ING, Itaú, Scotia Bank and Unicredit.
B. To check success in terms of this objective, possible increases in CET1 resulting from capital increases will be disregarded (except in relation to the Santander Scrip
Dividend programme). Furthermore, the CET1 ratio at 31 December 2022 could be adjusted to factor out the impact of any new regulations on its calculation up to
that date.
C. Linear increase in the EPS ratio based on the specific EPS growth rate in 2022 in respect of 2019 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 ratio as a function of the CET1 ratio in 2022 within this bracket of the scale.
To determine the annual amount of the deferred portion
linked to objectives corresponding to each board member in
2024, 2025 and 2026, the following formula shall be applied
to each of these payments ('Final annuity') without prejudice
to any adjustment deriving from the malus clauses:
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 variable pay set in early 2021).
• 'A' is the EPS ratio according to the scale in the table above,
based on EPS growth in 2022 vs 2019.
• 'B' is the TSR ratio according to the scale in the table above,
according to the relative performance of Banco Santander’s
TSR within its peer group in 2020-2022.
• In any event, 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.
• v) Malus and clawback
Deferred amounts (whether or not contingent on multi-year
targets) will be earned if the beneficiariy continues to work
3
with the group
, and none of the circumstances triggering the
malus clause arise before each payment, according to the
section on malus and clawback clauses in the remuneration
policy.
Similarly, Banco Santander can clawback any paid variable
amounts in the scenarios and for the period dictated by the
terms and conditions in the said policy.
Variable remuneration for 2020 can be clawed back until the
beginning of 2027.
Malus and clawback clauses are triggered if the financial
performance of the Banco Santander, a specific division or
area, or exposures generated by staff is poor on account of:
Category
Risk
Capital
Regulation and
internal codes
Factors
Significant failures in risk management by
Banco Santander, or by a business or risk
control unit.
An increase in capital requirements at the
Banco Santander 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 Banco
Santander’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 committe, and cannot be
proposed once the retention period for the final payment in
shares under the plan has elapsed in early 2027. Therefore,
on the remuneration committee’s recommendation and
depending on the level of compliance with the conditions for
applying malus clauses, the board determines the specific
deferred incentive amount to be paid as well as any amount
that could be subject to clawback.
C. Main features of the benefit plans
Executive directors participate in the defined contribution
pension scheme created in 2012, which covers contingencies
due to retirement, disability and death.
• 'C' is the CET1 ratio according to compliance with the CET1
Conduct
target for 2022 described in the table above.
3
When the beneficiary’s relationship with Banco Santander or another group entity terminates because of retirement, early retirement or pre-retirement; a dismissal
ruled by the courts to be wrongful; unilateral withdrawal for good cause by an employee (which includes 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;
mandatory redundancy; or because an employer other than Banco Santander ceases to belong to Santander Group, the right to receive shares and deferred
amounts in cash and any amounts of the deferred amounts in cash adjusted for inflation will remain under the same conditions in force as if none of such
circumstances had occurred. In the case of death, the right will pass to the beneficiary’s heirs.
In cases of justified temporary leave due to temporary disability, suspension of contract due to maternity or paternity leave, or leave to care for children or a
relative, there will be no change in the beneficiary’s rights. If the beneficiary goes to another group company (even through international assignment and/or
expatriation), these rights will likewise not change. If the relationship terminates by mutual agreement or because the beneficiary obtains a leave not mentioned
above, the terms of the termination or temporary leave agreement will apply.
None of those circumstances attach the right to receive the deferred amount in advance. If beneficiaries or their heirs maintain the right to receive deferred pay in
shares and cash and any deferred amounts in cash adjusted for inflation, it will be delivered within the periods and under the terms dictated by the rules for the
plans.
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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In the event of pre-retirement and up until the retirement
date, executive directors have the right to receive an annual
allowance. Ana Botín’s maximum allotment is the sum of her
fixed remuneration and 30% of the average of her last three
variable remuneration amounts. José Antonio Álvarez’s
allotment is his fixed remuneration paid as senior vice
president.
According to the 2012 system, contracts for executive
directors (and other senior managers) with defined benefit
pension obligations were transformed into a defined
contribution system. The new system gives executive
directors the right to receive benefits upon retirement, even if
they are not active at Banco Santander at the time, based on
contributions to the system. It also replaces their previous
right to receive a pension supplement in the event of
retirement.
The initial amount for each executive director in the new
defined contribution pension scheme corresponded to the
market value of the assets for which the provisions for due
obligations were recognised when the previous pension
commitments had been transferred to the new pension
scheme.
Every year since 2013, Banco Santander has been
contributing to the pension scheme for executive directors
and senior executives in proportion to their pensionable bases
until their departure from the group, retirement, death or
disability (even during pre-retirement). The pensionable base
for executive directors is the sum of fixed remuneration plus
30% of the average of their last three variable remuneration
amounts (in the event of José Antonio Álvarez’s pre-
retirement, it will be his fixed remuneration as a senior
executive vice-president). Contributions will be 22% of
pensionable bases in all cases.
Pursuant to remuneration regulations, contributions
calculated on the basis of variable remuneration are subject
to the discretionary pension benefits scheme. Therefore,
under the policy, malus and clawback clauses can be enforced
on them in place at any given time and during the same
period in which variable remuneration is deferred.
Furthermore, these contributions must be invested in shares
in Banco Santander for five years from the date of the
executive director's retirement, or from the date on which
executive directors leave the group. Once that period has
elapsed, the amount invested in shares will be paid to them
or their beneficiaries if some contingency covered by the
pension scheme was happened or will be added to the
remainder of their cumulative balance until their retirement
age when the total amount will be paid.
The benefit plan is outsourced to Santander Seguros y
Reaseguros, Compañía Aseguradora, S.A. The economic rights
of the directors previously mentioned belong to them even if
they are not active at Banco Santander at the time of their
retirement, death or disability. Their contracts do not stipulate
any severance payment outside the extent of the law for
termination of contract or the aforementioned annual
allowance for pre-retirement.
Pursuant to the director's remuneration policy approved at
the annual general meeting on 23 March 2018, the system
contributes 22% of the respective pensionable base.
The provisions recognised in 2020 for retirement pensions a
amounted to 2,019 thousand euros (2,003 thousand euros in
2019), as broken down below.
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Total
2020
1,155
864
2019
1,145
858
2,019
2,003
These are the amounts corresponding to each executive
director as of 31 December 2020 and 2019 in the pension
scheme:
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
2020
49,444
18,082
—
67,526
2019
48,104
17,404
13,268
78,776
A. Rodrigo Echenique has not participated in the defined contribution pension
scheme described in the preceding paragraphs. However, for reference
purposes, this year’s table details his rights before he was named an
executive director. Rodrigo Echenique's accrued obligation as of December
2020 is zero, since he received the benefit in the form of capital in 2020.
Therefore, there is no pending commitment in this regard in respect of
Rodrigo Echenique.
D. Other remuneration
Santander Group also takes out insurance policies for life,
health and other contingencies for its executive directors. This
other remuneration component includes the fixed
supplement approved for Ana Botín and José Antonio Álvarez
to replace the supplementary benefits from the pension
scheme eliminated in 2018, in addition to the cost for insuring
death or disability until they retire. Executive directors are
also covered under the group’s civil liability insurance policy.
Rodrigo Echenique received 1,800 thousand euros as first
payment for his compensation for his two-year non-compete
commitment from the date he stepped down as executive
director (30 April 2019). In May 2020 he received the same
amount for the payment that was pending in connection with
this commitment.
Note 5 to the group’s consolidated financial statements
describes other benefits received by executive directors in
detail.
E. Shareholdings
In 2016, on the remuneration committee’s recommendation,
the board of directors approved a shareholding policy to
better align executive directors with shareholders’ long-term
interests.
According to this policy, in addition to the executive directors’
commitment to maintaining a significant holding of shares in
the group for as long as they have their role, executive
directors active on 1 January 2016 would have five years to
demonstrate that their personal assets include shares in
Banco Santander that amount to twice their nett annual
salary on that date. Executive directors have complied with
this policy.
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Likewise, in addition to the regulatory obligation for executive
directors not to sell the shares they receive as remuneration
for a year from their award, which is included in the
shareholding policy, and will apply to all cases, this policy has
also been updated to include the obligation for executive
directors not to sell the shares they receive as remuneration
for a period of three years from their award date, unless the
executive director already holds Banco Santander shares for
an amount equivalent to twice his/her fix annual
remuneration.
F. Remuneration of Sergio Rial in Santander Brasil
Sergio Rial has received the following remuneration In his role
as CEO of Santander Brasil:
However, in 2020 Alvaro Cardoso de Souza was paid BRL
1,947 thousand (EUR 335 thousand) as non-executive
chairman of Banco Santander Brasil, S.A., Homaira Akbari was
paid USD 190 thousand (EUR 156 thousand) as member of
the board of Santander Consumer USA (SCUSA) and EUR
17,200 as member of the Board of PagoNxt), and Henrique
Manuel Drummond Borges Cirne de Castro and Ramón Martín
Chávez Márquez were each paid the same EUR 17,200 as
members of the board of PagoNxt.
Likewise, Luis Isasi was paid EUR 740 thousand as chairman
of the board of Santander Spain (amount included in the chart
below as "other remuneration" as it is paid by Banco
Santander, S.A.)
2020
Base salary
Other fixed benefits
Pensions
Variable remuneration
Total
BRL thousand
EUR thousand
H. Individual remuneration of directors for all items in 2020
12,645
39
5,041
30,240
47,965
2,175
7
867
5,201
8,250
Below is a breakdown of each director’s short-term salary
(payable immediately) and deferred remuneration not based
on long-term performance for 2020 and 2019. Note 5 to the
group’s consolidated financial statements contains
disclosures on shares delivered in 2020 under the deferred
remuneration schemes of previous years where conditions for
their delivery were met in the related years.
His variable remuneration is subject to the same policy
principles, deferrals, multi year targets linked to the payment
of deferred amounts and malus and clawback principles
described in B herein, though referred to the subsidiary where
he is the CEO.
G. Remuneration of board members as representatives of
Banco Santander
The executive committee has resolved that the remuneration
received by directors who represent Banco Santander on
boards of companies where it owns equity and were
appointed after 18 March 2002 will accrue to the group. No
executive director received remuneration for this type of
representation in 2020 or 2019.
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Corporate
governance
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Risk management
and compliance
Bylaw-stipulated
emoluments
Board and
board
committees
annual
allotment
Board and
committee
attendance
fees
234
221
513
123
77
183
22
132
132
2
160
344
42
323
148
95
130
80
55
49
82
79
45
60
15
82
85
2
43
86
21
94
66
60
43
28
EUR thousand
2020
Salary and bonus of executive directors
Immediate Deferred
payment
bonus
(50% in
shares)
payment
bonus
(50% in
shares)
667
362
—
—
400
217
—
—
Fixed
Salary
3,176
2,541
—
—
Total
4,243
3,120
—
—
2019
Pension
Contribut
ion
Other
remuneration
Total
Total
1,155
864
—
—
1,131
1,764
—
—
6,818
6,018
595
202
9,954
8,270
700
226
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
740
—
—
—
—
1,800
102
—
122
243
37
214
217
4
943
430
63
417
214
1,955
275
108
137
276
—
240
86
—
—
500
—
525
34
4,874
524
399
120
—
3,081
3,770
71
—
1,066
1,094
—
—
5,717
6,317
—
—
1,029
5,146
—
—
617
—
—
7,363
3,087 14,550
—
—
2,019
2,003
—
—
191
—
5,537 19,066
—
5,770
228
214
—
27,187
Directors
Ms Ana Botín-Sanz de Sautuola y
O’Shea
Mr José Antonio Álvarez Álvarez
Mr Bruce Carnegie-Brown
Ms Homaira Akbari
Mr Francisco Javier Botín-Sanz de
Sautuola y O’Shea
A
Mr Álvaro Antonio Cardoso de
Souza
B
Mr Ramón Martín Chávez Márquez
C
Ms Sol Daurella Comadrán
Mr Henrique Manuel Drummond
Borges Cirne de Castro
E
Ms Gina Díez Barroso
D
Mr Luis Isasi Fernández de
F
Bobadilla
Mr Ramiro Mato García-Ansorena
Mr Sergio Rial
G
Ms Belén Romana García
Mrs Pamela Ann Walkden
H
I
Mr Rodrigo Echenique Gordillo
Mr Ignacio Benjumea Cabeza de
J
Vaca
Mr Guillermo de la Dehesa Romero
K
Ms Esther Giménez-Salinas i
L
Colomer
Mr Carlos Fernández González
M
Total 2020
Total 2019
A. All amounts received were reimbursed to Fundación Botín.
B. Director since 1 April 2018.
C. Director since 27 October 2020.
D. Director since 17 July 2019.
E. Director since 22 December 2020.
F. Director since 19 May 2020
G. Executive director since 30 May 2020
H. Director since 29 October 2019.
I.Stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020
J. Stepped down as director on 5 May 2020.
K. Stepped down as director on 3 April 2020.
L. Stepped down as director on 27 October 2020.
M. Stepped down as director on 28 October 2019.
The following table provides each executive director’s salary contingent on multi-year targets. It is only paid if they remain active
in the group, malus clauses do not apply and set multi-year targets (or their minimum thresholds, with the corresponding
deduction arranged at the end of the year) are achieved.
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
B
Mr Rodrigo Echenique Gordillo
Total
EUR thousand
2020
A
(50% in shares)
420
228
—
648
2019
A
(50% in shares)
1,642
1,096
504
3,242
A. Fair value of the maximum amount receivable over a total of 3 years (2024, 2025 and 2026), which was estimated when the plan was granted, based on several
scenarios relating to variables in the plan during the measurement periods.
B. Stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020.
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J. Comparative analysis of directors' remuneration,
company performance and average remuneration of
employees
This chart summarises directors’ compensation (short-term
remuneration, deferred variable remuneration and/or
deferred variable remuneration linked to multi-year targets)
for executive duties in relation to underlying attributable
profit.
Ratio of executive directors’ total remuneration to
underlying attributable profit
I. Ratio of variable to fixed pay components in 2020
At the April 2020 AGM, shareholders approved a maximum
ratio of 200% of variable to fixed components in executive
directors’ pay.
The table below shows the ratio of variable components to
fixed components for each executive director’s total pay in
2020. This ratio decreased by 90 p.p. for Ana Botín and by 66
p.p. for José Antonio Álvarez in respect of 2019 owing to the
decrease in their variable pay mentioned in subsection B.iii.
Executive directors
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Mr Sergio Rial
Variable Components /
fixed components (%)
40 %
24 %
167 %
For these purposes:
• Variable components include all items of this nature, such
as any contributions to the pension scheme calculated on
directors’ variable pay.
• Fixed components consist of the other items each director
receives for executive duties, including contributions to
pension schemes calculated on the basis of fixed
remuneration and other benefits, as well as all bylaw-
stipulated emoluments that the director is entitled to
receive in his or her capacity as such.
The following chart shows the comparative analysis between the directors' remuneration, the company performance (underlying
profit attributable to the Group, Ordinary ROTE) and the average remuneration of Santander employees in the last 5 years:
1
Directors' remuneration
• Executive Directors
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
A
Mr Sergio Rial
2
• Non-Executive Directors
Mr Bruce Carnegie-Brown
B
Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea
Ms Sol Daurella Comadrán
C
Ms Belén Romana García
D
Ms Homaira Akbari
E
Mr Ramiro Mato García-Ansorena
F
Mr Álvaro Cardoso de Souza
Mr Henrique Manuel Drummond Borges Cirne de Castro
Mrs Pamela Ann Walkden
H
G
I
Mr Luis Isasi Fernández de Bobadilla
J
Mr Ramón Martín Chávez Márquez
K
Ms Gina Díez Barroso
Company’s performance
Underlying profit attributable to the Group
Ordinary RoTE
Employees' average remuneration
2020
2019
2018
2017
2016
6,818
6,018
63
9,954
8,270
—
10,483
8,645
—
10,582
8,893
—
9,800
8,255
—
595
122
214
417
202
430
243
217
214
943
37
4
700
137
240
525
226
500
276
86
34
—
—
—
732
121
215
414
199
450
148
—
—
—
—
—
731
124
207
297
159
36
—
—
—
—
—
—
721
115
191
219
32
—
—
—
—
—
—
—
5.081
7,44%
43.867
8.252
11,79%
43.262
8.064
12,08%
41.522
7.516
11,82%
40.519
6.621
11,08%
n.a.
1. Deferred variable remuneration linked to long-term objectives not included. 2. Non-executive directors' remuneration fluctuations are caused by joining or leaving the Board of Directors and
the difference in the amount of meetings they assist during the year. Hence there is no correlation between their remuneration and the company performance. A. Executive director since 30 May
2020. B. All amounts received were reimbursed to Fundación Botín. C. Director since 22 December 2015. D. Director since 27 September 2016. E. Director since 28 November 2017. F. Director
since 23 March 2018. G. Director since 17 July 2019. H. Director since 29 Octobre 2019. I. Director since 19 May 2020. J. Director since 27 October 2020. K.Director since 22 December 2020.
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Risk management
and compliance
J. Summary of link between risk, performance and remuneration
Banco Santander's remuneration policy and its application in 2020 have promoted sound and effective risk management while
the fulfilment of business objectives.
The key elements of the remuneration policy for executive directors making alignment between risk, performance and reward in
2020 were as follows:
Key words
Metrics balance
Financial thresholds
Long-term objectives
Individual performance
Variable remuneration cap
Control functions involvement
Malus and clawback
Payment in shares
Aspect aligning risk, performance and remuneration
The balance of quantitative metrics and qualitative assessments, including customer, risk, capital and
profitability in relation to risk, 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.
The discretion of the board to consider the performance of each executive director in the award of their
individual variable remuneration.
200% of fixed remuneration.
The work undertaken by the human resources committee aided by senior managers Control functions
leading control functions in relation to the analysis of quantitative metrics information and undertaking
qualitative analysis.
Malus can be applied to unvested deferred pay and clawback can be applied to vested or paid compensation
under the conditions dictated by the group’s remuneration policy.
At least 50% of variable pay is in shares withheld for a period of time upon delivery.
6.4 Directors' remuneration policy for
2021, 2022 and 2023 submitted to a
binding shareholder vote
Remuneration policy principles and remuneration system
A. Directors’ remuneration in their capacity as such
Director’s remuneration is regulated by article 58 of the
Banco Santander’s bylaws and article 33 of the Rules and
regulations of the board of directors. For 2021, 2022 and
2023, no changes to the principles and composition of
directors’ remuneration for supervisory and collective
decision-making duties are planned with respect of those in
2020. They are described in sections 6.1 and 6.2.
B. Executive directors' remuneration
Executive directors are entitled to be paid the remuneration
(e.g., salaries, incentives, bonuses, severance payments for
early termination from such duties, and amounts to be paid
by Banco Santander for insurance premiums or contributions
to savings schemes) deemed appropriate for performing
executive functions following a proposal from the
remunerations committee and by resolution of the board of
directors, subject to the limits set by law. For 2021, 2022 and
2023, no changes to the principles of executive directors’
remuneration for executive duties are planned. They are
described in sections 6.1 and 6.3.
Every year, Banco Santander conducts a comparative analysis
of total compensation for executive directors and other senior
executives. For 2021, the analysis will consist of a 'peer
group' made up by BBVA, BNP Paribas, Citi, Crédit Agricole,
HSBC, ING, Itaú, Scotia Bank and Unicredit.
Directors’ remuneration for 2021
A. Directors remuneration in their capacity as such
In 2021, directors, in their capacity as such, will receive
remuneration for supervisory and collective decision-making
duties for a total of up to 6 million euros as authorised by the
shareholders at the April 2020 AGM (which will again be put
to a vote at the 2021 AGM). It consists of:
• annual allocation; and
• attendance fees.
The amounts agreed for 2021 are the same as those initially
established for 2020 disclosed in section 6.2.B and C above,
with the exception of the IT and innovation committee, whose
members will receive an annual allotment of EUR 25,000,
with an additional EUR 70,000 in the case of its chairman, and
the same attendance fees as other committees (with the
exception of the executive committee, the audit committee
and the risk supervision, regulation and compliance
committee).
The specific amounts and the form of payment are
determined by the board of directors in the manner described
in section 6.2 above, based on the objective circumstances of
each director.
As per the description of the director remuneration system,
Banco Santander will pay the premium for the civil liability
insurance of its directors in 2021, which it took out under
customary market terms and proportionally to the
circumstances of Banco Santander.
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B. Executive directors' remuneration for the performance of
executive duties
no malus clauses described under section 6.3 B vi) are
triggered.
i) Fixed remuneration components
A) Gross annual salary
On the remuneration committee’s recommendation, the
board resolved that Ana Botín and José Antonio Álvarez’s
gross annual salaries would be the same for 2021 as in 2020.
Their gross annual salary amounts could increase owing to
adjustments made to the fixed remuneration mix based on
standards approved by the remuneration committee, as long
as it will not increase the group’s costs.
As regional head for South America, Sergio Rial will receive,
subject to the approval of the 2021 AGM, a gross annual
salary amount of EUR 750 thousand.
B) Other fixed remuneration components
• Benefit systems: defined contribution schemes as set out in
section 'Pre-retirement and benefit schemes'.
• Supplement to fixed salary: Ana Botín will receive EUR
525,000 and José Antonio Álvarez, EUR 710,000 as a
supplement to their fixed pay in 2021. This had been
approved in 2018 when the supplementary death and
disability pension schemes were eliminated.
• Social welfare benefits: executive directors will also receive
social welfare benefits such as life insurance premiums,
medical insurance and the allocation of remuneration to
employee loans, in accordance with Banco Santander’s
general policy for senior management, and in the same
terms as the rest of employees. Additional information can
be found under the 'Pre-retirement and benefit plans'
section.
• The amount deferred over the next three years (36% of
the total) will be paid in 2025, 2026 and 2027, on the
condition that no malus clauses are triggered and long-
term targets –described in section D) Deferred incentive
subject to long-term performance objectives– are met.
The Group can claw back incentives already paid in the cases
and during the term set out in its malus and clawback policy,
described under section 6.3 B vi).
Exceptionally, when a new executive director joins Banco
Santander, his/her variable pay may include a sign-on bonus
and/or buyouts.
Variable components in executive directors’ total
remuneration for 2021 cannot exceed the limit of 200% of
fixed components, submitted for approval to the 2021 AGM.
However, under EU regulations on remuneration, certain
variable components can excluded.
A. Variable remuneration benchmark
Variable remuneration for executive directors in 2021 will be
set based on a standard benchmark contingent upon the full
achievement of set targets. The board of directors may revise
the variable pay benchmark on the remuneration committee’s
recommendation and following market and internal
contribution criteria.
B. Setting of final variable remuneration based on yearly
results
Based on that standard benchmark, 2021 variable
remuneration for executive directors will be based on the
corporate bonus pool, and set according to:
ii) Variable remuneration components
• A set of short-term quantitative metrics measured against
annual objectives.
• A qualitative assessment that cannot raise or lower the
quantitative result by more than 25%.
• An exceptional adjustment that must be supported by duly
substantiated evidence and may involve changes owing to
control and/or risk defficiencies, negative assessments from
supervisors or unexpected material events.
In an effort to further simplify the executive compensation
framework, upon recommendation from the remuneration
committee, the board of directors has approved a
simplification of the metrics based on yearly results, which
number has been reduced from the seven metrics used in
2020 and previous years to four.
The board approved the policy on executive directors’ variable
remuneration for 2021 on the remuneration committee
recommendation, based on the remuneration policy
principles described under section 6.3.
In the case of Sergio Rial, although it is not expected that he
will receive any variable remuneration from Banco Santander,
S.A. in 2021, the same principles apply to his variable
remuneration in Santander Brasil, though referred to the
metrics and targets for the region and country where he
carries out his executive duties.
Executive directors’ variable remuneration consists of a single
incentive scheme, linked to the achievement of short-and
long-term objectives. It is structured as follows:
• The final amount of variable remuneration will be set at the
start of the following year (2022) based on the benchmark
amount and subject to compliance with the annual
objectives described under section B) below.
• 40% of the incentive will be paid immediately once the final
amount has been set, and 60% will be deferred in equal
parts paid out over five years and subject to long-term
metrics:
• The amount deferred over the first two years (24% of the
total) will be paid in 2023 and 2024 on the condition that
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The scorecard below provides the detailed quantitative
metrics, qualitative assessment factors and weightings:
The final three payments will also be subject to long-term
objectives described in section D) below.
Category and
weighting
Quantitative
metrics
Customers
(20%)
A
NPS
Risks - Cost of
Credit Ratio (10%)
Qualitative assessment
Accomplishment of objectives
in the rules on risk conduct
with customers.
Appropriate management of
risk appetite and excesses
recognised.
Adequate management of
operational risk.
Capital - Capital
Ratio (CET1)(20%)
B
Efficient capital management
The portion paid in shares cannot be sold until one year has
elapsed since they were delivered.
D) Deferred variable pay subject to long-term objectives
As indicated above, the amounts deferred in 2025, 2026 and
2027 will be paid on the condition that the group achieves its
long-term targets for 2021-2023, in addition to the terms
described in section E).
The long term metrics and related targets are:
a. Banco Santander’s consolidated underlying EPS growth
target in 2023 vs 2020. The EPS ratio for this target is
obtained as follows:
Shareholders
(80%)
Return - RoTE:
return on tangible
equityB
(50%)
Suitable business growth in
respect of the previous year,
considering the market and
competitors.
Sustainable and robust
earnings.
Progress against the 11 public
commitments for responsible
banking included in the
responsible banking report.
Efficient cost management
and achievement of efficiency
goals.
A. Net promoter score.
B. For this purpose, these metrics may be adjusted upwards or downwards by
the board,following a proposal from the remuneration committee, when
inorganic transactions, material changes to the Group’s composition or size
or other extraordinary circumstances (such as impairments, legal changes or
restructuring procedures) have occurred which affect the suitability of the
metric and achievement scale established in each case and resulting in an
impact not related to the performance of the executive directors and
executives being evaluated.
Lastly, as additional conditions for determining the incentive,
the following circumstances must be confirmed to set
variable pay:
• If the group’s ONP for 2021 were 50% less than in 2020,
variable pay would in no case exceed 50% of the benchmark
incentive for 2021.
• If the group’s ONP were negative, the incentive would be
zero.
When setting individual bonuses, the board will also consider
restrictions to the dividend policy imposed by supervisors.
C) Forms of payment of the incentive
Variable remuneration is 50% in cash and 50% in shares. One
portion is paid in 2022 and the other is deferred for five years
and subject to long-term metrics:
a) 40% of variable pay is paid in 2022, net of tax, with half in
cash and half in shares.
b) 60% paid, if applicable, in five equal parts in 2023, 2024,
2025, 2026 and 2027, net of tax, with half in cash and half
in shares, under the conditions stipulated in section D).
EPS growth in 2023
(% vs. 2020)
≥ 125%
≥ 100% but < 125%
≥ 70% but < 100%
< 70%
‘EPS Ratio'
1.5
A
1 – 1.5
A
0 - 1
0
A. Straight-line increase in the EPS ratio based on the underlying EPS growth
rate in 2023 in respect of 2020 within this bracket of the scale.
To verify compliance with this objective, the board, following
a proposal from the remuneration committee, may adjust it
to remove the effects of any regulatory change to its
calculation rules or any extraordinary circumstances (such as
impairments, corporate transactions or restructuring
procedures) that have occurred which affect the suitability of
the metric and achievement scale established in each case
and resulting in an impact not related to the performance of
the executive directors and executives being evaluated.
(b)Relative performance of Banco Santander's total
shareholder return (TSR) in 2021-2023 in respect of the
weighted TSR of a peer group comprising 9 credit
institutions, with the appropriate TSR ratio based on the
group’s TSR among its peers.
Ranking of Santander TSR
percentile
th
Above the 66
Between the 33
(both inclusive)
rd
Below the 33
rd
A
and 66th percentile 0 – 1
percentile
0
'TRS Ratio'
1
A. Increase in the TSR ratio proportional to the number of positions moved up in
the ranking.
TSR measures the return on shareholders’ investment. It is
the sum of the change in share price plus dividends and other
similar items (including the Santander Scrip Dividend
programme) shareholders can receive during the period.
The peer group comprises the following entities: BBVA, BNP
Paribas, Citi, Credit Agricole, HSBC, ING, Itaú, Scotiabank and
Unicredit.
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(c) Compliance with the Santander Group’s consolidated fully
loaded target common equity tier 1 ratio (CET1) for 2023.
The CET1 ratio relating to this target is obtained as
described below:
CET1 in 2023
≥ 12%
≥ 11% pero < 12%
< 11%
CET1 ratio
1
0 – 1
0
A
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, the CET1 ratio
deriving from share capital increases (other than those
implemented under the Santander Dividendo Elección scrip
dividend scheme) will be disregarded. Moreover, the CET1
ratio at 31 December 2023 may be adjusted by the board,
following a proposal of the remuneration committee, to
remove the effects of any regulatory change to its calculation
rules or any extraordinary circumstance (such as
impairments, corporate transactions or restructuring
procedures) not related to the performance of the executive
directors and executives being evaluated, that may arise in
relation to its calculation until such date.
The following formula will be used to set the annual amount
of performance-based deferred variable remuneration in
2025, 2026 and 2027 ('Final annuity'), without prejudice to
any adjustment deriving from the application of the malus
policy (see section 6.3 B vi):
Final annuity = Amt. x (1/3 x A + 1/3 x B + 1/3 x C)
where:
• 'Amt.' is one third of variable remuneration deferred
conditional on performance (i.e. Amt. will be 12% of the
total incentive set in early 2022).
• 'A' is the EPS ratio according to the scale in the table above,
based on EPS growth in 2023 vs 2020.
• 'B' is the TSR ratio according to the scale in the table above,
according to the relative performance of Banco Santander’s
TSR within its peer group in 2021-2023.
• 'C' is the CET1 ratio according to compliance with the CET1
target for 2023 described in section (c) above.
• In any event, 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
Directors will be paid deferred amounts (including those
linked to long-term targets) if they remain in the group and
none of the circumstances triggering malus clauses arise (as
per the malus and clawback section in the group’s
remuneration policy) under terms similar to those indicated
for 2020. Furthermore, the group can claw back paid
incentives under the scenarios, period and terms and
conditions set out in the remuneration policy.
258
Hedging 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.
Selling shares is also prohibited for at least one year since
they are received.
The remuneration committee may propose to the board
adjustments in variable remuneration under exceptional
circumstances owing to internal or external factors, such as
requirements, orders or recommendations issued by
regulatory or supervisory bodies. Such adjustments will be
described in detail in the report on the remuneration
committee and the annual report on directors’ remuneration
put to a non-binding vote at the annual general meeting.
iv. Shareholdings
As described in section 6.3.E, in addition to the regulatory
obligation not to sell shares they receive as remuneration for
a year since from their award date, in order to comply with
recommendation 62 of the Spanish Corporate Governance
Code, the policy on shareholdings has been updated to
include the obligation for executive directors not to sell the
shares they receive as variable remuneration for a period of
three years from their award date, unless the executive
director already holds Banco Santander shares for an amount
equivalent to twice his/her annual salary.
v. Principle of equal pay
Executive directors, as well as any other Santander employee,
are subject to the principle of equal pay included in Santander
Group's Remuneration Policy, which does not allow for any
kind of discrimination, and fosters for remuneration
management to assure equal pay for men and women.
Directors’ remuneration for 2022 and 2023
A. Directors’ remuneration
For 2022 and 2023, no changes to directors’ remuneration are
planned in respect of the remuneration described for 2021,
although shareholders at the 2022 or 2023 annual general
meeting could approve an amount higher than the six million
euros currently in force, or the board could approve an
alternative allocation of that amount to directors.
B. Directors' remuneration for the performance of executive
duties
Executive directors’ remuneration will conform to principles
similar to those applied in 2021, with the following changes.
i. Fixed components of remuneration
A. Gross annual salary
Executive directors’ annual gross fixed pay may be adjusted
each year based on the criteria approved by the remuneration
committee at any given time. For 2022 and 2023, it may not
increase above 5% of their annual gross salary in the previous
year. It could also increase owing to adjustments made to the
fixed remuneration mix based on standards approved by the
remuneration committee, as long as it will not increase the
Group’s costs.
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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
This should not increase executive directors’ total
remuneration. Otherwise, it must be disclosed in the report
on the remuneration committee and the annual report on
director's remuneration put to a non-binding vote at annual
general meeting.
B) Other fixed remuneration components
No changes planned in respect of the terms for 2021.
ii) Variable remuneration components
The policy on executive directors’ variable remuneration for
2022 and 2023 will be based on the same principles as in
2021, following the same single-incentive scheme described
above, and subject to the same rules of operation and
limitations.
A) Setting variable remuneration
Executive directors’ variable remuneration for 2022 and 2023
will be set based on the corporate bonus pool and a
benchmark approved for each year which takes into account:
• a set of short-term quantitative metrics measured against
annual objectives and aligned with the group’s strategic
plan. These metrics will also cover, at least, shareholder
return targets, capital and customers. They can be
measured at group level and, where applicable, at division
level, for a specific business division headed by an executive
director. The results of each metric can be contrasted with
the budget for the financial year, as well as with growth
from the previous year.
• a qualitative assessment that cannot raise or lower the
quantitative result by more than 25%. It will be conducted
for the same categories as the quantitative metrics,
including shareholder returns, risk and capital management
and customers.
• an exceptional adjustment that must be duly substantiated
and may involve changes owing to control and/or risk
shortfalls, negative assessments from supervisors or
unexpected material events.
The quantitative metrics, qualitative assessment and
potential extraordinary adjustments will ensure main
objectives are considered from the perspective of the various
stakeholders and that the importance of risk and capital
management is factored in.
Once the corporate bonus pool is fixed according to the
criteria above, the board of directors, further to a proposal
from the remunerations committee, decides on the
individual bonus, taking into consideration the level of
achievement of their individual objectives, which in general
terms coincide with the bonus pool metrics (60%) and their
compliance with corporate values (40%).
Lastly, the following circumstances must be confirmed to set
variable remuneration:
• If ONP does not reach a certain compliance threshold, the
incentive cannot exceed 50% of the year’s incentive
benchmark.
• If the group’s ONP were negative, the incentive would be
zero.
• When setting individual variable pay, the board will also
consider restrictions to the dividend policy imposed by
supervisors.
B. Forms of payment of the incentive
No changes to pay forms are planned in respect of the terms
in place for 2021.
C. Deferred variable remuneration subject to long-term
objectives
The last three annual payments of each deferred variable
remuneration amount will be made in accordance with the
terms described under section E) above and if the group fulfils
long-term objectives for at least three years. This may only
confirm or reduce payment amounts and number of deferred
shares.
Long-term metrics will, at least, cover value creation and
shareholder returns as well as capital and sustainability over
a minimum period of three years. They will be aligned with
the group’s strategic plan and main priorities towards its
stakeholders. They can be measured for the entire group or by
country or business, when appropriate, and subsequently
compared to a group of peers.
The portion paid in shares cannot be sold until one year has
elapsed since they were delivered.
D. Other terms of the incentive
No changes to the continuity, malus and clawback clauses of
the remuneration policy for 2021 described in section E are
expected. Furthermore, no changes are planned in respect of
the clauses on hedging shares or the deferred amounts in
cash adjusted for inflation.
iii) Shareholdings
The policy on shareholdings approved in 2016, with the
amendment introduced in 2020 relating to not selling the
shares they receive as variable remuneration for a period of
three years detailed in section 6.3.E above will apply in 2022
and 2023, unless the remuneration committee proposes it be
amended to the board in light of exceptional circumstances
(regulations, orders or recommendations from regulators or
supervisors). Such amendments would be described in detail
in the report on the remuneration committee and the annual
report on director’s remuneration put to a non-binding vote at
the annual general meeting.
iv) Principle of equal pay
The same principle of equal pay that applies for executive
directors and any other Santander employee described in
respect of 2021 applies for 2022 and 2023.
Terms and conditions of executive directors’ contracts
Executive directors’ terms of service are governed by board-
approved contracts they sign with Banco Santander. The basic
terms and conditions, besides those relating to the
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They both participate in the defined contribution scheme
created in 2012, which covers the contingencies of
retirement, disability and death. Banco Santander makes
annual contributions to executive directors’ benefit plans
schemes. Annual contributions are calculated in proportion to
executive directors’ pensionable bases, and the group will
continue to make them until the executive directors’ leave the
group or until their early retirement within the group, their
death or disability (including during pre-retirement). The
pensionable base of executive directors’ annual contributions
is their fixed remuneration plus 30% of the average of their
last three variable remuneration amounts. Contributions will
be 22% of pensionable bases.
The pension amount that corresponds to contributions linked
to variable remuneration will be invested in Santander shares
for five years from the earlier of the date of retirement or
cessation. It will be paid in cash after the five years have
elapsed or on the retirement date (if later). Moreover, the
malus and clawback clauses for variable remuneration
contributions will apply for the same period as the related
bonus or incentive.
This benefit plan is outsourced to Santander Seguros y
Reaseguros, Compañía Aseguradora, S.A. Executive directors’
economic rights under the scheme belong to them even if
they are not active in the group at the time of their
retirement, death or disability. Their contracts do not provide
for any severance pay upon termination apart from what the
law provides and in the case of pre-retirement, the
aforementioned annual allotment.
E. Insurance and other remuneration and benefits in kind
Ana Botín and José Antonio Álvarez will receive the
supplement to their fixed remuneration approved when the
supplementary life and health benefits were eliminated in
2018. It will be paid in 2021, 2022 and 2023 in the same
amount and continue to be paid until they reach retirement
age (even if they are still active).
The group has life and health insurance policies taken out for
directors. Insurance premiums for 2021 include standard life
insurance and the life insurance cover with the supplement to
their fixed remuneration mentioned above. In 2022 and 2023,
premiums could vary if directors’ fixed pay or actuarial
circumstances change.
Furthermore, executive directors are covered by Banco
Santander’s civil liability insurance policy and may receive
other benefits in kind (such as employee loans) pursuant to
the group’s general policy and subject to the corresponding
tax treatment.
F. Confidentiality and return of documents
Directors are bound to a strict duty of confidentiality during
their relationship and subsequent to termination. Executive
directors are required to return any documents and items
relating to their activities and in their possession to Banco
Santander.
remuneration mentioned above, are the ones described
herebelow.
A. Exclusivity and non-competition
Executive directors may not contract with other companies or
entities to perform services, unless expressly authorised by
the board of directors. In all cases, they are bound by a duty of
non-competition in relation to companies and activities
similar in nature to Banco Santander and its consolidated
group.
In addition, executive director contracts impose prohibitions
on competing and attracting customers, employees and
suppliers, which can be enforced for two years after their
termination in their executive duties for reasons other than a
breach by Banco Santander. In regard to Ana Botín and José
Antonio Álvarez, the compensation to be paid by Banco
Santander 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.
However, it is envisaged that in 2021, subject to approval at
the 2021 AGM, their contracts shall be amended so that the
compensation for the duty of non-competition shall be twice
the amount of the fixed remuneration.
B. Code of Conduct
Executive directors are obliged to adhere strictly to the
group’s General Code and the Code of Conduct in Securities
Markets, especially in terms of confidentiality, professional
ethics and conflicts of interest.
C. Termination
The length of executive directors' contract
s is indefinite. Contracts do not provide for any severance
payment upon termination apart from what the law provides.
If Ana Botín’s contract is terminated by Banco Santander, she
must remain available to the group for four months in order
to ensure proper transition (6 months from the moment pre-
retirement provisions are taken out). During this period, she
would continue to receive her gross annual salary.
D. Pre-retirement and benefit plans
The board of directors has approved, subject to the condition
that the remuneration policy be approved at the annual
general shareholders' meeting, an amendment to the
contracts of the executive directors whereby:
• Ana Botín ceases to have the right to pre-retire if she leaves
Banco Santander out of her own volition, keeping this right
in case of termination by Banco Santander until 31 August
2022. After this date, she does not have the right to pre-
retire. While she keeps this right 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 is subject to the malus and clawback provisions
in place for a period of five years.
• José Antonio Álvarez ceases to have the right to pre-retire
in case of termination of his contract.
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G. Other terms and conditions
Executive directors’ contracts stipulate the following notice
periods:
By decision of the
Banco Santander
(months)
By decision of the
director (months)
Ms Ana Botin-Sanz de
Sautuola y O’Shea
Mr José Antonio
Álvarez Álvarez
6*
6
4
—
* From the moment she ceases to have the right to pre-retire
Contracts do not provide pay in lieu of notice clauses.
Terms and conditions of Sergio Rial's contracts
The contract between Sergio Rial and Banco Santander, S.A.
for his role as Santander Regional Head of South America,
whose EUR 750 thousand remuneration is being submitted to
the approval of the 2021 AGM as part of this remuneration
policy, includes his confirmation that this role is compatible
with his role as CEO and vice-president of Santander Brasil,
and is subject to an indefinite term, and to customary
exclusivity and non-competition, code of conduct, termination
(without including any payment for termination) and
confidentiality and return of documents conditions.
Likewise, the terms and conditions of the remuneration he
receives in his condition as CEO and vicechairman of
Santander Brasil are fixed by this subsidiary, in accordance
with Group policies, the subsidiary's policies, and applicable
local regulations.
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.
Directors’ total remuneration for executive duties cannot
exceed the highest remuneration received by the group’s
current executive directors under the remuneration policy
approved by shareholders. The same rules apply if a director
assumes new duties or becomes an executive director.
If a director takes up executive functions in a specific division
or local unit, the board of directors, on the remuneration
committee's recommendation, can adapt the metrics for
setting and paying incentives to take that division or local unit
into account in addition to the group.
Remuneration paid to directors in that capacity will be
included within the maximum amount set by shareholders to
be distributed by the board of directors in the terms described
above.
A new director coming from an entity outside Santander
Group could be paid a buyout to offset any variable
remuneration foregone for having accepted a contract with
the group; and/or a sign-on bonus for leaving to join Banco
Santander.
This compensation could be paid fully or partly in shares,
depending on the delivery limits approved at the annual
general shareholders' meeting. Authorisation is expected to
be sought at the next general shareholders’ meeting in order
to deliver a maximum number of shares to any new executive
directors or employees to whom buyout regulations apply.
Furthermore, 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.
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 2020', (the
report on the remuneration committee) states:
• Pursuant to Banco Santander’s bylaws and the Rules and
regulations of the board of directors, the duties relating to
the remuneration of directors performed by the
remuneration committee.
• How the remuneration committee is composed on the date
the report is approved.
• The number of meetings it had in 2020, including joint
sessions with the risk, compliance and regulation
supervision committee.
• The date of the meeting in which the report was approved.
• The 2019 annual report on directors’ remuneration was
approved by the board of directors and put to a binding vote
at the April 2020 AGM, with 93.77% of the votes in favour.
The tally of the votes was:
Votes cast
Votes against
Votes in favour
Abstentions
Number
10,429,789,366
Number
649,059,435
9,777,014,101
372,790,860
% of total
A
96.55 %
% of totalA
6.01 %
90.51 %
3.45 %
A. Percentage on total valid votes and abstentions.
6.6 Remuneration of non-director
members of senior management
Variable remuneration was approved by the board of directors
on 2 February 2021 in view of the recommendation the
remuneration committee had voted to submit on 26 January
2021. It was set according to Banco Santander’s general
remuneration policy as well as specific details pertaining to
senior management. In general, senior management variable
remuneration packages were calculated with the quantitative
metrics and qualitative assessment used for executive
directors (see section 6.3 B ii).
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As detailed in 6.3.ii above, the underlying business
performance resulted in a final bonus calculation of 71.08%
of the target bonus. The board of directors, upon
recommendation from the remuneration committee,
exercised its discretion to reduce this target bonus to 67.32%,
which was the original target submitted to the board in
December 2020 and resolved that the amounts saved be
contributed to support the fight against covid-19. This
resulted in an amount of EUR 1,570 thousand for the top two
executive segments in the Group's Corporate Headquarters
(c.80 employees).
Ana Botín and José Antonio Alvarez, with a pension scheme of
22% of their pensionable bases, the elimination of
supplementary benefits, an increase of the insured sum of life
insurance and a supplement to fixed remuneration in cash
which is included under "Other remuneration".
The following table shows the amounts of short term
remuneration (immediately payable) and deferred
remuneration (not linked to multi year targets) for senior
management as of 31 December 2020 and 2019, excluding
those of executive directors:
Some senior managers’ contracts were amended in 2018 in
the same manner described under 6.3.C and D in respect of
Short-term and deferred salary remuneration
EUR thousand
Year
2020
2019
Number of people
18
18
Fixed
21,642
22,904
Immediately
receivable
variable
remuneration
A
(50% in shares)
11,479
15,337
Deferred variable
remuneration
B
(50% in shares)
Pension
contributions
Other
C
remuneration
4,941
6,673
6,039
6,282
6,312
15,337
D
Total
50,413
66,532
A. The amount immediately payable in shares in 2020 was 2,136 thousand Santander shares (2,091 thousand Santander shares in 2019).
B. The amount of deferred shares in 2020 was 919 thousand Santander shares (910 thousand Santander shares in 2019).
C. Includes life insurance premiums, health insurance and relocation packages and other remuneration items.
This table breaks down remuneration linked to multi-year
targets for senior management at 31 December 2020 and
2019, which they will only receive if they meet the terms of
continued service; non-applicability of malus clauses; and
long-term goals are met during deferral periods.
Thousands of euros
Year
2020
2019
Number of people
18
18
Deferred variable remuneration
subject to long-term
B
metricsA
(50% in shares)
5,188
7,007
A. In 2020, this corresponds to the fair value of maximum annual payments for
2024, 2025 and 2026 in the fifth cycle of the plan for deferred variable
remuneration linked to multi-year targets. In 2019, this corresponds to the
estimated fair value of maximum annual payments for 2023, 2024 and 2025
in the fourth cycle of the plan for deferred variable pay linked to multi-year
targets. Fair value in the plan was determined on the authorisation date
based on the valuation report of independent expert Willis Towers Watson.
Based on the plan for 2020 and success levels of similar plans at peer
entities, the expert found a range of 60%-80% reasonable to estimate the
initial success ratio. Therefore, fair value was considered to be 70% of the
maximum value.
B. The number of shares in Santander as deferred variable pay subject to long-
term metrics shown in the table above was 965 thousand in 2020 (955
thousand shares in Santander in 2019).
The long-term goals are the same as those for executive
directors. They are described in section 6.3 B iv).
Senior executives who stepped down from their roles in 2020
consolidated salary remuneration and other remuneration
relating to the cessation of their duties for a total amount of
EUR 5.984 thousand during the year (EUR 6,789 thousand for
those who stepped down from their roles in 2019). They also
have the right to receive, in total,133 thousand euros in
variable pay subject to long-term targets (EUR 922 thousand
for those who stepped down from their roles in 2019).
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At our April 2020 AGM, shareholders approved the 2020
Digital Transformation Incentive, a variable remuneration
scheme that delivers Santander shares and share options if
the group hits major milestones on its digital roadmap.
3 senior executives are included within this plan (aimed at a
group of up to 250 employees whose functions are deemed
essential to Santander Group’s growth and digital
transformation) and, thus, can receive a total of EUR 1,700
thousand to be paid in thirds on the third, fourth and fifth
anniversary of the authorisation date (2024, 2025 and 2026).
This amount is implemented in 316,574 Santander shares and
944,445 options over Santander shares, using for these
purposes the fair value of the options at the moment of their
grant (EUR 0.90).
Of the EUR 30,000 thousand approved by our April 2020 AGM
as maximum amount for the 2020 Digital Transformation
Award, a total overall cost of EUR 17,800 thousand has been
approved, based on the final number of participants and the
level of achievement of milestones.
The milestones for the 2020 Digital Transformation Award
were: (i) rolling out the global merchant services (GMS)
platform in 3 new geographies, enhancing the platform
functionality and achieving volume targets for transactions
and participating merchants; (ii) doing the commercial rollout
of the global trade services (GTS) platform in 8 new
geographies, enhancing platform functionality, and achieving
volume targets for on-boarded clients and monthly active
users; (iii) launching OpenBank in a new market and
migrating the retail banking infrastructure to “new-mode”
bank; (iv) launch the global platform SuperDigital in at least 4
countries, driving target active user growth; (v) deploying
machine learning across pre-defined markets for 4 priority
use cases, rolling out Conversion Rate Optimization (Digital
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marketing) for at least 40 sales programs, delivering profit
targets, and driving reduction of agent handled calls in
contact centers; (vi) successfully implementating initiatives
related to on-board and identity services, common API
(application programming interface) layer, payment hubs,
mobile app for SMEs and virtual assistant services; and (vii)
launching the PagoFX global platform in at least 4 countries.
The 2019 Digital Transformation Incentive, which terms are
substantially the same as those of the 2020 one, included
three senior executives, who may receive a total of EUR 2,100
thousand.
See Note 46 to the 2020 Group's consolidated financial
statements for further information on the Digital
Transformation Incentive.
In 2020, the ratio of variable to fixed pay components was
80% of the total for senior managers, well within the
maximum limit of 200% set by shareholders.
See note 5 of the group’s 2020 consolidated financial
statements for further details.
6.7 Prudentially significant disclosures
document
On the remuneration committee’s recommendation, the
board approves the key remuneration elements 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 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 Banco Santander's board of directors form
the so called 'Identified Staff' or 'Material Risk Takers')
Every year, the remuneration committee reviews and, if
applicable, updates identified staff in order to include
individuals within the organisation who qualify as such. The
Remuneration Policies chapter in the 2020 Pillar III
4
of Banco Santander, S.A. explains the
disclosures report
criteria and regulations followed to identify such staff.
At the end of 2020, 1,394 group executives (including
executive directors and non-director senior managers) were
considered identified staff (1,359 in 2019), which accounts for
0.73% of the total workforce (0.69% in 2019).
Identified staff have the same remuneration standards as
executive directors (see sections 6.1 and 6.3), but not:
• Category-based deferral percentages and terms.
• The possibility of certain manager categories of only having
deferred variable pay subject to malus and clawback
clauses (and not to long-term targets).
4
The 2020 Pillar III disclosures report can be found on our corporate website.
• The portion of variable remuneration paid or deferred as
shares for group executives in Brazil, Chile, Mexico, Poland
and Santander Consumer US can be delivered in shares or
similar instruments of their own listed entities (as in
previous years).
In 2021, the board will maintain its flexibility in determining
total or partial payment in shares or similar instruments of
Banco Santander and/or subsidiaries in the proportion it
considers appropriate in accordance with the maximum
number of Santander shares to be delivered set by
shareholders at the annual general shareholders' meeting
and any regulatory restrictions applicable in each jurisdiction).
The aggregate amount of variable remuneration for identified
staff in 2020, the amounts deferred in cash and shares, and
the ratio of the variable to fixed remuneration components
are explained in the remuneration policies chapter of Banco
Santander’s Pillar III disclosures report for 2020.
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7. Group structure
and internal governance
Grupo Santander is structured into legally independent
subsidiaries whose parent company is Banco Santander, S.A.
Its registered office is in Santander (Cantabria, Spain), while
its corporate centre is located in Boadilla del Monte (Madrid,
Spain). It has a Group-Subsidiary Governance Model (GSGM)
and good governance practices in place for its core
subsidiaries. Any references to subsidiaries in this section are
to the group’s most prominent entities.
The key features of the GSGM are:
• The subsidiaries’ governing bodies must ensure their
rigorous and prudent management and economic solvency
while pursuing the interests of their shareholders and other
stakeholders.
• The subsidiaries are managed locally by teams that possess
extensive knowledge on, and experience with, their
customers and markets, while benefiting from the
synergies and advantages of belonging to the Group.
• The subsidiaries are subject to local authority regulation
and supervision, although the ECB supervises the Group
overall.
• Making the group’s units more efficient through cost
management synergies, economies of scale and a common
brand.
• Sharing best practices in global connectivity, commercial
initiatives and digitalization.
7.2 Internal governance
Grupo Santander’s internal governance model outlines a set
of principles that regulate three types of relationships with its
subsidiaries:
• The subsidiaries’ governing bodies are subject to the
group’s rules and procedures for structuring, forming and
running boards of directors and audit, nomination,
remuneration and risk committees, according to
international standards and good governance practices.
This includes embedding other group rules and regulations
on the suitability, appointment, remuneration and
succession plans of governing body members, which fully
comply with local regulations and supervisory standards.
• The relationship between regional and country heads and
• Customer funds are secured by the deposit guarantee
the group CEO.
schemes in the subsidiaries’ countries and are subject to
local laws.
The subsidiaries finance their own capital and liquidity. The
group’s capital and liquidity are coordinated by corporate
committees. Intra-group risk transactions are limited,
transparent and carried out under market conditions. Grupo
Santander retains a controlling interest in subsidiaries listed
in certain countries.
Each subsidiary runs independently and has its own recovery
plan, limiting the contagion of risk between them and
reducing systemic risk.
7.1 Corporate Centre
Banco Santander’s GSGM is supported by a corporate centre,
which brings control and support units together with
functions such as strategy, risk, compliance, auditing, finance,
accounting, technology and operations, human resources,
legal services, internal governance, communications and
marketing. It adds value to the Group by:
• Enhancing governance under robust corporate frameworks,
models, policies and procedures to implement strategies
and ensure effective Group oversight.
• The relationship between local and global heads of key
control positions, following a three lines of defence model:
chief officers for risk (CRO), compliance (CCO), audit (CAE),
finance (CFO) and accounting (CAO), as well as other key
support and business functions (Technology and
Operations, HR, General Counsel, Legal Services,
Marketing, Communications, Strategy, SCIB, Wealth
Management & Insurance, Digitalization and Innovation).
The group has three regional heads who report to the group
CEO and are responsible for consolidating and streamlining
the management and coordination of its core countries in the
three geographic areas where it operates: Europe, South
America and North America. Their key responsibilities must be
undertaken in compliance with European Union and country-
specific laws and regulations, ensuring that the country
heads' role and accountability (including regulatory
responsibilities) are not compromised.
In 2020, the Europe region (Spain, Portugal, Poland and the
UK) received a mandate to execute a pan-European operating
model to deliver benefits of scale and efficiency that leverage
common product and regional management structures in the
countries. Specific coordination elements and organizational
structures were defined to ensure the effective discharge of
the Europe regional head's responsibilities, fully respecting
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local governance. Business and functional roles were also
created to support and control those responsibilities.
The GSGM dictates rules for appointing those officers, setting
their objectives (weighted 50% local and 50% group/regional)
and variable pay, assessing their performance and planning
their succession. It also explains how group officers should
coordinate and interact with their subsidiary counterparts.
Grupo Santander has corporate frameworks for matters
considered to have a material impact on its risk profile,
covering risk, capital, liquidity, compliance, financial crime,
technology, auditing, accounting, finance, strategy, human
resources, outsourcing, cybersecurity, special situations
management, and communications and brand. They also
specify:
• How the Group should supervise and exert control over
subsidiaries; and
• The group’s involvement in subsidiaries’ decision-making
(and vice versa).
Banco Santander board of directors approves the GSGM and
corporate frameworks for the subsidiary governing bodies to
formally adhere to them. They take local requirements for
subsidiaries into account, and are revised each year by the
group’s board and adapted to new legislation and
international best practices.
The functions draw on corporate frameworks to prepare
internal regulatory documents that are given to subsidiaries
as a reference for implementing those frameworks
effectively, cohesively and in compliance with local laws and
supervisory requirements. This approach ensures consistency
throughout the Group.
The group’s internal governance office and subsidiary general
counsels are responsible for embedding the governance
model and corporate frameworks. Every year, the group
assesses their performance in reports sent to governing
bodies.
In 2019, a new policy for the governance of non-GSGM
subsidiaries was approved, completing and enhancing the
governance and control system that has been applied to those
companies thus far.
In 2020, a new governance model was approved for PagoNxt,
a wholly-owned subsidiary of Banco Santander that is
structured as a dedicated holding company with a set of key
initiatives on digitalizing the group's financial services, with
payments at the core. This model defines an organizational
and governance framework for PagoNxt and its subsidiaries in
the context of the group-wide arrangements. It specifically
covers the scope, principles, roles and responsibilities, key
processes and governance bodies that should be in place to
ensure that PagoNxt is managed in alignment with group,
legal and supervisory expectations.
Also in 2020, new governance models for Santander
Corporate and Investment Banking (SCIB) and Wealth
Management and Insurance were developed to ensure
proper, group-wide oversight of those businesses, as set out
in the GSGM.
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The following charts show the three levels of the GSGM, as well as the main actions to ensure an effective relationship and solid
internal governance system for the Group.
Group
Subsidiaries
Board of directors
Group executive
chairmanA
Group CEO
B
Regional heads
C
Control management and business
functions
4D
Board of directors
CEO /
Country head
Control management and business
functions
D
The GSGM enhances control
and oversight through:
Presence of Group Santander
on the subsidiaries' boards of
directors, establishing
guidelines for board dynamics
and effectiveness.
Reporting of the CEO/country
heads to the Group CEO /
regional heads and group
executive committee.
Interaction between the Group
and subsidiaries control,
management and business
functions.
A. First executive.
B. Second executive.
C. Europe, North America and South America, reporting to Group CEO.
D. Audit, Risk, Compliance, Finance, Financial Accounting & Control, IT & Operations, Human Resources, General Secretariat, Marketing, Communications, Strategy,
Santander Corporate & Investment Banking, Wealth Management & Insurance, Digital & Innovation and Global Platforms.
Best practices and talent sharing
across the whole Group and between
subsidiaries is key to our success.
Multiple point of entry structure that
has proved to be a key resilience
instrument and is a result of our
diversification strategy.
Continuous collaboration and daily
interaction between local and
corporate teams.
A common set of corporate
frameworks and policies across the
Group adapted to local market
conditions.
Enabling the identification of
synergies and economies of scale
across the Group.
Definition and implementation of
new group-wide and local initiatives
to keep developing our management
and control model.
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8. Internal control over financial
reporting (ICFR)
This section describes the key aspects of Grupo Santander's
internal control and risk management systems in respect of
financial reporting, including:
• Control activities and control environment.
• Risk assessment in financial reporting.
• Reporting and communication.
• System monitoring.
• The external auditor’s report.
8.1 Control environment
Governance and control bodies
The board of directors approves the financial reports Banco
Santander must publicly disclose as a listed company. It is the
body that oversees and guarantees the integrity of the
Group’s systems for internal communication, operational and
financial control, accounting, financial reporting and legal
compliance.
The board of directors has an audit committee that assists
with supervising the group’s financial reporting and internal
control systems (see section 4.5 'Audit committee activities in
2020').
The audit committee works with the external auditor to
address material deficiencies in the internal control system
detected in audits. It also makes sure the external auditor
issues a report on the group’s system for ICFR.
Responsibilities, General Code of Conduct, whistleblowing
channel and training
Responsibility functions
Grupo Santander, through its corporate organization
functions, in countries and businesses, defines, implements
and maintains the unit's organizational structures, catalogue
of roles and size. The corporate organization function defines
and documents the corporate model for managing structures
and templates which is used as a reference across the group.
The organizational units are in charge of identifying and
defining the main functions under the responsibility of each
structural unit, ensuring that the organization has a solid
ICFRS model.
Grupo Santander has a responsibility scheme to identify
potential risks and their mitigating controls under a three-
pronged defence model that establishes lines of authority and
accountibility including:
The head of the financial accounting and control function
(the CAO), which has the following functions, amongst others:
• Integrating the group's corporate policies into its
management and adapting them to local needs.
• Ensuring that appropriate organizational structures are in
place to carry out the tasks assigned, as well as suitable
hierarchical-functional structure.
• Running critical procedures (control models), based on
corporate technology.
• Implementing the corporate accounting and management
information systems and adapting them to the specific
needs of each unit.
In order to preserve its independence, each controller reports
hierarchically to the head of the entity or country in which it
exercises its responsibilities (country head) and functionally
to the head of the group's Financial Accounting and Control
division.
The non-financial risk control function is responsible for:
• Establishing and circulating the methodology for
documenting the group's Internal Control Model (ICM) and
ICM evaluation and certification, which covers the ICFRS,
amongst other regulatory and regulatory requirements.
Grupo Santander's ICM means the process carried out by
the board of directors, senior managers and other group
staff to provide reasonable assurance that their objectives
will be achieved.
• Encouraging documentation maintenance to adapt it to
organizational and regulatory changes and, along with the
Financial Accounting and Control division, and, where
applicable, representatives of the divisions and/or
companies involved, to present the ICM evaluation
outcome to the audit committee. Similar functions in each
unit that reports to the corporate non-financial risk control
area.
General Code of Conduct (GCC)
The group’s GCC sets out the guidelines, principles and rules
approved by the board of directors to govern Grupo Santander
employees’ conduct and ethics. Furthermore, it dictates
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guidelines in relation to accounting standards and financial
reporting. The GCC can be viewed on our corporate website.
All of the group’s employees, including members of its
governance bodies, sign the Code of Conduct, even though
some are also bound to the Code of Conduct in Securities
Markets and other codes of conduct specific to the area or
business in which they work. Employees have access to e-
learning courses on the Code and can consult the compliance
and conduct function to address any queries about its
application.
The GCC is a fundamental resource of the compliance
function. It explains the duties of the group’s governance
bodies, units and areas required to implement it together
with the compliance function.
If anyone violates the code, the human resources function
adopts disciplinary measures and recommends corrective
action (including work sanctions), irrespective of any related
administrative or criminal sanctions.
Whistleblowing channel
Banco Santander’s whistleblowing channel is called Canal
Abierto. It is a confidential and anonymous means for
employees to report unlawful acts, violations of the GCC and
other behaviour contrary to corporate values. We adapted the
channel in 2020 to enable communications by other people
related to Banco Santander other than employees, such as
shareholders, customers, suppliers and other third parties,
ensuring that they are treated confidentially and
anonymously.
It can also be used to report claims of accounting or auditing
irregularities under SOX to the compliance and conduct
function, which will elevate them to the audit committee for
appropriate measures to be taken.
The channel does not require whistleblowers to give personal
information in order to keep reports confidential before they
the audit committee can review them. Only certain
compliance and conduct function officers analyse reports to
determine if matters pertain to accounting or auditing in order
to submit them to the audit committee.
Canal Abierto is supervised jointly by the audit committee and
the risk supervision, regulation and compliance committee
depending on the subject of the complaint. The SOX attributes
the authority to supervise the whistleblowing channel in
matters that fall under the remit of the audit committee
(specifically financial and accounting, including those related
to the audit), while the supervision of reports of breaches of
regulatory requirements for corporate behaviours or the
internal governance system are the responsibility of the risk,
regulation and compliance committee. The channell can be
viewed on our corporate website.
For more information on the number of complaints filed on
the channel and their typology, see section 'A talented and
engaged team' in the Responsible banking chapter, for
additional information.
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Training
Group employees who help prepare or analyse financial
information take part in training programmes and regular
refresher courses specifically designed to teach them the
concepts and skills they require to discharge their duties
properly.
The Financial Accounting and Control division promotes,
designs and oversees these programmes and courses. It has
with support from the corporate learning and career
development unit under the Human Resources division.
Training takes the form of both e-learning and on-site
sessions monitored and overseen by the corporate learning
and career development unit to guarantee that employees
duly complete them and assimilate concepts properly.
Training programmes and refresher courses taught in 2020
wwfocused on matters directly and indirectly related to the
financial reporting. These subjects include: (i) risk analysis
and management; (ii) accounting and financial statement
analysis; (iii) the business, banking and the financial
environment; (iv) financial management, costs and budgeting;
(v) numerical skills; and (vi) calculations and statistics.
30,246 employees in the all of the group’s markets were
involved in training programmes. Over 615,000 training hours
were spent at the corporate centre in Spain and remotely via
e-learning. Furthermore, local units develop their own
training programmes based on the parent’s.
8.2 Risk assessment in financial reporting
The Group has a specific process to identify the companies
that must be included in its scope of consolidation. The
Financial Accounting and Control division and the General
Secretariat and Human Resources division oversee this
approach.
This process enables us to identify the entities the Grupo
Santander controls through the voting rights that grant direct
or indirect ownership of its capital and other entities
controlled by others such as mutual funds, securitization
funds and structured entities; analyses whether the group has
control over an entity, whether it has rights to the variable
returns of the entity or is exposed to them, and whether it can
influence the amount of such variable returns. If the group is
considered to have control, the entity is included in the scope
of consolidation and is consolidated using the global
integration method.
Otherwise, we analyse whether there is significant influence
or joint control. If so, the entity is also included in the scope of
consolidation and it is measured using the equity method.
For entities with the greatest impact on the preparation of the
group's financial information, we implement an ICM using a
homogeneous methodology to make sure that relevant
controls are included and all significant risks to financial
reporting are covered.
The group's ICM complies with the strictest international
standards, particularly the guidelines of the Committee of
Sponsoring Organisations of the Treadway Commission
(COSO) within its last published framework in 2013 which
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covers control targets for the effective and efficient
operations, reliable financial reporting and regulatory
compliance.
The risk identification process takes into account all the
group's activities, the scope of which is greater than all the
risks directly related to the preparation of the group's
financial information.
The identification of potential risks that must necessarily be
covered by the ICM is based on management's knowledge
and understanding of the business and its operations relative
to the importance and qualitative criteria associated with the
type, complexity or structure of the business.
Banco Santander ensures there are controls to cover risks of
errors and fraud in financial reporting, such as (i) the
existence of assets, liabilities and transactions at the relevant
date; (ii) the items are assets or rights or liabilities and
obligations of the group; (iii) timely and correct recording and
adequate valuation of assets, liabilities and transactions; and
(iv) correct application of accounting principles and rules, as
well as appropriate breakdowns.
The main features of the group's ICM are as follows:
• It is a corporate model that involves the entire
organizational structure through a direct set of individual
responsibilities.
• Management of the ICM documents is decentralized to the
various units, while coordination and monitoring falls to
the non-financial risk control area, which provides general
criteria and guidelines to standardize procedure
documents, control assessment, criteria for classifying
potential deficiencies and regulatory adaptations.
• It is a global model primarily aimed at documenting
activities to produce consolidated financial information and
other procedures carried out by each entity's support areas
that, without having a direct impact on the accounts, could
lead to possible losses or contingencies in the event of
incidents, errors, breaches of regulations and/or fraud.
8.3 Control activities
Revision and approval of financial information
The audit committee and the board of directors oversee the
preparation and submission of the financial information
required of Banco Santander and the Group, which includes
the non-financial information and its integrity. They also
review compliance with regulatory requirements, the scope
of consolidation and the correct application of accounting
criteria, ensuring that this information is permanently
updated on the Banco Santander corporate's website.
The production, revision and approval of financial information
and the description of ICFR is documented in a corporate tool
that integrates the control model into risk management,
including a description of activities, risks, tasks and controls
associated with all operations that may have a significant
effect on the financial statements. This documentation covers
recurrent banking operations and one-off transactions (sale of
investments, fixed assets transactions, etc.) and aspects
related to judgements and estimates, to correctly record,
evaluate, present and breakdown financial information.
The audit committee is responsible for reporting to the board
on the financial information that the group must regularly
publish, ensuring that it is prepared in accordance with the
same principles and practices as the annual accounts and is as
equally reliable as the financial statements for the board to
adopt the corresponding resolutions.
The most significant aspects when closing and reviewing
relevant judgements, estimates, measurements and
projections are:
• Impairment losses on certain assets.
• The assumptions used in the actuarial calculation of post-
employment benefit liabilities and other obligations.
• The useful life of tangible and intangible fixed assets.
• The valuation of consolidation goodwill.
• It is dynamic and constantly updated in order to reflect the
• The calculation of provisions and of contingent liabilities.
reality of the group's business, risks and controls to
mitigate them.
• It produces comprehensive documents on the processes
within its scope and includes detailed descriptions of
operations, assessment criteria and reviews.
All ICM documents of the Group's companies are compiled on
a corporate IT application that is used by employees of
different levels of responsibility in the assessment and
certification of the group's internal control system.
The audit committee is responsible for supervising Banco
Santander and the group's regulated financial information
procedures and the internal control systems.
• The fair value of certain unquoted assets and liabilities.
• The recoverability of the tax assets.
• The fair value of acquired identifiable assets and the
liabilities assumed in business combinations.
The group CAO presents the financial information to the audit
committee for validation at least quarterly, giving
explanations of the main criteria used to make estimates,
assessments and significant judgements.
The information provided to directors prior to meetings,
including relevant judgements, estimates and projections is
specifically prepared for these sessions.
The group also has a corporate accounting and financial
management information committee, which is responsible for
governing and supervising accounting, financial management
and control, and ensuring that these matters are disclosed in
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accordance with law and such disclosure is fair, accurate and
not misleading.
To verify that the ICM operates correctly, the group conducts
an annual pyramid assessment and certification, identifying
and analysing the criticality of risks and the effectiveness of
controls. This begins with an assessment of control activities
by those responsible for them, which is then challenged and
ratified through the organization's different hierarchy, so that,
the CEO, the CFO and the CAO can certify the effectiveness of
the ICM.
The Non-Financial Risk Control area prepares a report that
includes the main conclusions from the units' certifications
reflecting the main deficiencies identified during the year and
indicating whether they have been appropriately resolved or
what plans are in place for satisfactory resolution as well as
supporting evidence for the signatures of the CEO, CFO and
CAO.
The Non-Financial Risk Control area presents the conclusions
of these assessments to the audit committee alongside with
the Financial Accounting and Control division and, where
applicable, the representatives of the divisions and/or
companies in question, prior to submission to the risk
supervision, regulation and compliance committee.
In 2020, the group created a new meeting within its
governance structure called the Internal Control Monitoring
Meeting, in which the main participants in the group's ICM,
monitored the progress of the main internal control
weaknesses and the ICM strategy and performance.
Internal control policies and procedures for IT systems
The Technology and Operations division draws up the group’s
corporate policies on IT systems involved directly or indirectly
with the financial statements. These systems implement
special internal controls to prepare and post financial
information correctly.
The internal control policies on the following aspects are of
particular importance:
• Updated and divulged internal policies and procedures for
system security and access to applications and computer
systems according to functions and ratings of each unit/
role.
• The group's methodology, under which new applications
are developed and existing applications are maintained or
adapted through a circuit that formulates, develops and
tests them so as to treat financial information reliably.
◦ Once applications are developed according to
regularly defined requirements (detailed
documentation of processes to be implemented), they
are run through comprehensive tests by a specialist
development laboratory.
◦ Before they are rolled out, a complete software
testing cycle is run in a pre-production computerized
environment that simulates real situations. Testing
includes technical and functional tests, performance
tests, user-acceptance tests and pilot and prototype
tests, which are defined by the entities.
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• The group’s continuity plans for key functions in disasters or
other events that could suspend or disrupt operations, as
well as highly automated back-up systems that support
critical systems and require little manual intervention
owing to redundant systems, high availability systems and
redundant communication lines.
Internal control policies and procedures for outsourced
activities and valuation services from independent experts
The group’s action framework and specific policies and
procedures fittingly cover outsourcing risks. All group
companies must adhere to this framework, which meets the
EBA's requirements for outsourcing and risk management
with third parties. It consists of:
• Tasks to initiate, record, process, settle, report and
accounting for transactions and asset valuations.
• IT support in terms of software development, infrastructure
maintenance, incident management, security and
processing.
• Other material support services not directly related to
financial reporting, such as supplier management, property
management, HR management, etc.
Key control procedures include:
• Documenting relations between group companies with
comprehensive service agreements.
• Documentation and validation by the group’s service
providers of processes and controls for the services they
perform.
• The external suppliers must undergo an approval process to
ensure that the relevant risks associated with the services
they provide remain within acceptable levels, in accordance
with the group's risk appetite.
The group reviews estimates internally according to its
control model guidelines. It will hire the services of a third
party to help with specific matters upon confirming their
expertise and independence and approving their methods and
rationale of its assumptions though relevant procedures.
Furthermore, the group’s controls make sure information for
external suppliers of services that could affect the financial
statements is accurately and comprehensively detailed in
service level agreements.
8.4 Information and communication
Responsible for accounting policies
The Financial Accounting and Control division has an area
called 'accounting policies', whose manager reports directly
to the head of the division, and has the following exclusive
responsibilities:
• To define the accounting treatment of the transactions that
constitute Banco Santander's activity, in accordance with
their economic nature and the regulations governing the
financial system.
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• To define and keep up-to-date the group's accounting
• The reliability and integrity of financial and operational
policies and resolve any doubts or conflicts arising from
their interpretation.
• Improve and standardize the group's accounting practices.
The corporate accounting and financial reporting and
management framework sets out the principles and
guidelines to prepare accounting, financial and management
information that must apply to all Grupo Santander entities as
a key element of their good governance. The group's
structure makes it necessary to establish these principles and
standard guidelines for their application, and for each of the
group entities to have effective consolidation methods and
employ homogeneous accounting policies. The framework's
principles described in this framework are adequately
reflected in the group's accounting policies.
Accounting policies should be understood as a complement to
local financial and accounting rules. Their overarching aims
are (i) that statements and financial information made
available to the management bodies, supervisors or other
third parties, provide accurate and reliable information for
decision-making in relation to the group, and (ii) timely
compliance by all group entities with their legal obligations.
Accounting policies are revised at least once a year and when
relevant regulations are amended.
Every month, the Accounting Policies area publishes an
internal bulletin on new accounting regulation and their most
significant interpretations.
The Group entities, through their operations or accounting
heads, maintain open communication with the financial
regulation and accounting processes area, as well as with the
other areas of the Financial Accounting and Control division.
8.5 Monitoring
2020 ICFR monitoring activities and results
The board of directors approved an Internal Audit framework
for Grupo Santander that defines the function and how it
should conduct its work.
Internal Audit is a permanent, independent function that
guarantees the quality and effectiveness of internal control,
risk management (current or emerging) and governance
processes and systems, thus contributing to the protection of
the organization's value, solvency and reputation as well as
the board of directors and senior managers. The internal audit
function reports to the audit committee and periodically, at
least twice a year, to the board of directors. As an
independent unit, it also has direct access to the board when
required.
Internal audit assesses:
information.
• Asset integrity.
• Internal audit is the third line of defence, independent of the
other two. Its scope of action includes:
• All entities over which the group exercises effective control.
• Separated assets (for example, mutual funds) managed by
the entities mentioned in the previous section.
• Any entity (or separated assets) not included in the above
points, with which the group has entered into an agreement
to provide Internal Audit functions.
This subjective scope includes, in any case, the activities,
businesses and processes carried out (either directly or
through outsourcing), the organization and, where applicable,
commercial networks. Internal Audit may also conduct audits
for other investees that are not included in the preceding
points when the group has reserved this right as a
shareholder, as well as on outsourced activities in accordance
with the established agreements.
The audit committee supervises the group's internal audit
function. See section 4.5 'Audit committee activities in 2020'.
As at 2020 year-end, Internal Audit had 1,264 employees, all
exclusively dedicated to this service. Of these, 279 were
based at Corporate Centre and 985 in the local units located in
the main geographies where the group is present, all with
exclusive dedication.
Every year, Internal Audit prepares an audit plan based on a
risk self-assessment and is solely responsible for executing
the plan. Reviews may lead to audit recommendations, which
are prioritized in accordance with their relative importance,
and are continuously monitored until fully implemented.
At its meeting of 19 February 2021, the audit committee
reviewed the 2021 audit plan, which was reported to and
approved by the board at its meeting of 22 February 2021.
Internal audit reports mainly aimed to:
• Verify compliance with the provisions contained in sections
302, 404, 406, 407 and 806 of the SOX Act.
• Check corporate governance with regard to information
relating to the internal control system for financial
reporting.
• Review the functions performed by the internal control
departments and by other departments, areas or divisions
involved in ensuring compliance with the SOX Act.
• Make sure the supporting documentation relating to the
SOX Act is up to date.
• The efficiency and effectiveness of the processes and
systems referred to above.
• Confirm the effectiveness of a sample of controls based on
an internal audit risk assessment methodology.
• The compliance with applicable regulations and supervisory
requirements.
• Assess the accuracy of the unit's certifications, especially
their consistency of the certifications with respect to the
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observations and recommendations made by Internal Audit,
the external auditors of the annual accounts or supervisors.
8.6 External auditor report
The external auditor 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 following pages.
• Ratify the implementation of recommendations made in the
audit plan.
In 2020, the audit committee and the board of directors were
informed of the Internal Audit unit's work, in accordance with
its annual plan, and of other matters related to this function.
See Section 4.5. 'Audit committee activities in 2020'.
Detection and management of deficiencies
The audit committee oversees to supervise the financial
reporting process and the internal control systems. It is
responsible for any control deficiencies that could affect the
reliability and accuracy of the annual accounts. It may refer to
the areas of the Group involved in the process to obtain the
necessary information and clarifications. The committee also
assesses the potential impact of any errors detected in the
financial information.
The audit committee is responsible for discussing any
significant weaknesses detected in the audit with the external
auditor.
As part of its oversight, the audit committee assesses the
results of the work of the internal audit unit, and may take the
necessary measures to correct any deficiencies identified in
the financial information.
In 2020, the audit committee was informed of the ICM
evaluation and certification for the 2019 financial year. See
section 4.5 'Audit committee activities in 2020'.
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9. Other corporate
governance information
CNMV Circular 2/2018 of 12 June 2018 allows the annual
corporate governance and directors’ remuneration reports
Spanish listed companies must submit to be drafted in a free
format, which is what we selected for our corporate
governance and directors’ remuneration reports since 2018.
The CNMV requires any issuer opting for a free format to
provide certain information in a format it dictates 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
or explain', and (ii) for remuneration matters, under section
9.5 'Statistical information on remuneration required by the
CNMV'.
Some shareholders or other stakeholders may be used to the
formats of the corporate governance and directors'
remuneration reports set the by the CNMV. Therefore, each
section under this format in sections 9.1 'Reconciliation with
the CNMV’s corporate governance report model' and 9.4
'Reconciliation to the CNMV’s remuneration report
model'include a cross reference indicating where this
information may be found in the 2020 annual corporate
governance report (drafted in a free format) and elsewhere in
this annual report.
We have normally completed the 'comply or explain' section
for all recommendations in the Spanish Corporate
Governance Code to clearly show the ones we complied with,
and explain the ones we partially complied or failed to
comply with. In section 9.3 'Table on compliance with or
explanations of recommendations in corporate governance',
we have included a chart with cross-references showing
where information supporting each response can be found in
this corporate governance chapter and 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
Yes
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
No
No
No
Yes
Yes
Yes
No
Yes
No
No
Yes
See sections 2.1 'Share capital' and 3.2 'Shareholder rights'.
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on
their own account.
See 'Tenure and equity ownership' in section 4.2 and sections 6 'Remuneration' and 9.2 'Statistical
information on corporate governance as required by the CNMV'.
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on
their own account so this section does not apply.
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on
their own account so this section does not apply.
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on
their own account so this section does not apply.
See sections 2.4 'Shareholders' agreements'. and 9.2 'Statistical information on corporate
governance as required by the CNMV'.
Not applicable.
See section 2.5 'Treasury shares' and 9.2 'Statistical information on corporate governance as
required by the CNMV'.
See section 2.5 'Treasury shares'.
See section 9.2 'Statistical information on corporate governance as required by the CNMV'.
See section 3.2 'Shareholder rights'.
See section 3.2 'Shareholder rights'.
See section 2.6 'Stock market information'.
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Section in the CNMV
model
Included in
statistical report
Comments
B. GENERAL SHAREHOLDERS’ MEETING
B.1
No
B.2
B.3
B.4
B.5
B.6
B.7
B.8
No
No
Yes
Yes
Yes
No
No
C. MANAGEMENT STRUCTURE
C.1 Board of directors
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
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
276
See 'Quorum and majorities for passing resolutions at general meeting' in section 3.2.
See 'Quorum and majorities for passing resolutions at general meeting' in section 3.2.
See 'Rules for amending our Bylaws' in section 3.2.
See 'Quorum and attendance' in sections 3.4 and 3.5, in relation to financial year 2020, and section
9.2 'Statistical information on corporate governance as required by the CNMV', in relation to the
remaining financial years .
See 'Voting results and resolutions' in sections 3.4 and 3.5.
See 'Shareholder participation at general meetings' in section 3.2 and section 9.2 'Statistical
information on corporate governance as required by the CNMV'.
See 'Quorum and majorities for passing resolutions at general meeting' in section 3.2.
See 'Corporate website' in section 3.1.
See 'Size' in section 4.2.
See 'Tenure and equity ownership' in section 4.2, 'Duties and activities in 2020' in section 4.6 and
section 9.2 'Statistical information on corporate governance as required by the CNMV'.
See sections 2.4 'Shareholders' agreements', 4.1 'Our directors', 'Composition by type of director' in
section 4.2, 'Duties and activities in 2020' in section 4.6 and section 9.2 'Statistical information on
corporate governance as required by the CNMV'.
See 'Diversity' and 'Board skills and diversity matrix' in section 4.2, in relation to financial year
2020, and section 9.2 'Statistical information on corporate governance as required by the CNMV', in
relation to the remaining financial years.
See 'Diversity' in section 4.2 and 'Duties and activities in 2020' in section 4.6.
See 'Strong succession plans' in section 1.5, 'Diversity' in section 4.2, 'Duties and activities in 2020'
in section 4.6 and, regarding top executive positions, see 'Responsible banking' chapter.
See 'Diversity' in section 4.2. and 'Duties and activities in 2020' in section 4.6.
Not applicable, since there are no proprietary directors. See 'Composition by type of director' in
section 4.2.
See 'Group executive chairman and chief executive officer' in section 4.3 and 'Functions' in section
4.4.
See section 4.1 'Our directors'.
See sections 4.1 'Our directors' and 9.2 'Statistical information on corporate governance as required
by the CNMV'.
See 'Board and committees attendance' in section 4.3.
See sections 6 'Remuneration' and 9.2 'Statistical information on corporate governance as required
by the CNMV'. Additionally, see note 5 c) to our 'consolidated financial statements'.
See sections 5 'Management team' and 9.2 'Statistical information on corporate governance as
required by the CNMV'.
See 'Rules and regulations of the board' in section 4.3.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Board assessment in 2020' in section 4.3 and 'Duties and activities in 2020' in section 4.6.
See 'Board assessment in in 2020' in section 4.3.
See 'Director election, renewal and succession' in section 4.2.
See 'Board meetings' in section 4.3.
Not applicable.
See 'Diversity' in section 4.2.
See 'Election, renewal and succession of directors' in section 4.2 and section 9.2 'Statistical
information on corporate governance as required by the CNMV'.
See 'Board meetings' in section 4.3.
See 'Lead independent director' and 'Board and committees attendance' in section 4.3, 'Duties and
activities in 2020' in sections 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 and 4.10 and section 9.2 'Statistical
information on corporate governance as required by the CNMV'.
See 'Board and committees attendance' in section 4.3. and section 9.2 'Statistical information on
corporate governance as required by the CNMV'.
See section 9.2 'Statistical information on corporate governance as required by the CNMV'.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Section in the CNMV
model
C.1.28
Included in
statistical report
No
Comments
See 'Duties and activities in 2020' in section 4.5.
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
C.1.39
C.2 Board committees
C.2.1
C.2.2
C.2.3
Yes
No
Yes
Yes
Yes
Yes
Yes
No
No
No
Yes
Yes
Yes
No
See section 4.1 'Our directors' and section 'Secretary of the board' in section 4.3.
See section 3.1 'Shareholders' engagement' and 'Duties and activities in 2020' in section 4.5
See 'External auditor' in section 4.5 and section 9.2 'Statistical information on corporate
governance as required by the CNMV's.
See 'Duties and activities in 2020' in section 4.5 and section 9.2 'Statistical information on
corporate governance as required by the CNMV'.
Not applicable.
See section 9.2 'Statistical information on corporate governance as required by the CNMV'.
See ‘Board meetings' and ‘Committee meetings' in section 4.3.
See 'Election, renewal and succession of directors' in section 4.2.
Not applicable. See 'Duties and activities in 2020' in section 4.6.
Not applicable.
See sections 6.4 'Directors' remuneration policy for 2021, 2022 and 2023 submitted to a binding
shareholder vote', 6.7 'Prudentially significant disclosure document' and 9.2 'Statistical information
on corporate governance as required by the CNMV'.
See 'Committee structure' and 'Committee meetings' in section 4.3, 'Duties and activities in 2020'
in sections 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 and 4.10 and section 9.2 'Statistical information on corporate
governance as required by the CNMV'.
See section 9.2 'Statistical information on corporate governance as required by the CNMV'.
See 'Committee structure' and 'Committee meetings' in section 4.3 and 'Duties and activities in
2020" in sections 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 and 4.10.
D. RELATED PARTY AND INTRAGROUP TRANSACTIONS
D.1
No
See 'Related-party transactions' in section 4.12.
D.2
D.3
D.4
D.5
D.6
D.7
Yes
Yes
Yes
Yes
No
Yes
Not applicable. See 'Related-party transactions' in section 4.12.
Not applicable. See 'Related-party transactions' in section 4.12.
See section 9.2 'Statistical information on corporate governance as required by the CNMV'.
Not applicable. See 'Related-party transactions' in section 4.12.
See 'Conflicts of interests' in section 4.12
Not applicable. See section 2.3 'Significant shareholders' and 'Conflicts of interests' in section 4.12.
E. CONTROL AND RISK MANAGEMENT SYSTEMS
No
E.1
See chapter 'Risk management and compliance', in particular section 2.'Risk management and
control model' and sections 'A strong and inclusive culture: The Santander Way' and 'Tax
contribution' in the Responsible banking chapter.
E.2
E.3
E.4
E.5
E.6
F. ICFRS
F.1
F.2
F.3
F.4
No
No
No
No
No
No
No
No
No
See note 53 to our consolidated financial statements, section 2.3 'Risk governance' in the Risk
management and compliance chapter, and sections 'A strong and inclusive culture: The Santander
Way' and 'Tax contribution' in the Responsible banking chapter.
See sections 2.2'Risk factors', 3. 'Credit risk', 4. 'Market, structural and liquidity risk', 5. 'Credit risk',
6. 'Operational risk', 7. 'Compliance and conduct risk', 8 'Model risk' and 9. 'Strategic risk' in the
Risk management and compliance chapter. See also the 'Responsible banking' chapter and, for our
capital needs, see section 3.5 'Capital management and adequacy. Solvency ratios' of the Economic
and financial review chapter.
See section 2.4. 'Management processes and tools' in the Risk management and compliance
chapter and sections 'A strong and inclusive culture: The Santander Way' and 'Tax contribution' in
the Responsible banking chapter.
See 3. 'Credit risk', 4. 'Market, structural and liquidity risk', 5. 'Credit risk', 6. 'Operational risk', 7
'Compliance and conduct risk', 8 'Model risk' and 9 'Strategic risk' in the Risk management and
compliance chapter. Additionally, see note 25e) to our consolidated financial statements.
See sections 2.'Risk management and control model', 3. 'Credit risk', 4. 'Market, structural and
liquidity risk', 5. 'Credit risk', 6. 'Operational risk', 7. 'Compliance and conduct risk', 8. 'Model risk'
and 9. 'Strategic risk' in the Risk management and compliance chapter.
See section 8.1 'Control environment'.
See section 8.2 'Risk assessment in financial reporting'.
See section 8.3 'Control activities'.
See section 8.4 'Information and communication'.
277
Annual report 2020
Contents
Section in the CNMV
model
F.5
Included in
statistical report
No
F.6
F7
No
No
Comments
See section 8.5 'Monitoring'.
Not applicable.
See section 8.6 'External auditor report'.
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 'Table on compliance with or explanations of recommendations on corporate
governance'.
H. OTHER INFORMATION OF INTEREST
H
No
See sections 'Tax contribution' and 'Governance and priorities', in particular, 'Joint initiatives to
promote our agenda', in the Responsible banking chapter.
278
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
9.2 Statistical information on corporate governance required by the CNMV
Unless otherwise indicated all data as of 31 December 2020.
A. OWNERSHIP STRUCTURE
A.1 Complete the following table on the company’s share capital:
Date of last
modification
03/12/2020
Share capital
(euros)
8,670,320,651
Number of
shares
17,340,641,302
Number of
voting rights
17,340,641,302
Indicate whether different types of shares exist with different associated rights:
Yes o No þ
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
0
Indirect
5.08%
Direct
Total % of
Indirect voting rights
0
3.46%
5.43%
Name or corporate name of the
indirect shareholder
BlackRock Inc.
Name or corporate name of the % of voting rights
direct shareholder
Subsidiaries of BlackRock Inc. 5.08%
attributed to shares
% of voting rights through
financial instruments
3.46%
Total % of
voting rights
5.43%
A.3 Complete the following tables on company directors holding voting rights through company shares:
Name or corporate name of director
Ana Botín-Sanz de Sautuola y O’Shea
José Antonio Álvarez Álvarez
Bruce Carnegie-Brown
Homaira Akbari
Javier Botín-Sanz de Sautuola y O’Shea
Álvaro Cardoso de Souza
R. Martin Chávez Márquez
Sol Daurella Comadrán
Henrique de Castro
Gina Díez Barroso
Luis Isasi Fernández de Bobadilla
Ramiro Mato García-Ansorena
Sergio Rial
Belén Romana García
Pamela Walkden
% total voting rights held by the board of directors
0.76 %
% of voting rights
attributed to shares
% of voting rights
through financial
instruments
Direct
Indirect
Direct
Indirect
Total %
of voting
rights
% of voting rights that
may be transferred
through financial
instruments
Direct
Indirect
0.00
0.01
0.00
0.00
0.03
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.17
0.00
0.00
0.00
0.55
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
0.00
0.17
0.01
0.00
0.00
0.58
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
0.00
279
Annual report 2020
Contents
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 þ No o
Parties to the shareholders’ agreement
Javier Botín-Sanz de Sautuola y O’Shea
(directly and indirectly through
Agropecuaria El Castaño, S.L.U.)
Emilio Botín-Sanz de Sautuola y O’Shea,
Puente San Miguel, S.L.U.
Ana Botín-Sanz de Sautuola y O’Shea,
CRONJE, S.L.U.
Nueva Azil, S.L.
Carmen Botín-Sanz de Sautuola y O’Shea
Paloma Botín-Sanz de Sautuola y O’Shea
Bright Sky 2012, S.L.
% of share
capital affected
0.58%
Brief description of agreement
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.
Expiry date, if
applicable
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 þ No o
Participants in the concerted action
Javier Botín-Sanz de Sautuola y O’Shea
(directly and indirectly through Agropecuaria
El Castaño, S.L.U.)
Emilio Botín-Sanz de Sautuola y O’Shea,
Puente San Miguel, S.L.U.
Ana Botín-Sanz de Sautuola y O’Shea,
CRONJE, S.L.U.
Nueva Azil, S.L.
Carmen Botín-Sanz de Sautuola y O’Shea
Paloma Botín-Sanz de Sautuola y O’Shea
Bright Sky 2012, S.L.
% of share
capital affected
0.58%
Brief description of concerted action
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.
Expiry date, if
applicable
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 o No þ
A.9 Complete the following tables on the company’s treasury shares:
At year end:
Number of shares held directly
0
Number of shares held indirectly*
28,439,022
% of total share capital
0.16%
(*)Through:
Name or corporate name of the direct shareholder
Pereda Gestión, S.A.
Banco Santander Río, S.A.
Banco Santander México, S.A.
Total:
A.11 Estimated free float:
Estimated free float
Number of shares held directly
26,700,000
981,853
757,169
28,439,022
%
93.64%
A.14 Indicate whether the company has issued securities not traded in a regulated market of the European Union.
Yes þ No o
280
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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
23/03/2018
of which free float:
Date of General Meeting
12/04/2019
of which free float:
Date of General Meeting
23/07/2019
of which free float:
Date of General Meeting
03/04/2020
of which free float:
Date of General Meeting
27/10/2020
of which free float:
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%
Attendance data
% attending in
person
% by proxy
% remote voting
Electronic means
0.09%
0.01%
62.60%
61.58%
1.71%
1.71%
Attendance data
% attending in
person
% by proxy
% remote voting
Electronic means
0.17%
0.11%
43.29%
42.16%
0.59%
0.59%
Other
15.74%
15.74%
Other
1.86%
1.86%
Other
16.45%
16.45%
Other
0.60%
0.60%
Other
16.30%
16.30%
Total
64.55%
63.91%
Total
68.49%
67.36%
Total
59.22%
58.15%
Total
65.00%
63.90%
Total
60.34%
59.16%
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 o No þ
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 o No þ
281
Annual report 2020
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
Contents
17
12
15
C.1.2 Complete the following table with the directors’ details:
Name or corporate
name of director
Ana Botín-Sanz de Sautuola y
O’Shea
Representative
N/A
Category of
director
Executive
Position in
the board
Chairman
Date of first
appointment
04/02/1989
Date of last
appointment
03/04/2020
José Antonio Álvarez Álvarez
N/A
Executive
Chief executive
officer
25/11/2014
12/04/2019
Bruce Carnegie-Brown
Homaira Akbari
Javier Botín-Sanz de Sautuola y
O’Shea
Álvaro Cardoso de Souza
N/A
N/A
N/A
N/A
R. Martin Chávez Márquez
N/A
Sol Daurella Comadrán
Henrique de Castro
Gina Díez Barroso
N/A
N/A
N/A
Non-executive
independent
Lead independent
director
25/11/2014
12/04/2019
Non-executive
independent
Director
27/09/2016
23/03/2018
Other external
Director
25/07/2004
12/04/2019
Non-executive
independent
Non-executive
independent
Non-executive
independent
Non-executive
independent
Non-executive
independent
Director
01/04/2018
01/04/2018
Director
27/10/2020
27/10/2020
Director
25/11/2014
03/04/2020
Director
07/07/2019
07/07/2019
Director
22/12/2020
22/12/2020
Luis Isasi Fernández de Bobadilla
N/A
Other external
Director
19/05/2020
19/05/2020
Ramiro Mato García-Ansorena
N/A
Non-executive
independent
Director
28/11/2017
12/04/2019
Sergio Rial
Belén Romana García
Pamela Walkden
N/A
N/A
N/A
Executive
Director
30/5/2020
30/05/2020
Non-executive
independent
Non-executive
independent
Director
22/12/2015
12/04/2019
Director
29/10/2019
03/04/2020
Election procedure
Vote in general
shareholders’
meeting
Vote in general
shareholders’
meeting
Vote in general
shareholders’
meeting
Vote in general
shareholders’
meeting
Vote in general
shareholders’
meeting
Vote in general
shareholders’
meeting
Vote in general
shareholders'
meeting
Vote in general
shareholders’
meeting
Vote in general
shareholders’
meeting
Co-option
Vote in general
shareholders'
meeting
Vote in general
shareholders´
meeting
Vote in general
shareholders'
meeting
Vote in general
shareholders’
meeting
Vote in general
shareholders'
meeting
Total number of directors
15
282
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Indicate any directors who have left during the fiscal year to which this report relates, regardless of the reason (whether for
resignation or by agreement of the general meeting or any other):
Name or corporate
name of director
Ignacio Benjumea
Cabeza de Vaca
Category of director at Date of last
the time he/her left
Other external
appointment
23/03/2018
Date of leave
07/05/2020
Guillermo de la
Dehesa Romero
Other external
23/03/2018
03/04/2020
Esther Giménez-
Salinas i Colomer
Non-executive
independent
03/04/2020
27/10/2020
his or her term
NO
Indicate whether he or she
Board committees he or she has left before the expiry of
was a member of
Executive committee,
Remuneration committee,
Risk supervision, regulation
and compliance committee,
Responsible banking,
sustainability and culture
committee and Innovation
and technology committee
Executive committee,
Nomination committee and
Innovation technology
committee
Nomination committee,
Risk supervision, regulation
and compliance committee
and Responsible banking,
sustainability and culture
committee
YES
YES
Rodrigo Echenique
Gordillo
Other external
03/04/2020
22/12/2020
Nomination committee
YES
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
Ana Botín-Sanz de Sautuola y O’Shea
Group executive chairman
José Antonio Álvarez Álvarez
CEO
Sergio Rial
Santander Head Regional for
South America
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.
Total number of executive directors
% of the Board
Proprietary non-executive directors
Name or corporate name of director
N/A
Name or corporate name of significant shareholder represented or having
proposed his or her appointment
N/A
Profile
N/A
Total number of proprietary non-executive directors
% of the Board
3
20.00%
0
0%
283
Annual report 2020
Contents
Independent non-executive directors
Name or corporate name of director
Bruce Carnegie-Brown
Homaira Akbari
Álvaro Cardoso de Souza
R. Martín Chávez Márquez
Sol Daurella Comadrán
Henrique de Castro
Gina Díez Barroso
Ramiro Mato García-Ansorena
Belén Romana Garcia
Pamela Walkden
Total number of independent 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.
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.
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.
10
66.67%
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 principal 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) will be included.
Name or
corporate name
of director
Homaira Akbari Business
Description of the
relationship
Sol Daurella
Financing
Henrique de
Castro
Business
Gina Díez
Financing
Belén Romana
Business
284
Reasoned statement
When conducting the annual verification of the independence of directors of this status, the nomination
committee analysed the business relationships between Grupo Santander and the companies in which
they are or have previously been principal shareholders, directors or senior managers.
The committee concluded that the business relationships maintained between Grupo Santander and the
company in which Homaira Akbari was a director in 2020 were not significant because, among other
reasons, they did not reach certain comparable materiality thresholds used in other jurisdictions, e.g.
NYSE and Nasdaq.
When conducting the annual verification of the independence of directors of this status, the nomination
committee analysed the business relationships between Grupo Santander and the companies in which
they are or have previously been principal shareholders, directors or senior managers.
The committee concluded that the funding Grupo Santander granted to companies in which Sol Daurella
was a principal shareholder or director in 2020 was not significant because, among other reasons: (i) it did
not generate economic dependence on the companies involved in view of the substitutability of this
funding by other sources, whether banks or others, (ii) it aligned with Grupo Santander's share in the
corresponding market, and (iii) it did not reach certain comparable materiality thresholds used in other
jurisdictions, e.g. NYSE, Nasdaq and the Canadian Bank Act.
When conducting the annual verification of the independence of directors of this status, the nomination
committee analysed the business relationships between Grupo Santander and the companies in which
they are or have previously been principal shareholders, directors or senior managers.
The committee concluded that the business relationships maintained between Grupo Santander and the
company in which Henrique de Castro was a director in 2020 were not significant because, among other
reasons, they did not reach certain comparable materiality thresholds used in other jurisdictions, e.g.
NYSE and Nasdaq.
When conducting the annual verification of the independence of directors of this status, the nomination
committee analysed the business relationships between Grupo Santander and the companies in which
they are or have previously been principal shareholders, directors or senior managers.
The committee concluded that the funding granted by Grupo Santander to the company in which Gina
Díez was a principal shareholder and director in 2020 was not significant because, among other reasons:
(i) it did not generate a situation of economic dependence on the company involved in view of the
substitutability of this funding by other sources, whether banks or others, (ii) it aligned with Grupo
Santander's share in the corresponding market, and (iii) it did not reach certain comparable materiality
thresholds used in other jurisdictions, e.g. NYSE, Nasdaq and the Canadian Bank Act.
When conducting the annual verification of the independence of directors of this status, the nomination
committee analysed the business relationships between Grupo Santander and the companies in which
they are or have previously been principal shareholders, directors or senior managers.
The committee concluded that the business relationships maintained between Grupo Santander and the
companies in which Belén Romana was a director in 2020 were not significant because, among other
reasons, they did not reach certain comparable materiality thresholds used in other jurisdictions, e.g.
NYSE and Nasdaq.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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
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 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.
Luis Isasi Fernández de
Bobadilla
Because the requirements established in paragraphs 2
to 4 of article 529 duodecies LSC are not met.
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.
2
13.33 %
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
N/A
Date of change
Previous category
Current category
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
Executive
Proprietary
Independent
Other external
Total:
FY 2020
1
—
5
—
6
FY 2019
1
—
5
—
6
FY 2018
1
—
4
—
5
FY 2017
1
—
4
—
5
% of total directors of each category
FY 2020
33.33 %
0.00 %
50.00 %
0.00 %
40.00 %
FY 2019
50.00 %
0.00 %
55.55 %
0.00 %
40.00 %
FY 2018
33.33 %
0.00 %
44.44 %
0.00 %
33.33 %
FY 2017
33.33 %
0.00 %
50.00 %
0.00 %
35.71 %
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 regulated 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
Ana Botín-Sanz de Sautuola y O’Shea
Homaira Akbari
Sol Daurella Comadrán
Henrique de Castro
Luis Isasi Fernández de Bobadilla
Sergio Rial
Belén Romana García
Position
Name of the listed company
Director
The Coca-Cola Company
Director
Landstar System, Inc.
Director
Temenos AG
Chairman
Coca-Cola European Partners plc.
Fiserv Inc.
Director
Compañía de Distribución Integral Logista, S.A.U. Director
Director
Delta Airlines Inc
Director
Aviva plc.
Director
Six Group AG (SIX)
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 þ No o
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)
19,066
67,526
51,723
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Contents
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
Rami Aboukhair Hurtado
Lindsey Tyler Argalas
Alexandra Brandão
Juan Manuel Cendoya Méndez de Vigo
José Fransisco Doncel Razola
Keiran Paul Foad
José Antonio García Cantera
Juan Guitard Marín
José Maria Linares Perou
Mónica Lopez-Mónís Gallego
Javier Maldonado Trinchant
Dirk Marzluf
Víctor Matarranz Sanz de Madrid
José Luis de Mora Gil-Gallardo
Jaime Pérez Renovales
Javier San Félix García
Antonio Simões
Position (s)
Country head - Santander Spain
Head of Santander Digital
Head of Human Resources
Group head of Communications, Corporate Marketing and Research
Group head of Accounting and Financial Control
Group Chief Risk Officer
Group Chief Financial Officer
Group Chief Audit Executive
Global head of Corporate & Investment Banking
Group head of Supervisory and Regulatory Relations
Group head of Costs
Group head of Technology and Operations
Global head of Wealth Management
Group head of Strategy and Corporate Development and Head of Consumer Finance
(Santander Consumer Finance)
Group head of General Secretariat and Human Resources
Head of Santander Global Payments Services
Head regional of Europe
Marjolein van Hellemondt-Gerdingh
Group Chief Compliance Officer
Number of women in senior management
Percentage of total senior management
Total remuneration accrued by the senior
management (EUR thousand)
4
22.22%
52,113
C.1.15 Indicate whether any changes have been made to the board Rules and regulations during the fiscal year:
Yes þ No o
C.1.21 Indicate whether there are any specific requirements, other than those applying to directors generally, to be appointed
chairman.
Yes o No þ
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 o No þ
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
20
0
3
286
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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 nomination 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
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
15
4
4
13
13
13
46
20
98.56%
18
99.27%
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 þ No o
Identify, where applicable, the person(s) who certified the company’s individual and consolidated financial statements prior to
their formulation by the board:
Name
José Francisco Doncel Razola
Position
Group head of Accounting and Financial Control
C.1.29 Is the secretary of the board also a director?
Yes o No þ
If the secretary of the board is not a director fill in the following table:
Name or corporate name of the secretary
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 o No þ
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 express this amount as a percentage they represent of all fees invoiced to the company and/or its group.
Yes þ No o
Amount of non-audit work (EUR thousand)
Amount of non-audit work as a % of amount of audit work
Company
487
0.5%
Group
companies
1,513
1.4%
Total
2,000
1.9%
C.1.33 Indicate whether the audit report on the previous year’s financial statements contains a qualified opinion or 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 qualified opinion or reservations.
Yes o No þ
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Contents
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
5
5
Company
Group
13.15%
13.15%
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 þ No o
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
Type of beneficiary
Employees
19
Description of the agreement:
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
288
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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
Ana Botín-Sanz de Sautuola y O’Shea
José Antonio Álvarez Álvarez
Bruce Carnegie-Brown
Luis Isasi Fernández de Bobadilla
Ramiro Mato García-Ansorena
Belén Romana García
% of executive directors
% of proprietary directors
% of independent directors
% of other non-executive directors
Audit committee
Name
Pamela Walkden
Homaira Akbari
Henrique de Castro
Ramiro Mato García-Ansorena
Belén Romana García
% of executive directors
% of proprietary directors
% of independent directors
% of other non-executive directors
Position
Chairman
Member
Member
Member
Member
Member
Position
Chairman
Member
Member
Member
Member
Type
Executive director
Executive 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
33.33%
0.00%
50.00%
16.67%
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
Pamela Walkden
Belén Romana García
Homaira Akbari
Ramiro Mato García-Ansorena
Henrique de Castro
Date of appointment of the committee Chairman for that position
26 April 2020
Nomination committee
Name
Bruce Carnegie-Brown
R. Martin Chávez Márquez
Sol Daurella Comadrán
% of executive directors
% of proprietary directors
% of independent directors
% of other executive directors
Position
Chairman
Member
Member
Type
External independent director
External independent director
External independent director
0%
0%
100%
0%
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Annual report 2020
Contents
Remuneration committee
Name
Bruce Carnegie-Brown
R. Martin Chávez Márquez
Sol Daurella Comadrán
Henrique de Castro
Luis Isasi Fernández de Bobadilla
% of executive directors
% of proprietary directors
% of independent directors
% of other external directors
Position
Chairman
Member
Member
Member
Member
Type
External independent director
External independent director
External independent director
External independent director
Other external director
Risk supervision, regulation and compliance committee
Name
Álvaro Cardoso de Souza
R. Martin Chávez Márquez
Luis Isasi Fernández de Bobadilla
Ramiro Mato García-Ansorena
Belén Romana García
Position
Chairman
Member
Member
Member
Member
Type
External independent director
External independent director
Other external 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
Ramiro Mato García-Ansorena
Homaira Akbari
Álvaro Cardoso de Souza
Sol Daurella Comadrán
Belén Romana García
Position
Chairman
Member
Member
Member
Member
Type
External independent 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
R. Martín Chávez Márquez
Ana Botín-Sanz de Sautuola y O'Shea
José Antonio Álvarez Álvarez
Bruce Carnegie-Brown
Homaira Akbari
Henrique de Castro
Belén Romana García
Position
Chairman
Member
Member
Member
Member
Member
Member
% of executive directors
% of proprietary directors
% of independent directors
% of other external directors
290
Type
External independent director
Executive director
Executive director
External independent director
External independent director
External independent director
External independent director
0%
0%
80%
20%
0%
0%
80%
20%
0%
0%
100%
0%
28.58%
0.00%
71.42%
0.00%
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
C.2.2 Complete the following table on the number of female directors on the various board committees over the past four years.
Audit committee
Responsible banking, sustainability and
culture committee
Innovation and technology committee
Nomination committee
Remuneration committee
Risk supervision, regulation and compliance
committee
Executive committee
Number of female directors
FY 2020
FY 2019
FY 2018
FY 2017
Number
3
3
3
1
1
1
2
%
60.00%
60.00%
42.85%
33.33%
20.00%
20.00%
33.33%
Number
3
5
3
2
1
2
2
%
60.00%
62.50%
37.50%
40.00%
20.00%
40.00%
28.50%
Number
2
5
3
1
1
2
2
%
50.00%
62.50%
42.85%
25.00%
20.00%
33.30%
25.00%
Number
2
%
50.00%
—
0.00%
4
1
1
2
1
44.40%
20.00%
20.00%
33.30%
14.29%
D. RELATED-PARTY AND INTRAGROUP TRANSACTIONS
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 2020 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 2020 Consolidated financial statements for more information on offshore 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 125 million in the Bank and covered
the following transactions:
- 68 Non Delivery Forwards.
- 207 Swaps.
- 71 Cross Currency Swaps.
- 5 Options.
- 111 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) which were cancelled at 31 December 2020.
The amount shown on the right corresponds to positive results relating to deposits with the London
branch of Banco Santander, S.A. (asset) which were cancelled at 31 December 2020.
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 2.057 million as at 31 December 2020.
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 2020.
Amount (EUR
thousand)
84,870
1,503
769
146,552
85
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.
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Contents
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 þ Explain o
2. When the listed company is controlled, pursuant to the
meaning established in Article 42 of the Commercial Code, by
another listed or non-listed entity, and has, directly or
through its subsidiaries, business relationships with that
entity or any of its subsidiaries (other than those of the listed
company) or carries out activities related to the activities of
any of them, this is reported publicly, with specific
information about:
a) The respective areas of activity and possible business
relationships between, on the one hand, the listed company
or its subsidiaries and, on the other, the parent company or its
subsidiaries.
b) The mechanisms established to resolve any conflicts of
interest that may arise.
Complies o Partially complies o Explain o Not
applicable þ
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:
Further, without prejudice to the legal obligations of
disclosure of inside information and other regulated
information, the company should also have a general policy
for the communication of economic-financial, non-financial
and corporate information through the channels it considers
appropriate (media, social media or other channels) that
helps maximise the dissemination and quality of the
information available to the market, investors and other
stakeholders.
Complies þ Partially complies o Explain o
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 o Partially complies þ Explain o
Our April 2020 AGM authorised the board to increase share
capital with the authority to exclude pre-emptive rights for
shareholders, with a limit of 10% of the share capital. 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).
Banco Santander 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) Changes taking place since the previous annual general
meeting.
a) Report on auditor independence.
b) The specific reasons for the company not following a given
Good Governance Code recommendation, and any alternative
procedures followed in its stead.
b) Reviews of the operation of the audit committee and the
nomination and remuneration committees.
c) Audit committee report on third-party transactions.
Complies þ Partially complies o Explain o
Complies þ Partially complies o Explain o
4. The company should define and promote a policy for
communication and contact with shareholders and
institutional investors within the framework of their
involvement in the company, as well as with proxy advisors,
that complies in full with the rules on market abuse and gives
equal treatment to shareholders who are in the same
position. The company should make said policy public
through its website, including information regarding the way
in which it has been implemented and the parties involved or
those responsible its implementation.
7. The company should broadcast its general meetings live on
the corporate website.
The company should have mechanisms that allow the
delegation and exercise of votes by electronic means and
even, in the case of large-cap companies and, to the extent
that it is proportionate, attendance and active participation in
the general shareholders’ meeting.
Complies þ Explain o
8. The audit committee should strive to ensure that the
financial statements that the board of directors presents to
the general shareholders’ meeting are drawn up in
accordance to accounting legislation. And in those cases
292
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
where the auditors includes any qualification in its report, the
chairman of the audit committee should give a clear
explanation at the general meeting of their opinion regarding
the scope and content, making a summary of that opinion
available to the shareholders at the time of the publication of
the notice of the meeting, along with the rest of proposals
and reports of the board.
Complies þ Partially complies o Explain o
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 þ Partially complies o Explain o
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 þ Partially complies o Explain o Not
applicable o
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 o Partially complies o Explain o Not
applicable þ
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 þ Partially complies o Explain o
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 þ Explain o
14. The board of directors should approve a policy aimed at
promoting an appropriate composition of the board that:
a) is concrete and verifiable;
b) ensures that appointment or re-election proposals are
based on a prior analysis of the competences required by the
board; and
c) favours diversity of knowledge, experience, age and
gender. Therefore, measures that encourage the company to
have a significant number of female senior managers are
considered to favour gender diversity.
The results of the prior analysis of competences required by
the board should be written up in the nomination committee’s
explanatory report, to be published when the general
shareholders’ meeting is convened that will ratify the
appointment and re-election of each director.
The nomination committee should run an annual check on
compliance with this policy and set out its findings in the
annual corporate governance report.
Complies þ Partially complies o Explain o
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.
Further, the number of female directors should account for at
least 40% of the members of the board of directors before the
end of 2022 and thereafter, and not less than 30% previous to
that.
Complies þ Partially complies o Explain o
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 þ Explain o
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 þ Explain o
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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 þ Partially complies o Explain o
19. Following verification by the nomination 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 o Partially complies o Explain o Not
applicable þ
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 þ Partially complies o Explain o Not
applicable o
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 nomination 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 þ Explain o
22. Companies should establish rules obliging directors to
disclose any circumstance that might harm the
organisation’s name or reputation, related or not to their
actions within the company, and 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.
When the board is informed or becomes aware of any of the
situations mentioned in the previous paragraph, the board of
294
directors should examine the case as soon as possible and,
attending to the particular circumstances, decide, based on a
report from the nomination and remuneration committee,
whether or not to adopt any measures such as opening of an
internal investigation, calling on the director to resign or
proposing his or her dismissal. The board should give a
reasoned account of all such determinations in the annual
corporate governance report, unless there are special
circumstances that justify otherwise, which must be recorded
in the minutes. This is without prejudice to the information
that the company must disclose, if appropriate, at the time it
adopts the corresponding measures.
Complies þ Partially complies o Explain o
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 þ Partially complies o Explain o Not
applicable o
24. Directors who give up their position before their tenure
expires, through resignation or resolution of the general
meeting, should state the reasons for this decision, or in the
case of non-executive directors, their opinion of the reasons
for the general meeting resolution, in a letter to be sent to all
members of the board.
This should all be reported in the annual corporate
governance report, and if it is relevant for investors, the
company should publish an announcement of the departure
as rapidly as possible, with sufficient reference to the reasons
or circumstances provided by the director.
Complies þ Partially complies o Explain o Not
applicable o
25. The nomination 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 þ Partially complies o Explain o
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 þ Partially complies o Explain o
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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.
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 þ Partially complies o Explain o
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 þ Partially complies o Explain o Not
applicable o
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 þ Partially complies o Explain o
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 þ Explain o Not applicable o
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 þ Partially complies o Explain o
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 þ Partially complies o Explain o
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 þ Partially complies o Explain o
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 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
Complies þ Partially complies o Explain o Not
applicable o
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 þ Explain o
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 nomination
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
nomination 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 þ Partially complies o Explain o
37. When there is an executive committee, there should be at
least two non-executive members, at least one of whom
should be independent; and its secretary should be the
secretary of the board of directors.
Complies þ Partially complies o Explain o Not
applicable o
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 þ Partially complies o Explain o Not
applicable o
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Contents
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, both financial and non-financial.
Complies þ Partially complies o Explain o
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 þ Partially complies o Explain o
41. The head of the unit handling the internal audit function
should present an annual work programme to the audit
committee, for approval by this committee or the board,
inform it directly of any incidents or scope limitations arising
during its implementation, the results and monitoring of its
recommendations, and submit an activities report at the end
of each year.
Complies þ Partially complies o Explain o Not
applicable o
42. The audit committee should have the following functions
over and above those legally assigned:
1. With respect to internal control and reporting systems:
a) Monitor and evaluate the preparation process and the
integrity of the financial and non-financial information, as
well as the control and management systems for financial
and non-financial risks related to the company and, where
appropriate, to the group – including operating, technological,
legal, social, environmental, political and reputational risks or
those related to corruption – reviewing compliance with
regulatory requirements, 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 and
removal of the head of the internal audit service; propose the
service’s budget; approve or make a proposal for approval to
the board of the priorities and annual work programme of
the internal audit unit, ensuring that it focuses primarily on
the main risks the company is exposed to (including
reputational risk); 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 that allows
employees and other persons related to the company, such as
directors, shareholders, suppliers, contractors or
subcontractors, to report irregularities of potential
significance, including financial and accounting irregularities,
or those of any other nature, related to the company, that
they notice within the company or its group. This mechanism
must guarantee confidentiality and enable communications
to be made anonymously, respecting the rights of both the
complainant and the accused party.
d) In general, ensure that the internal control policies and
systems established are applied effectively in practice.
2. With regard to the external auditor:
296
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 through the CNMV, accompanied by a statement of
any disagreements arising with the outgoing auditor and the
reasons for the same.
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 þ Partially complies o Explain o
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 þ Partially complies o Explain o
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 þ Partially complies o Explain o Not
applicable o
45. Risk control and management policy should identify or
establish at least:
a) The different types of financial and non-financial risk the
company is exposed to (including operational, technological,
financial, legal, social, environmental, political and
reputational risks, and risks relating to corruption), with the
inclusion under financial or economic risks of contingent
liabilities and other off-balance-sheet risks.
b) A risk control and management model based on different
levels, of which a specialised risk committee will form part
when sector regulations provide or the company deems it
appropriate.
c) The level of risk that the company considers acceptable.
d) The measures in place to mitigate the impact of identified
risk events should they occur.
e) The internal control and reporting systems to be used to
control and manage the above risks, including contingent
liabilities and off-balance-sheet risks.
Complies þ Partially complies o Explain o
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:
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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.
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:
b) Participate actively in the preparation of risk strategies and
in key decisions about their management.
a) Committees should be formed exclusively by non-executive
directors, with a majority of independents.
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 þ Partially complies o Explain o
47. Members of the nomination and remuneration
committee-or of the nomination 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 þ Partially complies o Explain o
48. Large cap companies should have formed separate
nomination and remuneration committees.
Complies þ Explain o Not applicable o
49. The nomination 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 nomination committee to propose candidates
that it might consider suitable.
Complies þ Partially complies o Explain o
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 þ Partially complies o Explain o
51. The remuneration committee should consult with the
company’s chairman and chief executive, especially on
matters relating to executive directors and senior officers.
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 þ Partially complies o Explain o Not
applicable o
53. The task of supervising compliance with the policies and
rules of the company in the environmental, social and
corporate governance areas, and internal rules of conduct,
should be assigned to one board committee or split between
several, which could be the audit committee, the nomination
committee, a committee specialised in sustainability or
corporate social responsibility, or a dedicated committee
established by the board under its powers of self-
organisation. Such a committee should be made up solely of
non-executive directors, the majority being independent and
specifically assigned the following minimum functions.
Complies þ Partially complies o Explain o
54. The minimum functions referred to in the previous
recommendation are as follows:
a) Monitor compliance with the company’s internal codes of
conduct and corporate governance rules, and ensure that the
corporate culture is aligned with its purpose and values.
b) Monitor the implementation of the general policy
regarding the disclosure of economic-financial, non-financial
and corporate information, as well as communication with
shareholders and investors, proxy advisors and other
stakeholders. Similarly, the way in which the entity
communicates and relates with small and medium-sized
shareholders should be monitored.
c) Periodically evaluate the effectiveness of the company’s
corporate governance system and environmental and social
policy, to confirm that it is fulfilling its mission to promote the
corporate interest and catering, as appropriate, to the
legitimate interests of remaining stakeholders.
d) Ensure the company’s environmental and social practices
are in accordance with the established strategy and policy.
e) Monitor and evaluate the company’s interaction with its
stakeholder groups.
Complies þ Partially complies o Explain o
Complies þ Partially complies o Explain o
52. The rules regarding composition and functioning of
supervision and control committees should be set out in the
55. Environmental and social sustainability policies should
identify and include at least:
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Contents
a) The principles, commitments, objectives and strategy
regarding shareholders, employees, clients, suppliers, social
welfare issues, the environment, diversity, fiscal
responsibility, respect for human rights and the prevention of
corruption and other illegal conducts.
b) The methods or systems for monitoring compliance with
policies, associated risks and their management.
c) The mechanisms for supervising non-financial risk,
including that related to ethical aspects and business conduct.
d) Channels for stakeholder communication, participation and
dialogue.
e) Responsible communication practices that prevent the
manipulation of information and protect the company’s
honour and integrity.
Complies þ Partially complies o Explain o
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 þ Explain o
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 þ Partially complies o Explain o
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
298
performance measurement is not based solely on one off,
occasional or extraordinary events.
Complies þ Partially complies o Explain o Not
applicable o
59. The payment of the variable components of remuneration
is subject to sufficient verification that previously established
performance, or other, conditions have been effectively met.
Entities should include in their annual directors’ remuneration
report the criteria relating to the time required and methods
for such verification, depending on the nature and
characteristics of each variable component.
Additionally, entities should consider establishing a reduction
clause (‘malus’) based on deferral for a sufficient period of the
payment of part of the variable components that implies total
or partial loss of this remuneration in the event that prior to
the time of payment an event occurs that makes this
advisable.
Complies þ Partially complies o Explain o Not
applicable o
60. Remuneration linked to company earnings should bear in
mind any qualifications stated in the external auditor’s report
that reduce their amount.
Complies þ Partially complies o Explain o Not
applicable o
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 þ Partially complies o Explain o Not
applicable o
62. Following the award of shares, options or financial
instruments corresponding to the remuneration schemes,
executive directors should not be able to transfer their
ownership or exercise them until a period of at least three
years has elapsed.
Except for the case in which the director maintains, at the
time of the transfer or exercise, a net economic exposure to
the variation in the price of the shares for a market value
equivalent to an amount of at least twice his or her fixed
annual remuneration through the ownership of shares,
options or other financial instruments.
The foregoing shall not apply to the shares that the director
needs to dispose of to meet the costs related to their
acquisition or, upon favourable assessment of the nomination
and remuneration committee to address an extraordinary
situation.
Complies þ Partially complies o Explain o Not
applicable o
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 þ Partially complies o Explain o Not
applicable o
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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.
For the purposes of this recommendation, payments for
contractual termination include any payments whose accrual
or payment obligation arises as a consequence of or on the
occasion of the termination of the contractual relationship
that linked the director with the company, including
previously unconsolidated amounts for long-term savings
schemes and the amounts paid under post-contractual non-
compete agreements.
Complies þ Partially complies o Explain o Not
applicable o
List whether any directors voted against or abstained from
voting on the approval of this Report.
Yes o No þ
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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Contents
9.3 Table on compliance with or explanations of recommendations
on corporate governance
Recommendation
1
Comply / Explain
Comply
Information
See section 3.2 'Shareholder rights'.
Not applicable
See 'Conflicts of interest' in section 4.12. and section 2.3 'Significant shareholders'.
Comply
Comply
See section 3.1 'Shareholder engagement'.
See section 3.1 'Shareholder engagement'.
Partially comply
Comply
Comply
Comply
Comply
Comply
At our April 2020 AGM, the board was authorised to increase share capital without pre-emptive rights
for shareholders, with a limit of 10% of the share capital then in issue. However, this limit on issuing
shares without pre-emptive rights do not apply to capital increases to convert contingent convertible
preferred securities (which can only be converted into newly-issued shares when the CET1 ratio falls
below a pre-established threshold).
Banco Santander 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'.
See sections 4.5 'Audit committee activities in 2020', 4.6 'Nomination committee activities in 2020',
4.7 'Remuneration committee activities in 2020', 4.8 'Risk supervision, regulation and compliance
committee activities in 2020', 4.9 'Responsible banking, sustainability and culture committee activities
in 2020', 4.10 'Innovation and technology committee activities in 2020' and 4.12 'Related-party
transactions and conflicts of interest'.
See 'Engagement with shareholders in 2020' in section 3.1, 'Shareholder participation at general
meetings' in section 3.2 and section 3.6 'Our coming 2021 AGM'.
See 'Rules and regulations of the board' in section 4.3 and section 4.5 'Audit committee activities in
2020'.
See 'Participation of shareholders at the general meeting' in section 3.2.
See 'Supplement to the annual general meeting notice' in section 3.2.
Not applicable
See section 3.6 'Our coming 2021 AGM'.
Comply
Comply
Comply
Comply
Comply
Comply
See section 4.3 'Board functioning and effectiveness'.
See 'Size' in section 4.2.
See 'Diversity' and 'Election, renewal and succession of directors' in section 4.2, 'Rules and regulations
of the board' in section 4.3, 'Duties and activities in 2020' in section 4.6, section 5 'Management team'
and 'Responsible banking' chapter.
See section 4.2 'Board composition'.
See 'Composition by type of director' in section 4.2.
See 'Composition by type of director' and 'Election, renewal and succession of directors' in section 4.2.
Comply
See 'Corporate website' in section 3.1 and section 4.1 'Our directors'.
Not applicable
See 'Composition by type of director' and 'Tenure and equity ownership' in section 4.2.
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
Comply
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, 'Rules and regulations of the board'
in section 4.3 and 'Duties and activities in 2020' in section 4.6.
See 'Election, renewal and succession of directors' in section 4.2.
See 'Election, renewal and succession of directors' in section 4.2, 'Rules and regulations of the board'
in section 4.3 and 'Duties and activities in 2020' in section 4.6.
See 'Board and committees attendance' in section 4.3 and 'Duties and activities in 2020' in section 4.6.
See 'Board meetings' and 'Board and committee attendance' in section 4.3.
See 'Board meetings' and 'Board and committee attendance' in section 4.3.
See 'Board meetings' in section 4.3.
See 'Board meetings' in section 4.3.
See 'Training of directors and induction programmes for new directors' in section 4.3.
See 'Board meetings' in section 4.3.
See section 3.1 'Shareholder engagement' and 'Duties and activities in 2020' in section 4.6.
See section 4.3 'Board functioning and effectiveness'.
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
300
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Recommendation
34
Comply / Explain
Comply
Information
See 'Lead independent director' in section 4.3.
35
36
37
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
Comply
Comply
Comply
See 'Secretary of the board' in section 4.3.
See 'Board assessment in 2020' in section 4.3.
See 'Rules and regulations of the board' in section 4.3 and 'Composition' in section 4.4.
See 'Committee meetings' in section 4.3 and section 4.4 'Executive committee activities in 2020'.
See 'Rules and regulations of the board' in section 4.3 and 'Composition' in section 4.5.
See 'Duties and activities in 2020' in section 4.5 and section 8.5 'Monitoring'.
See 'Rules and regulations of the board' in section 4.3 and 'Duties and activities in 2020' in section 4.5.
See 'Rules and regulations of the board' in section 4.3 and 'Duties and activities in 2020' in section 4.5.
See 'Committee meetings' in section 4.3.
See 'Duties and activities in 2020' in section 4.5.
See 'Rules and regulations of the board' in section 4.3, 'Duties and activities in 2020' in section 4.5,
'Duties and activities in 2020' in section 4.8 and the 'Risk management and compliance' chapter.
See 'Duties and activities in 2020' in section 4.5,'Duties and activities in 2020' in section 4.8 and the
'Risk management and compliance' chapter.
See 'Composition' in section 4.6 and 'Composition' in section 4.7.
See 'Structure of board committees' in section 4.3.
See 'Duties and activities in 2020' in section 4.6.
See 'Duties and activities in 2020' in section 4.7.
See 'Duties and activities in 2020' in section 4.7.
See 'Rules and regulations of the board' and 'Committee meetings' in section 4.3 and sections 4.8
'Risk supervision, regulation and compliance committee activities in 2020' and 4.9 'Responsible
banking, sustainability and culture committee activities in 2020'.
See 'Rules and regulations of the board' in section 4.3, 'Duties and activities in 2020' in section 4.6,
'Duties and activities in 2020' in section 4.8 and 'Duties and activities in 2020' in section 4.9.
See 'Rules and regulations of the board' in section 4.3, 'Duties and activities in 2020' in section 4.6,
'Duties and activities in 2020' in section 4.8 and 'Duties and activities in 2020' in section 4.9.
See 'Duties and activities in 2020' in section 4.9 and 'Responsible Banking' chapter.
See sections 6.2 'Remuneration of directors for supervisory and collective decision-making duties:
policy applied in 2020', 6.3 'Remuneration of directors for executive duties' and 6.4 'Directors'
remuneration policy for 2021, 2022 and 2023 submitted to a binding shareholder vote'.
See sections 6.2 'Remuneration of directors for supervisory and collective decision-making duties:
policy applied in 2020', 6.3 'Remuneration of directors for executive duties' and 6.4 'Directors'
remuneration policy for 2021, 2022 and 2023 submitted to a binding shareholder vote'.
See section 6.3 'Remuneration of directors for executive duties' and 6.4 'Directors' remuneration policy
for 2021, 2022 and 2023 submitted to a binding shareholder vote'.
See section 6.3 'Remuneration of directors for executive duties'.
See section 6.3 'Remuneration of directors for executive duties'.
See section 6.3 'Remuneration of directors for executive duties' and 6.4 'Directors' remuneration policy
for 2021, 2022 and 2023 submitted to a binding shareholder vote'.
See 'Duties and activities in 2020' in section 4.7, section 6.3 'Remuneration of directors for executive
duties' and 6.4 'Directors' remuneration policy for 2021, 2022 and 2023 submitted to a binding
shareholder vote'.
See section 6.3 'Remuneration of directors for executive duties' and 6.4 'Directors' remuneration policy
for 2021, 2022 and 2023 submitted to a binding shareholder vote'.
See 'Duties and activities in 2020' in section 4.7 and sections 6.1 'Principles of the remuneration
policy', 6.3 'Remuneration of directors for executive duties' and 6.4 'Directors' remuneration policy for
2021, 2022 and 2023 submitted to a binding shareholder vote'.
301
Annual report 2020
Contents
9.4 Reconciliation to the CNMV’s remuneration report model
Included in
Section in the statistical
CNMV model
A. Remuneration policy for the present fiscal year
A.1
report
No
Further information elsewhere and comments
• See section 6.4.
• See sections 4.7 and 6.5.
• See 'Summary of link between risk, performance and reward' in section 6.3.
No
No
No
See section 6.4.
See section 6.4.
See section 6.5.
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
A.2
A.3
A.4
B. Overall summary of application of the remuneration policy over the last fiscal year
See sections 6.1, 6.2. and 6.3.
B.1
See 'Summary of link between risk, performance and reward' in section 6.3.
B.2
See sections 6.2 and 6.3.
B.3
See section 6.5.
B.4
See section 6.2 and 6.3
B.5
See 'Gross annual salary' in section 6.3.
B.6
See 'Variable remuneration' in section 6.3.
B.7
Not applicable.
B.8
See 'Main features of the benefit plans' in section 6.3.
B.9
See 'Other remuneration' in section 6.3.
B.10
See 'Terms and conditions of executive directors´ contracts' in section 6.4.
B.11
No remuneration for this component.
B.12
See note 5 to the consolidated financial statements.
B.13
See 'Insurance and other remuneration and benefits in kind' in section 6.4.
B.14
See 'Remuneration of board members as representatives of the Bank' in section 6.3.
B.15
B.16
No remuneration for this component.
C. Breakdown of the individual remuneration of directors
Yes
C
Yes
C.1 a) i)
Yes
C.1 a) ii)
Yes
C.1 a) iii)
Yes
C.1 a) iii)
Yes
C.1 b) i)
No
C.1 b) ii)
No
C.1 b) iii)
No
C.1 b) iv)
Yes
C.1 c)
D. Other information of interest
No
D
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.
See section 4.7
302
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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 non-binding 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
Votes against
Votes in favour
Abstentions
Number
10,429,789,366
Number
649,059,435
9,777,014,101
372,790,860
% of total
96.55 %
% of total
6.01 %
90.51 %
3.45 %
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
Ms Homaira Akbari
Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea
Mr Álvaro Antonio Cardoso de Souza
Mr Ramón Martín Chávez Márquez
Ms Sol Daurella Comadrán
Mr Henrique Manuel Drummond Borges Cirne de Castro
Ms Gina Díez Barroso
Mr Luis Isasi Fernández de Bobadilla
Mr Ramiro Mato García-Ansorena
Mr Sergio Rial
Ms Belén Romana García
Mrs Pamela Ann Walkden
Mr Rodrigo Echenique Gordillo
Mr Ignacio Benjumea Cabeza de Vaca
Mr Guillermo de la Dehesa Romero
Ms Esther Giménez-Salinas i Colomer
Type
Executive
Executive
Independent
Independent
Other external
Independent
Independent
Independent
Independent
Independent
Independent
Independent
Executive
Independent
Independent
Other external
Other external
Other external
Independent
Period of accrual in year 2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 27/10/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 22/12/2020 to 31/12/2020
From 19/05/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 30/05/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 31/12/2020
From 01/01/2020 to 22/12/2020
From 01/01/2020 to 05/05/2020
From 01/01/2020 to 03/04/2020
From 01/01/2020 to 27/10/2020
303
Annual report 2020
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
Salary
Long-term
variable
remuneration
1
Severance
pay
Other
grounds
Total
year
2020
Total
year
2019
157
3,176
144
2,541
534
290
828
559
Name
Ms Ana Botín-Sanz
de Sautuola y O’Shea
Mr José Antonio
Álvarez Álvarez
Mr Bruce Carnegie-
Brown
Ms Homaira Akbari
Mr Francisco Javier
Botín-Sanz de
Sautuola y O’Shea
Mr Álvaro Antonio
Cardoso de Souza
Mr Ramón Martín
Chávez Márquez
Ms Sol Daurella
Comadrán
Mr Henrique Manuel
Drummond Borges
Cirne de Castro
Ms Gina Díez Barroso
Mr Luis Isasi
Fernández de
Bobadilla
Mr Ramiro Mato
García-Ansorena
Mr Sergio Rial
Ms Belén Romana
García
Mrs Pamela Ann
Walkden
Mr Rodrigo
Echenique Gordillo
Mr Ignacio Benjumea
Cabeza de Vaca
Mr Guillermo de la
Dehesa Romero
Ms Esther Giménez-
Salinas i Colomer
Mr Carlos Fernández
González
77
77
326
77
77
136
8
77
77
2
44
119
42
98
114
75
35
23
64
—
55
49
82
79
45
60
15
82
85
2
43
86
21
94
66
60
43
28
71
—
187
46
—
47
14
55
55
—
116
225
—
225
34
20
95
57
56
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
525
5,352
6,119
710
4,370
4,957
—
—
—
—
—
—
—
—
595
202
700
226
122
137
243
276
37
—
214
240
217
4
86
—
740
943
—
—
—
—
—
430
63
500
—
417
525
214
34
—
—
—
—
—
—
—
—
—
—
—
—
—
414
1,800
—
2,369
3,926
—
—
—
—
—
—
—
—
102
275
524
—
—
—
108
399
191
228
—
214
Comments
1. Includes deferred amounts from the 2016 deferred and conditional variable remuneration plan subject to long term metrics for Ana Botín,
José Antonio Álvarez and Rodrigo Echenique, of which only a third was paid in 2020.
304
Resposible
banking
Corporate
governance report
Economic
and financial review
Risk management
and compliance
II) Table of changes in share-based remuneration schemes and gross profit from consolidated shares or financial instruments
Name
Ms Ana
Botín-
Sanz de
Sautuola
y O’Shea
Name of Plan
1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)
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)
5th cycle of deferred variable remuneration
plan linked to multi-year targets (2020)
Name
Mr José
Antonio
Álvarez
Álvarez
Name of Plan
1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)
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)
5th cycle of deferred variable remuneration
plan linked to multi-year targets (2020)
Financial instruments at
start of year 2020
Financial instruments
granted at start of year
2020
Financial instruments consolidated during 2020
Instruments
matured but
not
exercised
Financial instruments at
end of year 2020
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)
No. of
instruments
No. of
instruments
No of
equivalent
shares
165,043
165,043
2.685
443
51,265
—
—
216,308
216,308
206,775
206,775
309,911
309,911
319,390
319,390
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
310,615
310,615
198,792
198,792
2.685
534
—
—
—
—
206,775
206,775
309,911
309,911
319,390
319,390
111,823
111,823
Financial instruments at
start of year 2020
Financial instruments
granted at start of year
2020
Financial instruments consolidated during 2020
Instruments
matured but
not
exercised
Financial instruments at
end of year 2020
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)
No. of
instruments
No. of
instruments
No of
equivalent
shares
111,396
111,396
2.685
299
34,602
—
—
145,998
145,998
138,283
138,283
207,097
207,097
213,449
213,449
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
168,715
168,715
107,976
107,976
2.685
290
—
—
—
—
138,283
138,283
207,097
207,097
213,449
213,449
60,739
60,739
305
Annual Report 2020
Contents
Name
Mr
Rodrigo
Echenique
Gordillo
Name of Plan
1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)
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)
Financial instruments at
start of year 2020
Financial instruments
granted at start of year
2020
Financial instruments consolidated during 2020
Instruments
matured but
not
exercised
Financial instruments at end
of year 2020
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)
No. of
instruments
No. of
instruments
No of
equivalent
shares
108,134
108,134
107,764
107,764
164,462
164,462
98,092
98,092
—
—
—
—
—
—
—
—
Comments
82,506
82,506
2.685
222
25,628
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
107,764
107,764
164,462
164,462
98,092
98,092
After reviewing the results of the 1st cycle of the deferred variable remuneration plan linked to multi-year targets (2016), the board of directors confirmed in 2020, upon recommendation from the remunerations
committee, a 76.3% achievement of the long-term metrics of the plan, and the amounts of the pending deliveries for each executive director, payable in February 2020, 2021 and 2022 in connection with this plan.
306
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
III) Long-term saving systems
Name
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Remuneration from
consolidation of rights
to savings system
1,155
864
Contribution over the year from the company (EUR thousand)
Savings systems with
consolidated
economic rights
Savings systems with
unconsolidated
economic rights
Amount of accumulated funds (EUR thousand)
2020
2019
Name
Ms Ana Botín-Sanz de
Sautuola y O’Shea
Mr José Antonio
Álvarez Álvarez
Mr Rodrigo Echenique
Gordillo
2020
1,155
864
—
2019
1,145
858
—
iv) Details of other items (Thousands of EUR)
Name
Ms Ana Botín-
Sanz de
Sautuola y
O’Shea
Item
Life and accident insurance and
fixed remuneration supplement
insurance
Other remuneration
Name
Mr José Antonio
Álvarez Álvarez
Item
Life and accident insurance and
fixed remuneration supplement
insurance
2020
2019
Systems with
consolidated
economic
rights
Systems with
unconsolidat
ed economic
rights
Systems with
consolidated
economic
rights
Systems with
unconsolidat
ed economic
rights
—
—
—
—
—
—
49,444
18,082
—
—
—
—
48,104
17,404
13,268
—
—
—
Amount
remunerated
584
22
Amount
remunerated
1,045
Other remuneration
9
b) Remuneration of the company directors for seats on the
boards of other group companies:
i) Remuneration in cash (Thousands of EUR)
Name
Ms Homaira Akbari
Mr Álvaro Antonio
Cardoso de Souza
Mr Ramón Martín
Chávez Márquez
Mr Henrique
Manuel Drummond
Borges Cirne de
Castro
Ms Gina Díez
Barroso
Mr Sergio Rial
Fixed
remuneration
Per diem
allowances
Remuneration
for membership
of Board's
committees
Short-term
variable
remuneration
Long-term
variable
remuneration
Salary
Severance
pay
Other
grounds
184
310
17
17
14
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 2,175
1,664
—
—
—
—
—
—
—
—
—
—
—
—
—
25
—
—
—
17
17
14
181
4,020
Total
year
2020
184
Total
year
2019
—
335
325
—
—
—
—
307
Annual report 2020
Contents
ii) Table of changes in share/based remunerations
schemes and gross profit from consolidated shares of
financial instruments
Financial
instruments
at start of year
2020
Financial instruments granted
at start of year 2020
Financial instruments consolidated during 2020
Instruments
matured but
not
exercised
Financial instruments
at end of year 2020
No. of
instru
ments
No. of
equiva
lent
shares
No. of
instruments
No. of
equivalent
shares
No. of
instruments
No. of
equivalent
shares /
handed
over
Price of
the
consolida
ted
shares
Net proft
from shares
handed over
or
consolidated
fnancial
instruments
(EUR
thousand)
No. of
instruments
No. of
instruments
No of
equivalent
shares
—
—
355,263
355,263
227,367
227,367
7.32
1,664
—
127,896
127,896
Name
Name of Plan
Mr
Sergio
Rial
5th cycle of
deferred
variable
remuneration
plan linked to
multi-year
targets (2020)
iii) Long term saving systems
Name
Mr Sergio Rial
Remuneration from
consolidation of rights
to savings system
693
Contribution over the year from the company (EUR thousand)
Savings systems with
consolidated
economic rights
Savings systems with
unconsolidated
economic rights
Name
Mr Sergio Rial
2020
693
2019
—
2020
—
2019
—
iv) Detail of other items (Thousands of EUR)
Name
Mr Sergio Rial
Item
Fundo de Pensão do
Governo
Other remuneration
Amount Remunerated
2020
174
7
Amount of accumulated funds (EUR thousand)
2020
2019
Systems with Systems with
consolidated unconsolidat
ed economic
rights
economic
rights
Systems with Systems with
consolidated unconsolidat
ed economic
rights
economic
rights
—
—
—
—
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c) Summary of remuneration (Thousands of EUR)
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
consolidated
shares or
financial
instruments1
Total
cash
remuner
1
ation
Contribut
ions to
the long- Remunerat
ion for
other
items Total 2020
term
savings
plan
Total cash
remunera
tion
Total 2019
Gross profit
on
consolidated
shares or
financial
instruments
Contribut
ions to
the long-
term
savings
plan
Remuner
ation for
other
items
243
276
335
Name
Ms Ana Botín-Sanz de Sautuola y
O’Shea
Mr José Antonio Álvarez Álvarez
4,370
589
864
1,054
6,877
8,270
5,352
977
1,155
606
8,090
9,954
Mr Bruce Carnegie-Brown
Ms Homaira Akbari
Mr Francisco Javier Botín-Sanz de
Sautuola y O’Shea
595
202
122
Mr Álvaro Antonio Cardoso de Souza
243
Mr Ramón Martín Chávez Márquez
Ms Sol Daurella Comadrán
Mr Henrique Manuel Drummond
Borges Cirne de Castro
Ms Gina Díez Barroso
Mr Luis Isasi Fernández de Bobadilla
Mr Ramiro Mato García-Ansorena
Mr Sergio Rial
Ms Belén Romana García
Mrs Pamela Ann Walkden
37
214
217
4
943
430
63
417
214
—
—
—
—
—
—
—
—
—
—
—
—
—
Mr Rodrigo Echenique Gordillo
2,369
222
Mr Ignacio Benjumea Cabeza de
Vaca
Mr Guillermo de la Dehesa Romero
Ms Esther Giménez-Salinas i
Colomer
Mr Carlos Fernández González
275
108
191
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
—
—
595
202
122
700
226
137
37
—
214
240
217
4
943
430
63
417
214
86
—
—
500
525
34
2,595
4,874
275
108
191
—
524
399
228
214
—
—
—
184
—
17
—
17
14
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,020
1,664
693
181
6,558
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
2020
Total
2019
—
—
—
184
—
—
—
—
—
—
335
325
17
—
17
14
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
16,366
1,788
2,019
1,664
21,837
27,187
4,587
1,664
693
181
7,125
325
1. Includes deferred amounts from the 2016 deferred and conditional variable remuneration plan subject to long term metrics for Ana Botín,
José Antonio Álvarez and Rodrigo Echenique, of which only a third was paid in 2020.
Comments
This annual report on remuneration has been approved by the
board of directors of the company, at its meeting on 22
February 2021.
State if any directors have voted against or abstained from
approving this report.
Yes o No þ
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Annual report 2020
Contents
Author: Santi Alvite
Economic
and financial
review
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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 2021
8. Alternative performance measures (APM)
312
315
317
317
320
333
337
345
357
357
359
361
389
391
401
403
404
412
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1. Economic, regulatory and
competitive context
In 2020, Santander operated in an extraordinarily complex
environment characterized by the pandemic and the
measures to alleviate its economic impact. The crisis has been
global, severe and abrupt, and has generated enormous
uncertainty given the impossibility of predicting its scope and
duration. Most of the economies in which the bank operates
responded with tough policies and notable coordination
between their fiscal, financial and monetary counterparts to
limit permanent damage from lockdown measures.
Nonetheless, hopes raised by better treatments, more
targeted outbreak responses and the effective vaccines
announced in the final months of the year contained the
situation towards the end of the year and led to better
expectations that were reflected in financial markets.
Economic performance by geography was as follows:
• Eurozone (GDP: -6.8% estimated in 2020). The economic
contraction led to a strong policy response. The European
Central Bank (ECB) eased funding conditions through
expansionary measures, complemented with temporary
regulatory and supervisory measures to boost lending. The
European Union (EU) supported countries adopting
expansionary fiscal policies and set up funds to provide
liquidity.
• Spain (GDP: -11 in 2020). The recession in Spain was more
severe compared against the euro area average, owing to
its greater exposure to the tourist industry and the stronger
impact of the first wave of the pandemic. Unemployment
rose to 16.1% in Q4'20. Inflation was negative at the end of
the year (-0.5% year-on-year in December), due to
contracting demand and lower energy prices.
• United Kingdom (GDP: -9.9% in 2020). The pandemic hit
the British economy hard (particularly the service sector),
which for some time overshadowed post-Brexit
relationships with the EU. Inflation was low (0.6% in
December) and unemployment (5% in October) remained
under control thanks to government employment
protection schemes. The UK's official interest rate has been
0.1% since March.
• Portugal (GDP: -7.6% in 2020). The covid-19 crisis affected
the service sector the most, which had a direct impact on
tourism. Unemployment (7.1% in Q4'20) will continue to
rise. There was no inflation, standing at -0.2% in
December. Portugal's fiscal deficit amounted to 3.6% of
GDP through Q3'20.
• Poland (GDP: -2.8% in 2020). The recession was less
severe than in surrounding countries due to better private
consumption and external demand. Unemployment rose to
3.4% in Q3'20, although inflation remained high (2.4% in
December). Poland's official interest rate has been at 0.1%
since May.
• United States (GDP: -3.5% in 2020). Overall fiscal stimulus
packages and softer restrictions caused the economy to
shrink less than in other regions. As a result, after peaking
at 14.7%, recovery enabled unemployment to fall to 6.7%
in December. The shock exerted downward pressure on
inflation. After cutting interest rates to 0-0.25%, the
Federal Reserve activated a range of facilities to stabilize
markets and encourage lending.
• Mexico (GDP: -8.5% preliminary in 2020). The pandemic
and ensuing restrictions led to a sharp slump in the
Mexican economy. Recovery began in Q3'20 on the back of
manufacturing and exports, despite weak domestic
demand. After a temporary rebound, inflation moderated at
year-end (3.2%). Mexico's central bank lowered the official
interest interest rate to 4.25% (from 7.25% at the end of
2019).
• Brazil (GDP: -4.1% estimated in 2020). The fall in economic
activity stemming from the pandemic was more moderate
elsewhere in the region due to fiscal support measures that
mitigated the fall in Q2'20 and boosted recovery in Q3'20.
Inflation rebounded at the end of the year (4.5% in
December) while underlying inflation remained low (2.8%).
Brazil's central bank cut the official interest rate by 250 bps
to a record low of 2.0%.
• Chile (GDP: -6.0% estimated in 2020). The lockdowns and
the economic shutdown lasted longer than in other
countries, resulting in a late recovery. External demand,
measures to boost liquidity and further fiscal stimulus have
increased dynamism in recent months. The year ended with
inflation at 3% and Chile's central bank cut interest rates by
125 bps to 0.5%.
• Argentina (GDP: -10.4% estimated in 2020). Argentina
successfully restructured its foreign debt (99%
acceptance), extending maturities and reducing the interest
burden. GDP contracted for the third consecutive year.
Inflation, which had slowed down in mid-2020, rebounded
at year end to monthly rates greater than 3.5%.
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The table below shows exchange rates against the euro of our
main currencies in 2020 and 2019:
Exchange rates: 1 euro / currency parity
Average
2020
2019
1.140
0.889
5.814
1.119
0.877
4.410
Period-end
2020
2019
1.227
0.898
6.373
1.123
0.851
4.516
24.364
21.549
24.438
21.220
902.072
785.558
871.819
845.673
US dollar
Pound sterling
Brazilian real
Mexican peso
Chilean peso
Argentine peso
79.555
52.572
103.159
67.258
Polish zloty
4.441
4.297
4.559
4.257
Though financial markets saw several risk averse episodes
that coincided with periods of greater uncertainty, they ended
2020 on a more positive note.
As covid-19 spread globally, governments began closing their
economies to promote social distancing and combat the
pandemic. This spurred on a worldwide recession, which
initially caused volatility to skyrocket across all asset classes.
Central banks reacted swiftly. The US Federal Reserve
stepped in to support capital markets with interest rate cuts
and balance-sheet expansion programmes, providing the
liquidity needed to support the system, while bringing long-
term government bond yields to historic lows. In Europe, the
ECB also adopted monetary stimulus measures and relaxed
its collateral policy, reducing peripheral sovereign risk.
Meanwhile, Member State governments used fiscal policy to
simultaneously deploy unprecedented amounts of liquidity to
prop up economies.
The combination and scale of those measures laid the
foundation for a gradual return of risk appetite, while the
resolution of the US presidential election and, most
importantly, news about effective covid-19 vaccines helped
invigorate financial markets.
The international banking environment was also affected by
the pandemic. The banking sector has been part of the
solution, as banks have been channelling significant amounts
of support from government policies while adopting
measures to help households and businesses cope with the
impact to their income.
Several stress exercises carried out by international
organizations indicate that international banks' strong
solvency and liquidity should prevent a banking crisis even if
economic conditions worsen. Banks will have the added
challenge of a foreseeable increase in defaults.
In fact, profitability was already lagging in 2020 owing to
higher provisions. Increasing profitability amid lower-for-
longer interest rates, high indebtedness and non-performing
loans remains a difficult task, particularly in Europe, where
institutional progress and regulatory harmonization is
important in order to increase the sector's efficiency and
improve current market valuations.
In developing countries, profitability remains high and bank
solvency is at historically high levels. Nevertheless, a sharp
macroeconomic deterioration could affect the banking sector.
During the pandemic, the digital transformation has
accelerated with a sharp increase in customer interaction
through digital channels. Competition and efficiency continue
to demand high levels of investment. In addition, the banking
sector needs to adapt to the ageing of developed economies
and should use new technologies to their advantage to
increase access to banking services to the growing middle
classes in emerging economies.
Regarding the regulatory framework in 2020, of note was:
A. 2020 prudential framework: key aspects on solvency and
resolution.
The financial institutions must meet a set of minimum capital
and liquidity requirements. These minimum requirements are
regulated by the European capital requirements regulation,
better known as CRR, and in the Capital Requirements
Directive (CRD). In June 2019 these regulations were
significantly modified, so that references to CRR2 and CRDV
are understood as such regulations with the latest
modifications incorporated respectively.
Among the amendments to the CRR2, it is worth highlighting
the introduction of the minimum requirement of TLAC (Total
Loss Absorbing Capacity) applicable only to entities of global
systemic importance (G-SIBs). This requirement is a minimum
requirement for own funds and eligible liabilities (in terms of
a percentage of the total risk exposure amount, currently
16% and, after the transitional period, 18%; in terms of a
percentage of the total exposure measure, currently 6% and,
after the transitional period, 6.75%).
The CRDV, as a directive, must be transposed into the national
legal system to be applicable in the Member States. In Spain,
the transposition is expected to be developed during 2021.
The CRDV includes relevant amendments such as the
regulation of Pillar 2 Guidance requirements.
Regarding to the resolution regulations, financial institutions
must have an adequate financing structure that allows them,
in the event of financial difficulties, to recover their situation
or to resolve it, ensuring the protection of depositors and the
financial stability.
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Although these guidelines were initially expected to apply to
moratoria granted before 30 June 2020, the EBA decided on 2
December 2020 that these guidelines would apply to
moratoria requested before 31 March 2021.
Other measures adopted to provide flexibility in complying
with these requirements have been the approval and entry
into force of the 'quick fix' of the CRR (urgent and
extraordinary regulatory measures aimed at making the
regulatory framework more flexible in response to covid-19),
which modifies CRR2. Among the amendments introduced by
the quick fix, it is worth highlighting the extension of the
transitional period granted before the pandemic due to the
entry into force of IFRS 9, as a result of the sudden and
significant increase in provisions for expected credit losses
that must be recognized. Additionally, the application of
certain provisions of CRR2 has been delayed, such as those
relating to the leverage ratio buffer (whose application date is
postponed until 1 January 2023), and includes the possibility
to exclude from the calculation of such ratio exposures to
central banks. Similarly, the date of application of other
favourable provisions for entities, such as the support factor
for small and medium enterprises (SMEs) and the support
factor for infrastructure has been extended.
C. Other regulations: Sustainability
With regard to the integration of sustainable finance in the
financial sector, the Taxonomy Regulation (Regulation
2020/852) has been published, which establishes the criteria
for determining whether an economic activity qualifies as
environmentally sustainable and also lays down disclosure
obligations for the financial services sector to be applied on
2022. This taxonomy supplements the rules on sustainability-
related disclosures in the financial services sector laid down in
Regulation (EU) 2019/2088. In addition, the ECB and Banco de
España (Spain's central bank) supervisory expectations will
gradually incorporate into the supervisory dialogue the
management and disclosure of climate and environmental
risks.
The directive that regulates the aforementioned resolution
framework is the Restructuring and Resolution Directive,
BRRD. Like CRR2 and CRDV, BRRD was amended in June 2019.
BRRD2 refers BRRD as amended. The transposition of this
directive in Spain is also planned for 2021.
The BRRD2 has introduced important modifications to the
minimum requirement for own funds and eligible liabilities
(MREL). Thus, for example, the aforementioned TLAC
requirement is now considered a Pillar 1 resolution
requirement for G-SIBs. For large banks (which are defined as
those whose total assets exceed EUR 100 billion euros) or
those that the resolution authority otherwise considers
systemic, the BRRD2 establishes a minimum subordination
requirement of 13.5% of risk-weighted assets, or 5% of the
exposure of the leverage ratio, whichever is higher. Other
entities' subordination requirement will be determined on a
case-by-case basis by the resolution authority.
B. Regulatory response to the impacts of covid-19
The severe economic disruption caused by the covid-19
pandemic in 2020 has revealed the importance of institutions'
funding functions in contributing to recovery. The competent
authorities (national, European and international) have acted
by reducing liquidity, capital and operational requirements so
financial institutions can continue to provide financing to the
economy, while ensuring that such institutions continue to act
prudently as they can also be negatively affected by the
deterioration of the economic situation.
As part of these measures, the European Central Bank issued
a recommendation in March 2020 urging European banks to
refrain from paying dividends against 2019 and 2020
financial years. On 27 July, the ECB extended that
recommendation to 1 January 2021. On 15 December 2020,
the ECB issued its recommendation 2020/35, repealing
previous referred recommendations, and by which it
recommended that banks under the scope of its direct
supervision exercise extreme prudence on dividends and
share buy-backs. The ECB asks the banks to consider not
distributing any cash dividends or conducting share buy-
backs, or to limit such distributions until 30 September 2021.
Given the persisting uncertainty over the economic impact of
the covid-19 pandemic, the ECB also considers that it would
not be prudent for credit institutions to consider making a
distribution and share buy-backs amounting to more than
15% of their accumulated profit for the financial years 2019
and 2020, or more than 20 basis points in terms of the CET1
ratio, whichever is lower.
For further details, see section 3.3 'Dividends' in the
'Corporate Governance' chapter.
The national governments have taken measures to address
the economic and social impact of covid-19, specifically in the
form of legislative moratoria that were aimed at containing
non-performing loans (NPLs) and helping the population to
meet liquidity needs. Throughout 2020, the European
Banking Authority (EBA) adopted a series of guidelines,
including the Guidelines on legislative and non-legislative
moratoria applied in the context of the covid-19 crisis on 2
April 2020. These guidelines clarify the requirements for
public and private moratoria to avoid classification of
exposures affected by moratoria as forborne exposures.
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2. Group selected data
BALANCE SHEET (EUR million)
Total assets
Loans and advances to customers
Customer deposits
A
Total funds
Total equity
INCOME STATEMENT (EUR million)
Net interest income
Total income
Net operating income
Profit before tax
Attributable profit to the parent
EPS, PROFITABILITY AND EFFICIENCY (%)
C
EPS (euro)
RoE
RoTE
RoA
RoRWA
Efficiency ratio D
D
(EUR million)
UNDERLYING INCOME STATEMENT
Net interest income
Total income
Net operating income
Profit before tax
Attributable profit to the parent
D
(%)
UNDERLYING EPS AND PROFITABILITY
Underlying EPS (euro) C
Underlying RoE
Underlying RoTE
Underlying RoA
Underlying RoRWA
2020
2019 % 2020 vs 2019
2018
1,508,250
1,522,695
916,199
849,310
942,218
824,365
1,056,127
1,050,765
91,322
110,659
(0.9)
(2.8)
3.0
0.5
(17.5)
1,459,271
882,921
780,496
980,562
107,361
2020
31,994
44,279
23,149
(2,076)
(8,771)
2020
(0.538)
(9.80)
1.95
(0.50)
(1.33)
47.0
2020
31,994
44,600
23,633
9,674
5,081
2020
0.262
5.68
7.44
0.40
1.06
B
2019 % 2020 vs 2019
35,283
49,229
25,949
12,543
6,515
(9.3)
(10.1)
(10.8)
—
—
2019 % 2020 vs 2019
—
0.347
6.62
11.44
0.54
1.33
47.0
E
2019 % 2020 vs 2019
35,283
49,494
26,214
14,929
8,252
(9.3)
(9.9)
(9.8)
(35.2)
(38.4)
2019 % 2020 vs 2019
(41.7)
0.449
8.38
11.79
0.65
1.61
2018
34,341
48,424
25,645
14,201
7,810
2018
0.430
8.21
11.63
0.64
1.55
47.0
2018
34,341
48,424
25,645
14,776
8,064
2018
0.446
8.48
12.08
0.66
1.59
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Annual report 2020
SOLVENCY AND NPLs (%)
F
Phased-in CET1
Phased-in total capital ratio F
NPL ratio
Coverage ratio
2020
12.34
16.18
3.21
76
2019
11.65
15.05
3.32
68
Contents
2018
11.47
14.98
3.73
67
THE SHARE, MARKET CAPITALIZATION AND DIVIDEND
2020
2019
% 2020 vs 2019
2018
Number of shareholders
Shares (millions)
Share price (euros)
Market capitalization (EUR million)
C
Dividend per share (euros)
C G
Tangible book value per share (euros)
Price / Tangible book value per share (X)
C
CUSTOMERS (thousands)
Total customers
Loyal customers
H
Loyal retail customers
Loyal SME & corporate customers
I
Digital customers
OPERATING DATA
Number of employees
Number of branches
4,018,817
3,986,093
17,341
2.538
44,011
0.0275
3.79
0.67
16,618
3.575
61,986
0.1917
4.18
0.86
0.8
4.3
(29.0)
(29.0)
(85.7)
2020
2019
% 2020 vs 2019
148,256
144,795
22,838
20,901
1,938
42,362
21,556
19,762
1,794
36,817
2.4
5.9
5.8
8.0
15.1
2020
191,189
11,236
2019
196,419
11,952
% 2020 vs 2019
(2.7)
(6.0)
4,131,489
16,237
3.807
64,508
0.2204
4.01
0.95
2018
139,450
19,832
18,095
1,736
32,014
2018
202,713
13,217
A. Includes customer deposits, mutual funds, pension funds and managed portfolios.
B. In constant euros: Net interest income: +1.3%; Total income: +0.2%; Net operating income: +1.5%; Attributable profit: +/-.
C. 2018 and 2019 data adjusted for the capital increase in December 2020.
D. In addition to IFRS measures, we present non-IFRS measures including those 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 of our business which are grouped in the ‘net capital gains and
provisions’ line and are further detailed at the end of section 3.2 'Results' and in section 8 'Alternative Performance Measures' – of this chapter.
E. In constant euros: Net interest income: +1.3%; Total income: +0.3%; Net operating income: +2.5%; Attributable profit: -29.5%.
F. The phased-in ratio includes the transitory treatment of IFRS 9, calculated in accordance with article 473 bis of the Regulation on Capital Requirements (CRR) and
subsequent amendments introduced by Regulation 2020/873 of the European Union. Additionally, the total phased-in capital ratio includes the transitory
treatment according to chapter 2, title 1, part 10 of the aforementioned CRR.
G. The board of directors intends for the final remuneration charged to 2020 to be EUR 0.0275 per share in cash. This is the maximum allowed according to the limits
established by the European Central Bank (ECB) in its recommendation 2020/63 on 15 December.
H. 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.
I. Every physical or legal person, that, being part of a commercial bank, has logged in its personal area of internet banking ormobile phone or both in the last 30 days.
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3. Group financial performance
Grupo Santander follows IFRS to report our results (see note
1.b to the consolidated financial statements). While the
results generally guide the overview of our financial situation
provided in this consolidated directors’ report, we also use
non-IFRS measures and Alternative Performance Measures
(APMs) to asses our performance (see section 8 'Alternative
Performance Measures' of this chapter). Thus, main
adjustments to our IFRS results consist of:
• Underlying results measures. We present what we call
underlying results measures which, in our view, provide a
better year-on-year comparison because they exclude
items outside the ordinary performance of our business
that are grouped in the net capital gains and provisions line,
and are further detailed at the end of section 3.2 'Results'
of this chapter.
We also present results by business area in section 4
'Financial information by segment' on an underlying basis
in accordance with IFRS 8 and reconcile them in aggregate
terms to our IFRS consolidated results in note 51.c to the
consolidated financial statements.
• Local currency measures. We use certain non-IFRS
financial indicators in local currency to asses the ongoing
operating performance of our business, which includes the
results from our subsidiary banks outside the eurozone
(excluding the FX impact). Because changes in exchange
rates have a non-operating impact on results, we believe
that evaluating performance in local currency provides an
additional and meaningful assessment of performance to
both management and investors. Section 8 'Alternative
Performance Measures' of this chapter explains how we
exclude the exchange rate impact from financial measures
in local currency.
We have rounded certain figures in this consolidated
directors’ report to present them more clearly. Accordingly, in
certain instances, the amounts given in the totals columns
and rows of tables 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 of
December 2020, we had EUR 1,508,250 million of assets and
EUR 1,056,127 million of total funds. Our market
capitalization had reached EUR 44,011 million.
Our purpose is to help people and businesses prosper in a
way that is Simple, Personal and Fair. We do not merely meet
our legal and regulatory obligations, but also aspire to exceed
expectations. We focus on areas where our activity can have
the greatest impact, helping economic growth in an inclusive
and sustainable way.
We engage in all types of typical banking activities,
operations and services. Our scale, business model and
diversification drive our 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).
In 2020, against the backdrop of the pandemic, our
commitment to our stakeholders was even stronger:
• Our priority was to safeguard the health and safety of our
191,189 employees, by implementing measures such as
redefining our way of working, with more than 100,000
employees working from home at the peak of the
pandemic, and gradual returns to the workplaces amid de-
escalation. We followed local governments'
recommendations at all times and based our procedures on
three pillars: developing and implementing of health and
safety protocols, prioritizing the health of our employees,
and tracking and tracing (through health apps).
• For our 148 million customers, we strengthened our
proposition, and implemented support measures to ensure
the necessary financial assistance through pre-approved
lines of credit, payment deferrals and special policies, as
well as facilitating the granting of state-guaranteed
business loans in all countries.
• For our shareholders, we kept all channels open to increase
their trust, which was reflected in an increase of more than
30,000 shareholders in the year to 4,018,817.
317
Annual report 2020
Contents
• In line with our commitment, we contributed to the well-
being of society. We implemented actions and mobilized
resources together with governments and institutions to
help combat the health crisis, with more than EUR 105
million dedicated to solidarity initiatives.
As the global pandemic intensified, we accelerated our digital
transformation, focusing on our multi-channel strategy and
digitalization of processes and businesses.
As a result, loyal and digital customers and activity continued
to grow. The number of loyal customers reached 23 million
(+6% in the year), picking up in individuals and corporates.
Digital customers rose 15% to more than 42 million.
On average, our customers accessed digital touchpoints close
to 190 million times per week and 44% of total sales were
digital (36% in 2019). We also aim to be one of the top three
banks for customer satisfaction in our main markets.
Besides digital channels, we interact with our customers
through our global network of 11,236 branches, which we are
optimizing and adapting to our customers' needs including
universal offices and specialist centres for certain customer
segments. We also have new collaborative spaces with
increased digital capabilities (Work Café, SmartBank and Ágil
branches).
In the year, both businesses performed strongly, growing
revenue, net operating income and profit. Both businesses
together accounted for 46% of Grupo Santander's total net
fee income and 38% of profit.
We launched three strategic initiatives in 2020 to reinvent
the bank and deliver sustainable and profitable growth based
on greater customer loyalty:
1. One Santander: We want to create a better bank for our
customers that delivers sustainable value for shareholders,
through a global project that we first launched in Europe,
by:
• better serving our customers and simplifying our mass
market value proposition to continue to enhance customer
experience;
• making progress with our omnichannel strategy, redefining
how we interact with our customers, accelerating our
digital agenda and maintaining strong personal
relationships through our teams;
• creating a common operating model in each region, to
serve the business with shared technology platforms and
automated operations, leveraging shared services
opportunities.
Additionally, we have contact centres which have won several
awards for their service quality.
This transformation should deliver faster and more profitable
growth, as well as higher productivity.
Santander has also two transversal global businesses which
add value to our local businesses: Santander Corporate and
Investment Banking (SCIB) and Wealth Management and
Insurance (WM&I).
SCIB attends to corporate and institutional customers who
require a tailored service and value-added wholesale
products that suit their complexity and sophistication. This
highly profitable business model yields returns through the
economic cycle. Our long-term strategy remains focused on
becoming our clients' strategic advisor of choice.
Furthermore, SCIB aims to maintain its leadership position in
South America and also to turn the US franchise into a fierce
competitor in North America.
WM&I consists of asset management, private banking and
insurance businesses and is a very capital efficient business
with significant growth potential and high returns. As a part
of our strategy to become the best responsible wealth
manager in Europe and Latin America, we are implementing
several private banking, asset management and insurance
initiatives.
The first focus of One Santander's strategy is Europe, where
we announced a new organization in September, based on a
pan-European operating model with a regional, business-
centric management structure, which will enable us to boost
innovation, reduce costs and simplify our operations. Our
medium-term strategy will build on three drivers:
• focusing on capital-efficient growth opportunities;
• leveraging PagoNxt global solutions with particular focus
on SMEs and merchants;
• redesigning our branch network through the expansion of
Santander Personal, deploying common mobile apps and
increasing the number of Work Cafés.
We will see the first steps of this deep transformation in
2021. Particular focus will be on changing how we manage
our business with the creation of the new regional business
owners role, responsible for managing region-wide
businesses, defining the vision and end-to-end value
proposition for each customer area and delivering through
agile teams in all countries.
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and compliance
We also want deploy this model in our other two regions:
In North America:
• increase collaboration to Commercial Banking, Auto and
other retail segments; and
• continue to build shared services in both countries,
In South America:
• expand Getnet and Superdigital
• implement a common operating model for Consumer
Finance; and
• focus on revenue growth opportunities (e.g. Agribusiness).
2. Digital Consumer Bank: our vision is to build a global
digital consumer lender on the shoulders of the existing
Santander Consumer Finance footprint and the technology of
Openbank’s digital platform. This approach will be a win-win
from three perspectives: customer, technology and financial.
• Customers: consumer finance acquires millions of new
customers each year through car and consumer loans.
Openbank has a full set of banking services, with a single,
highly scalable and efficient software stack. Combining
these gives our consumer finance customer base access to
a full suite of additional banking services.
• Technology: Openbank's technology gives instant access to
API services to offer payments and lending (or leasing)
capabilities directly to their customers and provides a
common data platform to access the rich set of data unique
to online consumer models.
• Financial: Openbank accounts and robo-wealth
management services will be the backbone to generate a
greater deposit base to fund Santander Consumer Finance’s
(SCF) lending activities.
3. PagoNxt: combining our most disruptive payments
businesses into a single, autonomous company, providing
world-class technology solutions for our banks and new open
market customers. This new area is an upgrade to Santander
Global Platform and is made up of three global businesses:
• Global merchant solutions: merchant solutions offered
under our Getnet brand, which is already a market leader in
Brazil and one of the top 3 acquirers in Latin America. We
rolled it out in several countries in 2020, and platform
developments continued to incorporate additional
functionalities. We also acquired Wirecard assets.
• Global trade solutions: solutions for SMEs and corporates
to trade internationally. We have leveraged our experience
in trade services to develop a new global technology
platform that incorporates innovative new services,
bringing Santander’s international flows into a single
platform and operating under the global brand of
OneTrade. In 2020 we connected the platform to our
customers in six countries, whilst completing acquisitions
of majority stakes in two companies, Mercury and Ebury,
which help strengthen our trade offering.
• Consumer digital services: simple and accessible digital
payments solutions for individuals, building on our
Superdigital proposition, our solution in Latin America
which targets the underbanked; and PagoFX, our open
market international money transfer service. These
consumer solutions will serve to create two-sided
payments networks of merchants and individuals which
will boost customer growth. In 2020, we further developed
our global Superdigital platform and PagoFX completed the
construction of its international payments platform.
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Annual report 2020
Contents
3.2 Results
2020 Highlights
→ Grupo Santander's results in the year were affected by the health crisis caused by the spread of covid-19,
which is reflected in a weaker economic environment, lower interest rates and a sharp depreciation of
some currencies.
→ Total income fell in the year from lower activity and exchange rates. Excluding their impact, total income
remained in line with 2019, as the decrease in activity and lower interest rates were offset by higher
volumes, sound market volatility management and the lower cost of deposits.
→ Cost reduction through the optimization plans implemented in recent years, along with additional savings
measures adopted since the start of the crisis. This was reflected in the fall in real terms in the majority of
our markets.
→ Greater loan-loss provisions due to credit growth and the worsening of economic conditions arising from
the pandemic and the consequent expected impact on credit quality. Cost of credit ended the year at
1.28%, in line with our expectations.
→ We adjusted the goodwill ascribed to some units and to deferred tax assets in the second quarter as a
result of the worsening economic outlook, totalling EUR 12,600 million, resulting in an attributable profit
to the Group of -EUR 8,771 million in 2020.
→ Excluding the above adjustments and other costs and provisions that are outside the ordinary course of our
business, underlying attributable profit to the parent was EUR 5,081 million, with net operating income of
EUR 23,633 million, 2% more in constant euros than in 2019.
Summarized income statement
EUR million
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 amortization
Provisions or reversal of provisions
Impairment or reversal of impairment of financial assets not measured
at fair value through profit or loss (net)
Impairment on other assets (net)
Gain or losses on non-financial assets and investments (net)
Negative goodwill recognized 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
320
Change
2020
31,994
2019
35,283
Absolute
(3,289)
% % excl. FX
1.3
(9.3)
2018
34,341
10,015
11,779
(1,764)
(15.0)
(4.5)
11,485
2,187
1,531
391
(96)
(212)
533
324
(221)
44,279
49,229
(21,130)
(23,280)
(18,320)
(20,279)
(10,783)
(12,141)
(7,537)
(2,810)
(2,378)
(12,382)
(10,416)
114
8
(171)
(2,076)
(5,632)
(7,708)
—
(7,708)
(1,063)
(8,771)
(8,138)
(3,001)
(3,490)
(9,352)
(1,623)
1,291
—
(232)
12,543
(4,427)
8,116
—
8,116
(1,601)
6,515
656
(142)
(420)
9
(4,950)
2,150
1,959
1,358
601
191
42.8
(26.6)
—
(4.1)
(10.1)
(9.2)
(9.7)
(11.2)
(7.4)
(6.4)
55.9
(26.1)
—
1,797
370
737
125.1
(306)
0.2
(1.2)
(1.6)
(4.1)
2.2
1.6
48,424
(22,779)
(20,354)
(11,865)
(8,489)
(2,425)
(2,223)
1,112
(31.9)
(26.5)
(3,030)
(8,793)
(1,177)
32.4
—
49.2
(8,986)
—
(207)
(91.2)
(91.2)
8
—
—
28
67
61
(14,619)
(1,205)
(15,824)
—
(15,824)
538
(15,286)
(26.3)
(28.6)
(123)
—
27.2
—
—
—
—
14,201
45.6
(4,886)
—
—
—
9,315
—
9,315
(33.6)
(25.5)
(1,505)
—
—
7,810
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Main income statement items
Total income
Total income amounted to EUR 44,279 million in 2020, down
10% year-on-year. If the FX impact is removed, total income
remained resilient, in line with last year, due to the strength
of our geographical and business diversification. Net interest
income and net fee income accounted for 95% of total
income.
By line:
Net interest income
Net interest income amounted to EUR 31,994 million, 9% less
than in 2019. The following tables show the average balances
for each year, calculated as the monthly average over the
period, which, in our opinion, should not materially differ
from those obtained using daily balances, as well as the
interest generated.
Average balance sheet - assets and interest income
EUR million
Assets
Cash and deposits on demand and loans and advances to central
banks and credit institutions
A
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
They also include our average balances and average interest
rates obtained in 2020 and 2019, based on the domicile of the
entities at which the relevant assets or liabilities are
accounted for. Domestic balances relate to our entities
domiciled in Spain, reflecting our domestic activity.
International balances relate to those entities domiciled
outside of Spain (reflecting our foreign activity), divided into
mature markets - Europe (except Spain and Poland) and the
US-, and developing markets - South America, Mexico and
Poland.
The balance of interest-earning assets in 2020 averaged 2%
higher than in 2019, driven by 4% growth in domestic and
mature markets (mainly loans and advances to customers).
Developing markets dropped 5% affected by exchange rates,
as local currency volumes increased in almost all countries.
2020
2019
Average
balance
Interest
Average
rate
Average
balance
Interest
Average
rate
223,096
2,232
97,511
79,703
45,882
650
512
1,070
930,563
38,788
251,536
4,913
509,016
17,136
170,011
16,739
172,940
5,022
46,390
49,667
76,883
341
619
4,062
(343)
21
(116)
(248)
42
10
21
11
1.00 %
0.67 %
0.64 %
2.33 %
4.17 %
1.95 %
3.37 %
9.85 %
2.90 %
0.74 %
1.25 %
5.28 %
203,809
3,920
84,412
66,093
53,304
598
910
2,412
910,327
46,180
236,132
5,420
491,479
18,426
182,716
22,334
190,128
6,378
61,498
56,935
71,695
599
829
4,950
1.92 %
0.71%
1.38%
4.52%
5.07 %
2.30%
3.75%
12.22%
3.35 %
0.97%
1.46%
6.90%
232
59
161
12
75
23
31
21
1,326,599
45,741
395,437
5,935
638,386
18,172
292,776
21,634
3.45 %
1.50 %
2.85 %
7.39 %
1,304,264
56,785
382,042
6,699
614,507
20,357
307,715
29,729
4.35 %
1.75%
3.31%
9.66%
210,953
—
203,903
—
1,537,552
45,741
1,508,167
56,785
A. Interest includes income from liabilities reported in "Deposits from Central Banks and credit institutions" related to funding from the European Central Bank.
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Annual report 2020
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The average return on interest-earning assets decreased from
4.35% in 2019 to 3.45% in 2020, with broad based decreases
across markets (domestic: -25 bps, mature international: -46
bps; developing international: -227 bps) and balance sheet
items (cash, demand deposits and loans and advances to
central banks and credit institutions: -92 bps; loans and
advances to customers: -90 bps; debt securities: -45 bps),
primarily driven by lower interest rates across our regions.
The average balance of interest-bearing liabilities in 2020
was 2% higher year-on-year, also spurred by domestic
markets (+5%, from marketable debt securities and, to a
lesser degree, customer deposits) and mature international
activity (+3%, through customer deposits and central banks
and credit institutions deposits). Developing markets fell 3%,
dampened by the exchange rate impact in Latin American
countries.
Average balance sheet - liabilities and interest expense
EUR million
Liabilities and stockholders’ equity
A
Deposits from central banks and credit institutions
Average
balance
2020
Interest
187,128
2,147
Domestic
International - Mature markets
International - Developing markets
Customer deposits
Domestic
International - Mature markets
International - Developing markets
Marketable debt securities B
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
Average
rate
1.15 %
0.43 %
0.72 %
3.79 %
0.67 %
0.12 %
0.43 %
1.99 %
2.07 %
1.55 %
2.06 %
3.77 %
2.64 %
1.85 %
1.25 %
6.56 %
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
2019
Interest
181,651
3,248
86,635
59,155
35,861
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
90,747
61,877
34,504
837,397
269,979
385,956
181,462
247,284
99,466
116,411
31,407
10,650
6,331
2,245
2,074
394
445
1,308
5,599
332
1,662
3,605
5,119
1,539
2,395
1,185
281
117
28
136
(294)
(37)
(205)
(52)
895
313
95
487
1,282,459
13,747
2,658
4,420
6,669
466,523
566,489
249,447
155,714
9,920
89,459
—
1.07 %
0.57 %
0.78 %
2.67 %
1,252,228
21,502
442,642
552,311
3,155
6,754
257,275
11,593
1.72 %
0.71 %
1.22 %
4.51 %
146,386
11,096
98,457
—
1,537,552
13,747
1,508,167
21,502
A. Interest includes expenses from assets reported in "Cash and deposits on demand and loans and advances to central banks and credit institutions" related to
liquidity placed in the European Central Bank.
B. Does not include contingently convertible preference shares and perpetual subordinated notes because they do not accrue interests. We include them under “Other
liabilities”.
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Corporate
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and compliance
The average cost of interest-bearing liabilities fell 65 bps to
1.07%, which reflected a general decrease across markets
(domestic: -14 bps, mature international: -44 bps; developing
international: -184 bps) and balance sheet item (central
banks and credit institutions deposits: -68 bps; customer
deposits: -58 bps; debt securities: -64 bps).
The change in interest income / (expense) shown in the table
below was calculated as follows:
• The change in volumes is obtained by applying the interest
rate of the previous period 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 of the previous year.
Lower interest rates led to less interest income and expense,
despite a slightly positive impact from volumes. Broad-based
decreases across markets, particularly in developing markets,
due to the exchange rates.
Thus, net interest income was down 9% but increased slightly
(+1%) stripping out the FX effect.
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
2020 vs. 2019
Increase (decrease) due to changes in
Volume
253
89
464
(300)
628
338
1,763
(1,473)
(221)
(170)
(149)
98
(575)
(38)
(277)
(260)
(33)
(13)
(10)
(10)
Rate
(1,941)
Net change
(1,688)
(37)
(862)
52
(398)
(1,042)
(1,342)
(8,020)
(845)
(3,053)
(4,122)
(7,392)
(507)
(1,290)
(5,595)
(1,135)
(1,356)
(88)
(61)
(986)
—
—
—
—
—
—
—
—
(258)
(210)
(888)
(575)
(38)
(277)
(260)
(33)
(13)
(10)
(10)
52
206
1,791
(1,945)
(11,096)
(970)
(3,976)
(6,150)
(11,044)
(764)
(2,185)
(8,095)
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Contents
2020 vs. 2019
Increase (decrease) due to changes in
Volume
62
Rate
(1,163)
(125)
Net change
(1,101)
(102)
23
107
(68)
339
17
347
(25)
(155)
261
(137)
(279)
(61)
(52)
13
(22)
(294)
(16)
(230)
(48)
(125)
91
(55)
(161)
(234)
324
45
(603)
(546)
(492)
(4,877)
(350)
(1,344)
(3,183)
(1,405)
(302)
(479)
(624)
(76)
(44)
(10)
(22)
—
—
—
—
—
—
—
—
(439)
(560)
(4,538)
(333)
(997)
(3,208)
(1,560)
(41)
(616)
(903)
(137)
(96)
3
(44)
(294)
(16)
(230)
(48)
(125)
91
(55)
(161)
(7,521)
(821)
(2,379)
(4,321)
(7,755)
(497)
(2,334)
(4,924)
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
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Corporate
governance
Economic
and financial review
Risk management
and compliance
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
2020 vs 2019
Increase (decrease) due to changes in
Volume
52
Rate
(11,096)
(970)
Net change
(11,044)
(764)
206
1,791
(1,945)
(234)
324
45
(603)
286
(118)
1,746
(1,342)
(3,976)
(6,150)
(7,521)
(821)
(2,379)
(4,321)
(3,575)
(149)
(1,597)
(1,829)
(2,185)
(8,095)
(7,755)
(497)
(2,334)
(4,924)
(3,289)
(267)
149
(3,171)
This 1% increase in constant euros was due to the net effect
of higher revenue from greater lending and deposit volumes
and the lower cost of the latter, and the reduction dampened
by lower interest rates and regulatory impacts (mainly Brazil
and Poland).
On a positive note, higher volumes led to growth in Mexico
and SCF, Chile grew due to higher volumes and better funding
costs, and Argentina due to the placement of excess liquidity.
There was a turnaround in the UK's trend, becoming positive
thanks to the sharp reduction in the cost of deposits in the
second half of the year. Spain increased slightly and the US
and Brazil remained broadly stable.
The only decreases were recorded in Portugal and Poland,
due to lower interest rates.
Net interest income
EUR million
Net fee income
EUR million
9 % A
-
2020 vs 2019
15 % A
-
2020 vs 2019
A. Excluding exchange rate impact: +1%.
A. Excluding exchange rate impact: -5%.
325
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Annual report 2020
Contents
2020
3,416
1,737
951
1,649
594
500
295
253
620
2019
3,815
2,242
931
1,675
633
612
522
316
1,033
10,015
11,779
Change
Absolute
(399)
% % excl. FX
(1.3)
(10.4)
(505)
(22.5)
19
(26)
(39)
(112)
(226)
(63)
(413)
(1,764)
2.1
(1.5)
(6.1)
(18.3)
(43.4)
(20.0)
(40.0)
(15.0)
(8.8)
12.1
11.7
9.7
(4.0)
(36.3)
0.6
(41.1)
(4.5)
2018
3,654
2,156
794
1,662
613
546
672
323
1,066
11,485
Exchange rate differences primarily show gains and losses
from foreign exchange and the differences that arise in the
conversion of monetary items in foreign currencies to the
functional currency, and from selling non-monetary assets
denominated in foreign currency at the time of their disposal.
Because Grupo Santander manages the currencies it is
exposed to with derivative instruments, the changes in this
line item should be analyzed together with Gains / (losses) on
financial assets and liabilities.
For further details, see note 44 to the consolidated financial
statements.
Dividend income
Dividend income was 27% lower year-on-year at EUR 391
million in 2020 (-26% excluding the exchange rate impact)
affected by the delay or cancellation of dividend payments by
several companies.
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 96 million in 2020 (EUR 324 million in
2019) owing to the lower contribution from group entities,
mainly real estate equity in Spain.
Other operating income / (expenses)
No material change was recorded as the higher results from
insurance were somewhat mitigated by the greater
contribution to the Single Resolution Fund (SRF) in the second
quarter and to the Deposit Guarantee Fund (DGF) in the
fourth.
For further information, see note 45 to the consolidated
financial statements.
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
Grupo Santander's net fee income decreased 15% versus
2019. Excluding the exchange rate effect it was down 5%, the
line most affected by the health crisis, reflecting lower
customer transactionality. Our strategy remains focused on
increasing customer loyalty and growth in higher value-added
services and products.
By business, of note was 12% growth in Santander Corporate
& Investment Banking (Global Debt Financing and markets)
while Wealth Management & Insurance (including those
ceded to the branch network) was virtually flat. Overall,
together businesses accounted for 46% of the Group’s total
(SCIB: 15%; WM&I: 31%).
By region, North America recorded no material change,
affected by the fall in the US, as Mexico grew 5%, while South
America fell 2%, and Europe -9%, with generalized declines in
all markets (except Poland) due to lower activity, along with
regulatory changes affecting net fee income in Santander
Consumer Finance and the UK. On the other hand, 'Other
Europe', which includes the wholesale banking business in
the region, increased net fee income by 41%.
Gains / (losses) on financial assets and liabilities and exchange
differences (net)
Gains / (losses) on financial assets and liabilities and
exchange differences (net) accounts for 5% of total income
and was 43% higher at EUR 2,187 million (+56% excluding
the exchange rate impact) over the previous year. This was
mainly because of the positive impact of FX hedging, portfolio
sales and market volatility management.
Gains and losses on financial assets and liabilities result from
valuing trading portfolio and marked-to-market derivative
instruments, including spot market foreign exchange
transactions, sales of investment securities and liquidation of
our hedging and other derivative positions.
For further details, see note 43 to the consolidated financial
statements.
326
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Corporate
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Economic
and financial review
Risk management
and compliance
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 amortization
Operating expenses
Change
2020
2019
Absolute
% % excl. FX
2018
10,783
12,141
(1,358)
(11.2)
(4.1)
11,865
7,537
2,075
8,138
2,161
473
517
725
100
534
518
685
859
116
522
(601)
(86)
(45)
(168)
(134)
(16)
12
2,980
18,320
2,810
21,130
3,277
20,279
3,001
23,280
(297)
(1,959)
(191)
(2,150)
(7.4)
(4.0)
(8.7)
(24.5)
(15.6)
(13.8)
2.3
(9.1)
(9.7)
(6.4)
(9.2)
2.2
3.1
2.4
(16.7)
(8.1)
(3.3)
13.4
0.3
(1.6)
1.6
(1.2)
8,489
1,550
527
646
1,846
122
557
3,240
20,354
2,425
22,779
Operating expenses
Operating expenses were 9% lower year-on-year. Excluding
the exchange rate impact, costs fell 1%, because of our
successful management over the last three years, as well as
additional savings measures adopted since the beginning of
the crisis feeding through.
We remained one of the most efficient global banks in the
world in 2020, with an efficiency ratio of 47.0%, in line with
last year.
The trends by region and market were as follows:
• In Europe, costs strongly reflected the synergies from
recent integrations and additional savings, decreasing 6%.
There were decreases across all markets: Spain (-10%),
Poland (-6%) and Portugal (-5%) due to optimization
efforts, -6% in the UK due to the savings from our
transformation programme, and -2% in Santander
Consumer Finance driven by efficiency projects carried out
in several countries.
Grupo Santander still aims to improve its operational capacity
with efficient cost management and a strategy tailored to
each region.
Our cost reduction plan greatly exceeded the total expected
savings for the year in the region and the efficiency ratio
improved 21 bps in the year to 52.4%.
Efficiency ratio (cost to income)
EUR million
• In North America, nominal costs fell 2% in nominal terms
impacted by inflation. In the US, they dropped 5% through
disciplined expense management while expenses in Mexico
rose 5%, mainly from technology and amortizations, and
higher inflation (in real terms, overall costs rose 2%). The
efficiency ratio in the region improved 75 bps to 42.1%.
• Lastly, in South America, higher costs were significantly
distorted by soaring inflation in Argentina. Without this,
increase of 1.5% (Brazil +1% and Chile was flat). Efficiency
improved in all markets, 35.8% for the region as a whole
(36.1% in 2019).
0.0 pp
2020 vs 2019
We believe that this regional management together with the
lessons learnt from the pandemic will lead to a faster
transformation, allowing us to continue increasing
productivity while improving customer experience.
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Annual report 2020
Contents
Provisions or reversal of provisions
Provisions (net of provisions reversals) amounted to EUR
2,378 million (EUR 3,490 million in 2019) including
restructuring costs.
For further details, see note 25 to the consolidated financial
statements.
Impairment or reversal of impairment of financial assets not
measured at fair value through profit or loss (net)
Impairment or reversal of impairment on financial assets not
measured at fair value through profit or loss (net) was EUR
12,382 million, up 32% year-on-year in euros and 49% in
constant euros, mainly from additional provisions based on
the IFRS 9 forward-looking view and the collective and
individual assessments to reflect expected credit losses
arising from covid-19, together with growth in volumes in
local currency. Both impacts were seen across the board in all
countries.
For further details, see section 3 'Credit risk' in the 'Risk
management and compliance' chapter.
Impairment on other assets (net)
Every year, usually during the last quarter, the Grupo
Santander evaluates whether an adjustment to the goodwill
generated in the acquisition of the subsidiaries is necessary.
The accounting rules require this analysis to be carried out
earlier should any trigger events occur, which happened in
the second quarter of this year, given that the global
economic environment has been significantly affected by the
covid-19 crisis.
Specifically, the trigger events for this exercise were:
• Changes in the economic environment where a decrease of
the GDP is expected in all countries in the year and where
recovery will take 2 or 3 years.
• A generalized reduction in interest rates, which is expected
to last longer than anticipated pre-crisis.
• The increase of discount rates reflecting greater volatility
and risk premiums.
This analysis resulted in a negative adjustment in the
valuation of goodwill in the second quarter of 2020 of EUR
10,100 million (Santander UK: EUR 6,101 million; Santander
US: EUR 2,330 million; Santander Bank Polska: EUR 1,192
million; Santander Consumer Nordics: EUR 277 million and
Other: EUR 200 million). This does not affect cash generation
and has no impact on the group’s CET1 ratio or tangible net
value per share (TNAV).
Consequently, the impairment of other assets (net) in 2020
amounted to EUR 10,416 million. In 2019, this line was EUR
1,623 million.
Gains or losses on non-financial assets and investments
(net)
Net gains on non-financial assets and investments were EUR
114 million in 2020, compared to EUR 1,291 million in 2019,
when capital gains from the sale of 51% of Prisma Medios de
Pago S.A., and the revaluation of our remaining 49%, and
capital gains from the agreement with Crédit Agricole S.A. to
absorb custody businesses were recorded.
For further information, see note 48 to the consolidated
financial statements.
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
Impairment or reversal of impairment of financial assets not measured at fair value
through profit or loss and net gains and losses from changes
2020
19
12,363
2019
12
9,340
2018
1
8,985
12,382
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)
2020
—
10,416
174
10,242
—
10,416
2019
—
1,623
45
1,564
14
1,623
2018
17
190
83
117
(10)
207
328
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Attributable profit to the parent
EUR million
Earnings per share
EUR
A
+/-
2020 vs 2019
+/-
2020 vs 2019
A. 2018 and 2019 data adjusted for the capital increase in December 2020.
Gains or losses on non-current assets held for sale not
classified as discontinued operations
This item, which mainly includes impairment of foreclosed
assets recorded and the sale of properties acquired upon
foreclosure, totalled -EUR 171 million in 2020, compared to
-EUR 232 million in 2019.
Attributable profit to non-controlling interests
The attributable profit to non-controlling interests was down
34% year-on-year (-26% excluding the exchange rate
impact), due to lower profit obtained by group companies, on
top of the share buyback in Mexico last year and the increased
stake in Santander Consumer USA in 2020.
Profit before tax
Profit before tax was -EUR 2,076 million in 2020, affected by
the adjustment in the valuation of goodwill, compared to EUR
12,543 million posted in 2019.
Income tax
As with goodwill, and due to the impact that the covid-19
crisis may have on the current and future performance of our
businesses, an adjustment of -EUR 2,500 million was made to
the deferred tax assets of the Spanish consolidated fiscal
group in the second quarter of 2020. As a result, the total
corporate income tax was EUR 5,632 million in 2020
compared to EUR 4,427 million in 2019.
For further details, see note 28 to the consolidated financial
statements.
Attributable profit to the parent
Profit attributable to the parent amounted to -EUR 8,771
million in 2020, compared with EUR 6,515 million in 2019.
RoTE stood at 1.95%, RoRWA was -1.33% and earnings per
share stood at -EUR 0.538.
RoTE
%
RoRWA
%
329
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Annual report 2020
Contents
Below is the summarized P&L adjusted to items beyond ordinary course of our business (included under the net capital gains and
provisions line) as described in note 51.c of the consolidated financial statements, where the aggregate underlying consolidated
results of our segments are reconciled to the statutory consolidated results.
Summarized 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 amortizations
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
Management adjustments
Attributable profit to the parent
Underlying attributable profit to the parent
A
A. Excluding net capital gains and provisions.
Underlying attributable profit to the parent
The attributable profit to the parent in 2020 and 2019 was
affected by the following results (net of tax), that are outside
the ordinary course of our business and distort the year-on-
year comparison:
• In 2020, -EUR 13,852 million: valuation adjustment of
goodwill ascribed to various Group country units of -EUR
10,100 million in the second quarter, as previously detailed
in Impairment on other assets (net), the valuation
adjustment to deferred tax assets of the Spanish
consolidated fiscal group with an impact of -EUR 2,500
million, restructuring costs of -EUR 1,114 million (mainly in
Spain -EUR 700 million), and others (loss on a non-
performing portfolio sale in Spain, cancellation of pension
obligations, etc.) for a net charge of -EUR 138 million.
2020
31,994
10,015
2,187
404
2019
35,283
11,779
1,531
901
44,600
49,494
(20,967)
(23,280)
23,633
26,214
(12,173)
(1,786)
(9,321)
(1,964)
9,674
14,929
(3,516)
(5,103)
6,158
9,826
—
6,158
(1,077)
(13,852)
(8,771)
5,081
—
9,826
(1,574)
(1,737)
6,515
8,252
Absolute
(3,289)
(1,764)
656
(497)
(4,894)
2,313
(2,581)
(2,852)
178
(5,255)
1,587
(3,668)
—
(3,668)
497
(12,115)
(15,286)
(3,171)
Change
% % excl. FX
1.3
(4.5)
55.9
(58.4)
0.3
(2.0)
2.5
47.3
1.8
(25.8)
(20.6)
(28.6)
—
(28.6)
(23.8)
608.2
—
(29.5)
(9.3)
(15.0)
42.8
(55.2)
(9.9)
(9.9)
(9.8)
30.6
(9.1)
(35.2)
(31.1)
(37.3)
—
(37.3)
(31.6)
697.5
—
(38.4)
2018
34,341
11,485
1,797
801
48,424
(22,779)
25,645
(8,873)
(1,996)
14,776
(5,230)
9,546
—
9,546
(1,482)
(254)
7,810
8,064
• In 2019, the net result of net capital gains and provisions
and restructuring costs incurred, led to a total amount of
-EUR 1,737 million.
For further detail, see note 51.c to the consolidated financial
statements.
If we eliminate these results from their P&L lines and add
them separately to net capital gains and provisions, the
adjusted or underlying attributable profit to the parent was
EUR 5,081 million in 2020 and EUR 8,252 million in 2019,
38% lower year-on-year (-29% excluding the FX impact).
330
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and financial review
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and compliance
A
Underlying attributable profit to the parent
EUR million
Underlying earnings per share
EUR
A B
B
-38%
-
2020 vs 2019
-42%
-
2020 vs 2019
A. Excluding management adjustments.
B. Excluding exchange rate impact: -29%.
A. Excluding net capital gains and provisions.
B. 2018 and 2019 data adjusted for the capital increase in December
2020.
This performance was strongly conditioned by the rise in net
loan-loss provisions, which amounted to EUR 12,173 million,
up 31% compared to 2019. Excluding the exchange rate
impact, growth was 47%, mainly from additional provisions
based on the IFRS 9 forward-looking view and the collective
and
individual assessments to reflect expected credit losses
arising from covid-19, together with growth in volumes. Both
impacts were seen across the board in all countries.
The Group’s cost of credit stood at 1.28%, in line with the
expectations announced in the third quarter.
Net loan-loss provisions
EUR million
Cost of credit
%
+31 % A
2020 vs 2019
+0.28 pp
2020 vs 2019
A. Excluding exchange rate impact: +47%.
331
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Annual report 2020
Contents
Before recording loan-loss provisions, Grupo Santander's net
operating income (total income less operating expenses)
was EUR 23,633 million, 10% lower year-on-year, but a 2%
increase excluding the FX impact, as follows:
By line:
Total income remained unchanged as higher gains on
financial transactions and the slight increase in net interest
income (+1%) offset the fall in net fee income and other
operating income (lower dividends and results of entities
accounted for by the equity method and greater contribution
to the SRF and DGF).
Costs were 2% lower, with declines across Europe and the US,
and remained broadly stable in Brazil and Chile.
By region:
In Europe, operating income decreased 5% with falls in most
markets (except SCF and 'Other Europe', mainly SCIB).
In North America, net operating income was 1% higher. By
country, the US increased 1% and Mexico 2%.
In South America, 5% growth with rises of 3% in Brazil, 4% in
Chile and 37% in Argentina.
In 2020, the Grupo Santander’s underlying RoTE was 7.44%,
underlying RoRWA was 1.06% and underlying earnings per
share EUR 0.262 (11.79%, 1.61% and EUR 0.449
respectively in 2019).
Underying RoTEA
%
A
Underlying RoRWA
%
A. Excluding net capital gains and provisions.
A. Excluding net capital gains and provisions.
332
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Corporate
governance
Economic
and financial review
Risk management
and compliance
3.3 Balance sheet
Balance sheet
EUR million
Assets
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 at amortized cost
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 amortized 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
Liabilities associated with non-current assets held for sale
Total liabilities
Shareholders' equity
Other comprehensive income
Non-controlling interests
Total equity
Total liabilities and equity
Change
2020
153,839
2019
101,067
Absolute
52,772
114,945
108,230
6,715
%
52.2
6.2
2018
113,663
92,879
4,486
4,911
(425)
(8.7)
10,730
48,717
62,069
(13,352)
(21.5)
57,460
120,953
125,708
(4,755)
(3.8)
121,091
958,378
995,482
(37,104)
(3.7)
946,099
8,325
1,980
7,622
261
32,735
15,908
24,586
11,070
4,445
7,216
1,702
8,772
292
35,235
27,687
29,585
10,138
4,601
1,508,250 1,522,695
1,109
278
(1,150)
(31)
15.4
16.3
(13.1)
(10.6)
8,607
1,088
7,588
324
(2,500)
(7.1)
26,157
(11,779)
(4,999)
932
(156)
(14,445)
(42.5)
(16.9)
9.2
28,560
30,251
9,348
(3.4)
5,426
(0.9) 1,459,271
81,167
48,038
77,139
60,995
4,028
5.2
70,343
(12,957)
(21.2)
68,058
1,248,188
1,230,745
17,443
1.4
1,171,630
6,869
6,048
286
910
269
739
821
17
171
13.6
6.3
23.1
10,852
13,987
8,282
9,322
(3,135)
(1,040)
(22.4)
(11.2)
6,363
303
765
13,225
8,135
12,336
12,792
(456)
(3.6)
13,088
—
—
—
—
—
1,416,928 1,412,036
114,620
124,239
(33,144)
(24,168)
4,892
(9,619)
(8,976)
0.3 1,351,910
(7.7)
120,597
37.1
(24,125)
9,846
10,588
(742)
(7.0)
10,889
91,322
110,659
(19,337)
(17.5)
107,361
1,508,250 1,522,695
(14,445)
(0.9) 1,459,271
333
Annual report 2020
Contents
2020 Highlights
→ Loans and advances to customers decreased 3% year-on-year. Grupo Santander uses gross loans excluding
reverse repurchase agreements (repos) to analyze traditional retail banking loans.
• Traditional lending, excluding the exchange rate effect, rose 5% with growth in Europe (+4%) and North
America (+2%). The largest increase was recorded in South America (+15%).
• The loan portfolio remained balanced: individuals (45%), consumer credit (17%), SMEs and corporates
(25%) and SCIB (13%).
→ Customer deposits were 3% higher year-on-year. We use customer deposits, excluding repos, and mutual
funds to analyze traditional retail banking funds:
• Customer funds, excluding the exchange rate impact, rose 9%, with our three regions and ten core
markets growing. There were increases in demand deposits and, to a lesser extent, in mutual funds.
• Customer funds are well diversified by product: demand deposits (66%), time deposits (17%) and
investment funds (17%).
→ The net loan-to-deposit ratio was 108% (114% in 2019) a sign of the retail nature of our balance sheet.
Loans and advances to customers totalled EUR 916,199
million in December 2020, a 3% decrease compared to
December 2019.
Grupo Santander uses gross loans excluding reverse
repurchase agreements (repos) to analyze traditional retail
banking loans. To better assess management in the period,
the comments below do not take into account the exchange
rate impact, as usual.
Gross loans and advances to customers, excluding the
exchange rate effect and reverse repos, increased 5%, with
the following performance by region:
• In Europe, 4% growth with all markets increasing. Portugal
rose 8%, notably in corporates and mortgages, the UK grew
3%, driven by strong residential mortgage activity and the
government programmes for corporates. Spain increased
5% strongly backed by the Instituto de Crédito Oficial (ICO)
programmes, though negatively impacted by a mortgage
portfolio sale in the third quarter. SCF was stable, with rises
in the Nordics, Germany and France, which absorbed falls
in other markets. Poland was up 1% and 'Other Europe'
increased owing mainly to SCIB (+17%).
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
334
Change
2020
37,459
2019
37,753
Absolute
(294)
%
(0.8)
2018
33,301
503,014
513,929
(10,915)
(2.1) 478,068
269,143
267,154
1,989
36,251
35,788
7,903
19,507
30,815
7,714
23,876
32,543
904,092
918,757
35,702
45,703
939,794
23,595
964,460
22,242
916,199
942,218
463
189
0.7
1.3
2.5
265,696
30,758
8,794
(4,369)
(18.3)
23,083
(1,728)
(14,665)
(10,001)
(24,666)
1,353
(26,019)
(5.3)
34,218
(1.6) 873,918
(21.9)
32,310
(2.6) 906,228
6.1
23,307
(2.8) 882,921
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Gross loans and advances to customers
(excluding reverse repos)
EUR billion
Gross loans and advances to customers
(excluding reverse repos)
% of operating areas. December 2020
-2 % A
2020 vs 2019
A. Excluding exchange rate impact: +5%.
• In North America, growth was 2%. The US grew 3%
propelled by auto, corporate and SCIB loans though
affected by the sale of Puerto Rico in the third quarter.
Mexico remained flat.
Tangible assets amounted to EUR 32,735 million in
December 2020, decreasing EUR 2,500 million and 7%
compared to December 2019, largely driven by the decline
recorded in property, plant and equipment for own use.
Intangible assets stood at EUR 15,908 million, of which EUR
12,471 million corresponds to goodwill, which decreased EUR
11,775 million in the year (-49%) reflecting the adjustment
made in the second quarter in the valuation of goodwill
ascribed to several subsidiaries, further detailed in section 3.2
'Results'.
• We grew 15% in South America, with Argentina growing
35% driven by SMEs and cards, Brazil +19% owing to a
positive performance in all segments and Chile +6% due to
corporates and large corporates. Uruguay rose 12%.
Our loans and advances to customers excluding reverse repos
maintained a balanced structure: individuals (45%), consumer
credit (17%), SMEs and corporates (25%) and SCIB (13%).
By the end of 2020, 45% of loans and advances to customers
maturing in more than a year had floating interest rates,
while the remaining 55% were fixed:
• In Spain, 58% of loans and advances to customers had
floating rates and 42% were fixed.
• Elsewhere, 41% of loans and advances to customers had
floating rates and 59% had fixed.
For further information on the distribution of loans and
advances to customers by business, see note 10.b to the
consolidated financial statements.
Loans and advances to customers facilities with maturities exceeding one year at year-end of 2020
EUR million
Fixed
Variable
TOTAL
Domestic
International
TOTAL
Amount
70,480
99,023
169,503
Weight over
the total
42 %
58 %
100 %
Amount
311,467
217,048
528,515
Weight over
the total
59 %
41 %
100 %
Amount
381,947
316,071
698,018
Weight over
the total
55 %
45 %
100 %
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Annual report 2020
Contents
Total customer funds
EUR million
A
EUR million
Demand deposits
Time deposits
Mutual funds
Customer funds
A
Pension funds
Managed portfolios
Repos
Total funds
A
A. Including managed and marketed funds.
In terms of liabilities, customer deposits amounted to EUR
849,310 million in December 2020, 3% higher than
December 2019 (EUR 824,365 million).
Grupo Santander uses customer deposits including mutual
funds but excluding repos (customer funds) to analyze
traditional retail banking funds.
Customer funds, excluding the effect of exchange rate
movements, rose 9% as follows:
– Deposits excluding repos rose 10%. Demand deposits
(+14%) increased in all our core markets and time deposits
fell 4% as the decreases in the US, Chile and all European
markets were nearly offset by growth in Mexico, Brazil,
Argentina and Uruguay. Mutual funds rose 3%, heavily
conditioned by market volatility in the first quarter of 2020
and part of the second.
– By market, customer funds rose in all of them. Rises in all
countries in the Americas with growth rates over 10% (the
US: +16%; Mexico: +14%; Brazil: +16%; Chile +11%;
Change
2020
642,897
2019
588,533
Absolute
54,364
171,939
196,921
(24,982)
164,802
180,405
(15,603)
979,638
965,859
13,779
15,577
26,438
34,474
15,878
30,117
38,911
1,056,127 1,050,765
(301)
(3,679)
(4,437)
5,362
%
9.2
(12.7)
(8.6)
1.4
(1.9)
(12.2)
(11.4)
0.5
2018
548,711
199,025
157,888
905,624
15,393
26,785
32,760
980,562
Argentina: +67% and Uruguay: +28%). In Europe (+6%),
growth ranged between +1% in SCF and +10% in Poland.
Customer funds are well diversified by product. The weight of
demand deposits rose 5 pp in the last 12 months to 66%,
resulting in a better cost of deposits. Time deposits accounted
for 17% of the total and mutual funds 17%. The net loan-to-
deposit ratio stood at 108%, compared to 114% in December
2019.
In addition to deposit-taking, Grupo Santander puts strategic
value on following a selective issuance policy in international
fixed income markets and adapts trade frequency and volume
to each country unit's structural liquidity requirements, as
well as to the receptiveness of each market.
For more information on debt issuances and maturities, see
the following section 3.4 'Liquidity and funding
management'.
Customer funds (excluding repos)
EUR billion
Customer funds (excluding repos)
% of operating areas. December 2020
A
+1 %
-9 %
+4 %
• Total
• Mutual
funds
• Deposits
B
excl. repos
2019 vs 2018
A. Excluding exchange rate impact: +9%.
B. Including managed and marketed funds.
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3.4 Liquidity and funding management
→ Grupo Santander’s liquidity remains at comfortable levels, well above regulatory requirements.
→ Lending recovering in most markets where the we operate.
→ Medium- and long-term funding prioritized diversification and cost optimization.
→ Structural funding sources of our balance sheet resulted in moderate asset encumbrance.
First, we present Grupo Santander’s liquidity management,
its principles and framework.
Next, we will look at the funding strategy for our group and
subsidiaries, particularly liquidity in 2020, by examining
changes in liquidity management ratios as well as the related
business and market trends over the last year.
To conclude, we provide a qualitative description of the
outlook for funding in 2021.
on the local asset and liability committees (ALCOs), which
coordinate with the global ALCO. The global ALCO is the
body empowered by the board of directors under the
corporate Asset and Liability Management (ALM)
framework.
This improved governance model is included within our
Risk Appetite Framework, which meets regulators and
market players’ demands for stronger risk management
and control systems, in response to the financial crisis.
Liquidity management in Grupo Santander
Our structural liquidity management aims to optimize
maturities and costs, and avoid undesired liquidity risks in
funding Grupo Santander’s recurrent activity.
• In-depth balance sheet analysis and liquidity risk
measurement that support the taking and control of
decisions to ensure the necessary liquidity levels to cover
short- and long-term needs with stable funding sources, as
well as minimizing the impact of their costs on earnings.
It follows these principles:
• Decentralized 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.
• Wholesale funding sources diversified by: instrument and
investor; market and currency; and maturity.
• Limited recourse to short-term funding.
• Sufficient liquidity reserves, including standing facilities/
discount windows at central banks to be used in adverse
situations.
• Group-wide and subsidiary compliance with regulatory
liquidity requirements, as a new factor conditioning
management.
To effectively apply these principles across our group, we
require a unique management framework built on three
fundamental pillars:
• A solid organizational and governance model that involves
subsidiaries’ senior managers in decision-making and
integrates them into our global strategy. Decision-making
on structural risks, including liquidity and funding risk, falls
We have proper liquidity risk management within a
conservative risk appetite framework for each geographic
area based on its commercial strategy. The framework sets
limits within which the subsidiaries must operate to
achieve their strategic objectives.
• Liquidity management adapted to the needs of each
business. Every year, we develop a liquidity plan to achieve:
– a solid balance sheet structure, with a diversified
footprint in wholesale markets;
– stable liquidity buffers and limited asset encumbrance;
– compliance with both regulatory and other metrics
included in each entity’s risk appetite statement.
We monitor all dimensions of the plan throughout the year.
Grupo Santander continues to develop the Internal Liquidity
Adequacy Assessment Process (ILAAP). It is integrated into
our other risk management and strategic processes to
evaluate liquidity in ordinary and stressed scenarios. We
consider both quantitative and qualitative matters which are
also inputs for the Supervisory Review and Evaluation Process
(SREP).
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Annual report 2020
Contents
Once a year, supervisors require us to prepare and submit an
ILAAP assessment approved by the board of directors. It must
conclude our funding and liquidity structure remains solid in
all scenarios and that our internal processes ensure sufficient
liquidity based on an analysis each subsidiary conducts
following our local liquidity management model.
Our robust governance structure is suited to identify, manage,
monitor and control liquidity risks. It rests on common
frameworks, conservative principles, clearly defined roles and
responsibilities, a consistent committee structure, effective
local lines of defence and well-coordinated corporate
supervision.
We generate frequent, detailed liquidity monitoring reports
for management, control, reporting and steering purposes.
We also send the most relevant information regularly to
senior managers, the executive committee and the board of
directors.
Over the last few years, Grupo Santander and each subsidiary
have developed a comprehensive special situations
management framework which centralizes the our
governance for such scenarios and contains contingency
funding plans, that are integrated within our governance
model, with feasible, pre-assessed actions that follow a
defined timeline. They are categorized and prioritized, and
provide for sufficient liquidity and execution time to mitigate
stress scenarios.
Funding strategy and liquidity in 2020
Funding strategy and structure
Our funding strategy in recent years has focused on extending
our management model to all subsidiaries, including new
additions.
It is based on a model of autonomous subsidiaries that are
responsible for covering their own liquidity needs. This
structure has enabled us to use our solid retail banking model
to maintain comfortable liquidity positions in the group and
our core country units, even amid market stress.
We have had to adapt funding strategies to commercial
business trends, market conditions and new regulatory
requirements.
In 2020, we improved on specific aspects, without significant
changes in liquidity management or funding policies and
practices. This will enable us to face 2021 from a strong
starting point, with no growth restrictions.
In general, our subsidiaries continue to apply the same
funding and liquidity management strategies:
• maintaining sufficient and stable medium- and long-term
wholesale funding levels.
• ensuring the right volume of assets which can be
discounted in central banks as part of the liquidity buffer.
• generating liquidity from the retail business.
All these developments have afforded Grupo Santander its
robust funding structure:
• Customer deposits are our main source of funding. They
represent just over two-thirds of net liabilities (i.e., of the
liquidity balance sheet) and nearly 93% of loans and
advances to customers at the end of December 2020.
Moreover, they are highly stable because they mainly arise
from retail customer activity. Their weight as a percentage
of loans and advances to customers grew compared to end
2019. More details can be found in the section on ‘Liquidity
in 2020’.
Santander liquidity balance sheet
%. December 2020
■ Loans and
advances to
customers
■ Fixed assets
& other
■ Financial
assets
■ Customer
deposits
■ Securitizations
and others
■ M/LT debt
issuance
■ Equity and
other
■ ST funding
• Medium- and long-term funding accounted for nearly
18% of net liabilities at the end of December 2020, similar
to 2019. It amply covers the loans and advances to
customers not funded by customer deposits (retail funding
gap).
The outstanding balance of M/LT debt issued in the market (to
non-group third parties) at the end of the year was EUR
167,351 million. Our maturity profile is comfortable and well
balanced by instruments and markets with a weighted
average maturity of 4.7 years (slightly above the weighted
average maturity of 4.4 years at the end of 2019).
The following tables show our funding by instrument over the
last three years and by maturity profile:
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Medium- and long-term debt issuance. Grupo Santander
EUR million
A
Preferred
Subordinated
Senior debt
Covered bonds
Total
A. Placed in markets. Excluding securitizations, agribusiness notes and real estate credit notes.
Distribution by contractual maturity. December 2020. Grupo Santander
EUR million
A
2020
8,925
13,831
95,208
49,388
167,351
2019
9,411
12,640
107,166
50,847
180,064
2018
11,508
13,218
98,827
46,272
169,825
0-1
12-24
month months months months months months
9-12
6-9
3-6
1-3
Preferred
Subordinated
Senior debt
Covered bonds
Total
—
—
—
—
2,003
2,061
—
—
2,003
2,061
—
—
4,252
4,903
9,155
—
—
2,758
2,766
5,524
—
—
—
129
2-5 more than
5 years
years
—
4,066
8,925
9,636
Total
8,925
13,831
3,453
15,250
42,017
23,414
95,208
397
6,899
14,455
19,967
49,388
3,850
22,278
60,538
61,942
167,351
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 medium- and long- term wholesale debt
issuances, Grupo Santander has securitizations placed in the
market as well as collateralized and other specialist funding
totalling EUR 44,196 million (which includes EUR 6,085
million of debt instruments placed with private banking
clients in Brazil). The average maturity is around 1.5 years.
The following charts show the similarity of the geographic
distribution of our loans and advances to customers and
medium- and long-term wholesale funding across our
footprint. This has remained largely unchanged since 2019,
except for an increase in the weight of the eurozone, in loans
and advances and M/LT wholesale funding, with the
corresponding decreases across the other regions.
Loans and advances to customers
%. December 2020
M/LT wholesale funding
%. December 2020
Wholesale funding from short-term issuance programmes is
a residual part of Grupo Santander’s funding structure, which
is related to treasury activities and comfortably covered by
liquid assets.
The outstanding wholesale funding balance at the end of
2020 was EUR 23,210 million. 40% was in European
Commercial Paper, US Commercial Paper and domestic
programmes issued by the parent bank; 27% was in
certificates of deposit and commercial paper programmes in
the UK; 18% was in Santander Consumer Finance (SCF)
commercial paper programmes; and 15% was in issuance
programmes in other country units.
Liquidity in 2020
The key liquidity takeaways in 2020 are:
• Basic liquidity ratios remain at comfortable levels.
• Regulatory ratios are well above minimums and we are
well positioned for the NSFR’s entry into force.
• Our use of encumbered assets in funding operations is
moderate.
We will discuss these points in the following sections, but
first we would like to reflect on the actions taken by Grupo
Santander, regulators, governments and central banks in the
months following the World Health Organization’s
declaration of covid-19 as an epidemic and subsequently
pandemic.
When the health crisis began, there were moments of initial
uncertainty and concern from the markets, banks and
regulators regarding potential stress situations.
The long-term debt markets closed in the beginning of March
and there was a significant peak in the drawdown of
committed wholesale credit lines. There was also tension in
the short-term markets which manifested in high price and
339
Eurozone: 43%UK: 29%Other Europe: 3%North America: 13%Brazil: 7%Other SouthAmerica: 5%Eurozone: 53%UK: 22%Other Europe: 1%North America: 16%Brazil: 4%Other SouthAmerica: 4%
Annual report 2020
Contents
exchange rate volatility and wider spreads, reflecting policy
uncertainty (fiscal and monetary).
In this environment, our priority was to preserve our solid
liquidity position at group and subsidiary level and so
established a series of management measures and actions.
In addition, decisions were taken quickly by governments and
central banks to increase the liquidity available in the market.
Some of these measures were: PELTROs (Pandemic
Emergency Longer-Term Refinancing Operations) announced
in April, modification of the conditions of the third TLTRO
programme (Targeted longer-term refinancing operation),
introduction of the TFSME (Term funding SMEs) announced in
March in the United Kingdom, reduction of liquidity reserve
requirements, the temporary lowering of the Liquidity
Coverage Ratio (LCR) requirements below 100% and the
extension of the dollar liquidity lines offered by the Federal
Reserve, among others. All these measures helped calm
markets and avoid episodes of stress.
These measures continued throughout 2020, most recently
increasing the number of auctions and volumes and
extending the better TLTRO III conditions for banks lending to
the real economy announced in December 2020 by the
European Central Bank.
Among the measures we adopted, of note was the enhanced
the daily liquidity monitoring which was regularly presented
to the special situations committees and at the meetings held
by the executive committee and the board of directors. In
addition, daily monitoring meetings were held with the ECB
during the first few weeks.
Although most country units had sufficient liquidity buffers to
cover a horizon of 90 days or more under an aggressive
scenario, we implemented several mitigation measures,
including:
• Collateral generation in all geographic areas to maximize
access to central bank facilities if necessary.
i. Basic liquidity ratios at comfortable levels
At the end of December 2020, Grupo Santander recorded:
• a stable credit to net assets ratio (total assets minus
trading derivatives and inter-bank balances) of 76%, similar
to recent years. This high level compared to our
competitors in Europe speaks to the retail nature of our
balance sheet.
• a net loan-to-deposit ratio (LTD) of 108%, at a very
comfortable level (below 120%) and well below the 114%
in 2019. This improvement reflects the pandemic’s effect
postponing consumption and investment decisions and
causing a sharp increase in savings. Most central banks and
governments in our footprint implemented support
programmes for their economies in 2020, such as income
policies, in the form of state-guaranteed financing facilities
for companies via banks or direct loans to corporates. This
allowed our lending (in constant euros) to grow moderately
but was more than offset by deposit growth.
• a customer deposits plus M/LT funding to net loans and
advances ratio of 116% versus 113% in 2019, for the
reasons explained above.
• limited recourse to short-term wholesale funding, 2% of
total funding, in line with previous years.
• lastly, our structural surplus defined as the excess of
structural funding sources (deposits, M/LT funding and
capital) against structural liquidity needs (fixed assets and
loans) had an average balance of EUR 170,483 million in
the year.
As at end-2020, our consolidated structural surplus stood at
EUR 181,904 million. Fixed-income assets (EUR 162,830
million), equities (EUR 14,719 million) and net interbank
deposits (EUR 27,565 million) were partly offset by short-
term wholesale funding (-EUR 23,210 million). This totalled
around 15% of our net liabilities, similar to 2019 year-end.
• Increased use of ECB facilities via the TLTRO programme
and Bank of England funding via its TFSME programme.
The table shows Grupo Santander’s basic liquidity monitoring
metrics over the last few years:
• The strengthening of the USD liquidity position in Mexico
and South America.
Group’s liquidity monitoring metrics
%
• The optimization of resources and capacity to use central
bank programmes.
A
Loans
A
/ Total assets
to deposit ratio (LTD)
Loans
Customer deposits and medium
A
and long term funding / Loans
Short term wholesale funding / Net
liabilities
Structural liquidity surplus (% of
net liabilities)
A. Loans and advances to customers.
2020
76 %
108 %
2019
77 %
114 %
2018
76 %
113 %
116 %
113 %
114 %
2 %
3 %
2 %
15 %
13 %
13 %
• Close collaboration with the authorities to ensure the
effective implementation of public support.
As a result of these measures, our liquidity position remained
solid at all times. Moreover, our commercial activity, which
we will discuss later, positively contributed liquidity in the
year.
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The table below shows the principal liquidity ratios of our
main country units as at end-2020:
Main country units’ liquidity metrics
December 2020
Parent bank
Santander Consumer Finance
United Kingdom
Portugal
Poland
United States
Mexico
Brazil
Chile
Argentina
Group
A. Loans and advances to customers.
Deposits + M/
LT funding /
A
Loans
170 %
70 %
107 %
111 %
130 %
107 %
132 %
122 %
94 %
173 %
116 %
LTD ratio
77 %
256 %
112 %
95 %
80 %
135 %
83 %
91 %
139 %
58 %
108 %
In 2020, the key drivers of Grupo Santander and our
subsidiaries' liquidity (excluding the FX effect) were:
• recovery in credit in all our markets (except for SCF, which
was heavily affected by the postponement of consumption
decisions and the temporary closure of dealers). Customer
deposits also grew and as such, the retail funding gap
significantly contributed liquidity during the year.
• issuances continued to be less intense than in previous
years and below our funding plan due to commercial
dynamics and the favourable conditions of funding
programmes implemented by central banks in response to
the pandemic (especially the ECB and the Bank of England).
We therefore issued mainly to ensure our regular presence
in the relevant capital markets and comply with regulatory
requirements.
In 2020, Grupo Santander issued EUR 47,328 million in M/LT
funding (at year-average exchange rates) and extended
contractual maturity on EUR 2,029 million in securitizations.
By instrument, the stock of M/LT fixed income debt (covered
bonds, senior debt, subordinated debt and capital hybrid
instruments) decreased by around 7% to EUR 30,410 million
at the end of the year. The greater activity in senior TLAC
eligible bonds and hybrids (preferred and subordinated)
partially offset the lower covered bond and preferred senior
debt issuances. As a sign of our commitment to sustainability,
these figures include a EUR 1 billion green senior non-
preferred bond issuance. Securitization and structured finance
activities amounted to EUR 16,919 million in 2020, down 12%
on 2019.
By country unit, Banco Santander, S.A. and Santander UK
issued the most M/LT fixed income debt (excluding
securitizations), followed by SCF. In the year, the greatest
absolute increases were recorded in by our units in the UK,
Spain and Mexico. The main year-on-year decreases were in
SCF due to the commercial environment and in the US as
issuances in 2019 were very high.
SCF and SC USA were the main issuers of securitizations.
The charts below provide greater detail on issuances by
instrument and region:
Distribution by instrument and region
%. December 2020
Covered bonds issued in 2020 were 14% of total issuances,
less than the 17% last year. As in 2019, the main issuing units
were Spain and the UK. Senior debt accounted for 42% of
total issuances, down from 44% in 2019. In qualitative terms,
the weight of TLAC eligible senior debt in 2020 compared to
senior preferred was greater than in 2019.
In 2020, Grupo Santander issued EUR 13,974 million of
subordinated instruments, including EUR 9,809 million of
senior non-preferred debt from Banco Santander, S.A. and
senior preferred from the holdings in the UK and the US; EUR
2,664 million of subordinated debt; and EUR 1,500 million of
AT1 eligible hybrid instruments issued by the parent bank.
In summary, Grupo Santander retained its comfortable access
to the markets it operates in. In 2020, we issued and
securitized debt in 11 currencies, involving 21 major issuers
from 13 countries, with an average maturity of 4.8 years,
slightly higher than last year.
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Senior debt: 42%Securitisation andother: 36%Covered bonds: 14%Preferred: 3%Subordinated: 6%Spain: 32%SCF: 18%UK: 14%North America: 32%Brazil: 2%Other SouthAmerica: 2%
Annual report 2020
Contents
ii. Compliance with regulatory ratios
Within the liquidity management model, over the last few
years Grupo Santander has been managing the
implementation, monitoring and compliance with the
liquidity requirements established under international
financial regulations ahead of schedule.
The commercial dynamics in the year, combined with market
access and our active liquidity management, enabled us to
use government and central bank funding mechanisms. This
greatly strengthened our regulatory ratios, both immediate
liquidity (LCR) as well as structural (NSFR), as we will see
now.
Liquidity Coverage Ratio (LCR)
Since 2018, the regulatory LCR requirement has been at the
maximum level (100%). As a result, we have set a risk
appetite of 110% at both the group and subsidiary level.
Our strong short-term liquidity base and our core subsidiaries’
autonomous management led to compliance levels above
100% (both at group and local level) throughout the year. Our
LCR in December 2020 was 168%, comfortably exceeding
regulatory requirement.
The following table shows that all our subsidiaries
substantially exceeded the required minimum over the last
year.
Santander UK’s figures only include activities that the
Financial Services and Markets Act 2000 leaves within the
Ring-Fenced Bank.
Liquidity Coverage Ratio (LCR)
%
Parent bank
Santander Consumer Finance
United Kingdom
Portugal
Poland
United States
Mexico
Brazil
Chile
Argentina
Group
December 2020 December 2019
143 %
248 %
145 %
134 %
149 %
133 %
133 %
122 %
143 %
196 %
147 %
175 %
314 %
152 %
122 %
187 %
129 %
207 %
167 %
155 %
222 %
168 %
NSFR (Net Stable Funding Ratio)
The final definition of the net stable funding ratio (NSFR) was
approved by the Basel Committee in October 2014. It was
transposed to EU law in June 2019 when the Official Journal
of the European Union published the Regulation (EU)
2019/876 of the European Parliament and of the Council of
20 May 2019 amending Regulation (EU) No575/2013 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.
Accordingly, entities must have a net stable funding ratio,
greater than 100% from June 2021.
The NSFR is a structural measurement that gives banks an
incentive to ensure long-term stability and proper
management of maturity mismatches by funding long-term
assets with long-term liabilities. It is defined as the quotient
of available stable funding (ASF) and required stable funding
(RSF).
ASF comprises those sources of funding (capital and other
liabilities) deemed stable over one year. RSF primarily refers
to any asset considered illiquid over one year, thus needing to
be matched with stable sources of funding.
In 2020, Grupo Santander had a consolidated and subsidiary
management limit of 100%. A more demanding level has
been established for 2021 to coincide with the regulatory
entry into force of the metric.
We benefit 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. This
helped maintain our balanced liquidity structure as reflected
in our year-end consolidated and subsidiary NSFRs above
100%.
The following table provides details by main subsidiary as
well as a comparison with 2019. Santander UK’s figures only
include activities that the Financial Services and Markets Act
2000 leaves within the Ring-Fenced Bank.
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Net Stable Funding Ratio
%
Parent bank
Santander Consumer Finance
United Kingdom
Portugal
Poland
United States
Mexico
Brazil
Chile
Argentina
Group
III. Asset Encumbrance
Grupo Santander’s use of assets as collateral in structural
funding sources of the balance sheet is moderate.
In keeping 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
Group. Disclosure on asset encumbrance as at December 2020
EUR billion
December 2020
116 %
114 %
129 %
123 %
150 %
120 %
132 %
119 %
120 %
174 %
120 %
December 2019
103 %
106 %
124 %
104 %
130 %
111 %
121 %
112 %
108 %
154 %
112 %
obtain liquidity, off-balance-sheet assets received and reused
for a similar purpose, and other assets with liabilities for
reasons other than funding.
The following tables show the asset encumbrance data Grupo
Santander must present to the EBA as at end 2020:
Assets
Loans and advances
Equity instruments
Debt instruments
Other assets
Carrying amount of
encumbered assets
350.4
249.5
5.8
61.9
33.2
Fair value of
encumbered assets
Carrying amount of
unencumbered assets
Fair value of
unencumbered assets
—
—
5.8
60.7
—
1,157.9
884.7
9.9
114.6
148.7
—
—
9.9
115.4
—
Group. Collateral received as at December 2020
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 encumbered collateral received
or own debt securities issued
Fair value of collateral received or own debt
securities issued available for encumbrance
84.7
—
3.5
80.2
0.9
—
43.0
—
5.9
37.1
—
0.9
Group. Encumbered assets / collateral received and associated liabilities as at December 2020
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)
306.3
435.1
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On-balance-sheet encumbered assets amounted to EUR
350.4 billion; 71% are loans and advances (mortgages,
corporate loans, etc.). Off-balance-sheet encumbrance stood
at EUR 84.7 billion and mainly corresponds to debt securities
received as collateral in reverse repurchase agreements and
rehypothecated ("reused").
Both types of encumbered assets amount to EUR 435.1
billion, giving rise to associated liabilities of EUR 306.3 billion.
As the end of 2020, total asset encumbrance in funding
operations was 26.6% of our extended balance sheet under
EBA criteria (total assets plus guarantees received: EUR
1,635.9 billion). It increased from 24.1% in 2019 due to our
use of funding programmes implemented by central banks in
response to the pandemic.
Rating agencies
Rating agencies influence Grupo Santander’s access to
wholesale financing markets and the cost of its issuances.
The agencies listed below regularly review our ratings. Debt
ratings depend on several endogenous factors (business
model, strategy, capital, income generation capacity,
liquidity, etc.) and exogenous factors related to the economic
environment, the industry and sovereign risk across our
footprint.
While sometimes the methodology applied by the agencies
limits a bank's rating to the sovereign rating assigned to the
country where it is headquartered, Banco Santander, S.A. is
still rated above the sovereign debt rating of the Kingdom of
Spain (where it is headquartered) by Moody’s and DBRS and
on par with it by Fitch and S&P, a testament of our financial
strength and diversification.
At the end of 2020, the ratings from the main agencies were:
Funding outlook for 2021
Despite lingering uncertainties, namely in geopolitics,
financial regulation and development of the pandemic,
Santander has begun 2021 with a comfortable liquidity
position and a positive funding outlook for the year.
We expect a moderate increase in lending in all our core
country markets, as well as a good performance in deposits
leading to limited demand for liquidity from the retail
business. The largest liquidity needs will come from our
largest country units: Spain, Brazil and Global Consumer Bank
(new entity comprising Santander Consumer Finance and
Openbank).
The maturities in the coming quarters are manageable. They
are aided by limited recourse to short-term funding and an
expected medium- and long-term issuance dynamic in line
with last year. We will manage each country, optimizing
liquidity to maintain a solid balance sheet structure across our
footprint.
For example, Banco Santander, S.A.'s 2021 funding plan is
designed to cover the greater TLAC/MREL requirements and
pre-finance issuances that lose loss-absorbing capacity, and,
where applicable, cover the needs arising from potential
increases in RWAs, as they form base for both ratios. As such,
the plan does not incorporate secured instruments. It includes
between EUR 8 billion and EUR 10 billion of senior preferred
and non-preferred debt and a limited volume of hybrid
instruments, the latter depending on RWA growth to ensure
the continued fulfilment of the AT1 and T2 buffers (1.5% and
2%, respectively).
Our funding plans are designed to ensure Grupo Santander
and each subsidiary always comply with regulatory
requirements and those stemming from its risk appetite
framework.
Rating agencies
DBRS
Fitch Ratings
Moody's
Standard & Poor's
Scope
JCR Japan
Long term
A (High)
Short term
R-1 (Middle)
A-(SeniorA) F2 (Senior F1)
P-1
A-1
S-1+
A2
A
AA-
A+
—
Outlook
Stable
Negative
Stable
Negative
Stable
Stable
In 2020, there were no modifications to these ratings which
were confirmed by DBRS, Fitch, Moody’s, S&P and JCR Japan.
Regarding the outlook, Fitch and S&P changed from stable to
negative due to the economic consequences of the covid-19
crisis on the long-term rating.
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3.5 Capital management and adequacy. Solvency ratios
→ At year-end, the phased-in CET1 ratio reached 12.34% after increasing 69 bps in the year (including 104 bps of
organic generation).
→ The total phased-in capital ratio was 16.18% (+113 bps in the year).
→ Our active capital management culture strengthened throughout the organization.
Grupo Santander’s capital management aims to guarantee
solvency and maximize profitability, while complying with
internal objectives and regulatory requirements.
It is a key strategic tool for local and corporate decision
making, enabling us to set a common framework of actions,
criteria, policies, functions, metrics and processes.
We manage two types of capital:
• Regulatory capital: to manage regulatory capital, we
analyze our capital base, regulatory solvency ratios under
the prevailing regulatory criteria and capital planning
scenarios to make our capital structure as efficient as
possible both in terms of cost and compliance with the
regulatory requirements.
Our active capital management applies strategies on
efficient capital allocation to business lines, and considers
securitizations, asset sales and issuances of capital
instruments (capital hybrids and subordinated debt).
• Economic capital: our economic capital model aims to
ensure our capital allocation is right for the risks inherent in
our operations and risk appetite to optimize economic
value added for our group and business units.
To optimize economic value added, we measure the real
economic capital an activity requires and its return, and
select those activities that maximize returns. We do this
under both expected as well as unlikely but plausible
economic scenarios, and with the solvency level decided by
the Group.
Grupo Santander considers the following concepts:
→ Regulatory capital
→ Return on risk adjusted capital (RoRAC)
• Capital requirements: the minimum volume of own funds
required by the regulator to ensure solvency based on credit,
market and operational risks.
• Eligible capital: the amount of own funds considered eligible
by the regulator to meet capital requirements, principally
accounting capital and reserves.
→ Economic capital
• Self-imposed capital requirement: the minimum volume of
own funds Grupo Santander requires, for a given level of
probability, to absorb unexpected losses resulting from its
current exposure to risks (including risks not considered in
regulatory capital).
• Available capital: the volume of own funds Grupo Santander
deems eligible under management criteria to meet its capital
needs.
→ Cost of capital
The minimum return investors (shareholders) require as
compensation for the opportunity cost and risk of investing in
Santander. It represents a 'cut-off rate' or 'minimum return',
which allows analysts to compare business units’ performance
and analyze efficiency.
This is the return (net of tax) on economic capital required
internally. Because a higher level of economic capital decreases
the RoRAC, we require higher returns on transactions and
business units with high capital consumption.
This considers the investment risk and is therefore a risk-adjusted
returns measure.
The RoRAC improves management, allowing us to assess the
risk-adjusted returns on our business and take more efficient
investment decisions.
→ Return on risk-weighted assets (RoRWA)
This is the return (net of tax) on risk-weighted assets (RWAs) for
a particular business.
Grupo Santander uses RoRWA to establish strategies to allocate
regulatory capital for maximum returns.
→ Economic value added (EVA)
This is measured by profit generated in excess of the cost of
economic capital. Grupo Santander adds economic value when
the RoRAC exceeds its cost of capital; otherwise, value is
destroyed. EVA measures absolute risk-adjusted returns (in
monetary units), which complements the RoRAC approach.
→ Leverage ratio
→ Expected loss
This regulatory metric compares a bank's size to its capital to
measure how sound and robust it is, dividing Tier 1 capital by the
leverage exposure. This takes into account balance sheet size
with some adjustments for derivatives, funding of securities
operations and off-balance sheet items.
Loss due to insolvency that an entity will suffer on average over
an economic cycle. It considers insolvency a cost that can be
reduced by proper loan approval.
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Capital management priorities and activities
Grupo Santander’s core capital management activities are:
• setting solvency and capital contribution objectives in line
with the minimum regulatory requirements and internal
policies to guarantee a solid level of capital, matching our
risk profile, and an efficient use of capital to maximize
shareholder value.
• developing a capital plan to meet the strategic objectives.
Capital planning is an essential part of executing the three-
year strategic plan.
• assessing capital adequacy to ensure the capital plan is
coherent with our risk profile and risk appetite framework,
particularly in stress scenarios.
• preparing our annual capital budget as part of the group’s
budgetary process.
Regarding the dividend against 2020 results, the board of
directors intends for the final remuneration to be EUR 0.0275
per share in cash. This is the maximum allowed according to
the limits established by the European Central Bank (ECB) in
its recommendation 2020/63 on 15 December.
The board’s intention is to restore in the mid-term a cash
dividend payout of 40-50% of the underlying profit. With
respect to the remuneration against 2021 results, the
intention is, in line with the announcement made in April
2020, to maintain the suspension of the dividend policy while
the above mentioned ECB recommendation applies.
For more details, see section 3.3 ‘Dividends’ on the Corporate
governance chapter.
Strengthen capital management culture
Grupo Santander aims to have a CET1 ratio of 11-12% in the
medium term.
• monitoring and controlling budgetary implementation in
the group and country units and drawing up action plans to
correct budget deviations.
The continuous improvement in the capital ratios attests to
our profitable growth strategy and active capital
management culture across the organization.
• integrating capital metrics in management of businesses,
ensuring alignment with group-wide objectives.
• drawing up reports on internal capital and for supervisory
authorities and market players.
In particular:
• We reinforced our dedicated capital management teams
and improved coordination between the Corporate Centre
and local teams.
• planning and managing other loss-absorbing instruments
(MREL and TLAC).
• All country and business units developed individual capital
plans focused on maximizing their return on capital.
• We increased the weight of capital on incentives having
incorporated capital management and profitability
standards in senior managers' variable pay:
– The metrics we consider include our CET1 ratio, the
country units' contributions to the group capital ratio or
their return on equity (RoTE) and profits after tax.
– Some of the qualitative items we consider include
proper management of regulatory changes in capital,
effective capital management in decision-making,
generation of sustainable capital and effective capital
allocation.
We're also developing a programme for better infrastructure,
processes and methodologies that give support to capital
areas to further enhance capital management, respond more
quickly to the numerous and increasing regulatory
requirements and carry out all related activities more
efficiently.
The main measures we took in 2020 were:
Issuances of capital hybrid and other loss-absorbing
instruments
In 2020, Banco Santander, S.A. issued a total of EUR 3,814
million in subordinated debt. This comprised EUR 2,314
million of T2 subordinated debt and EUR 1,500 million in
contingently convertible preferred shares (CoCos). The
purpose of the CoCo issuance was to replace the euro
issuance in the same amount.
In addition, Banco Santander, S.A. issued EUR 6,913 million in
senior non-preferred debt.
Dividend policy
On 2 April 2020, Banco Santander's board of directors, taking
into account the ECB’s recommendation, decided to cancel the
final 2019 dividend payment and suspend the 2020 dividend
policy. It therefore withdrew from the following day’s AGM
agenda the proposal for the distribution of 2019 dividends
and postponed its decision to a meeting In October.
The shareholders at the AGM held on 27 October approved a
fully-paid capital increase for the distribution of new shares
equivalent to EUR 0.10 per share as a complementary
payment from 2019. This, together with the dividend paid in
November 2019, resulted in a total remuneration for 2019 of
EUR 0.20 per share.
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Regulatory CET1 ratio (phased in
%
A
)
Main regulatory capital and solvency ratios (phased-in A
)
EUR million
Common equity (CET1)
Tier1
Eligible capital
Risk-weighted assets
CET1 capital ratio
T1 capital ratio
Total capital ratio
Leverage ratio
2020
69,399
78,501
91,015
562,580
12.34 %
13.95 %
16.18 %
5.33 %
Regulatory capital (phased-in). Flow statement
EUR million
Core Tier 1 Capital
Starting amount (31/12/2019)
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
in goodwill and other
Decrease/(increase)
intangible assets
Other
Ending amount (31/12/2020)
Additional Tier 1 Capital
Starting amount (31/12/2019)
AT1 eligible instruments
T1 excesses - subsidiaries
Residual value of intangible assets
Deductions
Ending amount (31/12/2020)
Tier 2 Capital
Starting amount (31/12/2019)
T2 eligible instruments
Generic funds and surplus loan-loss provisions-IRB
T2 excesses - subsidiaries
Deductions
Ending amount (31/12/2020)
Deductions from total capital
Total capital ending amount (31/12/2020)
2019
70,497
79,536
91,067
605,244
11.65 %
13.14 %
15.05 %
5.15 %
2020
70,497
(72)
(63)
4,306
(9,249)
(12,004)
228
12,767
2,988
69,399
9,039
(355)
418
—
—
9,102
11,531
990
—
(7)
—
12,514
—
91,015
Capital ratios in 2020
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).
At the end of the year, the total phased-in capital ratio stood
at 16.18% and the CET1 ratio (phased-in) at 12.34%. We have
a strong capital base, comfortably meeting the minimum
levels required by the European Central Bank on a
consolidated basis (13.01% for the total capital ratio and
8.85% for the CET1 ratio). This resulted in a CET1
management buffer of 349 bps, compared to the pre-
covid-19 buffer of 189 bps.
In the year, the CET1 ratio (phased-in) increased 69 bps. Of
note was the strong underlying capital generation of 104 bps,
partially offset by the impact of restructuring costs, corporate
transactions and market performance. It also includes 9 bps
related to an accrual for 2020 dividend payments, based on
the limit established by recommendation 2020/63 of the ECB
on 15 December 2020, which allows a maximum payment of
EUR 0.0275 per share.
Had the IFRS 9 transitional arrangement not been applied, the
total impact on the CET1 ratio was 45 bps, leading to a fully-
loaded CET1 ratio of 11.89%, 48 bps higher than 2019.
The fully-loaded total capital ratio was 15.73%, up 95 bps
during the year.
The phased-in leverage ratio stood at 5.3% and the fully-
loaded ratio at 5.1%.
A. The phased-in ratios include the transitory treatment of IFRS 9, calculated in accordance with article 473 bis of the Regulation on Capital Requirements (CRR) and
subsequent amendments introduced by Regulation 2020/873 of the European Union. Additionally, the Tier 1 and total phased-in capital ratios include the
transitory treatment according to chapter 2, title 1, part 10 of the aforementioned CRR.
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11.47%11.65%12.34%201820192020
Annual report 2020
Contents
Regulatory CET1 ratio (phased-in ) performance in 2020
%
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
RWAs
2020
447,927
246,284
30,797
168,096
2,750
10,239
7,083
2,195
241
720
0
8,159
0
4,731
1,821
1,607
0
18,008
5,071
12,936
55,865
55,865
22,382
—
562,580
2019
483,341
283,385
35,583
161,548
2,825
11,070
7,549
2,274
259
988
2
6,629
2,374
2,030
1,014
866
346
21,807
7,596
14,211
59,661
59,661
22,734
—
605,244
Minimum
capital
requirements
2020
35,834
19,703
2,464
13,448
220
819
567
176
19
58
—
653
0
378
146
129
0
1,441
406
1,035
4,469
4,469
1,791
—
45,006
Credit risk (excluding CCR)
Of which standardized 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 standardized approach
Of which risk exposure from contributions to default fund or central counterparties
(CCP)
Of which credit valuation adjustment (CVA)
Settlement risk
Securitization exposure in banking book (after cap)
Of which IRB approach
Of which SEC-IRBA approach
Of which SEC-SA approach
Of which SEC-ERBA approach
Of which standardized approach (SA)
Market risk
Of which standardized approach
Of which internal model approach (IMA)
Operational risk
Of which standardized approach
Amounts below the thresholds for deduction (subject to 250% risk weight)
Floor adjustment
Total
A. Includes equity under the PD/LGD approach.
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Capital requirements by geographical distribution
EUR million
A
Credit risk
Of which internal rating-based (IRB) approach
Central governments and central banks
Institutions
Corporates – SME
Of which Corporates - Specialized Lending
Of which 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 standardized approach (SA)
Central governments and central banks
Regional governments or local authorities
Public sector entities
Multilateral Development Banks
International Organizations
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 (Standardized)
Of which Risk exposure amount for contributions to the
default fund of a CCP
Of which CVA
Settlement risk
Securitization exposures in banking book (after cap)
Market risk
Of which standardized approach (SA)
Of which internal model approaches (IMA)
Operational risk
Of which standardized approach
Amounts below the thresholds for deduction and
other non-deducted investments (subject to 250% risk
weight)
Floor adjustment
SOUTH
AMERICA
o/w:
Brazil
Rest of
the
world
TOTAL
EUROPE
36,401 22,492
15,884 12,574
1
286
6,876
999
1,700
64
3,226
321
328
1,472
—
31
509
9,760
1,283
1,813
65
3,238
321
329
1,631
—
19,703
1,197
17
31
—
—
350
3,623
7,584
2,570
524
156
13
6
21
23
9,104
758
9
4
—
—
118
1,922
2,886
872
262
28
13
2
22
18
o/w:
Spain
o/w:
United
Kingdom
NORTH
AMERICA
9,977
5,891
1
72
3,946
350
1,424
64
939
112
201
556
—
3,271
741
6
—
—
—
70
358
296
190
127
—
—
2
7
—
5,047
3,663
—
73
1,242
381
87
—
2,050
148
1
149
—
1,384
—
—
—
—
—
9
471
508
37
16
13
13
—
—
—
6,342
1,168
1
110
1,052
167
75
1
2
—
—
2
—
5,174
83
—
14
—
—
119
695
2,507
802
77
16
—
3
—
—
o/w: US
4,863
481
—
52
425
33
1
1
1
—
—
—
—
4,382
—
—
14
—
—
109
648
2,206
615
51
16
—
—
—
—
6,860
1,536
15
35
1,484
67
38
—
1
—
—
1
—
5,324
353
8
13
—
—
107
994
2,111
895
185
112
—
2
—
5
4,340
1,271
3
4
1,262
—
36
—
—
—
—
—
—
3,069
317
8
—
—
—
87
362
1,589
256
84
13
—
—
—
—
3,588
2,191
1,475
317
859
722
537
353
814
594
220
253
176
19
58
—
814
594
220
153
94
19
41
—
653
450
1,441
1,002
406
274
1,035
4,469
4,469
728
2,349
2,349
814
594
220
79
25
16
37
—
174
973
245
728
854
854
—
—
—
37
32
2
2
—
141
14
14
—
—
—
—
58
53
—
5
—
188
207
8
199
566
566
1,078
1,078
—
—
—
48
47
—
1
—
157
7
7
—
830
830
—
—
—
41
29
—
12
—
13
232
123
108
1,042
1,042
1,791
1,242
1,128
—
—
—
20
—
77
—
—
—
470
—
—
—
—
24
20
—
4
—
13
116
116
—
565
565
399
—
706
605
15
78
348
50
1
—
8
—
—
155
—
101
2
—
—
—
—
6
11
81
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
2
—
—
—
—
—
2
—
Total
45,006 27,688 13,184
5,825
7,950
5,904
8,657
5,455
711
A. Including counterparty credit risk.
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Economic capital
Economic capital is required to cover risks from our activity
with a certain level of solvency. We measure it with an
internally developed model. To calculate the required capital,
we determine our solvency level based on our objective long-
term rating of 'A' (above the rating for the Kingdom of Spain);
this represents a confidence level of 99.95% (higher than the
regulatory level of 99.90%).
Our economic capital model measurements cover all
significant risks incurred in our activity (concentration risk,
structural interest rate risk, business risk, pensions risk,
deferred tax assets (DTAs), goodwill and others that are
beyond the scope of regulatory Pillar 1). It also takes
diversification into account, which is key to determining and
understanding our risk profile and solvency in view of our
multinational operations and businesses.
Our total risk and related economic capital are less than the
sum of the risk and capital of all individual units combined.
Because our business spreads across various countries via a
structure of separate legal entities with different customer
and product segments and types of risks, our earnings are
less vulnerable to adverse situations for any given market,
portfolio, customer type or risk. Despite increasing economic
globalization, economic cycles are not the same and countries
are affected differently. This was clearly evident during the
current covid-19 crisis. Groups with a global presence have
more stable results and are more resistant to the eventual
market or portfolio crises. This translates into lower risk.
In contrast to regulatory criteria, we consider certain
intangible assets, such as DTAs or goodwill, retain value, even
in a hypothetical resolution, owing to the geographic
structure of our subsidiaries. Thus, assets can be valued and
their unexpected loss and capital impact can be estimated.
Economic capital is a key tool for internal management and
the development of Grupo Santander’s strategy, for assessing
solvency and managing risk of portfolios and businesses.
With regard to Basel Pillar 2, we use our economic model for
the internal capital adequacy assessment process (ICAAP). We
plan business progression and capital needs under a central
scenario and alternative stress scenarios to make sure we
meet our solvency objectives even in adverse scenarios.
Economic capital derived metrics help us assess risk-return
objectives, how to price operations based on risk, how
economically viable projects are, and how to value country
units and business lines, so we can fulfil our overriding
objective of maximizing shareholder value.
The following table presents the main changes to the capital
requirements by credit risk:
Credit risk capital movements
EUR million
A
Starting amount (31/12/2019)
Asset size
Model updates
Regulatory
Acquisitions and disposals
Foreign exchange movements
Other
Ending amount (31/12/2020)
RWAs
522,527
12,298
2,790
(4,057)
(721)
(38,002)
(7,089)
487,745
Capital
requirements
41,802
984
223
(325)
(58)
(3,040)
(567)
39,020
A. Includes capital requirements of equity, securitisations and counterparty risk
(excluding CVA and CCP).
The changes in RWAs in 2020 (-EUR 34,782 million) were
impacted by the generalized devaluation of currencies,
especially the BRL, USD and GBP. Volumes increased in South
America in the year (particularly in Brazil) and in the US.
These increases offset the decline observed in Europe, mainly
in Spain.
Other includes the securitizations in the year, particularly in
Spain and Santander Consumer Finance.
With regards to regulatory ratios, Santander exceeded the
2020 minimum regulatory requirements by 317 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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As a homogeneous risk measure, we can use economic capital
to explain how risk is distributed throughout the Grupo
Santander, bringing together different activities and types of
risk under a single metric.
The main difference compared to regulatory CET1 is how
goodwill, other intangible assets and DTAs are treated; we
consider them additional capital requirements rather than a
deduction from available capital.
Given its relevance, internal management considers several
economic capital derived metrics from both a capital needs
and a risk-return point of view, within a conservative risk
appetite framework established at both group and country
unit level.
Required economic capital in December 2020 amounted to
EUR 60,386 million. Compared to the available economic
capital base of EUR 86,316 million, this implies a capital
surplus of EUR 25,931 million.
Reconciliation of economic and regulatory capital
EUR million
Net capital and issuance premiums
Reserves and retained profits
Valuation adjustments
Minority interests
Prudential filters
A
Other
Base economic capital available
Deductions
Goodwill
Other intangible assets
DTAs
Other
Base regulatory (CET1) capital
B
available
Base economic capital available
Economic capital required
Capital surplus
C
2020
60,557
52,902
2019
60,692
59,016
(35,345)
(23,249)
6,669
(592)
2,126
86,316
(16,337)
(13,621)
(2,090)
(627)
(580)
6,441
(639)
(2,136)
100,124
(31,398)
(25,068)
(3,410)
(2,920)
1,772
69,399
70,497
86,316
60,386
25,931
100,124
72,879
27,245
The charts below sum up Grupo Santander’s economic capital
needs as at 31 December 2020, by region and risk type.
Distribution of economic capital needs by type of risk
%
The distribution of economic capital among core business
areas reflects our business and risk diversification. Europe
accounted for 57% of capital; North America, 24%; and South
America, 19%.
Outside our operating areas, the Corporate Centre mainly
takes on goodwill risk and structural exchange rate risk (risk
from maintaining stakes in foreign subsidiaries that is
denominated in currencies other than the euro).
The benefit from diversification included in the economic
capital model, including intra-risks (largely similar to
geographic diversification) and inter-risk diversification
amounted to approximately 25-30%.
A. Includes: Comparative of Provisions over Economic Expected loss, Pension Assets and Other adjustments. All figures according to EC 2020 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. All figures
according to EC 2020 methodology.
Distribution of economic capital needs by geographic area and type of risk
EUR million. December 2020
Grupo Santander. Total requirements: 60,386
Corporate Centre
16,514
A
Europe
25,190
North America
10,315
South America
8,367
All risks:
Goodwill
Market
DTAs
Other
53 %
30 %
14 %
4 %
All risks:
Credit
Market
Pensions
ALM
Others
All risks:
Credit
Fixed Assets
Business
Operational
Others
54 %
10 %
9 %
8 %
19 %
63 %
12 %
8 %
4 %
13 %
Credit
ALM
Operational
Business
Others
A. Including Santander Global Platform
All risks:
63 %
7 %
7 %
6 %
17 %
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Credit: 42%Goodwill: 14%Market: 13%DTAs: 5%Business: 5%ALM: 5%Operational: 4%Other: 10%
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RoRAC and Economic Value Added
Since 1993, Grupo Santander has been using RoRAC
methodology to:
• calculate economic capital consumption and return for
business units, segments, portfolios and customers, so as
to optimize capital allocation.
• measure the management of units through budgetary
monitoring of capital consumption and RoRAC.
• analyze and set prices to make decisions on operations
(approvals) and customers (monitoring).
The RoRAC methodology helps us compare the return on
operations, customers, portfolios and businesses on a like-
for-like basis. We can identify what is obtaining a risk-
adjusted return higher than its cost of capital and thus align
risk and business management to maximize economic value
added (EVA), which is senior management’s ultimate goal.
Main segments
Europe
North America
South America
Total Group
The following table shows economic value added and RoRAC
at the end of December 2020 of the Group’s main
geographical segments. These figures are clearly affected by
the economic situation resulting from the covid-19 crisis,
which led to lower profit due to greater provisions and an
increase in the cost of capital, resulting in a value for 2020
greater than the structural cost of capital for the group:
Economic Value Added
EUR million
A
and RoRAC
2020
2019
RoRAC
10.5 %
15.0 %
26.1 %
8.5 %
EVA
(429)
187
883
(2,529)
RoRAC
17.7 %
20.2 %
36.0 %
12.9 %
EVA
2,682
1,019
2,641
3,509
A. The economic value added is calculated with the cost of capital of each unit.
The Group’s total RoRAC includes the operative units, the Corporate Centre
and SGP, reflecting the Group's economic capital and its return.
Capital planning and stress tests
Capital stress test exercises are a key tool in banks' dynamic
evaluations of their risks and solvency.
These forward-looking evaluations are based on unlikely but
plausible macroeconomic and idiosyncratic scenarios. They
require robust planning models that can translate the effects
defined in the projected scenarios to elements that affect
solvency.
The ultimate aim of capital stress exercises is to thoroughly
assess risks and solvency to determine capital requirements if
a bank fails to meet its regulatory and internal capital
objectives.
Internally, Grupo Santander has a defined capital stress and
planning process to respond to various regulatory exercises
and is a key tool integrated into management and strategy.
Internal capital stress and planning aims to ensure sufficient
current and future capital, even in unlikely but plausible
economic scenarios. Based on our initial situation (defined by
our financial statements, capital base, risk parameters, and
regulatory and economic ratios), we estimate results in
various business environments (including severe recessions
as well as expected macroeconomic environments), to
determine our solvency ratios, usually for a three-year period.
Planning offers a comprehensive view of our capital for the
analyzed period and in each of the defined scenarios based on
regulatory capital and economic capital metrics.
We regularly assess the level and progression of EVA and the
risk-adjusted return (RoRAC) across Grupo Santander. EVA is
calculated as profit generated above the cost of economic
capital employed, and is calculated as follows:
Economic Value Added = underlying consolidated profit –
(average economic capital x cost of capital)
We calculate profit by making the necessary adjustments to
consolidated profit to eliminate factors outside the ordinary
course of our business and thus obtain each country unit’s
underlying result in the year.
Additionally, for internal management purposes, we analyze
the impact of items not covered by our economic capital
model but affect reserves without being included in the
income statement.
We compare the expected credit loss of the various portfolios
against provisions, similar to the regulatory capital approach.
This became more significant in 2020 owing to the
exceptional increase in provisions required to tackle the
covid-19 crisis.
The minimum return on capital a transaction must obtain is
determined by the cost of capital, the minimum
compensation required by shareholders. We calculate it by
adding the premium shareholders require to invest in
Santander, to the risk-free return. The premium depends
essentially on the degree of volatility in our share price with
respect to the market’s performance. The cost of capital
defined for Grupo Santander in 2020 was 12.00%, impacted
by higher volatility in the covid-19 crisis (vs. 8.30% the
previous year, which shows a more structural value).
As well as annually reviewing the cost of capital, Grupo
Santander’s internal managers also estimate a cost of capital
for each business unit based on its features (under the
philosophy that subsidiaries manage capital and liquidity
autonomously) to determine whether each business is
capable of creating standalone value.
If a transaction or portfolio obtains a positive return, it
contributes to our profits, but only adds economic value when
that return exceeds the cost of capital.
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This chart describes the structure in place:
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
• Regulatiry and economic risk parameters (PD, LGD and EAD)
• Available capital base. Profits and dividends
• Regulatory and legislative impacts
• Capital and solvency ratios
• Compliance with capital objectives
• Regulatory and economic view
Action plan
• In the event of failure to comply with internal objectives or regulatory
requirements
This structure supports the ultimate objective of capital
planning, by making it an important strategic element that:
• ensures current and future solvency, even in adverse
economic scenarios.
To calculate loan-loss provisions of the credit portfolio, we
use a methodology that ensures provisions cover loan losses
projected by its internal expected loss models, based on
exposure at default (EAD), probability of default (PD) and loss
given default (LGD parameters), at all times.
• ensures comprehensive capital management, analyzes
specific effects and integrates them into strategic planning.
• enables a more efficient use of capital.
• helps formulate capital management strategy.
• facilitates communication with the market and supervisors.
Our capital planning has the full involvement and close
supervision of senior managers, under a framework that
ensures suitable governance and that is subject to the right
levels of challenge, review and analysis.
A key element in capital planning and stress analysis
exercises is calculating the provisions needed under these
scenarios, especially to cover losses on credit portfolios; it is
particularly important for income statement forecasts under
defined adverse scenarios.
In 2018, we adapted this methodology to incorporate
changes in the new IFRS 9 regulations, with models to
calculate balances by stages (S1, S2, S3) as well as the
movements between them and the loan-loss provisions in
accordance with the new standards.
Our capital planning and stress analysis culminate with an
analysis of solvency under various scenarios over a set period
to measure capital adequacy and ensure we meet internal all
capital and regulatory requirements.
If we were to fail to meet our capital objectives, we would
draw up an action plan with the measures needed to attain
the minimum capital desired. We analyze and quantify these
measures as part of internal exercises even if we will not
need to utilize them as we exceed the minimum capital
thresholds.
Grupo Santander carries out its internal stress and capital
planning transversally throughout the group, at the
consolidated and local level. Our country units use it as an
internal management tool, particularly to respond to local
regulatory requirements.
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Since the beginning of the economic crisis in 2008, we have
undergone seven external stress tests. All of them proved our
strength and solvency in the most extreme and severe
macroeconomic scenarios showing that, owing to our
business model and geographic diversification, we would still
be capable of generating profit for shareholders while
satisfying the most demanding regulatory requirements.
We have also conducted internal stress tests every year since
2008 as part of our ICAAP process (Basel Pillar 2). Every test
has proven our capacity to confront the most difficult
exercises on a global and local level.
During 2020, due to the special situation resulting from the
coronavirus crisis, capital planning capacities and stress tests
allowed us to analyze various scenarios for the evolution of
the pandemic and ensure capital adequacy under the various
possible scenarios derived from the covid-19 crisis.
Recovery and Resolution Plans and Special Situations
Management Framework
This section summarizes our progress in crisis management,
particularly the main principles of recovery plans, resolution
plans and the management framework governing special
situations.
Recovery plans
Context. Grupo Santander prepared its eleventh corporate
recovery plan in 2020. The most important part sets out
measures we have at our disposal to survive a very severe
crisis on our own.
Its aims primarily to test the feasibility, effectiveness and
credibility of recovery measures as well as the suitability of
the recovery indicators and their respective thresholds, above
which decision-making will be escalated to cope with stress
situations.
It sets out macroeconomic and/or financial crisis scenarios
which incorporate idiosyncratic and/or systemic events
relevant to the group that could lead to its activation.
It has been designed with the premise of no extraordinary
public aid, in accordance with article 5.3 of the BRRD.
The recovery plan should not be interpreted as an instrument
independent of our structural mechanisms to measure,
manage and supervise risk. Integrated into the plan are: the
risk appetite framework (RAF), the risk appetite statement
(RAS), the risk identification assessment (RIA), the business
continuity management system (BCMS), the internal
assessments of capital and liquidity (ICAAP and ILAAP) and
other tools. It is also integrated into our strategic plans.
Progress in 2020. In April, as a result of the crisis caused by
the covid-19 pandemic, the ECB announced that banks could
submit recovery plans for 2020 only covering essential
elements and improvements made to rectify any key
deficiencies the ECB had identified in its feedback letters on
their 2019 recovery plans.
It also announced that the macroeconomic and/or financial
crisis scenarios used in past years, in which idiosyncratic and/
or systemic events are incorporated, would be replaced with a
single covid-19 stress scenario.
Despite this easing of requirements and the ECB not
identifying any key weaknesses in our 2019 recovery plan, we
decided to prepare a comprehensive plan in 2020. It
comprised all chapters and most of the improvements
suggested by the ECB. Specifically:
• further details on the roles and responsibilities of Silver/
Gold forums outside of crisis periods.
• more details about non-financial indicators and on our
approach to early warning indicators for non-financial
events.
• greater detail on external interconnections, standardizing
criteria between subsidiaries.
• a recovery strategy adapted to the covid-19 scenario, and
an improved chapter on global stressed recovery capacity
with more details, macro charts developed by the in-house
research team and tables to demonstrate the impact of the
measures on the LCR.
• the impact of recovery measures in March, to show how all
our recovery options can be executed in a crisis, in addition
to more details about the assumptions underlying impact
calculations, including stress scenarios.
The key takeaways from our analysis of the 2020 corporate
plan were:
• no material interdependencies between country units.
• ample recovery capacity ensured in all scenarios by
available measures, with an advantage in a recovery
situation afforded by our geographic diversification model.
• sufficient capacity in each subsidiary to emerge from a
recovery situation on its own, strengthening our
autonomous subsidiaries model (in terms of capital and
liquidity).
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• sufficient mitigation mechanisms to minimize the negative
economic impact of potential reputational damage in stress
scenarios.
In November 2020, the Single Resolution Board (SRB)
announced its preferred resolution strategy and work
priorities to improve our resolvability.
• in a serious financial or solvency event, no one subsidiary is
important enough to trigger the corporate plan by causing
the severest recovery indicator levels to be surpassed.
These factors prove our business model and geographic
diversification strategy, based on autonomous subsidiaries,
will continue to be strong in a recovery situation.
Regulation and governance. Grupo Santander’s recovery plan
complies with the EU regulations and follows the non-binding
recommendations of the Financial Stability Board (FSB) and
other international bodies.
We submitted our latest plan to the Single Supervisory
Mechanism in October 2020, after which the EBA has six
months to make formal considerations.
It comprises the corporate plan (Banco Santander, S.A.) and
local plans for the UK, Brazil, Mexico, the US, Germany,
Argentina, Chile, Poland and Portugal. Except for Santander
Chile, all country units must draw up a local plan in
compliance with local regulations as well as corporate
requirements.
Though the board of Banco Santander, S.A. approves the
corporate plan, relevant content and figures are previously
submitted to and discussed by the capital committee, the
global ALCO and the risk supervision, regulation and
compliance committee. On the other hand, local plans are
approved by local bodies, always in coordination with the
parent as they are included in the corporate plan.
Resolution plans
Grupo Santander cooperates with the relevant authorities to
prepare resolution plans, providing them with the information
they request.
Those that form part of the Crisis Management Group (CMG)
upheld their decision on our Multiple Point of Entry (MPE)
strategy1
to be used in the hypothetical case of resolution.
This is based on our legal and business structure, organized
into nine resolution groups that can be resolved
independently without involving other parts of the
organization.
We continued to make progress with projects to improve
resolvability, defining these lines of action:
1) Ensure a sufficient buffer of instruments with loss
absorption capacity.
In 2020, Grupo Santander issued debt instruments that meet
the MREL eligibility requirements.
To avoid legal uncertainty surrounding the execution of the
resolution authority’s bail-in power, all our issuances
governed by laws other than Spanish law include a
contractual recognition clause, obliging the creditor to accept
any reduction of principal or outstanding amounts, or the
conversion or cancellation by virtue of the said bail-in power.
2) Ensure information systems can quickly provide the high-
quality information required in resolution.
We continue to make our governance of information provided
to the resolution authority for drawing up resolution plans
stronger and more systematic. We made further progress
with 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.
3) Guarantee operational continuity in resolution situations.
Grupo Santander is strengthening operational continuity with
new clauses in contracts with internal and external suppliers,
which stipulate that resolution is not considered an event
which could trigger termination of services.
This clause features in any new contracts or renewals
according to a corporate template we've created.
We conducted an analysis on services provided by market
infrastructure to confirm service continuity in a resolution
scenario and understand their policies in the case of financial
deterioration prior to resolution.
1. With the exception of Santander US whose resolution plans correspond to the individual entities.
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We are also developing contingency plans for cases where a
main market infrastructure's own resolution disrupts service.
They will include actions to mitigate the associated risk such
as (i) identifying and justifying potential substitutes/
alternatives and (ii) assessing possible financial or operative
measures that would mitigate risk from losing the service.
The phase-in calendar for developing countries extends the
deadline for implementing the term sheet to 2025. In Europe,
the final texts of CRR 2 and BRRD 2, which modify the
resolution framework, were published in June 2019. One of
the main objectives of this revision was to implement the
TLAC requirement in Europe.
4) Foster a culture of resolvability.
Grupo Santander continued to involve more senior managers
by elevating resolvability matters to the board and other
high-level committees.
Special situations management framework
We hold regular simulation exercises, which serve as a tool
for raising awareness and preparing for certain stress
situations.
The CRR 2, which came into force in June 2019, dictates the
16%/18% minimum requirement for G-SIBs as set in the TLAC
term sheet. It must be made up of subordinated liabilities
(with the exception of a percentage of senior debt -
2.5%/3.5%). It also sets the subordination requirement for
large banks (with total assets exceeding EUR 100 billion) at
13.5% of RWAs or 5% of the tier 1 Basel III leverage ratio
exposure (whichever is greater).
The BRRD 2 will be transposed into law in Spain in 2021.
Contingency plans are classified as mitigation tools within the
Comprehensive Special Situations Framework (CSSF), in line
with their more global nature.
G-SIBs also have a Pillar 2 requirement in addition to the
minimum CRR requirement, owing to the MREL methodology
in the BRRD 2.
In November 2019, Banco de España formally communicated
the (binding) MREL for the Banco Santander, S.A. Resolution
Group (sub-consolidated), which needed be met from 1
January 2020. It 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, 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 which can be non-
subordinated.
As of 31 December 2020, Banco Santander, S.A. meets its
MREL requirements having issued eligible instruments during
the year.
The framework comprises two additional key stages in
managing them: (i) special situations preparation in BAU and
(ii) facilitating resolution.
This has given us flexibility to activate the special corporate
situations committees in order to respond preventively to the
situation generated by covid-19, and to coordinate the
responses of the country units.
In the pandemic, we continued to actively interact with our
main subsidiaries to promote and share best practices, and
ensure appropriate crisis governance through local crisis
committees.
As reflected in our management of covid-19, one key feature
has been to have a tried and tested technological
infrastructure to guarantee the agile and swift activation of
special situations protocols and procedures.
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 for crisis
management frameworks. It aims to ensure global
systemically important banks (G- SIBs) have the capacity to
absorb losses and recapitalize as required to maintain critical
functions during and immediately after resolution
proceedings without compromising customer funds, public
funds or financial stability.
The TLAC term sheet requires each G-SIB to have an
individually set minimum TLAC level which is the greater of
(a) 16% of risk weighted assets from 1 January 2019 and 18%
from 1 January 2022, or (b) 6% of the Basel III Tier 1 leverage
ratio exposure measure from 1 January 2019, and 6.75%
from 1 January 2022.
Some jurisdictions have already transposed the TLAC term
sheet into law (as is the case in Europe via the CRR 2 and
BRRD 2, and in the US). Other jurisdictions where we operate,
including Brazil and Mexico, have yet to implement this
requirement.
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4. Financial information by segment
4.1 Description of segments
We base segment reporting on financial information
presented to the chief operating decision maker, which
excludes certain statutory results items that distort year-on-
year comparisons and are not considered for management
reporting. 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 51.c to the Grupo
Santander financial statements).
Grupo Santander has aligned the information in this chapter
with the underlying information used internally for
management reporting and with that presented in Grupo
Santander's other public documents.
Grupo Santander executive committee has been selected to
be its chief operating decision maker. Grupo Santander's
operating segments reflect its organizational and managerial
structures. The executive committee reviews internal
reporting based on these segments to assess performance
and allocate resources.
The segments are split by geographic area in which profits are
earned and type of business. We prepare the information by
aggregating the figures for Grupo Santander’s various
geographic areas and business units, relating it to both the
accounting data of the business units integrated in each
segment and that provided by management information
systems.The same general principles as those used in Grupo
Santander are applied.
In 2020, we maintain the general criteria applied in 2019, as
well as the business segments with the following exceptions,
which only affect the secondary segments:
1. Following the creation of the reporting segment Santander
Global Platform in 2019, which comprises our global digital
services under a single business unit, and its incorporation
in both primary and secondary segments, in 2020 for better
monitoring of its evolution and contribution to the Group's
results, at the secondary segment level in addition to the
results generated by the platforms, 50% of the results
generated by countries in products linked to these
platforms are considered. These results were previously
included in Retail Banking.
2. Annual adjustment of the perimeter of the Global Customer
Relationship Model between Retail Banking and Santander
Corporate & Investment Banking and between Retail
Banking and Wealth Management & Insurance.
These changes in the secondary segments have no impact on
the primary segments and do not affect the Group’s figures.
To allow better comparability of the secondary segments,
2019 data has been provided on a new basis.
After these changes, 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, Santander Consumer Finance (which
incorporates all the region’s business, including the three
countries mentioned herewith) 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 Santander Bank,
Santander Consumer USA, the specialized business unit Banco
Santander International, Santander Investment Securities
(SIS) and the New York branch. The sale of Banco Santander
Puerto Rico was completed in September 2020, which was
previously included in the US.
South America: includes all the financial activities carried out
by Grupo Santander through its banks and subsidiary banks in
the region. Detailed information is provided on Brazil, Chile,
Argentina, Uruguay, Peru and Colombia.
Santander Global Platform: which comprises our global
digital services under a single business unit, 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).
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Secondary segments
At this secondary level, Grupo Santander is structured into
Retail Banking, Santander Corporate & Investment Banking,
Wealth Management & Insurance and Santander Global
Platform.
Santander Global Platform: which comprises our global
digital services under a single business unit (breakdown in the
primary segment definition), as well as 50% of the results
generated by these services in the commercial network.
Retail Banking: this covers all customer banking businesses,
including consumer finance, except those of corporate
banking which are managed through Santander Corporate &
Investment Banking, asset management, private banking and
insurance, which are managed by Wealth Management &
Insurance and 50% of the countries’ results generated by
digital services, which are included in Santander Global
Platform. 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 the asset
management business (Santander Asset Management), the
corporate unit of Private Banking and International Private
Banking in Miami and Switzerland and the insurance business
(Santander Insurance).
In addition to these operating units, which report by
geographic area and businesses, Grupo Santander continues
to maintain the area of Corporate Centre, that includes the
centralized activities relating to equity stakes in financial
companies, financial management of the structural exchange
rate position, assumed within the sphere of Grupo
Santander’s assets and liabilities committee, as well as
management of liquidity and of shareholders’ equity via
issuances.
As Grupo Santander’s holding entity, this area manages all
capital and reserves and allocations of capital and liquidity
with the rest of businesses. It also incorporates amortization
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 'Group financial performance' 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.
The statements included in this section regarding Grupo Santander's competitiveness and that of its subsidiaries have been produced
by Santander based on public information (corporate websites of competing entities and information published by national banking
institutions).
358
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
4.2 Summary income statement of the Group’s main business areas
2020
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
14,046
3,957
3,832
3,808
787
1,037
626
8,469
5,645
2,825
10,723
7,625
1,787
912
398
129
(1,374)
31,994
29,544
2,953
454
416
(1,374)
31,994
Net fee
income
4,737
2,314
750
506
388
452
328
1,661
889
772
3,566
2,824
335
273
134
81
(29)
10,015
6,850
1,550
1,194
449
(29)
10,015
Total
income
19,693
6,782
4,685
4,339
1,296
1,524
1,067
11,011
7,360
3,651
14,845
10,866
2,263
1,128
588
192
(1,141)
44,600
37,215
5,397
2,135
994
(1,141)
44,600
Net operating
income
9,379
3,175
2,703
1,697
706
895
203
6,379
4,281
2,098
9,533
7,325
1,363
496
349
(190)
(1,470)
23,633
Profit before
tax
4,167
715
1,869
697
483
370
32
2,332
1,250
1,082
5,291
4,045
785
200
262
(204)
(1,912)
9,674
20,368
3,328
1,229
178
(1,470)
23,633
7,531
2,726
1,199
130
(1,912)
9,674
Underlying
attributable
profit to the
parent
2,656
517
1,085
530
338
162
24
1,492
731
762
2,927
2,113
432
179
203
(150)
(1,844)
5,081
4,196
1,823
868
39
(1,844)
5,081
Underlying attributable profit to the parent by primary
segment distribution
2020
A
Underlying attributable profit to the parent 2020.
Core markets
EUR million. % change YoY in constant euros
A. As a % of operating areas. Excluding Corporate Centre and Santander Global
Platform.
359
Annual report 2020
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
32,862
2,728
570
375
(1,252)
35,283
Contents
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)
(2,097)
8,252
7,580
1,713
929
127
(2,097)
8,252
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
8,561
1,520
1,199
549
(50)
11,779
Total
income
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
42,599
5,227
2,226
1,061
(1,617)
49,494
Net operating
income
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
Profit before
tax
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
23,672
2,945
1,271
315
(1,990)
26,214
12,953
2,699
1,281
258
(2,262)
14,929
360
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
4.3 Primary segments
EUROPE
2020 Highlights
Underlying attributable profit
EUR 2,656 Mn
→ One Santander, whose first focus is Europe, is accelerating our business transformation in the region, to achieve
superior growth and a more efficient operating model.
→ Excluding the exchange rate impact, volumes grew in all markets in the year: loans grew +4% and deposits +6%,
with significant recovery in activity since April’s lows.
→ Underlying attributable profit of EUR 2,656 million, 46% lower year-on-year (-45% in constant euros), affected by
the extraordinary provisions recorded.
→ Customer revenue showed the resilience and strength of our model in a low activity environment, with a recovery
in recent months which drove the fourth quarter to be the highest of the past two years. Strong cost control across
all markets mitigating the negative impact on net operating income (-5%).
This transformation aims to deliver revenue growth and
notable cost savings, resulting in positive operating jaws. in
October, we committed to deliver EUR 1 billion additional cost
savings over the next two years after we achieved our
previous target early.
In 2021 we will see the first steps of this deep
transformation. Particular focus will be on changing how we
manage our business with new regional business owners,
who will define the vision and end-to-end value proposition
for each customer area and deliver through agile teams in all
countries.
Strategy
With One Santander we want to create a better bank in
Europe, where our customers and our employees feel a deep
connection with Santander while delivering sustainable
shareholder value, by:
• Growing our business by better serving our customers,
through capital efficient growth opportunities including
SCIB and WM&I, simplifying our mass market value
proposition, improving customer experience and
connecting to PagoNxt.
• Continuing to develop our omnichannel strategy, to
redefine how we interact with our customers, accelerate
our digital agenda and maintain the personal relationships
through our teams.
• Creating a common operating model in Europe, to serve
the business with common platforms and automated
operations. We will leverage shared services to move to a
more flexible organization with one aligned team across
the continent.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
10,021
15,187
36 % /active
customers
+10 % YoY
361
Annual report 2020
Contents
Business performance
Loans and advances to customers remained virtually
unchanged year-on-year. In gross terms, excluding reverse
repurchase agreements and the exchange rate impact, they
rose 4%, with broad-based growth in all countries. Of note
were the UK (mortgages), Spain (mainly corporates due to
ICO-guaranteed loans) and Portugal (mortgages and
corporates), as well as a positive performance in SCIB
(mainly in Other Europe, but in the other countries as well).
Customer deposits increased by 4% compared to 2019.
Excluding repurchase agreements and the FX impact, they
were up 6% with rises in all countries.
Mutual funds grew 4% (+5% excluding FX impact),
predominantly driven by Portugal (+6%) and Other Europe
(+56%), boosting customer funds by 4% (+6% excluding the
exchange rate impact).
Results
Underlying attributable profit in 2020 was EUR 2,656
million (37% of the Group's total operating areas), and
underlying RoTE was 5.5%.
Compared to 2019, underlying attributable profit, was down
45% in constant euros (-46% in euros), as follows:
• Total income declined 5% dampened by the health crisis,
low interest rates, lower income from real estate stakes in
Spain and the higher contribution to the DGF.
Net interest income remained stable benefiting from
higher volumes, interest rate management and the
positive TLTRO impact.
• Administrative expenses and amortizations decreased
6% stemming from optimizations in recent years and the
efficiencies generated since the pandemic began.
• Net loan-loss provisions, which to some extent anticipate
potential future impacts, increased sharply amid the
covid-19 health crisis. However, the NPL ratio improved
10 bps to 3.15% due to risk management and other
initiatives such as non-performing portfolio sales.
• Other gains (losses) and provisions increased their loss
during the year, mainly in the UK and Poland for potential
legal contingencies and other provisions.
EUROPE
EUR million
Underlying income
statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses
and amortizations
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
B
to customers
Customer funds
Customer deposits
Mutual funds
C
Ratios (%) and operating
data
Underlying RoTE
Efficiency ratio
NPL ratio
NPL coverage
Number of employees
Number of branches
2020
14,046
4,737
2019
14,201
5,260
% excl.
FX
0.0
(9.4)
%
(1.1)
(9.9)
884
26
1,035
(14.6)
(14.2)
505
(94.9)
(6.2)
(94.9)
(5.4)
19,693
21,001
(10,314)
9,379
(4,299)
(11,044)
(5.8)
(4.8)
(1,839) 133.8 136.3
(6.6)
(5.8)
9,957
(914)
4,167
(768)
7,350
(1,132)
(1,979)
18.9
(43.3)
(42.8)
20.1
(42.7)
(42.3)
3,035
5,371
(43.5)
(42.9)
—
3,035
(379)
—
5,371
(493)
—
(43.5)
(23.2)
—
(42.9)
(22.1)
2,656
4,878
(45.6)
(45.0)
675,895
676,904
(0.1)
2.6
224,793
180,389
24.6
26.2
86,925
104,382
(16.7)
(15.2)
48,266
53,893
(10.4)
(10.2)
41,658
41,471
1,077,537 1,057,038
622,826
600,380
0.5
1.9
3.7
2.2
4.2
6.4
208,408
189,792
9.8
11.2
120,166
133,544
(10.0)
55,919
15,635
60,807
16,383
1,022,954 1,000,906
54,583
56,133
(8.0)
(4.6)
2.2
(2.8)
(7.4)
(7.7)
(2.6)
4.5
(0.1)
658,471
650,552
696,427
671,032
603,450
581,395
92,977
89,637
1.2
3.8
3.8
3.7
3.9
6.1
6.4
4.6
5.48
52.4
3.15
57.3
10.00
(4.51)
52.6
3.25
49.8
(0.2)
(0.10)
7.5
(3.0)
(9.2)
83,976
86,574
4,846
5,336
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
362
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Corporate
governance
Economic
and financial review
Risk management
and compliance
Spain
2020 Highlights
Underlying attributable profit
EUR 517 Mn
→ Santander España has worked to be a part of the solution to the crisis through initiatives to support households,
the self-employed and businesses. Among others, we remained at the forefront of mobilizing ICO funding and
granting payment holidays in mortgages, consumer finance and cards.
→ We made further progress in transforming our distribution model with the launch of our new app and website,
among other initiatives, and in accelerating our digitalization.
→ Significant cost reduction efforts (-10% year-on-year), while improving customer satisfaction and our net
promoter score (NPS) positioning.
→ Underlying attributable profit was EUR 517 million in 2020, down 67% compared to 2019, predominantly affected
by higher provisions amid the uncertain climate.
Strategy
Commercial activity was strongly affected in 2020,
particularly during the worst months of the pandemic. Since
the outbreak, Santander España has run initiatives to
support our stakeholders:
• Protecting our employees: we introduced remote
working measures, encouraged the use of digital channels
and implemented health protection measures at our
facilities.
• Supporting our customers: we channelled EUR 30.8
billion in ICO-backed loans (approved loans and credit
lines) to the self-employed, SME and corporates (reaching
a 27% market share) and granted more than 180,000
payment holidays to households.
• Contributing to society: we launched the Together in
Solidarity Fund, with more than EUR 25 million invested in
solidarity initiatives.
As regards the main loyalty drivers and performance by
segment in 2020:
• For SMEs and corporates, we simplified our value
proposition with Santander One, a pioneering model in
Spain's financial industry, that provides subscription-
based, personalized financial services, centred on
customer loyalty.
• In Insurance, the performance of our agreements with
Aegon and Mapfre to provide a complete insurance
offering, which boosted growth in non-credit related
premiums by more than 27% year-on-year.
• In Private Banking, we remained market leaders, being
named Best Private Banking Overall in Spain by Euromoney
and Global Finance.
• In SCIB, we obtained solid results, maintaining our
leadership in the main league tables despite the uncertain
market environment and the covid-19 impacts.
We continued to ramp up our digitalization, leading to an
11% increase in digital customers in the year and more than
100 million accesses to digital channels per month. Our app
and website led the Aqmetix ranking.
Our strategic agreement with Correos increases our network
services at more than 4,600 offices and bolsters our financial
services in Spain's rural areas.
We reaffirmed our Responsible Banking commitment, with
sustainable growth initiatives, as well as leading SRI Funds
with a 44% market share.
Lastly, Santander España was named Best Company to Work
For by Top Employers.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
2,643
5,234
34 % /active
customers
+11 % YoY
363
Annual report 2020
Contents
Business performance
Loans and advances to customers rose 5%. In gross terms,
excluding reverse repurchase agreements, they increased by
EUR 9,455 million (+5%) strongly driven by the self-
employed, SMEs and corporates. Mortgage completions and
consumer lending remained below 2019 levels, in line with
the economic slowdown.
Customer deposits increased 5% compared to 2019.
Excluding repos, growth was also 5% boosted by demand
deposits (+9% year-on-year). Regarding mutual funds,
assets under management increased 1% despite the initial
impact of the pandemic, as net inflows were positive in the
last seven months.
Results
Underlying attributable profit amounted to EUR 517
million (7% of the Group’s total operating areas) with an
underlying RoTE of 3%.
Compared to 2019, underlying attributable profit was 67%
lower. By line:
• Total income declined 10% impacted primarily by lower
net fee income from reduced transaction volumes and
market performance, and lower income from real estate
stakes. Conversely, net interest income had no material
change after absorbing the impact of negative interest
rates and smaller ALCO portfolio.
• Administrative expenses and amortizations fell at
double-digit rates (-10% year-on-year) through the
development of our distribution model.
• Higher loan-loss provisions for potential future impacts of
the uncertainty caused by the covid-19 crisis. Despite the
economic recession, the NPL ratio improved 71 bps year-
on-year, mainly due to the high level of corporate loans
and a non-performing portfolio sale for EUR 1.5 billion.
Coverage ratio increased 6 pp.
• Other gains (losses) and provisions, where provisions
related to foreclosed assets and increased operational risk
are recorded, had no material change.
364
Spain
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
2020
3,957
2,314
781
(269)
6,782
(3,607)
3,175
(2,001)
(459)
715
(199)
516
—
516
0
2019
3,919
2,481
1,046
61
7,506
(4,021)
3,485
(856)
(455)
2,174
(589)
%
1.0
(6.7)
(25.4)
0.0
(9.6)
(10.3)
(8.9)
133.7
0.9
(67.1)
(66.2)
1,585
(67.4)
—
1,585
0
—
(67.4)
0.0
517
1,585
(67.4)
194,239
185,179
4.9
113,518
21,654
2,671
22,438
354,521
251,375
48,305
26,068
9,344
4,112
339,203
15,318
78,334
34,288
1,393
23,908
323,102
240,427
25,231
26,855
8,971
5,222
306,706
16,396
200,735
320,879
191,280
308,747
251,375
240,126
69,503
68,621
3.30
53.2
6.23
47.1
26,961
2,939
10.48
53.6
6.94
41.1
27,630
3,235
44.9
(36.8)
91.8
(6.1)
9.7
4.6
91.4
(2.9)
4.2
(21.3)
10.6
(6.6)
4.9
3.9
4.7
1.3
(7.18)
(0.4)
(0.71)
6.0
(2.4)
(9.1)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Santander Consumer Finance
Underlying attributable profit
EUR 1,085 Mn
2020 Highlights
→ During 2020, SCF prioritized the management of the covid-19 impact. This was reflected in the protection of our
employees’ health, in ensuring business continuity and service and in supporting our customers and business
partners (car manufacturers, dealers and retailers).
→ New business volumes were affected by the health crisis, particularly from March to May, with strong signs of
recovery in H2, as the impact of second wave at the end of the year was much less severe.
→ Underlying attributable profit was EUR 1,085 million, with an underlying RoTE that remained at double-digits
(13%), RoRWA of 1.9% and a cost of credit which is low for this type of business.
→ We announced the creation of the Digital Consumer Bank, a new business with the aim of building a global digital
consumer finance business based on SCF and Openbank's digital platform technology.
We also maintained our leadership position in profitability,
more than doubling the RoA of pan-European competitors,
and in efficiency we were the only player who improved.
We signed new agreements with retail distributors and
manufacturers, to assist them in their commercial
transformation and increase the value proposition for the end
customer. We struck two main strategic deals to strengthen
our presence in Europe, maintain our auto finance leadership
position and boost digital channels: the acquisition of 46% of
Sixt Leasing and the joint consumer finance operation with
Telecom Italia Mobile.
SCF was once again named Top Employer 2020 in Austria,
Belgium, Germany, Italy, the Netherlands and Poland.
Looking forward, we announced the creation of Santander
Digital Consumer Bank, a new business with the aim of
building a global digital consumer finance business based on
SCF and Openbank's digital platform technology. Openbank is
our 100% digital bank and is the largest digital bank in
Europe. It has a complete set of banking services that come
on top of its unique, scalable and efficient software package.
Together, they will form a very potent business.
Strategy
Santander Consumer Finance (SCF) is Europe's consumer
finance leader, present in 15 countries with more than
130,000 associated points of sale (auto dealers and shops). It
also has numerous finance agreements with auto and
motorcycle manufacturers and retail distribution groups.
In 2020 management focused on:
• strengthening leadership position in the retail auto finance
market, while optimizing capital consumption and driving
growth in consumer finance;
• proactively managing brand agreements and developing
digital projects, helping our partners with their
digitalization and transformation plans;
• executing the 2019 strategic operations as a key element
to maintain high profitability and best-in-class efficiency:
– 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.
As a result of these priorities, SCF continued to gain market
share amid the health crisis, underpinned by its business
model: highly diversified by countries with a critical mass in
key products.
Loans and advances to customers by geographic area
December 2020
Germany
Nordic countries
Spain
France
Italy
Poland
Other
365
35%17%14%14%9%4%7%
Annual report 2020
Contents
Business performance
Most of SCF’s markets were significantly affected in 2020 by
the isolation measures related to covid-19, which was
reflected in a 12% fall in new lending (significantly better
than 24% fall in European new car sales), despite recovering
pre-crisis levels in the second half of the year. The largest
falls were in Southern Europe, which was most affected by
isolation measures, whereas Northern European markets
were stronger.
In order to compensate lost revenue, several measures are
being carried out to reduce risk, including expense reductions,
income initiatives in pricing and cost of funding.
The stock of loans and advances fell 1% year-on year. In gross
terms, excluding the exchange rate impact and reverse repos,
it was in line with 2019.
Customer deposits were flat (+1% excluding the exchange
rate impact). Our recourse to wholesale funding markets
remained strong, obtaining EUR 10 billion in 2020.
Additionally, we increased funding from the ECB (+85%) to
take advantage of the favourable conditions.
Results
Underlying attributable profit in 2020 was EUR 1,085
million, (15% of the Group’s total operating areas) and
underlying RoTE was 13%.
Compared to 2019, underlying profit was down 16% in
constant euros (-17% in euros), as follows:
• Total income increased 1% driven by net interest income
(greater stock of loans and revenue actions), while fees fell
due to the reduction in new business. Income was partially
offset by the European Court of Justice ruling regarding
early repayment of loans and interest rate limitations.
• Administrative expenses and amortizations were down
2% mainly due to covid-19 mitigation actions and
continued efficiency projects, resulting in a 99 bp efficiency
improvement to 42.3% and in a 3% growth in net operating
income.
• Net loan-loss provisions rose significantly affected mainly
by covid-related provisions and positive one-offs recorded
in 2019. Cost of credit stood at 0.88%, NPL ratio at 2.36%
and coverage rose to 111%.
• Other gains (losses) and provisions improved, in part due
to greater releases and lower impairments of intangible
assets (software) which offset regulatory impacts in
Poland.
• As a result, net profit before minority interests was EUR
1,364 million in 2020, decreased 14% compared to 2019.
• The largest contribution to the underlying attributable
profit came from Germany (EUR 360 million), the Nordics
(EUR 206 million), Spain (EUR 118 million) and France (EUR
100 million).
366
Santander Consumer Finance
EUR million
2020
3,832
750
21
82
2019
3,848
823
(8)
47
4,685
4,710
% excl.
FX
1.2
(8.4)
%
(0.4)
(8.8)
—
74.4
(0.5)
—
77.2
0.9
(1,981)
(2,038)
(2.8)
(1.5)
2,703
2,672
1.2
(899)
(477) 88.6
2.8
92.3
65
1,869
(505)
2,215
20 217.7 199.4
(14.4)
(14.6)
(15.6)
(598) (15.6)
1,364
1,618
(15.6)
(14.3)
—
—
1,364
1,618
(280)
(303)
—
(15.6)
(7.8)
—
(14.3)
(7.6)
1,085
1,314
(17.4)
(15.9)
101,043
102,262
(1.2)
(0.2)
11,297
5,658
8,258
3,197
36.8
77.0
38.4
82.3
29
33
(12.5)
(11.6)
4,961
4,001
24.0
25.2
122,987
117,750
4.4
39,488
39,602
(0.3)
5.6
1.1
32,729
25,159
30.1
31.2
34,554
36,776
(6.0)
(5.3)
1,175
3,763
1,413
(16.9)
(16.1)
3,865
(2.7)
(1.9)
111,709
106,815
11,279
10,935
4.6
3.1
5.7
4.8
103,734
104,783
39,488
39,602
39,488
39,602
—
—
(1.0)
(0.3)
(0.3)
—
0.0
1.1
1.1
—
12.52
15.26
(2.74)
42.3
2.36
43.3
2.30
111.0
14,376
106.1
14,448
(1.0)
0.06
4.9
(0.5)
352
416
(15.4)
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
United Kingdom
2020 Highlights
Underlying attributable profit
EUR 530 Mn
→ Supporting our customers, people and communities remained our top priority. Although covid-19 materially
impacted our results, the decisive management actions and extraordinary work of our colleagues helped deliver
a remarkably resilient performance despite the challenging environment.
→ Our multi-year transformation programme, focused on improved customer experience, digitalization and
organizational simplification, is an integral part of the One Santander strategy.
→ Underlying attributable profit fell 51% in euros year-on-year to EUR 530 million (-50% in constant euros). Net
interest income rose amid ongoing focus on business efficiency partially offset by the covid-19 impact.
Strategy
We are delivering on our strategy with a focus on greater
customer loyalty. We continue to enhance our operating
model, structures and productivity while simplifying,
digitalizing and automating the business. We are applying
learnings from the covid-19 pandemic, including accelerated
customer digital adoption, property strategy, digitalization
and automation.
Our strategy, combined with the decisive management
actions and the resilience of our balance sheet will deliver on
our purpose to help people and business prosper.
We have continued to focus on our core mortgage business,
having granted over GBP 4.4 billion in new mortgage loans,
a strong rebound in application volumes following the Q2
lockdown.
We also supported over 150,000 businesses, by granting
GBP 4.6 billion under government schemes. We are
continuing to develop our international proposition; we held
80 virtual trade events and increased the number of trade
corridors, up by 3 to 20. We have helped 373,000 retail
customers with payment holidays, including mortgages and
consumer loans, a huge operational effort.
In order to deliver excellent customer experience, we further
developed our digital proposition. The number of digital
customers reached 6.3 million, up 8% year-on-year. We
retained 68% of refinanced mortgage loans online, an
increase of 8 pp year-on-year. We also opened 82% of
current accounts and 90% of credit cards through digital
channels, up 30 pp and 28 pp year-on-year respectively.
To support this increased digitalization, we introduced Chat,
a new digital channel providing 24/7 service via a chatbot
and access to colleagues via Live Chat. Since April, we have
seen over 3.7 million conversations, with volumes growing
from 1,000 per day to over 25,000. To ensure sufficient
capacity, we trained 4,000 colleagues and introduced a
continuous optimization model for chatbot.
We also turned our branch fraud and scam workshops into
virtual events for customers, colleagues and communities,
open for all to attend. Following a June trial, we
incorporated feedback for phase two and held 69 events
with 1,700 attendees and a satisfaction score of 89%.
Finally, our multi-year transformation programme
continues, with GBP 330 million invested and GBP 244
million of savings since it commenced in 2019. This
programme is an integral part of One Santander strategy.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
4,450
6,267
31 % /active
customers
+8 % YoY
367
Annual report 2020
Contents
Business performance
Loans and advances to customers decreased 5% in euros
compared to 2019. In gross terms, excluding reverse
repurchase agreements and the exchange rate impact, they
rose 3%. Growth was driven by new mortgage loans from the
pent up demand and stamp duty relief, and flows in
corporates almost exclusively via government schemes.
Customer deposits rose 2% in euros and were 8% higher
excluding repurchase agreements and the exchange rate
impact. Demand deposits increased 11%, while time deposits
fell 16%. Mutual funds were up 2%.
Results
Underlying attributable profit was EUR 530 million in 2020
(8% of the Group’s total operating areas), and underlying
RoTE was 3.9%.
Compared to 2019, underlying attributable profit was 51%
lower in euros and 50% lower in constant euros. By line:
• Total income declined 7%, particularly due to a 41%
reduction in net fee income (lower customer activity and
regulatory changes to overdrafts), asset repricing
following the Bank of England base rate reduction, and, to
a lesser extent, lower gains on financial transactions.
Conversely, net interest income picked up strongly in the
second half of the year resulting in a 2% increase, due to
liability repricing actions, in particular the 1I2I3 Current
Account, and stronger volumes.
• Administrative expenses and amortizations declined 6%
reflecting realized efficiency savings from our
transformation programme and lower costs related to
commercial activity. This was partially offset by covid-19
related costs.
• Net loan-loss provisions increased significantly due to
covid-related charges for expected credit losses, however
from very low levels. Cost of credit remained low (28 bps)
and the NPL ratio was 1.21%. The coverage ratio rose 11
pp to 48%.
• The negative impact from other gains (losses) and
provisions increased 47%, in part due to potential legal
contingencies.
368
United Kingdom
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
2020
3,808
506
2019
3,788
% excl.
FX
1.9
%
0.5
866
(41.6)
(40.8)
(26)
51
12
62
4,339
4,727
0.0
0.0
(17.1)
(8.2)
(16.0)
(7.0)
(2,642)
1,697
(733)
(2,835)
1,892
(6.8)
(10.3)
(253) 190.0
(5.6)
(9.1)
194.0
(267)
(184)
697
1,455
(146)
(355)
44.9
(52.1)
(58.9)
46.8
(51.4)
(58.4)
551
1,100
(49.9)
(49.2)
—
551
(21)
—
1,100
(22)
—
(49.9)
(4.9)
—
(49.2)
(3.7)
530
1,077
(50.8)
(50.2)
261,062
273,528
(4.6)
0.7
54,576
39,314
38.8
46.5
11,527
20,187
(42.9)
(39.7)
712
943
(24.4)
(20.3)
9,173
8,498
337,050 342,470
232,923
229,361
7.9
(1.6)
1.6
13.9
3.9
7.2
29,302
25,075
16.9
23.3
52,562
64,340
(18.3)
(13.8)
2,448
4,624
2,671
4,409
321,860 325,856
15,189
16,614
(8.3)
4.9
(1.2)
(8.6)
(3.2)
10.7
4.3
(3.5)
242,090
249,214
(2.9)
223,270
218,944
215,332
210,727
2.0
2.2
7,938
8,218
(3.4)
2.5
7.6
7.9
2.0
3.85
60.9
1.21
7.28
(3.43)
60.0
1.01
0.9
0.20
11.4
(6.4)
(8.4)
47.9
22,931
36.5
24,490
564
616
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Portugal
2020 Highlights
Underlying attributable profit
EUR 338 Mn
→ Santander Portugal's priority was to support its customers and the economy by actively mobilizing state-backed
lines of credit for businesses as well as through capital and interest payment holidays on mortgages, consumer
loans and business loans.
→ We strengthened our position as the country’s largest bank in terms of assets and domestic loans and advances to
customers, with market shares of 18% in new lending to corporates and 25% in mortgages.
→ Commercial and digital transformation was a significant growth driver, mainly for service quality improvement,
resulting in Portugal's best NPS.
→ Underlying attributable profit decreased 36% year-on-year to EUR 338 million, weighed down by the impact of
the crisis on income and provisions, which was only partly mitigated by cost reductions.
Strategy
In 2020, amid the pandemic, Santander Portugal
maintained its product and service proposition adapted to
customer needs by:
• Commercial simplification and the proactive approach of
our commercial network, enabled us to achieve the best
NPS in Portugal for our service quality.
• Continued support through the commercial network,
• We are the leading digital payments bank, offering
services using ApplePay and smartwatches and wearables
(Apple, Garmin and Fitbit), in addition to the Santander
Wallet App.
• In 2020, we continued to be recognized for our activity,
named the Best Bank in Portugal and Best Private Banking
in Portugal in 2019 by Euromoney and Global Finance, as
well as Best Retail Bank by World Finance.
• We remained among Great Place to Work's top 3 best
companies to work for in Portugal.
• We maintained the highest risk ratings, aligned with or
above the sovereign’s.
focusing primarily on increasing the use of digital channels.
As a result, digital sales were higher (and now account for
43% of the total) and the number of digital customers
increased 20% year-on-year.
• Supporting our customers, giving them the option to take
payment holidays and offering government lines of credit
set up to support businesses. We also monitored changing
customer needs given the complex environment.
We continued to implement our commercial and digital
transformation strategy, adapting it to the changes
accelerated by the pandemic, which became one of the main
growth drivers in customers, loyalty and improving service
quality:
• As at December 2020, loyal customers rose 4% to 812,000.
We opened Boutique Santander, the first virtual
marketplace in the country, with instant personal loans and
real-time loan simulations.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
812
930
48 % /active
customers
+20 % YoY
369
Annual report 2020
Contents
Business performance
Loans and advances to customers increased 7%. Excluding
reverse repos, gross loans and advances to customers rose
8% year-on-year, backed by steady growth in corporate
loans (underpinned by the state-backed lines of credit) and
mortgages.
Customer funds (excluding repos) rose 2% mostly due to
demand deposits (+17% year-on-year). In the fourth quarter,
mutual funds picked up (+9% compared to September),
leading to a 6% year-on-year increase.
Results
Underlying attributable profit was EUR 338 million in the
year (5% of the Group’s total operating areas), and
underlying RoTE was 9%.
Compared to 2019, underlying attributable profit dropped
36%. By line:
• Total income decreased 6%, weighed down by the impact
of the pandemic in net interest income (lower interest
rates) and net fee income (lower volumes and suspension
of fees for digital payments and payment holidays in
loans). Gains on financial transactions remained flat, but
were offset by reduced insurance activity and the higher
contribution to the SRF.
• Administrative expenses and amortizations fell 5%
driven by the ongoing transformation process, resulting in
a efficiency ratio around 45.5%.
• Higher net loan-loss provisions for possible future
impacts of the pandemic, raising the cost of credit to
0.51%. The NPL ratio fell to 3.89%.
• Other gains (losses) and provisions remained
insignificant. However, the increased in the year driven by
foreclosed assets.
370
Portugal
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
2020
2019
787
388
111
10
856
390
111
17
1,296
1,375
(590)
706
(193)
(29)
483
(145)
339
—
339
0
338
(623)
751
8
(9)
750
(223)
527
—
527
(2)
525
%
(8.1)
(0.6)
0.2
(41.8)
(5.7)
(5.3)
(6.1)
—
213.4
(35.5)
(35.2)
(35.7)
—
(35.7)
(76.4)
(35.5)
38,058
35,406
7.5
5,819
4,675
11,569
12,580
1,487
1,475
58,408
39,881
9,974
2,520
249
1,643
1,695
1,769
56,125
39,258
8,003
3,384
276
1,516
54,267
52,438
4,141
3,688
39,054
43,133
39,881
3,252
36,321
42,324
39,258
3,066
8.73
45.5
3.89
66.5
6,336
477
12.80
45.3
4.83
52.8
6,582
542
24.5
(8.0)
(12.3)
(16.6)
4.1
1.6
24.6
(25.5)
(9.8)
8.4
3.5
12.3
7.5
1.9
1.6
6.1
(4.07)
0.2
(0.94)
13.7
(3.7)
(12.0)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Poland
2020 Highlights
Underlying attributable profit
EUR 162 Mn
→ Santander Bank Polska strengthened its position as Poland's third largest bank in terms of assets and continued
to be recognized as an industry leader in traditional and digital banking.
→ Management mainly focused on customer relationships and maximizing business income.
→ Accelerated digitalization and Smart omni-channel approach.
→ Underlying attributable profit in 2020 was EUR 162 million (-54% year-on-year in euros, -52% in constant euros),
impacted by interest rate cuts, provisions recorded due to regulatory changes after the European Court of Justice
rulings and covid-19 related impairment charges.
Strategy
In an environment heavily impacted by the pandemic, our
digital growth strategy focused on end-to-end digitalization
and accelerated significantly in all key products: personal
loans, new account openings and insurance sales, together
with SME loans and mortgages.
Santander Bank Polska continued its aim to become the bank
of first choice, anticipating and responding to customer
expectations. Digital transformation mainly centred on new
services, such as a single login for individuals and businesses,
a facility to customize customer login settings for internet and
mobile banking and strong customer authentication (SCA).
Retail and SME banking activity was hit hard by the
pandemic, which reduced customer and branch activity, as
well as sales. We focused on revenue recovery and cost
optimization, while improving our products and processes to
maximize self-service and increase digital sales.
We also introduced new customer experience and loyalty
solutions, by:
• Adjusting the credit policy of consumer loans to customer
risk.
• Increasing our life insurance proposition for mortgages and
creating new bancassurance sales processes.
• Launching new mortgage-related products (personal
accounts, credit cards, life and property insurance).
• Promoting the use of remote channels for SME loans.
• Enabling the opening of personal accounts through a selfie.
In Q4'20, we launched iBiznes24 to support our corporate
clients' financial management through a new design with
more functionalities. This new system provides full online
access to company accounts under the best user experience
standards.
CIB maintained its leading position in corporate finance
advisory services in Poland, especially in the equity capital
markets, and was involved in:
• The largest initial public offering in the history of the
Warsaw Stock Exchange (Allegro, market cap of EUR 17 bn
during the offer).
• The second largest public tender offer in the history of the
Warsaw Stock Exchange for a telecommunications client.
• The third largest public tender offer in the history of the
Warsaw Stock Exchange for a hospitality client.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
2,115
2,756
55 % /active
customers
+10 % YoY
371
Annual report 2020
Contents
Business performance
Loans and advances to customers were down 7% in euros
compared to December 2019. In gross terms and excluding
reverse repurchase agreements and the exchange rate
impact, loans increased modestly year-on-year in constant
euros (+1%). By segment, volumes grew in individuals (+2%)
and SMEs (+3%). Corporates fell 5% due to excess liquidity
in the market.
Customer deposits increased 4% year-on-year in euros.
Excluding repurchase agreements and at constant exchange
rates, deposits grew 12% year-on-year, boosted by SMEs
(+36%) and corporates (+22%). CIB’s deposit base showed an
annual decrease of 33%. We continued to actively manage
deposits to optimize the cost of funding.
Total customer funds, including mutual funds, were 10%
higher (excluding the exchange rate impact).
Results
Underlying attributable profit in 2020 was EUR 162 million
(2% of the Group's total operating areas), and underlying
RoTE was 5%.
Compared to 2019, underlying profit fell 54% in euros and
52% excluding the exchange rate impact. By line:
• Total income fell 8% due to lower net interest income
(8%), impacted by interest rate cuts (-140 bps during the
year) and a higher Deposit Guarantee Fund (BFG)
contribution. Net fee income saw no material change.
• Administrative expenses and amortizations dropped 6%
year-on-year driven by personnel expenses and general
and administrative expenses.
• Net loan-loss provisions increased 57% year-on-year due
to higher charges in the SME and CIB segments, and, to a
lesser extent, higher provisions for individuals. All of them
affected by covid-19.
• Other gains (losses) and provisions increased 60% due
to higher provisions for potential legal claims.
372
Poland
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
2020
1,037
452
90
(55)
1,524
2019
1,171
%
(11.4)
% excl.
FX
(8.5)
467
(3.1)
0.2
93
(3.3)
0.0
(13) 327.6
(11.3)
1,717
341.9
(8.3)
(629)
(693)
895
1,024
(330)
(217)
(9.3)
(12.6)
52.2
(6.2)
(9.7)
57.3
(195)
370
(130)
(127)
681
(170)
54.4
(45.7)
(23.5)
59.5
(43.9)
(21.0)
240
511
(53.1)
(51.5)
—
240
(78)
162
—
511
(162)
—
(53.1)
(52.0)
—
(51.5)
(50.4)
349
(53.5)
(52.0)
28,025
30,034
(6.7)
(0.1)
2,539
3,398
(25.3)
(20.0)
14,006
9,285
980
630
1,341
1,341
46,890
44,688
34,868
33,485
50.8
55.7
0.0
4.9
4.1
2,613
2,110
993
1,232
2,319
12.7
2,171
(2.8)
762
923
30.3
33.5
5.4
0.9
41,816
39,659
5,074
5,029
61.6
66.7
7.1
12.4
11.5
20.7
4.1
39.6
43.0
12.9
8.1
29,055
30,925
(6.0)
38,889
37,929
34,865
33,485
2.5
4.1
0.6
9.8
11.5
4,023
4,444
(9.5)
(3.0)
11.23
(6.17)
5.05
41.3
4.74
40.4
4.31
70.7
10,582
66.8
11,049
502
515
0.9
0.43
3.9
(4.2)
(2.5)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
NORTH AMERICA
2020 Highlights
Underlying attributable profit
EUR 1,492 Mn
→ The US and Mexico are managed according to their local priorities, while increasing coordination and
cooperation between them, creating a joint value proposition, leveraging experience and avoiding
duplication.
→ Strong volume growth, mainly in customer funds, boosted by higher deposits in SBNA, Mexico and the New
York branch.
→ Underlying attributable profit was EUR 1,492 million in the year, 10% lower than 2019 due to the increase
in pandemic-related provisions. Excluding the FX impact, profit fell only 3% as revenue remained stable and
and net operating income increased by 1%.
Strategy
In line with Grupo Santander's strategy to increase the weight
of the most profitable areas, we increased our ownership in
Santander Consumer USA (SC USA) to 80.25% through a share
buyback programme in 2020.
As for the regional strategy, coordination increased further
as we continued to run joint initiatives that included:
• Continued development of the USMX trade corridor. SCIB
and Commercial Banking are working to deepen
relationships with existing customers and gain new
customers in both countries, which is reflected in corridor
revenue growth (SCIB: +29%; Commercial Banking: +30%).
• Commission-free remittance service from Santander US
branches to any bank in Mexico. At the same time, ongoing
development of payment alternatives for the USMX trade
corridor, such as PagoFX.
• Technology programmes such as operations know-how,
digitalization, hubs, front-office and back-office, and
addressing common challenges.
• Sharing best practices, such as the success in implementing
loyalty programmes in Mexico and the Consumer Banking
transformation plan at Santander Bank (SBNA).
In addition, in terms of their local strategic priorities:
• Santander US remains focused on customer experience
and growing core customers and deposits through
commercial, operational and digital transformation
initiatives. It continues to leverage its deposit base to
support and expand its CRE and CIB businesses and
strengthen its auto finance partnership.
The auto business is ideally positioned to benefit from the
renewed demand for used vehicles through rigorous risk-
adjusted originations via its dealer network, enhancing its
partnership with Fiat Chrysler, and disciplined servicing.
• In Mexico, we geared our commercial transformation
towards the improvement of multi-channel systems, the
renewal of infrastructure and systems, strengthening the
distribution model and launching new commercial
initiatives.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
3,942
6,011
36 % /active
customers
+16 % YoY
373
Annual report 2020
Contents
Business performance
Loans and advances to customers decreased 10%. Gross
loans and advances to customers excluding reverse
repurchase agreements and the exchange rate impact rose
2% (+4% excluding the impact from Puerto Rico's sale) driven
by the US, notably SC USA (+9%). Mexico remained stable, as
corporate loans began to normalize following the uptick at
the beginning of the pandemic.
Solid trend in customer deposits, increasing 4% year-on-year.
Excluding repurchase agreements and the exchange rate
impact, they were 16% higher reflecting growth in demand
deposits in SBNA, corporate deposits in the New York branch
and deposits in Mexico. This strong growth demonstrates the
high level of liquidity in the system and the positive
performance of our customer attraction and loyalty strategy.
Results
Underlying attributable profit in 2020 was EUR 1,492
million (21% of the Group's total operating areas), with an
underlying RoTE of 7.1% (10.7% excluding the excess of
capital).
Compared to 2019, underlying attributable profit decreased
10% in euros. Excluding the exchange rate impact, it dropped
3%. By line:
• Total income remained stable, as well as net interest
income, driven by volume growth. Net fee income was
stable despite the lower activity in consumer banking.
• Administrative expenses and amortizations were 2%
lower, despite the increase in amortizations and technology
investments, enabling the efficiency ratio to improve to
42.1% and net operating income to rise 1%.
• Net loan-loss provisions grew mainly due to covid-19
related provisions. The NPL ratio improved 3 bps to 2.23%
and coverage was higher at 183% (+30 pp in the year). The
cost of credit stood at 2.92% (+16 bps year-on-year).
• Other gains (losses) and provisions reduced its loss by
35%.
• Non-controlling interests were lower due to our increased
equity stake in Mexico and SC USA.
374
NORTH AMERICA
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
2020
8,469
1,661
251
630
2019
8,926
1,776
230
672
11,011
11,604
(4,631)
(4,968)
6,379
6,636
(3,916)
(3,656)
% excl.
FX
0.2
(0.1)
%
(5.1)
(6.5)
9.2
16.2
(6.3)
(5.1)
(6.8)
(3.9)
7.1
(5.7)
0.1
(1.7)
1.5
11.8
(131)
2,332
(578)
2,776
(205) (36.0)
(16.0)
(683) (15.4)
(34.7)
(9.7)
(9.7)
1,754
2,092
(16.2)
(9.7)
—
1,754
(262)
2,092
—
—
(16.2)
(426) (38.4)
—
(9.7)
(34.2)
1,492
1,667
(10.5)
(3.3)
120,557
133,726
(9.8)
(0.2)
28,469
22,885
38,399
33,746
15,363
10,759
20,526
22,741
223,313 223,856
102,907
98,915
24.4
13.8
42.8
(9.7)
(0.2)
4.0
39.0
27.6
60.9
(0.5)
10.8
15.8
37,966
38,942
(2.5)
8.5
36,583
44,097
(17.0)
(8.6)
16,159
11,763
37.4
5,997
6,237
199,613 199,954
23,700
23,902
(3.8)
(0.2)
(0.8)
55.2
6.9
10.9
9.8
120,650
130,592
(7.6)
117,530
113,407
96,298
92,231
21,233
21,175
3.6
4.4
0.3
2.3
15.3
16.0
12.6
7.12
42.1
2.23
8.52
(1.41)
42.8
2.20
(0.8)
0.03
29.5
1.3
182.5
38,371
153.0
37,866
1,958
2,043
(4.2)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
United States
2020 Highlights
Underlying attributable profit
EUR 731 Mn
→ Santander US focused on supporting its customers through the pandemic while preserving the strength of its
balance sheet and its upward trend in profitability during the year.
→ Leveraging its resilient origination capabilities and network, Santander US improved its year-on-year trend in
customer loans and deposits (excluding repos) preserving net interest income despite historically low rates and
the uncertain operating environment caused by covid-19.
→ We continued to build on recent success with underlying profit increasing 2% in euros year-on-year to EUR 731
million. In constant euros, it rose 4% due to resilient net interest income performance, cost reduction 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), one of the largest banks in north-
eastern US, the international private banking unit in Miami,
the Bank's branch in New York, Santander Investment
Securities (SIS) and Santander Consumer USA (SC USA), an
auto finance business based in Dallas (TX). We sold our retail
and commercial bank in Puerto Rico in Q3'20.
Santander US has businesses aligned with the Group’s global
strategy:
• In auto finance we are a leading lender in the US with
proven asset origination and servicing capabilities
positioned to break ground as a full-spectrum independent
operator through our combined capabilities.
• The auto business is ideally positioned to benefit from fresh
demand for used vehicles with rigorous risk-adjusted
originations through its dealer network, enhancing its
partnership with Fiat Chrysler, and disciplined servicing.
• Consumer is accelerating its digital and branch
transformation to enhance customer experience, as well as
making the most of its stable deposit base to improve loan
mix and profitability.
• Commercial continues to deepen client relationships by
leveraging its enhanced service and international value
proposition while managing the growth of a leading
commercial real estate (CRE) franchise with high quality
credit structuring.
• Global Corporate & Investment Bank generates significant
value from the interconnectivity across the global business,
particularly in North America, while continuing to increase
its presence in the US.
• International wealth management benefits from leading
brand recognition and the ability to increase fee growth by
expanding its US capabilities.
Santander US continued to strengthen its regulatory
foundation and improve its financial performance while
continuing to demonstrate its commitment to the
communities where it operates.
In line with Grupo Santander’s strategy to deploy capital in
the most profitable country units, SC USA continued its share
buyback programme and SHUSA upped its stake in SC USA to
80.25%.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
347
1,011
22 % /active
customers
+6 % YoY
Excluding Puerto Rico disposal impact
375
Annual report 2020
Business performance
Loans and advances to customers at Santander US fell 8% in
euros in 2020. Excluding the exchange rate impact and
reverse repurchase agreements, gross loans and advances to
customers grew 3% year-on-year, driven by lending growth
in auto, CIB and originations through the Paycheck
Protection Program (excluding the impact from the sale of
the retail and commercial bank in Puerto Rico, growth was
6%).
Auto originations continued to improve during the second half
of the year as shelter-in-place mandates were lifted and
dealerships returned to normal. Prime loans remained up on
the previous year due to Fiat Chrysler Automobiles (FCA)
incentive programmes and Santander US's ability to leverage
its strong deposit base.
Customer deposits rose 6% in euros year-on-year. Excluding
repurchase agreements and the exchange rate impact,
customer deposits were 16% higher, boosted by strong
growth in demand deposits and corporate deposits.
Mutual funds increased 16% excluding the exchange rate
impact. As a result, customer funds rose 6% (+16%
excluding the exchange rate impact).
Results
Underlying attributable profit in the year was EUR 731
million (10% of the Group’s total operating areas), and
underlying RoTE was 4.7% (8.4% adjusted for excess
capital).
Underlying attributable profit was 2% higher in euros.
Excluding the exchange rate impact, growth was 4%,
underpinned largely by SC USA. By line:
• Net interest income was flat as lower rates offset increased
volumes. Net fee income was lower, impacted by covid-19,
although partially compensated by gradually improving
leasing income. As a result, total income was down 1%.
• Administrative expenses and amortizations were down
significantly, particularly at SBNA, due to disciplined cost
control, as reflected in a 1% increase in net operating
income.
• Net loan-loss provisions rose 7% given the crisis which
drove the need for a reinforced coverage ratio. Asset quality
ratios improved or were stable: cost of credit flat at 2.86%,
NPL ratio down 16 bps to 2.04% and coverage increased to
210% (+49 pp).
• Other gains (losses) and provisions improved 52% due to
lower provisions for legal claims.
• Positive impact from lower non-controlling interests
following the SC USA share buyback programme.
376
United States
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
Contents
% excl.
FX
(0.3)
(4.3)
%
(2.2)
(6.1)
2020
5,645
889
118
709
2019
5,769
947
131
759
7,360
7,605
(10.0)
(6.5)
(3.2)
(3,079)
(3,297)
4,281
4,309
(2,937)
(2,792)
(6.6)
(0.6)
5.2
(8.3)
(4.8)
(1.4)
(4.8)
1.2
7.2
(93)
1,250
(318)
1,317
(200) (53.2)
(5.0)
(370) (13.8)
(52.3)
(3.2)
(12.2)
932
—
932
(201)
947
(1.6)
—
—
(1.6)
(230) (12.4)
947
0.3
—
0.3
(10.7)
731
717
1.9
3.8
90,992
98,707
(7.8)
0.7
16,614
12,829
29.5
41.5
14,084
16,677
(15.5)
(7.8)
4,381
4,320
1.4
10.8
17,003
18,882
143,074 151,415
67,450
63,371
(10.0)
(5.5)
6.4
(1.6)
3.2
16.3
20,989
25,126
(16.5)
(8.8)
29,737
37,132
(19.9)
(12.5)
4,329
3,369
4,146
4,093
125,874 133,868
17,200
17,547
4.4
14.0
(17.7)
(6.0)
(2.0)
(10.1)
2.7
7.1
90,459
95,742
(5.5)
76,972
72,604
66,385
62,608
10,586
9,996
6.0
6.0
5.9
3.2
15.8
15.8
15.7
4.66
41.8
2.04
4.78
(0.13)
43.3
(1.5)
2.20
(0.16)
210.4
16,125
161.8
17,372
585
621
48.6
(7.2)
(5.8)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Mexico
2020 Highlights
Underlying attributable profit
EUR 762 Mn
→ Our multichannel innovation and focus on digital channels enhanced our value proposition with new products and
services, enabling us to make a headway with our customer attraction and loyalty strategy.
→ Gross loans and advances to customers (excluding reverse repos) remained flat year-on-year, as corporate loans
began to normalize following the uptick at the beginning of the pandemic. With respect to individuals, of note
were mortgages and auto loans. Customer funds rose 14%.
→ Underlying attributable profit was EUR 762 million, 20% lower than 2019 in euros, and down 9% in constant
euros, impacted by higher provisions and costs (amortizations and technology). Positive performance in customer
revenue (+3%) driven by net interest income, net fee income and gains on financial transactions.
Strategy
The major challenges posed in 2020 required a swift
response from Santander México. We effectively
implemented our strategy to support customers while
achieving a better-than-expected portfolio performance. We
helped more than 600,000 customers through our support
programme (individuals and SMEs) which deferred loan
payments for up to four months.
We geared our commercial transformation strategy
towards improving multi-channel systems, renewing
infrastructures and systems, strengthening the distribution
model and launching commercial initiatives to increase
customer attraction and loyalty through innovative products
and services.
In line with our goal to enhance customer experience, we
continued to run projects such as the transformation of 576
branches and increasing the number of full function ATMs to
1,375.
Regarding our digital strategy, we ran initiatives such as:
• The strategy to boost the use of digital channels, which
resulted in a 51% increase in digital transactions and a
60% increase in digital sales, thus increasing digital
adoption by our customers.
We also complemented our commercial strategy with new
products and services, for example:
• We maintained a dynamic mortgage offering: we lowered
the Hipoteca Plus interest rate to 7.75%, one of the lowest
in the market, and introduced Hipoteca Free, Mexico's first
commission- and insurance-free mortgage. In 2020, we
posted the largest mortgage origination in the Mexican
banking system and increased market share.
• In auto financing, we teamed up with Mazda to become its
only financial partner, and Tesla, to become its main
financing partner and promote green financing for the
purchase of hybrid cars. These alliances, together with
those already in place, align with our goal to become a
major player in this segment, reaching a market share of
more than 5% compared to 1% in 2019.
• New features for SuperMóvil, including Mis Metas, a tool to
help customers meet their savings goals.
• The consolidation of Hipoteca Online platform.
• We launched a numberless credit card, the first bank in
Mexico to do so, that does not reveal sensitive data and
provides greater security for our customers. Virtually
100% our credit card base uses this new system.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
3,595
5,000
39 % /active
customers
+20 % YoY
377
Annual report 2020
Contents
• We rolled out e-SPUG, an innovative system to help stores
and private sellers practice simple, agile and secure
distance selling.
Mexico
EUR million
• Santander Plus, our main loyalty programme, continued
to perform well, reaching more than 7.5 million
customers at year-end (54% new).
• We were named the Best Bank for Financial Inclusion in
Mexico by the International Finance Magazine (IFM) for
our Tuiio initiative, which promotes financial inclusion and
empowerment to more than 171,000 customers,
generating a measurable social impact.
Business performance
Loans and advances to customers decreased 16% in euros,
compared to 2019. Gross loans and advances to customers,
excluding reverse repurchase agreements and the exchange
rate impact, remained stable year-on-year, as corporate
loans began to normalize following the uptick at the
beginning of the pandemic. Of note was the growth in
mortgages.
Customer deposits saw no material change in euros.
Excluding repurchase agreements and the exchange rate
impact, they were up 16%. The focus on reducing the cost of
deposits resulted in a 18% rise in demand deposits, notably
from individuals (+24%) and 13% growth in time deposits.
Mutual funds rose 10%, and customer funds 14%.
Results
Underlying attributable profit was EUR 762 million in the
year (11% of the Group’s total operating areas), with an
underlying RoTE was 14.4%.
Compared to 2019, underlying attributable profit was 20%
lower. Excluding the exchange rate impact, underlying
attributable profit fell 9%. By line:
• Total income increased 3% spurred on by net fee income
(+5%) mainly from transactional fees. Net interest income
was up 1% underpinned by higher volumes, and gains on
financial transactions increased 52% driven by volatility
management.
• Administrative expenses and amortizations were up 5%,
mainly driven by the increase in amortizations and
technology investment.
• Net loan-loss provisions increased 28% due to covid-19
related charges and a one-off provision recorded for a
corporate customer. Cost of credit was 3.03%, the NPL ratio
reached 2.81% and coverage stood at 121%.
• At Banco Santander's extraordinary general meeting on 23
July 2019, shareholders approved a capital increase to
acquire shares Santander México from minority interests.
Consequently, minority interests in the H1'19 were higher
than in 2020, thus dampening results growth in 2019 more
than in 2020.
378
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
3,651
3,998
(87)
(8.6)
(8.7)
2020
2,825
772
134
(79)
(1,552)
2,098
(979)
(37)
1,082
(259)
2019
3,157
%
(10.5)
% excl.
FX
1.2
829
(7.0)
5.2
99
34.4
52.0
3.3
3.2
5.0
2.0
28.3
(1,671)
2,327
(7.1)
(9.8)
(863) 13.4
1,459
(5) 637.1 733.4
(16.2)
(6.5)
(25.8)
(314) (17.3)
823
1,145
(28.2)
(18.8)
—
823
(61)
1,145
—
—
(28.2)
(196) (68.9)
—
(18.8)
(64.9)
762
950
(19.8)
(9.3)
29,565
35,019
(15.6)
(2.8)
11,854
10,056
24,315
17,069
10,982
3,523
6,439
3,859
17.9
42.5
70.6
(8.7)
80,239
72,441
10.8
35,457
35,544
(0.2)
16,977
13,816
22.9
6,847
11,830
2,628
6,965
7,617
2,144
73,739
66,086
6,500
6,355
(1.7)
55.3
22.5
11.6
2.3
35.8
64.1
96.4
5.1
27.6
14.9
41.5
13.2
78.9
41.1
28.5
17.8
30,191
34,850
(13.4)
(0.2)
40,558
40,803
(0.6)
29,912
29,624
1.0
10,646
11,179
(4.8)
14.5
16.3
9.7
14.38
20.61
(6.23)
42.5
2.81
41.8
2.19
120.8
22,246
128.3
20,494
0.7
0.62
(7.5)
8.5
1,373
1,422
(3.4)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
SOUTH AMERICA
2020 Highlights
Underlying attributable profit
EUR 2,927 Mn
→ We implemented work protocols in all countries to protect our employees, while supporting our customers
through products and services to mitigate the impact of the pandemic, and ensuring activity continuity across the
region.
→ We continued to focus on delivering profitable growth backed by operational excellence as well as cost and risk
control.
→ Double-digit growth in loans and advances to customers and customer deposits, with volumes and
transactionality gradually recovering in H2, reflecting the countries' capacity to adapt to the new environment.
→ Underlying attributable profit fell 25% in euros to EUR 2,927 million, and dropped just 4% in constant euros,
affected by additional covid-19 related provisions, as net operating income rose 5% backed by net interest income
and gains on financial transactions.
Strategy
Our extensive experience in the region enabled us to maintain
profitable and sustainable business growth. We remain
confident in its great growth potential and focused on
increasing our presence in the region by leveraging the scarce
banking penetration. We have innovative ways to reach
potential customers and offer existing ones solutions to cover
their different needs.
For instance, we prioritized support programmes for
individuals, corporates and society, providing liquidity
through initiatives such as state-guaranteed loans to SMEs,
lines of credit at special rates, extending terms and modifying
maturity profiles.
We continued to identify growth opportunities across
business units to capture synergies and foster collaboration:
• In consumer finance, Santander Brasil exported its new
and used vehicle financing platform to other South
American countries, Argentina launched the Santander
Consumer company, Santander Chile increased car
insurance sales despite reduced financing activity. In Peru,
we continued to specialize in consumer credit and used
vehicle financing.
In Colombia, the priority was to make the auto finance
business profitable and to increase customer loyalty
through insurance and digitalization.
• In line with our strategy to expand our acquiring business,
we rolled out Getnet in Argentina and Chile, based on the
successful model of Brazil.
• We continued our digital transformation and innovation of
our products and services, helping to enhance customer
service. In Chile, we posted record account openings and
prepaid card sales through Santander Life and Superdigital.
Santander Argentina made progress in its digital
transformation by launching new products and digital
recoveries. In Uruguay, we focused on modernizing our
technological infrastructure to offer our customers more
stable and efficient platforms, with initiatives such as the
launch of its digital branch, SUMO.
• We continued to promote inclusive and sustainable
businesses, such as Prospera, which continued its
expansion in Uruguay and was implemented in Peru and
through the granting of green loans in Brazil and Chile.
• Collaboration between countries continued to increase,
with projects such as the joint SCIB business initiative, that
seeks to consolidate and deepen relationships with
multinational clients, leveraged on Santander's
infrastructure.
All these initiatives led to strong year-on-year increases in
both loyal (+9%) and digital customers (+17%).
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
8,614
20,200
27 % /active
customers
+17 % YoY
379
Annual report 2020
Contents
Business performance
Loans and advances to customers declined 9%. Excluding
reverse repos and the exchange rate impact, gross loans
were 15% higher, with double-digit rises in all country units
except Chile, which grew 6%.
Customer deposits fell 3% in euros compared to 2019.
Excluding repurchase agreements and exchange rate impact,
they rose 30% and also increased at double digit rates across
all country units except Chile (+8%), mainly due to the strong
performance of demand deposits (+39%) and to a lesser
extent, time deposits (+25%). Mutual funds dropped 2%
dampened by the fall recorded in Brazil.
Results
Underlying attributable profit in the year was EUR 2,927
million (42% of the Group's total operating areas), with an
underlying RoTE of 18.1%.
Compared to 2019, underlying attributable profit decreased
25% in euros. Excluding the exchange rate impact, it was
down 4%. By line:
• Total income increased 5% underpinned by net interest
income and gains on financial transactions, which broadly
offset weak net fee income performance. Net interest
income rose 5%, with growth across countries, notably
Argentina.
Gains on financial transactions were 68% higher, with rises
in all country units except Chile. Conversely, net fee income
dropped 2% with falls recorded in all countries except
Uruguay and Peru, mainly due to the sharp fall of
transactional fee income in H1'20, together with regulatory
impacts in Brazil and Argentina.
• Administrative expenses and amortizations increased 4%,
largely due to higher costs in Argentina (inflation and peso
depreciation). Of note was cost management in Brazil,
which recorded only a slight increase (+1%) and Chile,
which remained flat. The efficiency ratio stood at 35.8%.
• Net loan-loss provisions grew by 35% driven by covid-19
related provisions. In credit quality, the NPL ratio fell to
4.39%, coverage was 97% (+9 pp in the year) and the cost
of credit was 3.32%.
• Other income and provisions decreased its negative
impact 42%, due to the lower charge for potential legal
contingencies in Brazil.
380
SOUTH AMERICA
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
68.1
24.0
4.7
4.0
5.1
35.1
2020
2019
10,723
13,316
%
(19.5)
% excl.
FX
4.6
3,566
4,787
(25.5)
(2.1)
766
(209)
14,845
565
35.6
(243) (13.9)
(19.4)
18,425
(5,312)
9,533
(3,923)
(319)
5,291
(1,927)
11,769
(6,656) (20.2)
(19.0)
3.5
(3,789)
(748) (57.4)
(26.8)
(2,644) (27.1)
7,232
(42.0)
(5.8)
(5.0)
3,364
4,588
(26.7)
(6.2)
—
3,364
(437)
4,588
—
—
(26.7)
(664) (34.2)
—
(6.2)
(18.5)
2,927
3,924
(25.4)
(4.1)
113,731
125,122
(9.1)
14.6
42,957
51,360
(16.4)
49,300
45,619
8.1
17,266
14,802
16.6
15,009
16,901
238,263 253,804
111,791
114,817
(11.2)
(6.1)
(2.6)
11.8
46.3
37.5
17.0
21.1
26.0
41,990
41,989
0.0
30.3
21,280
29,840
(28.7)
(11.2)
35,433
34,062
4.0
8,302
10,613
218,796 231,321
19,466
22,483
(21.8)
(5.4)
(13.4)
33.1
5.5
21.9
12.6
118,769
131,048
(9.4)
153,224
170,707
(10.2)
103,302
101,575
1.7
14.5
17.6
30.3
49,922
69,131
(27.8)
(2.2)
18.07
20.58
(2.51)
35.8
4.39
36.1
(0.3)
4.86
(0.47)
97.4
65,252
88.4
69,508
4,431
4,572
9.0
(6.1)
(3.1)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Brazil
2020 Highlights
Underlying attributable profit
EUR 2,113 Mn
→ Commercial activity in H2'20 exceeded pre-covid-19 levels, boosting revenue growth for the year. Likewise, our
continuous cost control efforts through process transformation resulted in a new improvement of the efficiency
ratio.
→ Credit quality indicators remained at controlled levels, backed by loan expansion towards lower risk products,
mainly with guarantees, and the effectiveness of our risk models.
→ Underlying attributable profit was EUR 2,113 million, -28% year-on-year in euros and -5% excluding the
exchange rate impact, affected by covid-19 related provisions. Net operating income was 3% higher, receiving an
uplift from total income and cost control.
Strategy
In the year, we once again demonstrated our capacity to
innovate and adapt to the new needs of our customers,
offering the best customer service and ensuring continuous
support to our communities.
This enabled us to quickly provide our customers with the
necessary liquidity, deferring payments and granting state-
backed loans, mainly to SMEs and corporates. As social
responsibility is embedded in our identity and covers all
businesses, we also launched campaigns to raise funds and
donate medical supplies.
We continued to make headway with our commercial
strategy:
• In mortgages, we were on the cutting edge for digital
portability and we were the first privately-owned bank to
grant BRL 2 billion per month. In home equity, we reached
30% market share in new lending.
• In payroll loans, we continued to digitalize, enabling online
loan completion to reach 86% of the total.
• In auto, maintained market share leadership (25%) in
individuals and introduced Troca+Troco, in collaboration
with Webmotors. In addition, our consumer finance unit
performed very positively.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
6,382
15,556
23 % /active
customers
+16 % YoY
• In cards, we continued to focus on segments and channels
with a better risk profile and greater profitability.
• We expanded to strategic regions in the country, ending
the year with 40 specialized Agro shops and 100 Santander
Prospera Microcrédito shops.
• In digitalization, we launched GENTE, a virtual assistant
capable of answering more than 10,000 questions,
reaching more than 37 million interactions. We also rolled
out the SX credit card, which benefits the most
transactional customers, with more than 723,000 cards
issued.
• In SMEs, we dispensed BRL 12,505 million in loans through
state-backed programmes and we made progress in our
digital channels, with full functionality. For large
corporates, we increased transactionality and expanded to
new markets, contributing to the diversification of our
products and services.
In H2'19 and in 2020 we also created several companies that
are delivering outstanding results:
• Sim, which offers loans though a digital platform and has a
BRL 700 million portfolio.
• EmDia, our user-friendly debt renegotiation platform,
which recovered BRL 646 million in loans in 2020 and has 4
million customers.
1. Combined business. Pending regulatory approvals.
381
Annual report 2020
Contents
• Santander Auto, a digital insurance company which
continues to be boosted by Santander Financiamentos.
Brazil
EUR million
• Ben, which aims to transform the employee benefits
industry (meal voucher and related activities), and already
includes 1,400 corporate customers.
• The acquisition of Toro, with experience in equity and
which, together with Pi and its wide range of fixed income
products, makes for a solid investment platform.
We were named Bank of the Year in Brazil and in the
Americas by The Banker and, for the 11th year running, we
are part of the portfolio of the B3 Corporate Sustainability
Index (ISE). We were also recognized as one of the Best
Companies to Work for in the country, according to the GPTW
survey, with emphasis on the ethnic-racial diversity and
women categories, and received the Notáveis CNN 2020
award in the social responsibility category.
Business performance
Loans and advances to customers decreased 15% in euros
year-on-year. In gross terms, excluding reverse repos and the
exchange rate impact, they rose 19%. We saw positive
performances across segments, particularly in SMEs,
corporates and SCIB.
Customer deposits fell 6% in euros with respect to 2019.
Excluding repos and the exchange rate impact, growth was
41% driven by the increase in demand deposits (+33%) and
time deposits (+44%). On the other hand, mutual funds
decreased.
Results
Underlying attributable profit was EUR 2,113 million in
2020 (30% of the Group's total operating areas), with an
underlying RoTE of 19.2%.
Compared to 2019, underlying attributable profit declined
28% in euros. Excluding the exchange rate impact, it was 5%
lower. By line:
• Total income rose 3% boosted by gains on financial
transactions. Net interest income remained practically flat
as larger volumes offset margin pressures from interest
rate cuts. Net fee income fell 2% affected by reduced
transactionality amid the pandemic.
• Administrative expenses and amortizations increased
just 1% and declined in real terms, due to our continued
work on efficiency improvement. This increase was lower
than revenue growth, which enabled efficiency to improve
by 42 bps to 32.6%, the best in the last seven years.
• Net loan-loss provisions increased 31%, due to higher
provisions related to the pandemic. Cost of credit was
4.35%, the NPL ratio was 4.59% and coverage was high at
113%, after increasing 13 pp in the year.
• The negative impact of other gains (losses) and provisions
reduced by 51%, due to lower provisions for legal claims.
382
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
2020
2019
7,625
10,072
%
(24.3)
% excl.
FX
(0.2)
2,824
3,798
(25.6)
(2.0)
467
(51)
10,866
(3,541)
7,325
(3,018)
(263)
4,045
(1,693)
167 180.6 270.0
(86) (41.1)
(22.1)
13,951
(4,606) (23.1)
(21.6)
(0.6)
(3,036)
9,345
(22.4)
2.7
1.4
3.3
31.1
(704) (62.7)
(27.8)
(2,295) (26.2)
5,606
(50.8)
(4.9)
(2.7)
2,352
3,311
(29.0)
(6.4)
—
2,352
(238)
3,311
—
—
(29.0)
(373) (36.0)
—
(6.4)
(15.7)
2,113
2,939
(28.1)
(5.2)
63,974
75,618
(15.4)
19.4
31,466
37,470
(16.0)
37,655
39,611
(4.9)
6,877
6,790
1.3
10,600
12,545
150,573 172,033
70,083
74,745
(15.5)
(12.5)
(6.2)
18.5
34.2
42.9
19.3
23.5
32.3
26,350
30,334
(13.1)
22.6
11,901
18,952
(37.2)
(11.4)
23,536
23,589
(0.2)
40.8
6,157
8,631
138,026 156,251
12,547
15,782
(28.7)
(11.7)
(20.5)
0.7
24.7
12.2
67,424
80,150
(15.9)
100,351
121,752
(17.6)
61,627
61,789
(0.3)
18.7
16.3
40.8
38,725
59,964
(35.4)
(8.9)
19.16
21.16
(2.00)
32.6
4.59
33.0
(0.4)
5.32
(0.73)
113.2
43,258
99.8
46,682
3,571
3,656
13.4
(7.3)
(2.3)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Chile
2020 Highlights
Underlying attributable profit
EUR 432 Mn
→ Santander Chile remains the country's leading privately-owned bank by assets and customers and is ranked first
in Net Promoter Score, demonstrating the strength of our digital channels.
→ Positive business performance: +42% in demand deposits, with growth in all segments, and +6% year-on-year in
gross loans and advances to customers (excluding reverse repos), boosted by the state-guaranteed programme
for SMEs (Fogape).
→ Record growth in account openings underscored by Cuenta Life and Superdigital, and backed by the technological
developments that made digital relationship with customers easier.
→ Underlying attributable profit was EUR 432 million, 31% lower year-on-year in euros and down 21% excluding
the exchange rate impact, weighed heavily by covid-19 related charges. Net operating income grew 4% driven by
the positive performance of net interest income and cost control.
We also introduced our green product range which includes:
the choice for customers to offset their carbon footprint by
contributing to environmental projects or purchasing green
bonds; the first ESG mutual fund in Chile, which enables
investment in companies in different geographical areas with
a strong sustainable focus; a green mortgage for new homes
and sustainable projects with a preferential interest rate; and
benefits for purchases from environmentally friendly brands.
We continued our "phygital" transformation to bring
together the best of the digital and physical worlds, making
progress in:
• Branch network transformation towards more digital
models, through the opening of new Work Café branches.
• Opening of the new marketplace Tienda.Santander.cl,
which offers exclusive benefits for customers.
These initiatives led to an increase in the number of loyal and
digital customers in the year (+9% and 24%, respectively).
Lastly, our efforts to be the best bank for our customers
propelled us to first in NPS, and our responsible banking
strategy was recognized through ESG and sustainability
rankings and awards.
Strategy
Santander is the largest privately-owned bank in Chile by
assets and customers, and has a marked retail (individuals
and SMEs) and transactional focus. In 2020, we continued to
pursue our strategy to offer high returns in a low-risk country,
launching several measures:
• In line with our commitment to be more responsible, we
were the first bank in the country to be included in the DJSI
for Emerging Markets, and the Sustainable Leaders Agenda
2020 (ALAS20) recognized us as the leading company for
sustainability in Chile.
• Santander Life, our financial education proposition, gained
momentum through Cuenta Life, our fully digital account
that rewards good savings behaviour, welcoming close to
300,000 new customers in the year (+545%).
• Since its launch in April, our financial inclusion programme
Superdigital, reached close to 130,000 customers, driven
by its high transactionality and access to the digital
economy.
These initiatives led to an high growth in new accounts
(current and demand) during the year (+20% in current
accounts), with net current account openings of around
272,000 (compared to 80,450 in the Chilean market,
according to the information available as at November 2020).
As a result, market share in current account openings rose to
25.3% from 21.7%in 2019.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
764
1,547
44 % /active
customers
+24 % YoY
383
Annual report 2020
Contents
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 6%, underpinned by large corporates and the state-
backed scheme for SMEs.
Customer deposits rose 4% year-on-year, up 8% excluding
repurchase agreements and the exchange rate impact,
reflecting the positive performance of demand deposits
(+42%). Current accounts continued to rise strongly across all
segments driven by openings through digital channels.
Mutual funds rose 22% and customer funds were 11%
higher.
Results
Underlying attributable profit was EUR 432 million in 2020
(6% of the Group’s total operating areas), with an underlying
RoTE of 13.2%.
Compared to 2019, underlying attributable profit fell 31% in
euros. Excluding the exchange rate impact it was 21% lower.
By line:
• Total income rose 2%, as the climb in net interest income
(+10%) was partially offset by the fall in gains on financial
transactions and net fee income, dampened by reduced
transactionality and economic activity.
• Administrative expenses and amortizations remained
broadly stable, as higher IT expenses were closely matched
by lower costs related to commercial activity. As a result,
the efficiency ratio improved to 39.8% and net operating
income was 4% higher.
• Net loan-loss provisions were 54% higher due to covid-19
related charges, placing the cost of credit at 1.50%. The
NPL ratio stood at 4.79% and coverage was 61%.
• Other gains (losses) and provisions stood at EUR 16
million (EUR 63 million in 2019).
384
Chile
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
2,263
2,539
2
0.0
(10.9)
(900)
1,363
(594)
(1,031) (12.7)
(9.6)
(443) 34.1
1,508
2019
1,867
% excl.
FX
9.9
%
(4.3)
404
(17.2)
(5.0)
266
(34.7)
(25.0)
0.0
2.4
0.3
3.8
54.0
(71.5)
(20.2)
(15.0)
1,129
63
(75.2)
(30.5)
(210) (25.9)
919
(31.5)
(21.4)
—
—
(31.5)
(289) (31.8)
919
—
(21.4)
(21.7)
2020
1,787
335
174
(32)
16
785
(155)
629
—
629
(197)
432
630
(31.4)
(21.2)
39,381
38,584
2.1
5.2
7,557
(22.8)
(20.4)
5,836
8,365
10,221
3,076
5,062
7,856
3,091
66,880
62,151
28,362
27,344
65.2
30.1
(0.5)
7.6
3.7
70.3
34.1
2.6
10.9
6.9
11,611
8,224
41.2
45.6
9,247
10,722
(13.8)
(11.1)
11,162
1,519
9,662
1,294
61,902
57,246
4,978
4,905
15.5
17.4
8.1
1.5
40,593
39,640
37,873
35,095
28,330
27,060
2.4
7.9
4.7
9,543
8,035
18.8
19.1
21.1
11.5
4.6
5.6
11.3
7.9
22.4
13.19
18.08
(4.89)
39.8
4.79
61.4
40.6
4.64
56.0
10,835
11,580
346
375
(0.8)
0.15
5.4
(6.4)
(7.7)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Argentina
2020 Highlights
Underlying attributable profit
EUR 179 Mn
→ As a leader in the country's financial system, Santander Argentina has worked to be part of the solution to the
crisis caused by the global pandemic.
→ We continued to focus on our four strategic pillars: operational excellence, profitable growth, being customer-
centric and culture and talent.
→ Underlying attributable profit soared to EUR 179 million, growing both in euros and at constant exchange rates
(+25% and +91%, respectively), boosted by higher net interest income and improved efficiency.
Strategy
Amid the pandemic, Santander Argentina implemented
measures to look after the health of its customers and
employees, enhancing digital channels and ensuring service
quality in our branches.
To combat the crisis, we continued to grant loans and set up
corporate credit lines to buy medical equipment through
Cuenta Blanca and introduced Academia Salud (alongside
Swiss Medical Group), a fully digital training platform for
health workers that can be accessed from any device, at any
time and free of charge.
The commercial strategy focused on transactional business
and customer service, through innovation, an enhanced
customer care model and the digital transformation of the
main processes and products. We launched various initiatives:
• We made headway in building an open financial services
platform. We rolled-out Getnet in Argentina, created a USD
20 million investment plan for Santander's collection and
services solution, and will create 200 jobs in the next two
years. The aim is to encourage digitalization, reduce the use
of cash and boost financial inclusion.
• We set up Santander Consumer, a company specialized in
consumer financing and secured loans, providing an agile
customer experience.
• Openbank Argentina, Santander's fully digital bank,
obtained its banking licence.
• Around 356,000 accounts were opened through fully
digital means and the issuance of electronic cheques
increased. We also implemented a new digital business
model aimed at foreign trade products. Digital customers
increased 21% in the year.
• Together with 21 banks, we launched MODO, a systematic
payment solution to boost digital payments and financial
inclusion.
Thanks to all these initiatives, The Banker named Santander
Argentina as the Best Digital Bank in the country, highlighting
the acceleration of its digital transformation in the current
environment, new technical staff, positioning in consumer
loans and deposits, and the new products and services
launched for female entrepreneurs and young customers.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
1,356
2,650
44 % /active
customers
+21 % YoY
385
Annual report 2020
Business performance
Loans and advances to customers fell 13% year-on-year in
euros. Excluding reverse repurchase agreements and the
exchange rate impact, gross loans and advances to customers
were 35% higher driven by SME loans and cards. Dollar
balances declined in the currency of origin.
Customer deposits increased 3% compared to 2019 in euros.
Excluding repurchase agreements and the exchange rate
impact, deposits rose 57%, spurred on by local currency
deposits (demand and time deposits), as foreign currency
balances declined.
Santander maintained a high dollar liquidity ratio and the
excess liquidity in pesos was placed in central bank notes.
Results
Underlying attributable profit was EUR 179 million in the
year (3% of the Group’s total operating areas), with an
underlying RoTE of 26.2%.
Compared to 2019, underlying attributable profit was 25%
higher in euros. Excluding the exchange rate impact, growth
was 91%. Both year’s results were affected by the high
inflation adjustment.
As regards business activity, excluding the exchange rate
impact:
• Total income grew 31%. Net interest income rose 49%,
underpinned by liquidity management and the lower cost
of funds. Net fee income fell 6%, dampened by regulatory
impacts and lower economic activity. Gains on financial
transactions rose 18%.
• Administrative expenses and amortizations increased
27%, at a slower pace than total income and inflation,
improving the efficiency ratio by 187 bps to 56.0%. Net
operating income rose 37%.
• Net loan-loss provisions were higher (+47%) due to
covid-19 related provisions. The NPL ratio improved 128
bps to 2.11% and coverage was 275%, after increasing 151
pp in the year.
• Other gains (losses) and provisions recorded no material
change.
386
Argentina
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
B
customers
Customer funds
Customer deposits
Mutual funds
C
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.
Contents
% excl.
FX
48.8
%
(3.0)
(38.8)
(6.1)
18.2
21.5
31.5
27.2
37.3
47.3
6.5
40.8
(59.1)
—
90.5
34.7
2020
2019
940
446
80
(22.9)
(119)
1,128
(150) (20.8)
(14.3)
1,316
(762) (17.0)
(10.5)
(3.9)
(235)
554
(101) (30.5)
(8.2)
(72) (73.3)
217
912
273
62
(632)
496
(226)
(70)
200
(19)
180
—
180
145
24.2
90.5
—
—
145
24.2
(1)
(2) (12.2)
179
144
24.6
91.1
4,151
4,792
(13.4)
32.9
9,988
10,054
7,179
7,002
3,048
1,897
59
832
840
20
657
359
3,911
(22.1)
19.5
429
342.5
578.7
87
(31.8)
836
(0.5)
(0.7)
2.5
4.5
52.7
52.4
57.2
1,033
(18.6)
24.8
71
(71.5)
(56.3)
747
392
(11.9)
(8.4)
(2.0)
15.0
35.1
40.5
50.3
76.3
9,056
9,244
931
810
4,395
8,795
7,179
1,616
4,993
(12.0)
8,099
7,002
8.6
2.5
35.0
66.6
57.2
1,097
47.3
126.0
26.24
22.20
4.04
56.0
2.11
275.1
9,159
408
57.9
(1.9)
3.39
(1.28)
124.0
151.1
9,178
438
(0.2)
(6.8)
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Uruguay
2020 Highlights
Underlying attributable profit
EUR 134 Mn
→ Santander Uruguay is the country’s leading privately-owned bank, strengthening its position and market share,
while continuing to develop a technological and digital strategy that enables us to enrich service quality.
→ Activity rebounded in H2'20, adapting to the new normal. We gave support to 11% of Santander Uruguay's
portfolio and 30% of its financial entities.
→ Underlying attributable profit was EUR 134 million, down 11% in euros compared to 2019, but up 8% excluding
the exchange rate impact, spurred on by total income and improved efficiency.
Strategy
Results
In a year blighted by the pandemic, we focused on mitigating
its impact, preparing our teams for remote work, protecting
our employees and adapting our products to customers'
needs.
We continued to make progress in o technological
transformation, signing an agreement with IBM to provide
Santander Uruguay greater technological support. To add
new digital capabilities, we launched A Sola Selfie for online
loans, and SUMO, the country's first fully mobile branch. We
further expanded Prosperá as an inclusive offering, as well
as Santander Locker.
The efforts to consolidate our value proposition enabled us
to gain market share and grow our customer base,
increasing loyal and digital customers by 2% and 14%,
respectively.
Business performance
Loans and advances to customers dropped 9% year-on-year
in euros. Excluding reverse repurchase agreements and the
exchange rate impact, gross loans and advances to
customers rose 12%.
Customer deposits were 4% higher in euros compared to
2019. Excluding the exchange rate impact and repurchase
agreements, they increased 28%.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
111
448
23 % /active
customers
+14 % YoY
In 2020, underlying attributable profit was EUR 134 million
with an underlying RoTE of 27.9%.
Compared to 2019, underlying attributable profit decreased
11% in euros and rose 8% excluding the exchange rate
impact. By line:
• Total income grew 3% mainly driven by net fee income
(+17%) and gains on financial transactions (+38%).
• Administrative expenses and amortizations rose 2%, at a
slower pace than total income, improving the efficiency
ratio to 41.4% (-62 bps year-on-year).
• Net loan-loss provisions increased 17%. The cost of credit
stood at 2.30% and coverage remained high (104%).
Uruguay
EUR million
Underlying income
statement
Net interest income
Total income
Administrative expenses
and amortizations
Net operating income
Net loan-loss provisions
Profit before tax
Underlying attributable
profit to the parent
Balance sheet
Total assets
Gross loans and advances
A
to customers
Customer funds
Customer deposits
Mutual funds
B
A. Excluding reverse repos.
B. Excluding repos.
2020
2019
267
380
333
447
%
(19.8)
(14.8)
(157)
(188)
(16.1)
% excl.
FX
(2.8)
3.3
1.8
4.4
223
(61)
161
134
259
(63)
189
(13.9)
(3.8)
16.6
(14.8)
3.3
150
(10.6)
8.4
5,102
5,051
1.0
24.6
2,552
4,356
4,318
38
2,804
4,197
4,162
36
(9.0)
3.8
3.8
7.1
12.3
28.1
28.0
32.1
387
Annual report 2020
Contents
Peru
Underlying attributable profit
EUR 53 Mn
Colombia
Underlying attributable profit
EUR 19 Mn
2020 Highlights
2020 Highlights
→ We continued to focus on the corporate segment,
large enterprises and Grupo Santander's global
customers.
→ Underlying attributable profit rose 12% year-on-
year to EUR 53 million, +19% excluding the
exchange rate impact, spurred on by revenue
growth.
→ The strategy focused on companies, large
corporates and SCIB customers.
→ We formed new alliances in auto finance to
strengthen our position in the market with digital
propositions.
→ Underlying attributable profit of EUR 19 million in
the year, up 22% on 2019 in euros, 40% higher
excluding the exchange rate impact.
Strategy
Strategy
The strategy remained focused on the corporate segment, the
country’s large companies and Grupo Santander’s global
customers, by providing support to customers, as well as
greater liquidity and flexibility. We also boosted the
distribution of derivative instruments to reduce our
customers' financial risks and increased deposit taking.
The auto loan financial entity continued to expand its
business as a part of Grupo Santander's strategy to increase
presence in this business, underpinned by local teams and our
best practices in South America.
We continued to drive the digitalization of our services and
internal processes to improve customer experience and
operational efficiency. 60% of transactions were made
digitally through our office banking platform.
Business performance
Loans and advances to customers decreased 1% year-on-
year in euros (+19% on a gross basis, excluding reverse
repurchase agreements and the exchange rate impact), and
customer deposits surged 16% (+39% excluding the
exchange rate impact and repurchase agreements).
Results
Underlying attributable profit of EUR 53 million in 2020 was
12% higher year-on-year, equivalent to an RoTE of 21.9%.
Excluding the exchange rate impact, underlying attributable
profit increased 19%. By line:
• Total income grew 30% mainly due to the positive
performance of customer revenue and gains on financial
transactions, reflecting greater customer and market
activity.
• The efficiency ratio improved to 29.2% (-3.7 pp year-on-
year).
• Net loan-loss provisions increased sharply due to covid-19
related charges.
• The NPL ratio was 0.80% and coverage was very high
(149%).
388
We remained focused on SCIB clients, large corporates and
companies, contributing solutions in treasury, risk hedging,
foreign trade, confirming, custody and investment banking
products to support the country’s infrastructure plan. In
consumer finance, our priority was to make the auto business
profitable through value propositions for customers and
manufacturers, increased customer loyalty and digitalization.
We signed two major agreements in the automotive sector,
reaching a market share of 3.4% (+110 bps) in loan
origination. Despite the reactivation of this sector in Q4'20,
we recorded a c.30% year-on-year reduction in vehicle sales
due to the pandemic.
Santander Colombia acted as joint bookrunner in an
international bond issuance for the Republic of Colombia with
10- and 30-year terms, and as lead arranger in the first fast
track facility transaction guaranteed by MIGA for BANCOLDEX
worth USD 400 million, mainly to support SMEs affected by
covid-19.
Great Place to Work recognized us as a company with an
outstanding working environment.
Business performance
Loans and advances to customers rose 28% year-on-year in
euros. In gross terms, excluding reverse repurchase
agreements and the exchange rate impact growth was 45%,
notably in consumer finance, corporates and CIB.
Customer deposits rose 22% in euros and 39% excluding the
exchange rate impact and repurchase agreements, driven by
time deposits.
Results
Underlying attributable profit of EUR 19 million in the year
was 22% higher than 2019 in euros with an underlying RoTE
of 13.6%.
Excluding the exchange rate impact, underlying attributable
profit rose 40%, backed by total income (+26%) spurred by
growth in net interest income (+55%), and gains on financial
transactions (+24%). Administrative expenses and
amortizations grew less than total income, enabling the
efficiency ratio to improve 2.1 pp to 47.9%. Cost of credit
was 0.56%.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
4.4 CORPORATE CENTRE
Corporate Centre
2020 Highlights
Underlying attributable profit
EUR -1,844 Mn
→ The Corporate Centre aims to aid the operating units by adding value and through oversight and control. It also
performs financial and capital management functions.
→ Underlying attributable loss decreased 12% compared to 2019, mainly due to higher gains on financial
transactions related to FX hedging and lower costs driven by ongoing measures.
Strategy and functions
The Corporate Centre adds value to Grupo Santander in
various ways:
• More solid governance, through global control frameworks
and supervision.
• It fosters the exchange of best practices in cost
management and generating economies of scale, enabling
us to be one of the most efficient banks.
• It contributes to the launch of global business projects that
leverage our worldwide presence to develop solutions once
that can be used by all business units, generating
economies of scale.
It also coordinates our relationship with European regulators
and performs the following financial and capital management
functions:
• Financial management:
– Structural management of the liquidity risk associated
with funding our recurring activity, financial stakes and
management of net liquidity related to the needs of
some business units.
– This is carried out by the different funding sources
(issuances and other), maintaining an adequate profile in
volumes, maturities and costs. The price of these
operations with other group country units is the market
rate plus a premium, which in liquidity terms, we support
by immobilizing funds during the operation's term.
– Interest rate risk is actively managed to soften the
impact of interest rate changes on net interest income,
conducted via high credit quality, and very liquid and low
capital consumption derivatives.
– Strategic management of exposure to exchange rates in
equity and dynamic in the countervalue of the country
units’ annual results in euros. At year-end, net
investments in equity are currently hedged by EUR
21,326 million (mainly Brazil, the UK, Mexico, Chile, the
US, Poland and Norway) by various instruments (spot, fx,
forwards).
• Management of total capital and reserves: efficient capital
allocation to each country unit in order to maximize
shareholder return.
Global Headquarters. Boadilla del Monte
Global Headquarters. Boadilla del Monte
389
Annual report 2020
Contents
Results
In 2020, underlying attributable loss of EUR 1,844 million
was 12% lower than in 2019 and driven by:
• Greater negative impact of net interest income, from -EUR
1,252 million in 2019 to -EUR 1,374 million, impacted by
the increase in the liquidity buffer.
• Growth of EUR 583 million in gains on financial
transactions mainly due to foreign currency hedging, the
negative counterpart of which is in the conversion of results
to euros in certain countries.
• Administrative expenses and amortizations improved 12%
on the back of streamlining and simplification measures.
• Lower net loan-loss provisions, down from EUR 36 million
in 2019 to EUR 31 million in 2020.
• Other gains (losses) and provisions includes provisions,
intangible assets, cost of the state guarantee on deferred
tax assets, pensions, litigation, one-off provisions for
stakes whose value was affected by the crisis, etc. The net
impact went from -EUR 237 million in 2019 to -EUR 412
million in 2020.
Pereda building. Global Headquarters in Boadilla del Monte (Madrid)
CORPORATE CENTRE
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
Operating data
Number of employees
A. Includes exchange differences.
2020
2019
(1,374)
(1,252)
%
9.7
(29)
(50)
(41.6)
287
(297)
—
(25)
(1,141)
(329)
(1,470)
(31)
(412)
(1,912)
(18)
(1,617)
34.3
(29.4)
(373)
(1,990)
(11.8)
(26.1)
(36)
(13.8)
(237)
(2,262)
74.0
(15.5)
69
157
(56.2)
(1,844)
(2,105)
(12.4)
—
(1,844)
0
—
(2,105)
—
(12.4)
9
—
(1,844)
(2,097)
(12.0)
5,044
5,764
(12.5)
61,173
32,803
86.5
1,918
1,645
840
128.4
2,406
(31.6)
112,807
126,539
(10.9)
182,587
168,352
825
793
8.5
4.0
38,555
57,240
493
9,443
106,556
76,031
12,254
214.6
54,495
5.0
636
(22.5)
9,810
(3.7)
77,989
90,362
36.6
(15.9)
1,692
1,651
2.5
390
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
4.5 Secondary segments
Retail banking
2020 Highlights
Underlying attributable profit
EUR 4,196 Mn
→ We supported our customers, corporates and governments in all our countries through a series of extraordinary
measures to ensure necessary financial support amid the global health crisis, while still providing our usual
products and services.
→ We remained committed to our digital transformation and multi-channel strategy. By the end of December, we
exceeded 148 million customers, of which 23 million are loyal, 42 million are digital customers and more than 35
million are mobile customers.
→ Underlying attributable profit of EUR 4,196 million, strongly affected by covid-19-related provisions.
Strategy
As our commitment to society became even more important
against the backdrop of the global pandemic, we
strengthened our offering by implementing a series of
measures to ensure the necessary financial support through
pre-approved lines of credit, payment holidays and special
policies.
The crisis has strengthened and accelerated our digital
transformation, focusing on our multi-channel strategy and
the digitalization of processes and businesses. As a result, the
number of digital transactions rose 27%, sales through digital
channels represented 44% of total sales and digital
customers surged 15%, underpinned by:
• strategic transformation through digital acceleration in the
UK. In 2020 we opened 82% of current accounts and 90%
of credit cards through digital channels.
• the opening of Boutique Santander in Portugal, the
country's first virtual marketplace.
• our digital channels in Spain, which led the Aqmetrix
ranking.
• new solutions in Poland to boost customer experience and
loyalty, such as a chatbot on the santander.pl website.
Loyal customers
Digital customers
December 2020. Thousands
December 2020. Thousands
22,838
42,362
32 % /active
customers
+15 % YoY
• new functionalities for SuperMóvil and Hipoteca Online, a
digital platform, in Mexico.
• the introduction of GENTE in Brazil, a virtual assistant
capable of answering more than 10,000 questions,
reaching more than 37 million interactions.
• a record rise in account openings and prepaid card sales in
Chile through Santander Life and Superdigital.
• Openbank Argentina obtaining its banking licence.
• the launch of SUMO in Uruguay, its digital branch and A
Sola Selfie for online loans.
We continued to launch commercial initiatives, with
specialized products and services for each segment:
• In individuals, we introduced Hipoteca Free in Mexico, the
country's first commission-free mortgage. In Brazil, we
launched the SX credit card, which benefits our most
transactional customers. In Argentina, we rolled out Getnet
and set up Santander Consumer, specialized in consumer
financing and secured loans. In Spain, we have a new
commercial proposition for individuals, Santander One, a
pioneering subscription-based financial service model,
centred on customer loyalty and personalized services.
• In auto finance, SCF continued to focus on remaining the
leader in auto finance, acquiring 46% stake in Sixt Leasing.
In Poland, we ran a promotional offer to finance electric and
hybrid vehicles. In Brazil, we retained the highest market
share and introduced Troca+Troco, in collaboration with
Webmotors. The auto business in the US is ideally
positioned, and we strengthened our partnership with Fiat
Chrysler. In Colombia, we remained focused on improving
profitability in the auto business.
391
Annual report 2020
Contents
Results
Underlying attributable profit was EUR 4,196 million (61%
of the Group’s operating areas).
Compared to 2019, underlying attributable profit fell 45% in
euros. Excluding the exchange rate impact, it was 39%
lower, as follows:
• Total income fell 3% impacted by the fall in net fee income
(-10%). Net interest income remained flat and gains on
financial transactions were up 8%.
• Administrative expenses and amortizations decreased 3%
benefiting from positive cost management in most
countries.
• Loan-loss provisions soared 44% strongly affected by
covid-19 related provisions.
• Other gains (losses) and provisions improved 13%
primarily driven by Brazil and the US.
RETAIL BANKING
EUR million
Underlying income
statement
Net interest income
Net fee income
Gains (losses) on financial
transactions A
Other operating income
Total income
Administrative expenses
and amortizations
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
A. Includes exchange differences.
2020
2019
%
%
excl.
FX
29,544
32,862
(10.1)
0.1
6,850
8,561
(20.0)
(9.6)
961
(141)
871
304
37,215
42,599
10.3
8.0
0.0
(12.6)
0.0
(3.1)
(16,847)
(18,926)
20,368
23,672
(11.0)
(14.0)
(2.6)
(3.5)
(11,608)
(9,101)
27.5
44.1
(1,229)
(1,619)
7,531
12,953
(24.1)
(13.2)
(41.9) (35.2)
(2,452)
(4,048)
(39.4)
(30.7)
5,078
8,905
(43.0) (37.2)
—
—
5,078
8,905
—
—
(43.0) (37.2)
(883)
(1,325)
(33.4)
(26.7)
4,196
7,580
(44.6) (39.0)
• In the corporate segment, all countries granted state-
guaranteed loans to corporates. In SMEs, we continued to
move forward with products such as Prospera, our micro-
credit programme for entrepreneurs in Brazil and Uruguay,
which was implemented in Peru in 2020. We launched new
value-added products in Poland, such as a medical service
for SME customers alongside MasterCard and Luxmed.
Regarding our branch network transformation, we remain
committed to boosting our multi-channel proposition. In
addition to digital channels, we have 11,236 branches and are
working on optimizing and adapting them to our customers'
needs. Our aim is to improve customer experience and offer
advice on everything they need through the channel that best
suits their preferences and requirements.
Smart Red branch, Spain
These measures helped us to gain market recognition, with
several awards in the countries and segments where we
operate:
• We were named the World’s Best Bank for SMEs by
Euromoney and also won Euromoney’s Best Bank for
Diversity and Inclusion global award for the first time. We
were named best bank in Spain and Portugal and best
investment bank in Portugal.
• Santander also received the Bank of the Year award in
Spain and the Americas, including Brazil and Argentina.
Business performance
Loans and advances to customers decreased 3% year-on-
year. Excluding reverse repurchase agreements and the
exchange rate impact, gross loans rose 4%.
Customer deposits were 2% higher in euros compared to
2019. Excluding repurchase agreements and the exchange
rate impact, they were 9% higher, driven by growth in
demand deposits (+13%).
392
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Santander Corporate & Investment Banking
Underlying attributable profit
EUR 1,823 Mn
2020 Highlights
→ The covid-19 health crisis strongly influenced SCIB's performance in the year, as we continued to support our
global clients, covering their funding needs and helping them access global capital markets.
→ The creation of the global Environmental, Social and Governance (ESG) solutions team will increase the support
SCIB gives to our clients in their transition towards more sustainable business models.
→ Underlying attributable profit was 6% higher year-on-year in euros (23% in constant euros) at EUR 1,823 million,
driven by double-digit revenue growth and cost reduction, which enabled us to absorb the increase in provisions.
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 becoming our
clients' strategic advisor of choice. The transformation we
started three years ago continues to bear fruit, delivering
sound results.
The key areas we are focusing on are:
• accelerating balance sheet rotation through efficient capital
management to maximize the return on risk-weighted
assets. To this end, SCIB focused on strengthening its
distribution teams, which resulted in greater origination
capacity to distribute and run profitable transactions.
• increasing diversification, by countries, customers and
products:
– by country, through the promotion of our business in
the US, the UK and Continental Europe, as well as
strengthening our franchises in Peru and Colombia,
completing our value proposition in Latin America.
– as for the diversification of our customer base, we are
increasing business with institutional and financial
entities, offering a wide range of products throughout
our markets.
– we continued to expand our product range by
introducing new, more complex and tailored products
to fully cover our clients' needs.
• continuing to strengthen our environment and control
mechanism, investing in strategic projects to make our
processes more robust and to respond to regulatory
requirements.
• becoming the leader in advising on sustainable and
responsible financing (ESG) to support our clients in the
transition towards a more sustainable and low-carbon
economy. In 2020, SCIB created a global team to provide
solutions and support our clients in their search for
strategic solutions.
• digitalizing our business, exploring market opportunities
that allow us to improve processes, offer new products and
services to clients, add new technologies, etc.
Total income breakdown
Constant EUR million
TOTAL*
Capital & Other
+15 %
+2 %
Global Markets
+27 %
Global Debt
Financing
+12 %
Global Transaction
Banking
+11 %
(*) In euros: +3%
393
4,6884,6885,3975,3971,7831,5071,75435320192020
Annual report 2020
Contents
In line with Grupo Santander's strategy, SCIB aims to be one
of the leading wholesale banks in Europe by creating a pan-
European platform that simplifies our structure and will
enable us to better serve our clients' needs and to support our
business growth initiatives. Furthermore, SCIB aims to
maintain its leadership position in South America and also to
turn the US franchise into a fierce competitor in North
America.
Business performance
In the complex humanitarian and macroeconomic
environment arising from covid-19, the year's activity was
strongly conditioned by the effort to protect our employees
and ensure the continuity of our and our clients' businesses.
Our strong relationship with our global clients (corporates,
governments, corporations, institutions, etc.) enabled us to
act quickly and decisively, providing them with strategic
advice, tailored financing solutions and helping them access
the capital markets to cover their capital needs and maintain
high levels of liquidity during the worst months of the
pandemic.
Main actions performed in the year by business line:
• Global markets: significant business growth in all countries
despite high volatility, and strong overall activity due to an
increase in our clients' funding and coverage needs.
Positive both corporate and institutional sales
performance, particularly in Asia, Argentina, the UK, Mexico
and Brazil, as well as book management, notably in Brazil,
Spain, Portugal, the US, the UK and Mexico.
• Debt Capital Markets: sharp growth boosted by the
positive performance in the US and Europe, while Latin
American markets remained tepid.
We continued to focus on sustainable financing, and are a
reference for the issuance of green and social bonds,
particularly those aimed at softening the effects of the
pandemic.
• Syndicated Corporate Loans: we supported our clients
during the year, meeting their funding and liquidity needs
by increasing loan volumes and participating in operations
backed by government programmes across Europe.
We upheld our responsible banking strategy by increasing
our range of sustainable finance products via green loans or
loans linked to sustainable metrics.
• Structured Financing: Santander consolidated its
leadership position in Project Finance, ranking first globally
(by number of transactions as at December 2020), in
Europe, Middle East and Asia (EMEA) and Latin America.
We remained at the forefront of financing of renewable
energy projects (one of the main priorities of our ESG
strategy) also ranking first globally, in EMEA and Latin
America. As for financial advisory services, we continued to
be a global reference in 2020: first in Latin America, and
fifth in the world.
• Cash management: in this challenging year, reacting
rapidly to the issues arising from the pandemic, the
digitalization of our products and the close relationship
with our clients were key to delivering sustained growth in
the transactional business and becoming our clients'
transactional bank of choice.
• Export & Agency Finance: we continued to support our
clients in their export and import activities through
structured financing solutions backed by export credit
agencies.
We were particularly active in programmes to mitigate the
impact of covid-19 implemented by the CESCE (Spanish
Export Credit Insurance Company) and the World Bank
through guaranteed loans in Latin America. We maintained
our leadership position with solid growth, especially in the
UK, Mexico and Brazil.
• Trade & Working Capital Solutions: strong business
growth across markets, especially in Europe, the US, Brazil
and Asia.
We continued to support our clients, strengthening our
capabilities in the global confirming and receivables
platforms, which allowed us to maintain our leadership in
these products. Likewise, commercial activity increased in
structured trade, especially in Brazil, helping to gain market
share and diversify into new sources of income.
• Corporate Finance: some sectors succeeded in maintaining
greater dynamism, in terms of the number of transactions
and business and asset valuations, particularly those
related to energy transition and renewable energy. In M&A,
regarding regulated electricity grids businesses, of note
was the transaction announced by State Grid, the largest in
the history of Chile's electricity sector and the second
largest in Latin America, where Santander acted as the
buyer's financial advisor.
In 2020, CIB reached a record high for income from share
placement operations for the second year running, holding
leading positions in Europe and Latin America. The year's
most significant operations include our participation in the
two largest European initial public offerings (JD Peets for
EUR 2.6 billion and Allegro for EUR 2.4 billion), as well as
leadership in the Soltec operation. In Latin America,
Santander led more than 20 IPOs and capital increases in
Brazil.
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Ranking 2020
Award / ranking
Best Supply Chain Finance Provider for Western Europe
Best Trade Finance Bank in Latin America (Regional)
Source
Global Trade Finance Magazine
Global Trade Finance Magazine
World´s Best Payment Hub Solution for 2020 (Globally)
Global Trade Finance Magazine
Global Advisor of the year
Offshore Wind Deal of the Year
Deal of the Year
Bonds; Corporates: Enel $1.5bn SDG-linked bond and E2.5bn SDG-linked bond
issuance
Loans: Carrefour E3.9bn sustainability-linked loans
South American ECA - backed Finance Deal of the Year Award
European ECA - backed Finance Deal of the Year Award (ESG)
Asia - Pacific ECA - backed Finance Deal of the Year Award (ESG)
Best Project & Infrastructure Financing Bank: Brazil
Best Trade Finance Bank in Latin America
Most Impressive Bank for Latin America Bonds
Best Transaction of the year (Project Meno)
Issuer of the year
PFI
PFI
PFI
The Banker
The Banker
TXF
TXF
TXF
Latin Finance
GTR
Global Capital
Area
GTB / T&WC
GTB / T&WC
GTB / Cash
Management
GDF
GDF
GDF
GDF (DCM)
GDF (DCM)
GTB (E&AF)
GTB (E&AF)
GTB (E&AF)
GDF (PF)
GTB (T&WC)
GDF (DCM)
SCI Capital Relief Trades Awards 2020
GDF (PDM)
SCI Capital Relief Trades Awards 2020
GDF (PDM)
Best Bank for Latin American Currencies
FX
Markets
Results
Underlying attributable profit in 2020 was up 6% in euros.
Excluding the exchange rate impact, growth was 23%,
backed by double-digit hikes in our core businesses,
particularly Global Markets and Global Debt Finance.
• Total income growth was spurred on by the strong
increase in all revenue lines: net fee income (+12%), gains
on financial transactions (+23%) and net interest income
(+20%).
• Administrative expenses and amortizations fell 3%, which
enabled efficiency to improve 5 pp and net operating
income to grow 30%.
• Sound revenue performance and prudent cost
management was enough to fully absorb net loan-loss
provisions growth, derived from the general
macroeconomic deterioration, and significantly increase
underlying attributable profit.
SANTANDER CORPORATE & INVESTMENT BANKING
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
A. Includes exchange differences.
2020
2019
2,953
2,728
1,550
1,520
% excl.
FX
%
8.3
2.0
20.4
12.5
690
203
689
289
0.1
22.9
(29.8)
(31.0)
5,397
5,227
3.3
15.1
(2,069)
(2,281)
(9.3)
(2.7)
3,328
2,945
13.0
29.8
(467)
(155)
200.4
209.9
(135)
(91)
48.7
2,726
2,699
1.0
(783)
(815)
(3.9)
60.2
17.1
12.0
1,944
1,884
3.1
19.3
—
—
1,944
1,884
—
3.1
—
19.3
(121)
(171)
(29.5)
(15.9)
1,823
1,713
6.4
22.7
395
Annual report 2020
Contents
Wealth Management & Insurance
Underlying attributable profit
EUR 868 Mn
2020 Highlights
→ In 2020, despite the challenges we faced and the prioritization of everyone's health and safety, we implemented
various improvements in terms of processes, agility, close relationships with our clients and flexibility in our
teams. The continued monitoring of, and interaction with, clients during the crisis enhanced communication
through remote and digital channels.
→ As a result, underlying attributable profit was up 2% compared to 2019 in constant euros.
→ Total fee income generated, including that ceded to the branch network, amounted to EUR 3,108 million, in line
with the previous year, and accounted for 31% of the Group's total (30% in 2019).
→ Assets under management reached EUR 370 billion, in line with 2019 in constant euros, affected by custody
valuation differences. Customer funds rose 8% in Private Banking and 1% in Santander Asset Management (SAM),
which has recorded positive cumulative net sales since May.
We made further headway in our ESG strategy, becoming a
member of the Principles for Responsible Investment (PRI) as
well as the International Investors Group on Climate Change
(IIGCC), which places us at the heart of a global community
seeking to build a more sustainable financial system. We
currently have over 20 ESG products and assets under
management of EUR 6.9 billion (+90% vs. 2019).
• In Insurance,our main growth driver continued to be the non-
credit-related business, which has a longer portfolio duration.
We continued to increase the number of insurance policies
distributed through our digital channels, which now account
for 10% of the total sales volume.
In Latin America we continued to successfully develop our
auto-related business, working with various insurance
companies and new mobility products. In Chile, we launched
Grupo Santander's first On/Off insurance through Klare, our
fully digital insurance broker, which allows customers to
activate coverage on a daily basis. In Argentina, we improved
the end-to-end digital sales process for personal protection
insurance (customers and non-customers).
In Europe, we introduced a new multi-risk insurance proposal
for SMEs in Spain and Portugal through our joint venture with
Mapfre. In the UK, we enhanced the digital experience for our
tailored Home & Life insurance, optimizing the use of data to
offer personalized products and simplify purchasing. In
Poland, we have a new fully-digital life insurance offer, which
had a great response from customers as it enables them to
build their own tailored coverage.
Strategy
Within our strategy developed with the aim of becoming the
best responsible wealth manager in Europe and Latin America,
of note were:
• Positive net sales and business growth rates in Private
Banking, despite the market situation and the cuts in interest
rates in the US, Latin America and the UK. Our goal was to
complete the value proposition in all our countries,
particularly in advisory services.
Regarding alternative funds, our value proposition is centred
on selecting a range of funds from leading national and
international management companies, notably the launches
made through our international platform in Ireland. We
continued to expand the ESG investment range via SAM and
third party products, supported by the continuous training of
our managers and advisers.
Launch of Future Wealth, a joint initiative with SAM,
consisting of a platform to invest in leading innovation
companies grouped into 18 disruptive themes (such as
health, energy transition technology and smart cities) with
the SAM Future Wealth fund as the core product.
We received numerous awards in 2020 from prestigious
publications (Professional Wealth Manager, Euromoney, The
Banker and Global Finance) for our technology, various
business segments and local private banks in several
countries.
The total volume of shared business across our markets
reached EUR 6.8 billion, 34% more than 2019, mainly driven
by operations in Mexico, Chile, Miami and Switzerland.
• In Santander Asset Management, we continued to improve
and complete our product offering. Of note was growth in the
the Santander GO range, with a volume of more than EUR 2.3
billion and the positive performance of our platform in
Luxembourg, reaching EUR 8.2 billion. We are also working
on the implementation of an alternative product offering with
infrastructure funds and leasing, with the launch of the
Alternative Leasing fund for SME machinery and equipment.
We continued our operational and technological
transformation which involved the implementation of the
Aladdin platform, which has already been successfully rolled-
out in six countries and virtually implemented in another
three in Latin America.
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Business performance
Results
Total assets under management amounted to EUR 370 billion,
in line with December 2019 in constant euros. In the quarter,
growth was 4% and 10% compared to March 2020.
Underlying attributable profit was EUR 868 million in 2020,
down 7%. Excluding the exchange rate effect, it was 2% higher:
Business performance: SAM and Private Banking
December 2020. EUR billion and % change in constant euros
vs Dec-19
0 %
+3 %
+1 %
+8 %
-6 %
+2 %
+10 %
Note: Total assets marketed and/or managed in 2020 and 2019.
(*) Total adjusted customer funds of private banking managed by SAM. 2019
data Pro forma including Popular asset management Joint Ventures, fully
integrated in 2020.
• In Private Banking, the volume of customer assets and
liabilities grew 1% year-on-year to EUR 230 billion. This
was mainly due to the impact of covid-19 on markets which
particularly affected the custody business. However,
quarter-on-quarter growth in Q4 was 7% induced by
market improvement and strong commercial activity.
Underlying attributable profit in 2020 was EUR 414 million,
down 2% compared to 2019 (excluding the exchange rate
impact). Of note were Mexico, Poland, Brazil and Miami.
• In SAM, total assets under management increased 1%
compared to 2019, despite the negative impact of markets
driven by the covid-19 crisis. Cumulative net sales
remained in positive figures since May, mainly in Chile,
Luxembourg, Argentina and Mexico.
Underlying attributable profit was EUR 120 million, 16%
lower year-on-year, due to lower average volumes and
margins. Of note was the performance in Mexico, Portugal
and Argentina. Total contribution to the Group's profit
(including ceded fee income) was EUR 494 million.
• In Insurance, the volume of gross written premiums
amounted to EUR 7.9 billion (-3% year-on-year), affected
by lower loans and savings activity amid the crisis. Of note
was the 9% growth in fee income generated by the non-
credit related protection business.
Despite lower activity, the underlying attributable profit
generated in 2020 by the insurance business amounted to
EUR 333 million, 18% higher than in 2019. Total
contribution to profit (including ceded fee income)
amounted to EUR 1,220 million.
• Total income increased mainly driven by net fee income
(+7%) due to the greater contribution from private banking
and insurance.
• Total fee income generated, including fees ceded to the
branch network amounted to EUR 3,108 million and
represented 31% of the Group's total.
• Administrative expenses and amortizations were in line
with 2019, due to the optimization measures that absorbed
the impact of investments.
• As a result, net operating income increased 6%.
The total contribution to the Group (including net profit and
total fees generated net of taxes) was EUR 2,145 million, 2%
lower than in 2019 in constant euros.
Total contribution to profit
EUR million and % change in constant euros
2,145
WEALTH MANAGEMENT & INSURANCE
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
A. Includes exchange differences.
2020
2019
% excl.
FX
%
454
570
(20.4)
(15.3)
1,194
1,199
(0.4)
6.5
103
383
117
339
2,135
2,226
(12.0)
(4.5)
13.0
(4.1)
26.9
3.3
(906)
(955)
1,229
1,271
(28)
23
(1)
(12)
1,199
1,281
(5.1)
(3.3)
—
(92.8)
(6.4)
(291)
(302)
(3.7)
(0.4)
6.2
—
(92.3)
2.6
4.2
909
979
(7.2)
2.1
—
909
(41)
—
979
—
(7.2)
—
2.1
(50)
(18.3)
(0.6)
868
929
(6.6)
2.3
397
37022518168875817Total Assets UnderManagementFunds andinvestment *· SAM· Private BankingCustody customerfundsCustomer depositsCustomer loans
Annual report 2020
Contents
Santander Global Platform (SGP)
Underlying attributable profit
EUR 39 Mn
2020 Highlights
→ The development of global payments and financial solutions for enterprises and individuals in high-growth
and large addressable markets continues to be a top priority for Grupo Santander.
→ Despite the covid-19 environment, we delivered significant progress on our plan, expanding our global
payments technology platforms by adding new services and functionalities, and reaching new customers.
→ We continued to focus on accelerating growth in three business areas: Merchant Solutions, Trade Solutions
and Consumer Solutions.
Strategy
Grupo Santander is recognized as one of the best global payments providers, and we aspire to continue offering faster and better
solutions to all our customers, which we develop based on customer experience and to drive loyalty. We offer these solutions to
both our banks (B2C) and third parties (B2B2C), generating significant new revenue opportunities and expanding our customer
base to new customers and geographies.
The three business areas made significant progress against the plan in last quarter:
Merchant solutions (Global Merchant Services), our initiative
to create a global acquiring business under the Getnet global
brand based on a single open platform, provides end-to-end
payments solutions for merchants, ranging from accepting
payments to value-added services.
Trade solutions (Global Trade Services), the group's strategic
initiative to develop the global platform OneTrade, provides
the services needed to trade internationally including
international payments, FX, international treasury
management and foreign trade.
In Q4, Getnet Brasil achieved record growth of 200% year-on-
year in online transactions on Black Friday, reaching a 30%
market share. Getnet platform developments continued to
incorporate additional functionalities.
In Q4, we connected our customers in Portugal and Colombia
to the OneTrade platform, adding to those from Brazil, Spain,
the UK and Chile. With the latest roll outs, more than 150,000
companies now have access.
At the end of 2020, Getnet reached an agreement to acquire
several highly-specialized technology assets and teams from
Wirecard's European merchant payments business. This
acquisition will further reinforce and accelerate Getnet´s
growth plans in the region.
Regarding new services added to the OneTrade platform, we
tested and deployed an internal FX and liquidity model for
transactions between the UK and Spain. This service will be
rolled out to other countries and currencies in the next two
quarters.
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Consumer solutions (Superdigital), our financial inclusion
platform for individuals, offers simple and flexible basic
financial services to meet the financial needs of the
underbanked in Latin America.
In Q4, we began rolling out our new global Superdigital
platform, which efficiently supports operations in different
countries, across Latin America, starting with Brazil and then
to Argentina, Uruguay, Colombia, Peru, Chile and Mexico.
Superdigital Brazil's active customers increased almost 25%
and the value of transactions rose by about 60% in the year.
Looking towards our future strategy, back in October we
announced the creation of PagoNxt, an upgrade to
Santander Global Platform, which will enable us to combine
our payment businesses into an autonomous company,
providing world-class technology solutions for our banks and
new open market customers.
As previously mentioned in other sections of this report,
Openbank and SCF will be combined into the new Digital
Consumer Bank.
Other activities
Openbank, our full-service digital bank offers the current
accounts and cards of neobanks, but also successfully sells
loans and mortgages, as well as providing a state-of-the-art
robo-advisory and open platform brokerage services.
Openbank is currently active in Spain, the Netherlands,
Germany and Portugal. In July, it was granted a banking
licence to operate in Argentina and plans to start operations in
the first half of 2021.
In 2020, Openbank increased its loan book of digital
mortgages and unsecured personal loans by 31.2%, deposits
by 15.4% and new customers by 107% year-on-year.
Customers with investment products increased by 31% and
the number of securities transactions rose by 131%. Loyal
customers keep showing a leading industry benchmark
engagement ratio of 4.5 products per customer. As a result of
the strong business results, fee income increased 38% year-
on-year.
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% % sin TC
25.7
11.0
(18.2)
(1.7)
(2.4)
28.2
(6.2)
9.5
(43.5)
(24.2)
76.8
(49.7)
(38.4)
4.8
34.3
8.7
20.6
(25.0)
(17.1)
68.9
(29.8)
(12.4)
SANTANDER GLOBAL PLATFORM
EUR million
Underlying income statement
Net interest income
Net fee income
Gains (losses) on financial
A
transactions
Other operating income
Total income
Administrative expenses and
amortizations
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
A. Includes exchange differences.
2020
2019
416
449
146
(17)
994
375
549
149
(13)
1,061
(816)
(745)
315
(52)
(5)
258
(95)
178
(39)
(9)
130
(59)
71
0
71
(32)
163
(56.3)
(39.7)
0
163
(36)
—
(56.3)
(11.1)
—
(39.7)
1.7
39
127
(69.3)
(54.9)
Annual report 2020
Results
Looking at SGP's activity in 2020 in a broad sense, i.e. in
addition to considering the results generated by the digital
platforms, including 50% of the results generated by the
country units for the platform-related products, SGP's total
income as a secondary segment was EUR 994 million in 2020
and pro forma underlying attributable profit was positive at
EUR 39 million.
This is the net result of two components; the investment in
building the platforms and 50% of the profit obtained from
commercial relationships with our customers:
• Total income rose 9% in constant euros to almost EUR 1
billion, backed by net interest income.
• Administrative expenses and amortizations rose 21%
year-on-year, with most of the spend concentrated on
building the platforms. We are making progress in
technology development and process improvements, as
well as designing new services to be offered via our
platforms and rolling them out.
• Net loan-loss provisions fell 17% vs 2019, with no
material impact on the P&L.
• Other gains (losses) and provisions remained insignificant
at -EUR 9 million.
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.
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5. Research, development and
innovation (R&D&I)
Research, development and innovation activities
Technological strategy
Innovation and technological development are strategic
pillars of Grupo Santander. We aim to respond to fresh
challenges that emanate from digital transformation,
focusing on operational excellence and customer experience.
Moreover, the information from our new technological
platforms will help us better understand our customers'
journey and enable us to design a more accurate digital
profile to generate more confidence and increase customer
loyalty.
As well as competition from other banks, financial entities
must watch out for new financial system entrants, whose
differentiating factor and competitive advantage is their use
of new technology.
Developing a competent strategic technology plan must
provide:
• greater capacity to adapt to customers’ needs (customized
products and services, full availability and excellent service
across all channels).
• enhanced processes for Grupo Santander’s professionals to
ensure greater reliability and productivity; and
• proper risk management, supplying teams with the
necessary infrastructures to support the identification and
assessment of all business, operational reputational,
regulatory and compliance risks.
As a global systemically important bank, Santander and its
subsidiaries face increasing regulatory demands that impact
system models and their underlying technology. This requires
additional investments to guarantee compliance and legal
security.
As in previous years, the latest European Commission ranking
(2020 EU Industrial R&D Investment Scoreboard, based on
2019 data) ranked our technological effort first among
Spanish companies and we are the second global bank for
investment in R&D.
The equivalent investment in R&D&I to that considered in this
ranking amounted to EUR 1,123 million. See note 18 to the
consolidated financial statements.
To meet business and customer needs, we must integrate
new digital capabilities such as agile methodologies, public-
and private-Cloud-based products and core systems
development. We must also broaden our data and
technological capabilities (APIs - Application Programming
Interface, artificial intelligence, robotics, blockchain, etc.).
Our technological strategy aligns with the three pillars of the
group's strategy: One Santander, PagoNxt and Digital
Consumer Bank. Our technological pillars (Cloud, Agile, Data,
Core evolution and Deep tech skills), a flexible and common
architecture and a global operating model, as well as better
management of risk and associated costs, help us achieve
this.
Our governance model includes an inter-organizational forum
called the Santander Architecture Review Board (SARB) to
oversee the correct implementation of the technological
strategy through its projection in technical architectures. The
SARB brings together the technological architecture heads of
the group entities on a monthly basis and is responsible for
efficiently and collaboratively sharing local and global
innovation, as well as reviewing Grupo Santander’s
architecture. It also guarantees consistent architectures,
strengthens the recycling of components and bolsters the use
of new technologies to meet changing business needs.
Our implementation of this strategy is based on our set of
rules, a committed and experienced organization in
relationships with our country units, and a governance model
that articulates projects and initiatives that help crystallize
the strategy in all our markets.
The development of our technology and operations (T&O)
model will help us cultivate new business, focusing on global
products and digital services. Almost 2,700 Santander Global
Tech professionals in Spain, the UK, Portugal, the US, Mexico,
Brazil and Chile are gradually incorporating the global
product portfolio agreed by the country units, our global
businesses and the T&O division, guaranteeing the quality of
digital services and products, and also their security.
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Technological infrastructure
Grupo Santander has a network of high-quality data centres
(CPDs) interconnected by a redundant communications
system. The CPDs are spread across strategic countries to
support and develop Grupo Santander’s activity and combine
traditional information technology (IT) systems with the
capabilities supplied by an on-premise private Cloud, which
thanks to its swift adoption enables integrated management
of the business areas’ technology, accelerates the digital
transformation and allows significant cost savings.
The gradual implementation of the Cloud strategy will enable
the public Cloud to support other strategic group projects.
Thanks to the Local Cloud Centres of Excellence (local CCoEs),
coordinated under the Global CCoE, we can guarantee
consistent and rigorous adoption of the Cloud across our
entities. This minimizes risks in accordance with the Public
Cloud policy.
Cybersecurity
Cybersecurity is one of Grupo Santander’s main
priorities and a crucial element in supporting our
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. We are constantly updating our defence
against current and emerging cybersecurity threats and our
24/7, 350-employee cybersecurity centre in Madrid serves all
group entities.
In 2020, our Cybersecurity team was a key component
of the group's response to the covid-19 crisis, through
four key areas: the increase in remote access capacity
to enable employees to maintain the bank's services
safely and efficiently; constant monitoring of new
cyber-threats and suspicious activities; increased
communication with employees and customers on
how to stay "cyber-safe" online and when working
remotely; and the constant analysis of new risks and
implementation of additional controls.
For further information on the different actions for
measuring, monitoring and controlling risks related to
cybersecurity, and their respective mitigation plans, see
section 6.2 'Operational risk management' of the Risk
management and compliance chapter.
Digitalization and fintech ecosystem
In addition to the technological strategy, infrastructure
development and cybersecurity initiatives, and to make
headway in our digital transformation, in November we
announced the creation PagoNxt, the new brand to grow our
payments business in the digital age and enhance Santander
Global Platform. Further details are given in section 4
'Financial information by segment' of this chapter and
examples of digital and innovative products and services for
individuals and corporates, as well as references to
cybersecurity policies are given in section 2 ‘Inclusive and
sustainable growth’ of the Responsible Banking chapter.
Data centre Cantabria
Alhambra building. Boadilla del Monte
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6. Significant events
since year end
No significant events occurred between 1 January 2021 and
the date of preparation of this consolidated directors’ report.
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Contents
7. Trend information 2021
This director’s report contains certain prospective information
on the directors’ plans, forecasts and estimates, based on
what they consider to be reasonable assumptions.
Readers of this report should take into account that such
prospective information must not be considered a guarantee
of our future performance. As the plans, forecasts and
estimates are subject to numerous risks and uncertainties,
our future performance may not match initial expectations.
These risks and uncertainties are described in the Risk
management chapter of this report and in note 53 of the
consolidated financial statements.
The announcement of a number of highly effective vaccines in
the prevention of covid-19 has led to a substantial
improvement in expectations for 2021, and in particular,
reduced the probability of the most adverse scenarios.
However, the resurgence of the virus in early 2021 and the
consequent containment measures may have tangible
impacts on the economy in the first months of the year, even
if experience in the second wave shows that the public and
private sectors have learnt to better manage the pandemic
and contain its economic effects.
The expected acceleration on the pace of vaccination,
particularly among high-risk populations, in our core markets
and that expansive economic policies will be maintained
suggests that economies will see a marked recovery.
However, in general, we do not expect to regain pre-crisis
levels until 2022.
The macroeconomic forecast for 2021 by country/region is as
follows:
Euro area
We expect that economic expansion will be linked to vaccine
dissemination and the degree of implementation of the EU
Recovery Plan. The consensus expects that vaccination will
have reached a sufficiently high percentage of the population
around the middle of the year to normalize much of the
economic activity. Some sectors will take time to achieve full
recovery (depending on how dependant they are on
international mobility as it will still be affected). We believe
that monetary policy will continue to be expansionary, but the
exit from the crisis will depend more heavily on fiscal policy
and economic reforms. The EU recovery plan, which depends
largely on the countries’ proposed fiscal expansion, should be
the basis for modernizing the economies, strengthening
potential growth, sustainability and digitalization.
Spain
Economic recovery projections by international bodies are in
the range of 5%-7%, which could be greater due to European
funds from the recovery plan. Spain is one of the countries
that can receive the most funds and it plans to concentrate
most of the investments in the first few years. There is some
uncertainty around the performance of the unemployment
rate, as employment support policies dampened its rise in
2020 but this could prevent it from falling in 2021. Inflation
could return to positive territory, accompanied by the
estimated improvement in domestic demand, although we
expect it to remain below the ECB target (2%).
United Kingdom
The UK economy is expected to grow around 4.5%. Covid-19
vaccinations support a faster projected normalization by
gradually eliminating many containment measures that curb
activity. However, 2021 will be a year of adaptation to the
new situation outside the European Union, which will
undoubtedly generate some friction that will affect
investment and monetary policy, which we expect to continue
to be accommodative.
Portugal
Economic growth is forecast around 2.0% in 2021, with a
recovery that will not begin at least until Q2'21 due to the
strong outbreak of the pandemic early in the year. and the
task of reviewing the production model (which will be
supported by European funds), as the most labour-intensive
sectors, such as tourism, will continue to be a drag on the
economy. Unemployment could reach 10% and inflation
unchanged. We expect the fiscal deficit to ease .
Poland
The Polish economy, having contracted 2.8% in 2020, is
expected to grow around 4%. Uncertainties remain regarding
the first quarter covid-19 related problems, but hopes are
that a vaccine in the second quarter will lead to normalization
of activity. Private consumption is expected to be the growth
driver with positive contributions from investment, on the
back of the European recovery plan, and net exports.
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United States
àFinancial markets
The presence of covid-19 will make the start of the year
difficult. Vaccination, other pandemic control tools and virus
seasonality could allow normalization to commence and have
positive effects on growth from the second quarter. The new
fiscal stimulus packages will also drive GDP growth in 2021
of around 5%. Inflation is expected to uptick but still at
moderate rates (2.2% vs. 1.4% in 2020). The Federal Reserve
is expected to maintain an expansive monetary policy.
Mexico
We expect the economy to continue its recovery in 2021, with
growth of around 4% driven by exports, in particular to the
US. However, we expect domestic demand growth to be
modest and it will take several years to recover pre-pandemic
GDP levels. Monetary policy could become more expansive in
a context of inflation in line with targets.
Brazil
GDP is expected to continue to recover with growth projected
around 3.5%. The withdrawal of the broad fiscal stimuli
implemented in 2020 will be one of the main challenges,
although controlled inflation, expansive monetary policy and
progress on the reform agenda will contribute to a favourable
climate that supports economic growth.
Chile
Economic growth (between 5% and 6%) is expected to be
supported by a more favourable international environment,
the maintenance of part of the fiscal stimulus programmes
approved in recent years, and expansive monetary policy with
low interest rates.
Argentina
The economy is expected to grow around 4.5% after
following the normalization of its relationships with
international creditors and its new economic programme that
will have the technical and financial support of the
International Monetary Fund.
We believe that the cyclical recovery expected in 2021 will
guide financial markets' performance. We believe that the
unprecedented liquidity injection from central banks will
continue to support risk weighted assets, together with the
favourable conclusion of some risk sources: i) the arrival of a
vaccine has reduced global uncertainty regarding economic
recovery, mitigating the fact that increasing covid-19 cases
and pressure on health care systems are still leading to
tighter lockdown measures. ii) the control of both Houses of
Congress by the Democrats in the US could give the new
administration greater discretion in implementing its fiscal
stimulus plans, iii) the UK's negotiated withdrawal from the
EU prevented a hard exit in January and normalized
relationships between the two regions.
In this environment, risk-free rates are expected to rise slowly
in line with the continued improvement in economic and
inflation expectations, particularly in the long-term, leading
to a steepening of the yield curve. Some Federal Reserve
members are starting to discuss the possibility of carrying out
a balance sheet reduction later this year, but official rates will
remain unchanged for a long time.
The dollar, which depreciated against the euro at year-end, is
expected to recover in 2021, followed by an early rebound in
the US backed by greater fiscal stimulus.
We believe that this year, the banking and economic
environment, are going to be conditioned by the pandemic's
evolution, the speed of vaccination and the withdrawal of
public sector aids to families and businesses. The ending of
financial support measures and payment holidays will drive
an increase in delinquency rates, which will depend on the
level of economic normalization and will affect economic
sectors unevenly, having a greater impact in those that
suffered greater permanent impacts.
In general, the banking sector is in a stronger position to face
this NPL increase than in previous crises, as demonstrated in
the stress tests carried out by agencies such as the
International Monetary Fund. However, difficulties cannot be
ruled out in some entities, in both mature and developing
banking systems.
In an environment of very low rates and business growth,
digitalization and pressure on profitability will continue to
boost banking consolidation, especially in the more
fragmented systems, as well as adjustments to improve
efficiency.
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With regard to resolution legislation, the transposition of the
Bank Recovery and Resolution Directive (BRRD 2) will be
completed in 2021. In this regard, in response to covid-19, the
Single Resolution Board has stated its intention to adopt a
prospective approach to existing MREL requirements. It also
stated that, for the 2020 resolution cycle, it considered the
2022-2024 transitional periods that were established in
BRRD2.
In 2021, the following particularly relevant EBA guidelines will
apply:
• The loan approval and monitoring guidelines (EBA/
GL/2020/06) will apply from June 2021. This guide covers
processes from governance to loan approvals, pricing for
new transactions, collateral valuation (personal property
and real estate) and monitoring and reporting frameworks.
• The guidelines on the application of the definition of default
according to Article 178 of Regulation (EU) No 575/2013 are
also of particular relevance. With effect from January 2021,
guidelines state that institutions must include the EBA’s
requirements in their internal procedures and IT.
àFinancial regulation
In 2021, financial and prudential regulation will continue to
reflect the materialization of various multi-year initiatives in
the area of solvency and resolution, combined with the
measures that authorities will continue to take or maintain in
force to manage the difficult effects of the pandemic.
Supervisors and regulators believe policy response should be
adapted to the specific needs of this new phase. They also
consider that banks must face medium-term challenges,
particularly their low profitability at both the European and
national level. In its 2020 transparency report, the European
Banking Authority (EBA) concluded that banks' capital and
liquidity positions are solid but warned of asset quality
performance and structurally low profitability.
The European Central Bank itself emphasised that uncertainty
surrounding the evolution of the pandemic and vaccine
distribution remains high. It extended the relaxation of
eligibility criteria adopted in April 2020 until June 2022 to
ensure all banks in all countries can obtain the necessary
liquidity to provide credit to all sectors of the economy.
The ECB has also extended the range of Eurosystem eligible
marketable assets with the decision to accept bonds with
coupon structures linked to certain sustainability objectives as
collateral from 1 January 2021. This demonstrates the
Eurosystem’s support for innovation in the area of sustainable
finance.
Regarding the regulation of own funds requirements, the
Capital Requirements Regulation (CRR2) is expected to come
into force in general during 2021, including most of the points
that were not yet in place in 2019 and 2020. The Commission’s
proposal for CRR3 is expected to be adopted in 2021. This
milestone marks the end of the implementation of the Basel
framework in Europe, which, amongst other things,
significantly modifies the credit risk framework. A CRR fix
quick fix relating to the securitizations framework will enter
into force at the beginning of the year, which would include
the STS (simple, transparent and standardised) treatment for
synthetic securitisations.
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The management priorities of the principal geographic areas for 2021 are set out below:
EUROPE
With the aim of accelerating transformation, increasing volumes and having a more efficient business model, the
priorities for the region in 2021 are to:
• Transform how we manage our mass-market business, simplifying our value proposition and improving
customer experience, through the creation of Regional Business Owners.
• Leverage our global businesses (SCIB and WM&I) and the connection with PagoNxt to accelerate profitable
growth in the region.
• Accelerate our digital agenda, with a common mobile experience across the region.
• Deliver a significant share of the EUR 1 billion additional cost savings commitment for the next two years,
transforming our operating model.
• Excel in risk management, maintaining and reinforcing our balance sheet strength.
In Spain, the covid-19 health crisis entailed
significant changes in the macroeconomic and
competitive environment. This required us to
adapt our strategic priorities for the short- and
medium-term:
• Continue to develop our distribution,
operational and organizational model in order
to reduce costs and accelerate progress in our
digital transformation.
• Boost revenue by focusing on developing the
corporate segment and moving towards a
simple and complete offer for individuals, with
continuous customer experience improvement.
In addition, strengthen our leadership position
in Private Banking and CIB.
• Adapt the risk management model and policies,
strengthening the recovery management
model and mitigating operational risks.
• Optimize the use of capital, focusing on value-
added segments and higher profitability
products.
• Foster a responsible banking culture across the
organization.
In Portugal, the priorities for the year are to:
• Further the digital and commercial
transformation, to make it simpler, more agile
and closer to customers.
• Grow organically in terms of profitable market
share, improving our lending leadership
position and leveraging our position in the
corporate and, especially, the SME segments.
• Improve efficiency backed by our digital
capabilities to better serve our customers.
• Maintain an appropriate risk policy, with
improved monitoring, to maintain a low cost of
credit.
• Maintain a strong capital and liquidity position
in the current economic environment.
Santander UK’s priorities remain largely
unchanged, with a 2021 specific focus on
managing margins and simplifying the business
to improve efficiency and returns:
• Deliver growth through customer loyalty and
outstanding customer experience.
• Simplify and digitalize the business.
• Engage, motivate and develop a talented and
diverse team.
• Be a responsible and sustainable business.
In Poland our strategy focuses on five key
initiatives:
• Simplify the structure, based on the One
Purpose - One Process approach of One
Santander.
• Improve customer satisfaction to be among
the Top 3 in NPS.
• Increase profitability through effective net
interest income management, higher fee
income and cost control.
• Progress in the responsible banking agenda.
• Strengthen our employees' skills to support
the transformation of Santander Bank Polska.
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NORTH AMERICA
While focusing on further developing the USMX trade corridor, the priorities in the region will be to:
• Boost the execution of our regional collaboration strategy, increasing our common value proposition and
profitability, while we continue to leverage our global presence.
• Consolidate regional IT under a single leadership.
• Continue to reduce duplications in the operating model, platform and architecture.
• Optimize expenses, in part through third party cost optimization.
• Continue to boost our remittance service to drive new customer acquisition.
In the US, management will remain focused on
improving profitability by:
• Digital and branch transformation initiatives to
improve customer experience and the
profitability of consumer banking business.
• Continuing to leverage our auto finance
capabilities and the interconnectivity of our CIB
and Wealth Management businesses.
• Adapting the business strategy to mitigate
revenue impact from lower rates.
• Cost management to continue improving
efficiency.
In Mexico, we developed a strategic agenda with
the aim of becoming the best bank for our
customers, with the following goals:
• To become the leading bank in terms of
customer experience, leveraging new tools
and process improvement.
• Make headway in our transformation,
adapting to new customers' needs and habits
arising from the pandemic.
• Maintain strong growth rates in loyal
customers through initiatives to attract
payrolls and high-value collectives, as well as
increase presence in high-potential
businesses.
• Strengthen our corporate business to maintain
our position as market leaders in value-added
products.
• Accelerate technological transformation and
digitalization, by implementing a multi-year
plan that will increase our capabilities to
improve the operating model, IT performance
and information security.
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SOUTH AMERICA
The Group’s priorities in the region are to:
• Accelerate profitable growth, with a strategy that seeks to boost conectivity across South America
through regional projects.
• Continue to progress in digital transformation through the development of digital platforms and a more
efficient model.
• Maintain the strong growth of loyal and digital customers.
• Conduct strict risk controls regarding the impact of covid-19.
Santander Chile's strategy will focus on:
• Maintaining our leadership position in local
banking in an increasingly dynamic economic
environment.
• Continuing to progress in our technological
developments in order to improve efficiency.
• The expansion of our digital platforms such as
Life and Superdigital, improving our customer
service indicators, and increasing the number
of loyal and digital customers.
Santander Brasil's management priorities for
2021 are to:
• Anticipate trends through our capacity to
capture business opportunities in different
potential scenarios.
• Increase our customer base maximizing
transactionality across our new businesses
while we improve and redefine the banking
experience.
• Grow the high credit quality portfolio, mainly in
secured products, through the expansion of the
core business and the consolidation of new
businesses.
• Improve operational efficiency, enhancing the
high productivity culture.
• Maintain profitability levels by adapting and
innovating rapidly in the current environment.
In Argentina, the strategy will focus on:
In Uruguay, the priorities for 2021 are to:
• Increasing our customer base, and loyalty and
ensuring the best customer service.
• Continue to invest in technology and process
automation to further improve efficiency.
• Further developing new businesses.
• Accelerate digitalization.
• Continuing our process of efficiency and
simplification through digital transformation.
• Continue to increase our presence and market
share.
• Boosting profitable growth, focusing on the
transactional business and optimizing the use
of capital.
• Combine and coordinate the implementation
of local and regional projects.
In the Andean region, strategy will focus on:
• In Peru, increasing Corporate Finance's activity,
continuing to boost advisory services in
investment banking, corporate issuances and
public infrastructures,and expanding our auto
and consumer finance entity by widening our
product range, improving distribution channels
and diversifying funding sources while we
maintain customer satisfaction.
• In Colombia, implementing different regional
initiatives such as Cockpit and Pioneer, in line
with the strategy of One Santander.
• Launch of Prospera and Superdigital
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DIGITAL CONSUMER BANK
The main priorities for 2021 are to:
• Secure leadership by focusing on growth and transformation to achieve our aim of building a global digital
consumer lending business:
– Strengthen Auto leadership and gain leadership in consumer lending, by leveraging the global insurance
model and expanding into new markets.
– Transformation driven by simplification, redefinition of our distribution model, streamlining IT (leveraging
Openbank’s platform) and increased automatization.
• Help our partners with digitalization and transformation, proactively manage brand agreements and develop
digital projects in all business lines.
• Execute the strategic operations initiated in 2020 (Sixt Leasing in Auto, the joint consumer finance operation
with Telecom Italia Mobile and Openbank expansion to Argentina) to maintain high profitability and best-in-
class efficiency.
• Accelerate combined business digitalization to drive sustainable long-term growth, especially following a
sustained period of rapid growth in digital channel use during the pandemic.
• Define and begin executing the path to convert creditors into full customers taking advantage of SCF’s lead
generation power and Openbank’s digital retail banking platform.
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SECONDARY SEGMENTS
In 2021, we will continue to focus on:
In 2021, the key management drivers will be:
• Expanding our content and product offerings to
continue to become our clients' strategic advisors,
while accelerating the digitalization of our
businesses.
• Developing a powerful ESG platform to support our
clients in their transition towards more sustainable
business models.
• Creating a pan-European platform with the aim of
becoming the benchmark wholesale bank in the
region and offering a more differentiated service to
our clients.
• Accelerating business growth in the US under a
robust control environment by exploring new
business opportunities.
• Consolidate our leadership position in South
America, strengthening our franchises in Peru and
Colombia.
In 2021, PagoNxt will expand its product offering and
global platforms, leveraging the group's scale and
reaching out to new customers. The main priorities by
business are as follows:
• In global merchant solutions, Getnet will focus on
enhancing our global acquiring platform, leveraging
the Wirecard asset acquisition, and on expanding the
platform into new countries in Latin America and
Europe.
• In global trade solutions, the priorities are to connect
the OneTrade platform to serve additional Santander
customers covering our entire footprint, deploy new
core functionalities on a quarterly basis, and reach
customers beyond our current base.
• In global consumer solutions, Superdigital will
continue to promote financial inclusion, focusing on
rolling out the global multi-country platform in all
our footprint in Latin America, and launching
additional banking services on the platform. Pago FX
will continue to improve its simple, low cost and
secure international payment solution, rolling it out
in new countries.
• In Private Banking, we want to continue to
strengthen the leadership of our global
platform All Access, following the 34%
increase in cross-country volumes in 2020. To
this end, we will complete our value
proposition in all Private Banking countries,
particularly in advisory services, alternative
products and the Future Wealth investment
platform, our joint initiative with SAM. We will
also continue to drive Private Wealth, our
business for high net worth clients.
• In Santander Asset Management, we will
continue to develop value-added products
through our global and open product platform,
also boosting the institutional business and
strengthening our alternative product offering.
We will continue with Santander GO's open
architecture strategy, which has already
reached more than EUR 2 billion, and once our
ESG strategy has been developed, we will
continue to promote the sustainable range in
which we are experiencing very significant
demand. On the other hand, we will continue
to expand our GMAS systematic investment
team and consolidate our presence in two
hubs, one in Europe and the other in Latin
America.
• In insurance, we have the opportunity to
continue to increase penetration in our
customer base. With 20 million clients and
around 30 million insurance policies, we
believe we have high growth potential in non-
credit related business, such as auto, SMEs, as
well as more traditional segments. In
pensions, we have also made headways in
several countries, where macroeconomic
trends foresee significant growth.
• The digital transformation of our business,
with investments in digital platforms and
developments such as online and mobile
private banking.
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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
'Results' of this chapter.
In addition, the results by business areas in section 4
'Financial information by segment' 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 51.c to our consolidated financial statements.
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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)
Underlying RoE
RoTE
(Return on Tangible Equity)
Underlying RoTE
Attributable profit to the parent
Average stockholders’ equity A
interests)
(excl. minority
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.
Underlying attributable profit to the parent
Average stockholders’ equity A
(excl. minority
interests)
Attributable profit to the parent B
Average stockholders’ equity
(excl. minority
A
interests)
This ratio measures the return that shareholders obtain
on the funds invested in the Bank excluding results
from operations outside the ordinary course of our
business.
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.
Underlying attributable profit to the parent
Average stockholders’ equity A
(excl. minority
interests) - 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 of our business.
RoA
(Return on Assets)
Consolidated profit
Average total assets
Underlying RoA
Underlying consolidated profit
Average total assets
This metric 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 assets in
generating profit over a given period.
This metric measures the profitability of a company as a
percentage of its total assets excluding results from
operations outside the ordinary course of our business.
It is an indicator that reflects the efficiency of the Bank’s
total assets in generating profit over a given period.
RoRWA
(Return on Risk Weighted
Assets)
Underlying RoRWA
RoRAC
(Return on Risk-Adjusted
Capital)
Consolidated profit
Average risk weighted assets
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.
Underlying consolidated profit
Average risk weighted assets
This relates the underlying consolidated profit
(excluding results from operations outside the ordinary
course of our business) to the Group’s risk weighted
assets.
Underlying consolidated profit
Average economic capital
This is the return on economic capital required
internally (necessary to support all risks inherent in our
activity).
Economic Value Added
Underlying consolidated profit – (average
economic capital x cost of capital)
Efficiency
(Cost-to-income)
Operating expenses C
Total income
Economic value added is the profit generated in excess
of the cost of economic capital employed. This
measures risk adjusted returns in absolute terms,
complementing the RoRAC approach.
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. Stockholders’ equity = Capital and Reserves + Accumulated other comprehensive income + Attributable profit to the parent + Dividends.
B. Excluding the adjustment to the valuation of goodwill.
C. Operating expenses = Administrative expenses + amortizations.
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Profitability and efficiency
RoE
A B
(EUR million and %)
Attributable profit to the parent
Average stockholders' equity (excluding minority interests)
Underlying RoE
Attributable profit to the parent
(-) Net capital gains and provisions
Underlying attributable profit to the parent
Average stockholders' equity (excluding minority interests)
RoTE
Attributable profit to the parent
(-) Goodwill impairment
Attributable profit to the parent (excluding goodwill impairment)
Average stockholders' equity (excluding minority interests)
(-) Average intangible assets
Average stockholders' equity (excl. minority interests) - intangible assets
Underlying RoTE
Attributable profit to the parent
(-) Net capital gains and provisions
Underlying attributable profit to the parent
Average stockholders' equity (excl. minority interests) - intangible assets
RoA
Consolidated profit
Average total assets
Underlying RoA
Consolidated profit
(-) Net capital gains and provisions
Underlying consolidated profit
Average total assets
RoRWA
Consolidated profit
Average risk weighted assets
Underlying RoRWA
Consolidated profit
(-) Net capital gains and provisions
Underlying consolidated profit
Average risk weighted assets
RoRAC
Consolidated profit
(-) Net capital gains and provisions
Underlying consolidated profit
Average economic capital
Economic value added
Underlying consolidated profit
(-) Average economic capital x cost of capital
Average economic capital
Cost of capital
Efficiency ratio
Underlying operating expenses
Operating expenses
Net capital gains and provisions impact in operating expenses C
Underlying total income
Total income
Net capital gains and provisions impact in total income C
Contents
2018
8.21 %
7,810
95,071
8.48 %
7,810
-254
8,064
95,071
11.63 %
7,810
46
7,764
95,071
28,331
66,740
12.08 %
7,810
-254
8,064
66,740
0.64 %
9,315
1,442,861
0.66 %
9,315
-231
9,546
1,442,861
1.55 %
9,315
598,741
1.59 %
9,315
-231
9,546
598,741
12.60 %
9,315
-231
9,546
75,755
2,835
9,546
-6,711
75,755
8.86 %
47.0 %
22,779
22,779
—
48,424
48,424
—
2020
-9.80 %
-8,771
89,459
5.68 %
-8,771
-13,852
5,081
89,459
1.95 %
-8,771
-10,100
1,329
89,459
21,153
68,306
7.44 %
-8,771
-13,852
5,081
68,306
-0.50 %
-7,708
1,537,552
0.40 %
-7,708
-13,866
6,158
1,537,552
-1.33 %
-7,708
578,517
1.06 %
-7,708
-13,866
6,158
578,517
8.51 %
-7,708
-13,866
6,158
72,389
-2,529
6,158
-8,687
72,389
12.00 %
47.0 %
20,967
21,130
-163
44,600
44,279
321
2019
6.62 %
6,515
98,457
8.38 %
6,515
-1,737
8,252
98,457
11.44 %
6,515
-1,491
8,006
98,457
28,484
69,973
11.79 %
6,515
-1,737
8,252
69,973
0.54 %
8,116
1,508,167
0.65 %
8,116
-1,710
9,826
1,508,167
1.33 %
8,116
609,170
1.61 %
8,116
-1,710
9,826
609,170
12.91 %
8,116
-1,710
9,826
76,105
3,509
9,826
-6,317
76,105
8.30 %
47.0 %
23,280
23,280
—
49,494
49,229
265
A. Averages included in the RoE, RoTE, RoA and RoRWA denominators are calculated using 13 months (from December to December).
B. 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).
C. Following the adjustments in note 51.c to the consolidated financial statements.
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Efficiency ratio by business area (EUR million and %)
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
2020
2019
%
52.4
53.2
42.3
60.9
45.5
41.3
42.1
41.8
42.5
35.8
32.6
39.8
56.0
Total
income
19,693
6,782
4,685
4,339
1,296
1,524
11,011
7,360
3,651
14,845
10,866
2,263
1,128
Operating
expenses
10,314
3,607
1,981
2,642
590
629
4,631
3,079
1,552
5,312
3,541
900
632
%
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
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
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
Underlying RoTE by business area (EUR million and %)
2020
2019
Average
stockholders'
equity (excl.
minority
interests) -
intangible
assets
Underlying
attributable
profit to the
parent
2,656
517
1,085
530
338
162
1,492
731
762
2,927
2,113
432
179
48,424
15,674
8,663
13,755
3,875
3,204
20,971
15,690
5,298
16,198
11,027
3,278
681
%
5.48
3.30
12.52
3.85
8.73
5.05
7.12
4.66
14.38
18.07
19.16
13.19
26.24
%
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
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
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
48,794
15,124
8,611
14,795
4,101
3,104
19,556
14,997
4,607
19,065
13,888
3,485
647
415
Annual report 2020
Contents
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
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.
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
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.
Cost of Credit
Allowances for loan-loss provisions over the last 12 months
Average loans and advances to customers over the last 12
months
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 %)
2020
2019
2018
NPL ratio
Non-performing loans and advances to customers, customer guarantees and customer
commitments granted
Total risk
3.21 %
3.32 %
3.73 %
31,767
989,456
33,799
1,016,507
35,692
958,153
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
Underlying allowances for loan-loss provisions over the last 12 months
Allowances for loan-loss provisions over the last 12 months
Net capital gains and provisions impact in allowances for loan-loss provisions
Average loans and advances to customers over the last 12 months
76 %
68 %
67 %
24,272
22,965
24,061
31,767
33,799
35,692
1.28 %
12,173
12,431
-258
952,358
1.00 %
9,321
9,321
—
935,488
1.00 %
8,873
8,873
—
887,028
416
Responsible
banking
Corporate
governance
Economic
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Risk management
and compliance
NPL ratio by business areas (EUR million and %)
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
2020
Non-
performing
loans and
advances to
customers
customer
guarantees and
customer
commitments
granted
22,792
13,796
2,455
3,202
1,584
1,496
2,938
2,025
913
5,688
3,429
2,051
93
%
3.15
6.23
2.36
1.21
3.89
4.74
2.23
2.04
2.81
4.39
4.59
4.79
2.11
Total risk
722,429
221,341
104,032
263,671
40,693
31,578
131,611
99,135
32,476
129,575
74,712
42,826
4,418
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
Coverage ratio by business areas (EUR million and %)
2020
2019
Provisions to
cover
impairment
losses on loans
and advances
to customers,
customer
Non-
performing
loans and
advances to
customers
customer
guarantees and guarantees and
customer
commitments
granted
22,792
customer
commitments
granted
13,056
6,495
2,726
1,535
1,053
1,058
5,363
4,261
1,103
5,540
3,880
1,260
257
13,796
2,455
3,202
1,584
1,496
2,938
2,025
913
5,688
3,429
2,051
93
EUROPE
Spain
Santander Consumer Finance
United Kingdom
Portugal
Poland
NORTH AMERICA
US
Mexico
SOUTH AMERICA
Brazil
Chile
Argentina
%
57.3
47.1
111.0
47.9
66.5
70.7
182.5
210.4
120.8
97.4
113.2
61.4
275.1
%
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
Provisions to
cover
impairment
losses on loans
and advances
to customers,
customer
Non-
performing
loans and
advances to
customers
customer
guarantees and guarantees and
customer
commitments
granted
23,519
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
14,824
2,416
2,786
1,834
1,447
3,165
2,331
834
6,972
4,727
1,947
171
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Annual report 2020
Contents
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
Number of shares excluding treasury stock
A
Price / tangible book
value per share (X)
Share price
TNAV per share
LtD
(Loan-to-deposit)
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
and Santander Insurance to Santander, net of taxes,
excluding Private Banking customers
Metric to assess Wealth Management & Insurance’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 B
Tangible book value
Number of shares excl. treasury stock (million)
B
Price / tangible book value per share (X)
Share price (euros) B
TNAV (tangible book value) per share
B
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
B. 2018 and 2019 data adjusted for the capital increase in December 2020.
418
2018
4.01
67,912
16,930
0.95
3.807
4.01
113%
882,921
780,496
2020
3.79
65,568
17,312
0.67
2.538
3.79
108%
916,199
849,310
2,145
909
1,236
2019
4.18
72,384
17,332
0.86
3.575
4.18
114%
942,218
824,365
2,179
889
1,289
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
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 2020 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 1
'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
2020 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 1 'Economic, regulatory
and competitive context'.
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Contents
Risk management
and compliance
420
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
1. Risk management and
compliance overview
1.1 Executive summary and 2020 highlights
1.2 2020 achievements
1.3 Santander's 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 Models & Data unit
2.6 Environmental and social risk
3. Credit risk
3.1 Introduction
3.2 Credit risk management
3.3 Covid-19 credit risk management
3.4 Key metrics
3.5 Details of main geographies
3.6 Other credit risk details
422
422
425
426
428
428
428
429
431
434
434
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 Compliance and conduct risk
management
437
8. Model risk
437
437
439
443
449
454
8.1 Introduction
8.2 Model risk management
9. Strategic risk
9.1 Introduction
9.2 Strategic risk management
4. Market, structural and liquidity risk 461
4.1 Introduction
4.2 Market risk management
4.3 Market risk key metrics
4.4 Structural balance sheet risk
management
4.5 Structural balance sheet risk key metrics
4.6 Liquidity risk management
4.7 Liquidity risk key metrics
4.8 Pension and actuarial risk management
461
462
464
470
471
474
475
475
476
476
477
478
479
479
479
484
486
486
486
492
492
492
494
494
494
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Annual report 2020
Contents
1. Risk management and
compliance overview
Santander’s Risk Management and Compliance function is key to making sure we
remain a robust, safe and sustainable bank that helps people and businesses prosper
In 2020, our priority was safeguarding the health and interests of our stakeholders and mitigating the economic
and financial impact of the covid-19 crisis.
Santander supported 6 million customers across our markets by providing liquidity, credit facilities and payment
deferrals through government and internal programmes aimed to relieve the economic consequences of the
pandemic.
Santander’s risk management, compliance and control model contributes to sustainable growth, the
conservation of the environment and the protection of human rights.
1.1 Executive summary and 2020 highlights
This section provides an overview of Santander’s risk
management and risk profile in 2020 based on key risk
factors, indicators and developments.
More details on each factor and our analysis of top and
emerging risks can be found in the sections of this chapter
using the links provided.
Credit Risk
Section 3
Our strong risk culture, a proven track record in crisis
management and diversification make us more resilient.
In a complex environment, impact on credit quality indicators
was limited, owing to good performance of customer relief
programmes and collections and recoveries planning.
Total risk by region
6
5
Europe
73%
N. America
13%
S. America
13%
Total risk by segment
Non-performing Loans
Loan growth in constant euros and customer support
programmes drove the rate down.
3.32%
▼ 3.21%
2019
2020
Cost of credit
7
Cost of credit improved on estimates made at the beginning
of the pandemic.
Individuals
55%
Companies
29%
SCIB
16%
2019
2020
1.00%
▲ 1.28%
5
Includes gross lending to customers, guarantees and documentary credits.
6
Others' not included represent 1% (Santander Global Platform and Corporate Centre).
7
Cost of credit is the ratio of 12-month loan-loss provisions to average lending on the same period.
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Market, structural and liquidity risk
Section 4
Low market risk: SCIB’s trading is mainly interest-rate driven
and focused on serving clients’ needs.
2020 Avg. Value at Risk (VaR)
EUR million
▲168%
Ample short-term Group liquidity
ratio (LCR) +21 pp in 2020
Santander maintained a comfortable liquidity position. Ratios
remained well above regulatory limits, thanks to customer
deposits and robust, diversified buffers.
Our balance sheet kept its prudent structure and mitigated
the potential effect of changing interest rates on net interest
income and equity.
Section 5
EUR 605bn
EUR 563bn
VaR was stable despite market volatility in Q1’20 caused by
the covid-19 pandemic.
Capital risk
RWA by risk type
8
Credit risk, which is our core business, stands out among
RWA.
9
RWA by region
Diversified and balanced distribution.
Operational
10%
Market
3%
2019
57%
19%
22%
Europe N.America S. America
2020
59%
18%
20%
▲12.34%
▲69 bps in 2020, placing management.
CET1 above our 11-12%
target
The CET1 ratio increased due to strong organic capital
generation based on underlying profits and efficient RWA
The strength of our diversified retail banking business model
is demonstrated by our positive performance in all 7
regulatory stress tests performed since 2008.
▼8.5%
▼4 pp in 2020
RoRAC allows to compare the return on loans, customers,
portfolios and businesses on a like-for-like basis, helping to
identify those that obtain a risk-adjusted return above the
cost of capital.
11%
15%
26%
11.65
12.34
Credit
10
87%
CET1 phased-in 2020
11
2019
2020
12
RoRAC
Europe
N. America
S. America
2020
8
Risk weighted assets.
9
'Others' not included, represent 3% (Santander Global Platform & Corporate Centre).
10
Includes counterparty risk, securitizations and amounts below deduction thresholds.
Phased-in IFRS 9 ratios include the temporary treatment on the impact of IFRS 9, calculated in accordance with Article 473 bis of the Capital Requirements
Regulation (CRR), and subsequent amendments introduced by the Regulation (EU) 2020/873 (known as the "CRR Quick Fix").
The Group’s total RoRAC includes the operative units, the Corporate Centre and SGP, reflecting the Group's economic capital and its return.
12
11
423
Annual report 2020
Operational risk
Our operational risk profile remained stable despite the current backdrop.
To reinforce controls, we focused on:
Contents
Section 6
Effective operational
risk management
Successful deployment of
business continuity plans.
Customer service
Availability and performance, especially in
online banking and at call centres.
New operating guidelines in all
our subsidiaries.
Processing of new loans granted through
customer support programmes.
Cyber and data
security plans
Cyber threats and risks stemming
from increased remote working.
Fraud management
Stronger detection, response and
protection mechanisms.
Reinforced fraud control (data protection,
patching, browsing control).
Monitoring as a fundamental preventive
measure.
Operational losses by Basel category
2020
Customers
65%
Compliance and conduct risk
Initiatives in 2020:
Damage to
physical assets
1%
External
fraud
21%
Processes Employees
& systems 1%
11%
Internal
fraud
1%
Section 7
• Compliance & Conduct worked to be part of
the solution to the crisis. With special focus on
customers facing hardship, it implemented
and monitored measures relating to covid-19
relief programmes.
• Our core subsidiaries applied the common
standards of the single channel model called
Canal Abierto.
• One FCC, our strategic transformation plan
that includes homogenous sanctions controls
(embargoes or restrictions on international
activity).
• We revised our policies on data protection.
Our subsidiaries applied new guidelines and
operating criteria according to supervisory
guidance.
Model risk
Section 8
• Our strategic Model Risk Management plan, MRM 2.0,
• Further digitalization enhanced real-time decision-making.
made further progress. We accomplished two objectives:
better internal model management and compliance with
supervisory expectations.
Strategic risk
• In 2020, our focus was the uncertain economic outlook
brought on by covid-19, which acted as a catalyst for
previously identified risks.
Section 9
• The main tasks we carried out were challenging strategic
plans, identifying and monitoring top risks, assessing and
validating new products and coordinating the risk
assessment of corporate development transactions.
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Risk management
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The notes to the consolidated financial statements contain
additional information on Grupo Santander’s provisions, legal
proceedings, taxes and other risks.
For additional information on segments,
please see '4.1 Description of segments' of
the Economic and financial review chapter.
Grupo Santander's risk profile could be affected by the
macroeconomic environment, regulations and competition.
This financial information, prepared with the same Group-
wide principles, aggregates figures for our various markets
and business subsidiaries, based on accounting data and
management system reporting.
The segments shown 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.
1.2 2020 key achievements
We delivered simple, innovative processes that empowered
our people to make better and faster decisions for our
customers and created sustainable value for our
shareholders.
Covid-19 crisis management
Unprecedented
response: EUR 112bn in
customer support
measures
Continuous adapted
reporting to the board
and committees
Clearer segmentation to Preparedness for
identify vulnerable
industries/customers
collections and
recoveries
Impact estimation under
various scenarios to
determine provision
needs
Operational excellence
Our target operating
model prepared us for a
turn in the cycle with
pre-approvals and early markets
warnings
Digitalisation reduced
time to yes and time to
cash in core mortgage
Cybersecurity risk
challenge and oversight
helped monitor
automation, data
gathering and reporting
IT, cyber, third-party,
internal control and
fraud risk operating
models were reinforced
Creating value
Capital accuracy
strengthened key
models according to ECB of our top risks
Model Simplification
Plan
Capabilities improved to Our strategic One FCC
handle climate risk, one
and Conduct Risk
transformation projects
set common standards
New ways of working
One Santander: global
models & data hub and
SCIB hub
New regional CRO and More efficient,
integrated risk
leads: Europe, N.
compliance processes
America and S. America
Our risk culture is key to
managing the covid-19
crisis successfully
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1.3 Santander's top and emerging risks
Our forward-looking risk management and control practices
detect, examine and monitor threats to our strategic plan
through regular analysis of top and emerging risks under
various scenarios. The aim is to identify and understand
relevant internal and external threats that could undermine
our profitability, solvency and strategy.
Top risk detection is a bottom-up process. It considers risks in
our subsidiaries and across Grupo Santander; these are
identified in our first line of defence and then challenged by
the second line of defence. We also use those risks as inputs
for idiosyncratic scenarios in our ICAAP, ILAAP and the Group’s
recovery plan.
The pandemic caused an unprecedented downturn in the
global economy while accelerating changes long underway. It
acted as a catalyst for previously identified threats (detailed
below), whose severity varies with the duration and shape of
our recovery scenarios. It is already changing market
dynamics and consumer behaviours, and accelerating the
digitalization of the economy.
Regulatory capital requirements: Despite the temporary
flexibility of central banks and regulatory bodies to aid the
financial system, we remain mindful of risks stemming from
ever intense requirements of new Basel IV guidelines and the
Targeted Reviews on Internal Models (TRIM).
Our key mitigating actions were:
• Risk contribution to capital optimization: models
enhancement and management, market and operational
risk initiatives, and Credit Valuation Adjustment (CVA)
improvement.
• Managing capital to offset the effects of covid-19.
• Adapting risk models to upcoming regulatory requirements.
Greater cyber-risk exposure: The new environment, with
more people working remotely as a consequence of covid-19,
heightens exposure to cyberattacks, phishing and malware.
Espionage, data leaks, system failures and other digital risks
are gaining importance in finance, much less the entire
economy.
Our top management monitors and takes mitigating actions
against major strategic risks such as:
Our key mitigating actions were:
A longer and more severe (“L” shaped) economic recession:
the worldwide spread of the coronavirus and the measures
taken to contain it brought on an economic downturn unlike
any other. If the pandemic grows more intense, it may lead to
a deeper, more protracted economic recession, political
instability and global protectionism in core markets.
Particularly, in the eurozone, under persistently low interest
rates and potential tensions on trade and financial relations
with the UK after Brexit, as well as in Latin American markets,
also affected by uncertainty.
Balanced diversification between mature and developing
markets and our product mix make Santander resilient to
macroeconomic risks. Several mitigating actions we took this
year helped reduce the severity of our exposure. These
include:
• Robust risk policies, procedures and proactive risk
management, which keep our risk profile within the
parameters of our risk appetite statement. Amid the
pandemic, Grupo Santander shared with subsidiaries
guidelines on treating affected assets, credit risks models,
loan moratoria and other topics. This promoted the
exchange of best practices and proved to be key in
managing the crisis.
• Strengthened disciplined risk management and recovery
and collection plans.
• Frequent follow-up meetings to monitor the liquidity risk
profile, contingency plans and commercial, market and
macroeconomic dynamics.
• Continuous monitoring of the political and social situation in
countries where we hold material exposures. Where
necessary, we adjusted limits and exposures to our risk
appetite.
• Expanding Global Cybersecurity alerts and monitoring to
prevent attacks.
• Making defence capabilities more agile, sustainable and
risk-based to further standardize and strengthen internal
defences, controls and insider threat protections.
Digital transformation and new competitive environment: In
this new environment spurred on by covid-19, competition
from existing players and new entrants increased, redefining
business, customer experience and market expectations and
accelerating the digitalization of companies. Regulation plays
a key role, and can sometimes create asymmetries between
new and traditional competitors.
Our key mitigating actions were:
• Digitalising the bank to become a global platform. This has
become paramount in this environment, and our
partnerships and joint ventures are playing an important
role in our transformation.
• Prioritizing e-commerce lending, SMEs initiatives,
collections reinforcement and other projects to mitigate the
effects of covid-19.
• Continuously embedding a group-wide culture of rapid
experimentation, sharing best practises and business
solutions.
Risks related to climate change: The initiatives governments,
international organizations, supervisors and regulators are
launching to assess the impact of climate change on the
financial sector demand greater transparency and reporting
of the risks it might pose to banks performance, resilience and
business strategies. Proactive climate risk management is
vital so banks can identify, and respond to, risks in a timely
manner.
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Climate-related risks fall into two categories: (1) risks relating
to the transition to a low-carbon economy and (2) risks from
the physical impacts of climate change.
In an interconnected world where global problems demand
global solutions, the pandemic highlighted the importance of
coordination and cooperation to combat the health crisis and
its economic consequences and therefore, the need to
address climate change risks under that approach to avoid its
potential consequences.
Our key mitigating actions were:
• Direct involvement of our top management through the
established governance.
• A climate project jointly led by Responsible Banking, SCIB
and Risk to develop risk measurement methodologies,
climate related metrics, strategy, policies and products. The
project also progresses in implementing the
recommendations of the Task Force for Climate-related
Financial Disclosures, the European Central Bank and other
authorities on climate-related and environmental
• Continue disclosing our progress in integrating climate
initiatives into our processes and policies.
• Working together with customers to support them in their
transition to reduce carbon emissions. Supporting inclusive,
sustainable growth and the transition to a low-carbon
economy by financing renewable energy and smart
infrastructures, always mindful of social and environmental
risks and rewards.
• Taking an active role in international forums and working
groups to promote the energy transition scheme, including
the United Nations Environment Programme Finance
Initiative (UNEP FI) pilot to develop scenarios, models and
metrics to assess climate-related risks and opportunities in
the future.
Additionally, we identified "game changers" that could shape
our long-term strategy and transformation plan, such as:
asymmetry on natural resource availability, new consumer
behaviours, the changing geopolitical landscape, political
fragmentation, social and demographic changes, legal
loopholes and others.
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2. Risk management
and control model
Our risk management and control model is underpinned by common
principles, a strong risk culture, a solid governance structure and advanced
risk management processes and tools
2.1 Risk principles and culture
Our risk principles below are compulsory. They comply with
regulatory requirements and are inspired by best market
practices:
1. All employees are risk managers. Employees must
understand the risks inherent in their jobs, avoiding them
wherever the impact is unknown or exceeds our risk
appetite.
2. Engagement of top management, who must act and
communicate to manage risks consistently, supervise our
risk culture and make sure we keep our risk profile within
our risk appetite.
3. Independent risk management and control functions,
consistent with our model of three lines of defence, which
is further explained in section 2.3 'Risk and Compliance
governance' of this chapter.
4. A forward-looking, comprehensive approach to risk
management and control for all businesses and risk
types.
5. Detailed, timely information to detect, assess, manage
and report risks to the appropriate level of management.
Grupo Santander’s holistic control structure stands on these
principles, plus a series of strategic tools and procedures
embedded in our risk appetite statement, such as: our risk
profile assessment, scenario analysis, our risk reporting
structure and the annual planning and budget process.
Risk culture - Risk Pro
Our strong risk culture, called Risk Pro, is based on the
principle that all employees are risk managers. It is part of
The Santander Way and covers all risks to promote socially
responsible management that supports long-term
sustainability.
More details available in the 'Risk pro: our
risk culture' section of the Responsible
Banking chapter.
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2.2 Risk factors
Grupo Santander's classification of risks ensures effective risk
management, control and reporting. Our risk framework
distinguishes these key risk types:
Credit risk relates to financial loss arising from the default or
1 credit quality deterioration of a customer or counterparty, to
which Santander has directly provided credit or assumed a
contractual obligation.
Market risk results from changes in interest rates, exchange
2 rates, equities, commodities and other market factors, and
from their effect on profits or capital.
Liquidity risk occurs if liquid financial resources are not
3 enough to meet due obligations or can only be obtained at a
high cost.
Structural risk relates to the changing value or margin of
4 assets or liabilities in the banking book owing to changes in
market factors and balance sheet behaviour. It includes risks
from insurance, pension activities or an inadequate quantity
or quality of capital to fulfil internal business objectives,
regulatory requirements or market expectations.
Operational risk is the possibility of losses from inadequate
5 or failed internal processes, people and systems, or from
external events. It includes legal risk and conduct risk.
Regulatory compliance risk is the risk of not fulfilling legal
6 and regulatory requirements and supervisors’ expectations,
and may lead to fines, financial penalties or other sanctions.
Model risk involves potential losses resulting from
7 inaccurate predictions that lead to sub-optimal decision-
making, or from a misuse or inadequate implementation of a
model.
Reputational risk consists of potential losses from damage
8 to its reputation amongst employees, customers,
shareholders/investors and the wider community.
Strategic risk relates to losses or damage to the medium-
9 and long-term interests of key stakeholders owing to
strategic decision-making, poor execution of strategy or
failure to adapt to external developments.
We also consider environmental and climate-related risk
drivers (whether physical or transition-led) as factors that
could impact the exiting risks in the medium and long-term.
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2.3 Risk and Compliance governance
Grupo Santander’s robust risk and compliance governance
structure allows us to conduct effective oversight in line
with our risk appetite. It stands on three lines of defence, a
structure of committees and strong Group-subsidiary
relations, guided by our risk culture, Risk Pro.
Lines of defence
Our model of three lines of defence effectively manages and
controls risks:
First line
Second line
Third line
Businesses and functions that
originate risks make up the first line
of defence, which identifies,
measures, controls, monitors and
reports risks. It adheres to all risk
management policies and
procedures, making sure risks fit
within risk appetite and other limits.
The Risk and Compliance & Conduct
functions form the second line of
defence to provide independent
oversight and challenge to risk
management decisions from the first
line. The second line of defence
ensures risks are managed according
to risk appetite, strenghtening our
risk culture across Grupo Santander.
The Internal Audit function is
independent to assure senior
management about the quality and
effectiveness of internal controls,
risk management. governance and
systems, helping to safeguard our
value, solvency and reputation.
The Risk, Compliance & Conduct and Internal Audit functions
are separate and independent. Each has its own direct access
to the board of directors and its committees.
Risk and Compliance committees structure
The board of directors' duties include risk and compliance
management and control. It regularly revises and approves
risk appetite and frameworks, strengthening and promoting
our risk culture. In its duties, the board is supported by the
risk supervision, regulation and compliance committee and
the Grupo Santander executive committee.
For more details, see section 4.8 ‘Risk
supervision, regulation and compliance
committee activities in 2020’ of the chapter on
Corporate governance.
The Group chief risk officer (Group CRO) is responsible for
devising risk strategy, overseeing all risks, and challenging
and advising business lines on their risk management.
The Group chief compliance officer (Group CCO) promotes
the adherence to rules, supervisory requirements, principles
of good conduct and values. This role determines the
compliance and conduct strategy, and independently
oversees and challenges the compliance and conduct risk
management of the first line of defence.
Both the Group CRO and CCO have direct access, and report
to, the risk supervision, regulation and compliance committee
and the board of directors.
The executive risk, risk control and general compliance
committees are also at the top of our risk and compliance
governance, with authority delegated by the board of
directors. Further detail is provided in the table below:
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Duties:
Executive risk committee
(ERC)
Risk control committee
(RCC)
General compliance
committee
This committee is responsible for
risk management duties
delegated by the board, being
authorized to accept, modify or
scale those actions or
transactions that may expose the
entity to a relevant risk as well as
the most significant models. It
takes the highest-level risk-
related decisions within the
group’s risk appetite.
This committee is responsible for
risk control and for providing a
holistic view of all risks. It
determines if the risks business
lines are being managed
according to risk appetite. It also
identifies, monitors and
evaluates the impact of current
and emerging risks on the
group's risk profile.
The committee is responsible for
reviewing significant compliance
and conduct risk events, and
evaluating related measures. It
devises and assesses corrective
actions for compliance risks
owing to shortcomings in
management and control or new
risks.
Chair:
CEO
Group CRO
Group CCO
Composition: Nominated executive directors
and other senior managers from
the Risk, Finance and Compliance
& Conduct functions (the Group
CRO has veto power over
committee resolutions).
Senior managers from the Risk,
Compliance & Conduct, Finance,
Accounting and Management
Control functions (CRO from
subsidiaries regularly report on
their own risk profiles).
Senior managers from the
Compliance & Conduct, Risk,
Accounting and Management
functions. The committee chair
has a casting vote over
committee resolutions.
Risk functions have forums and regular meetings to manage
and control the risks under their scope. Their responsibilities
include:
• Reporting to the Group CRO, Group CCO, the risk control
committee and general compliance committee on risk
management according to risk appetite.
• Monitoring each risk factor regularly.
• Overseeing measures to meet supervisor and auditor
expectations.
Grupo Santander may set up additional governance for special
cases:
• Amid the covid-19 pandemic, coordination and
communication with our subsidiaries is essential to making
sure our actions were effective, underpinned by written
communication, meetings, reporting and enhanced
governance. In early March, we implemented specific
weekly reporting mechanisms so all units could provide
detailed, standardized information.
We monitored the pandemic intensively through special
situation forums such as the credit risk war room, in
addition to our regular governance framework. Close
coordination between our subsidiaries and Group-wide and
local contingency plans (including scenario analysis)
strengthened resources and governance. As the crisis
developed, it became a multidisciplinary task force
composed of members from relevant functions to steer
units in managing credit risk with these special work
streams in place: i) monitoring and reporting; ii) sectorial
intelligence; iii) portfolio management; iv) credit strategy; v)
regulatory assurance; vi) credit forecasting and vii)
collections and recoveries.
• Furthermore, in view of Brexit, Grupo Santander and
Santander UK set up steering committees and separate
working groups to monitor the transition; develop
contingency plans; and escalate and make decisions to
minimise impact on our business and customers.
The Group’s relationship with its subsidiaries
Our subsidiaries’ risk and compliance management and
control models are aligned with frameworks established by
the group’s board of directors. Their own boards enforce them
in consideration of local market conditions and regulations.
As part of the aggregate supervision function for all risks,
Grupo Santander challenges and validates subsidiaries’
policies and transactions.This creates a common risk
management and control model across the group.
In 2020, a new approach was taken in the relationship with
our subsidiaries with the creation of three regions (Europe,
North America and South America) and the appointment of
three risk regional leaders.The aim is to enhance the
identification of synergies under a common operating model
and common platforms, leveraging the Group's global and
regional scale, as well as simplifying processes and
strengthening control mechanisms to support business
growth while optimizing capital allocation and better serving
our customers.
In this sense, each local CRO must regularly interact with, and
report to, the risk regional leaders, the Group CRO and the
Group CCO. Additionally, periodic follow-up meetings are
held between the different risk areas and the local
counterparts.
Furthermore, the Group CRO, the Group CCO, and Risk
Regional Leaders take part in appointments, target setting
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and local CRO evaluations and remuneration to make sure
risks are appropriately controlled.
We undertook various initiatives to enhance the relationship
between the Group and its subsidiaries and apply an
advanced risk management model:
• It is worth highlighting, the close collaboration in relation to
covid-19 to share best practices, experiences, provide
support in scenario analysis, additional provision
estimations, etc.
• Development of organizational structures, subsidiary
benchmarks and a strategic vision of the Risk and
Compliance function to promote the most advanced and
efficient risk management infrastructures and practices.
• Cooperation to share best practices, strengthen processes
and drive innovation for a quantitative impact.
• Identification of talent in the Risk and Compliance teams,
encouraging international mobility through the global risk
talent programme.
• Risk Subject Matter Experts to bring together a community
of specialists.
For more details on our relationship with our
subsidiaries, see section 7 ‘Group structure and
internal governance’ of the chapter on Corporate
Governance.
2.4 Risk management processes and tools
Grupo Santander has these effective risk management
processes and tools:
Risk appetite and structure of limits
Risk appetite is the volume and type of risks deemed prudent
to assume for our business strategy, even under unexpected
circumstances. It considers adverse scenarios that could have
a negative impact on capital and liquidity, profitability and/or
the share price.
The board sets the group's risk appetite statement (RAS)
every year. The boards of our subsidiaries also set their own
risk appetites annually, in line with the consolidated Group-
wide RAS. Each of those risk appetites cascades down into
specific, detailed limits and policies based on risk type,
portfolio and segment.
Business model and risk appetite fundamentals
Grupo Santander's risk appetite is consistent with our risk
culture and our unique business model built on customer
focus, scale and diversification. At the core of our risk appetite
are:
• a medium-low target risk profile that is predictable,
centred on retail and commercial banking, internationally
diversified operations and strong market share;
• stable, recurrent earnings and shareholder remuneration,
sustained by sound capital, liquidity and sources of funding;
• self-run subsidiaries with their own sources of capital and
liquidity and risk profiles that do not compromise Grupo
Santander’s solvency;
• an independent risk function with active senior
management that embeds a strong risk culture and drives a
sustainable return on capital;
• a global, holistic view through extensive control and
monitoring of risks, businesses and markets;
• a focus on products we know well;
• a conduct model that protects our customers;
• a remuneration policy that reconciles employees and
executives' interests to risk appetite and long-term results.
Santander's risk appetite principles
The principles informing our risk appetite are:
• the board and senior management's responsibility for risk
appetite.
• an enterprise-wide view, risk profile back-testing and
challenge, using quantitative metrics and qualitative
indicators.
• a forward-looking approach based on plausible
assumptions and adverse/stress scenarios to reflect our
desired risk profile in the short and medium term.
• strategic and business plans embedded in daily
management by policies and limits.
• common standards aligning each subsidiary with Grupo
Santander.
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• regular reviews, regulatory requirements and best
practices with mechanisms in place to keep the risk profile
stable and mitigate non-compliance.
Limits structure, monitoring and control
Our risk appetite is expressed in qualitative terms and limits
structured on these five core elements.
1 Earnings volatility
The maximum loss Grupo Santander can tolerate in an
acute stress scenario.
2 Solvency
• The minimum capital position Grupo Santander can
tolerate in an acute stress scenario.
• The maximum leverage we can accept in an acute
scenario.
3 Liquidity
• Minimum structural liquidity position.
• Minimum liquidity horizon Grupo Santander is willing
to accept in 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 • Maximum operational risk losses.
• Maximum risk profile.
• Non-financial risk indicators:
◦ Fraud
◦ Technological
◦ Security and cyberrisk
◦ Reputational
◦ Others
While risk appetite limits are regularly monitored, specialized
control functions report on risk profile and compliance with
limits to the board and its committees every month.
Risk appetite limits cascade down to business units, risk types
and portfolios. This makes risk appetite an effective tool for
managing risks. Management policies and limits are directly
based on the principles and limits in the risk appetite
statement (see sections 3.2 ‘Credit risk management’, 4.2
‘Market risk management’ and 4.4 ‘Structural balance sheet
risk management’ of this chapter).
Key 2020 developments
Grupo Santander thoroughly reviewed the impact of covid-19
and the adequacy of our risk appetite to cope with the new
environment. Risk appetite limits remained broadly
unchanged despite extraordinarily challenging conditions.
Management focused on enhancing control over market
volatility, better representation and visibility of emerging
risks such as cyber security and other non-financial risks.
Our risk appetite statement also strengthened our
commitment to corporate social responsibility, the
environment and the Paris Agreement's transition to a low-
carbon and climate-resilient economy.
Risk profile assessment
In Grupo Santander we routinely identify risk types to
systematically and objectively evaluate our risk profile. This
helps address major threats to our business plan and strategic
objectives.
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Risk identification results inform our risk profile assessment
(RPA), which involves all lines of defence. It reinforces our risk
culture in analysing how risks evolve and identifying
improvement areas. Our RPA methodology covers these
areas:
• Risk performance, to understand residual risks by type
with international standard and indicators.
• Control environment, to measure the target-operating
model of our advanced risk management according to
regulatory requirements and best market practices.
• Forward-looking, based on stress metrics and top risks to
our strategic plan.
In 2020, we upgraded our control environment standards and
reviewed risk performance metrics, focusing on strategic,
compliance and conduct metrics. The inclusion of the "control
score" in the non-financial risks control environment enabled
us to better capture our risk profile.
Covid-19 had a negative impact on Grupo Santander's risk
performance. In triggering all scenarios we consider
(including those most severe), it led to a higher risk profile,
driven by higher provisions and budgetary deviations with
respect to profits. Non-financial risk profile remained stable,
with operational losses below 2019 figures, and better
liquidity performance.
The impact of covid-19 as a catalyst for relevant and
emerging risks was also key in the deterioration of our risk
profile in 2020. This deterioration has been contained by a
solid control environment, especially in credit risk, driven by
ATOMiC and collections and recovery preparation plans. All of
this has allowed us to maintain our risk profile at a 'medium-
low' level.
For more detail on Collections & Recoveries
preparedness plans, please go to 3.2 'Credit risk
management'.
Scenario analysis
The scenarios we analyse include macroeconomic and other
variables that can affect our risk profile in those markets in
which we operate. Scenario analysis is a useful tool for
managing risks at all levels, so we can gauge our resilience
under stressed conditions and formulate mitigating actions
on income, capital and liquidity if needed. For this, our
Research and Public Policy team is key in defining scenarios,
as well as our governance and control, including the review of
our top management and the three lines of defence.
Our scenario analyses are consistent and robust because we:
• create and run models that estimate how metrics such as
credit losses will perform in the future.
• back-test and regularly challenge model results.
• rely on expert opinions and a vast understanding of our
portfolios.
• exert robust control over models, scenarios, assumptions,
results and mitigating management actions.
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Grupo Santander has recurrently achieved excellent
quantitative and qualitative results in the European Banking
Authority (EBA) stress tests.
◦ Credit and market risk stress test exercises not only as a
response to regulatory exercises but also as a key tool
integrated in Grupo Santander’s risk management.
The global economic uncertainty caused by the covid-19 crisis
made it exceptionally difficult for businesses to plan ahead.
Our scenario analyses were key in identifying new action
points, developing business responses, adjusting our risk
strategy and preserving our strength and solvency.
Scenario analysis applications
Grupo Santander run scenario analysis at all levels under a
forward-looking approach that helps us anticipate potential
impacts on our solvency or liquidity. We run a systematic
review of our risk exposure under a baseline scenario and
various adverse and favourable scenarios.
These exercises are fundamental to several core processes:
• Regulatory exercises under the guidelines of the EU
supervisor and national supervisors.
• Internal capital adequacy assessment (ICAAP) and liquidity
assessment (ILAAP), for which Grupo Santander follows its
own methodology to assess capital and liquidity under
stress scenarios and support planning and management.
• Risk appetite, which includes stressed metrics to set the
maximum risk we can assume. The risk appetite and capital
and liquidity scenario exercises are closely interrelated but
have different frequencies and granularity.
• Climate change analyses to identify scenarios of risks and
opportunities. Pilot analyses are covering the wholesale
portfolio.
For more details, see 'Climate change and risk
management' in this section located in 2.6
‘Environmental and social risk’ of this report
For more details on scenario analysis, see
sections 3.2 ‘Credit risk management', 4.2
‘Market risk management’ and 4.6 'Liquidity risk
management' in this report
Amid the covid-19 pandemic and following supervisory
guidelines, our Research department created a set of
additional macroeconomic scenarios under a long-term stable
outlook approach to account for the observed worsening in
most indicators and assess expected losses. Grupo Santander
developed the scenarios through a robust process with great
effort from the teams involved, ensuring their consistency.
For more details on scenario analysis during the
covid-19 pandemic, see section 3.3 'Covid - 19
Credit risk management' in this report
Risk reporting structure
Our reporting continues to streamline processes, controls and
reports to senior management. The Enterprise Wide Risk
Management team updates and compiles the risk profile
overview under a forward-looking approach so senior
management can assess actual and future risks and take
appropriate actions.
There are three main types of risk reports: the weekly and
monthly risk reports distributed to senior management;
subsidiaries’ risk reports; and reports on each risk factor
identified in the risk framework.
Our strong risk reporting structure is characterized by:
• balancing data, analysis and qualitative comments,
including forward-looking measures, risk appetite alerts,
limits and emerging risks.
• Recurrent risk management in:
• covering all risk factors in our risk framework.
◦ budget and strategic planning: when implementing a
new risk approval policy, in Grupo Santander’s risk profile
assessment by senior management or when monitoring
specific portfolios or lines of business
◦ the systematic process of identifying and analysing our
top risks, each of which is associated with a
macroeconomic or idiosyncratic scenario to assess their
potential impact.
◦ the recovery plan, which is drawn up every year to
determine Grupo Santander’s tools to overcome an
extremely severe financial crisis. The plan provides
financial and macroeconomic stress scenarios with
degrees of severity as well as idiosyncratic and systemic
events.
◦ IFRS 9. Since 1 January 2018, regulatory provision
requirements have included scenario analyses in related
processes, models and methodologies.
• combining a holistic and reliable view with deeper analysis
of each risk factor, our subsidiaries and markets.
• following the same structure and criteria and provides a
consolidated view to analyse all risks.
• following risk data aggregation (RDA) criteria to report on
metrics, ensuring data quality and consistency.
To respond to the covid-19 crisis, the reporting function, as
acknowledged by the ECB's Single Supervisory Mechanism
(SSM), increased the frequency, customized reports and
produced new ones for the board and committees. It focused
on critical topics such as macroeconomic conditions, health
indicators, customer support measures and risk areas to
enable close monitoring and easier decision-making.
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2.5 Models & Data Unit
Grupo Santander created the Models & Data Unit on May
2020. Because of the close link between models and data, we
merged Santander Analytics and the Data Unit. However,
Internal Validation remains a separate team, allowing full
independence between the first and second lines of defence.
The Models & Data Unit sets about having an end-to-end view
of the models and the data value chain for better data
governance, quality, and a cross-functional scope of risk and
business models.
The unit's main priority is to develop regulatory models. In
particular, it focuses on internal rating based (IRB)
implementation, fostering excellence in risk modelling with
best-in-class analytics and quality data to ensure compliance,
accuracy, stability and robustness. The new unit oversees all
of our regulatory models and services our needs, paying
special attention to machine learning and other digital
transformation initiatives at the top of the agenda.
The Models & Data Unit's role is crucial in Grupo Santander. It
boosts analytical capabilities to help us better understand our
customers, tailor our value proposition to them and inspire
their loyalty, which is at the core of our strategy.
This unit also supports subsidiary and parent businesses
through successful initiatives in place. These include the use
of machine learning on customer experience, operational
process automation with cognitive robots and financial crime
detection. The Models & Data Unit also helps Grupo
Santander in developing new data-driven business models
aligned with our digital strategy.
Since the outbreak of covid-19, Grupo Santander's risk
models have taken our payment holidays and other support
measures into account. They are assessed with the best
analytical tools to improve risk monitoring. Our priority is to
make sure our risk models remain predictable and give
management and regulatory processes the right support.
We updated model ratings based on a long-term outlook and
reinforced monitoring. In calculating IFRS 9 provisions and
other processes, model outputs were sometimes
supplemented with expert opinions to fully capture the
expected impact of the pandemic.
Grupo Santander commits to using data and artificial
intelligence responsibly and following international standards
and regulations. In fact, our advanced analytics global tools
developed internally have engrained a number of
functionalities ensuring non-discrimination, transparency and
accountability.
2.6 Environmental and social risk
Grupo Santander’s risk management and control model
contributes to our sustainable growth by promoting the
conservation of the environment, the protection of human
rights and the transition to a low-carbon economy.
The board has approved environmental and social policies
that describe those activities in oil, gas, power generation,
mining and metals, and soft commodities sectors to which
the group cannot provide financial products or services as
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well as other activities that require an in-depth analysis of
potential impacts on the environment and society.
The annual review of these policies is led by the global
environmental and social risk management (ESRM) function
who, in consultation with our credit risk, responsible banking
and reputational risk functions and business areas, proposes
updates to the board to make sure the policies continue to
meet international practices and standards and are aligned to
the group’s sustainability strategy.
In 2020, we have continued to evolve our criteria and, in
January 2021, the board approved additional prohibitions on
the financing of projects involved in the exploration,
development, construction or expansion of unconventional oil
& gas (e.g. tar sands/fracking/coal bed methane); the
construction or development of infrastructure associated to
coal-fired power plants or coal mines; and new clients with
coal mining operations. In addition, the three previous policies
were merged into a single document.
Grupo Santander's environmental and social
policy can be found at the corporate website
To ensure the application of these criteria, Santander relies on
environmental and social (E&S) risk assessments of
customers and transactions, especially in the Santander
Corporate and Investment Banking (SCIB) division, which
holds most customers and exposures outlined in the policies.
In a detailed questionnaire, SCIB clients are first reviewed by
our business areas; then a dedicated team of 'green analysts'
provide overall assessments on E&S risks. In 2020, and
continuing into 2021, the questionnaires are being enhanced
with the inclusion of climate change related customer
information.
Additionally, we have applied the Equator Principles to our
project finance since 2009 and continue to promote them
through the Equator Principles Association working groups.
To support the changes introduced by the Equator Principles
IV, over 150 front office and support staff were trained in the
new questionnaires to review and classify transactions.
Equator Principles reporting from Santander is
available in section ‘Environmental and social
risk analysis’ of the Responsible Banking
chapter.
Climate change and risk management
2020 has been a landmark year in the advancement of
climate change as a key risk topic. The risk division continued
to actively deliver on internal projects and external initiatives
related to climate change risk management, continuing to
embed this risk within our risk evaluation.
As described in Grupo Santander's general risk framework,
we consider environmental and climate-related risk drivers
(whether physical or transition-led) as factors that could
impact the existing risks in the medium and long-term.
The main risk management processes and tools described in
the previous sections of this document have been
progressively embedding climate risk in their scope during
the last years, including:
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• Our risk appetite statement (RAS) strengthened our
commitment to socially responsible activities, the
environment, and the Paris Agreement's transition to a low
carbon, climate-resilient economy. It will continue to
evolve during 2021 and beyond, to accompany the group
strategy, the evolution of the available climate
measurement methodologies, and the guidance from
regulators and supervisors.
• The top and emerging risk assessment process
continuously evaluates, along with other sources, climate-
risk potential implications in our strategy. It is a joint
process between headquarters and our subsidiaries.
• The result of the top risk assessment is also an input for
idiosyncratic scenarios in our ICAAP, ILAAP and the group’s
recovery plan. As climate change data and methodologies
(including scenario analysis and stress testing) become
more available and tested, the input will evolve from
predominantly qualitative to more quantitative.
Key developments in the first half of the year were reported
in our annual climate finance report. In summary, these
include the publication of an internal heat map for sectors
particularly vulnerable to physical and transition risk, as well
as detailed climate change sector briefings for the highly
emitting sectors of oil & gas, power, steel and mining and
metals.
For Grupo Santander's climate change
report, visit our corporate website.
During the second half of 2020, we focused our risk
management on four main initiatives.
First, the in-depth review of our materiality assessment of
consolidated exposures to climate change-related transition
and physical risk, based on our internal classification of sector
taxonomy and heatmaps, following climate change scenarios
that map the pathways aligned with limiting global warming
to well below 2ºC. This quarterly materiality analysis has
focused on the more relevant portfolios in SCIB, commercial
banking and retail mortgages.
During our 2020 materiality assessment, we confirmed that
approximately 90% of our exposure to the most concerning
sectors related to transition risk is mainly in SCIB. As part of
our risk taxonomy, we have colour coded the sectors based on
their climate impact. Conventional power and oil & gas are
the sectors most at risk, with lower impacts expected on
mining & metals (including steel manufacturing) and
transportation.
The table below provides a breakdown of SCIB exposures as
of 31 December 2020:
Conventional Power
15
Renewables Project Finance
Oil & Gas
Mining & Metals
Transportation
Total most concerning sectors
EUR billion
13
% of total
14
Loans
23
9
18
8
27
76
2 %
1 %
2 %
1 %
3 %
8 %
Further information on the output of
the PACTA pilot is available in section
'Tackling climate change' of the
Responsible Banking chapter.
Other sectors classified as medium risk in the assessment are
manufacturing, construction, agriculture and water supply. In
SCIB its exposure amounts to ~ EUR 57 billion, which
represents ~70% of the total exposure to rated corporates in
these sectors.
The mortgage portfolio amounts to EUR 308.5 billion, mainly
in the UK and Spain. We are closely following methodological
developments for the measurement of physical and transition
impacts, including pilot exercises involving physical risks in
the mortgage book. Santander continues to analyze the
physical and transition risk of all sectors and segments.
Second, guided by the materiality analysis, and supported by
the updated E&S questionnaires aforementioned, we
completed qualitative climate change risk assessments on the
SCIB top 20 customers in the oil & gas sector that were
presented to the relevant credit risk approval bodies for
consideration at the annual customer limit review. A similar
approach is being applied to the power and mining and
metals sectors for the annual 2021 review. This granular
customer-based assessment is shared with SCIB business as
an additional source of information on customers and their
level of awareness and preparation for a transition to a low-
carbon economy.
Third, through our continued participation in the United
Nations Environment Programme Finance (UNEP FI) phase II
working group, we keep advancing in the definition of an
internal methodology to enable us to calculate climate
change related impacts on our credit risk exposures by
modelling changes to probabilities of default, loss given
defaults and expected losses.
In collaboration with our Research and Methodology
functions we have deepened our understanding of climate
change scenarios, in particular those published by the
Network for Greening the Financial System (NGFS), and of the
various risk factor pathways that apply to our most relevant
sectors included in the transition risk methodology. During
2021 our focus will be on applying this methodology. We will
13
Total exposure to corporates and project finance in climate concerning sectors. Exposure defined as committed facilities (drawn and undrawn), drawn uncommitted
facilities on and off balance sheet (loans + guarantees + derivatives Potential Future Exposure).
14
15
Gross Loans and advances to customers.
Companies with power generation diversified across fuel sources - coal, gas, nuclear or renewables. It also includes power distribution networks.
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continue developing the transition and physical risk portfolio
assessment tools for SCIB and the mortgage portfolios.
Fourth, we actively engaged with external providers of
climate-related risk assessment models and data for
transition and physical risk, and we are testing a number of
options to combine with our internal progress described
above.
In addition to these four initiatives, the Group has participated
in several regulatory or industry-led work streams, including:
• The implementation of the environmental and climate
change sections of the European Banking Authority’s (EBA)
guidelines on loan origination and monitoring. We are
embedding the guidelines through a series of internal
credit assessment guides to support credit analysts in the
climate change risk analysis of our corporate customers.
• The risk function is also co-sponsor of the global project to
implement the European Central Bank Guide on climate-
related and environmental risks. A comprehensive multi-
year project plan has been actioned, bringing together the
deliverables required to meet supervisory expectations,
disclosures aligned to the Task Force for Climate Related
Financial Disclosures (TCFD) recommendations, and the
commitments arising from our participation in the
Collective Commitment to Climate Action.
• ‘EBA Climate Risk Sensitivity Exercise’, a pilot which is
proving very useful for testing the applicability of the EU
taxonomy to the financial industry portfolios, including the
availability of data, the usefulness for risk management
purposes, the potential disclosure issues, etc.
• We also continue to actively participate in industry working
groups, and we remain a principal contributor to the public
policy consultations that have taken place both in EU and in
other markets of the group. This includes, among other
regulatory pieces, providing feedback to the ‘EBA
Discussion Paper on Environmental, Social and Governance
(ESG) risks management and supervision’, which will be a
cornerstone for the future development of a risk related
regulatory framework.
Further information is available in
the Responsible Banking chapter.
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3. Credit risk
3.1 Introduction
Credit risk refers to a potential financial loss from the default
or credit quality deterioration of a customer or other third
party with whom Grupo Santander has a contractual
obligation. It is our most important risk in terms of exposure
and capital consumption. It also includes counterparty risk,
country risk and sovereign risk.
See section 3.3 'Covid- 19 Credit risk management' for more
details on Grupo Santander's main initiatives to manage
credit risk during the covid-19 crisis.
3.2 Credit risk management
We identify, analyse, control and decide on credit risk based
on holistic view of the credit risk cycle, which includes the
transaction, the customer and the portfolio. Business and risk
areas and top managers are part of this process.
Credit risk identification is key to managing and controlling
our portfolios effectively. We classify external and internal
risks in each business and adopt corrective and mitigating
measures when needed through these processes:
1. Planning
Our planning helps us set business targets and define specific
action plans within our risk appetite framework.
Strategic commercial plans (SCP) are a management and
control tool defined by the business and risk areas for our
credit portfolios. They determine commercial strategies, risk
policies, resources and infrastructure, ensuring a holistic view
of the portfolios. They provide managers with an updated
view of credit portfolio quality to measure credit risk, run
internal controls over the defined strategy coupled with
regular monitoring, detect significant deviations in risk and
potential impacts, and take corrective actions when
necessary. They also align with our risk appetite and our
subsidiaries’ capital targets, and are approved and monitored
by senior managers at each subsidiary before being reviewed
and validated by Grupo Santander.
2. Risk assessment and credit rating
To analyse customers’ ability to meet contractual obligations,
we use valuation and parameter estimation models in each of
our segments. Our credit quality valuation models are based
on credit rating drivers, which we monitor to calibrate and
adjust the decisions and ratings they assign. Depending on
each segment, drivers can be:
1 Rating: from mathematical algorithms that have a
quantitative model based on balance sheet ratios or
macroeconomic variables, and a qualitative module
supplemented by the credit analyst’s expert judgement. It
is used for SCIB, corporate, institutional and SME
segments (with individualised treatment).
Scoring: an automatic system to evaluate credit
2 applications that assigns an individual score to customers
for subsequent decision-making, generally in the retail
and smaller SME segments.
Our parameter estimation models follow econometric models
built on our portfolios' historical defaults and losses. We use
them to calculate economic and regulatory capital as well as
IFRS 9 provisions for each portfolio.
We regularly monitor and evaluate models' appropriateness,
predictive capacity, performance, granularity, compliance
with policies and other related factors. We review ratings
with the latest available financial and other relevant
information. We have also increased the reviews for
customers who are under closer observation or have
automatic warnings in the risk management systems.
3. Credit risk mitigation techniques
Risk approval criteria are generally based on the borrowers’
ability to pay in fulfilment of financial obligations,
notwithstanding any additional collateral or personal
guarantees we can require from them. To determine this, we
analyse funds or net cash flows from their businesses or
income with no guarantors or the assets pledged as
collateral. We always consider guarantors and collateral
when deciding to approve a loan as a secondary means of
recourse if the first channel fails.
In general, a guarantee is as a reinforcement measure added
to a credit transaction to mitigate a loss due to a failure to
meet a payment obligation.
Grupo Santander has credit risk mitigation techniques for
various types of customer and products. Some are for specific
transactions (e.g., property) while others apply to a series of
transactions (e.g., derivatives netting and collateral). They can
be grouped into personal guarantees, guarantees in the form
of credit derivatives or collateral.
4. Limits, pre-classifications and pre-approvals
We use SCPs to manage credit portfolios, defining limits for
each of them and for new originations, in line with our credit
risk appetite and our target risk profile. Transposing our risk
appetite to portfolio management strengthens controls over
our credit portfolios.
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Our limits, pre-classifications and pre-approvals processes
determine the risk we can assume with each customer. The
business and risk areas set risk limits that are approved by the
executive risk committee (or delegated committees) and
should reflect a transaction’s expected risk-return.
• For SCIB, monitoring is initially a function of business
managers and risk analysts who maintain direct
relationships with customers, manage portfolios and
provide us with an up-to-date view of customers’ credit
quality to anticipate concerning situations.
We apply various limits models to each segment:
• Large corporates are subject to a pre-classification model
based on a system for measuring and monitoring economic
capital. Pre-classification models express the level of risk
we are willing to assume in transactions with customers/
groups in terms of capital at risk, nominal cap and
maximum tenors. To manage limits with financial entities,
we use Credit Equivalent Risk (CER), which includes actual
and expected risks with customers according to risk
appetite and credit policies.
• Corporates and institutions that meet certain
requirements (strong relationships, rating, etc.): we use
simpler pre-classification model with an internal limit. It
establishes a reference point in a customer's level of risk
based on repayment capacity, overall indebtedness and a
pool of banks.
Transactions with large corporates, corporates and
institutions above certain limits or with special
characteristics could require approval from a senior credit
analyst or a committee.
• For individual customers and SMEs with low turnover, we
manage large volumes of credit transactions with
automatic decision models to classify customers and
transactions.
5. Scenario analysis
In line with section 2.4 ‘Management processes and tools’ in
this chapter, our scenario analyses determine the potential
risks in our credit portfolios and provide a better
understanding of our portfolios' performance under various
macroeconomic conditions. They allow us to anticipate
management strategies that will avoid future deviations from
defined plans and targets. They simulate the impact of
alternative scenarios in portfolios’ credit parameters (PD,
LGD) and expected credit losses. We compare findings with
portfolios’ credit profile indicators to find the right measures
for managers to take. Credit risk management of portfolios
and SCPs incorporate scenario analyses.
For more details on scenario analysis and
covid-19, please see section 3.3 'Covid-19 credit
risk management'below.
6. Monitoring
Regularly monitoring business performance and comparing it
to pre-defined plans is key to our management of risk. Our
holistic monitoring of customers helps early detection of
impacts on risk performance and credit quality. We assign
customers a monitoring classification with a pre-defined
course of action and ad hoc measures to correct any
deviations. Monitoring, which considers transaction forecasts
and characteristics, in addition to changes in classification, is
performed by local and global risk teams supported by the
Internal Audit unit and is based on customer segmentation:
438
• For commercial banking, institutions and SMEs with
assigned credit analyst, we track customers requiring
closer monitoring and review their ratings based on
relevant indicators.
• For individual customers, businesses and smaller SMEs, our
monitoring follows a system of automatic alerts to detect
shifts in portfolios’ performance.
Monitoring uses the Santander Customer Assessment Note
(SCAN) tool. We fully rolled it out in our subsidiaries in 2019.
It helps set individual monitoring levels and frequencies,
policies, and actions for customers based on credit quality and
particular circumstances.
In addition to monitoring customer credit quality, we define
control procedures to analyse portfolios and performance, as
well as any deviations from planning or approved alert levels.
7. Collections and recoveries
The Collections & Recoveries area is key to risk management.
It defines a global, enterprise-wide management strategy
with guidelines and general lines of action for our subsidiaries
based on the economic environment, business model and
other local recovery conditions. Recovery management
follows regulatory requirements set out in the EBA Guidelines
on the management of non-performing and forborne
exposures.
The Collections & Recoveries areas directly manage
customers. As sustained value creation is based on effective
and efficient collections, digital channels that develop new
customer relations are gaining importance. Our diverse
customer base requires segmentation to manage recoveries
appropriately. The highly technological and digital processes
we follow help us attend to large groups of customers with
similar profiles and products. Our personalized management,
however, focuses on customer profiles that require a special
manager and approach.
We split recovery management into four phases: arrears,
non-performing loans, write-offs and foreclosed assets. We
may use mechanisms to rapidly reduce assets like sales of
foreclosed assets or non-performing loans pool sales. We
constantly seek alternatives to legal action in order to collect
debt.
We include debt instruments in the write-off loans category,
(even if they are not past-due) if an individual analysis of the
solvency of a transaction and the borrower leads us to believe
recovery is remote due to a notorious and unrecoverable
impairment. Though this may lead to full or partial
cancellation and de-recognition of the gross carrying amount
of debt, it does not mean we interrupt negotiations and legal
proceedings to recover debt. In countries with high exposure
to real estate risk, we have efficient sales management
instruments that help maximize recovery and optimize
balance sheet stocks.
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For more details on Collections and Recoveries in
covid-19 management, see section 3.3 'Covid-19
credit risk management' below.
Forborne portfolio
Grupo Santander's internal forbearance policy acts as a
reference for our subsidiaries locally. It shares the principles
of regulations and supervisory expectations. It includes the
requirements of the EBA guidelines on management of non-
performing and forborne exposures. It defines forbearance as
the modification of the payment conditions of a transaction to
allow a customer experiencing financial difficulties (current or
foreseeable) to fulfil their payment obligations. If forbearance
is not allowed, there would be reasonable certainty that the
customer would not be able to meet their financial
obligations.
In addition, our policy also sets down rigorous criteria for
evaluating, classifying and monitoring forbearances to ensure
the strictest possible care and diligence in recovering due
amounts. Thus, it dictates that we must adapt payment
obligations to customers' current circumstances. Our
forbearance policy also defines classification criteria to ensure
we recognize risks appropriately. They must remain classified
as non-performing or in watch-list for a prudential period for
reasonable certainty of repayment.
Forbearances may never be used to delay the immediate
recognition of losses or hinder the appropriate recognition of
risk of default. Thus, we must recognize losses as soon as we
deem any amounts irrecoverable.
The forborne portfolio stood at EUR 29,159 million at the end
of December 2020. 51% of the loans qualify as non-
performing, with average coverage of 43%.
Key figures of forborne portfolio
EUR million
Performing
Non-performing
Total forborne
% Coverage
A
2020
14,164
14,995
29,159
28%
2019
15,199
17,276
32,475
28%
2018
20,877
20,357
41,234
26%
A. Total loan-loss allowances/total forborne portfolio.
Our forborne portfolio decreased by 10% as of December
2020, in line with the trend observed in previous years.
Credit risk target operating model (ATOMiC)
ATOMiC (Advanced Target Operating Model in Collaboration)
launched in 2019 to enhance local credit risk Target
Operating Models (TOM) as part of our risk strategy. It aims
to strengthen our competitive position in the industry against
any downturn. It sets high credit standards based on best
practices within Grupo Santander and across the industry,
local expertise and support from headquarters. In 2020, our
progress led to the completion of several initiatives, as others
advanced further into 2021.
Due to covid-19, we revised the ATOMiC goal to prioritize
collections and recoveries, automation and digitalization of
lending, anticipation and forward-looking (including risk
playbooks) and risk-based pricing and profitability. This
enabled us to take highly effective, early actions to mitigate
the impact of ensuing crisis, such as:
• Enhanced customer monitoring, which supported our
response to government aid programmes (e.g., RADAR
early warning system and preapproval for ICO loans in
Spain).
• Digital collections for omnichannel solutions (in Poland).
• Digital on-boarding and new platforms and technologies to
transform collections and recoveries with a significant
economic impact on provisions (in Brazil).
• Risk playbooks to define actions with commercial areas
ahead of a potential macroeconomic deterioration (in
Mexico).
• The advanced RORAC tool for risk-based pricing in the
corporates segment across the group.
• Automated mortgage approvals on digital channels, which
had major impact on new originations (in Portugal and
Mexico).
Moreover, ATOMiC addressed the regulatory requirements
for pricing, monitoring and scenario analysis in EBA
Guidelines on Loan Origination and Monitoring.
3.3. Covid-19 credit risk management
During the covid-19 pandemic, to help our customers and
foster their economic resilience, the credit-related actions we
took include:
• providing liquidity and credit facilities to customers facing
hardship. Grupo Santander increased lending to customers
through usual loan approval procedures and based on
internal ratings, while facilitating government aid
programmes.
• granting payment deferrals on outstanding loans within
our geographies, under the guidelines on legislative and
non-legislative moratoria on loan repayments the EBA had
issued in light of the covid-19 crisis along with other
regulators statements.
Accordingly, these moratoria are not considered to be
automatic indicators for identifying these measures as
forbearance. Likewise, moratoria have not been considered
by themselves as an automatic trigger to conclude that a
significant increase in credit risk has occurred. Nevertheless,
we set up a robust control and reporting framework for
loans under moratoria to monitor measures and loan
performance before and after the expiration of granted
repayment extensions.
• The severity of the pandemic's effects varied significantly in
industries. Consequently, Santander set out to identify ones
that could be more affected to focus credit risk
management.
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• We prepared Collections & Recoveries across our footprint
to deal with the expected impact on portfolios once support
measures expired.
• Credit risk management specifically focused on quantifying
expected credit losses as a result of the macroeconomic
shock, running analyses of the deterioration of our
customers' credit quality and other potential collective
measurements.
The sub-sections below provide additional details on our
actions.
Customer support programmes
Grupo Santander applied measures to all subsidiaries to
provide liquidity and credit facilities, and grant payment
deferrals to people and businesses facing hardship. They
supported 6 million customers across our footprint. By the
end of December, the payment moratoria we had granted to
4.8 million customers amounted to EUR 112 billion, which is
12% of our lending portfolio. The table below shows the
distribution of payment moratoria by business line:
# clients (mn) Total amount (EURbn)
o/w government
programmes
0.7
0.5
3.9
1
0.2
0.1
4.8
1.6
Mortgages
Consumer
SME &
Corporates
Total
22%
o/w government % lending
programmes portfolio
70
57
20
4
22
9
112
70
12%
9%
7%
At the end of 2020, 79% of total moratoria had expired and
only 3% of those were in stage 3. In spite of the
macroeconomic deterioration, performance was positive
because (a) our customers’ financial expenses were reduced
with payment deferrals; (b) covid-19 government measures
helped our customers maintain a steady stream of income;
and (c) government programmes provided additional liquidity
to firms so they could keep repaying financial debt.
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The table below shows the distribution by business line and
region:
Total moratoria
(EUR bn)
% loan book
o/w: expired
(EUR bn)
Expired as
% of Total
Expired
% Stage 1
% Stage 2
% Stage 3
Total Group
112
Mortgages
Consumer
SMEs &
Corporates
Europe
North America
South America
70
20
22
73
21
18
12%
22%
9%
7%
11%
18%
15%
89
55
18
16
53
20
16
Over 60% of outstanding loans under moratoria are
mortgages. These tables show how they are distributed by
business line and region:
Distribution of loans subject to moratoria by product
Dec. 2020 data (EUR bn)
79%
79%
88%
72%
73%
91%
90%
82%
87%
77%
74%
84%
75%
87%
15%
11%
17%
24%
14%
20%
9%
3%
2%
7%
3%
2%
5%
4%
The UK, Portugal, Spain and Chile account for almost 83% of
outstanding loans under moratoria, of which 83% are
secured. As of the end of December, total loans granted under
government liquidity programmes amounted to EUR 38
billion, with an average government guarantee coverage of
81%.
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Government Liquidity Programs by geography
Dec. 2020 data (EUR bn)
Spain accounted for 67% of total exposures to government
liquidity programmes at year-end and also had the longest
maturities (in both SME and corporates segments). The UK
was 13% of total exposures, mainly in Bounce Back Loans
(BBLS) (which are 100% covered by the UK government's
guarantee scheme).
Vulnerable sectors identification
To focus credit risk management on the most vulnerable
sectors, we analysed various identification inputs to have a
full view of:
• potential impacts on financial markets by sector and
geography (shareholders return).
• external advisory.
• opinions from our sector analysts to consider particular
details of our exposures and relationship with our
customers.
As a conclusion of all these analysis, the following are the
sectors considered most affected by Covid-19 (internal
management information as of December), with their
respective exposures (excluding individual exposures):
Sector
Automotive
Exposure
(EUR bn) % Stage 1 % Stage 2 % Stage 3
1.4 %
92.7 %
5.9 %
34.6
A
Hotels, leisure,
cruises & restaurants
Transport
Oil & Gas
Retail Non Food
Construction
B
17.7
74.4 %
18.3 %
7.3 %
18.3
20.9
21.5
12.5
88.5 %
97.7 %
88.2 %
82.1 %
7.3 %
1.6 %
6.6 %
10.7 %
4.2 %
0.7 %
5.2 %
7.2 %
A. Catering and other not included.
B. Excludes real estate development.
Total exposure to these sectors was EUR 125.6 bn at year-end
2020. Focusing on the ones more impacted in the short term
(Hotels & Leisure & Cruises & Restaurants; Oil & Gas; Retail
non food and passenger transport) total exposure was EUR
66.2 bn.
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This identification proved consistent with similar analyses by
the ECB, Banco de España and rating agencies. We closely
monitored those industries and reported on them regularly to
senior management bodies.
Covid-19 Collections & Recovery Preparedness plan
In the early stages of the pandemic, we asked all our
subsidiaries to develop collections and recoveries plans to
prepare for expected impacts on portfolios. Plans needed to
focus on:
• dynamic assessments of the expected impact size and
timing and continuous development of insights.
• articulation of measures to add any needed resources.
• the ability to accelerate technological (digital) solutions.
• development of a robust project and process to track
progress.
The plans help ensure any business channel can collect debt
while offering both standardized and case-by-case solutions;
complying with regulatory changes; paying special attention
to conduct risk and vulnerable customers; implementing
moratoria and other new support alternatives promptly;
identifying affected groups; and measuring impacts. Their
structures incorporated such key aspects as capacity;
planning and governance; strategy and execution;
organization; policy and control; and forecasting and financial
planning. Our subsidiaries update them dynamically. Their
performance is subject to regular review by senior
management at subsidiaries and the headquarters.
The preparedness project set a number of milestones in
regard to those key aspects. Our subsidiaries regularly report
to executive committees on the progress against them with
findings from the preparedness assessments of the global
Collections & Recoveries function undertake.
This project has been strengthening the Collections &
Recoveries functions in our hardest hit geographies with help
from the headquarters to implement the global and local
plans.
Covid-19 overlay quantification
Many international organizations and supervisors have
underlined the importance of responsibly adapting and
applying the accounting and prudential policies to temporary
and exceptional containment measures to combat the
covid-19 health crisis.
Some policies disclosed by supervisors include the Bank of
England measures to respond to the economic shock from
Covid-19; EBA's Statement on the application of the
prudential framework regarding Default, Forbearance and
IFRS9 in light of Covid-19 measures; and the Federal
Reserve's SR 20-4/CA 20-3 - Supervisory Practices Regarding
Financial Institutions Affected by Coronavirus.
In light of these statements, we accounted for deviations in
local books based on stable long-term macroeconomic
forecasts with a post model adjustment and a collective and/
or individual assessment to reflect reality and recognize
expected credit losses on assets deemed subject to a
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In the third quarter, new business levels in the individuals
segment in more regions continued to recover to pre-covid
levels. This was supported by improvements in digitalization.
Our subsidiaries adapted to new demand and introduced
measures for referral to other channels and self-service in
retail banking. Meanwhile, activity with large corporates and
companies normalized as the need for liquidity decreased. In
this quarter, loan-loss provisions were still affected by
covid-19 and loan growth.
As of December 2020, credit risk with customers decreased
by 2.7% from 2019, based on the same perimeter. This was
mainly due to currency depreciation in our core markets. All
our subsidiaries saw growth in local currency with the
exception of Santander México and Santander Bank N.A.
(SBNA).
Despite all major shocks stemming from the health crisis, our
credit risk remained diversified, with a suitable balance
between mature and emerging markets: Europe
(73%,
including SCF), South America (13%) and North America
(13%).
16
Loan book growth and the decline of non-performing loans
(NPLs) to EUR 31,767 million (-6% vs end of 2019) reduced
our NPL ratio to 3.21% (-11 bps vs 2019).
In accordance with IFRS 9, Grupo Santander recorded loan-
loss provisions of EUR 12,173 million (+31% vs December
2019) driven by the expected economic deterioration
resulting from the pandemic and its impact on credit quality
as well as by the aforementioned lending growth.
Grupo Santander total loan-loss allowances amounted to EUR
24,272 million. This brought our NPL coverage ratio to 76.4%
from 67.9% in December 2019. 65% of the Group's net
customer loans are secured.
significant increase in credit risk, without the need to identify
individual financial instruments.
We considered the overlay the best option to recognize the
increase in expected loss. A mechanistic application of the
Expected Credit Loss (ECL) methodology could currently have
led to unpredictable results. The additional provisions
associated to different macroeconomic scenarios were
calculated using internal models, however an overlay over the
monthly IFRS9 calculation was considered, in order to
enhance the oversight and control of the ECL estimation
accuracy. We specially prepared those scenarios to support
the overlay calculation for a long-run approach, following the
recommendations of many international organizations and
supervisors, with a high degree of complexity. Amid
maximum uncertainty, this long-term approach is to avoid
undesirable volatility in provisions as a result of the sharp
economic downturn, on account of the exceptional nature of
the overlay and the battery of support economic measures
taken by central banks and governments.
Accordingly, Grupo Santander followed all regulatory,
supervisory and accounting guidelines to assess and estimate
the projected macroeconomic impact of the pandemic on
expected losses and our customers' credit quality. These
process were subject to the established governance and
monitoring at both the Group's and our subsidiaries levels.
For more details on expected losses and
provisions during 2020, see the next section.
3.4 Key metrics
2020 general performance
In 2020, Grupo Santander's performance was affected by the
spread of covid-19, the ensuing health crisis, a weaker
economic environment and volatility in new business. In
March, we observed the pandemic's initial impact on new
business and balances. Growth in corporates and large
corporates offset the declines in individuals and consumer
credit. Impacts of covid-19 had not yet materialized on credit
quality indicators. In compliance with the accounting
standard, IFRS 9, we recorded a provisions overlay in the
quarter of EUR 1.6 billion based on the expected
macroeconomic deterioration.
At the end of the second quarter, recovery of new business
levels in the individuals segment (mortgages and consumer
finance) began reaching pre-covid-19 levels, mainly in Europe
and the US. Activity in large corporates stood at more regular
levels, following the increase recorded in March. SME and
corporates exposure grew primarily due to government
liquidity programmes. Main credit indicators reflected a
robust credit quality supported by mitigation measures and
volume increases. In the first half of 2020, provisions reached
7,027 million euros. This represented an increase of 78% in
constant euros y-o-y, distributing the total adjustment made
among the different business units.
16
'Others' not included represent 1% (Santander Global Platform and Corporate Centre).
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The tables below show the performance of the main credit
risk metrics:
Main credit risk metrics
Dec. 2020 data
Europe
Spain
S. Consumer Finance
UK
Portugal
Poland
North America
US
SBNA
SC USA
Mexico
South America
Brazil
Chile
Argentina
Santander Global Platform
Corporate Centre
Total Group
Europe
Spain
S. Consumer Finance
UK
Portugal
Poland
North America
US
SBNA
SC USA
Mexico
South America
Brazil
Chile
Argentina
Santander Global Platform
Corporate Centre
Total Group
2020
A
Credit risk with customers
(EUR million)
2019
722,661
213,668
105,048
275,941
37,978
33,566
143,839
105,792
56,640
29,021
38,047
143,428
88,893
42,000
5,044
706
5,872
979
2018
688,810
227,401
97,922
252,919
38,340
30,783
125,916
92,152
51,049
26,424
33,764
138,134
84,212
41,268
5,631
340
4,953
722,429
221,341
104,032
263,671
40,693
31,578
131,611
99,135
49,862
29,050
32,476
129,575
74,712
42,826
4,418
4,862
2020
22,792
13,796
2,455
3,202
1,584
1,496
2,938
2,025
Non-performing loans
(EUR million)
2019
23,519
14,824
2,416
2,786
1,834
1,447
3,165
2,331
389
1,787
834
6,972
4,727
1,947
171
4
138
2018
25,287
16,651
2,244
2,739
2,279
1,317
3,510
2,688
450
2,043
822
6,639
4,418
1,925
179
4
252
93
5
913
405
344
5,688
3,429
2,051
1,529
989,456
1,016,507
958,153
31,767
33,799
35,692
NPL ratio
(%)
2019
2020
2018
3.15
6.23
2.36
1.21
3.89
4.74
2.23
2.04
0.81
5.26
2.81
4.39
4.59
4.79
2.11
0.51
7.08
3.21
3.25
6.94
2.30
1.01
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
2.29
1.08
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
Coverage ratio
(%)
2019
2020
Net ASR
provisions
B
(EUR million)
2019
2018
2020
2018
2020
Cost of credit
c
(%/risk)
2019
2018
57.3
47.1
111.0
47.9
66.5
70.7
182.5
210.4
174.0
230.2
120.8
97.4
113.2
61.4
275.1
116.8
89.0
76.4
49.8
41.1
106.1
36.5
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
106.4
32.9
50.5
67.1
137.4
142.8
122.1
154.6
119.7
94.6
106.9
60.6
135.0
78.9
—
67.4
4,299
2,001
899
733
193
330
3,916
2,937
443
2,413
979
3,923
3,018
594
226
3
31
1,839
1,572
856
477
253
(8)
217
3,656
2,792
186
789
360
171
32
161
3,449
2,618
108
2,614
2,501
863
3,789
3,036
443
235
1
36
830
3,736
2,963
473
231
—
115
12,173
9,321
8,873
0.62
1.01
0.88
0.28
0.51
1.10
2.92
2.86
0.85
8.09
3.03
3.32
4.35
1.50
5.93
0.41
0.54
1.28
0.28
0.43
0.48
0.10
(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
0.38
0.07
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
A. Includes gross loans and advances to customers, guarantees and documentary credits.
B. Post write-off recoveries (EUR 1,221million).
C. Cost of credit is the ratio of 12-month loan-loss provisions to average lending of the same period.
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Reconciliation of key figures
Grupo Santander’s 2020 consolidated financial statements
disclose loans and advances to customers before and after
provision allowances. Credit risk also includes off-balance
sheet risk. This table shows the relationship between those
concepts:
A. Includes gross loans and advances to customers, guarantees and documentary credits.
B. Before loan-loss allowances.
Santander's credit risk (including gross loans and advances to
customers, guarantees and documentary credits) is
distributed as follows:
Credit risk distribution
Geographical distribution and segmentation
Grupo Santander’s risk function is organized around three
main groups of customers:
• Individuals: this segment comprises salaried individuals,
subdivided by income level to manage risk by customer
type.
Mortgages to individuals represented approximately 38%
of net customer loans at the end of 2020. They are mainly
in Spain and the UK and primarily consist of residential
mortgages with low risk profiles and NPL ratios as well as
robust coverage levels. Low risk profiles produce low
losses.
• SME, commercial banking and institutions: this segment
includes companies and self-employed individuals, public
entities and private not-for-profit entities.
• Santander Corporate and Investment Banking (SCIB): this
segment consists of corporate customers, financial
institutions and sovereigns in a closed list that is revised
annually based on a full analysis of the customer (business
type, level of geographic diversification, product types, and
the volume of revenues it represents for Santander, among
others).
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Individuals55%Companies29%SCIB16%
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Contents
Our credit risk portfolios’ geographical distribution and
performance (i.e., performing and non-performing loans)
are as follows:
Total
Individuals
SME, Commercial Banking and Institutions
SCIB
Others' include Santander Global Platform and Corporate Centre.
Performing and non-performing exposure for 2019 and 2018 has been redistributed across segments.
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• Europe: the NPL ratio fell 10 bps to 3.15% from 2019 due
to a significant reduction in non-performing loans in Spain
and Portugal, offsetting the increase observed in the UK.
• North America: the NPL ratio slightly increased 3 bps to
2.23% from 2019, due to the decline in total lending both
in Mexico and SBNA, although the ratio declined in
Santander US by 16 bps due to good performance in SC
USA. In terms of NPL stock, a decrease of 7.2% was
observed in the year.
• South America: the NPL ratio decreased by 47 bps to
4.39%. In Brazil and Argentina, they dropped 73 bps and
128 bps respectively from 2019. However, they slightly
increased in Chile (+15 bps vs 2019).
For more details, see section
3.5. 'Details of main geographies'.
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
SCF
UK
Portugal
Poland
Stage 1
Stage 2
Stage 3
A
Total
639,872
42,252
22,786 704,911
186,557
13,325
13,796
213,677
241,376
18,451
3,202
263,029
34,778
4,331
1,584
40,693
28,338
1,597
1,496
31,432
96,999
4,548
2,454
104,001
Amounts past due (performing loans)
North America
107,628
15,686
2,938 126,252
0.19% of total credit risk with customers was past due by
three months or less. The table below shows the breakdown
of those loans as of 31 December 2020, according to the first
missed payment:
Amounts past due. Maturity information
EUR million
Loans and advances to credit
institutions
Loans and advances to
customers
Public administrations
Other private sector
Debt instruments
Total
Less than
2 to 3
1 to 2
1 month months months
5
1,232
1
1,231
—
1,238
—
337
—
337
—
337
—
311
—
311
—
311
Impairment of financial assets
The IFRS 9 impairment model applies to financial assets
valued at amortized cost, debt instruments valued at fair
value with changes in other comprehensive income, lease
receivables, and commitments and guarantees granted 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's level of credit risk.
• Stage 1: financial instruments with no significant increase
in risk since its initial recognition – the impairment
provision reflects expected credit losses from defaults over
twelve months from the reporting date.
• Stage 2: financial instruments with a significant increase in
credit risk since the date of initial recognition but no
materialised impairment event – the impairment provision
reflects expected losses from defaults over the residual life
of the financial instrument.
• Stage 3: financial instruments with true signs of
impairment as a result of one or more events resulting in a
loss – the impairment provision reflects expected losses for
US
SBNA
SC USA
Mexico
79,410
12,767
2,025
94,202
44,277
4,955
405
49,637
19,723
7,795
1,529
29,046
28,218
2,919
913
32,050
South America
113,799
10,073
5,688 129,559
Brazil
Chile
65,122
6,152
3,429
74,702
37,555
3,218
2,051
42,825
Argentina
3,966
360
93
4,418
Santander Global
Platform
973
1
5
979
Corporate Centre
1,883
564
341
2,787
Total Group
864,155
68,575
31,758 964,488
A. Excluding EUR 24,968 million from balances not subject to impairment
accounting.
Impairment provisions include expected credit risk losses over
the expected residual life of Purchased or Originated Impaired
(POCI) financial instruments.
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Financial instruments with effective signs of impairment
(stage 3) performed as follows:
Non-performing loans evolution according to constituent
item
EUR million
2018 - 2020 NPL evolution
EUR million
NPL (start of period)
Stage 3
NPL not subject to
impairment accounting
Net entries
Perimeter
FX and others
Write-off
NPL (End of period)
Stage 3
NPL not subject to
impairment accounting
2018
37,596
37,571
2019
35,692
35,670
2020
33,799
33,783
25
22
16
10,910
10,544
10,277
177
(318)
—
156
(44)
(3,335)
(12,673)
(12,593)
(8,930)
35,692
35,670
33,799
33,783
31,767
31,758
22
16
9
Allowances evolution according to constituent item
EUR million
448
2018 - 2020 allowances
EUR million
Allowances (start of period)
24,529
24,061
22,965
2018
2019
2020
For impairment assets
For other assets
Stage 1 and 2
Stage 3
Gross provision for impaired
assets and write-downs
Provision for other assets
FX and other
Write-off
Allowances (end of period)
Stage 1 and 2
Stage 3
16,459
8,070
8,913
8,872
15,148
14,093
10,300
10,905
13,263
121
1,784
6
139
586
(3,166)
(12,673)
(12,593)
(8,930)
24,061
22,965
24,272
8,913
8,872
10,492
15,148
14,093
13,780
The methodology for quantifying expected losses from credit
events is based on an unbiased and weighted consideration of
up to five future scenarios that could affect our ability to
collect contractual cash flows. They consider the time-value
of money, information from past events, and current
conditions and projections of important macroeconomic
factors (e.g., GDP, house pricing, unemployment rate, among
others).
We developed parameters to calculate impairment losses
(mainly EAD, PD, LGD and discount rate) on the infrastructure
of internal models and the experience gained from the
regulatory environment and management. However, far from
being a simple adaptation, we expressly built and validated
them according to specific requirements of IFRS 9 and other
guidelines issued by regulators, supervisors and other
international organizations (EBA, NCAs, BIS, GPPC, etc.),
which include forward-looking information, point-in-time
(PIT) vision, multiple scenarios, calculation of losses for the
entire life of the operation through lifetime PD's, among
others.
• Establishing a significant increase in credit risk: when
classifying financial instruments under stage 2, we
consider:
◦ Quantitative criteria: changes in the risk of default during
their expected life are quantified with respect to their
credit risk level on initial recognition.
To consider significant changes so instruments can be
classified in stage 2, each subsidiary defined the
quantitative thresholds for its portfolios based on Grupo
Santander's guidelines for consistent interpretation across
all our geographies.
◦ Qualitative criteria: several indicators aligned with
ordinary credit risk management indicators (e.g., past due
for over 30 days, forbearance, etc.). Each subsidiary
defined these criteria for its portfolios.
The use of these qualitative criteria is reinforced with
expert opinions.
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• Definition of default: we use the same definition for
impairment provisioning as for developing advanced
models for calculating regulatory capital requirements. We
are adapting our definition of default to the EBA guidelines
on the application of the new definition of default under
Article 178 of the CRR, according to the scheduled plan.
• Past, present and future information: to estimate expected
losses, we require a great deal of expert analysis and
support from past, present and future data and
expectations. Our expected loss estimates, which are based
on multiple macroeconomic scenarios, measure probability
of loss considering past events, the current situation and
future trends, in addition to macroeconomic indicators such
as GDP and unemployment.
We use forward-looking information in internal
management and regulatory processes under several
scenarios, building on our experience with such information
to make sure processes are consistent.
• Expected life of financial instruments: we estimate the
expected life of financial instruments based on their
contractual terms (e.g., pre-payments, duration, purchase
options, etc.). The contractual period (including extension
options) is the maximum timeframe 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.
3.5 Details of main geographies
United Kingdom
General overview
Credit risk with customers in the UK (including Santander
Consumer UK) decreased by 4.4% (+0.9% in local currency)
year-on-year to EUR 263,671 million. Mortgage lending and
loans to SME, supported by government-backed covid-19
measures were the key drivers of this YoY increase. UK
portfolio accounts for 27% of Santander's loan portfolio.
More than 320,000 customers (excluding SCF UK) benefited
from payment holidays, in line with the guidance issued by
the Financial Conduct Authority (FCA). Customers applied for
this facility generally for a three-month period, with the
option of extending it for a further three months, if needed.
The NPL ratio increased in 2020, to 1.21% (+20 bps vs year-
end 2019), driven by the corporate and commercial banking
segment to account for covid-19 effects.
The Santander UK portfolio is divided into these segments:
Portfolio segmentation
A
Dec.20 data
A. Excluding SCF UK and London Branch
Mortgage portfolio performance
We closely monitor Santander UK’s mortgage portfolio due to
its size for the entity and Grupo Santander. As of December
2020, it amounted to EUR 189,076 million, growing by 2.7%
in local currency. It consists of first lien residential mortgages
(no mortgages involve second or successive liens on
properties).
Mortgage lending growth was resilient after the market
reopened in May. In the third quarter, the mortgage market
was particularly active, due to pent up demand from the
covid-19 lockdown and the temporary reduced stamp duty
rates, which have led to improved new mortgage pricing.
In accordance with Grupo Santander's risk management
principles, all properties are appraised independently before
new mortgages are approved. Property values used as
collateral for granted mortgages are updated quarterly by an
independent agency with an automatic appraisal system in
line with market practices and legislation.
449
1.39%1.32%1.08%1.01%1.21%33%32%33%37%48%0.03%0.09%0.07%0.10%0.28%Non-pefoming loans ratioNon-performing coverage ratioCost of credit20162017201820192020Mortgages75%Other Individuals3%SME & Commercialbanking 20%SCIB 3%
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Geographically, credit exposures are predominantly in the
South East of the UK and the London metropolitan area.
Geographical distribution
Dec.20 data
London
Midlands and East Anglia
North
Northern Ireland
Scotland
South East (excl. London)
South West, Wales and Other
(LTV) ratio of 50% entails more stringent approval criteria
and assessment of ability to pay, simulating the repayment
of both interest and capital.
• Flexible loans (6%): loan agreements allow borrowers to
modify monthly payments or draw down additional funds
up to a set limit under various conditions.
• Buy-to-let (7%): buy-to-let mortgages account for a small
percentage of the total portfolio, with approval subject to
strict risk policies.
The NPL ratio reflects the mortgage portfolio’s strength,
stable at 0.99% in December 2020 (-5 bps year-on-year).
Payment deferrals granted to customers reduced the level of
new arrears. Later stage arrears increased because all legal
proceedings relating to recoveries were temporarily
suspended.
Prudent approval policies put the portfolio’s simple average
LTV at 42%. 4% of the portfolio has an LTV of between 85%
and 100%. These policies resulted in no sign of risk quality
deterioration in new business.
The chart below shows the LTV structure of residential
mortgages as of December 2020:
The distribution of the portfolio by type of borrower is shown
in the chart below:
Loan to value
Dec.20 data
Mortgage portfolio loan type
EUR million
<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.
Our credit risk policies explicitly forbid loans regarded as high
risk (subprime mortgages) and establish strict credit quality
requirements for transactions and customers.
Spain
General overview
Santander España’s credit risk totalled EUR 221,341 million
(22% of Grupo Santander’s total). It is appropriately
diversified in terms of products and customer segments.
In a backdrop of lower economic and credit growth, with a
significant deterioration in macroeconomic figures after the
covid-19 lockdown from March to May, new lending to
consumers, SMEs and corporates increased, helped by
financing lines and other liquidity programmes (Instituto de
Crédito Oficial - ICO). Total credit risk increased by 3.6%
compared to December 2019, including ICO loans by EUR
25,510 million.
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
entity.
D. Buy to let: houses bought for renting out.
Santander UK's wide range of mortgage products include:
• Interest-only loans (23%): customers pay interest every
month and repay the principal at maturity. An appropriate
repayment vehicle, such as a pension plan or an investment
fund, is required. This is a common product in the UK.
Santander UK applies restrictive policies to mitigate
inherent risks. For instance, a maximum loan-to-value
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25%13%14%2%4%32%10%42% Home movers41%31% Remortgagers27%20% 1st-time buyers21%7% Buy-to-let11%StockNew production44%41%11%4%0%
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The total portfolio’s NPL ratio was 6.23%, 71 bps less than in
December 2019, Fewer defaults reduced the ratio by 48 bps,
due to overall better performance driven by customer support
programmes, the cure of several restructured debts and
portfolio sales. Additionally, this positive effect was helped by
the aforementioned growth in the loan portfolio, which
decreased the ratio by 21 bps.
Additional provisions related to covid-19 increased the non-
performing coverage rate to 47% (+6 pp vs. December 2019).
Moreover, NPL reduction was mostly with loans with higher
expected loss.
Cost of credit reflects the higher provisions due to the
pandemic.
Residential mortgages performance
Santander España’s residential mortgages portfolio
amounted to EUR 58,079 million. Residential mortgages
account for 26% of total credit risk in Spain. 99.3% have a
mortgage guarantee.
Residential mortgagesA
EUR million
Gross Amount
Without mortgage guarantee
With mortgage guarantee
2020
2019
2018
58,079
60,557
61,453
387
306
545
57,692
60,251
60,908
of which non-performing loans
1,784
2,581
2,425
Without mortgage guarantee
With mortgage guarantee
75
14
54
1,709
2,567
2,371
A. Excluding SC España mortgage portfolio (EUR 1,526 million in December
2020 with doubtful loans for EUR 66 million).
The NPL ratio for residential mortgages granted to
households was 2.96%. It fell 130 bps from December 2019,
mainly owing to non-performing portfolio sales.
*Includes Santander España and Banco Popular.
Santander España's portfolio is divided into these segments:
Portfolio segmentation
Dec.20 data
The residential mortgage portfolio in Spain maintained a
medium-low risk profile with limited expectations of
additional impairment:
• Principal is repaid on all mortgages from the start.
• Early repayment is common, so the average life of
transactions is shorter than the contract’s duration.
• High quality of collateral, concentrated almost exclusively
in financing for first homes.
• The average affordability rate stood at 27%.
• 87% of the portfolio has an LTV below 80%, calculated as
the ratio of total risk to the latest available home appraisal.
• All customers applying for a residential mortgage are
subject to a rigorous assessment of credit risk and
affordability, in which credit analysts must determine if
their income is sufficient to pay loan instalments and will
be stable throughout the term of the loan.
451
8.18%7.70%7.32%6.94%6.23%51%46%44%41%47%0.51%0.37%0.38%0.43%1.01%Non-pefoming loans ratio *Non-performing coverage ratioCost of credit20162017201820192020Mortgages26%Other Individuals6%Companies55%SCIB13%NPL ratio, residential mortgages (%)3.89%4.26%2.96%201820192020
Annual report 2020
Contents
Business units segmentation
Dec.20 data
DI < 30%
30% < DI < 40%
DI > 40%
Average 27%
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 with SME and corporates, which is Santander
España's core lending segment, amounted to EUR 149,646
million and accounting for 68% of total credit risk. Most of the
portfolio is customers with an assigned credit analyst to
monitor their loans throughout the risk cycle.
The portfolio is highly diversified and not concentrated in any
sector.
Its NPL ratio stood at 7.04% in December 2020 and, even
though total risk decreased, fell by 21 bps from December
2019 owning to better repayment performance driven by
customer support programmes, the cure of several
restructured exposures in corporates and portfolio sales.
2020 growth was mainly in liquidity support programmes
(ICO).
United States
General overview
Santander US’s credit risk increased to EUR 99,135 million by
the end of 2020. It represents 10% of Grupo Santander's total
credit risk and includes these subsidiaries:
452
SBNA: Santander Bank N.A
SC USA: Santander Consumer USA
NYB - SIS: Santander Investment Securities
BSIBSI: Banco Santander International
The US economy in 2020 went from the worst contraction
recorded in history to one of the fastest recoveries. States
eased covid-19 lockdown restrictions in the spring and
summer. Unprecedented fiscal and monetary stimulus
packages were put in place. Unemployment declined (6.7% in
December) but remained more than double the pre-pandemic
rate of 3.5%, with job gains showing a more gradual recovery.
As of December 2020, Santander US’s credit lending
decreased by 6% compared to December 2019, particularly in
the individual's portfolio and the corporate business of SBNA.
Excluding the exchange rate effect, growth was 2.4%. In
2020, the sale of the banking franchise in Puerto Rico was
also completed in the third quarter of the year.
During the covid-19 crisis, Santander US has continued to
support its customers, employees and communities while
pursuing its strategic priorities. The NPL ratio remained at
moderate levels, 2.04% (-16 bps in the year). However, cost
of credit rose slightly to 2.86% (+1 bp in the year) as the
uncertain macroeconomic environment drove the need for
higher provisions.
The performance of Santander US units is described below.
Business units performance
Santander Bank N.A.
Santander Bank N.A.’s business is mainly retail and
commercial banking. It accounts for 84% of Santander US's
total credit risk, of which 39% is with individuals and
approximately 61% with corporates. Its primary goals include
increasing the SCIB business (16% of the portfolio) by
enhancing customer experience and growing core customers
and deposits through digital, branch and commercial
transformation initiatives; leveraging its deposit base to
support its commercial real estate businesses; and
strengthening its auto finance partnership.
The 12% decrease in lending in 2020 affected all segments.
Excluding the exchange rate effect, the drop was lower,
standing at 4%.
Debt to income*53%21%26%Loan to value(%)**26%31%30%9%51%29%16%4%
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The NPL ratio increased to 0.81% (+12 bps in the year) as of
December 2020 and credit increased to 0.85% due to
provisions stemming from the covid-19 pandemic.
Santander Consumer USA
SCUSA presents higher risk indicators than other Santander
US units due to the nature of its business. Its automobile
financing business through loans and leases represents 97%
of its revenues. It also has a smaller personal lending
portfolio (3%).
SCUSA's focus remains on managing the relationship between
profitability and risk through pricing while improving the
dealer experience.
In 2020, loan originations grew by more than 20% from 2019,
mainly in the prime segment on the back of the commercial
relationship we have had with Fiat Chrysler Automobiles (FCA
Group) since 2013( renewed in July 2019). Auto originations
improved particularly in the third quarter as covid-19
restrictions were lifted and dealership activity returned to
normal. Prime loans remained elevated from the prior year
due to FCA Group incentive programmes.
The NPL ratio dropped to 5.26% (-90 bps in the year). Cost of
credit at the end of December stood at 8.09% (-133 bps in the
year). Annual net credit losses decreased from last year due
to the lower charge-offs resulting from covid-19 loan
extensions, federal stimulus and higher recoveries driven by
the higher auction prices. Furthermore, due to the decrease in
NPL, the non-performing coverage ratio grew to 230% (+55
pp in the year).
Leases carried out exclusively under the FCA Group
agreement, primarily with highly creditworthy customers,
decreased by 6% to EUR 13,903 million, providing stable and
recurring earnings. The management and mitigation of
residual value remains a priority.
Brazil
General overview
Economic growth had one of the most moderate declines in
Latin America between March and April. Recovery started in
May, owing to relaxed confinement measures, the reopening
of businesses, fiscal and monetary stimuli, low inflation
(4.5% in December vs 4% target), and an expansive monetary
policy, with the official rate of interest at 2% from 4.50% at
the end of 2019.
Santander Brasil's credit risk amounted to EUR 74,712
million. It decreased by 16% from 2019. Minus the exchange
rate effect, it grew by 19%. As of December 2020, Santander
Brasil accounts for 8% of Grupo Santander's loan book.
In line with strategy, growth was prominent in retail
segments with a more conservative risk profile, driven by
customer engagement and loyalty and by new business on
digital channels, which significantly increased last year.
The profitability of the SME portfolio increased significantly,
boosted by an active loan origination under government
programmes (EUR 1.79 billion) to combat the pandemic that
provided SMEs with liquidity to adapt to the new
environment.
A proactive credit risk management approach was key to
achieving a profitable increase in market share, while credit
quality indicators remained at moderate levels.
Net loan-loss provisions stood almost flat at EUR 3,018
million (-0.6% compared to 2019), favoured by the exchange
rate effect. In local currency, provisions grew by 31% mainly
driven by additional provisions related to covid-19.
Cost of credit rose to 4.35% from 3.93% at the end of 2019,
driven by the current convid-19 pandemic context, as well as
the provisions evolution aforementioned.
453
1.33%1.21%0.88%0.69%0.81%100%102%122%141%174%0.23%0.25%0.24%0.35%0.85%Non-pefoming loans ratioNon-performing coverage ratioCost of credit201620172018201920203.84%5.86%7.73%6.16%5.26%328%213%155%175%230%10.62%9.84%10.01%9.42%8.09%Non-pefoming loans ratioNon-performing coverage ratioCost of credit20162017201820192020
Annual report 2020
Contents
To monitor the credit quality of our loan book and prevent
deterioration, one of the main credit risk performance
indicators we track is the ‘Over 90' impairment ratio. It
continues to indicate that Grupo Santander is outperforming
its local peers, having stood at 2.1% at the end 2020 (-80 bps
vs 2019 year-end), below the average of its competitors.
Over 90 total (%) - PDTE
Dec. 20 data
Santander Brasil's loan book is distributed as follows:
Portfolio segmentation
Dec.20 data
It is diversified and has an increasing retail profile, with 76%
of loans extended to individuals, consumer financing and
companies.
Portfolio performance
In 2020 moratorium campaigns had a strong influence on the
portfolio. The NPL ratio fell to 4.59% from 5.32% at
December 2019, and the coverage ratio increased to 113%
from 100%.
In the individuals segment, growth in local currency was
strong. Market share of payroll loans, mortgages and other
low-risk products increased.
SME lending performed beyond expectations and started to
show signs of recovery. All ratios returned to pre-crisis levels.
The portfolio was also well provisioned and saw continuous
improvement in its risk profile. We must pay close attention
to the maturities of government programmes and other
payment deferrals to confirm the recovery of the SME market.
454
3.6 Other credit risk details
Credit risk due to our activity in financial markets
This section covers credit risk generated in treasury activities
with customers (particularly credit institutions) through
money market financing and counterparty risk products, to
satisfy their needs.
According to Regulation (EU) 575/2013, counterparty credit
risk, which includes derivative instruments, transactions with
a repurchase obligation, stock and commodities lending,
transactions with deferred repayment and financing of
guarantees, arises from the likelihood that a counterparty will
default before the final settlement of the transaction's cash
flows. We follow two methodologies to measure exposure:
mark-to-market (MtM) (replacement value of derivatives)
with the potential future exposure ‘add-on’; and the
Montecarlo simulation to calculate exposures for some
countries and products. We also calculate capital at risk and
unexpected loss, which is the difference between the
economic capital, net of guarantees and recoveries, and
expected loss.
After market close, we recalculate exposures by adjusting
transactions to their new time frame, adapting potential
future exposure and applying mitigation measures (netting,
collateral, etc.) to control exposures directly against the limits
approved by senior management. We run risk control with an
integrated system in real time that enables us to know the
exposure limit with any counterparty, product and maturity
and in any of Santander’s subsidiaries at any time.
5.90%5.29%5.25%5.32%4.59%93%93%107%100%113%4.89%4.36%4.06%3.93%4.35%Non-pefoming loans ratioNon-performing coverage ratioCost of credit20162017201820192020Individuals37%Consumer Finance10%Companies29%SCIB24%2.9%3.0%2.4%2.1%2.1%3.4%3.5%3.2%2.6%2.7%3.3%3.7%3.0%2.3%2.2%SantanderPeer 1Peer 24Q191Q202Q203Q204Q20
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Exposures to counterparty risk: over the counter (OTC)
transactions and organised markets (OM)
At December 2020, according to management criteria for
positive market value after applying netting agreements and
collateral for counterparty risk activities, total exposure was
EUR 5,235 million (net exposure of EUR 30,139 million).
Counterparty risk: exposure in terms of market value and
credit risk equivalent, including the mitigation effect
EUR million
A
B
Market value, netting effect
C
Collateral received
Market value with netting
effect and collateral
Netting effectE
D
2020
37,204
31,970
2019
37,365
30,100
2018
29,626
19,885
5,235
7,265
9,741
30,139
32,552
33,289
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.
This table shows how the nominal value and market value of products that generate counterparty credit risk are distributed.
Counterparty risk is primarily in interest and exchange rate hedging instruments:
Counterparty risk: Distribution by nominal risk and gross market value
EUR million
A
2020
2019
Nominal
Market value
Nominal
Market value
Nominal
Positive
Negative
145
(215)
2,973
(1,848)
47
(386)
14,530
53,821
11,370
Positive
Negative
29,805
71,401
23,136
312
2,481
119
(1,357)
(1,836)
(177)
24,994
63,042
9,927
2018
Market value
Positive Negative
130
(875)
2,951
(1,840)
121
(59)
863,001
25,341
(27,071)
897,886
21,053
(23,260)
781,641
21,743
(20,098)
4,917,944
143,679
(139,261)
5,089,817
112,128
(108,651)
5,000,406
86,079
(86,411)
3,732
83
5,695,339
170,911
(15)
56
(167,650) 5,944,977 135,194
735
(27)
(134,392)
2
—
5,770,317 111,025
—
(109,282)
169,059
1,357
(1,147)
167,803
955
(917)
109,695
902
(1,129)
146,984
3,978
46,418
12,500
6,057,800
188,746
(7,311)
(26,072)
17,490
(202,180) 6,304,729 157,973
48,786
143,163
4,334
(2,722)
(23,652)
(161,682)
149,006
2,352
43,675
12,425
6,072,693 126,704
(2,466)
(22,272)
(135,150)
B
Credit derivatives
Equity derivatives
Fixed income derivatives
Exchange rate derivatives
Interest rate derivatives
Commodity derivatives
Total OTC derivatives
C
Derivatives organised
markets
Repos
Securities lending
Total counterparty risk
D
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.
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Annual report 2020
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Grupo Santander 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 maturity
EUR million. Dec.20 data
A
B
Credit derivatives
Equity derivatives
Fixed income derivatives
Exchange rate derivatives
Interest rate derivatives
Commodity derivatives
Total OTC derivatives
C
Derivatives organised markets
Repos
Securities lending
Total counterparty risk
Up to 1 year
Up to 5 years
Up to 10 years More than 10 years
26%
59%
80%
50%
34%
67%
35%
65%
93%
99%
38%
66%
39%
20%
29%
39%
29%
38%
34%
7%
1%
36%
3%
2%
0%
15%
18%
2%
18%
1%
0%
0%
17%
6%
0%
0%
6%
10%
1%
9%
0%
0%
0%
9%
TOTAL
14,530
53,821
11,370
863,001
4,917,944
3,732
5,695,339
169,059
146,984
46,418
6,057,800
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.
Despite the decline in the credit quality of some
counterparties, counterparty credit risk is mainly in highly
creditworthy customers (86.4% of counterparty risk rated A
or higher), particularly financial institutions (23%) and
clearing houses (70%).
Distribution of counterparty risk by customer rating
(in nominal terms)A
Dec.20 data
Rating
AAA
AA
A
BBB
BB
B
Other
%
0.20%
3.48%
82.73%
11.94%
1.57%
0.05%
0.02%
A. Ratings based on internally defined equivalences between internal ratings
and credit agency ratings.
Transactions with clearing houses and financial institutions
are subject to netting and collateral agreements. We make
constant efforts to make sure other transactions are covered
under these agreements. Most collateral agreements Grupo
Santander signs are bilateral, with a few exceptions with
multilateral institutions and securitisation funds (in which
case agreements are unilateral in the customer’s favour).
Counterparty risk by customer segment
2020 data
Clearing houses
Financial
Institutions
Corporates/Project
Finance
Sovereign/
supranational
Commercial
banking/
Individuals
Collateral, which we use to reduce counterparty risk, consists
of instruments that have certain economic value and high
liquidity. One counterparty deposits or transfers it in favour of
another to guarantee (or reduce) any counterparty credit risk
resulting from portfolios of derivatives with cross-risk.
We regularly appraise transactions subject to collateral
agreements (usually daily). We apply contractual parameters
to quantify the collateral (usually cash or securities) to be
paid or received from the counterparty.
456
2%23%1%70%4%
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Amid the hardships caused by the pandemic in 2020, the
processes to correctly manage collateral in Grupo Santander
were notably effective, having become more frequent at the
beginning of the year.
The collateral received by Grupo Santander under CSA, OSLA,
ISMA, GMRA and other collateral agreements amounted to
EUR 31,970 million, including EUR 17,295 million in mostly
cash collateral for derivatives (77%). Other collateral is
subject to strict quality policies on issuer type and rating, debt
seniority and haircuts.
with each counterparty. It also includes a debt valuation
adjustment (DVA) for counterparties’ risk relating to Grupo
Santander itself on OTC derivatives. At the end of December
2020, CVA adjustments amounted to EUR 272,1 million (a
decrease of 22.4% compared to the end of 2019) and DVA
adjustments were EUR 171 million (a decrease of 34.6%).
This caused credit spreads to fall by approximately 40% in the
most liquid periods. The definition and methodology for
calculating the CVA and DVA are set out in the section 4.2
‘Market risk management'.
Received collateral is geographically distributed as follows:
Counterparty risk, organised markets and clearing houses
Collateral received. Geographic distribution
Dec.20 data
Spain
UK
Mexico
Brazil
Chile
Grupo Santander includes a credit valuation adjustment (CVA)
for over-the-counter (OTC) derivatives when calculating the
results of trading portfolios to account for credit exposure risk
The tables below show the weighting of trades settled
through clearing houses as a portion of total counterparty
risk at December 2020:
Where possible, Grupo Santander’s policies aim to anticipate
new regulations on OTC derivatives, repos and securities
lending settled through clearing houses or traded bilaterally.
Gradual standardization of OTC trading in recent years has
allowed for the clearance or settlements of new trades by
clearing houses (according to recent regulation) and for
increased internal use of electronic execution systems.
We actively manage trades not settled through clearing
houses to optimize volumes in view of new regulatory
requirements on margins and capital.
Even though counterparty risk management does not
consider credit risk on these trades, we have been calculating
regulatory credit exposure for organized market trades since
2014, when CRD IV (Capital Requirements Directive) and CRR
took effect, transposing the Basel III principles for calculating
capital.
Distribution of counterparty risk by settlement channel and product type
A
Nominal in EUR million
Credit derivatives
Equity derivatives
Fixed income derivatives
Exchange rate derivatives
Interest rate derivatives
Commodity derivatives
Repos
Securities lending
Total
C
Organised markets
Nominal
Bilateral
B
CCP
Nominal
8,285
15,545
11,370
827,299
770,923
3,641
107,587
46,418
%
59.8%
29.8%
100%
95.9%
15.7%
97.6%
73.2%
100%
Nominal
6,245
62
—
31,043
4,020,927
—
39,397
—
%
40.2%
0.1%
0.0%
3.6%
81.8%
0.0%
26.8%
0.0%
—
38,214
—
4,660
126,094
91
—
—
1,791,067
4,097,674
169,059
%
0.0%
71.0%
0.0%
0.5%
2.6%
2.4%
0.0%
0.0%
Total
14,530
53,821
11,370
863,001
4,917,944
3,732
146,984
46,418
6,057,800
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.
457
75%16%4%1%4%
Annual report 2020
Contents
Distribution of risk settled by CCP and organised markets, by
product
A
Nominal in EUR million
Credit derivatives
Equity derivatives
Fixed income derivatives
Exchange rate derivatives
Interest rate derivatives
Commodity derivatives
Repos
Securities lending
Total
2020
6,245
62
—
2019
11,556
370
—
2018
4,231
32,229
—
31,043
43,358
36,928
4,020,927
4,087,255 4,025,674
—
0
2
39,397
23,933
41,492
—
—
—
4,097,674
4,166,472 4,140,556
A. Figures under internal risk management criteria.
Credit derivatives
Santander uses credit derivatives to cover loans, customer
business in financial markets and trading. Trading volume is
small in terms of our notional (0.4% of total counterparty risk
notional) and is subject to a solid set of internal controls and
procedures to minimize operational risk.
Concentration risk
Concentration risk control is key for our management. We
continuously monitor the degree of concentration of our
credit risk portfolios using regions and countries, economic
sectors, groups of customers and other criteria.
According to risk appetite, the board sets 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 them, the executive risk committee
establishes risk policies and reviews the appropriate exposure
levels for the effective management of the degree of
concentration in our credit risk portfolios.
As indicated in the key metrics section of this chapter, in
geographical terms, our credit risk with customers is
diversified among our core markets (United Kingdom 27%,
Spain 22%, United States 10%, Brazil 8%, etc.).
In terms of sector diversification, approximately 55% of our
credit risk is with individuals, who are inherently highly
diverse. Our lending portfolio is also well distributed, with no
significant concentrations in specific sectors. The chart below
shows the distribution at December 2020:
Diversification by economic sector
A
n
Agriculture, livestock,
forestry and fishing
n Extractive industries
n Manufacturing industry
Electricity, gas and water
production and distribution
n
n Construction
Information and
communications
Financial and insurance
n
n activities
n Real estate activities
n
Professional, scientific and
technical activities
n Administrative activities
n Trade and repairs
n Public administration
n Transport and storage
n Other social services
n Hotels and restaurants
n Other services
A. Excluding individuals and reverse repos.
Grupo Santander must adhere to CRR stipulations on large
risks. Thus, the exposure we contracted with a customer or
group of associated customers will be a large exposure
provided its value is equal to, or greater than, 10% of eligible
capital. To limit large exposures, no entity may assume ones
exceeding 25% of 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 as of the end of December.
Regulatory credit exposure with the 20 largest groups within
the scope of large risks represented 5% of outstanding credit
risk (lending to customers and off-balance sheet risks) as of
December 2020.
Our Risk division closely works with the Finance division to
manage credit portfolios. Activities include reducing the
concentration of exposures through credit derivatives,
securitizations and other techniques to optimize the risk-
reward of the entire portfolio.
458
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Our sovereign exposure in Latin America is mostly in local
currency and recognized in local accounts with predominantly
short-term maturities. Over the past few years, total
exposure to sovereign risk has remained in line with
regulatory requirements and our strategy to manage this
portfolio.
The shifts in our sovereign risk in our countries is due to our
liquidity management strategy and the hedging of interest
and exchange rates risks. Santander's exposure spreads
among countries with varied macroeconomic outlooks and
dissimilar growth, interest and exchange rate scenarios.
Our investment strategy for sovereign risk considers
countries' credit quality to set the maximum exposure limits.
The following table shows the percentage of exposure by
rating level18
:
AAA
AA
A
BBB
Lower than BBB
2020
18%
25%
25%
14%
18%
2019
20%
24%
18%
15%
23%
2018
11%
20%
31%
13%
25%
Country risk
Country risk is a component of credit risk arising in
transactions with clients resident in a particular country due
to circumstances other than usual business risks. It consists of
sovereign risk, transfer risk and others that might affect
international financing transactions (wars, natural disasters,
current account balance crises, among others). It is embedded
in our provisioning models and processes, in compliance with
the applicable regulation.
Our country risk management continued to follow a standard
of maximum prudence. We assume country risk very
selectively in transactions that enhance the global
relationship with our customers.
Sovereign risk and risk with government agencies
Sovereign risk occurs in transactions with a central bank. It
includes the regulatory cash reserve, issuer risk with the
Treasury (public debt portfolio) and risk from transactions
with government institutions whose funding only come from
the state’s budgetary revenue and not commercial operations.
Our historic criteria can differ from regular EBA stress test
standards. Though the EBA does include national, regional
and local government institutions, it does not include deposits
with central banks, exposures with insurance companies,
indirect exposures via guarantees and other instruments.
According to our management criteria, local sovereign
exposure in currencies other than the official currency of the
country of issuance is not significant (EUR 12,080 million,
3.8% of total sovereign risk). Furthermore, exposure to non-
local sovereign issuers involving cross-border
risk is even
less significant (EUR 7,168 million, 1.8% of total sovereign
risk).
17
17
18
Countries that are not considered low risk by Banco de España
Internal ratings are applied
459
Annual report 2020
Sovereign exposure at the end of December 2020 is shown
in the table below (data in million euros):
2020
Portfolio
Contents
2019
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
4,100
(380)
249
—
—
(29)
(1,672)
16
7
589
5,127
8,005
148
19
—
7,048
4,148
2,468
—
—
1,687
612
10,263
121
9,501
17,281
10,256
6,732
397
3,776
13,097
4,962
1,298
—
—
2,396
963
668
942
5,458
5,309
2,768
75
542
976
16,179
74,290
39,454
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24,245
8,730
4,015
—
—
4,054
(97)
10,947
1,070
15,548
27,717
21,029
6,955
958
4,752
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
129,923
136,377
460
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4. Market, structural
and liquidity risk
4.1 Introduction
This section refers to the management and control of Grupo
Santander’s market risk in 2020. It covers trading as well as
structural and liquidity risks. It also includes a brief
description about our methodologies and metrics.
Activities exposed to market risk encompass transactions
where risk is assumed as a consequence of potential changes
in interest rates, inflation rates, exchange rates, stock prices,
credit spreads, commodity prices, volatility and other market
factors; the liquidity risk from our products and markets, and
the balance sheet liquidity risk. Therefore, they include
trading risks and structural risks.
• Interest rate risk arises from changes in interest rates that
could adversely affect the value of a financial instrument, a
portfolio or the group as a whole. It affects loans, deposits,
debt securities and most assets and liabilities in trading
books and derivatives.
• Inflation rate risk originates from changes in inflation rates
that could adversely affect the value of a financial
instrument, a portfolio or the entire group. It affects
instruments such as loans, debt securities and derivatives,
where returns are linked to future inflation values or a
change in the current rate.
• Exchange rate risk is the sensitivity of a value of a position
not denominated in the base currency to shifts in exchange
rates. A long or open position in a foreign currency may
produce a loss if it depreciates against the base currency.
Exposures affected by this risk include non-euro
investments in subsidiaries and 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
expectations about future dividends. This affects positions
in shares, stock market indices, convertible bonds and
derivatives with shares as the underlying asset (put, call,
equity swaps, etc.).
• Credit spread risk is the sensitivity of the value of open
positions in fixed income securities or credit derivatives to
movements in the 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.
• Commodity price risk is the risk from changes in
commodity prices. Our exposure to this risk is not
significant, mainly coming from our customers’ derivative
transactions in commodities.
• Volatility risk is the sensitivity of the value of a portfolio to
changes in the volatility of interest rates, exchange rates,
shares, credit spreads and other risk factors. It is incurred by
financial instruments in which volatility affects valuation.
The most significant case is the financial options portfolio.
These market risks can be partly or fully mitigated with
derivatives such as options, futures, forwards and swaps.
However, there are other types of market risk that require
more complex hedging:
• Correlation risk is the sensitivity of the portfolio to changes
in the relationship between risk factors (correlation) of the
same type (e.g., two exchange rates) or different types (e.g.,
an interest rate and the price of a commodity).
• Market liquidity risk originates when Grupo Santander or a
subsidiary cannot reverse or close a position without an
impact on the market price or the transaction cost. Market
liquidity risk can arise from a reduction in market makers or
institutional investors, the execution of a large volume of
transactions or market instability. It could also increase
depending on how exposures are distributed among
products and currencies.
• Pre-payment or cancellation risk originates when
mortgages, deposits and other on-balance-sheet
instruments give holders the option to buy or sell them,
thus altering future cash flows. Potential mismatches on
the balance sheet 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 arises when an entity underwrites or
places securities and other types of debt and assumes the
risk of having to acquire issued securities partially if buyers
have not taken them up.
• Balance sheet liquidity risk (unlike market liquidity risk) is
the possibility of meeting payment obligations late or at an
excessive cost. Losses may be caused by forced sales of
assets or margin impacts due to the mismatch between
expected cash inflows and outflows.
• Pension and actuarial risks also depend on shifts in market
factors. Further details are at the end of this section.
We make sure we comply with the Basel Committee’s
Fundamental Review of the Trading Book and the EBA
guidelines on balance-sheet interest-rate risk. Through
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several projects, we aim to provide risk managers and control
teams with the best tools to manage market risks under the
right governance framework for the models we use, to report
risk metrics, and help satisfy requirements on these risks.
IBOR Reform
Since 2015, central banks and regulators in several major
jurisdictions have promoted the transition to suitable
replacements for some existing IBOR (Interbank Offered
Rates) benchmarks such as Euro Overnight Index Average
(EONIA) and London Interbank Offered Rates (LIBORs).
In order to monitor and address the challenges of the
transition, Santander launched the IBOR Transition
Programme in 2019. This programme has a group wide scope
and reports on a regular basis to our top management
involving statutory committees. Its main objective is to ensure
a smooth operational transition and to anticipate and address
any potential customer and conduct related issues. It also
aims to ensure that all impacted areas, business units and
geographies understand the risks associated with the
transition in a homogeneous way and can take appropriate
measures to mitigate them.
The programme is aligned with the recommendations,
guidance and milestones defined by regulators and working
groups of different jurisdictions. Santander is engaged with
the related public and private sector initiatives and
participates in the WG Risk Free Rate Groups of different
jurisdictions in Europe and America. We provide active
feedback on the multiple consultations issued by industry
forums, market and bank associations and other public
organisms on this issue.
For more details on IBOR reform, see Notes
to the consolidated annual accounts nº 53
section 'c) Trading market risk
management'.
4.2 Market risk management
Limits management and control system
The covid-19 pandemic significantly affected financial
markets in the first half of 2020. Greater uncertainty and
higher risks set in as stock prices plummeted, volatility
spiralled, treasury bond yields reached record lows, credit-
default-swap indices surged and fair values changed
significantly. Pricing feeds split across almost all asset classes
and market liquidity declined, while bid-offer spreads,
intraday fluctuations and market volatility (both realized and
implied) increased.
In those challenging market conditions and complex
environment, our risk management showed strength, and
reliability and the right controls. Our low risk profile saw open
positions in our trading portfolios fall, despite spikes in daily
VaR levels in March and April (mainly resulting from the
Weighted VaR methodology, which puts greater weight on
recent market scenarios).
Market risk functions' daily monitoring makes sure market
risk positions remain within approved limits. It assesses the
performance of, and major changes in, market risk metrics,
and distributes regular reports to senior management and
other internal and external stakeholders so market risk
activities can be properly monitored.
462
Setting market risk limits is a dynamic process that follows
predefined risk appetite levels (see 'Risk appetite and
structure of limits' paragraph in section 2.4 ‘Management
processes and tools’). It is part of senior management's
annual limits plan that extends to all subsidiaries. It is a
prudent approach based on these metrics to cover market risk
from various standpoints:
• 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 on the volume of effective losses to protect earnings
from the period:
◦ Loss trigger.
◦ Stop loss.
• Credit limits:
◦ Total exposure limit.
◦ Jump to default by issuer limit.
◦ Others.
• Limits for origination transactions.
Those general limits include sub-limits. They establish a
sufficiently granular structure to control market risk factors
Grupo Santander is exposed to in trading. We monitor
subsidiaries’ positions daily, mindful of changes in portfolios
and trading desks to find events in need of immediate
correction and comply with the Volcker Rule.
We establish global approval and control limits, global
approval limits with local control, and local approval and local
control limits. The head of each country unit or subsidiary
requests them based on business type and budget targets,
seeking consistency with the risk/return ratio. Limits are
approved by the risk bodies in accordance with governance
processes.
Subsidiaries must comply with the approved limits. Local
executives must explain breached limits and an action plan to
correct them in writing and on the day of the breach. Actions
could involve reducing a position within the limits or
formulating a strategy that justifies a limit increase.
Methodologies and key aspects
a) Value at Risk
Value at Risk (VaR), our standard methodology for risk
management and control in trading, measures the maximum
expected loss with a specific level of confidence and time
frame. The standard for historical simulation is a confidence
level of 99% over one day. We apply statistical adjustments
efficiently to incorporate recent developments affecting our
levels of risk. Our time frame is two years or at least 520 days
from the reference date of the VaR calculation.
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We report the higher of two VaR figures we calculate daily.
One applies an exponential decay factor that allocates less
weight to the oldest observations; the other has the same
weight for all observations.
We also simultaneously calculate Value at Earnings (VaE). It
measures the maximum potential gain with a certain level of
confidence and specific time frame under the same
methodology for VaR.
VaR by historical simulation has many advantages as a risk
metric. It sums up the portfolio’s market risk in a single
number. It is based on actual market movements without
assuming functions, forms or correlations between market
factors.
However, the VaR metric has some limitations, regardless of
the methodology to calculate it. In particular:
• As VaR calculation has a certain level of confidence, it does
not indicate the levels of potential losses beyond it.
• The liquidity horizon of some products in the portfolio is
greater than the VaR model’s.
• VaR is a static analysis of portfolios’ risk, subject to
significant (albeit unlikely) changes in the following day.
The historical simulation methodology also has limitations:
• High sensitivity to the time frame used.
• Inability to capture plausible high-impact events if these do
not occur during the time frame used.
• Valuation parameters with no market input (such as
correlations, dividends and recovery rates).
• Slow adjustment to new volatilities and correlation, if the
newest and oldest data receive the same weight.
Using stressed VaR and expected shortfall (ES) help overcome
some of these limitations. We calculate VaR with exponential
decay, apply conservative valuation adjustments, and
regularly conduct analyses and backtesting to assess the
accuracy of the VaR calculation model.
b) Stressed VaR (sVaR) and expected shortfall (ES)
We calculate sVaR daily for our main portfolios with the same
methodology as for VaR, with these exceptions:
• We use a window of 260 observations (as opposed to 520
for VaR) over a continuous period of stress on a portfolio.
We do the calculation for each major portfolio by analysing
the history of a subset of selected market risk factors based
on expert judgement and the most significant positions in
the books.
• Unlike VaR, we obtain sVaR by using the percentile with
uniform weighting, and not with the higher of the
percentiles with exponential and uniform weightings.
To calculate expected shortfall (ES), we estimate the value of
a potential loss that is higher than the level set by VaR. We
also apply uniform weights to all observations. 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.
According to the Basel Committee, an ES with a 97.5%
confidence interval delivers a level of risk similar to VaR at a
99% confidence interval.
c) Scenario analysis
Risk measures used in Grupo Santander are based on daily
risk management and decision-making assumptions. They
include normal market conditions, continuous prices and
adequate liquidity. However, they many not fully anticipate
extreme movements or unexpected strong changes in the
market.
We also run scenario analyses of unexpected events involving
a variety of risks that indicate how much capital they would
require to absorb losses.
These stress scenarios are important to estimate future risk;
overcome the limitations of models and historical data;
support liquidity and capital stock plans; report on risk
tolerance levels; and develop risk reduction and contingency
plans under stress conditions.
We regularly calculate and analyse stress scenarios for our
subsidiaries with trading activities, which include historical
scenarios, hypothetical scenarios and reverse stress test
scenarios.
d) Gauging and backtesting measures
Regulations dictate that the VaR model should accurately
capture material risks. VaR uses statistical techniques under
normal conditions. Therefore, for a certain confidence level
and for a defined time horizon, the estimated maximum loss
can differ from real losses. Grupo Santander regularly
analyses the VaR calculation model to confirm its accuracy.
Market risk functions run internal backtesting, VaR contrast
measures and hypothetical portfolio analyses for subsidiaries
the internal market risk model covers. For subsidiaries with
an approved internal model, they also perform regulatory
backtesting to count overshooting (when the daily loss or
profit exceeds VaR or VaE) affecting the calculation of market
risk regulatory capital requirements.
Our backtesting assesses the general quality and
effectiveness of the risk measurement model and compares
the daily VaR/VaE obtained on D-1 with these P&Ls obtained
on D:
• Economic P&L is calculated on the basis of end-of-day
mark-to-market or mark-to-model values. This test checks
whether the VaR/VaE methodology used to measure and
aggregate risk is adequate.
• Actual P&L is calculated daily based on the difference
between the portfolio's end-of-day value and actual value
at the end of the subsequent day. It includes the profit and
loss stemming from intraday operations, minus fees,
commissions and net interest income. It is used to count
regulatory overshootings.
• Hypothetical P&L is calculated daily by comparing the
portfolio's end-of-day value and its value at the end of
subsequent day, assuming unchanged positions. It doesn't
account for the time effect to be consistent with VaR. This
backtesting helps us make sure portfolios are regularly
subject to an intraday risk not reflected in closing positions
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Annual report 2020
Contents
and, therefore, not reflected in VaR. We also use it to count
regulatory overshootings.
over a one-year horizon. We follow the Montecarlo
methodology, applying one million simulations.
• Theoretical P&L is calculated with the market risk
calculation engine, without intraday results, changes in
portfolio positions or time (theta). We use it exclusively to
test the quality of our internal VaR model.
We run regulatory backtesting on our subsidiaries every day.
We also run internal (not regulatory) backtesting daily,
weekly and monthly based on the granularity of a given
portfolio level.
The number (or proportion) of overshootings we register is
one of the most intuitive indicators of a model’s goodness of
fit. We calculate regulatory backtesting for one year (250
days) and at a VaR confidence level of 99%. We can expect
between two and three overshootings per year. To calculate
19
market risk regulatory capital, we obtain the regulatory K
based on the number of overshootings between actual and
hypothetical backtestings.
e) Analysis of positions, sensitivities and results
Grupo Santander uses positions to quantify the market values
of transactions in the portfolio, grouped by main risk factor
and considering the delta value of any futures or options. Risk
positions can be in the base currency of the subsidiary and the
currency used for standardizing information. We monitor
positions daily to detect incidents and correct them
immediately.
Measurements of market risk sensitivity estimate the
variation of an instrument or portfolio’s market to changes in
a risk factor with analytical approximations given through
partial derivatives or a complete revaluation of the portfolio.
The risk area’s daily income statement is an excellent
indicator of risks and helps identify the impact of changes in
financial variables on portfolios.
f) Derivatives activities and credit management
We run controls over derivative activities and credit
management daily with specific measures due to their
atypical nature. Firstly, we control and monitor underlying
assets’ sensitivity to price movements (Delta and Gamma),
volatility (vega 20
systematically review such measurements as sensitivity to
the spread, jump-to-default and concentrations of positions
by rating.
) and time (theta). Secondly, we
For credit risk in trading portfolios, we also calculate
incremental risk charge (IRC), an additional metric
recommended by the Basel Committee and current
regulations. IRC covers default risks and ratings migration not
adequately captured in VaR through variations in credit
spreads.
We apply this metric to public and private fixed-income
bonds, derivatives on bonds (forwards, options, etc.) and
credit derivatives (credit default swaps, asset backed
securities, etc.). We calculate IRC using direct measurements
of loss distribution tails at an appropriate percentile (99.9%)
g) Credit valuation adjustment and debit valuation
adjustment
Grupo Santander calculates trading portfolio results with
credit valuation adjustment (CVA) and debit valuation
adjustment (DVA). The CVA is for over the-counter (OTC)
derivatives and results from the risk associated with the credit
exposure assumed with each counterparty.
The CVA for a particular counterparty is the total CVA for all its
maturities. To calculate it, we consider such inputs as
expected exposure, loss given default, probability of default
and a discount factor curve.
DVA is similar to CVA but results of the risk our counterparties
assume in OTC derivatives.
4.3 Market risk key metrics
In 2020, market risk levels remained low in a complex
environment marked by uncertainty from the impact of the
health crisis, trade disputes, low interest rates and Brexit
negotiations. Our exposure in trading portfolios was lower in
all risk factors compared to previous years.
Risks arose from trading with customers in non-complex
instruments. They were mainly focused on hedges of interest
rate and exchange rate risks. The contribution of proprietary
positions in trading portfolios to overall risk also was
substantially lower than in previous years.
In 2020, consumption of trading limits was generally low.
Limits are set based on the Group’s risk appetite for this type
of activity.
Lower risk levels are also evident even under stressed
scenarios, as seen in the losses given by stress tests regularly
carried out to assess any risks not reflected in usual metrics
for controlling and monitoring trading risks.
Market risk capital requirements
We determine required capital for market risk using both
internal and standardized models.
In 2019, the ECB authorized Grupo Santander to use internal
market risk models to calculate regulatory capital in our
trading books in Spain, Chile and Mexico. It also extended
Spain’s internal model to the Santander London Branch. We
aim to gradually extend this approval to other subsidiaries
and are working closely with the ECB to analyse the
requirements in recently published Basel Committee
documents to strengthen banks’ capital positions.
Grupo Santander launched the global Market Risk Advanced
Platform (MRAP) initiative. It sets out to make our current
market risk infrastructure stronger according to the new
market risk regulatory framework (FRTB). It also adapts our
market risk internal models to the latest TRIM (Targeted
Review of Internal Models) guidelines and supervisory
expectations. It follows a multi-disciplinary and multi-
geographical approach, involving our entities with market-
19
20
K: Parameter used for calculating the consumption of regulatory capital due to market risk.
Vega, a Greek term, is the sensitivity of the value of a portfolio to changes in the price of market volatility
464
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risk operations, Market Risk, IT, Front Office, Finance and
Regulatory Affairs and other important stakeholders.
stressed VaR and IRC (incremental risk charge) as
fundamental metrics, in keeping with new requirements
under the Basel Accords, particularly the CRR.
In 2020, it significantly enhanced our functional and IT
architecture and operating models and generated synergies
between initiatives and resources.
VaR analysis
Grupo Santander’s consolidated regulatory capital under the
internal market risk model computes the total regulatory
capital of subsidiaries with necessary approval from the ECB.
This is a conservative standard for consolidating our capital
because we do not contemplate capital savings arising from
geographic diversification.
As a result of this approval, we calculate regulatory capital for
trading perimeter with advanced approaches. We use VaR,
VaR 2018-2020
EUR million. VaR at 99% over a one day horizon
Grupo Santander focused our strategy on customers’ trading,
minimizing net directional risk exposures and keeping trades
diversified by geography and risk factor. This is reflected in
the VaR of the SCIB trading book.
Despite high market volatility, particularly with interest and
exchange rates, it was mostly below the average trend of the
last three years except for the spike caused in March and
April, ending December at EUR 8.3 million.
In 2020, VaR fluctuated between EUR 54.8 million and EUR
6.5 million. The average VaR was EUR 12.5 million, slightly
higher than in 2019 and 2018 (EUR 12.1 million and EUR 9.7
million, respectively).
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Risk per factor
This table displays the latest and average VaR values at 99%
by risk factor over the last three years, the lowest and highest
values in 2020 and the ES at 97.5% as of the end of December
2020:
VaR statistics and Expected Shortfall by risk factorA
EUR million. VaR at 99% and ES at 97.5% with one day time horizon
2020
VaR (99%)
Min
Average
Max
Latest
ES (97.5%)
Latest
2019
VaR
2018
VaR
Average
Latest
Average
Latest
6.5
(6.0)
4.7
2.1
2.6
3.1
—
5.0
(4.6)
3.2
2.1
1.3
3.1
—
2.8
0.7
1.6
0.0
0.5
2.4
(0.8)
2.3
0.2
0.8
12.5
(13.1)
9.2
4.4
5.9
5.5
0.5
10.5
(10.6)
7.9
4.3
3.5
5.5
—
6.6
(2.2)
3.4
0.3
5.1
5.6
(3.4)
5.2
1.0
2.7
54.8
(15.8)
29.2
14.7
12.9
11.4
2.5
39.1
(21.9)
24.0
15.0
10.7
11.4
—
13.7
(5.3)
7.1
1.2
10.7
26.4
(13.8)
26.3
6.3
7.6
8.3
(11.8)
8.1
(12.6)
5.4
3.1
6.0
4.5
1.1
8.0
(8.9)
6.5
3.0
2.9
4.5
—
2.9
(1.1)
3.3
0.1
0.5
4.5
(4.3)
4.1
0.5
4.2
5.9
3.7
5.5
4.5
1.0
9.3
(8.8)
7.2
3.6
2.7
4.5
—
2.7
(0.9)
3.0
0.1
0.5
5.0
(3.7)
4.2
0.5
4.2
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
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
(21.0)
3.4
0.1
2.4
6.0
(3.8)
5.9
1.7
2.1
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)
6.2
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
0.0
3.3
10.0
(2.3)
6.6
2.9
2.9
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 the Americas, VaR levels of credit spreads and commodities are not shown separately due to their low or null materiality.
By the end of December, VaR had decreased by EUR 2 million
from the end of 2019. Average VaR increased slightly by EUR
0.4 million. By risk factor, average VaR increased in most
factors due to higher market volatility along the year. By
geographic area, average VaR rose in Europe and North
America but remained at low levels.
VaR by risk factor has generally remained stable over the last
few years. Temporary rises were due more to temporary
increases in the volatility of market prices than significant
changes in positions.
Backtesting
Actual losses can differ from those forecast by VaR due to its
limitations. Grupo Santander regularly analyses the accuracy
of the VaR calculation model (see the Methodologies section
4.2 ‘Market risk management’). The most important tests
consist of backtesting exercises:
• For hypothetical P&L backtesting and for the total portfolio,
we observed overshootings in VaR at 99% on 9 and 12
March and on 7 July and on 30 December.
• In the case of VaE at 99%, overshootings were observed on
20 March.
• Most overshootings were due to the strong market
variations caused by the health crisis.
• The overshootings we observed in 2020 are consistent with
the assumptions in the VaR calculation model.
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Backtesting of trading portfolios: daily results vs. VaR for previous day
EUR million
Change in risk over time (VaR) of structure derivatives
EUR million. VaR Vega at a 99% over a one day horizon
Derivatives risk management
Our derivatives business primarily sells investment products
and hedges risks for customers. Our risk management aims to
keep net open risk as low as possible. Transactions include
options on equities, fixed income and exchange rates, mainly
in Spain, Brazil, UK and Mexico.
21
of structured
The following chart shows the VaR Vega
derivatives over the last three years. It fluctuated at an
average of about EUR 1.8 million. Higher VaR levels generally
related to significant rises in market volatility owing to the
beginning of the current health crisis, the US’s trade disputes
with China and Europe and political uncertainty in some of our
geographies.
21
Vega, a Greek term, understood as the sensitivity of the value of a portfolio to changes in the price of market volatility.
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The VaR average was driven by interest rates, equities and
exchange rates. Average risk in 2020 (EUR 1.9 million) was
slightly higher than in 2019 and 2018. 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
Minimum
Average
Maximum
Latest
Average
Latest
Average
2020
2019
2018
Total VaR Vega
Diversification effect
VaR interest rate
VaR equities
VaR exchange rate
VaR commodities
1.1
(0.5)
0.6
0.7
0.3
—
1.9
(1.3)
1.0
1.3
0.9
—
5.9
(7.4)
2.5
5.0
5.8
—
2.3
(1.7)
1.8
1.4
0.8
—
1.5
(1.1)
1.1
0.8
0.6
—
2.6
(1.3)
2.7
0.8
0.4
—
1.8
(1.4)
0.9
1.2
1.1
—
Latest
1.1
(1.4)
0.9
1.0
0.6
—
Grupo Santander's exposure to complex structured
instruments and assets is very limited, this is a reflection of
our risk culture and prudent risk management. At the end of
December 2020, our exposures in this area were:
• Hedge funds: exposure was EUR 344 million (all indirect),
acting as counterparty in derivatives transactions. We
analyse the risk related to this type of counterparty on a
case by case basis, establishing percentages of
collateralization based on each fund’s features and assets.
• Monolines: no exposure at the end of December 2020.
Grupo Santander's policy for approving new transactions in
these products remains extremely prudent and conservative.
It is strictly supervised by top management.
Scenario analysis
We regularly calculate and analyse several stress test
scenarios for all trading portfolios, including:
Historical scenarios
Historical scenarios study the behaviour of trading portfolios
in crisis conditions or significant market events that have
occurred in the past, trying to estimate the maximum losses
under the assumption that such events occur again.
• Subprime Crisis: historical scenario based on the events that
occurred in the 2007-2008 period, which began as a result
of the US subprime mortgage crisis. This financial crisis led
to a sharp increase in volatility and a sharp reduction in
liquidity in all financial markets worldwide. The worst 1-day
and 10-day market shocks are identified for each market
risk factor.
• Covid-19 crisis: historical scenario included in 2020 within
our stress testing program, based on the sharp movements
in the financial markets as a result of the covid-19 crisis. Its
calculation is based on the identification of the 10-day
period with higher losses in trading portfolios during the
first two quarters of 2020. In this period, all risk factors
were affected: stock markets felt sharply, volatility
increased across all risk factors, emerging market
currencies depreciated, government bond yields reached
record lows and credit spreads widened significantly.
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Hypothetical scenarios
Hypothetical scenarios use extreme scenarios of shocks in
market risk factors that do not necessarily correspond to
historical events. They have an ex-ante approach (unlike
historical scenarios, which have an ex-post overview).
• Abrupt Crisis: ad-hoc scenario with sharp movements in all
risk factors: rise in interest rate curves, sharp falls in stock
markets, strong appreciation of USD against other
currencies, increase in volatility and credit spreads and
default of main debt and equity positions.
• Worst Case scenario: hypothetical scenario which combines
movements in risk factors with their respective volatilities.
The construction of this scenarios is based on historical
volatilities, assuming a variation tors of +/-3 and +/-6 daily
standard deviations, Irrespective of the historical correlation
between them. Its aim is to analyse the risk profile and
potential maximum losses of trading portfolios, identifying
the most unfavourable scenario.
• EBA Adverse scenario: hypothetical scenario based on the
adverse macroeconomic scenario to be applied to all market
risk factors, as proposed by the EBA to perform the "EU
wide stress test” exercise every two years.
• Forward Looking scenario: plausible hypothetical scenario
based on current portfolios and expert judgement regarding
the short term expected movements in market risk factors
that may negatively affect trading positions.
Reverse stress test scenarios
Reverse stress test scenarios identify market variable shifts
that can lead to a loss that will endanger our survival. They
complement traditional stress scenarios and help signal
business vulnerabilities, hidden risks and interactions
between risk factors. They begin with a known stress result
(such as failure to achieve determined capital, liquidity or
solvency ratios) and identify extreme scenarios.
Other stress test scenarios
We run other stress tests on a quarterly basis to identify
potential losses or significant capital impacts resulting from
extreme market movements:
• IRC scenarios: designed to stress default risk and the credit
rating migration risk in the trading portfolios.
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• Stress proxies scenario: specifically defined to measure the
effect of an incorrect selection of proxies in the VaR
calculation.
• Illiquidity and concentration scenarios: defined to capture
impact from illiquidity of markets in stressed market
conditions, gapping of prices and concentration risk.
The results for the Worst case scenario as of the end of
December 2020 are shown in the following table:
Stress scenario: maximum volatility (worst case)
EUR million. Dec. 2020 data
Total trading
Europe
North America
South America
Interest rate
(40.6)
(21.0)
(1.6)
(18.0)
Equities
(25.1)
(24.5)
(0.1)
(0.5)
Exchange rate
(7.3)
Credit spread
(4.9)
(3.0)
(1.0)
(3.3)
(4.6)
—
(0.3)
Commodities
—
—
—
—
Total
(77.9)
(53.1)
(2.7)
(22.1)
The stress tests reveal that the economic loss in trading
portfolios would be EUR 78 million (market price) if the stress
movements in the worst case scenario materialized in the
market. The loss would mainly affect Europe (in this order:
equities, interest rates, credit spread and exchange rates).
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Association with balance sheet items
Grupo Santander's consolidated balance sheet items subject
to market risk are shown below, distinguishing between
positions for which the main risk metric is VaR and others for
which risk monitoring is carried out using other metrics.
Risk metric values on the consolidated balance sheet
Million euros. Dec. 2020 data
Assets subject to market risk
Balance
sheet amount
Cash, cash balances at central banks and other deposits on demand
153,839
Main market
risk metrics
VaR
Other
153,839
Financial assets held for trading
114,945
114,945
Non-trading financial assets mandatorily at fair value through profit
or loss
4,486
3,234
1,252
Main risk factors for
'Other' balance
Interest rate
Interest rate, spread
Interest rate, Equity
market
Financial assets designated at fair value through profit or loss
48,717
35,337
13,380
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
120,953
958,378
8,325
1,980
96,627
1,508,250
81,167
48,038
1,248,188
6,869
286
32,380
1,416,928
91,322
118,170
Interest rate, spread
958,378
Interest rate
8,325
Interest rate, exchange
1,980
Interest rate
81,167
14,641
Interest rate, spread
33,397
Interest rate
1,248,188
Interest rate, spread
6,869
Interest rate, exchange
286
Interest rate
4.4 Structural balance sheet risk
management
Limits management and control systems
Policies set by top management define structural risk control
and oversight mechanisms according to regulatory
requirements and our risk appetite statement. Control
mechanisms consider structural risk sub-types and their
implications, contingencies and interrelations.
In the covid-19 crisis, our risk controls and mechanisms
proved appropriate to maintain risk levels under our appetite
limits, requiring no additional management actions.
The second line of defence’s structural risk function ensures
that this risk is understood, monitored and reported to top
management according to governance procedures by:
• defining interest rate risk metrics and reviewing and
challenging liquidity risk appetite and limits proposals by
the first line of defence;
• overseeing interest rate risk management by the first line of
defence and verifying compliance with interest rate risk
limits;
• reporting regularly to top managers on the risk profile and
providing guidelines to business lines on measures to be
taken;
• issuing opinions and challenging business proposals,
providing top management and business units with the
tools to understand the interest rate risk in businesses and
operations; and
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• confirming adequate interest rate risk procedures, and
• Economic value of equity sensitivity
setting and monitoring models and policies.
Like with market risk, annual limits planning sets limits for
balance sheet structural risks based on risk appetite. The
main limits we use are:
• Balance-sheet structural interest-rate risk:
◦ Limit on net interest income (NII) sensitivity over a 1 year
horizon.
◦ Limit on the sensitivity of economic value of equity (EVE).
◦ Limit on the market value of ALCO portfolios under stress
scenarios.
• Structural exchange rate risk:
◦ Limit on net permanent position of the Core Capital Ratio.
◦ Limit on the individual hedge that must be maintained by
currency.
Risk management executives from lines of business must
explain why limit or sub-limit breaches and provide action
plans to correct them.
Methodologies and key aspects
a) Structural interest-rate risk
Grupo Santander analyses the potential impact of changes in
interest rate levels on EVE and NII. Depending on the changes
in rates, impacts will be different and therefore various
subtypes of interest rate risk need to be monitored and
managed, such as repricing, curve or basis risk.
Based on the balance-sheet interest rate position and the
market situation and outlook, financial actions (such as
transacting positions or setting interest rates for products we
market) may be needed to attain the desired risk profile
determined by the group.
The suite of metrics used to monitor interest rate risks
includes the sensitivity of NII and EVE to changes in interest
rates, and value at risk (VaR) for calculating economic capital,
among others:
• Net interest income sensitivity
NII is the difference between income from interest on assets
and the interest cost of liabilities in the banking book over 1
year. NII sensitivity is the difference between the NII
calculated under a selected scenario and the NII calculated
under a base scenario. There can be as many NII sensitivities
as scenarios. This metric helps identify short-term risks and is
complementary to EVE sensitivity.
Risk appetite uses sensitivity to parallel changes in the worst
case scenario from -100 basis to + 100 bps (hereinafter,
figures show the exposure under these scenarios).
Economic value of equity (EVE) is the difference between the
net current value of assets and the net current value of
outstanding in the banking book at a certain point in time. EVE
sensitivity is the difference in EVE calculated under a selected
scenario and under a base scenario. There can be as many EVE
sensitivities as scenarios. This metric helps identify long-term
risks, and it is complementary to NII.
Risk appetite uses sensitivity to parallel changes in the worst
case scenario from -100 to +100 bp.
b) Interest rate models
Interest rate risk metrics consider the behaviour of financial
products under stressed scenarios where uncertainty is
common and contractual terms may not be met. We have
developed methodologies to help explain products'
behaviour. Key interest rate risk models are:
• treatment of liabilities with no defined maturity
Under Grupo Santander's model, account balances with no
maturity use stable and unstable volumes; velocity of run
off the volume over time; the relationship between
customer rates and market rates; and other variables.
• pre-payment treatment for certain assets
Pre-payment risk mainly affects fixed-rate mortgages in
subsidiaries where contractual rates are low relative to
market levels. They model this risk and include it in risk
appetite metrics.
c) Structural foreign exchange rate risk/hedging of results
We monitor these activities daily via position measurements,
VaR and results.
d) Structural equity risk
We monitor these activities monthly via position
measurements, VaR and results.
4.5 Structural balance sheet risk
key metrics
Our market risk profile inherent in asset volumes,
shareholders’ equity and net interest income on our balance
sheet remained moderate in 2020, in line with previous years.
Each subsidiary’s finance division manages its interest rate
risk from commercial banking. It is responsible for managing
structural risk caused by fluctuating interest rates.
Grupo Santander measures interest rate risk with statistical
models. It relies on mitigation strategies for structural risk
with interest rate instruments, such as fixed income bond
portfolios and derivative instruments to keep the risk profile
within risk appetite.
Structural interest rate risk
Europe
The EVE and NII sensitivities of our main balance sheets
(Santander Spain and Santander UK) are usually positive.
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Net interest income (NII) sensitivity
% of total
Exposure in all countries was moderate in relation to the
annual budget and capital levels in 2020.
By the end of December 2020, considering the scenarios
previously mentioned, the most significant risk of NII
sensitivity was in the euro, at EUR 191 million; the Polish
zloty, at EUR 66 million; the British pound yield curve at EUR
25 million; and the US dollar, at EUR 19 million, all relating to
the risk of rate cuts.
Net interest income (NII) sensitivity
% of total
The most significant risk to the economic value of equity was
also in the US (EUR 1,035 million).
Economic value of equity (EVE) sensitivity
% of total
South America
The economic value and net interest income in our South
American balance sheets are usually positioned for interest
rate cuts.
Exposure in all countries was moderate in relation to the
annual budget and capital levels in 2020.
By the end of December, the most significant risk to net
interest income was mainly located in Chile (EUR 80 million)
and Brazil (EUR 68 million).
Net interest income (NII) sensitivity
% of total
* Other: Argentina, Peru and Uruguay.
The most significant risk to the economic value of equity was
also mainly in Chile (EUR 313 million) and Brazil (EUR 278
million).
* Other: Portugal and SCF.
The most significant risk in economic value of equity was in
the euro interest rate curve, at EUR 2,236 million; the British
pound at EUR 643 million; the US dollar at EUR 142 million;
and the Polish zloty at EUR 22 million, all relating to the risk
of rate cuts.
Economic value of equity (EVE) sensitivity
% of total
* Other: Poland, Portugal and SCF.
North America
The EVE and NII of our North American balance sheets
(excluding the EVE of Mexico) usually show positive
sensitivities to interest rates.
Exposure in all countries was moderate in relation to the
annual budget and capital levels in 2020.
By the end of December, the most significant risk to net
interest income was mainly in the US (EUR 61 million).
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Economic value of equity sensitivity
% of total
* Other: Argentina, Peru and Uruguay.
Structural foreign exchange rate risk/results hedging
Our structural exchange rate risk is driven by transactions in
foreign currencies related to permanent financial
investments, their results and related hedges. Our dynamic
management of this risk seeks to limit the impact on the core
capital ratio of foreign exchange rate movements. In 2020,
hedging of the core capital ratio for foreign exchange rate risk
was kept close to 100%.
In December 2020, the largest exposures of permanent
investments (with their potential impact on equity) were (in
order) in US dollars, British pounds sterling, Brazilian real,
Mexican pesos, Chilean pesos and Polish zlotys. We hedge
some positions (which are permanent in nature) with foreign
exchange-rate derivatives. The Finance Division is also
responsible for foreign exchange rate risk management,
hedging expected results and dividends in subsidiaries whose
base currency is not the euro.
Structural VaR
EUR million. VaR at a 99% over a one day horizon
Structural equity risk
Grupo Santander maintains equity positions in its banking
book and its trading portfolio as equity instruments or equity
stakes depending on the percentage owned or control. We
diversified the equity portfolio in the banking book at the end
of December 2020 between securities in Spain, China,
Morocco, Poland and other countries. Most of the portfolio
invests in the finance and insurance industries. Other
industries with lower exposure allocations include real estate.
Structural equity positions have market risk exposure. We
calculate VaR for these positions with market price data series
or proxies. By the end of December 2020, the VaR at 99% over
a one day time horizon was EUR 319 million (EUR 170 million
and EUR 180 million at the end of 2019 and 2018,
respectively).
Structural VaR
A standardized metric such as VaR can be used for monitoring
total market risk for the banking book (excluding the trading
activity of SCIB, as described in section 4.3 ‘Market risk key
metrics’). We distinguish fixed income considering interest
rates and credit spreads on ALCO portfolios, exchange rates
and equities. In general, structural VaR is not material in
terms of our volume of total assets or equity.
Structural VaR
Diversification effect
A
VaR Interest Rate
VaR Exchange Rate
VaR Equities
2020
2019
2018
Minimum
Average Maximum
611.4
911.0
1,192.1
Latest
903.1
Average
511.4
Latest
729.1
Average
568.5
Latest
556.8
(227.2)
(349.8)
(261.0)
(263.4)
(304.2)
(402.0)
(325.0)
(267.7)
345.5
317.8
175.3
465.1
499.9
295.9
581.9
547.0
324.2
345.5
502.6
318.5
345.6
308.1
161.9
629.7
331.7
169.8
337.1
338.9
217.6
319.5
324.9
180.1
A. Includes credit spread VaR on ALCO portfolios.
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4.6 Liquidity risk management
The liquidity risk function in the second line of defence is
responsible for ensuring that liquidity risk is understood,
monitored and reported to top management and across the
group according to our governance framework by:
• defining liquidity risk and provides detailed assessments of
current and emerging material liquidity risks.
• defining liquidity risk metrics, and reviewing and
challenging liquidity risk appetite and limits proposals by
the first line of defence.
• overseeing liquidity risk management by the first line of
defence, assessing whether businesses remain within risk
appetite limits and verifying compliance with liquidity risk
limits.
• reporting to governance bodies on risk, risk appetite and
breaches.
• issuing an opinion, challenging business proposals, and
providing top management and business units with the
tools to understand liquidity risk in businesses and
operations.
• providing a consolidated view of liquidity risk exposures and
the liquidity risk profile.
• confirming appropriate liquidity procedures to manage
businesses within risk appetite limits.
Our liquidity framework has helped us manage the covid-19
crisis, with the daily analyses of liquidity position for
committees and the regulator. We have enhanced the
control framework by:
◦ increasing reporting frequency with daily monitoring of
LCR metrics.
◦ focusing on monitoring committed lines in our
geographies.
◦ reporting to senior management weekly.
◦ reviewing liquidity stress scenarios based on observations
of the covid-19 crisis.
Methodologies and key aspects
Grupo Santander measures liquidity risk with tools and
metrics that account for the appropriate risk factors.
a) Liquidity buffer
The liquidity buffer is a portion of total liquidity with funds
withdrawals (liquidity outflows) resulting from periods of
stress. It consists of a set of unencumbered liquid resources
we can immediately use to generate liquidity promptly
without incurring any loss or excessive discount. We use it as
a tool to calculate most liquidity metrics. It is also a metric in
its own right, with specified limits for each subsidiary.
b) Liquidity coverage ratio (LCR)
LCR is a regulatory metric to reinforce the short-term
resistance of a bank’s liquidity risk profile by ensuring
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
The wholesale gap metric measures the days the group
would survive on liquid assets to cover the liquidity losses
assuming non-renewable wholesale financing outflows for a
determined liquidity horizon. We also use it as an internal
short-term liquidity metric to reduce the risk of dependence
on wholesale funding.
d) Net stable funding ratio
Net stable funding ratio (NSFR) is a regulatory metric we use
to measure long-term liquidity risk. It is the coefficient of
available stable funding and required stable funding. It
requires banks to maintain a solid balance sheet where assets
and off-balance sheet activities are funded with stable
liabilities.
e) Asset encumbrance metrics
Grupo Santander uses two types of metrics to measure asset
encumbrance risk: the asset encumbrance ratio, which
calculates the proportion of total encumbered assets to the
entity’s total assets; and the structural asset encumbrance
ratio, which measures the proportion of encumbered assets
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, Grupo
Santander has created additional liquidity indicators that
measure other liquidity risk factors. They include top one and
five funding providers, distribution of funding by maturity
date and other concentration metrics.
g) Liquidity scenario analysis
Grupo Santander uses four standard scenarios as liquidity
stress tests:
i. An idiosyncratic scenario of events that adversely affect
the group alone;
ii. A local market scenario of events that have serious
adverse effects on the financial system or real economy of
our base country;
iii. A global market scenario of 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.
Santander uses outcomes from stress scenarios 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 to foresee liquidity stress situations and
weaknesses in group entities’ funding and liquidity structure.
EWI are both external (environmental) and internal,
respectively relating to market financial variables and to our
own actions.
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i) Intraday liquidity metrics
Grupo Santander uses the Basel regulatory definition and
calculates a set of metrics and stress scenarios regarding the
intraday liquidity risk, in order to maintain a high-level
management and control.
4.7 Liquidity risk key metrics
Grupo Santander's strong liquidity and financing position is
based on a decentralized liquidity model. Each subsidiary
manages liquidity independently and maintains large buffers
of highly liquid assets.
In general, LCR remained stable and regulatory ratios are
above the threshold. The regulatory minimum required in
2020 was 100% and our risk appetite limit was 110%.
Grupo Santander has an effective management of its liquidity
buffers to maintain a proper liquidity profile (regulatory
limits) and keep our balance sheet profitable.
Most subsidiaries also maintain sound balance sheet
structures. They have stable financing structures, based on a
broad customer deposit base, which covers structural needs,
with low dependence on short-term funding and liquidity
metrics well above local and group regulatory requirements
and within risk appetite limits.
The regulatory NSFR metric remained above 100% for our
core units as well as for the consolidated ratio. We anticipate
full compliance with the regulatory minimum requirement in
2021.
Our structural assets' encumbrance risk levels are in line with
our European peers’. The main sources of encumbrance are
collateralized debt issuances (securitisations and covered
bonds) and collateralized funding facilities provided by
central banks.
Our subsidiaries’ balance sheets have also proved sound
under stress scenarios constructed in accordance with
uniform corporate criteria. All subsidiaries would survive the
worst case scenario for at least 45 days, meeting liquidity
requirements with their liquid asset buffers alone.
For more details on 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
Grupo Santander assumes the financial, market, credit and
liquidity risks in the assets and investments of benefit
employee pension funds, as well as the actuarial, market and
credit risks from pension obligations with its employees. Our
main goal in the pension risk control and management is to
identify, measure, monitor, mitigate and disclose all sources
of pension risk.
We annually estimate combined losses in assets and
liabilities under a stress scenario that includes changes in
interest rates, exchange rates, inflation, stock markets, real
estate prices and credit spread.
Varying financial assumptions and market conditions in the
covid-19 crisis has had an impact on pension and actuarial
risk. It is too early to know the effects of mortality risk among
pension holders.
In the first half of 2020 the higher credit spreads and interest
rates in our main geographies had a positive effect on pension
risk. During the second half, their decline had a negative
impact, which inflation partiallyoffset. Grupo Santander took
de-risking actions in core subsidiaries to reduce the exposure
to pension and actuarial risks. As a result, the pension
obligation decreased.
Actuarial risk
Actuarial risk stems from biometric changes in the life
expectancy of pension scheme beneficiaries; from life
insurance holders; unforeseen non-life insurance payments;
and unexpected changes in holders’ behaviour when filing
claims covered in insurance contracts. We distinguish these
actuarial risks:
• Life liability risk: risk of a loss if fluctuations in risk factors
changes the value of pension liabilities:
◦ Mortality/longevity risk: risk of loss if variations in insured
parties' estimated probability of death/survival parties
changes the value of liabilities.
◦ Morbidity risk: risk of loss if insured parties' estimated
probability of disability/incapacity changes the value of
liabilities.
◦ Surrender/lapse risk: risk of loss if early termination or
variation in policyholders’ rights to surrender,
extraordinary contributions and/or paid up options
changes in the value of liabilities because of.
◦ Expense risk: risk of loss if an adverse deviation in
expected expenses changes the value of liabilities.
◦ Catastrophe risk: losses if catastrophic events increase
pension liabilities.
• Non-life liability risk: risk of losses from changes in the
value of Santander's non-life benefit liabilities with
employees, caused by fluctuations in related risk factors:
◦ Premium risk: loss from insufficient premiums to pay for
claims that might be made in the future
◦ Reserve risk: losses from insufficient reserves for
unsettled claims, including related costs.
◦ Catastrophe risk: losses if catastrophic events increase
non-life liabilities.
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5. Capital risk
5.1 Introduction
Grupo Santander includes risk from inadequate quantity or
quality of capital to fulfil internal business objectives,
regulatory requirements and market expectations within
structural risk.
In 2020, the Capital Risk function continued to work on
improving the Target Operating Model (TOM), a key
milestone of which was its deployment and monitoring in
subsidiaries through these tasks:
Our Capital Risk function, which is part of the second line of
defence, controls and oversees capital management in the
first line. It checks that our capital adequacy and coverage
match our risk profile. It also validates and monitors
transactions that could be considered significant risk
transfers (SRT).
• Revising and updating local capital risk procedures.
• Unifying capital reporting under our common guidelines
while adapting to local market regulations and
circumstances.
• Following up regularly on local progress made on the
It brings together capital planning, budget execution and
monitoring, the ongoing measurement of capital and the
reporting and disclosure of capital data (described below).
TOM.
Key initiatives 2020
Capital risk management focused on protecting solvency
amid the current covid-19 pandemic. We prioritized
measuring items we found that could affect capital ratios
and continuously monitored key metrics.
In capital planning, the Capital Risk function regularly
evaluates potential deviations in capital forecasts to set
budget uncertainty levels.
In 2020, the Capital Risk function closely followed the
evolution of solvency levels amid growing concerns about
covid-19's and especially its impact on our organic
generation and securitizations plan, the impact of model
reviews by the regulator and the effect of new regulations
resulting from this context.
The impact of market variables on capital levels was also
monitored. The Group implemented hedging policies to
mitigate the volatility on our CET1 ratio. This year, smaller
ALCO portfolios also contributed to a significant reduction
in volatility.
At year end, the group-wide CET1 ratio amounted to
12.34%. It increased by 69 bps from the previous year,
above our target ratio and comfortably meeting the levels
required by the regulator of 8.85% (from 9.69%). In the
first quarter of the year, regulators enacted new capital
requirements. These included reducing Pillar 2 and
countercyclical buffers, which drove minimum CET1 down
to 8.85% (from 9.69%).
Nevertheless, Grupo Santander kept solvency appetite
limits, above which capital ratios remained throughout the
year.
Despite the persisting uncertainties, organic capital
generation grew 104 bps in the year on the back of sound
underlying profits and the management of RWA influenced
by securitizations.
The Capital Risk function oversees the first line of defence's
capital activities. They are grouped into four distinct
workflows and ensure the right monitoring for our risk
profile:
• Capital planning: internal process to set capital levels
and returns consistently with our group-wide strategy.
Because we must ensure solvency and efficiency of
capital, we identify capital actions to achieve our capital
ratios and our return on capital targets.
• Capital adequacy: assessment of capital levels to cover
our types of risk. It is based on Grupo's Santander risk
identification and measurement (RPA), strategy and risk
appetite. For more details, see section 2.4 'Management
processes and tools' - Risk profile assessment and Risk
appetite and structure of limits.
• Capital risk measurement: process to cover activities
required to measure capital metrics, based on a set
methodology for obtaining final figures. It also supports
the stages of capital management, monitoring, oversight
and control.
• Origination: process to evaluate portfolios' capital
efficiency to reduce capital through securitizations, risk
mitigation techniques, asset sales and other initiatives.
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For more details, see the section 3.5
‘Capital management and adequacy.
Solvency ratios' in the Economic and
financial review.
5.2 Capital risk management
In the second line of defence, capital risk management can
independently challenge business and first-line activities
by:
• reviewing key items affecting capital ratios to supervise
capital planning and adequacy exercises.
• identifying key metrics to calculate regulatory capital;
setting tolerance levels; and analysing significant
variations and single transactions that impact on capital.
• reviewing and challenging proposed capital actions
according to capital planning and risk appetite.
Supervision of capital planning and adequacy exercises
The Capital Risk function reviews capital planning and
adequacy exercises to make sure capital is consistent with
risk appetite and the risk profile. Its core objectives are:
• ensuring that Grupo Santander's significant risks are
monitored in the course of its operations.
• checking that planning methodologies and assumptions
are appropriate.
• confirming that results are reasonable and consistent
with business strategy, the macroeconomic environment
and system variables.
• assessing the consistency of exercises, especially ones
that use baseline and stressed scenarios.
Capital planning and adequacy supervision follows these
phases:
Definition of scope
Supervising capital planning and adequacy begins with
proposed materiality based on the level of importance of
subsidiaries' risk-weighted assets to the group. It may
include other units, businesses and portfolios (even if they
are not significantly material) whose impact on strategy,
compliance with the global plan or timely relevance might
require analysis.
Qualitative analysis
We run a qualitative review of forecasting to ensure the
right governance.
Quantitative analysis
Metrics and components affecting RWA and available
capital projections are quantitatively assessed. This phase
requires the appropriate involvement and coordination of
subsidiaries to analyse local projections, which underpin
group-wide projections.
Conclusions and disclosure
Based on the outcomes from the capital planning and
adequacy phases, Grupo Santander conducts a final
assessment that covers the scope of analysis, detected
weaknesses and areas for improvement. We report to
senior management according to governance procedures,
ensuring effective and constructive challenge of proposed
capital plans from the second line of defence.
Continuous monitoring of capital measurement
Continuous monitoring of Grupo Santander's regulatory
capital measurement is an additional capital risk control
function to ensure the right capital risk profile. We conduct
a qualitative analysis of the regulatory and supervisory
framework and a review of capital metrics and specific
thresholds. We also monitor compliance with capital risk
appetite to maintain capital levels above regulatory
requirements and market expectations.
This function follows these phases and procedures:
Definition of metrics and thresholds
The function sets metrics and thresholds used in
supervision every year to monitor and control capital risk.
They consist of:
• Primary metrics, which cover capital ratios and numerator
and denominator components at the highest level.
• Secondary metrics, which include a more extensive
breakdown (for example, credit RWA or the basis for
measuring market RWA).
• Supplementary metrics for more detailed analyses.
Thresholds for certain metrics trigger a more detailed
analysis and an explanation.
The internal ‘Capital measurement control metrics
guidelines’ outline these metrics, thresholds and sources of
information.
Preliminary analysis
This phase of the control process analyses process
governance, regulatory framework and other qualitative
issues. We examine capital management steps to fulfil
recommendations and instructions from supervisory
authorities and the Internal Audit function.
Assessment and measurement
Based on preliminary findings, the Capital Risk function
reviews primary and secondary metrics in the process to
detect variations that might exceed defined thresholds, in
addition to a detailed analysis of supplementary metrics. If
a subsidiary or global area is the cause of a threshold
breach, it must provide the Capital Risk function with
additional information on volume variations, one-off
events, capital actions and other items.
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Conclusions and disclosure
The body responsible for capital risk control analyses the
report and conclusions and, if needed, will submit them to
the second-line (capital committee) or first-line (risk
control committee) committees for deliberation.
Oversight of securitizations
The Capital Risk function oversees securitizations that
might be "significant risk transfers" (SRT) originated by
Santander, in accordance with EBA guidelines on SRT by
virtue of Articles 243 to 245 of Regulation (EU) 2017/2401
and 2017/2402. Oversight is an essential prerequisite for
executing both synthetic and traditional securitizations. It
applies to securitizations with the potential to reduce RWA
to make sure they:
• can effectively transfer risk.
• comply with all prudential regulation requirements.
• have risk parameters that follow our methodology.
• have an economic rationale that meets group-wide
standards.
SRT supervision is split into these stages:
• ECB pre-notification: Capital Risk issues an assessment
before notifying the ECB of an intended securitization
that may be an SRT.
• Validation: Capital and risk committees review the
securitization based on the capital risk function's
assessment to validate it.
• ECB notification: Submission of final securitization
documents package to the ECB take places no later than
fifteen days after the securitization's closing date.
• Monitoring: the Capital Risk function regularly monitors
executed securitizations.
5.3 Key metrics
Grupo Santander’s capital position is strong and consistent
with our 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 subsidiaries with autonomy over liquidity and
capital allows us to mitigate the risk that one subsidiary
experiencing difficulties could affect others. Our capital
metrics are stable, and ratios remain comfortably above the
regulatory requirements and consistent with risk appetite.
For more details, see the section 3.5
‘Capital management and adequacy.
Solvency ratios' in the Economic and
financial review.
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6. Operational risk
6.1 Introduction
In accordance with the Basel framework, Grupo Santander
defines operational risk (OR) as the risk of losses from
defects or failures in internal processes, people, systems or
external events. It covers risk categories such as fraud,
technological, cyber-risk, legal
and conduct risk.
22
Operational risk is inherent to all products, activities,
processes and systems. It is generated in all business and
support areas. All employees are responsible for managing
and controlling the operational risks generated by their
activities.
Our OR management and control model is based on a
continual process of identifying, evaluating and mitigating
sources of risk, regardless of whether they have
materialized or not, ensuring that risk management
priorities are established appropriately.
OR focus in 2020 was on adequately managing the risks
due to the covid-19 outbreak, as well as maintaining the OR
model. Grupo Santander adapted to the new environment
in a timely manner, providing all services to customers,
taking care of employees, and demonstrating our resilience
in an extremely disruptive situation. Our specific
operational risk management measures are detailed in the
following sections.
6.2 Operational risk management
Operational risk management in Grupo Santander is
underpinned by the following items:
Management and control model
Santander’s operational risk model defines the necessary
elements of suitable management and control of
operational risk, aligned with advanced regulatory
standards and best practices for operational risk
management.
The operational risk cycle includes the following phases:
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 important matters.
22
Legal processes with an operational risk root cause.
The most important operational risk tools we use
throughout the management cycle are:
• Internal events database, which registers financial
events (including all losses regardless of the amount)
and non-financial events (such as customer, regulatory
events and services). This information's goal is to
operational risk management through root cause
analyses and increase awareness of the risks.
The internal database also supports timely escalation of
significant operational risk events to senior management,
regulatory reporting and the economic capital model
integrated within the ICAAP process.
• Operational risk and control self-assessment (RCSA),
which is a qualitative process based on the criteria and
experience of a pool of experts in each function to
determine related operational risks, the status of the
control environment and the allocation of these related
operational risk to the functions within Grupo Santander.
It aims to identify and assess material operational risks
that could prevent business or support units achieving
objectives. Once these operational risks are assessed, the
different units and the second line identify mitigation
actions if the risk levels prove to be above tolerable
thresholds.
Our RCSA's specific reviews allow for a transversal
identification of technological risks, fraud, third-party
risk, information security, and other factors that could
lead to regulatory non-compliance in areas exposed to
conduct risk and financial crime (this last is set out in
greater detail in this chapter in section 7.2 ‘Compliance
and conduct risk management’.
• External event database, which provides quantitative
and qualitative information, allowing for a more detailed
and structured analysis of events in the industry, the
benchmarking of the losses profile and the appropriate
preparation for the RCSA, insurance and scenario analysis
exercises.
• OR scenarios analyses, which aim to identify highly
unlikely events resulting in significant losses for Grupo
Santander, and establish mitigating actions. Expert
opinion comes from business lines and risk and control
managers.
• Key risk indicators, which provide quantitative
information on Grupo Santander's risk exposure and the
control environment. The most significant indicators
associated with the main risk exposures are part of
operational risk appetite.
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• Risk appetite framework, which is structured as follows:
◦ A general operational risk appetite statement,
associated to two global metrics based on losses
(expected losses and stressed losses).
◦ Specific statements on internal and external fraud, IT
risk, cyber-risk, anti-money laundering, products
commercialization, regulatory compliance and
procurement risk, associated to their own forward-
looking monitoring metrics.
• Internal audit, external audit and regulatory
recommendations, which provide information on
inherent and residual risks and identify areas of
improvement in processes and controls.
• Capital model or a loss distribution approach (LDA)
model that captures Grupo Santander’s operational risk
profile, with information collected from the internal loss
database, external data and scenarios. It is mainly used
to determine operational risk’s economic capital and
estimate expected and stressed losses for operational
risk appetite.
• Other instruments to analyse and manage operational
risk, assess new products and services, manage business
continuity plans (BCP), revise perimeters and run quality
assurance.
Our management and reporting system for operational risk,
Heracles, supports operational risk programmes and tools
with a Governance, Risk and Compliance (GRC) approach. It
provides information for management and reporting at
subsidiaries and throughout the group.
It aims to improve OR decision-making and prevent
duplicated efforts. To achieve this, we make sure people
responsible for risks can have a timely, full and precise view
of their risks, using a common set of taxonomies and
methodological standards.
Model implementation and initiatives
strengthening and standardizing our risk and control
environment.
• Improving the assessment methodology of the global
cybersecurity transformation plan to identify the risk
reduction impact of technical security developments.
• Improving the contingency, business continuity and crisis
management plans together with recovery and resolution
plans, while hedging emerging risks.
• Applying the transformation risk analysis methodology,
with the approval of a target operating model (TOM).
Business continuity plan (BCP)
Grupo Santander’s business continuity management
system (BCMS) guarantees group-wide business continuity
in the event of a disaster or another serious incident. Our
BCM is a holistic process that identifies the potential
impacts threatening our organization and resources, and
applies the correct protocols and governance to respond
effectively.
Its main objectives are:
• safeguarding people's safety in a contingency situation;
• guaranteeing that core functions are performed and
service is delivered to our customer;
• fulfilling our obligations towards employees, customers,
shareholders and other stakeholders;
• complying with regulations;
• minimizing potential losses to Grupo Santander as well
as the impact on business activities;
• protecting our brand image, credibility and trust;
• reducing operational effects under efficient procedures,
priorities and a strategy to recover and restore business
operations in a post-contingency scenario;
Our main initiatives in 2020 to improve the operational risk
management model were:
• helping stabilize the financial system.
• Evolving appetite framework with new metrics (a new
cyber primary metric will be included in RAS 2021),
ensuring better measurement and stressing thresholds.
• Developing models to perform independent assessments
of the risk and control profiles that help subsidiaries'
oversight and challenge the accuracy of local
assessments.
• Further integrating risk assessments by embedding
financial crime compliance and regulatory risk
assessments in the RCSA module.
In 2020, the pandemic challenged our subsidiaries' BCP
frameworks and strategies. We had to adapt some
protocols, but this crisis has proved that Grupo Santander
has a robust BCM programme in place.
Some protocols were integrated into business-as-usual
activities, and several lessons learned are being taking into
account to improve the current BCM programme:
• New process classification (criticality taxonomy).
• Review of the scope of critical processes (with an end to
end process view) considering a prolonged contingency.
• Fostering technology risk control by defining Reference
• Expand the scope of the processes included in the
Risks to be assessed during RCSA by business owners and
specialised control functions.
• Improving processes to determine, identify and assess
risk references and standard controls with a view to
business continuity strategy.
• A risk and a cost-benefit analysis will be applied to select
the continuity strategies required for each contingency
scenario.
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• Robotics, digitized documents and other flexible solutions
proved vital to provide a rapid response to customers and
business units' needs during the pandemic. Several
processes proved so efficient that they are being
incorporated into business-as-usual activities.
Operational risk management during covid-19
The pandemic increased inherent operational risk exposure,
although by implementing new controls and reinforcing
existing ones, we maintained pre-pandemic operational
risk levels:
guidelines on prevention, health and business continuity
measures. For certain suppliers, we offered additional
infrastructure (for example, customer service and anti-
fraud approval controls). Suppliers' operations and
finances were closely monitored throughout the
pandemic.
• Continual monitoring of operations and potential impacts
was essential, especially at peaks in the pandemic,
through daily dashboards to supervise operational and
other risks. Metrics were based on critical staff, IT
incidents and losses.
• We effectively deployed business continuity plans to
support our employees, customers and businesses.
Relevant mitigation actions
• We enhanced control environment for cyber threats (i.e.
patching, browsing control, data protection controls, etc.)
in view of the pandemic and the direct impact of remote
working on operational risk.
• We increased and improved technological support to
ensure available and adequate services, especially in
online banking and at call centres.
• We implemented additional controls to minimize
incidents resulting from the higher processing risk due to
the volume of new loans and changes in existing
portfolios, derived from government aid programmes and
internal policies.
More specifically, in our geographies, we implemented
several initiatives to review and mitigate risks arising from
the covid-19, including these:
• Most employees went from working in an office
environment to working from home (WFH) by quickly
increasing the capacity for staff to work remotely and
improving connectivity. To support WFH arrangements,
Santander applied such controls and mitigants as
enhanced monitoring of staff transactions, distribution of
office equipment, mandatory remote working training,
ongoing health trackers and feedback surveys.
• Some important business and support processes were
subject to changes or redefined, which led to
assessments of potential operational risks that could be
faced by the units.
• Another important focus was implementing adequate
controls to ensure confidentiality and avoid data leaks in
critical activities. At Santander México, SCIB quickly
distributed employees at work centres to ensure the
functioning of VPNs and equipment, reinforcing access
control monitoring and establishing weekly reviews of
possible incidents.
• We also strengthened contact centres' controls to protect
information without compromising customer service. We
reassigned contact centre staff to other work centres,
analysed risk of fraud and data leaks with each
transaction and made sure the group's prevention
capabilities were not affected.
• Critical suppliers' follow-up was a priority in all units (as
explained in the following section). The Group
established communication plans to vendors, with
Apart from those covid-19-related actions, Grupo
Santander continuously implements and monitors
mitigation actions for major sources of risk identified by
internal OR management tools and other external sources
of information.
Fraud
The transformation and digitalization of the business
entails new threats such as more payment scams and fraud
in origination (borrowing). To mitigate those risks, we
designed and revised new products and control
mechanisms.
Strong customer authentication processes in line with the
European Payment Service Directive (PSD2), biometric
validation (i.e. facial recognition) in customer on-boarding,
enhancing alerts on fraud in origination, etc., is becoming
increasingly widespread to mitigate those risks.
To reduce fraud, Grupo Santander's special actions include:
• Card fraud:
◦ Generalized use of chip and PINs (transactions with
PIN-cards, which must be signed off with a numeric
code) in ATMs and stores, with advanced authentication
mechanisms linked to our systems.
◦ Improved card protection against electronic commerce
fraud, with a secure standard (3DSecure) via two-step
authentication based on one-time passwords, mobile
applications that let users deactivate cards for e-
commerce use, and virtual cards issuance with dynamic
authentication passwords.
◦ Use of a new biometric authentication system in ATMs
and branch cashier desks in Santander Brasil.
Customers can use it to withdraw cash from ATMs and
sign for transactions with their fingerprint.
◦ Integration of monitoring and fraud detection tools with
other systems, internally and externally, to better
detect suspicious activity.
◦ Reinforced ATM security with new physical protection
elements and anti-skimming, as well as improved
logical security of devices.
• Online/mobile banking fraud:
◦ Confirmation of online banking transactions with a
second security factor of one-time-use passwords; the
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evolution of technology, depending on the geography
(for example, based on QR codes generated from
transaction data).
◦ Enhanced online banking security with a new
transaction risk scoring system that requests further
authentication when a given security threshold is
breached.
◦ Implementation of specific mobile banking protections,
such as identification and registration of customer
devices (Device ID).
◦ Monitoring of e-banking platform security to avoid
systems attacks.
• Forgery & ID theft fraud:
◦ Enhanced fraud controls, which will verify the
applicant’s identity and the device used to submit the
request.
◦ Implementation of biometrics for customers and
employees.
◦ Transfer of the fraud prevention function to the credit
area to improve mitigation in fraud in origination
(borrowing).
◦ Enhanced alerts on fraud in origination.
◦ New confirmation and management platforms.
Cyber risk
In 2020, cyber threats were more frequent and stronger.
Hackers continue to enhance their capabilities. This trend is
expected to continue in coming years, and financial sector
will remain a primary target. Given Santander's increasing
reliance on digital systems, cyber threats make cyber
security one of Santander’s top non-financial business risks.
Therefore, we aim to make Santander a cyber resilient
organization that can withstand, detect and rapidly react to
cyberattacks, while constantly evolving and improving its
defences.
Santander has matured its cybersecurity controls and
regulations in line with its global cybersecurity framework
and international best practices. Our ambitious programme
to transform cybersecurity and strengthen detection,
response and protection mechanisms made significant
progress. In 2020, cybersecurity team set its focus on
strengthening internal controls against insider threats with
data leakage protection (DLP), internal vulnerability
management and network segregation, insider monitoring
and third-party risk management.
In the second line of defence, the cybersecurity risk team
developed a programme to strengthen control and
oversight of cyber risk and assess how effectively the
global cybersecurity transformation plan reduces risk. A
major point of focus in 2020 was addressing short-term
priorities and setting strategy:
• Definition of an operating model that drives and steers
the cyber-risk function of the second line of defence
(2LoD) as a structured approach that enables effective
risk management (including definition of 2LoD cyber risk
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mission and guidelines principles, processes, tools and
skills needed).
• Definition of cyber risk and control taxonomies and re-
alignment of processes ensuring integration with non-
financial risk and broader Enterprise wide risk
management. Progress made in this area helped create a
consistent 2LoD methodology to aggregate a range of
risk inputs and provide actionable insights into overall risk
profile.
• A consistent, group-wide, quarterly 2LoD process to
assess control environment and risks. The 2LoD added a
challenge and back-testing process to ensure
independent view of controls effectiveness and risk
reduction.
• Simplification and automation of existing processes to
improve operating performance. Creation of an
automated tool enabling cyber risk data correlation,
analysis and reporting, significantly reducing information
gathering and consolidation to prioritize risk
management activities.
Additionally, in the covid-19 crisis, most of Santander
subsidiaries activated their contingency plans and
transitioned their workforce to WFH, having a direct impact
on cyber threats and risks. In coordination with Global
Cyber Security team, OR area was performed an
assessment of major cyber threats and risks stemming
from the pandemic. It provides each entity's second line of
defence with a reference on risks to monitor and key
controls to revise and implement to reduce risks.
Further information regarding cyber
security is available in chapter Economic
and financial review, section 5 'Research,
development and innovation (R&D&I)'.
IT risk
Santander's digital transformation requires continual
improvement as well as assessment of IT risk and controls.
Covid-19 has accelerated our digitalization and tested our
ability to adapt systems and solutions to continue services
to our customers and cover the new requirements of the
government aid programmes. We ran close monitoring of
the IT risks, focusing particularly on boosting the resilience
and capacity of our online channels, contact centres and
remote working infrastructure (e.g., VPNs, end user
devices, collaboration tools, etc.).
Despite complexities stemming from covid-19 that
challenged our IT change management to quickly adapt the
technological systems to customers' demands, major
technological incidents were kept under control and even in
figures lower than in previous years.
As EBA guidelines on “ICT & Security Risk Management”
entered into force in June 2020, we ran a GAP analysis to
identify opportunities to adapt current frameworks to
requirements. Thus, we revised our IT risk taxonomies,
reference risks and standards of control. We also adopted a
risk-based approach to prioritize required resources and
remediation measures based on critical assets.
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An initiative to identify and differentiate key assets in our
operations and services to our customers launched, with
specific risk monitoring metrics to ensure related
technological risks, especially levels of availability,
obsolescence and patching, remain within our appetite
limits. We made significant progress to reduce the
obsolescence of relevant IT assets across the group this
year.
Supplier management
Our digitalization strategy sets out to offer our customers
the best solutions and products in the market. This can
entail an increase in third-party services and the use of
new technologies such as the cloud. In light of the increase
in cyber risks and regulatory pressure, we had to update
our procurement management framework to properly
assess and manage risks in outsourcing and third-party
agreements.
In 2020, due to the current pandemic, we reinforced
monitoring to ensure the operational continuity of the
services we receive from critical vendors. Our efforts were
mainly identifying them for each subsidiary to ensure that:
• vendors had business continuity plans in place;
• they had action plans to mitigate the impact on their
services, in light of WFH and other measures;
• any incident in a critical service could be detected,
escalated and managed;
• they had the required operational continuity
arrangements and right controls to handle data
protection, fraud, cyberattacks and other risks stemming
from the new ways of working (remote working);
• suppliers’ financial positions and the possible
deterioration thereof due to covid-19 could be monitored;
• service level agreements (SLAs) could be monitored.
In addition, Grupo Santander developed a set of best
practices to apply a common approach across all our
geographies for vendors deemed vulnerable due to the
pandemic, including suppliers whose activity declined,
suppliers whose billing was highly dependent on the
services provided to the bank and small vendors suffering
economic deterioration.
Other relevant mitigating actions
Grupo Santander’s mitigation measures relating to
customer practices, products and businesses constantly
improve. We enforce policies on products and services,
management and analysis of customer complaints,
financial crime, and compliance with new regulations.
For more details on mitigating compliance risk
actions, see section 7.2 'Compliance and
conduct risk'.
Insurance in operational risk management
Insurance is key to operational risk management. In 2020,
we further enhanced insurable risk management and
developed a more consistent and coordinated approach for
the functions involved by:
• enhancing relations between the own insurance,
operational risk and first line areas to manage insurable
risk more effectively in the insurance forums and others
established by the operational risk function (i.e. fraud
forum);
• reviewing risks to analyse suitability for coverage and
taking corrective measures;
• monitoring insurable losses and events identified in
insurance policies, establishing action protocols and
specific monitoring forums in each market.
The Own Insurance function continues to safeguard our
bottom line mainly by:
• defining and applying criteria to quantify insurable risk
based on the losses and scenarios it analyses to
determine exposures;
• reviewing our approach to the insurance market and our
global programmes structure, in light of the hardening
environment of the insurance industry, with specific focus
on cyber-related cover;
• recovering insured losses and optimizing hedges through
policies in 2020;
• participating in the group’s risk management forums and
committees and increasing interaction with other
functions to better identify and evaluate insurable risks
and disseminate policies and capitalization procedures to
other areas.
Analysis and monitoring of controls in Santander
Corporate & Investment Banking
At Santander Corporate & Investment Banking (SCIB),
operational control procedures are subject to continuous
improvements owing to the nature and complexity of
financial markets. In 2020, SCIB kept up its activity and a
robust control environment without major issue.
• In relation to covid-19:
◦ At the beginning of the pandemic, SCIB's global
approach effectively anticipated actions and shared
lessons learned based on the experiences of all
subsidiaries.
◦ SCIB's operational preparedness was key to facing the
challenges of the new circumstances, with Special focus
on trading activity, settlements, liquidity and regulatory
reporting and other core processes, with no major
impacts detected.
◦ Several initiatives reinforced the control framework,
especially on markets activity.
◦ Focus remains on improving solutions to face "new
normal".
• Other relevant improvements in 2020:
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◦ SCIB finished a global infrastructure programme whose
objectives include strengthening the control model and
reducing operational risk.
◦ The control mode was adapted to MiFID II, Dodd Frank
Act, EMIR, IFRS 9, GDPR and other regulatory
requirements.
◦ In regards to the trading control environment:
– SCIB strengthened its control framework across its
geographies and incorporated a new MI tool for
holistic market monitoring. Additionally, it
implemented a new communication surveillance tool
with special focus on conduct risk.
– It continues to monitor the risk of unauthorized
trading through a specific risk appetite metric,
covering regular assessments of main controls in
place to mitigate the risk. It updated global guidelines
with new requirements.
For more details on regulatory compliance in
markets activities, see section 7.2 'Compliance
and conduct risk' - Regulatory compliance.
6.3 Key metrics
Grupo Santander gathered the information on operational
risk losses relating to covid-19 and on expenses incurred to
restore the position as it was before operational risk events.
Few such events occurred, bearing a low economic impact.
We are implementing the criteria in the EBA Guidelines on
the Implementation of Selected Covid-19 Policies
23
.
Net losses by operational risk categoryA
(% o/total)
A. Excluding employee litigation from Brazil
Net losses (including incurred loss and net provisions)
distributed under Basel
years were as follows:
risk categories for the last three
24
23
24
Guidelines updated on December 2020.
The Basel categories incorporate risks which are detailed in section 7 'Compliance and conduct risk'.
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Losses due to customers, products and business practices,
and errors in processes, were lower than in the previous
year. However, external fraud losses increased.
The chart below shows net losses by country:
A
Net losses by country
(% o/total)
A. Excluding Trabalhistas events from Brazil
Santander considers employee litigation with Santander
Brasil a staff expense. Our governing bodies continuously
monitor expense levels with specific appetite metrics and
take special actions to reduce them. These expenses are
reported under the categorization defined by the Basel
operational risk framework.
In 2020, the most significant losses by category and
geography relate to litigation in Santander Brasil (with
ongoing root cause analyses of the main products involved)
and Santander España (due to legacy cases). Additionally,
the amount of losses in the UK and the US continues to
decrease due to lower provisions for product marketing and
legacy cases.
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7. Compliance and
conduct risk
7.1 Introduction
The compliance and conduct risk function, which promotes
our adherence to rules, supervisory requirements,
principles of good conduct and values, acts as a second line
of defence. It sets standards, challenges, advises and
reports in the best interests of employees, customers,
shareholders and broader society.
The compliance and conduct risk function is responsible for
monitoring and overseeing compliance and conduct risks. It
assesses their impact on our risk appetite and risk profile. It
also covers matters related to the following management
domains: regulatory compliance, product governance and
customer protection, financial crime compliance and
reputational risks.
Under Grupo Santander's current model of three lines of
defence, compliance and conduct risk is an independent
second-line control function. It reports directly and
regularly to the board of directors and its committees
through the Group Chief Compliance Officer (Group CCO).
The compliance programme is a key process in the
compliance and conduct risk function. It sets out the main
activities for the year. The parent and each subsidiary
execute a compliance programme according to its size and
complexity. Structured around the previously mentioned
four management domains, it is a key tool for overseeing
our subsidiaries and the control environment for
compliance and conduct risks.
7.2 Compliance and conduct risk
management
The compliance and conduct risk function seeks to ensure
the general code of conduct (GCC) is followed under the
supervision of the compliance and the risk supervision,
regulation and compliance committees. The GCC
catalogues ethical principles and rules of conduct that
govern the activities of our employees. It must be
understood and applied along with other internal
implementing regulations.
The GCC sets out:
• compliance functions and responsibilities in applying the
general code of conduct;
• general ethical principles;
• general standards of conduct;
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• the consequences of violating it;
• the Canal Abierto ethical channel to report alleged
misconduct and inappropriate behaviour confidentially
and anonymously.
Regulatory Compliance
The regulatory compliance function supervises regulatory
risks concerning employees, data management and
securities markets (these last with SCIB's Compliance
team). Its core areas are:
A. Employees
This function, which promotes the ethical and compliance
culture among staff, sets internal standards to prevent
criminal risks, conflicts of interest and anti-competitive
behaviours based on the GCC. It also manages Canal
Abierto.
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
public officials.
• 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.
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Employees compliance functions - Making ethics real
Canal Abierto
Training and awareness
• Enable a channel through which employees can report
non-ethical conduct or violations of internal regulations.
• Manage reported issues and take part in investigations.
• Promote the Speak Up and Truly Listen culture.
• Implement training programmes and carry out employee
awareness initiatives on corporate defense and
employees compliance.
• Spread ethical messages across Grupo Santander
through relationships built on trust.
Disciplinary proceeding
Policies and procedures
• Investigate conduct that run counter to ethical and
compliance principles.
• Take part in the assessment of applicable disciplinary
measures in case of breaches or non-ethical conducts.
• Ensure compliance with the General Code of Conduct
and apply its guidelines through specific policies or
procedures.
• Report regularly to governance bodies.
Appointments
Ethical queries
• Assess the suitability of nominated directors and senior
managers*.
Competition
• Manage the competition compliance programme
In 2020, Grupo Santander's main subsidiaries implemented
the common standards of the single channel, Canal Abierto.
To ensure homogeneous, robust procedures in all
subsidiaries to manage issues received through their
channels, a global policy was approved to be applied in
2021.
For more details on Canal Abierto and its
management during covid-19, see section
Employee experience' of the Responsible
Banking chapter.
• Manage queries from employees and governance bodies
on ethical issues and internal regulations
• Give ethics advice on controversies.
* This activity is carried out by the compliance function at Headquarters
B. Market abuse
In 2020, in focusing on the crisis caused by the pandemic,
the market abuse team observed two types of risks: people
working from home (trades executed through alternative
and new communication channels); and market volatility
resulting in a significant increase of personal account
transactions and breaches.
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C. Regulatory compliance is responsible for:
• disclosing material information about Grupo Santander to
the markets. We released a great deal of material facts in
2020, which can be found on the websites of Santander
and the Comisión Nacional del Mercado de Valores
(CNMV), and;
• filing notices on treasury shares (CNMV) and significant
holdings of Banco Santander, as well as the significant
holdings and remuneration systems of directors and
senior management (CNMV and other regulatory bodies
of those markets where Santander´s share is listed).
D. Data management
In 2020, the regulatory compliance data management
function focused on:
GDPR
• implementing the control framework in our subsidiaries:
follow-up on key performance indicators (KPIs), semi-
annual monitoring programme and risk self-assessment;
• supporting such initiatives on covid-19 as the “Mi vuelta”
app, employee health data processing and new
protocols;
• fostering cooperation and the exchange of best practices
with subsidiaries.
FATCA and CRS
The oversight of the automatic exchange of tax information
between countries (FATCA and CRS) is centred around (i)
local reporting obligations; (ii) enhancing the control
framework (KPI's and controls) and revision of corporate
policies; (iii) training initiatives on regulatory updates and
new requirements.
E. SCIB markets regulation
The SCIB compliance team carries out the risk management
of the main international markets regulations that affect
Grupo Santander. Its most relevant actions during 2020 are
detailed below:
MiFID II
Dodd-Frank Title VII
Volcker Rule
Swap dealer compliance programme
grew stronger in 2020. It monitored
potential impacts of covid-19 closely,
with no major issue.
Due to amendments to the rule, it
implemented the moderate compliance
programme in 2020. It approved new
policies and procedures and is already
implementing the new set of controls.
In 2020 the SCIB Compliance function
continued to improve the control
framework to monitor compliance with
the regulation across all geographies. It
focused especially on potential impacts
of covid-19; on decreases in the
algorithmic trading activity for market
making due to high volatility; on
enhancing transaction reporting; and on
implementing new data accuracy and
quality controls.
Product governance and consumer protection
Our product governance and customer protection activities
guarantee our actions take into account our customers’
interests while keeping with regulations, our values and
principles by:
Culture
• designing the conduct and management principles for
marketing and engaging with retail customers and
promoting governance culture;
• promoting a culture with a Simple, Personal and Fair
approach.
Processes
• making sure products meet customer needs under the
right balance of risks, costs and profitability;
• overseeing sales to target markets properly and with
transparent information, as well as sales force training
and remuneration systems centred on meeting
customers’ expectations;
• ensuring Simple, Personal and Fair customer service,
post-sale systems and processes, as well as detecting
potential deterioration in products and services.
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Corporate
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Economic
and financial review
Risk management
and compliance
Management
• making decisions, enforcing action plans and keeping
senior managers and statutory bodies properly informed;
• overseeing the design and execution of controls when
marketing to, and engaging with, customers and
assessing the capacity and maturity model of the 2LoD;
• identifying risks by analysing our customers' feedback,
regulatory guidelines, industry practices, supervisor and
auditor opinions; and learning from internal/external
events;
• applying group risk assessment methodologies, such as
management indicators, thematic evaluations and self-
assessments.
Product Governance
Our product approval governance operates on two levels.
All subsidiaries have their own approval bodies to ensure
new products and services meet the needs of their target
market, are sold by appropriate channels and processes,
and have fair and transparent terms and conditions. They
are then escalated to the corporate product governance
forum (CPGF) to be approved before being marketed. This
two-tier approval system helps us share best practices and
manage the risk of products and services in line with risk
appetite.
The fiduciary risk function meets regularly to ensure
investment products comply with investment mandates
and corporate guidelines.
In 2020 it mainly focused on: (i) designing a new
onboarding process and improving customer experience
with more products/services on digital channels; (ii)
preventing over-indebtedness; and (iii) defining suitability
controls to respond to the increasing demand of high risk
and illiquid products as a result of market conditions.
For more details on how we've been delivering
to our customers amid covid-19, see section
'Santander response to covid-19' in the
Responsible Banking chapter.
In this time of crisis, the product governance and consumer
protection function has worked to be part of the solution
for our customers. During the second quarter of the year,
we issued recommendations to subsidiaries and monitored
their implementation to align:
• Financial measures: Grupo Santander implemented all
government measures and designed others to adapt
solutions to customers' needs and relieve financial
distress. They were free of extra charges and aligned with
local sectorial practices.
• Insurance cover: all our banks jointly with joint ventures
agreed to adapt existing policies to extend the terms and
grace periods of restructured mortgages and loans and
expand health cover to include pandemic-related claims
without any cost to customers.
• Sales force remuneration: main subsidiaries adapted
sales force incentives to the situation to promote a fair
approach for employees and focus on current customers'
needs.
• Investment monitoring and management: Santander
Asset Management and Private Banking monitor
investment products closely. After managing temporary
increases in redemption requests and enhancing the
liquidity conditions of some products, the situation
remained stable without any special cause for concern.
• Complaints: we are closely monitoring our subsidiaries to
analyse complaint trends relating to the pandemic and
make sure relief measures provide the best possible
outcome for our customers. In 2020, there were not
significant inflows of complaints relating to covid-19.
• Collections & Recoveries: Grupo Santander designed a
“Preparedness” plan comprising 5 dimensions for the
entire crisis, including one related to regulatory/conduct
risk to reinforce conduct standards.
• Controls: Subsidiaries reinforced controls regarding credit
and loan applications and sales: transparency in customer
communications, recordkeeping, eligibility checks, and
prevention of cross-selling of insurance relating to loan
moratoria and government lines of credit.
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Other product governance and consumer protection
initiatives and priorities
Culture and customers
Approve a definition of vulnerable
customer for each geography and
create initiatives on the treatment of
vulnerable customers
Update global mandatory training
materials on conduct risk
Implement customer voice reports and
consumer protection indicators
1LoD awareness and
accountability
Management and control
environment
Increase weight, quality and
diversification of conduct metrics in
sales-force variable remuneration
Reinforce conduct risk governance
though product-based 1LoD forums
Conduct risk control self-assessment
Strengthen control model framework
for marketing products and services
Custody controls: supplier certifications
and revaluations, monitoring and
ensuing gap reduction
Thematic reviews (overdrafts, package
accounts, renewals and impact in
customers derived from digitalization)
Financial Crime Compliance (FCC)
For Grupo Santander, advanced and efficient financial crime
compliance systems that constantly adapt to international
regulations and confront the evolving techniques of
criminal organizations is a strategic objective. We are fully
committed to the fight against financial crime and do not
tolerate failures to meet international financial crime
regulations and those of the countries where we operate.
The FCC function in the second line of defence is
responsible for ensuring that risks of financial crime are
managed in accordance with risk appetite. To promote a
strong risk culture, it supervises and coordinates the
implementation of the FCC framework across majority-
owned subsidiaries, branches and business areas through
the appropriate programmes, measures and
enhancements.
Our FCC corporate framework sets the core requirements
for how Grupo Santander responds to risks relating to
financial crime in line with international standards and best
practices. Its purpose is (i) to establish the principles and
standards Santander entities must follow to prevent
financial crime and comply with international sanction
programmes; (ii) to define the area's roles and
responsibilities within the three lines of defence; (iii) to
establish group-wide policies and procedures; and (iv) to
define the essential features of FCC governance.
In 2020, the FCC function executed a series of initiatives
that increased its overall effectiveness, including:
• An end-to-end review of policies and procedures, which
consolidated and simplified them with clear core
requirements and necessary key processes according to
recent regulatory changes and guidance, in addition to
detailed implementation standards and protocols to
assist with adaption in operation areas.
• Strengthening subsidiary oversight via a more robust and
challenging oversight methodology that improves
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collaboration and communication between subsidiaries
and Grupo Santander.
• Updating key risk indicators (KRIs) to monitor the core
components of risks relating to financial crime. KRIs are
tracked locally but also reported globally to top
management in relation to risk appetite.
• Improving FCC new product approval with greater focus
on systems optimization and innovative technologies for
digital initiatives.
• Reforming the group-wide FCC risk assessment
methodology to better identify key FCC risks and evaluate
control effectiveness,based on changes in regulatory
guidance and industrial best practices.
In 2020, the FCC function initiated a strategic
transformation plan for better monitoring and technical
due diligence controls over customer lifecycle across Grupo
Santander that aimed to centralize controls, enhance our
ability to harmonize standards, gain efficiencies and
mitigate execution risk. It included the use of artificial
intelligence and machine-learning techniques to
complement rules-based scenarios and increase the
leverage on high quality leads for investigation.
The benefits to Grupo Santander of applying artificial
intelligence measures have included:
• better detection of unusual and potentially suspicious
behaviour based on various customer behaviour
dimensions;
• flexible and fast responses to new challenges in detection
and analysis, running multiple investigation approaches
while consuming large amounts of data;
• significant research improvements in executing discrete
queries and incorporating new datasets to enhance
detection under a single platform;
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
• the use of a simulation environment to test proposed
• Thematic reputational risk training sessions with first and
enhancements in pre-production;
• traceability and full explanations – our platforms
maintain clear logs and registries that meet group-wide
standards.
Main activity data in 2020 are as follows:
• 215 subsidiary reviews (+11% vs 2019)
• 91,755 disclosures to authorities (+46% vs 2019)
• 258,893 investigations conducted
• 173,098 trained employees
The function maintains group-wide requirements on
training content and testing for all employees, include
senior management. In 2020, in addition to the core FCC
training modules, which are subject to continuous
improvement, it held group-wide awareness sessions that
focused on FCC challenges in digital innovation, financial
inclusion, classifications and approaches to identify non-
traditional financial crimes in child sexual abuse and
exploitation, human trafficking, environmental crime and
other areas.
In addition, targeted training sessions were given to specific
country teams on compliance with specific sanctions and
other critical areas. It also ran a tailored session the group’s
board of directors on the latest trends in financial crime and
the threats Grupo Santander faces across our footprint.
Santander continues to fulfil its role as a member of the
Wolfsberg Group, the United For Wildlife’s Financial
Taskforce, the European Banking Federation, Europol and in
public-private partnerships and industry associations.
Reputational risk
Grupo Santander classifies reputational risk as a current or
potential negative economic impact stemming from how
we are perceived by employees, customers, shareholders,
investors and broader society. It may come from various
sources or even other risks relating to business and support
operations; the economic, social and political climate; and
events involving our competitors.
Our reputational risk model is based on a preventive risk
management and control approach, with effective handling
of early warnings and monitoring of events and detected
risks.
Key actions in 2020:
• New operating procedure, approved by the group and
subsidiaries to analyse reputational risk in a broader
scope of activities.
• Revision of group-wide policies on the defence industry
and other sensitive industries.
• New guidelines for supplier reputation assessments, to
be deployed in all geographies in 2021 (pilot in Santander
España in 2020).
• Definition of a group-wide criteria for social contributions
related to covid-19.
second lines of defence on sensitive transactions and
customers and general awareness for all employees
across our footprint.
• More importance of risk appetite metrics in the group and
core subsidiaries.
• New reputational risk tool that assesses media
perception against our peers.
• Creation of the reputational risk approach for global risk
profile assessments.
• Better subsidiary oversight in terms of governance and
challenge with subsidiaries.
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8. Model risk
8.1 Introduction
A model is a system, approach or quantitative method that
applies statistical, economic, financial or mathematical
theories, techniques or hypotheses to transform input data
into quantitative estimates. It involves simplified
representations of real world relationships between
characteristics, values and observed assumptions that
allows Grupo Santander to focus on specific aspects. We
use models for approval (scoring/rating), capital
calculation, behaviour, provisions, market, operational risk,
compliance and liquidity.
Models entail model risk, which is the negative
consequence of decisions based on their inaccurate,
improper or incorrect use. Sources of model risk can be:
• incorrect or incomplete data in the model itself or the
modelling method used in systems;
• incorrect use or implementation of the model.
Model risk can cause financial loss, erroneous commercial
and strategic decision-making or damage to Grupo
Santander’s transactions.
We have been defining, managing and controlling model
risk for several years. After years of work, the Model Risk
function has been enhanced and consolidated across the
Group. These functions are performed at the corporate
centre and the main subsidiaries.
To ensure adequate model risk management, Grupo
Santander has a set of policies and procedures that
establish the principles, responsibilities and processes in
the model life cycle that describe organization, governance,
model management and model validation.
Supervision and control of model risk is proportional to the
importance of each model. A concept of Tiering is the main
attribute used to synthesize a model’s level of importance
and defines how intense risk management must be.
Our multiyear strategic plan, Model Risk Management 2.0
(MRM 2.0), was launched to enhance model risk
management across Grupo Santander. The governance
phase of each model has been reviewed and adapted to the
2018 ECB guide on internal models. MRM 2.0 is currently
underway, and a high number of initiatives have already
been closed. Specifically during 2020 the project has
covered different initiatives focused on the following
themes:
• Key elements: Several initiatives related to governance
reinforcement, definition of risk appetite, management
scope and simplification of risk policies have been
undertaken, with the main focus on enhancing our
framework for regulatory models.
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• Processes: Different actions related to the improvement
of the model life cycle phases have been performed, with
focus on increasing the automation of our main
processes.
• Reporting: The Senior Management awareness of Model
Risk topics has been reinforced, we have a robust
forward looking agenda where the relevant topics are
regularly reviewed and potentially escalated.
• Model Risk Facilitators: Continuous enhancement of our
infrastructure and tools as well as contributing to extend
the model culture in the Group. High digitalization level
allow us to support our decisions on real-time
information.
We have continued making steady progress on our MRM
2.0 strategic plan, making sure all the upcoming regulatory
requirements are thoroughly covered.
In addition to MRM 2.0, we have two specific projects
underway with our regulatory credit and market risk
models under scope.Both projects have the target to follow
up on the TRIM (Targeted Review of Internal Models)
actions, and to ensure the fulfilment of the new regulatory
requirements for the coming years.
The main focus in 2021 will be to continue strengthening
our regulatory model landscape, in order to fulfil ECB
requirements by 2022. A high number of model changes
will be delivered to the ECB, which will require formal
approval before implementation.
8.2 Model risk management
Model risk management and control are structured
processes known as the model life cycle. The model life
cycle phases in Santander are:
Identification
Identified models must be included in the model risk
control perimeter.
One key feature for proper model risk management is to
have a complete inventory of used models.
Grupo Santander has a centralized inventory, based on a
uniform taxonomy for all models used at business units.
The inventory contains detailed information on each model
allowing for close monitoring according to model
significance and tier criteria.
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banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
Planning
Approval
This is an internal annual exercise, approved by our
subsidiaries’ governance bodies and validated by the
headquarters team. It establishes a strategic action plan for
models included in the model risk function’s scope of
management. It identifies the resources needs related to
the models that are going to be developed, revised and
implemented during the year.
Development
Development is the construction phase in the model's
lifecycle. It is based on econometrics and carried out by
specialists in methodology. Models are developed
according to the needs of the business unit, as specified in
the annual model plan.
To ensure the quality and consistency of the models, the
development must follow common, group-wide
methodological standards, as defined by the headquarters
team. The recent creation of the Models & Data Unit aims
at a better, more efficient and centralized execution of
model builds, whilst exploiting the synergies of combining
models and data.
More detail in section 2.5 Models & Data Unit
of this chapter.
Internal validation
The independent validation of models is a regulatory
requirement and a key feature of our management and
control of model risk.
An independent specialized unit, which is part of Model Risk
function, analyzes and issues technical opinions on the
suitability of internal models. The validation opinion for
each model is expressed through a rating that summarizes
the model risk associated to it. Internal validation covers all
the models within the model risk control scope, the
intensity and the frequencies of the validations tasks are
perfectly defined and follow a Risk-based approach.
The validation scope includes theory, methodology, the IT
systems and the data quality that models rely upon for
their effective functioning. It also includes detailed analysis
of the model performance, as well as other risk
management aspects (controls, reporting, uses, and
involvement of senior management, among others).
A key task in internal validation is the consistency analysis
carried out by validators, which reviews issued
recommendations, severity and assigned ratings. It acts as
an important point of control to ensure the homogeneity
and comparability of validation tasks.
The validation tasks are only concluded once this phase of
consistency has been completed. In addition, the Single
Validation Office plays a key role ensuring the highest
consistency of the validations across the models in the
Group.
Before deployment and use, each model must be submitted
to internal governance bodies for approval. A governance
path for our models inventory is in place, which varies
according to the model's tiering.
Deployment and use
In this phase, we implement newly developed models in IT
systems. This phase is another possible source of model
risk. Therefore, technical units and model owners must
conduct tests to certify model implementation is according
to methodology as intended and expected.
Monitoring and control
We must regularly review models to make sure they
perform correctly and are suitable to their intended
purpose. Otherwise, they must be adapted or redesigned.
Additionally, control teams have to ensure that model risk
is managed in accordance with the principles and rules set
out in the model risk framework and related internal
regulations.
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9. Strategic risk
9.1 Introduction
Strategic risk is the threat of loss or damage from strategic
decisions, the poor implementation thereof or the inability
to adapt to external developments.
Grupo Santander’s business model must be considered as a
key factor that is pivotal to strategic risk. It has to be viable,
sustainable and should generate results in accordance with
the yearly group’s targets (particularly the next three years)
and long-term view.
Strategic risk has three components:
1 Business model risk, which includes the risk that the
group's model will become obsolete or irrelevant, and/or
that it will lose the ability to generate expected results.
2 Strategy design risk, which relates to the strategy set out in
Grupo Santander’s long-term plan (including the risk that
the plan will not be adequate) or due to its assumptions,
resulting in a failure to deliver expected results.
3 Strategy execution risk, which involves the three-year
financial plan (including internal and external impacts), the
inability to react to changes in the business environment,
and risks associated with corporate development
transactions.
9.2 Strategic risk management
Grupo Santander views strategic risk as transversal. We
have a target operating model that our subsidiaries use as a
reference. It covers the governance, procedures and
necessary tools for robust monitoring and control. We
constantly monitor changes in the landscape (competition,
regulation, market conditions, etc.) or in our own entity to
determine if it is necessary to revise strategy and if
mitigating factors and/or remediation plans are in place.
The strategic risk function involves key areas from the first
and second line of defence to make sure potential
measures are ready to be implemented.
In 2020, the strategy mainly focused on the covid-19
pandemic and the extremely uncertain economic outlook.
Although our strategy remains valid in the long term, the
current backdrop might delay our achievement of some
strategic targets. The health crisis's effects on the global
economy have driven our strategic risk profile to mid-high,
primarily triggered by pressure on margins, profitability
and the impact assessment of the aforementioned
potential threats.
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Brexit governance remained in force in 2020. It built on
existing working groups and the crisis management office
so we could detect issues and keep senior managers duly
informed.
The strategic risk function's key actions in 2020 were:
• Challenge to strategic plans: Supported by specialized
functions within the Risk division, it challenged the three-
year strategic plan (including a specific chapter in the
final plan), identifying potential threats and changes in
the environment that might jeopardize strategic
objectives. The 2020 challenge focused on economic
outlook uncertainty, since the intensity and duration of
the covid-19 crisis remain unknown, and a tough
environment for value creation where digital projects,
such as One Santander, PagoNxt and building a global
native digital consumer bank, are crucial in boosting
profit growth.
• Top risks: Under stressed assumptions, Grupo Santander
identifies, assesses, monitors and manages risks that will
have a significant impact on results, liquidity or capital.
Covid-19 has been a catalyst for previously identified
threats, such as cyber-attacks,and macro and geopolitical
threats; it is already changing market dynamics,
consumer behaviour and accelerating the digitization of
the economy. Climate change-related risk has also take
on a more holistic view, beyond the regulatory scope.
• Strategic risk report: Prepared jointly with the corporate
development and strategy function as a tool for
monitoring and assessing the strategy and related risks,
it is presented to senior managers and covers strategy
execution, strategic projects, corporate development
transactions, business model performance, top risks and
risk profile.
• Marketing of new products: The strategic risk function
participated in assessing and validating new product and
service proposals before Grupo Santander and its
subsidiaries launch them, ensuring full alignment with
the approved strategy.
• Corporate development transactions: The strategic risk
function received support from other Risk division areas
to ensure risk assessments of transactions' impact on our
risk profile and risk appetite.
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Glossary
1LoD
2019 AGM
2020 AGMs
2021 AGM
2Dii
2LoD
Active customer
First Line of Defence
Annual general meeting held on 12 April 2019
April 2020 AGM and October 2020 AGM
Annual general meeting called for 25 or 26 March 2021, at first or second call respectively
2 Degree Investing Initiative
Second Line of Defence
Those customers who comply with balance, income and/or transactionality demanded minimums
defined according to the business area
American Depositary Shares
Agencia Estatal de Administración Tributaria
Artificial Intelligence
Asset-Liability Committee
Asset and Liability Management
Anti-money laundering
Alternative Performance Measure
Annual general meeting held on 3 April 2020
Available Stable Funding
Recovered write-off assets (Activos en suspenso recuperados)
Additional Tier 1
Automated teller machine
Advanced Target Operating Models in Collaboration
Business to business to customer
Business to customer
ADS
AEAT
AI
ALCO
ALM
AML
APM
April 2020 AGM
ASF
ASR
AT1
ATM
ATOMIC
B2B2C
B2C
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
The Basel Committee on Banking Supervision
Business as usual
Bounce Back Loans
Business Continuity Management System
Business continuity plans
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 Internacional
Chief audit executive
Development Bank of Latin America
Chief accounting officer
Conselho Administrativo de Recursos Fiscais
Chief compliance officer
Central Counterparties
Contingent convertible preferred securities
Crest Depositary Interests
Basel or Basel
Committee
BAU
BBLS
BCMS
BCP
BIS
Bn
bps
BRRD
BSI
CAE
CAF
CAO
CARF
CCO
CCP
CCPS
CDI
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governance
Economic
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Risk management
and compliance
CDS
CEB
CEO
CER
CET1
CFO
CIO
CNMV
COFINS
Corporate Centre
Corporation
COSO
CPGF
CRD IV
CRD V
CRE
CRO
CRR
CRS
CSA
CSLL
CTO
CVA
D&I
DI
Digital customers
Credit Default Swaps
Council of Europe Development Bank
Chief executive officer
Credit equivalent risk
Common equity tier 1
Chief financial officer
Chief information officer
Spanish stock market authority (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
Corporate Products Governance Forum
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
Social Contribution on Net Income
Chief technology officer
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.
Data Leakage Protection
The US Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Deferred Tax Asset
Debt Valuation Adjustment
Environmental and social
Exposure at Default
European Banking Authority
European Bank for Reconstruction and Development
European Central Bank
DLP
Dodd-Frank Act
DTA
DVA
E&S
EAD
EBA
EBRD
ECB
ECB Recommendation I The recommendation issued by the ECB on 27 March 2020 for all European credit institutions under
its supervision to refrain from paying out dividends against the 2019 and 2020 results until at least 1
October 2020 to preserve capital
ECB Recommendation II The recommendation issued by the ECB on 27 July 2020 extending the term of ECB Recommendation
ECL
EIB
EMIR
EONIA
I. It asked the European credit institutions under its supervision to refrain from paying out dividends
against the 2019 and 2020 results or from making irrevocable commitments to pay them until 1
January 2021
Expected credit loss
European Investment Bank
Regulation (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories, as
amended from time to time
Euro Overnight Index Average
497
Annual report 2020
Contents
Earnings Per Share
Executive risk committee
Expected Shortfall
Environmental, Social and Governance
European Securities and Markets Authority
Environmental and social risk management
Exchange Traded Funds
European Union
Economic Value of Equity
Early Warning Indicators
Foreign Account Tax Compliance Act
Financial Conduct Authority
Fiat Chrysler Automobiles
Financial Crime Compliance
Fundación Española de Banca para Estudios Financieros
Federal Reserve
The final cash dividend of 0.10 euros per share put to a vote by the board in February 2020 at the
April 2020 AGM
Fondo de Reestructuración Ordenada Bancaria
Fundamental Review of the Trading Book
Financial Stability Board
Foreign Exchange
Global Systematically Important Bank
Pound sterling
General Code of Conduct
Gross Domestic Product
General Data Protection Regulation
Global master repurchase agreement
Global Merchant Services
Global Public Policy Committee
Great Place to Work
Governance, risk and compliance
Global Reporting Initiative
Group-Subsidiary Governance Model
Global Trade Services
Human Resources
International Accounting Standards
Interbank offered rates
Internal Capital Adequacy Assessment Process
Accounting and Audit Institute (Instituto de Contabilidad y Auditoría de Cuentas)
Internal control over financial reporting
Internal control model
Instituto de Crédito Oficial
Information and Communication Technology
Other executives whose activities may have a significant impact on the Group's risk profile
International Finance Corporation
Instituciones financieras internacionales
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
EPS
ERC
ES
ESG
ESMA
ESRM
ETF
EU
EVE
EWIs
FATCA
FCA
FCA Group
FCC
FEBEF
FED
Final Cash Dividend
FROB
FRTB
FSB
FX
G-SIB
GBP
GCC
GDP
GDPR
GMRA
GMS
GPPC
GPTW
GRC
GRI
GSGM
GTS
HR
IAS
IBORs
ICAAP
ICAC
ICFR
ICM
ICO
ICT
Identified Staff
IFC
IFI
IFRS
498
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
ILAAP
IMF
IRB
IRC
IRPJ
IRR
IRS
ISMA
IT
IT
KPI
KRI
LCR
LDA
LGD
LIBOR
Loyal customers
LTD
LTV
M/LT
MiFID II
Mn
MRAP
MREL
MRM
MtM
MXN
NCAs
NGFS
NGO
NII
Nominal cap
NPLs
NPS
NSFR
NYSE
o/w
October 2020 AGM
OECD
OM
ONP
OR
OSLA
OTC
P&L
PACTA
PCAOB
Internal Liquidity Adequacy Assessment Process
International Monetary Fund
Internal Rating Based
Incremental Risk Charge
Imposto de Renda Pessoa Jurídica
Internal rate of return
Internal Revenue Service
International Securities Market Association
Information technology
Information Technology (tecnología de la información)
Key performance indicator
Key Risk Indicators
Liquidity Coverage Ratio
Loss Distribution Approach
Loss Given Default
London Interbank Offer Rate
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
Markets in Financial Instruments Directive.
Million
Market Risk Advanced Platform
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
National competent authority
Network for Greening the Financial System
Non-governmental organisation
Net Interest Income
Maximum nominal amount of a risk operation, excluding market transactions
Non-performing loans
Net promoter score
Net stable funding ratio
New York Stock Exchange
Of which
Annual meeting held on 27 October 2020
Organisation for Economic Co-operation and Development
Organised Markets
Ordinary net profit
Operational risk
Overseas Securities Lender’s Agreement
Over the counter
Profit and Loss
Paris Agreement Capital Transition Assessment
Public Company Accounting Oversight Board
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Annual report 2020
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PD
Probability of Default
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.
Potential Future Exposure (posible exposición futura)
Programa de Integraçao Social
Point in time
Point-in-time
Polish Zloty
Purchased or Originated Credit Impaired
Point of sale
percentage point
Payment protection insurance
UK Prudential Regulatory Authority
Principles for responsible Investment
Payment Services Directive II
PricewaterhouseCoopers Auditores, S.L.
Research, development and innovation
Risk appetite framework
Risk appetite statement
Risk control committee
Risk control self-assessment
Risk Data Aggregation
Risk Identification and Assessment
Return on assets
Return on equity
Return on risk adjusted capital
Return on risk weighted assets
Return on tangible equity
Risk profile assessment
Risk Reporting Structure
Required Stable Funding
Rules and regulations of the board of directors of Banco Santander, S.A.
Rules and regulations of the general meeting of Banco Santander, S.A.
Risk weighted assets
The S&P 500 index maintained by S&P Dow Jones Indices LLC
Santander Asset Management
Santander Consumer USA Holdings Inc.
Santander Bank N.A.
Santander Consumer US
Santander Customer Assessment Note
Santander Consumer Finance
Santander Corporate & Investment Banking
Strategic commercial plans
Santander Dividendo Elección
Sustainable Development Goals
People supported in our
communities
PFE
PIS
PIT
PIT
PLN
POCI
POS
pp
PPI
PRA
PRI
PSD2
PwC
R&D&i
RAF
RAS
RCC
RCSA
RDA
RIA
RoA
RoE
RoRAC
RoRWA
RoTE
RPA
RRS
RSF
Rules and regulations of
the board
Rules and regulations of
the general meeting
RWAs
S&P 500
SAM
Santander Consumer US
SBNA
SC USA
SCAN
SCF
SCIB
SCPs
SDE
SDG
500
Responsible
banking
Corporate
governance
Economic
and financial review
Risk management
and compliance
SEA
SEC
SHUSA
SICR
SIS
SLA
SMEs
SOX
Spanish Companies Act Consolidated text of the Spanish Companies Act approved by Royal Legislative Decree 1/2010, of 2
Securities Exchange Act
Securities and Exchange Commission
Santander Holdings USA, Inc.
Aumento significativo del riesgo crediticio
Santander Investment Securities
Service Level Agreement
Small and medium enterprises
Sarbanes-Oxley Act of 2002
Spanish Corporate
Governance Code
Spanish Securities
Markets Act
SPF
SRB
SREP
SRF
SRI
SRT
SSM
ST
STEM
STF
SVaR
T&O
T2
TCFD
TLAC
TLTRO
TOM
TRIM
TSR
UK
UN SDG
UNEP FI
US
USD
VaE
VaR
VAT
Volcker Rule
VPN
WBCSD
WFH
WM&I
Wolfsberg group
July
CNMV's Good Governance Code for Listed Companies
Consolidated text of the Spanish Securities Markets Act approved by Royal Legislative Decree
4/2015, of 23 October
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
Supreme Federal Court of Brazil
Stressed value at risk
Technology and operations
Tier 2
Task Force on Climate-related Financial Disclosures
The total loss-absorbing capacity requirement which is required to be met under the CRD V package
Targeted longer-term refinancing operations
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
Value at Earnings
Value at Risk
Value Added Tax
Section 619 of the Dodd-Frank Act
Virtual Private Network
World Business Council for Sustainable Development
Working From Home
Wealth Management and Insurance
Association of thirteen global banks which aims to develop frameworks and guidance for the
management of financial crime risks
YoY
Year over year
501
Annual report 2020
Contents
Auditor's report
and consolidated
financial statements
502
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Auditor’s report
Consolidated annual accounts
Consolidated balance sheets as of 31 December
2020, 2019 and 2018
Consolidated income statements for the years
ended 31 December 2020, 2019 and 2018
Consolidated statements of recognised income
and expense for the years ended 31 December
2020, 2019 and 2018
Consolidated statements of changes in total
equity for the years ended 31 December 2020,
2019 and 2018
Consolidated statements of cash flows for the
years ended 31 December 2020, 2019 and 2018
Notes to the consolidated
annual accounts
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
504
517
517
521
523
525
531
533
534
541
582
585
588
603
604
606
607
607
615
615
616
618
618
619
622
625
626
627
627
628
633
635
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. Commission income
42. Commission expense
43. Gains or losses on financial assets and
liabilities
44. Exchange differences, net
45. Other operating income and expenses
46. Staff costs
47. Other general administrative expenses
48. Gains or losses on non financial assets, net
49. Gains or losses on non-current assets held for
sale not classified as discontinued operations
50. Other disclosures
51. Main and secondary segments reporting
52. Related parties
53. Risk management
54. Explanation added for translation to English
Appendix
Appendix I. Subsidiaries of Banco Santander, S.A.
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
636
651
651
657
658
663
663
663
664
665
665
666
706
706
706
707
707
708
708
709
709
710
716
717
717
718
734
748
783
795
796
797
819
826
827
828
835
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Annual report 2020
Contents
Auditor's
report
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
505
Annual report 2020
Contents
506
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
507
Annual report 2020
Contents
508
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
509
Annual report 2020
Contents
510
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
511
Annual report 2020
Contents
512
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
513
Annual report 2020
Contents
514
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
515
Annual report 2020
Contents
Consolidated
annual accounts
516
Auditor's
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 54). In the event of a discrepancy, the Spanish- version prevails.
Grupo Santander
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
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
NON-TRADING FINANCIAL ASSETS MANDATORILY AT
FAIR VALUE THROUGH PROFIT OR LOSS
Equity instruments
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Equity instruments
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
FINANCIAL ASSETS AT AMORTIZED COST
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
HEDGING DERIVATIVES
CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN
PORTFOLIO HEDGES OF INTEREST RATE RISK
INVESTMENTS
Note
9 and 11
8
7
6
6
10
8
7
6
6
10
7
6
6
10
8
7
6
6
10
7
6
6
10
36
36
13
2020
153,839
114,945
67,137
9,615
37,894
2019*
101,067
108,230
63,397
12,437
32,041
2018*
113,663
92,879
55,939
8,938
27,800
299
—
3
296
4,486
3,234
700
552
—
—
552
48,717
2,979
45,738
9,481
12,136
24,121
355
—
—
355
4,911
3,350
1,175
386
—
—
386
62,069
3,186
58,883
6,473
21,649
30,761
202
—
—
202
10,730
3,260
5,587
1,883
—
2
1,881
57,460
3,222
54,238
9,226
23,097
21,915
120,953
125,708
121,091
2,783
2,863
2,671
108,903
118,405
116,819
9,267
4,440
1,601
—
—
—
—
—
—
9,267
4,440
1,601
958,378
995,482
946,099
26,078
29,789
37,696
932,300
965,693
908,403
12,499
37,838
18,474
40,943
15,601
35,480
881,963
906,276
857,322
8,325
7,216
8,607
1,980
7,622
1,702
8,772
1,088
7,588
517
Annual report 2020
Contents
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
ASSETS
Joint venture 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 properties
Of which leased out under an operating 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
15
16
16
17
18
27
14
19
12
2020
1,492
6,130
261
32,735
31,772
13,213
18,559
963
793
15,908
12,471
3,437
24,586
5,340
19,246
11,070
174
5
10,891
4,445
2019*
1,325
7,447
292
35,235
34,262
15,041
19,221
973
823
27,687
24,246
3,441
29,585
6,827
22,758
10,138
192
5
9,941
4,601
2018*
979
6,609
324
26,157
24,594
8,150
16,444
1,563
1,195
28,560
25,466
3,094
30,251
6,993
23,258
9,348
210
147
8,991
5,426
1,508,250
1,522,695
1,459,271
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated balance sheet as of 31 December 2020.
518
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
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 AMORTIZED 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
Note
2020
2019*
2018*
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
81,167
64,469
16,698
77,139
63,016
14,123
70,343
55,341
15,002
—
—
—
—
—
—
—
—
—
—
—
—
48,038
43,598
2,490
6,765
60,995
57,111
12,854
9,340
34,343
34,917
4,440
3,758
—
—
126
—
—
—
—
—
—
—
68,058
65,304
14,816
10,891
39,597
2,305
449
—
1,248,188
1,230,745
1,171,630
990,391
942,417
903,101
112,804
62,620
62,468
90,501
72,523
89,679
814,967
789,448
740,899
230,829
258,219
244,314
26,968
21,880
30,109
21,062
24,215
23,820
6,869
6,048
6,363
286
910
269
739
303
765
10,852
13,987
13,225
3,976
1,751
2,200
700
2,225
8,282
2,349
5,933
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
12,336
12,792
13,088
—
—
—
1,416,928
1,412,036
1,351,910
519
Annual report 2020
Contents
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
EQUITY
SHAREHOLDERS´ EQUITY
CAPITAL
Called up paid capital
Unpaid capital which has been called up
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 venture investments
Others
(-) OWN SHARES
PROFIT OR LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
(-) INTERIM DIVIDENDS
OTHER COMPREHENSIVE INCOME OR LOSS
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 or loss
Other items
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
MEMORANDUM ITEMS: OFF BALANCE SHEET AMOUNTS
Loan commitments granted
Financial guarantees granted
Other commitments granted
Note
2020
2019*
2018*
30
31
114,620
124,239
120,597
8,670
8,670
—
8,309
8,309
—
8,118
8,118
—
32
52,013
52,446
50,993
34
33
33
33
34
4
29
29
28
35
627
—
627
163
598
—
598
146
565
—
565
234
65,583
61,028
56,756
—
—
—
(3,596)
(3,110)
(1,583)
1,504
1,210
972
(5,100)
(4,320)
(2,555)
(69)
(8,771)
(31)
(59)
6,515
7,810
—
(1,662)
(2,237)
(33,144)
(24,168)
(24,125)
(5,328)
(4,288)
(2,936)
(27,816)
(19,880)
(21,189)
9,846
10,588
10,889
(1,800)
(982)
(1,292)
11,646
11,570
12,181
91,322
110,659
107,361
1,508,250
1,522,695
1,459,271
241,230
241,179
218,083
12,377
64,538
13,650
68,895
11,723
74,389
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated balance sheet as of 31 December 2020.
520
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report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
Interest income
Financial assets at fair value through other comprehensive income
Financial assets at amortized 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 amortized cost
Other financial assets and liabilities
Gain or losses on financial assets and liabilities held for trading, net
Reclassification of financial assets at fair value through other comprehensive income
Reclassification of financial assets at amortized 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 amortized 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
Note
38
(Debit) Credit
2020
2019*
45,741
2,840
40,365
2,536
56,785
3,571
48,552
4,662
2018*
54,325
4,481
47,560
2,284
39
(13,747)
(21,502)
(19,984)
31,994
35,283
34,341
391
(96)
13,024
(3,009)
1,107
(31)
1,138
3,211
—
—
533
324
15,349
(3,570)
1,136
308
828
370
737
14,664
(3,179)
604
39
565
1,349
1,515
—
—
—
—
3,211
1,349
1,515
82
—
—
82
(171)
51
(2,093)
1,920
(2,342)
1,452
(1,242)
292
—
—
292
(286)
(28)
(932)
1,797
(2,138)
2,534
(2,414)
44,279
49,229
(18,320)
(20,279)
46
(10,783)
(12,141)
40
13
41
42
43
43
43
43
43
44
45
45
45
45
331
—
—
331
(57)
83
(679)
1,643
(2,000)
3,175
(3,124)
48,424
(20,354)
(11,865)
521
Annual report 2020
Contents
CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
Other general administrative expenses
Depreciation and amortisation cost
Provisions or reversal of provisions, net
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 amortized cost
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 recognized 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/(loss) from continuing operations
Profit/(loss) after tax from discontinued operations
Profit/(loss) for the year
Profit/(loss) attributable to non-controlling interests
Profit/(loss) attributable to the parent
Earnings/(losses) per share
Basic
Diluted
Note
47
16 and 18
25
(Debit) Credit
2020
2019*
(7,537)
(2,810)
(2,378)
(8,138)
(3,001)
(3,490)
2018*
(8,489)
(2,425)
(2,223)
(12,382)
(9,352)
(8,986)
(19)
(12)
(1)
10
(12,363)
(9,340)
(8,985)
17 and 18
—
—
(10,416)
(1,623)
16
17 and 18
(174)
(45)
(10,242)
(1,564)
(17)
(190)
(83)
(117)
10
28
67
(14)
1,291
—
(232)
(123)
12,543
14,201
(4,427)
8,116
—
8,116
1,601
6,515
0.347
0.346
(4,886)
9,315
—
9,315
1,505
7,810
0.430
0.429
—
114
8
(171)
(2,076)
(5,632)
(7,708)
—
(7,708)
1,063
(8,771)
(0.538)
(0.538)
48
49
27
37
28
4
4
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated income statement for the year ended 31 December 2020.
522
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE
FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
CONSOLIDATED PROFIT/(LOSS) 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
Hedging instruments (items not designated)
Revaluation gains (losses)
Note
29
2020
(7,708)
(9,794)
(1,018)
(25)
—
(4)
2019*
8,116
267
(1,351)
(1,677)
—
1
2018*
9,315
(2,298)
332
618
—
1
36
(917)
(29)
(174)
—
4
(4)
31
(103)
(8,776)
2,340
2,340
—
—
(11,040)
(11,040)
—
—
(53)
799
(852)
—
—
—
—
—
44
(44)
(156)
510
1,618
(1,151)
(1,151)
—
—
1,232
1,232
—
—
8
(1,104)
1,112
—
—
—
—
29
36
36
36
—
—
—
109
(222)
(2,630)
(2)
(2)
—
—
(2,253)
(2,253)
—
—
174
491
(317)
—
—
—
—
523
Annual report 2020
CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE
FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
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
29
—
—
(100)
692
(1,165)
373
—
—
—
—
(151)
228
(17,502)
245
(17,747)
—
—
2,414
2,588
(792)
618
—
—
—
—
(15)
(870)
8,383
1,911
6,472
Contents
—
—
(591)
(29)
(562)
—
—
—
—
—
(97)
139
7,017
1,396
5,621
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated statement of recognised income and expense for the year ended 31
December 2020.
524
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
Balance at 31 December 2019*
Adjustments due to errors
Adjustments due to changes in accounting policies
Opening balance at 1 January 2020*
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
Balance at 31 December 2020
Capital
8,309
—
—
Share
premium
52,446
—
—
8,309
52,446
—
361
361
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(433)
(72)
—
—
—
—
—
(361)
—
—
—
—
—
—
—
—
8,670
52,013
Equity
instruments
issued (not
capital)
Other equity
instruments
598
—
—
598
—
29
—
—
—
—
—
—
—
—
—
—
—
—
—
—
29
627
146
—
—
146
—
17
—
—
—
—
—
—
—
—
—
—
—
—
—
(53)
70
163
Accumulated
retained
earnings
61,028
—
—
61,028
—
4,555
—
—
—
—
—
—
—
—
—
—
—
4,555
—
—
—
65,583
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2020.
525
Annual report 2020
Contents
Other reserves
(3,110)
(-) Own shares
(31)
Profit
attributable to
shareholders
of the parent
6,515
—
—
6,515
(8,771)
(6,515)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(31)
—
(38)
—
—
—
—
—
—
—
(758)
720
—
—
—
—
—
—
(69)
(8,771)
Non-controlling interest
(-) Interim
dividends
(1,662)
Other
comprehensive
income
(24,168)
Other
comprehensive
income Others items
Total
(982)
11,570
110,659
—
—
(1,662)
—
1,662
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(24,168)
(8,976)
—
—
(982)
(818)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,570
1,063
(987)
5
—
—
—
—
—
(465)
—
—
—
—
—
(54)
—
(473)
(33,144)
(1,800)
11,646
—
—
110,659
(17,502)
(1,835)
364
—
—
—
—
—
(826)
(758)
721
—
—
—
(54)
(53)
(1,229)
91,322
(6,515)
1,662
—
—
(3,110)
—
(486)
70
—
—
—
—
—
—
—
1
—
—
298
—
—
(855)
(3,596)
Revaluation
reserves
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
526
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
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
Balance at 31 December 2019*
Capital
8,118
—
—
Share
premium
50,993
—
—
8,118
50,993
—
191
191
—
1,453
1,453
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,309
52,446
Equity
instruments
issued (not
capital)
Other equity
instruments
565
—
—
565
—
33
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33
598
234
—
—
234
—
(88)
—
—
—
—
—
—
—
—
—
—
—
—
—
(88)
—
146
Accumulated
retained
earnings
56,756
—
—
56,756
—
4,272
—
—
—
—
—
—
(1,055)
—
—
—
—
5,327
—
—
—
61,028
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2020.
527
Annual report 2020
Other reserves
(1,583)
(-) Own shares
(59)
Contents
Total
107,361
—
(391)
Profit
attributable to
shareholders
of the parent
7,810
—
—
7,810
6,515
(7,810)
—
—
—
—
—
—
—
—
—
—
—
—
—
(59)
—
28
—
—
—
—
—
—
—
(928)
956
—
—
—
—
—
—
Non-controlling interest
(-) Interim
dividends
(2,237)
Other
comprehensive
income
(24,125)
Other
comprehensive
income Others items
(1,292)
12,181
—
—
(2,237)
—
575
—
—
—
—
—
—
(1,662)
—
—
—
—
—
—
(24,125)
(43)
—
—
(1,292)
310
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,181
106,970
1,601
(2,212)
1
—
—
—
—
(2)
(895)
—
—
—
—
—
110
—
8,383
(4,694)
1,673
—
—
—
—
(2)
(3,612)
(928)
950
—
—
—
110
(88)
(1,426)
(2,797)
(7,810)
2,237
—
—
—
—
—
—
(31)
6,515
(1,662)
(24,168)
(982)
11,570
110,659
—
(391)
(1,974)
—
(1,136)
28
—
—
—
—
—
—
—
(6)
—
—
246
—
—
(1,404)
(3,110)
Revaluation
reserves
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
528
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
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
Balance at 31 December 2018*
Capital
8,068
—
—
Share
premium
51,053
—
—
8,068
51,053
—
50
50
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(60)
(60)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,118
50,993
Equity
instruments
issued (not
capital)
Other equity
instruments
525
—
—
525
—
40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
40
565
216
—
—
216
—
18
—
—
—
—
—
—
—
—
—
—
—
—
—
(74)
92
234
Accumulated
retained
earnings
53,437
—
—
53,437
—
3,319
—
—
—
—
—
—
(968)
—
—
—
—
4,287
—
—
—
56,756
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2020.
529
Annual report 2020
Other reserves
(1,602)
(-) Own shares
(22)
Contents
Total
106,833
—
Profit
attributable to
shareholders
of the parent
6,619
—
—
6,619
7,810
(6,619)
—
—
—
—
—
—
—
—
—
—
—
—
—
(22)
—
(37)
—
—
—
—
—
—
—
(1,026)
989
—
—
—
—
—
—
Non-Controlling interest
(-) Interim
dividends
(2,029)
Other
comprehensive
income
(21,776)
Other
comprehensive
income Others items
(1,436)
13,780
—
—
(2,029)
—
(208)
—
—
—
—
—
—
(2,237)
—
—
—
—
—
(160)
(21,936)
(2,189)
—
253
(1,183)
(109)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,545)
(1,340)
12,235
105,493
1,505
(1,559)
7,017
(5,149)
—
—
—
—
—
—
(687)
—
—
—
—
—
(660)
17
(229)
—
—
—
—
—
—
(3,892)
(1,026)
989
—
—
—
(601)
(57)
(562)
(6,619)
2,029
—
—
—
—
—
—
(59)
7,810
(2,237)
(24,125)
(1,292)
12,181
107,361
—
112
(1,490)
—
(93)
10
—
—
—
—
—
—
—
—
—
—
303
59
—
(465)
(1,583)
Revaluation
reserves
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
530
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 2020, 2019 Y 2018
EUR million
A. CASH FLOWS FROM OPERATING ACTIVITIES
Profit or loss 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 at amortized cost
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 amortized 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
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
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
2020
66,153
(7,708)
37,836
2,810
35,026
51,385
12,390
2019*
3,389
8,116
23,990
3,001
20,989
64,593
15,450
(275)
(6,098)
(10,314)
6,549
43,541
(506)
90,356
7,880
(10,907)
96,561
(3,178)
(2,946)
(7,220)
11,976
7,386
1,134
525
2,931
—
—
4,756
2,014
—
182
1,775
785
—
(1,909)
6,978
—
3,780
—
758
2,440
5,069
4,095
—
721
253
4,464
1,693
49,541
(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
—
(10,122)
12,159
3,773
5,123
—
928
2,335
2,037
1,090
—
947
—
16
18
13
16
18
13
12
4
23
23
2018*
3,416
9,315
21,714
2,425
19,289
51,550
(31,656)
5,795
16,275
(2,091)
61,345
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
—
(3,301)
7,573
3,118
2,504
—
1,026
925
4,272
3,283
—
989
—
531
Annual report 2020
Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 2020, 2019 Y 2018
EUR million
Note
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
2020
(4,252)
52,772
101,067
153,839
7,817
137,047
8,975
—
2019*
1,366
(12,596)
113,663
101,067
2018*
(595)
2,668
110,995
113,663
8,764
75,353
16,950
—
10,370
89,005
14,288
—
153,839
101,067
113,663
—
—
—
* Presented for comparison purposes only (note 1.d).
The accompanying notes 1 to 54 and appendices are an integral part of the consolidated statement of cash flows for the year ended 31 December 2020.
532
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annual accounts
Notes to the consolidated
annual accounts
Appendix
Notes to the
consolidated
annual accounts
533
Annual report 2020
Contents
Banco Santander, S.A., and Companies composing
Santander Group
b) Basis of presentation of the consolidated financial
statements
Notes to the consolidated financial statements
(consolidated annual accounts) for the year ended
31 December 2020
1. Introduction, basis of presentation of the
consolidated financial statements
(consolidated annual accounts) and other
information
a) Introduction
Banco Santander, S.A. ('the parent' or 'Banco Santander'), is a
private-law entity subject to the rules and regulations
applicable to banks operating in Spain, where it was
constituted and currently maintains its legal domicile, which
is paseo de Pereda, numbers 9 to 12 (39004, Santander,
Spain).
The principal headquarters of Banco Santander are located in
Ciudad Grupo Santander, avenida Cantabria s/n (28660,
Boadilla del Monte, Madrid, Spain).
The corporate purpose of Banco Santander, S.A., mainly
entails carrying out all kinds of activities, operations and
services inherent to the banking business in general and
permitted by current legislation, and the acquisition, holding,
enjoyment and disposal of all kinds of securities.
In addition to the operations carried on directly by it, Banco
Santander is the head of a group of subsidiaries that engage
in various business activities and which compose, together
with it, Grupo Santander ('Santander' or 'the Group').
Therefore, Banco Santander 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 2020, Grupo Santander consisted of 711
subsidiaries of Banco Santander, S.A.. In addition, other 164
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).
Grupo Santander consolidated financial statements for 2018
were approved by the shareholders at the group´s annual
general meeting on 12 April 2019.
Grupo Santander consolidated financial statements for 2019
were approved by the shareholders at the group´s annual
general meeting on 3 April 2020. The Group's 2020
consolidated financial statements, the financial statements of
the parent and of substantially all the Group companies have
not been approved yet by their shareholders at the respective
annual general meetings. However, Banco Santander board of
directors considers that the aforementioned financial
statements will be approved without any significant changes.
534
Under Regulation (EC) n.º 1606/2002 of the European
Parliament and of the Council of 19 July 2002 all companies
governed by the law of an EU Member State and whose
securities are admitted to trading on a regulated 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 ('IFRS') previously adopted by the European Union
('EU-IFRS').
In order to adapt the accounting system of Spanish credit
institutions with the principles and criteria established by the
IFRS adopted by the European Union ('EU-IFRS'), the Bank of
Spain published circular 4/2017, dated 27 November 2017,
on Public and Confidential Financial Reporting Standards and
Financial Statement Formats.
During 2020, the Bank of Spain has published circulars
2/2020 and 3/2020, of June 11 amending Circular 4/2017, of
November 27 to credit institutions on Public and Confidential
Financial Reporting Rules and Formats.
Grupo Santander consolidated financial statements for 2020
were authorised by the Bank's directors (at the board meeting
on 22 February 2021) 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 2020, 2019 and 2018 and
the consolidated results of its operations and the
consolidated cash flows in 2020, 2019 and 2018. 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. These consolidated annual
accounts have been prepared on the basis of the accounting
records held by the Bank and by each of the other companies
of the Group, and include the adjustments and
reclassifications required to standardise the accounting
policies and valuation criteria applied by Grupo Santander.
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 2020:
• Modification of the IFRS Conceptual Framework:
Amendments to the IFRS Conceptual Framework, which
sets out the fundamental concepts of financial reporting.
The revised Framework includes: a new chapter about
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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.
• Amendments to IFRS 9 Financial Instruments, IAS 39
Financial Instruments: Recognition and Measurement, IFRS
7 Financial Instruments: Disclosures, IFRS 4 Insurance
Contracts and IFRS 16 Leases, on Reference Interest Rates -
Phase 2: The amendments allow for the temporary
application of certain exceptions to the requirements of (i)
assessment of derecognition of financial assets, financial
liabilities and lease liabilities in the event of changes in the
financial assets, financial liabilities and lease liabilities, and
(ii) exemptions from hedge accounting requirements
directly affected by the IBOR reform, requiring additional
disclosures, (iii) exemptions for lease modifications that
allow the liability to be measured using the reformed
interest rate curves against the right-of-use. These new
exemptions require additional disclosures. The
amendments will become effective as of 1 January 2021,
with the possibility of early application and will cease to be
applicable when the uncertainties about the hedged risks,
cash flows of the financial instruments affected or the
hedging relationship is terminated. In this regard, the
Group has chosen to apply the amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16 in the preparation of the
financial statements for the year ending 31 December
2020.
The additional breakdowns required by the amendments to
IFRS 7 relating to hedging relationships are included in note
36. A description of the Grupo Santander's management of
the transition to alternative reference rates, as well as the
changes in risk management strategy is included in note 53.
measurement; guidance on financial reporting; improved
definitions, in particular the definition of liabilities; and
clarifications such as management functions, prudence and
measurement uncertainty in financial reporting.
• 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 for the purpose of making material judgements
and deciding on the information to be included in the
financial statements.
• 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.
• Covid-19-Related Rent Concessions - Amendments to IFRS
16 Leases: As a result of the covid-19 pandemic, IFRS 16 is
amended to allow the lessee to apply a practical alternative
and not to consider rental concessions as a modification of
the lease agreement when the following requirements are
met: the revised consideration is the same or less than the
consideration before the change, the affected payments are
prior to 30 June 2021, and there are no substantial changes
to the remaining lease terms.
• Amendment to IFRS 9, IAS 39 and IFRS 7 on Reference
Interest Rates (IBOR Reform - Phase 1). 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 comply with hedge
accounting requirements that may be directly affected by
the IBOR reform.
Additional disclosures required by the amendments to IFRS
7 relating to hedging relationships are included in note 36.
These exceptions will no longer be applicable when cash
flow uncertainties disappear or the hedging relationship is
discontinued. The amendments to IAS 39 are applicable
from 1 January 2020, with the possibility of early
application. In this regard, the Group chose early application
in the financial statements for the year ended 31 December
2019. The main assumptions or judgements made by the
535
Annual report 2020
Contents
Following is a detail of the carrying amount at 31 December
2020 of financial assets, financial liabilities, derivatives and
loan commitments that continue to be referenced to the
indices subject to the IBOR Reform:
EUR million
Gross Carrying amount
Referenced to EONIA
of which maturing after 2021
Referenced to LIBOR
of which USD
of which GBP
TOTAL
Loans and
advances
102
—
64,604
39,517
20,611
64,706
Debt securities
acquired
(Assets)
68
68
2,648
711
1,934
Debt securities
issued
(Liabilities)
284
284
10,806
7,734
2,756
Deposits
2,510
7
10,994
8,843
1,638
Derivatives
(Assets)
213
213
24,070
13,967
9,786
Derivatives
(Liabilities)
419
406
22,452
9,437
11,314
Loan
Commitments
2
—
38,385
24,907
13,308
2,716
13,504
11,090
24,283
22,871
38,387
The application of the aforementioned amendments to
accounting standards and interpretations did not have any
material effects on Grupo Santander consolidated financial
statements.
At the date of approved of these consolidated annual
accounts, the following amendments with an effective date
subsequent to 31 December 2020 were in force:
• Amendment to IFRS 4 Insurance Contracts, which is aimed
at extending the expiry date of the temporary exemption
from applying IFRS 9 by two years (from 1 January 2021 to
1 January 2023) for entities whose activities are
predominantly insurance-related. This achieves alignment
with the effective date of IFRS 17 Insurance Contracts (1
January 2023). It will apply from 1 January 2021.
• Amendment to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets: clarifies that the direct costs of fulfilling
a contract include both the incremental costs of fulfilling
the contract and an allocation of other costs directly related
to fulfilling contracts. Before recognising a separate
provision for an onerous contract, the entity recognises any
impairment loss that has occurred on assets used in
fulfilling the contract. It will apply from 1 January 2022.
• Amendment to IFRS Cycle (2018-2020): introduces minor
amendments, to be applied from 1 January 2022, with
early application permitted, to the following standards:
• IFRS 9 Financial Instruments: clarifies which rates
must be included in the 10% test for derecognition of
financial liabilities.
Lastly, at the date of formulation of these consolidated
annual accounts, the following standards which effectively
come into force after 31 December 2020 had not yet been
adopted by the European Union:
• IFRS 16 Leases: amendment to remove possible
confusion regarding the treatment of leasing
incentives in the application of IFRS 16 Leases, as
illustrated in example 13.
• Amendment to IFRS 3 Business Combinations: to update
• IFRS 1, in relation to the first-time adoption of
the references to the Conceptual Framework for Financial
Reporting and add an exception for the recognition of
liabilities and contingent liabilities within the scope of IAS
37 Provisions, Contingent Liabilities and Contingent Assets
and IFRIC 21 Levies. The amendments also confirm that an
acquirer should not recognize contingent assets acquired in
a business combination. It will apply from 1 January 2022.
• Amendment to IAS 16 Property, Plant and Equipment:
prevents an entity from deducting from the cost of an item
of property, plant and equipment any revenue from the
sale of finished goods while the entity is preparing the item
for its intended use. It is also clear that an entity is "testing
whether the asset is functioning properly" when evaluating
the technical and physical performance of the asset. The
financial performance of the asset should not be taken into
account for this evaluation.
Additionally, entities should disclose separately the
amounts of income and expenses related to finished goods
that are not the product of the entity's ordinary activities. It
will apply from 1 January 2022.
International Financial Reporting Standards, allows
entities that have measured their assets and liabilities
at the carrying amounts recorded in their parent's
books to also measure any cumulative translation
differences using the amounts reported by the parent.
This amendment also applies to associates and joint
ventures that have adopted the same exemption from
IFRS 1.
• 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 closing date of the reporting period.
They must be applied retrospectively in accordance with
the normal requirements in IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors. It will apply
from 1 January 2023.
536
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Notes to the consolidated
annual accounts
Appendix
• IFRS 17 Insurance Contracts: new general accounting
standard for insurance contracts, which includes the
recognition, measurement, presentation and disclosure of
information. Insurance contracts combine financial and
service provision features that, in many cases, generate
variable long-term cash flows. To properly reflect these
characteristics, IFRS 17 combines the measurement of
future cash flows with the recording of the result of the
contract during the period in which the service is provided,
presents separately the financial results from the results
for the provision of the service and allows entities, through
the choice of an accounting policy option, to recognize the
financial results in the income statement or in other
comprehensive income. It will apply from 1 January 2023.
Grupo Santander 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
2020 were applied in the preparation of these consolidated
annual accounts.
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 Grupo
Santander in order to quantify certain of the assets, liabilities,
income, expenses and obligations reported herein. These
estimates, which were made on the 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, 18 and
53).
• 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 and the income tax
expense (see note 27).
• The fair value of the identifiable assets acquired and the
liabilities assumed in business combinations (see note 3).
To update the estimates described above, the Group's
Management has taken into account the current situation as a
result of covid-19, classified as a pandemic by the World
Health Organization, which significantly affects the economic
activity worldwide and, as a result, the Group's operations
and financial results, and which generates uncertainty in the
Group's estimates. Therefore, the Group's Management has
made an assessment of the current situation according to the
best information available to date, disclosing in the notes the
main estimates made and the potential impacts of covid-19
on them for the period ended 31 December 2020 (see notes
17, 27 and 53).
Although these estimates have been made on the basis of the
best information available at the end of the year 2020, and
considering information updated at the date of preparation of
these consolidated annual accounts, it is possible that events
that may take place in the future may make it necessary to
modify them (upwards or downwards) in the coming years,
which would be done, if appropriate, in a prospective manner,
recognising the effects of the change in estimate in the
corresponding consolidated income statement.
d) Information relating to 2019 and 2018
In July 2016, the IASB published IFRS 16, Leases, which was
adopted by the Group in accordance with the standard on 1
January 2019. 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 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:
i) 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:
537
Annual report 2020
Contents
- Fixed payments (including inflation-linked payments), less
- Any lease payment made at or before the commencement
any lease incentive receivable
date less any lease incentive received.
- Variable lease payments that depend on an index or rate.
- Any initial direct costs.
- The amounts expected to be paid by the lessee under
- Restoration costs.
residual value guarantees.
- The exercise price of a purchase option if the lessee is
reasonably certain that it will exercise that option.
- 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, 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 Grupo Santander 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.
538
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).
ii. Recognised effects on the adoption of the standard
With the adoption of IFRS 16, Grupo Santander 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.
Grupo Santander 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.
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
EUR million
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 Grupo Santander corresponds,
mainly, to the recognition of right-of-use for an amount of
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Notes to the consolidated
annual accounts
Appendix
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 bp.
As indicated in that standard, Grupo Santander chose not to
restate the comparative financial statements, and the
information relating to the year ended 31 December 2018
was not restated under those criteria, so that it is not
comparative.
In 2018, Grupo Santander 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, Grupo
Santander 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.
Additionally, the segment information corresponding to the
year ended 31 December 2019 and 2018 were restated for
comparative purposes in accordance with the Group's new
organizational structure, as required by IFRS 8 (see note 51).
In addition, in July 2014, the IASB published IFRS 9 which,
together with subsequent amendments, has been adopted by
the Group effective 1 January 2018. IFRS 9 establishes
requirements for the recognition and measurement of both
financial instruments and certain types of non-financial
purchase and sale contracts. The aforementioned
requirements must be applied retrospectively, adjusting the
opening balance at 1 January 2018, without the need to
restate the 2017 comparative financial statements, including
the breakdown in the statement of changes in equity, so that
this information is not comparative.
Therefore, the information contained in these consolidated
annual accounts for 2019 and 2018 is presented solely and
exclusively for the purposes of comparison with the
information relating to the year ended 31 December 2020
(see note 2.a.iv).
Finally, based on the meeting held on 3 March 2020 by the
International Financial Reporting Standards Committee
(IFRIC), the Group has changed its accounting policy in
relation to the presentation of exchange differences and the
effects of hyperinflation of the operations generated in
Argentina with retroactive effect (see note 2.a.iv).
In addition to the above, the information in note 4.a relating
to the shares outstanding in 2019 and 2018 has been restated
due to the capital increase described in note 31.a in
accordance with IAS 33 Earnings per Share.
In order to interpret the changes in the balances with respect
to 31 December 2020, it is necessary to take into
consideration the exchange rate effect arising from the
volume of foreign currency balances held by Grupo Santander
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 2020, based on the exchange
rates at the end of 2020: Mexican peso (-13.17%), US dollar
(-8.45%) , Brazilian real (-29.15%) , Argentine peso
(-34.80%), Sterling pound (-5.26%), Chilean peso (-3.00%),
and Polish zloty (-6.63%); as well as the evolution of the
comparable average rates: Mexican peso (-11.56%), US dollar
(-1.85%), Brazilian real (-24.16%), Sterling pound (-1.33%),
Chilean peso (-12.92%) and Polish zloty (-3.24%).
e) Capital management
i. Regulatory and economic capital
The financial institutions must meet a set of minimum capital
and liquidity requirements. These minimum requirements are
regulated in the European capital requirements regulation,
better known as CRR, and in the capital requirements
directive, known as CRD. In June 2019 these regulations were
significantly modified, so that CRR2 and CRDV will be
understood as said regulations with the latest modifications
incorporated.
Among the amendments to the CRR2, it is worth highlighting
the introduction of the minimum requirement of TLAC (Total
Loss Absorbing Capacity) applicable only to entities of global
systemic importance (G-SIB). This requirement is a minimum
requirement for own funds and eligible liabilities (currently
16% and, after the transitional period, 18%).
The CRDV, as a directive, must be transposed into the national
legal system to be applicable in the member States. In Spain,
the transposition is expected to be developed during 2021.
The CRDV includes relevant amendments such as the
regulation of Pillar 2 Guidance requirements.
Regarding to the Resolution regulations, the institutions must
have an adequate financing structure that allows, in the event
of financial difficulties, to recover their situation or to resolve
it, ensuring the protection of depositors and the financial
stability. The directive that regulates the aforementioned
resolution framework is the Restructuring and Resolution
Directive, BRRD. Like CRR2 and CRDV, BRRD was amended in
June 2019, so BRRD2 refers to all of these amendments. The
transposition of this directive in Spain is also planned for
2021.
The BRRD2 has introduced important modifications to the
minimum requirement for own funds and eligible liabilities
(MREL). Thus, for example, the aforementioned TLAC
requirement is now considered a Pillar 1 resolution
requirement for G-SIB. For large banks (which are defined as
those whose total assets exceed 100,000 million euros) or
those that, without being large, the resolution authority
considers that they may be systemic, the BRRD2 establishes a
minimum subordination requirement of 13.5% of risk-
weighted assets, or 5% of the exposure of the leverage ratio,
whichever is higher. For the rest of the entities, the
subordination requirement will be determined case by case
by the resolution authority.
The severe economic disruption caused by the covid-19
pandemic in 2020 has revealed the importance of institutions'
funding functions in contributing to recovery. The competent
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authorities (national, European and international) have acted
by reducing the liquidity, capital and operational
requirements so the financial institutions can continue to
provide financing to the economy, while ensuring that
institutions continue to act prudently because these can also
be affected by the deterioration of the economic situation. As
part of the measures of the European Central Bank, it was
issued a recommendation in March 2020 urging European
banks to refrain from paying dividends out of the 2019 and
2020 financial years. On 27 July, the ECB extended its
recommendation until 1 January 2021.
The national governments have taken measures to address
the economic and social impact of the vine population, in
particular legislative moratoria that were aimed at containing
NPLs and helping the population to meet liquidity needs.
Throughout 2020, the EBA adopted a series of guidelines,
including the Guidelines on legislative and non-legislative
moratoria applied in the context of the Cov19 crisis on 2 April
2020 (EBA/GL/2020/08). These guidelines clarify the
requirements for public and private moratoria to avoid
classification of exposures affected by moratoria as forborne
exposures.
Although these guidelines were initially going to apply to
moratoria granted before 30 June 2020, the EBA decided on 2
December 2020 to reactivate the application of these
guidelines (EBA/GL/2020/02) for moratoria requested before
31 March 2021.
Other measures adopted to provide flexibility in complying
with the requirements have been the approval and entry into
force of the 'quick fix' of the CRR (urgent and extraordinary
regulatory measures aimed at making the regulatory
framework more flexible in response to the covid 19),
regulation by which modifies CRR2. Among the amendments
introduced by the quick fix, it is worth highlighting the
extension of the transitional period granted before the
pandemic due to the entry into force of IFRS 9, due to the
sudden and significant increase in provisions for expected
credit losses that must be recognized. Additionally, the
application of certain provisions of CRR2 has been delayed,
such as those relating to the leverage ratio buffer (whose
application date is postponed until 1 January 2023), and the
possibility has been included to exclude from the calculation
of said ratio exposures to central banks. In the same way, the
date of application of other favourable provisions for entities
such as the support factor for smes and the support factor for
infrastructures has been brought forward, as well as the new
treatment of software assets (applicable since the day
following the publication of the Delegated Regulation where
it is developed).
At 31 December 2020 Grupo Santander met the minimum
capital requirements established by current legislation (see
note 53).
ii. Plan for the roll-out of advanced approaches and
authorisation from the supervisory authorities
Grupo Santander continues adopting, over the next few years,
the advanced internal ratings-based (AIRB) approach under
Basel II for substantially all its banks. 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 2020 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 , all in the context of the current
supervisory focus on the robustness and correct adaptation of
the available models, as well as the simplification strategy
recently agreed with the ECB, of which a practical example
carried out is the recent supervisory approval for the reversion
to the standard of the sovereign model in foreign currency.
Grupo Santander 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 2020, the authorization of the Atacado portfolio in
Brazil was achieved for the use of the AIRB 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.
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.
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g) Events after the reporting period
No significant events occurred from 1 January 2021 to the
date on which these consolidated financial statements were
authorized for issue.
h) Other information
The UK's withdrawal from the European Union could have a
material adverse effect on our operations, financial
condition and prospects
On 31 January 2020 the UK ceased to be a member of the EU,
on withdrawal terms which established a transition period
until 31 December 2020, during which the UK continued to be
treated as an EU member state and applicable EU legislation
continued to be in force. A trade deal was agreed between the
UK and the EU prior to the end of the transition period and the
new regulations came into force on 1 January 2021.
The trade deal, however, did not include agreements on
certain areas, such as financial services and data adequacy,
although a further transitional period has been agreed with
respect to rules on the transfer of personal data between the
EU and the UK until the end of June 2021. Without
equivalence decisions or other agreements that provide
market access on a stable and widespread basis, Santander
UK has, and will continue to have, a limited ability to provide
cross-border services to EU customers and to trade with EU
counterparties. It is uncertain whether equivalence decisions
will be granted or whether a trade agreement with respect to
financial services between the EU and the UK will be reached.
The impact of any such trade agreement, equivalence
decisions or any other cooperation mechanisms on financial
markets generally, the extent of legislative and regulatory
convergence and regulatory cooperation that would be
required between the UK and the EU member states, as well
as the level of access that may be granted to financial services
firms across EU and UK markets is uncertain. The wider
impact of Brexit on financial markets through market
fragmentation, reduced access to finance and funding, and
lack of access to certain financial market infrastructure, may
affect our operations, financial condition and prospects and
those of our customers and clients.
Uncertainty also remains around the effect of the current
trade deal on economic growth in the UK given that it does
not address services. The effect of the additional non-tariff
trade barriers imposed on products is equally unknown. It is
likely that growth will initially be disrupted as businesses
adapt to the new cross-border procedures and rules
applicable in the UK and in the EU to their activities, products,
customers and suppliers.
While the longer term effects of the UK’s withdrawal from the
EU are difficult to predict, there is ongoing political and
economic uncertainty, which is likely to continue in the
medium term and which could negatively impact Santander
UK’s customers and clients and counterparties.
There are also other potential longer term impacts resulting
from Brexit which could impact the UK economy and Grupo
Santander’s business in the UK such as:
• Increased calls for a second referendum on Scottish
independence from the UK; and
• Instability in Northern Ireland, if the current arrangements
regarding the borders between the Republic of Ireland,
Northern Ireland and Great Britain are called into further
question.
If one or more of these risks were to materialise it could have
a material adverse effect on our operations, financial
condition and prospects.
We considered these circumstances in our assessment of the
recoverability of the cash-generating unit that supports
Santander UK's goodwill, which was impaired during 2020
and 2019 (see note 17).
2. Accounting policies
The accounting policies applied in preparing the consolidated
financial statements were as follows:
a) Foreign currency transactions
i. Presentation currency
Banco Santander’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).
▪ 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.
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▪ 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.
iv. Entities located in hyperinflationary economies
When a subsidiary operates in a country with
hyperinflationary economy, IAS 29 Financial Information in
Hyperinflationary Economies is applied, which means that:
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.
▪ Income and expenses, at the average exchange rates for
the year.
▪ 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).
542
– Historical cost of non-monetary assets and liabilities and
of the various items of equity have to be adjusted to
reflect the changes in the purchasing power of the
currency due to inflation from their date of acquisition or
incorporation into the consolidated balance sheet.
– The different items of the income statement are adjusted
by the inflationary index since their generation, with a
balancing entry in 'Other comprehensive income'.
– The loss on the net monetary position is recorded in the
income for the year against 'Accumulated Other
comprehensive income'.
– All components of the financial statements of the
subsidiary are translated at the closing exchange rate.
The deterioration of the economic situation in Argentina over
the last years caused, among other impacts, a significant
increase in inflation, which by the end of 2018 had reached
48% per year (147% accumulated in three years). This led the
Group to conclude that it was necessary to apply IAS 29
Financial Information in Hyperinflationary Economies to its
activities in the country in question in its consolidated
financial statements from that year on.
At that moment, according with Group’s accounting policies,
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 were recorded in the
consolidated statement of changes in total 'Equity-Other
reserves'.
As a result, at 1 January 2018 an amount of EUR 1,716 million
corresponding to exchange rate losses for 2017 and previous
years was reclassified in the statement of changes in 'Equity'
from the heading 'Accumulated Other Comprehensive Income
- Conversion Differences' to 'Other Reserves'. Also at that
date, the adjustment of the historical cost of non-monetary
assets and liabilities and of the various items of equity of the
companies in Argentina recognized with a credit to 'Other
reserves' for an amount of EUR 131 million.
However, on the basis of the meeting held on 3 March 2020
by the International Financial Reporting Standards Committee
(IFRIC), in 2020 Grupo Santander has changed its accounting
policy with regard to the presentation of exchange differences
and the effects of hyperinflation in the operations generated
in Argentina, which at 1 January 2019 and 2018 resulted in a
reclassification of EUR -1,984 million and EUR -1,585 million
respectively, from the heading "Other reserves" to
"Accumulated other comprehensive income", (at 31
December 2019 and 2018 the Grupo Santander restated EUR
-2,136 and EUR -1,984 million, respectively, for comparability
purposes), from "Other reserves" to "Accumulated other
comprehensive income", corresponding to the accumulated
amount of exchange differences related to foreign operations
in a hyperinflationary economy and the amount
corresponding to the adjustment of the historical cost of the
Argentine companies reflecting the changes in the purchasing
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Appendix
power of the currency derived from inflation. This change in
accounting policy and its consequent restatement between
different equity items has no impact on the total equity of
Grupo Santander.
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 inflation indexes applied are the
wholesale internal price index (WPI) until 30 November 2016
and the National Consumer Price Index published by the
National Institute of Statistics and Censues (Indec) from 1
December 2016 on. Inflation during 2020 was 36.1% for the
year. The exchange rate at 31 December 2020 has been of
Argentine pesos 103.16 per euro (Argentine pesos 67.26 per
euro at 31 December 2019).
The net impact on Other Comprehensive Income in 2020 of
the effects derived from the exchange differences arising on
the translation to the Group´s presentation currency of
financial statements of the subsidiaries located in Argentina
and the application of IAS 29 was a loss of EUR 202 million.
At 31 December 2020, no other country in which the
consolidated and associated entities of Grupo Santander are
located is considered to have a hyperinflationary economy in
accordance with the criteria established in this regard by the
International Financial Reporting Standards adopted by the
European Union.
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 Grupo Santander 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 Grupo Santander and on consolidated profit of a 1%
appreciation of the euro against the corresponding currency is
as follows:
EUR million
Currency
US dollar
Chilean peso
Pound
sterling
Mexican peso
Brazilian real
Polish zloty
Argentine
peso
Effect on
consolidated equity
2019
2020
2018
Effect on
consolidated profit
2020 2019 2018
(123.6)
(161.3)
(162.3)
(4.1)
(3.5)
(4.1)
(20.4)
(21.8)
(22.9)
(4.4)
(2.3)
(5.1)
(107.9)
(189.2)
(171.2)
(1.2)
(3.9)
(4.5)
(21.7)
(22.6)
(18.3)
(2.0)
(3.3)
(1.7)
(75.0)
(71.6)
(85.6)
(12.6)
(10.4)
(5.6)
(26.7)
(38.3)
(36.2)
(2.2)
(1.2)
(4.2)
(7.9)
(6.9)
(7.8)
(1.8)
(1.2)
(0.6)
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:
EUR million
Currency
US dollar
Chilean peso
Pound sterling
Mexican peso
Brazilian real
Polish zloty
Argentine peso
Effect on
consolidated equity
Effect on
consolidated profit
2020
2019
2018
2020 2019 2018
126.1 164.6 165.6
20.8
22.2
23.4
110.1 193.0 174.7
22.1
76.5
27.2
8.0
23.1
73.1
39.0
7.0
18.6
87.4
36.9
8.0
4.2
4.5
1.2
2.0
3.5
2.4
4.0
3.4
12.8 10.6
2.2
1.8
1.2
1.3
4.2
5.2
4.6
1.8
5.7
4.2
0.6
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 2020, 2019 and 2018.
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.
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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 Grupo Santander
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 2020 Grupo Santander controls a 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 Grupo Santander
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.
544
iii. Associates
Associates are entities over which Banco Santander is in a
position to exercise significant influence, but not control or
joint control. It is presumed that Banco Santander 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
Grupo Santander 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. At 31
December 2020, this was the situation of the investment in
Project Quasar Investments 2017, S.L., despite maintaining a
49% interest in its share capital (see appendix II). The
remaining investments are not significant for the Group.
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 Grupo Santander 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, when 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 Grupo Santander; 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 Grupo Santander 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.
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Appendix
▪ 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, which are consolidated in the case
of the Special Purpose Vehicles (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.
Business combinations whereby Grupo Santander obtains
control over an entity or a business are recognised for
accounting purposes as follows:
▪ Grupo Santander 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.
An equity instrument is a contract that evidences a residual
interest in the assets of the issuing entity after deducting all
of its liabilities.
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).
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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 (CPPS), 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).
▪ Contracts and obligations relating to employee
remuneration based on own equity instruments (see
note 34).
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.
Grupo Santander 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 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.
Grupo Santander uses the following criteria for the
classification of financial debt instruments:
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• 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.
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) at initial
recognition.
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.
– 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.
In most cases, changes in the fair value of financial liabilities
designated at fair value through profit or loss, caused by the
entity's credit risk, are recognized in other comprehensive
income.
Financial liabilities are included for measurement purposes in
one of the following categories:
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▪ 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.
Liabilities may only be included in this portfolio at the date of
issue or origination.
▪ 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 Grupo Santander, 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.
On 6 June 2019 the European Central Bank announced a new
programme of Targeted Longer-Term Refinancing Operations
(TLTRO III), additionally, the conditions of the initial
programme were amended on 30 April 2020, reducing the
548
interest rate by 25 bp to -0.5% from June 2020 to June 2021
and providing that for banks meeting a certain eligible
lending volume, the interest rate may be -1% for the period
from June 2020 to June 2021. These conditions were
extended on 10 December 2020 for operations contracted
between 1 October 2020 and 31 December 2021, including
the option to cancel or reduce the amount of financing before
maturity in windows that coincide with the interest rate
review and adjustment periods.
The accounting policy states that in recording amortised cost
an entity "shall use a shorter period when fees, basis points
paid or received, transaction costs, premiums or discounts
relate to it, which is the case when the variable to which the
fees, basis points paid or received, transaction costs,
discounts or premiums relate is adjusted to market rates
before the expected maturity of the financial instrument. In
this case, the appropriate amortisation period is the period to
the next reset date.
In this case, the applicable interest rate of 1% from June 2020
to June 2021 (arising from the March 2020 programme
amendment) and from June 2021 to June 2022 (arising from
the December 2020 programme amendment) corresponds to
a specific period after which the funding is adjusted to market
rates (namely the average rate applied in the Eurosystem's
OPLs) and should therefore be accrued until the next
adjustment date. The early amortisation windows of this
funding programme are substantive conditions, given that at
that moment of adjustment of the cost of the funding to the
market, the entity can choose to renew or cancel it and obtain
new funding at more favourable conditions.
Grupo Santander has opted to accrue interest in accordance
with the specific periods of adjustment to market rates, so
that interest for the period from June 2020 to June 2022 will
be recorded in the income statement, the interest
corresponding to that period, 1% assuming compliance with
the threshold of eligible loans that gives rise to the extra rate,
which takes as a reference the budget for 2021 and the
entity's historical information.
▪ 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.
• 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
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Notes to the consolidated
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Appendix
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. Grupo Santander
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
2020, 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.
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 derivatives.
The fair value of 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, 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, as long
as they comply with the 'SPPI' (Solely Payments of Principal
and Interest) test, 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 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.
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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, Grupo
Santander 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 designated
at fair value through profit or loss' and financial liabilities
EUR million
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 2020, 2019 and 2018, 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:
Published
price
quotations
in active
markets
(level 1)
2020
Internal
Models
(level 2
and 3)
Published
price
quotations
in active
markets
(level 1)
2019
Internal
Models
(level 2
and 3)
Total
2018
Published
price
quotations
in active
markets
(level 1)
Internal
Models
(level 2
and 3)
Total
Total
Financial assets held for trading
46,379
68,566 114,945
44,581
63,649 108,230
37,108
55,771
92,879
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
Hedging derivatives (assets)
Financial liabilities held for trading
Financial liabilities designated at fair
value through profit or loss
Hedging derivatives (liabilities)
Liabilities under insurance or
reinsurance contracts
1,756
2,730
4,486
1,530
3,381
4,911
1,835
8,895
10,730
2,509
46,208
48,717
2,572
59,497
62,069
3,102
54,358
57,460
91,771
29,182 120,953
103,089
22,619 125,708
103,590
17,501 121,091
—
8,325
8,325
—
7,216
7,216
—
8,607
8,607
9,863
71,304
81,167
9,781
67,358
77,139
16,104
54,239
70,343
2,118
45,920
48,038
1,484
59,511
60,995
987
67,071
68,058
—
—
6,869
6,869
910
910
—
—
6,048
6,048
5
6,358
6,363
739
739
—
765
765
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.
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.
Grupo Santander 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:
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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.
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.
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 over the counter (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.
• Severity: 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.
551
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Contents
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 stock 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 Consumer Price Index (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.
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 2020 amounted to EUR 408 million
(resulting in an increase of 49.8% compared to 31 December
2019) and DVA amounted to EUR 233 million (resulting in an
increase of 36% compared to 31 December 2019). These
impacts are due to the fact that credit spread levels are at
levels above 25% compared to 2019 due to the covid-19
pandemic. During the last semester there has been a
significant drop in spreads, however the markets continue to
reflect levels higher than those existing prior to the start of
the pandemic.
The CVA at 31 December 2019 amounted to EUR 272 million
(decrease of 22.5% compared to 31 December 2018) and DVA
amounted EUR 171 million (decrease of 34.6% compared to
31 December 2018). The decrease is mainly due to
improvements in the credit quality of counterparties, which
has led to reductions in credit spreads in percentages of
around 40% in the most liquid maturities.
The CVA at 31 December 2018 amounted to EUR 351 million
(increase of 8.8% compared to 31 December 2017) and DVA
amounted EUR 261 million (increase of 18.9% compared to
31 December 2017). The changes were due to the increase in
credit spreads of more than 30% in the most liquid terms
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 2020, 2019 and 2018.
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.
Grupo Santander has not carried out significant
reclassifications of financial instruments between levels other
than those disclosed in level 3 movement table during 2020.
In 2019, the Group reclassified between levels 2 and 3
financial instruments for a net amount of EUR 708 million
(mainly due to reclassifications to level 2 of positions, both
derivatives as debt instruments, with maturities for that there
were already observable assessment inputs or on which new
sources of information have been recurring prices, and at
level 3 certain bonds in Brazil that, based on the criteria of
observability of the Group, did not meet the requirements to
be considered as observable inputs).
In 2018, the Group reclassified at level 3 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.
552
Auditor's
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 2020, 2019 and 2018:
EUR million
Fair values calculated
using internal models at
2020*
Level 2
Level 3
Valuation techniques
Main assumptions
ASSETS
Financial assets held for trading
Credit institutions
Customers**
Debt and equity instruments
Derivatives
Swaps
146,468
67,826
3
296
1,453
66,074
54,488
8,543
740
— Present value method
— Present value method
10 Present value method
730
272 Present value method,
Gaussian Copula***
Exchange rate options
696
22 Black-Scholes Model
Interest rate options
3,129
241 Black's Model,
multifactorial advanced
models interest rate
Yield curves, FX market prices
Yield curves, FX market prices
Yield curves, FX market prices
Yield curves, FX market prices, HPI,
Basis, Liquidity
Yield curves, Volatility surfaces, FX
market prices, Liquidity
Yield curves, Volatility surfaces, FX
market prices, Liquidity
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
Equity instruments
Financial assets at fair value through other
comprehensive income
Equity instruments
Debt instruments
Loans and receivables
1,069
554
— Present value method
Yield curves, FX market prices
94 Black's Model,
multifactorial advanced
models interest rate
Yield curves, Volatility surfaces, FX & EQ
market prices, Dividends, Liquidity
6,138
101 Present value method,
Advanced stochastic
volatility models and other
Yield curves, Volatility surfaces, FX and
EQ market prices, Dividends,
Correlation, HPI, Credit, Others
8,325
6,998
25
1,302
—
— Present value method
— Black's Model
— Present value method,
Advanced stochastic
volatility models and other
1,796
934
Yield curves, FX market prices, Basis
Yield curves, FX market prices, Volatility
surfaces
Yield curves, Volatility surfaces, FX
market prices, Credit, Liquidity, Others
984
555
257
505
Present value method
Present value method
134
295 Present value method,
swap asset model & CDS
Market price, Interest rates curves,
Dividends and Others
Yield curves
Yield curves and Credit curves
45,559
649
9,481
11,973
24,102
3
—
— Present value method
163 Present value method
19 Present value method
Yield curves, FX market prices
Yield curves, FX market prices
Yield curves, FX market prices, HPI
467 Present value method
Yield curves, FX market prices
—
22,962
6,220
75
1,223 Present value method
18,410
4,477
206 Present value method
4,791 Present value method
Market price, Yield curves, Dividends
and Others
Yield curves, FX market prices
Yield curves, FX market prices and Credit
curves
553
Annual report 2020
Contents
Yield curves, FX market prices,
Basis, Liquidity, HPI
Yield curves, Volatility surfaces, FX
market prices, Liquidity
Yield curves, Volatility surfaces, FX
market prices, Liquidity
Yield curves, FX market prices
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
EUR million
LIABILITIES
Financial liabilities held for trading
Derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Interest rate and equity futures
Fair values calculated
using internal models at
2020*
Level 2
Level 3
Valuation techniques
Main assumptions
124,098
71,009
63,920
51,584
724
4,226
456
1,054
905
295
295
81 Present value method,
Gaussian Copula***
1 Black-Scholes Model
49 Black's Model,
multifactorial advanced
models interest rate
97 Black-Scholes Model
2 Present value method
Other
5,876
65 Present value method,
Short positions
Hedging derivatives
Swaps
Interest rate options
Other
7,089
6,869
5,821
13
1,035
Advanced stochastic
volatility models
— Present value method
—
— Present value method
— Black's Model
— Present value method,
Advanced stochastic
volatility models and other
Financial liabilities designated at fair value
through profit or loss
Liabilities under insurance contracts
45,310
610 Present value method
Yield curves, FX market prices
910
— Present Value Method
with actuarial techniques
Mortality tables and interest rate
curves
554
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
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 securities issued
Loans and receivables**
Financial assets designated at fair
value through profit or loss
Central banks
Credit institutions
Customers****
Debt instruments
Financial assets at fair value through
other comprehensive income
Equity instruments
Debt instruments
Loans and receivables
Fair values calculated
using internal models at
2019*
Fair values calculated
using internal models at
2018*
Level 2
149,711
63,051
—
355
760
61,936
51,594
469
3,073
190
1,164
5,446
7,216
6,485
25
706
Level 3
6,651
598
—
—
65
533
182
8
177
—
95
71
—
—
—
—
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
Level 3 Valuation techniques
4,473
738
—
—
153
585
185
2
149
—
198
51
Present Value method
Present Value method
Present Value method
Present Value method, Gaussian
Copula***
Black-Scholes Model
Black's Model, Heath-Jarrow- Morton
Model
Present Value method
Black-Scholes Model
Present Value method, Monte Carlo
simulation and others
21
21 Present Value method
— Black’s Model
— N/A
1,780
1,601
7,492
1,403
1,272
498
10
58,833
6,474
21,598
30,729
32
18,831
98
17,486
1,247
550
675
376
664
—
50
32
582
3,788
407
188
3,193
985
5,085
1,422
462 Present Value method
481 Present Value method
460 Present Value method, swap asset model
& CDS
53,482
876
9,226
22,897
21,355
4
— Present Value method
201 Present Value method
560 Present Value method
115 Present Value method
16,066
1,435
455
14,699
912
581 Present Value method
165 Present Value method
689 Present Value method
555
Annual report 2020
Contents
EUR million
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
Financial liabilities designated at fair value
through profit or loss
Liabilities under insurance contracts
Fair values calculated
using internal models at
Fair values calculated
using internal models at
2019*
2018*
Level 2
132,582
67,068
—
—
—
61,789
49,927
658
4,291
1,309
20
5,584
5,279
6,048
4,737
10
Level 3
1,074
290
—
—
—
290
115
1
34
88
2
50
—
—
—
—
Level 2
Level 3 Valuation techniques
127,991
53,950
442
289
0
0
0
53,950
43,489
610
4,411
1,233
7
4,200
0
6,352
5,868
158
— Present Value method
— Present Value method
— Present Value method
289
111
Present Value method, Gaussian
Copula***
7 Black-Scholes Model
26
Black's Model, Heath-Jarrow-
Morton Model
143 Black-Scholes Model
— Present Value method
Present Value method, Monte
Carlo simulation and others
2
— Present Value method
6
6 Present Value method
— Black’s Model
1,301
—
326
—
Present Value method, Advanced
stochastic volatility models and
other
58,727
784
66,924
147 Present Value method
739
—
765
Present Value method with
— actuarial techniques
*
**
***
****
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 -4 million at 31 December 2020 (31 December 2019 and 2018: net fair value of EUR 6 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.
556
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Financial Instruments (level 3)
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.
• Derivatives on long-term interest rate and FX in some
Latam units (mainly Brazil), where for certain underlyings it
is not possible to demonstrate observability to these terms.
• Debt instruments in Latam units linked to certain illiquid
interest rates, for which there is no reasonable market
observability.
• Illiquid equity in non-trading portfolios, classified at fair
value through profit or loss and at fair value through equity.
• 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 2020 arising
from models whose significant inputs are unobservable
market data (level 3) amounted to EUR 193 million profit
(EUR 185 million profit in 2019 and EUR 10 million profit in
2018).
The table below shows the effect, at 31 December 2020 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:
557
Annual report 2020
Contents
Valuation technique
Main unobservable inputs
Range
Impacts (EUR million)
Weighted
average
Unfavourable
scenario
Favourable
scenario
2020
Portfolio/
Instrument
(Level 3)
Financial assets held for
trading
Derivatives
Cap&Floor
CCS
Convertibility curve -
NDFs Offshore
EQ Options
FRAs
FX Forward
FX Options
Inflation Derivatives
Inflation Derivatives
IR Futures
IR Options
IRS
IRS
IRS
IRS
Volatility option model
Discounted Cash Flows
Volatility
Interest rate
Forward stimation
EQ option pricing model
Asset Swap model
Discounted Cash Flows
FX option pricing model
Asset Swap model
Volatility option model
Asset Swap model
IR option pricing model
Asset Swap model
Discounted Cash Flows
Discounted Cash Flows
Prepayment modelling
Price
Volatility
Interest rate
Swap Rate
Volatility
Inflation Swap Rate
Volatility
Interest rate
Volatility
Interest rate
Swap Rate
Credit spread
Prepayment rate
10% - 90%
(0.30)% - 0.66%
0% - 2%
7.86% - 93.67%
0% - 5%
(0.02)% - 0.30%
0% - 50%
(100)% - 50%
0% - 50%
0% - 15%
0% - 100%
(6)% - 12.50%
5.90% - 6.31%
78.97bps - 202.37bps
2.47% - 6.22%
Property derivatives
Swaptions
Option pricing model
IR option pricing model
HPI Forward growth rate and HPI
Spot rate
Volatility
0% - 5%
0% - 50%
Financial assets designated
at fair value through profit
or loss
Loans and advances to
customers
Repos / Reverse repos
Mortgage portfolio
Other loans
Debt securities
Asset Swap Repo Model
Black Scholes model
Present value method
Long-term repo spread
HPI Forward growth rate
Credit spreads
Government debt
Other debt securities
Discounted Cash Flows
Price based
Interest rate
Market Price
n/a
0% - 5%
0.07% - 1.55%
0% - 10%
90% - 110%
Property securities
Probability weighting
HPI Forward growth rate and HPI
Spot rate
0% - 5%
Non-trading financial
assets mandatorily at fair
value through profit or loss
Equity instruments
31.55%
0.66%
0.61%
48.37%
2.22%
0.11%
32.14%
83.33%
16.67%
0.94%
19.05%
10%
2.26%
9.82bps
0.06%
2.50%
33.33%
n/a
2.50%
0.74%
8.33%
10%
2.50%
(0.07)
—
(0.72)
(1.46)
(0.78)
—
(0.39)
(0.63)
(0.47)
(0.94)
(0.27)
(0.08)
(0.01)
(2.81)
(0.12)
0.05
0.20
0.31
1.81
0.63
—
0.70
0.31
0.23
0.06
0.06
0.13
0.02
1.29
0.05
(17.82)
(0.16)
17.82
0.31
(0.18)
(2.23)
(0.35)
(0.78)
(0.15)
0.23
2.23
0.35
3.91
0.15
(7.24)
7.24
Equities
Price Based
Price
90% - 110%
10%
(50.47)
50.47
Financial assets at fair
value through other
comprehensive income
Loans and advances to
customers
Loans
Loans
Other loans
Debt securities
Government debt
Equity instruments
Discounted Cash Flows
Discounted Cash Flows
Present value method
Credit spread
Interest rate curve
Credit spreads
n/a
(0.15)% - 0.15%
0.15% - 0.53%
n/a
0.15%
0.19%
(6.72)
(0.09)
(0.04)
—
0.09
0.04
Discounted Cash Flows
Interest rate
1.10% - 1.30%
0.10%
—
—
Equities
Price Based
Price
90% - 110%
10%
(122.14)
122.14
Financial liabilities held for
trading
Derivatives
Cap&Floor
Volatility option model
Volatility
10% - 90%
34.61%
(0.02)
0.01
EQ Options
Option pricing model
HPI Forward growth rate and HPI
Spot rate
0% - 5%
2.50%
(6.35)
6.35
558
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Lastly, the changes in the financial instruments classified as
Level 3 in 2020, 2019 and 2018 were as follows:
01/01/2020
Fair value
calculated
using
internal
models
(Level 3)
Purchases/
Issuances
Changes
Changes in
fair value
recognised
in profit or
loss
Changes in
fair value
recognised
in equity
Sales/
Settlements
(98)
(27)
—
(71)
(8)
—
(12)
(43)
(8)
(45)
—
(15)
(30)
(292)
(136)
(144)
(12)
52
7
3
42
—
—
15
25
2
280
164
—
116
120
104
—
16
8,795
9,247
(7,616)
(8,051)
40
40
8
—
11
21
—
—
4
44
(14)
(14)
—
—
(2)
(8)
—
(4)
(3)
(17)
Level
reclassifications
(45)
Other
(97)
—
—
(45)
(8)
—
—
(38)
1
(91)
(50)
—
(39)
—
(58)
(10)
(1)
—
(30)
(17)
(176)
—
(1)
(41)
(175)
(119)
(340)
(30)
(31)
2
(336)
(91)
27
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(390)
(390)
571
316
1,072
459
—
—
—
—
—
—
—
—
—
—
(96)
(96)
(26)
—
—
(55)
(55)
(9)
(2)
—
(70)
(29)
—
—
—
(15)
(32)
(128)
(131)
(186)
330
1
—
329
116
15
61
85
52
17
(1)
3
15
(36)
12
(63)
15
—
311
130
130
(7)
2
6
95
—
34
(12)
118
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
784
1,074
EUR million
Financial assets held for trading
Debt instruments
Equity instruments
Trading derivatives
Swaps
Exchange rate options
Interest rate options
Index and securities options
Other
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
Financial liabilities designated at
fair value through profit or loss
TOTAL LIABILITIES
31/12/2020
Fair value
calculated
using
internal
models
(level 3)
740
7
3
730
272
22
241
94
101
649
163
19
467
934
295
134
505
6,220
8,543
295
295
81
1
49
97
2
65
610
905
559
Annual report 2020
01/01/2019
Fair value
calculated
using
internal
models
(level 3)
Purchases
/Issuances
Changes
Changes in
fair value
recognized
in profit or
loss
Changes in
fair value
recognized
in equity
Contents
31/12/2019
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
—
—
Level
reclassifications Other
(317) —
(88) —
(229) —
(20)
—
—
(182)
(1)
—
—
(1)
(27)
2
(21) —
(21) —
(261)
(55)
(151) —
(496)
(42)
386
(13)
—
—
—
—
16
21
12
(17)
(190)
(190)
(252)
(851)
69
30
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(164)
(164)
20
(4)
(4)
—
(7) —
—
(177)
—
(1)
—
(1)
—
(2)
(6) —
(6) —
313
143
—
(4)
784
1,074
Sales/
Settlements
(80)
(38)
(42)
(14)
—
(5)
(18)
(5)
—
—
(16)
—
(9)
(7)
(325)
(252)
(7)
(66)
142
34
108
10
—
—
48
50
—
—
55
—
20
35
426
126
199
101
4,424
5,047
(1,698)
(2,119)
136
136
6
1
—
79
3
47
—
—
298
434
(12)
(12)
(5)
—
—
(7)
—
—
—
—
(5)
(17)
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
115
4
111
22
6
33
50
—
—
—
65
—
(1)
66
81
21
(10)
70
—
261
45
45
(17)
—
8
51
—
3
—
—
31
76
EUR million
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
560
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
01/01/2018
Fair value
calculated
using
internal
models
(level 3)
Purchases/
Issuances
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
Changes in
fair value
recognised
in profit or
loss
(16)
Sales/
Settlements
(60)
(40)
(20)
(8)
—
(3)
(1)
(8)
—
—
—
—
—
—
(35)
(22)
(7)
(6)
(238)
(333)
(95)
(95)
(7)
—
(1)
(87)
—
—
—
—
(95)
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
EUR million
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
Changes in
fair value
recognised
in equity
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Level
reclassifications Other
(20)
312
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
128
(9)
(9)
(3)
—
(1)
(5)
(5) —
—
—
—
161
—
—
—
(9)
31/12/2018
Fair value
calculated
using
internal
models
(level 3)
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
561
Annual report 2020
Contents
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.
562
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
b. In cash flow hedges, the effective portion of the change
1. If the Group transfers substantially all the risks and
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:
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.
563
Annual report 2020
Contents
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.
Regarding contractual modifications of financial assets, Grupo
Santander has differentiated them into two main categories
in relation to the conditions under which a modification leads
to a derecognition or disposal of the financial asset (and the
recognition of a new financial asset) and those under which
the accounting of the original financial instrument with the
modified terms is maintained:
• Contractual modifications for commercial or market
reasons, which are generally carried out at the request of
the debtor to apply current market conditions to the
debt. The new contract is considered a new transaction
and, consequently, it is necessary to derecognize the
original financial asset and recognize a new financial
asset subject to the classification and measurement
requirements established by IFRS 9. Also, the new
financial asset will be recorded at fair value and, if
applicable, the difference between the carrying amount
of the asset derecognized and the fair value of the new
asset will be recognized in profit or loss.
• Modifications due to refinancing or restructuring, in
which the payment conditions are modified to allow a
customer that is experiencing financial difficulties
(current or foreseeable) to meet its payment obligations
and that, if such modification had not been made, it
would be reasonably certain that it would not be able to
meet such payment obligations. In this case, the
modification does not result in the derecognition of the
financial asset, but rather the original financial asset is
maintained and does not require a new assessment of its
classification and measurement. When assessing credit
impairment, the current credit risk (considering the
modified cash flows) should be compared with the credit
risk at initial recognition. Finally, the gross carrying
amount of the financial asset (the present value of the
renegotiated or modified contractual cash flows that are
discounted at the original effective interest rate of the
financial asset) should be recalculated, with a gain or
loss recognized in profit or loss for the difference.
564
Auditor's
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.
Following is the detail of financial assets and liabilities that
were offset in the consolidated balance sheets as of 31
December 2020, 2019 and 2018:
31 December 2020
EUR million
Gross amount
of
financial
assets
Gross amount
of financial
assets
offset in the
balance sheet
Net amount
of financial
assets
presented in
the balance
sheet
136,437
(60,975)
75,462
82,865
219,302
(16,078)
(77,053)
66,787
142,249
31 December 2019
EUR million
Gross amount
of
financial
assets
Gross amount
of financial
assets
offset in the
balance sheet
Net amount
of financial
assets
presented in
the balance
sheet
126,389
(55,776)
70,613
89,465
215,854
(5,168)
(60,944)
84,297
154,910
31 December 2018
EUR million
Gross amount
of
financial
assets
Gross amount
of financial
assets
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)
(46,540)
75,083
139,629
Assets
Derivatives
Reverse
repurchase
agreements
Total
Assets
Derivatives
Reverse
repurchase
agreements
Total
Assets
Derivatives
Reverse
repurchase
agreements
Total
31 December 2020
EUR million
Gross amount
of
financial
liabilities
Gross amount
of financial
liabilities
offset in the
balance sheet
Net amount
of financial
liabilities
presented in
the balance
sheet
132,313
(60,975)
71,338
77,925
210,238
(16,078)
(77,053)
61,847
133,185
31 December 2019
EUR million
Gross amount
of
financial
liabilities
Gross amount
of financial
liabilities
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)
(60,944)
75,919
144,983
31 December 2018
EUR million
Gross amount
of
financial
liabilities
Gross amount
of financial
liabilities
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)
(46,540)
78,170
139,874
Liabilities
Derivatives
Reverse
repurchase
agreements
Total
Liabilities
Derivatives
Reverse
repurchase
agreements
Total
Liabilities
Derivatives
Reverse
repurchase
agreements
Total
565
Annual report 2020
Contents
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.
At 31 December 2020, Grupo Santander has offset other
items amounting to EUR 1,194 million (EUR 1,366 million and
EUR 1,445 million at 31 December 2019 and 2018,
respectively).
At 31 December 2020 the balance sheet shows the amounts
EUR 130,653 million (EUR 141,201 million and EUR 128,637
million at 31 December 2019 and 2018) on derivatives and
repos as assets and EUR 122,416 million (EUR 134,694
million and EUR 130,969 million at 31 December 2019 and
2018) on derivatives and repos as liabilities that are subject to
netting and collateral arrangements.
g) Impairment of financial assets
i. Definition
Grupo Santander 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'.
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annual accounts
Notes to the consolidated
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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.
Grupo Santander 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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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
Grupo Santander 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.
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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.
Grupo Santander performs retrospective and monitoring
tests to evaluate the reasonableness of the collective
estimate.
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Notes to the consolidated
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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.).
The estimation of expected losses requires expert judgment
and the support of historical, current and future information.
The probability of loss is measured considering past events,
the present situation and future trends of macroeconomic
factors.
Grupo Santander uses forward-looking information in both
internal risk management and prudential regulation
processes, so that for the calculation of the impairment loss
allowance, various scenarios are incorporated that take
advantage of the experience with such information, thus
ensuring consistency in obtaining the expected loss.
The challenge of the exercise has focused on the uncertainty
of the economic outlook caused by the covid-19 crisis,
coupled with a complex environment for value creation.
Grupo Santander has internally ensured the criteria to be
followed for guarantees received from government bodies,
both through credit lines and other public guarantees, so that
when they are adequately reflected in each of the contracts,
they are recognised as mitigating factors of the potential
expected losses, and therefore of the provisions to be
recognised, based on the provisions of the applicable
standard (IFRS 9 Par. B5.5.55). Furthermore, where
applicable, these guarantees are appropriately reflected in
the mitigation of the significant increase in risk, considering
their nature as personal guarantees.
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.
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 53 b.
iv. Detail of individual estimate of impairment
For the individual estimate of the assessment for impairment
of the financial asset, the Group has a specific methodology to
estimate the value of the cash flows expected to be collected:
• 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.
• Recovery through the debtor's ordinary activities (going
concern approach).
• Recovery through the execution and sale of the collateral
guaranteeing the operations (going concern approach).
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Going concern approach:
• The rest of the guarantees are valued based of current
a. Evaluation of the effectiveness of guarantees
Grupo Santander assesses the effectiveness of all the
guarantees associated considering the following:
• The time required to execute these guarantees.
• Grupo Santander's ability to enforce or assert these
guarantees in its favour.
market values.
c. Adjustments to the value of guarantees and estimation of
future cash flow inflows and outflows
Grupo Santander 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
• The existence of limitations imposed by each local unit´s
management information.
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.
– 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
Grupo Santander 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.
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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 ('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
assessment for impairment
Grupo Santander determines the perimeter over which it
makes an estimate of the assessment 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 (Santander
Corporate & Investment Banking or SCIB) 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
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Notes to the consolidated
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Appendix
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.
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.
Grupo Santander 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
1. The assets in a situation of "stopped development" are included under "land".
appraisal companies and agencies with which the Group
worked in Spain in 2020 are as follows: Gloval Valuation,
S.A.U.,Tinsa Tasaciones Inmobiliarias, S.A.U., Gesvalt Sociedad
de Tasación, S.A. and Sociedad de tasación, 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 2020 the fair value less costs to sell of non-
current assets held for sale exceeded their carrying amount
by EUR 560 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, and further modifications, 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
1
.
and (iii) land
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).
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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 89% 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, 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
2
properties, filtering by type
, 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.
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.
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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• 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.
– 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.
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 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'
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
level II.
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.
– Level II: It shall include land classified as undeveloped
The Group controls its insurance risk as follows:
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.
Grupo Santander 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:
• By applying a strict methodology in the launch of products
and in the assignment of value thereto.
• By using deterministic and stochastic actuarial models for
measuring commitments.
• 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.
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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 Grupo Santander 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.
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.
• 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.
• 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:
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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
2.4%
8.3%
8.3%
23.0%
Less than the lease
term or the useful life
of the underlying asset
At the end of each reporting period, consolidated entities
assess whether there is any indication that the carrying
amount of an asset exceeds its recoverable amount, in which
case they write down the carrying amount of the asset to its
recoverable amount and adjust future depreciation charges in
proportion to its adjusted carrying amount and to its new
remaining useful life, if the useful life needs 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 Grupo Santander
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
On 1 January 2019, Grupo Santander changed the accounting
policy for leases when acting as a lessee (see note 1.d).
Until 31 December 2018, the accounting policy applied by the
Group when acting as lessee was the following:
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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.
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.
576
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.
▪ 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.
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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.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, Other Assets at 31 December 2019 included the
right of collection acquired from Enagás Transporte 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 Royal Decree 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 Royal Decree 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 Royal Decree 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
Royal Decree 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
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customers including Money Service Businesses. It is not
currently possible to make a reliable assessment of any
liability resulting from the investigation including any
financial penalty.
▪ 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.
Grupo Santander’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.
▪ 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 2020 certain court proceedings and claims were
in process against the consolidated entities arising from the
ordinary course of their operations (see note 25).
collection from the gas system for the amount of this
compensation were cancelled.
Due to the termination of the payment of the collection right
and the obligation to reimburse the amounts received as a
result of the declaration of unconstitutionality of the Royal
DL, Banco Santander initiated in 2018 the administrative and
judicial proceedings that considered appropriate to defend its
rights. Regarding the claim for liability of the legislating State
(the most relevant by amount) was resolved favourably for
the parent by Supreme Court Ruling of 27 October 2020. In
execution of this sentence, on 31 December 2020, a payment
of EUR 740.7 million was received from the Public Treasury
(comprising the principal amount of the claim plus the
appropriate legal interest), while proceedings for an
aggregate amount of nearly EUR 56 million corresponding to
interest collected by Banco Santander and returned to the
administration, and which, in view of the decision of the
Supreme Court, is expected to be resolved in an equally
favourable manner for Banco Santander.
This compensation 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.
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, Banco Santander’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.
Santander UK plc is cooperating with an FCA civil regulatory
investigation which commenced in July 2017 into its
compliance with the Money Laundering Regulations 2007
and potential breaches of FCA principles and rules relating
to anti-money laundering and financial crime systems and
controls. The FCA’s investigation focuses primarily on the
period 2012 to 2017 and includes consideration of high risk
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r) Own equity instruments
t) Recognition of income and expenses
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, Grupo
Santander recognises in full, at the grant date, the expense
for the services received.
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.
The most significant criteria used by Grupo Santander 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.
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Grupo Santander 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.
w) Post-employment benefits
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.
580
Grupo Santander'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
Grupo Santander 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
Grupo Santander.
If Grupo Santander 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.
Grupo Santander will recognise the following items in the
income statement:
• 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'.
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• 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 - Amendment to IFRS Cycle 2015-2017.
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 568.8
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 50.
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
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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.
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.
Grupo Santander 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 2020 Grupo Santander received interest amounting to
EUR 43,953 million (EUR 55,269 million and EUR
50,685 million in 2019 and 2018, respectively) and paid
interest amounting to EUR 13,690 million (EUR 20,671 and
EUR 19,927 million in 2019 and 2018, respectively).
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).
3. Grupo Santander
a) Banco Santander, S.A., and international Group structure
The growth of Grupo Santander in the last decades has led
Banco Santander 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.
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Appendix
The purpose of this structure, all of which is controlled Banco
Santander, 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 a significant stake in
Ebury
On 28 April 2020, the investment in Ebury, a payments and
currencies platform for SMEs, announced on 4 November
2019, was completed. The transaction involved a total outlay
of GBP 357 million (EUR 409 million) of which GBP 70 million
(approximately EUR 80 million) was for new shares. At 2019
year-end the Group had already acquired 6.4% of the
company for GBP 40 million (approximately EUR 45 million).
Following the disbursement made in April 2020, the Group is
entitled to receive 50.38% of the dividends distributed by the
company. This interest is recognized under 'Investments in
Joint Ventures and Associates - Associates' in the consolidated
balance sheet.
ii. Reorganization of the banking insurance business, asset
management and pension plans in Spain
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
(IIC), and pension plans through the Banco Popular network
(the 'Agreement'). Under this Agreement, the Group held a
40% stake in the capital of Popular Spain Holding de
Inversiones, S.L.U., classified as investments in joint ventures
and associated entities for an overall amount of EUR
409 million on 31 December 2019.
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) and the
acquisition of the remaining 60% of the capital of Popular
Spain Holding de Inversiones, S.L.U.
On 10 July, 51% of the life-risk insurance business held by
Banco Santander and the 51% of the new General Insurance
business from Banco Popular's network not transferred to
Mapfre (in accordance with the agreement indicated below)
was acquired by Aegon, valuing these businesses at a total of
approximately EUR 557 million.
The total amount of the life-savings business, collective
investment institutions and pension plans is EUR 711 million
and has resulted in the recognition of EUR 271 million of
goodwill.
In addition, under the agreement reached between Banco
Santander and Mapfre on 21 January 2019, 50.01% of the car,
commercial multi-risk, SME multi-risk and corporate liability
insurance business in the whole network of Banco Santander
in Spain was acquired by Mapfre on 25 June 2019 amounting
to EUR 82 million.
iii. Agreement with Crédit Agricole S.A. on the depositary
and custody business
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 consisted 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% remained 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 Crédit 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 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 was
recorded under the heading of 'Investments - Associates' of
the consolidated balance sheet for an amount of EUR 1,010
million.
iv. 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
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(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 became 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 of EUR 191 million in Capital, EUR 1,491
million in issue premium and a decrease of EUR 670 million in
Reserves and EUR 1,012 million in minority interests.
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., 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').
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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. 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, Banco
Santander, S.A., 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
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 Servicios de Gestión Inmobiliaria, 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.
viii. 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
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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.
c) Offshore entities
According to current Spanish regulation (Royal Decree
1080/1991, of 5 July), Santander has two subsidiaries and
three branches in the offshore territories of Jersey, the Isle of
Man and the Cayman Islands. Santander also has three other
offshore subsidiaries that are tax resident in the UK and
subject to British tax law.
I) Offshore subsidiaries
A subsidiary resident in Jersey was liquidated in 2020 so at
the reporting date, Grupo Santander has two subsidiaries
resident in these territories: Abbey National International
Limited in Jersey and ALIL Services Limited (in liquidation) on
the Isle of Man. In 2020, those subsidiaries’ contribution to
Santander’s consolidated profit was insubstantial.
II) Offshore branches
Grupo Santander also has three operative offshore branches.
One is found in the Cayman Islands, one is on the Isle of Man
and another is in Jersey. They report to, and consolidate
balance sheets and income statements with, their foreign
headquarters. They are taxed either with their headquarters
(the Cayman Islands branch in Brazil) or in the territories they
are located in (the Jersey and Isle of Man branches pertain to
the UK). There was a fourth branch in the Cayman Islands,
pertain to the US, which was closed in 2020.
The entities mentioned in Sections I and II had 141 employees
as of December 2020.
III) Offshore subsidiaries that are tax resident in other
jurisdictions
Grupo Santander also has three subsidiaries that were
incorporated in offshore territories but are not deemed
offshore entities. They only operate from, and are tax resident
in, the UK and, thus, are subject to British tax law (one is
expected to be wound up in 2021). In 2020, a subsidiary
incorporated in Jersey but tax resident in Spain transferred
legal residence to Spain.
IV) Other offshore holdings
From Brazil, Grupo Santander manages Santander Brazil
Global Investment Fund SPC, a segregated portfolio company
located in the Cayman Islands. From the UK, it manages
Guaranteed Investment Products 1 PCC Limited, a protected
cell company found in Guernsey. It also has two small
holdings in entities located in the Cayman Islands.
Organization for Economic Cooperation and Development
(OECD)
Grupo Santander is not in any of the uncooperative tax havens
the OECD released in December 2020. Furthermore, Jersey,
the Isle of Man and the Cayman Islands satisfy OECD
standards on transparency and exchange of information for
tax purposes.
The European Union (EU)
As of October 2020, the EU’s blacklist comprises 12
jurisdictions where Santander is not present. Santander is also
not present in the 10 jurisdictions on the EU’s grey list, which
have sufficiently committed to adapt legislation to
international standards, subject to monitoring by the EU.
The Group's presence in offshore territories at the end of
2020 is as follows:
Presence of the
Group in Tax
Havens/Non-
cooperative
jurisdictions
Jersey
Isle of Man
Guernsey*
Bermuda*
Cayman Islands
2020
2019**
Spanish
legislation
OECD
European
Commission
Blacklist
Sub.
Branch Sub.
1
1
1
1
Branch Sub.
Branch
1
3
4
2
3
—
—
—
—
—
1
—
2
* Additionally, there are 2 entities constituted in Guernsey and 1 in Bermuda,
but resident for tax purposes in the United Kingdom.
** Since December 31st 2019, the number of subsidiaries has been decreased in
Jersey (1) and Panama (1), this last territory is currently included in the EU
blacklist. Additionally, the Cayman Islands (1 operative branch and 1 branch
closed in 2020) left the EU blacklist in October 2020.
Forthcoming changes to Spain's tax law
On 23 October 2020, the Draft Law on measures to prevent
and fight against tax fraud was published in the Official
Bulletin of the Spanish Parliament. The law expands the
meaning of tax havens, which it renames “non-cooperative
jurisdictions”. It also allows government to update the non-
cooperative jurisdictions list. Nonetheless, until that list
conforms to the new criteria, the former list set out in Royal
Decree 1080/1991 of 5 July will remain in effect.
Grupo Santander has the right mechanisms (risk
management, supervision, verification and review plans, and
regular reporting) to prevent reputational, tax and legal risk
with those entities. Grupo Santander also maintains its policy
of reducing the number of these units.
PwC (PricewaterhouseCoopers) member firms audited the
financial statements of Grupo Santander’s offshore units in
2020, 2019 and 2018.
4. Distribution of Banco Santander's profit,
shareholder remuneration scheme and
earnings per share
a) Distribution of Banco Santander's profit and shareholder
remuneration scheme
The board of directors proposes to the shareholders to
approve at the 2021 general shareholders' meeting the
application of the results of Banco Santander, S.A., for 2020,
which consisted in losses amounting to EUR 3,557 million, by
charging them against:
i) To share premium account to the extent that the indicated
charge against the share premium reserve is approved by
the European Central Bank under Articles 77 and 78 of
585
Annual report 2020
Contents
Regulation (EU) No. 575/2013 of the European Parliament
and of the Council of 26 June 2013.
ii) The voluntary reserve account, to the amount by which
the referred losses are not applied in accordance with the
provisions of paragraph (i) above.
or above and on the condition that the payment does not
exceed 50% of the consolidated ordinary (underlying)
profit.
The proposal was approved at the general shareholders'
meeting in October 2020.
• On 15 December 2020, the ECB recommended that banks
under its supervision limit shareholder remuneration until
30 September 2021 to an amount not exceeding either
15% of adjusted profits earned in 2020 (and in 2019, but
only for those banks that, unlike Banco Santander, S.A.,
had not paid dividends in 2019) or the equivalent of 20
basis points of the CET 1 ratio.
• On 3 February 2021, Banco Santander made public its
2020 results and the board's intention to pay a cash
dividend of EUR 2.75 cents per share as shareholder
remuneration for 2020, the maximum allowed in
accordance with the limits set by the last ECB
recommendation. This payment will be made in execution
of the share premium distribution agreement approved at
the aforementioned October 2020 general meeting.
The board aims to restore a payout ratio of 40—50% of
underlying profit, in cash, in the medium term. With
respect to the remuneration against the 2021 earnings,
the intention is to resume payments once the ECB
recommendations so allow. The ECB has said it intends to
repeal the recommendation in September 2021 in the
absence of materially adverse developments. In the
meantime, and in line with the announcement of April
2020, the dividend policy will remain suspended.
•
In September 2019, the board of directors approved an
interim cash dividend against 2019 results in the amount
of 0.10 euros per share (EUR 1,662 million), which was
paid on 1 November.
• On 27 March 2020, the ECB issued a recommendation
urging all European banks under its supervision to abstain
from paying dividends out of 2019 and 2020 results at
least until 1 October 2020 in order to preserve capital
(ECB Recommendation I).
Taking into consideration ECB Recommendation I and in
line with Santander's mission to help people and
companies to progress, on 2 April 2020 the Board of
Directors decided to cancel the payment of the 2019 final
dividend and the dividend policy for 2020, to withdraw
the proposals relating to the Final Cash Dividend and the
SDE Program from the agenda of the aforementioned
General Meeting of April 2020, which had already been
convened, and to postpone the decision on the application
of the results obtained in the financial year 2019 to a
meeting to be held no later than 31 October 2020.
• On 27 July 2020, the ECB issued a second
recommendation in which it extended the effects of ECB
Recommendation I requiring all European credit
institutions under its supervision to abstain, until 1
January 2021, from distributing dividends out of the
results of the financial years 2019 and 2020 or from
entering into irrevocable commitments to distribute them
(ECB Recommendation II).
In September 2020, the board of directors convened the
general shareholders' meeting of October 2020, at which
it proposed (a) in compliance with ECB Recommendation
II, to allocate all of the profit obtained by Banco Santander
in 2019 to increase the Voluntary Reserve, except for the
amount already allocated to the payment of the interim
dividend that had been paid prior to the issuance of ECB
Recommendation I, and (b) to increase the capital charged
to reserves to allow the payment of a total remuneration
for the 2019 financial year, in addition to the interim
dividend, for an amount equivalent to 0.10 euros per
share through the delivery of new shares and with no cash
alternative.
Both proposals were approved at the general
shareholders' meeting in October 2020.
• Following the ECB Recommendation II extending the
effects of the previous recommendation until 1 January
2021, the board of directors decided to propose to the
annual general meeting in October 2020 a resolution
allowing the payment in 2021 of up to 0.10 per share as
remuneration out of the results of the financial year 2020
from the share premium reserve and conditional on the
ECB's recommendations permitting it and obtaining its
authorization, on the condition that after the payment the
CET 1 capital ratio remains within the target of 11—12%
586
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
2020
2019
2018
2020
2019
2018
b) Earnings/loss per share from continuing and
discontinued operations
i. Basic earnings / loss per share
Basic earnings/loss 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 that period, excluding the average number of own
shares held through that period.
Accordingly:
Profit (Loss)
attributable to the
Parent (EUR million)
Remuneration of
contingently
convertible
preference shares
(CCP) (EUR million)
(Note 23)
Of which:
Profit (Loss) from
discontinued
operations (non
controlling
interest net) (EUR
million)
Profit (Loss) from
continuing
operations (PPC
net)
(EUR million)
Weighted average
number of shares
outstanding
Impact factor
correction*
Adjusted number of
shares
Basic earnings (Loss)
per share (euros)
Of which, from
discounted
operations (euros)
Basic earnings (Loss)
per share from
continuing
operations (euros)
(8,771)
6,515
7,810
(552)
(9,323)
(595)
5,920
(560)
7,250
—
—
—
(9,323)
5,920
7,250
17,316,288,908
16,348,415,883 16,150,090,739
Not applicable
710,800,691
702,177,858
17,316,288,908
17,059,216,574 16,852,268,597
(0.538)
0.347
0.430
—
—
—
(0.538)
0.347
0.430
* Correction factor for the capital increase released on 3 December 2020 (see
notes 1.d and 31.a).
ii. Diluted earnings / loss per share
Diluted earnings/loss 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/loss per share were determined
as follows:
Profit (Loss)
attributable to the
Parent (EUR million)
Remuneration of
contingently
convertible
preference shares
(CCP) (EUR million)
(Note 23)
Dilutive effect of
changes in profit for
the period arising
from potential
conversion of
ordinary shares
Of which:
Profit (Loss) from
discontinued
operations (net of
non-controlling
interests) (EUR
million)
Profit (Loss) from
continuing
operations (net of
non-controlling
interests and CCP)
(EUR million)
Weighted average
number of shares
outstanding
Dilutive effect of
options/rights on
shares
Impact factor
correction*
Adjusted number of
shares
Diluted earnings
(Loss) per share
(euros)
Of which, from
discounted
operations (euros)
Diluted earnings
(Loss) per share from
continuing
operations (euros)
(8,771)
6,515
7,810
(552)
(595)
(560)
—
(9,323)
—
5,920
—
7,250
—
—
—
(9,323)
5,920
7,250
17,316,288,908
16,348,415,883 16,150,090,739
Not applicable
35,891,644
42,873,078
Not applicable
712,361,197
704,041,905
17,316,288,908
17,096,668,724 16,897,005,722
(0.538)
0.346
0.429
—
—
—
(0.538)
0.346
0.429
* Correction factor for the capital increase released on 3 December 2020 (see
notes 1.d and 31.a).
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Annual report 2020
Contents
5. Remuneration and other benefits paid to
the Bank’s directors and senior managers
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 2020 and 2019:
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 2020 (same amount as in 2019), with
two components: (a) an annual emolument and
(b) attendance fees.
As a gesture of responsibility in view of the situation created
by the health emergency the board of directors agreed on 5
May 2020 to reduce their allotments by 20% for the balance
of 2020, with effect from 1 April 2020, and propose that
amounts saved thereby be used to finance the initiatives of
the Bank to fight against the covid-19 pandemic.
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 2020 amounted to EUR 4.1 million (4.9 million in
2019).
Annual emolument
The annual amounts received individually by the directors in
2020 and 2019 based on the positions held by them on the
board and their membership of the board committees were as
follows:
Amount per director in euros
Members of the board of directors
Members of the executive committee
Members of the audit committee
Members of the appointments
committee
Members of the remuneration
committee
Members of the risk supervision,
regulation and compliance committee
Members of the responsible banking,
sustainability and culture committee
Chairman of the audit committee
Chairman of the appointments
committee
Chairman of the remuneration
committee
Chairman of the risk supervision,
regulation and compliance committee
Chairman of the responsible banking,
sustainability and culture committee
Lead director
Non-executive vice chairmen
2020
2019
1 Apr to
31 Dec
1 Jan to
31 Mar
49,500
22,500
90,000
93,500
42,500 170,000
22,000
10,000
40,000
13,750
6,250
25,000
13,750
6,250
25,000
22,000
10,000
40,000
8,250
3,750
15,000
38,500
17,500
70,000
27,500
12,500
50,000
27,500
12,500
50,000
38,500
17,500
70,000
27,500
12,500
50,000
60,500
27,500 110,000
16,500
7,500
30,000
* Mr. Bruce Carnegie-Brown, in view of the positions held on the board and
its committees, in particular as chairman of the appointments and
remuneration committees and as coordinating director, and the time and
dedication required to properly perform such positions, has been assigned
a minimum total annual remuneration of EUR 700,000 since 2015,
including the annual allowance for the items corresponding to him of
those indicated above and attendance fees. However, in line with the
decision taken by the board of directors to reduce his fees by 20% with
effect from April 1, 2020, which is shared by Mr. Bruce Carnegie-Brown,
the same reduction shall be applied to this amount. Accordingly, the
amount assigned for 2020 will be EUR 595,000.
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 mentioned above,
executive committee meetings— for 2020 were set at the
same amounts as in 2019.
However, on 5 May 2020, as a gesture of responsibility in
view of the situation created by the health emergency, the
board of directors agreed to reduce their attendance fees by
20% for the balance of 2020, with effect from 1 April 2020,
and propose that the amounts saved thereby be used to
finance the initiatives of the Bank to fight against the covid-19
pandemic.
588
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The fees for 2019 and 2020 are as follows:
Attendance fees per director per
meeting in euros
Board of directors
Audit committee and risk
supervision, regulation and
compliance committee
Other committees (excluding
executive committee)
2020
2019
1 Apr to
31 Dec
1 Jan to
31 Mar
2,080
2,600
2,600
1,360
1,700
1,700
1,200
1,500
1,500
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
2022 and 2023) will be conditional on none of the malus
clauses being triggered.
– The accrual of the third, fourth, and fifth portion
(payment in 2024, 2025 and 2026), is linked to
objectives related to the period 2020—2022 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 2020, 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.
In the case of Sergio Rial, who was appointed director on April
2020, he has not received any remuneration for executive
duties in Banco Santander, S.A. during 2020, but he qualifies
as an executive director pursuant to section 529 duodecies of
the Spanish Companies Act (Ley de Sociedades de Capital),
because of his role as CEO and vice-president of Banco
Santander (Brasil) S.A., the principles herein are the same for
his remuneration as CEO and vice-president of Banco
Santander (Brasil) S.A.
The same policy and principles above apply to Sergio Rial's
remuneration as CEO in Santander Brasil.
Voluntary Reduction of Executive Remuneration (Chairman and
CEO)
On 23 March 2020, given the health crisis created by the
covid-19 pandemic, Ana Botín and José Antonio Álvarez
proposed to reduce their 2020 total compensation (salary and
bonus) by 50% and use the amounts saved to finance the
Santander covid-19 relief fund. This proposal was supported
by the remuneration committee and approved by the board of
directors.
To achieve the 50% reduction compared to 2019, the board of
directors decided to apply an additional adjustment to Ana
Botín’s and José Antonio Alvarez’s variable compensation,
reducing the variable compensation by 74% in the case of Ana
Botín and 79% in the case of José Antonio Álvarez.
Ana Botín’s total salary and bonus for 2019 was EUR 9,688
thousand, with EUR 3,176 thousand salary and EUR 6,512
thousand bonus (of which EUR 4,168 thousand was the sum
of immediately payable and deferred -not linked to long-term
objectives- variable remuneration, and EUR 2,344 thousand
was deferred variable remuneration linked to long-term
objectives at face value). Accordingly, the total of her salary
and bonus for 2020 has been established at EUR 4,844
thousand, with EUR 3,176 thousand salary and EUR 1,668
thousand bonus (of which EUR 1,068 thousand is the sum
immediately payable and deferred -not linked to long-term
objectives- variable remuneration, and EUR 600 thousand is
deferred variable remuneration linked to long-term objectives
at face value).
José Antonio Álvarez’s total salary and bonus for 2019 was
EUR 6,893 thousand, with EUR 2,541 thousand salary and
EUR 4,352 thousand bonus (of which EUR 2,786 thousand
was the sum of immediately payable and deferred -not linked
to long-term objectives- variable remuneration, and EUR
1,566 thousand was deferred variable remuneration linked to
long-term objectives at face value). Accordingly, the total of
his salary and bonus for 2020 has been established at EUR
3,446.5 thousand, with EUR 2,541 thousand salary and EUR
906 thousand bonus (of which EUR 580 thousand is
immediately payable and deferred -not linked to long-term
objectives- variable remuneration, and EUR 326 thousand is
deferred variable remuneration linked to long-term objectives
at face value).
The chart below shows the comparison between the amounts
received in 2019 and those received in 2020:
2019
Bonus
Salary
Total
Salary
2020
Bonus
Total
Chairman
CEO
3,176
6,512
9,688
3,176
1,668
4,844
2,541
4,352
6,893
2,541
906
3,447
% Var.
2020
vs
2019
(50) %
(50) %
Additionally, Ana Botin has made a personal decision to
donate the full amount of the cash bonus paid this year for
2020 to Banco Santander's Euros de tu nómina program,
through which employees can give up part of their pay to
projects sponsored by a group of charities voted for by
employees and the bank matches the employee's donation,
and to Empieza por Educar, the Spanish affiliate of Teach for
All.
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Annual report 2020
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 2020 and 2019 is provided below:
EUR thousand
2020
Bylaw-stipulated emoluments
Annual emolument
N
Board
Executive
committee
Audit
committee
Appointments
committee
Remuneration
committee
Risk supervision,
regulation and
compliance oversight
committee
Responsible
banking,
sustainability and
culture committee
Attendance
fees and
commissions
—
—
—
—
—
34
8
—
—
—
20
34
—
34
—
—
15
—
28
—
173
200
13
—
—
13
—
13
—
13
—
—
—
13
—
13
—
—
6
—
11
—
95
120
55
49
82
79
45
60
15
82
85
2
43
86
21
94
66
60
43
28
71
—
1,066
1,094
Ms Ana Botín-Sanz de
Sautuola y O’Shea
Mr José Antonio Álvarez
Álvarez
Mr Bruce Carnegie-Brown
Ms Homaira Akbari
Mr Francisco Javier Botín-
Sanz de Sautuola y O’Shea
A
Mr Álvaro Antonio Cardoso
de Souza
B
C
Mr Ramón Martín Chávez
Márquez
Ms Sol Daurella Comadrán
Mr Henrique Manuel
Drummond Borges Cirne
de Castro
D
E
Ms Gina Díez Barroso
Mr Luis Isasi Fernández de
F
Bobadilla
Mr Ramiro Mato García-
Ansorena
G
Mr Sergio Rial
Ms Belén Romana García
Mrs Pamela Ann Walkden
H
Mr Rodrigo Echenique
I
Gordillo
Mr Ignacio Benjumea
J
Cabeza de Vaca
Mr Guillermo de la Dehesa
Romero
K
Ms Esther Giménez-
L
Salinas i Colomer
Mr Carlos Fernández
M
González
Total 2020
Total 2019
77
77
326
77
77
136
8
77
77
2
44
119
42
98
114
75
35
23
64
—
1,548
1,794
145
145
145
—
—
—
—
—
—
—
84
145
—
145
—
—
65
44
—
—
—
—
34
—
—
—
—
34
—
—
34
—
34
34
—
—
—
—
—
918
1,247
—
170
168
—
—
21
—
—
—
1
21
—
—
—
—
—
—
—
21
—
6
18
—
88
117
—
—
21
—
—
—
5
21
21
—
12
—
—
—
—
—
10
6
—
—
96
125
A. All amounts received were reimbursed to Fundación Botín.
B. Director since 1 April 2018.
C. Director since 27 October 2020.
D. Director since 17 July 2019.
E. Director since 22 December 2020.
F. Director since 19 May 2020.
G. Executive director since 30 May 2020.
H. Director since 29 October 2019.
I. Stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020.
J. Stepped down as director on 5 May 2020.
K. Stepped down as director on 3 April 2020.
L. Stepped down as director on 27 October 2020.
M. Stepped down as director on 28 October 2019.
N Includes emoluments for chairing committees and other roles.
590
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
2020
2019
Short-term and deferred (not subject to long-term goals) salaries of executive directors
Variable - immediate payment Deferred variable
Fixed
3,176
2,541
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,717
6,317
In cash
In shares
In cash
In shares
Total
Pension
contribution
Other
7
remuneration
Total
Total
333
181
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
334
181
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
200
108
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
514
2,572
—
515
2,572
—
308
1,543
200
109
—
—
4,243
3,120
—
—
1,155
1,131
6,819
9,954
864
—
—
1,764
—
—
6,019
595
203
8,270
700
226
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
309
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,363
1,543
14,547
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,019
2,003
—
—
—
—
—
—
—
—
—
122
137
243
276
37
214
217
4
740
943
—
—
—
—
431
63
418
214
—
240
86
—
—
500
—
525
34
1,800
1,956
4,874
102
276
524
107
399
192
228
5,537 19,073
—
214
—
5,772
—
27,187
591
Annual report 2020
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Following is the detail, by executive director, of the salaries
linked to multi-year 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 46.
EUR thousand
2020
2019
Variable subject
to Long-term
objectives1
In cash
In shares Total
Total
210
210
420
1,642
114
114
228
1,096
—
324
—
—
504
324
648
3,242
Ms Ana Botín-Sanz de
Sautuola y O’Shea
Mr José Antonio Álvarez
Álvarez
Mr Rodrigo Echenique
Gordillo
Total
1. Corresponds with the fair value of the maximum amount they are entitled to
in a total of 3 years: 2024, 2025 and 2026, 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 2020 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 46).
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 2020 and
2019 variable remuneration plans.
In the case of Sergio Rial, as mentioned above, he has not
received any remuneration for executive duties in Banco
Santander, S.A. during 2020. The remuneration he has
received in his role as CEO and vice-president of Banco
Santander (Brasil) (Santander Brasil) is:
2020
Base salary
Other fixed benefits
Pensions
Variable remuneration
Total
BRL thousand
EUR thousand
12,645
39
5,041
30,240
47,965
2,175
7
867
5,201
8,250
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 2020 and 2019 the Bank’s directors
did not receive any remuneration in respect of these
representative duties.
On the other hand, Mr. Álvaro Cardoso de Souza, in his role as
non-executive Chairman of Banco Santander (Brasil) S.A.,
received a remuneration in 2020 of 1,947 thousand Brazilian
reales (EUR 335 thousand), Ms. Homaira Akbari was paid USD
190 thousand (EUR 156 thousand) as member of the board of
Santander Consumer USA (SCUSA) and EUR 17,200 as
member of the Board of PagoNxt), and Mr. Henrique Manuel
Drummond Borges Cirne de Castro and Mr. Ramón Martín
Chávez Márquez, were also each paid paid EUR 17,200 as
members of the board of PagoNxt.
Likewise, Luis Isasi was paid EUR 740 thousand as chairman
of the board of Santander Spain (amount included in the chart
below as "other remuneration" as it is paid by Banco
Santander, S.A.)
c) Post-employment and other long-term benefits
In 2012, the contracts of Ms. Ana Botín and Mr. José Antonio
Alvarez (and other members of the Bank's senior
management) with defined benefit pension commitments
were modified to transform these commitments into a
defined contribution system, which covers the contingencies
of retirement, disability and death. From that moment on, the
Bank makes annual contributions to their pension system for
their benefit.
This system gives them 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, Ms Ana Botín and Mr José
Antonio Alvarez, have the right to receive an annual
allotment.
The initial balance for each of them 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 Grupo Santander or until their retirement within the
Group, death, or disability (including, if applicable, during pre-
retirement).
592
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annual accounts
Notes to the consolidated
annual accounts
Appendix
The benefit plan system 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.
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:
• Fixed and variable pension contributions were reduced to
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 total amount insured for life and accident insurance
was increased.
The provisions recognised in 2020 and 2019 for retirement
pensions and supplementary benefits (surviving spouse and
child benefits, and permanent disability) were as follows:
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
Total
2020
2019
1,155
1,145
864
858
2,019
2,003
Following is a detail of the balances relating to each of the
executive directors under the welfare system as of 31
December 2020 and 2019:
EUR thousand
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
1
Mr Rodrigo Echenique Gordillo
Total
2020
2019
49,444
48,104
18,082
17,404
—
13,268
67,526
78,776
1. Mr Rodrigo Echenique has not participated in the defined contribution
pension scheme described in the preceding paragraphs. However, for
reference purposes, this year’s table details his rights before he was named
an executive director. Mr. Rodrigo Echenique's accrued obligation as of
December 2020 is zero, since he received the benefit in the form of capital in
2020. Therefore, there is no pending commitment in this regard in respect of
Rodrigo Echenique.
d) Insurance
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
EUR thousand
2020
2019
Ms Ana Botín-Sanz de Sautuola y O’Shea
21,984
22,475
Mr José Antonio Álvarez Álvarez
Mr Rodrigo Echenique Gordillo
Total
18,703
19,373
—
5,400
40,687
47,248
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 2020 and 2019, the Group has disbursed a total
amount of 19.5 million euros and 11.6 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
593
Annual report 2020
Contents
this reason, it is not possible to disaggregate or individualize
the amount that correspond to the directors and executives.
As of 31 December 2020 and 2019, no life insurance
commitments exist for the Group in respect of any other
directors.
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 2020 and 2019 due to their participation
in the deferred variable remuneration systems, which
instrumented a portion of their variable remuneration relating
to 2020 and prior years, as well as on the deliveries, in shares
or in cash, made to them in 2020 and 2019 once the
conditions for the receipt thereof had been met (see note 46):
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.
594
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.
In the case of Sergio Rial, who does not receive any
remuneration for executive duties in Banco Santander, S.A.,
the same policy principles, deferrals, multi year targets linked
to the payment of deferred amounts and malus and clawback
principles described herein apply to his variable remuneration
in the subsidiary where he is the CEO.
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
2020 has been approved by the Board of Directors and
implemented through the fifth 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
2022 and 2023) is conditional on none of the malus clauses
being triggered.
• The accrual of the third, fourth and fifth parts (instalments
in 2024, 2025 and 2026) is linked to the fulfilment of
certain objectives related to the 2020‑2022 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 2022
compared to 2019;
– the relative performance of the Bank’s total shareholder
return (RTA) in the 2020-2022 period in relation to the
weighted RTAs of a reference group of 9 credit
institutions;
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
– compliance with the fully loaded ordinary level 1 capital
(iv) Irregular conduct, whether individual or collective. In this
objective for the year 2022.
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 2020 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.
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.
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.
In the case of Mr. Sergio Rial, although as stated above he
does not receive any remuneration for executive duties in
Banco Santander, S.A., he is included as CEO of Santander
Brasil in the deferred variable compensation plan linked to
multiannual objectives and thus subject to the same
conditions and principles of deferral, multiannual objectives,
deferrals and malus and clawback herein in respect of the
remuneration he receives in his role as CEO of this subsidiary.
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
1 January 2019, 31 December 2019 and 31 December 2020,
as well as the gross shares that were delivered to them in
2019 and 2020, 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 of each plan had
accrued. They come from each of the plans through which the
variable remunerations of deferred conditional variable
remuneration plans in 2015 and of the deferred conditional
and linked to multiannual objectives in 2016, 2017, 2018,
2019 and 2020.
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Annual report 2020
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Share-based variable remuneration
4
2015 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
3
Mr Rodrigo Echenique Gordillo
2016 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
3
Mr Rodrigo Echenique Gordillo
2017 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
3
Mr Rodrigo Echenique Gordillo
2018 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
3
Mr Rodrigo Echenique Gordillo
2019 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
3
Mr Rodrigo Echenique Gordillo
1
2020 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea
Mr José Antonio Álvarez Álvarez
2
Mr Sergio Rial
Maximum
number of
shares to be
delivered at
January
1,2019
Shares
delivered in
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
2019 (deferred
payment 2015
variable
remuneration)
Variable
remuneration
2019
(Maximum
number of
shares to be
delivered)
193,213
128,431
95,134
416,778
288,410
194,665
144,180
627,255
344,625
230,471
179,608
754,704
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(68,925)
(46,094)
(35,922)
(150,941)
860,865
575,268
456,840
1,892,973
(344,346)
(230,107)
(182,736)
(757,189)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(64,404)
(42,811)
(31,712)
(138,927)
(72,102)
(48,667)
(36,046)
(156,815)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
887,193
592,915
272,480
1,752,588
—
—
—
1. 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.
2. Mr. Sergio Rial's share-based variable remuneration awarded in shares of Banco Santander (Brasil). He has the right to a maximum of 51,483 Santander shares
and 269,148 options over Santander shares for his participation in the 2019 Digital Transformation Award.
3. Mr. Rodrigo Echenique stepped down as executive director on 30 April 2019. Non-executive director from 1 May 2019 to 22 December 2020.
4.
In addition, Mr. Ignacio Benjumea Cabeza de Vaca received 35,372 shares during 2020 and maintains the right to a maximum of 35,369 shares arising from his
participation in the corresponding plans during his term as executive vice president.
596
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annual accounts
Notes to the consolidated
annual accounts
Appendix
Maximum
number of
shares to be
delivered at
December 31,
2019
Instruments
matured but
not
consolidated
at January 1,
2020
Shares
delivered in
2020
(immediate
payment 2019
variable
remuneration)
Shares
delivered in
2020
(deferred
payment 2018
variable
remuneration)
Shares
delivered in
2020
(deferred
payment 2017
variable
remuneration)
Shares
delivered in
2020
(deferred
payment 2016
variable
remuneration)
Shares
delivered in
2020
(deferred
payment 2015
variable
remuneration)
Variable
remuneration
2020
(Maximum
number of
shares to be
delivered)
Maximum
number of
shares to be
delivered at
December 31,
2020
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
1,752,588
—
—
—
—
—
—
(51,265)
(34,602)
(25,628)
(111,495)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(354,877)
(237,166)
(108,992)
(701,035)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(68,925)
(46,094)
(35,922)
(150,941)
(103,304)
(69,032)
(54,821)
(227,157)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(64,404)
(42,811)
(31,712)
(138,927)
(55,014)
(37,133)
(27,503)
(119,650)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
310,615
168,715
355,263
834,593
64,405
42,809
31,710
138,924
110,029
74,263
55,003
239,295
206,775
138,283
107,764
452,822
413,215
276,129
219,283
908,627
532,316
355,749
163,488
1,051,553
310,615
168,715
355,263
834,593
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Annual report 2020
Contents
In addition, the table below shows the cash delivered in 2020
and 2019, 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:
EUR thousand
2020
2019
Cash paid (immediate
Cash paid (deferred
payments from 2017,
payment 2018 variable 2016 and 2015 variable
remuneration)
1,025
686
519
2,230
remuneration)
1,480
989
785
3,254
2020
60,847
65,502
47,956
2020
60,847
0
32,751
35,132
2019
121,694
98,253
140,531
2019
60,847
129,612
42,924
35,132
Ms. Ana Botín-Sanz de Sautuola y O’Shea
Mr. José Antonio Álvarez Álvarez
Mr. Rodrigo Echenique Gordillo
Cash paid (immediate
payment 2019 variable
remuneration)
1,302
870
400
2,572
Cash paid (deferred
payments from 2018,
2017, 2016 and 2015
variable remuneration)
1,383
925
712
3,020
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 2019 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 2020
and 2019 to former board members, upon achievement of the
conditions for the receipt thereof (see note 46):
Maximum number of shares to be delivered
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 (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, EUR 612 thousand and EUR 663 thousand relating
to the deferred portion payable in cash of the aforementioned
plans were paid each in 2020 and 2019.
598
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
f) Loans
Grupo Santander’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 recognized:
EUR thousand
2020
2019
Loans and
credits
Guarantees
Total
Loans and
credits
Guarantees
Total
Mrs. Ana Patricia Botín
Mr. José Antonio Álvarez Álvarez
Mr. Bruce Carnegie-Brown
Mr. Rodrigo Echenique Gordillo**
Mr. Javier Botín-Sáenz de Sautuola
Mrs. Sol Daurella Comadrán
Mrs. Esther Gimenéz-Salinas i Colomer****
Mr. Ignacio Benjumea Cabeza de Vaca*
Mrs. Belén Romana García
Mr. Guillermo de la Dehesa Romero***
Mr. Ramiro Mato García-Ansorena
Mrs. Homaira Akbari
Mr. Álvaro Antonio Cardoso de Souza
Mr. Henrique Manuel Drummond
Borges Cirne de Castro
Mrs. Pamela Ann Walkden
Mr. Luis Isasi Fernández de Bobadilla
Mr. Sergio Agapito Lires Rial
Mr. R. Martín Chávez
Mrs. Gina Lorenza Díez Barroso Arcárraga
14
5
—
—
2
22
—
—
—
—
—
—
—
—
—
—
—
—
6
49
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14
5
—
—
2
22
—
—
—
—
—
—
—
—
—
—
—
—
6
18
27
—
33
21
55
1
1
21
56
—
—
—
—
—
—
—
—
—
49
233
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
*
**
***
****
Mr. Ignacio Benjumea Cabeza de Vaca resigns as a member of the Board in June 2020.
Mr. Rodrigo Echenique Gordillo resigns as a member of the Board in December 2020.
Mr. Guillermo de la Dehesa resigns as a member of the Board in June 2020.
Ms. Esther Gimenez-Salinas i Colomer resigns as a member of the Board in December 2020.
18
27
—
33
21
55
1
1
21
56
—
—
—
—
—
—
—
—
—
233
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Annual report 2020
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g) Senior managers
The table below includes the amounts relating to the short-
term remuneration of the members of senior management at
31 December 2020 and those at 31 December 2019,
excluding the remuneration of the executive directors, which
is detailed above:
EUR thousand
Short-term salaries and deferred remuneration
Variable remuneration (bonus)
- Immediate payment
Deferred variable
remuneration
Year
2020
2019
Number of
persons
18
18
Fixed
21,642
22,904
In cash
5,739
7,668
In shares
2
5,740
7,669
In cash
2,470
3,336
In shares
2,471
3,337
Pensions
6,039
6,282
Other
1
remuneration
6,312
15,337
3
Total
50,413
66,532
1. Includes other remuneration items such as life and medical insurance premiums and localization aids.
2. The amount of immediate payment in shares for 2020 is 2,135,700 shares (2,090,536 Santander shares in 2019).
3. The deferred amount in shares not linked to long-term objectives for 2020 is 919,308 shares (909,534 Santander shares in 2019).
(application programming interface) layer, payment hubs,
mobile app for SMEs and virtual assistant services; and (vii)
launching the PagoFX global platform in at least 4 countries.
The 2019 Digital Transformation Incentive, which terms are
substantially the same as those of the 2020 one, included
three senior executives, who may receive up to a total of EUR
2,100 thousand.
See note 46 to the 2020 Group's consolidated financial
statements for further information on the Digital
Transformation Incentive.
In 2020, the ratio of variable to fixed pay components was
80% of the total for senior managers, well within the
maximum limit of 200% set by shareholders.
Also, the detail of the breakdown of the remuneration linked
to long-term objectives of the members of senior
management at 31 December 2020 and 31 December 2019 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 46):
EUR thousand
Variable remuneration subject
to long-term objectives
1
Year
Number of
people
Cash
payment
2020
2019
18
18
2,594
3,503
Share
payment
2,594
3,504
Total
5,188
7,007
1. Relates to the fair value of the maximum annual amounts for years 2024,
2025 and 2026 of the fifth cycle of the deferred conditional variable
remuneration plan (2022, 2024 and 2025 for the fourth cycle of the deferred
variable compensation plan linked to annual objectives for the year 2019).
At the annual general meeting on 3 April 2020, shareholders
approved the 2020 Digital Transformation Incentive, a
variable remuneration scheme that delivers Santander shares
and share options if the group hits major milestones on its
digital roadmap.
Three senior executives are included within this plan (aimed
at a group of up to 250 employees whose functions are
deemed essential to Santander Group’s growth and digital
transformation) and, thus, can receive a total of EUR 1,700
thousand to be paid in thirds on the third, fourth and fifth
anniversary of the authorisation date (2024, 2025 and 2026).
This amount is implemented in 316,574 Santander shares and
944,445 options over Santander shares, using for these
purposes the fair value of the options at the moment of their
grant (EUR 0.90).
Of the EUR 30,000 thousand approved by the 2020 general
meeting as maximum amount for the 2020 Digital
Transformation Award, a total overall cost of EUR 17,800
thousand has been approved, based on the final number of
participants and the level of achievement of milestones.
The milestones for the 2020 Digital Transformation Award
were: (i) rolling out the global merchant services (GMS)
platform in 3 new geographies, enhancing the platform
functionality and achieving volume targets for transactions
and participating merchants; (ii) doing the commercial rollout
of the global trade services (GTS) platform in 8 new
geographies, enhancing platform functionality, and achieving
volume targets for on-boarded clients and monthly active
users; (iii) launching OpenBank in a new market and
migrating the retail banking infrastructure to “new-mode”
bank; (iv) launch the global platform SuperDigital in at least 4
countries, driving target active user growth; (v) deploying
machine learning across pre-defined markets for 4 priority
use cases, rolling out Conversion Rate Optimization (Digital
marketing) for at least 40 sales programs, delivering profit
targets, and driving reduction of agent handled calls in
contact centers; (vi) successfully implementating initiatives
related to on-board and identity services, common API
600
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Senior executive vice presidents who retired in 2020 and,
therefore, were not members of senior management at year-
end, received in 2020 salaries and other remuneration
relating to their termination amounting to EUR 5984000
(EUR 6,789 thousand in 2019). 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 EUR 133 thousand (this right has been
generated in 2019 for a total amount of EUR 615 thousand).
The average total remuneration awarded to women who
were part of the senior management during 2020, excluding
executive directors, is 37% lower 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 31
December 2020 and 31 December 2019 relating to the
deferred portion under the various plans then in force is the
following (see note 46):
Maximum number of shares to be delivered
Deferred conditional variable
remuneration plan (2015)
Deferred conditional variable
remuneration plan (2017)
Deferred conditional variable
remuneration plan (2018)
remuneration plan and linked to
objectives (2016)
remuneration plan and linked to
objectives (2017)
remuneration plan and linked to
objectives (2018)
remuneration plan and linked to
objectives (2019)
2020
2019
179,617
391,074
2,786
6,949
—
—
417,818
660,205
791,360 1,115,570
1,512,992 1,986,754
2,154,312 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 was
delivered in 2020 and 2019 to the senior management, in
addition to the payment of the related cash amounts:
Number of shares delivered
Deferred conditional variable remuneration
plan (2015)
Performance shares plan ILP (2015)
Deferred conditional variable remuneration
plan (2017)
Deferred conditional variable remuneration
plan (2018)
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)
2020
2019
179,614 257,187
— 515,456
2,786
3,474
—
—
170,185 215,868
219,363 245,575
342,884
—
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. Banco
Santander 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 Banco Santander 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 that 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.
The contracts of some senior executives were modified at the
beginning of 2018 with the same objective and changes
indicated in section c of this note for Ms Ana Botín and Mr
José Antonio Álvarez. The modifications, which are aimed at
aligning the annual contributions with the practices of
comparable institutions and reducing the risk of future
obligations by eliminating the supplementary scheme for
death (widowhood and orphanhood) and permanent disability
in service without increasing the costs to the bank, are as
follows
• 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 31 December 2020 in the pension system
for those who were part of senior management during
the year amounted to EUR: 59.4 million (EUR 69.8 million at
31 December 2019).
The net charge to income corresponding to pension and
supplementary benefits for widows, orphans and permanent
invalidity amounted to EUR 6.4 million in 2020 (EUR
6.3 million in 31 December 2019).
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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 Banco Santander 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 Banco Santander were to terminate her contract, Ms. Ana
Botín-Sanz de Sautuola y O'Shea would have to remain at
Banco Santander’s disposal for a period of 4 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 have declared
that they or persons related to them may have a direct or
indirect conflict of interest with the interests of Banco
Santander, S.A., as set forth in Article 229 of the Corporate
Enterprises Act.
In 2020 and 2019 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 31 December 2020 of this group amounts to EUR
135.1 million (EUR 134.1 million at 31 December 2019).
h) Post-employment benefits to former Directors and
former senior executive vice presidents
The post-employment benefits and settlements paid in 2020
to former directors of the Bank, other than those detailed in
note 5.c amounted to EUR 11.2 million and EUR 6.3 million in
2019, respectively. Also, the post-employment benefits and
settlements paid in 2020 to former executive vice presidents
amounted to EUR 10.26 million and EUR 6.5 million in 2019,
respectively.
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 0.17 million in 2020 (EUR
0.2 million in 2019). Likewise, contributions to insurance
policies that hedge pensions and complementary widowhood,
orphanhood and permanent disability benefits for previous
senior managers amounted to EUR 5.8 million in 2020 (EUR
5.5 million in 2019).
During the 2020 financial year, a release of 5 million euros
was recorded in the consolidated income statement for
pension commitments and similar obligations held by the
Group with previous former members of the bank's board of
directors (in 2019, no provisions/releases were recorded), and
no provisions/releases has been recorded in respect of former
senior managers in 2020 and 2019.
In addition, 'Provisions - Pension Fund and similar obligations'
in the consolidated balance sheet as at 31 December 2020
included EUR 52 million in respect of the post-employment
benefit obligations to former Directors of the Bank (EUR
65.7 million at 31 December 2019) and EUR 159 million
corresponding to former senior managers (EUR 172 million at
31 December 2019).
i) Pre-retirement and retirement
The board of directors has approved, subject to the condition
that the remuneration policy be approved at the annual
general shareholders' meeting, an amendment to the
contracts of the executive directors whereby:
• Ms Ana Botín ceases to have the right to pre-retire if she
leaves the Bank out of her own volition, keeping this right
in case of termination by the Bank until 1 September 2022.
After this date, she does not have the right to pre-retire.
While she keeps this right 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 is
subject to the malus and clawback provisions in place for a
period of five years.
• Mr. José Antonio Álvarez ceases to have the right to pre-
retire in case of termination of his contract.
602
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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:
EUR million
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
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
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
2020
2019
2018
—
—
9,481
—
12,499
21,980
11,757
10,223
—
—
21,980
3
—
—
—
6,473
—
18,474
24,947
17,533
7,414
—
—
24,947
—
—
—
—
9,226
—
15,601
24,827
15,601
9,226
—
—
24,827
—
2
12,136
21,649
23,097
—
37,838
49,977
7,338
20,862
21,784
1
(8)
49,977
22,260
4,127
13,209
26,437
5,924
71,957
—
40,943
62,592
9,699
31,180
21,726
1
(14)
62,592
32,248
3,659
14,442
30,919
6,271
87,539
—
35,480
58,579
10,759
33,547
14,283
2
(12)
58,579
24,801
4,073
19,238
28,310
6,984
83,406
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Annual report 2020
Contents
At 31 December 2020 the exposure by impairment stage of
the assets accounted for amounts to EUR 50,344, EUR 0 and
EUR 1 million (EUR 59,430, EUR 0 and EUR 1 million in 2019
and EUR 51,090, EUR 1 and EUR 2 million in 2018), and the
loan loss provision by impairment stage amounts to EUR 8,
EUR 0 and EUR 0 million (EUR 14, EUR 0 and EUR 0 million in
2019 and EUR 12, EUR 0 and EUR 0 million in 2018) in stage 1,
stage 2 and stage 3, respectively.
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 are mainly time accounts
and deposits.
Note 50 contains a detail of the residual maturity periods of
'Financial assets at amortised cost' and of the related average
interest rates.
7. Debt instruments
a) Detail
The detail, by classification, type and currency, of Debt
instruments in the consolidated balance sheets is as
follows:
EUR million
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
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
2020
2019
2018
37,894
700
2,979
108,903
26,078
176,554
30,397
110,570
10,133
25,337
401
(284)
32,041
1,175
3,186
118,405
29,789
184,596
42,054
107,434
9,670
25,265
647
(474)
27,800
5,587
3,222
116,819
37,696
191,124
50,488
99,959
10,574
29,868
870
(635)
176,554
184,596
191,124
58,850
7,372
29,009
35,139
46,468
176,838
(284)
176,554
70,357
15,713
29,846
38,316
30,838
76,513
19,153
22,864
40,871
32,358
185,070
191,759
(474)
(635)
184,596
191,124
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 reclassification.
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.
604
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
At 31 December 2020, 2019 and 2018 the exposure by
impairment stage of the book assets under IFRS 9
amounted to EUR 134,792 million, EUR 147,575 million
and EUR 154,164 million in stage 1; EUR 72 million, EUR
446 million and EUR 117 million in stage 2, and EUR 401
million, 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 2020, 2019 and 2018, net of impairment
losses, is as follows:
EUR million
Spain
United Kingdom
Portugal
Italy
Ireland
Poland
Other European
countries
United States
Brazil
Mexico
Chile
Other American
countries
Rest of the world
2020
2019
2018
Private
fixed-
income
Public
fixed-
income
Total
%
Private
fixed-
income
Public
fixed-
income
Total
%
Private
fixed-
income
Public
fixed-
income
Total
%
1,588
30,397
31,985 18.12%
3,634
42,054
45,688 24.75%
4,748
50,488
55,236 28.90%
3,099
3,095
1,047
2,924
2,795
6,462
4,688
5,894
3.34%
3,806
11,479
15,285
8.28%
9,557
5.41%
2,979
7,563
10,542
5.71%
5,615
3,663
9,512
15,127
7.91%
6,943
10,606
5.55%
5,735
3.25%
1,384
3,620
5,004
2.71%
857
3,134
3,991
2.09%
2
2,926
1.66%
2,387
2
2,389
1.29%
4,543
2
4,545
2.38%
3,126
11,400
14,526
8.23%
460
9,361
9,821
5.32%
683
10,489
11,172
5.85%
8,211
2,891
11,102
6.29%
7,186
1,784
8,970
4.86%
6,101
1,518
7,619
3.99%
6,386
14,645
21,031 11.91%
5,915
15,609
21,524 11.66%
6,833
10,362
17,195
9.00%
5,179
33,316
38,495 21.80%
5,808
35,036
40,844 22.13%
5,285
36,583
41,868 21.91%
435
19,053
19,488 11.04%
708
13,234
13,942
7.55%
520
11,325
11,845
6.20%
41
8,082
8,123
4.60%
50
4,819
4,869
2.64%
79
2,729
2,808
1.47%
274
182
3,098
4,138
3,372
1.91%
4,320
2.44%
605
186
1,095
3,832
1,700
0.92%
1,111
4,018
2.18%
639
1,375
5,987
2,486
1.30%
6,626
3.47%
35,587 140,967
176,554
100%
35,108 149,488 184,596
100%
40,677 150,447 191,124
100%
The detail, by issuer rating, of Debt instruments at 31
December 2020, 2019 and 2018 is as follows:
EUR million
AAA
AA
A
BBB
Below BBB
Unrated
2020
Private
fixed-
income
Public
fixed-
income
Total
%
2019
Private
fixed-
income
Public
fixed-
income
Total
%
2018
Private
fixed-
income
Public
fixed-
income
Total
%
14,088
2,099
16,187
9.17%
14,737
1,085
15,822 8.57%
18,901
834
19,735 10.33%
1,714
18,784
20,498 11.61%
5,133
28,325
33,458 18.13%
2,715
20,966
23,681 12.39%
6,228
53,655
59,883 33.92%
3,238
59,744
62,982 34.12%
3,464
69,392
72,856 38.12%
6,515
31,204
37,719 21.36%
4,889
24,766
29,655 16.06%
5,093
21,837
26,930 14.09%
3,431
35,164
38,595 21.86%
1,244
35,466
36,710 19.89%
668
37,412
38,080 19.92%
3,611
61
3,672
2.08%
5,867
102
5,969 3.23%
9,836
6
9,842 5.15%
35,587 140,967 176,554
100%
35,108 149,488 184,596
100%
40,677 150,447 191,124
100%
605
Annual report 2020
Contents
During 2020 and 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.
8. Equity instruments
a) Breakdown
The detail, by type of financial instrument, of private fixed-
income securities at 31 December 2020, 2019 and 2018, net
of impairment losses, is as follows:
EUR million
Securitised mortgage bonds
Other asset-backed bonds
Floating rate debt
Fixed rate debt
Total
c) Impairment losses
2020
5,926
5,479
7,829
2019
5,494
6,388
2018
7,803
9,805
10,348
13,721
16,353
12,878
9,348
35,587
35,108
40,677
The changes in the impairment losses on debt instruments
are summarised below:
EUR million
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:
2020
474
2019
635
2018
704
79
(170)
43
91
77
138
(12)
(247)
(95)
(269)
284
9
474
(112)
635
European Union
Latin America
21
263
14
460
22
613
* Of the EUR 79 million corresponding to net provisions for the year ended 31
December 2020 (EUR -170 million and EUR 43 million at 31 December 2019
and 2018, respectively), EUR 77 million relates to financial assets at
amortized cost (EUR -176 million and EUR 43 million at 31 December 2019
and 2018, respectively) and EUR 2 million relates to financial assets
designated at fair value through other comprehensive income (EUR 6 million
and EUR 0 million at 31 December 2019 and 2018, respectively).
At 31 December 2020, 2019 and 2018 the loan loss provision
by impairment stage of the assets accounted for under IFRS9
amounted to EUR 25 million, EUR 22 million and EUR
30 million in stage 1, EUR 2 million, EUR 6 million and EUR
9 million in stage 2, and EUR 257 million, EUR 446 million and
EUR 596 million in stage 3, respectively.
The detail, by classification and type, of Equity instruments in
the consolidated balance sheets is as follows:
EUR million
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 other
comprehensive income
Type
2020
2019
2018
9,615
12,437
8,938
3,234
3,350
3,260
2,783
2,863
2,671
15,632
18,650
14,869
Shares of Spanish companies
3,364
3,711
Shares of foreign companies
10,437
12,682
Shares of investment funds
1,831
2,257
3,448
9,107
2,314
15,632
18,650
14,869
Note 29 contains a detail of the 'Other comprehensive
income', recognised in equity, on 'Financial assets designated
at fair value through other comprehensive income'.
b) Changes
The changes in 'Financial assets at fair value through other
comprehensive income' were as follows:
EUR million
Balance at beginning of the
year
Net additions (disposals)
Valuation adjustment and
other items
Balance at end of year
2020
2019
2018
2,863
2,671
3,169
837
221
(324)
(917)
(29)
(174)
2,783
2,863
2,671
c) Notifications of acquisitions of investments
The notifications of the acquisitions and disposals of holdings
in investees made by the Bank in 2020, 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.
606
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
9. Trading Derivatives (assets and
liabilities) and short positions
a) Trading Derivatives
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):
EUR million
Interest
rate risk
Currency
risk
Price risk
Other
risks
2020
2019
2018
Debit
Credit
balance balance balance balance balance balance
Credit
Credit
Debit
Debit
43,832 41,085
42,614 40,956 36,087 36,487
21,162 22,028
18,085 19,870 16,912 17,025
1,931
944
2,329
1,772
2,828
1,673
212
412
369
418
112
156
67,137 64,469 63,397 63,016 55,939 55,341
b) Short positions
Following is a breakdown of the short positions (liabilities):
10. Loans and advances to customers
a) Detail
The detail, by classification, of Loans and advances to
customers in the consolidated balance sheets is as follows:
EUR million
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
2020
296
2019
355
2018
202
552
386
1,881
24,121
30,761
21,915
Financial assets at fair value
through other comprehensive
income
1,601
Financial assets at amortized cost 881,963 906,276 857,322
4,440
9,267
Of which:
Impairment losses
(23,595)
(22,242)
(23,307)
916,199 942,218 882,921
Loans and advances to
customers disregarding
impairment losses
939,794 964,460 906,228
EUR million
Borrowed securities
Debt instruments
Of which:
Banco Santander México,
S.A., Institución de Banca
Múltiple, Grupo Financiero
Santander México
Equity instruments
Of which:
2020
2019
2018
Note 50 contains a detail of the residual maturity periods of
'Financial assets at amortised cost' and of the related average
interest rates.
625
390
1,213
Note 53 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.
625
289
390
393
1,213
1,087
Banco Santander, S.A.
289
308
987
Short sales
Debt instruments
Of which:
15,784
13,340
12,702
Banco Santander, S.A.
8,645
7,980
5,336
Banco Santander
(Brasil) S.A.
7,085
5,194
7,300
16,698
14,123
15,002
607
Annual report 2020
Contents
b) Breakdown
Following is a breakdown of the loans and advances granted
to the Group's customers, which reflect the Group's exposure
to credit risk in its main activity, without considering the
balance of value adjustments for impairment, taking into
account the type and situation of the transactions, the
geographical area of their residence and the type of interest
rate on the transactions:
EUR million
Loan type and status
Commercial credit
Secured loans
Reverse repurchase agreements
Other term loans
Finance leases
Receivable on demand
Credit cards receivables
Impaired assets
Geographical area
Spain
European Union (excluding Spain)*
United States and Puerto Rico
Other OECD countries*
South America (non - OECD)
Rest of the world
Interest rate formula
Fixed rate
Floating rate
2020
2019
2018
37,459
37,753
33,301
503,014 513,929 478,068
35,702
45,703
32,310
269,143 267,154 265,696
36,251
35,788
30,758
7,903
7,714
8,794
19,507
23,876
23,083
30,815
32,543
34,218
939,794 964,460 906,228
215,330 204,810 215,764
192,988 460,338 411,550
93,405 100,152
89,325
338,362
86,327
82,607
79,629
92,145
87,406
20,080
20,688
19,576
939,794 964,460 906,228
550,883 546,619 497,365
388,911 417,841 408,863
939,794 964,460 906,228
* The amounts referring to the year 2020 for the United Kingdom have
been considered in the line Other OECD countries, instead of in the line
European Union (excluding Spain) due to the leaving of the United
Kingdom from the European Union (see Note 1.h).
At 31 December 2020, 2019 and 2018 the Group had granted
loans amounting to EUR 12,104, 9,993 and 13,615 million to
spanish public sector agencies which had a rating at 31
December 2020 of A (ratings of A at 31 December 2019 and
31 December 2018), and EUR 10,779, 12,218, and 10,952
million to the public sector in other countries (at 31 December
2020, the breakdown of this amount by issuer rating was as
follows: 0.9% AAA, 15.0% AA, 4.3% A, 69.5% BBB and 10.3%
below BBB).
Without considering the public administrations, the amount
of the loans and advances at 31 December 2020, 2019 and
2018 amounts to EUR 916,911 million, EUR 942,249 million
and EUR 881,661 million, of which, EUR 886,118 million, EUR
909,741 million and EUR 847,443 million are classified as
performing, respectively.
608
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Following is a detail, by activity, of the loans to customers at
31 December 2020, net of impairment losses:
EUR million
Net exposure
Loan-to-value ratio***
Secured loans
Total
Without
collateral
Of which
property
collateral
Of which
other
collatera
Less than
or equal
to 40%
More
than
40% and
less than
or equal
to 60%
More
than
60% and
less than
or equal
to 80%
More
than
80% and
less than
or equal
to 100%
More than
100%
21,227
20,510
216
501
95
78
41
483
20
62,827
20,795
1,291
40,741
845
842
427
39,371
547
319,853 182,861
63,463
73,529
25,175
24,194
21,678
45,270
20,675
16,804
3,300
2,620
1,963
9,375
280
4,809
1,057
5,340
4,713
1,538
1,180
1,413
113
230
162
731
101
167,390 110,387
20,994
36,009
8,775
7,358
9,025
23,111
8,734
132,359
67,891
32,814
31,654
10,947
11,893
10,953
20,248
10,427
497,987
92,157 331,210
74,620
84,449 104,187 116,586
61,532
39,076
324,152
1,563 322,100
489
77,764
98,134 108,699
33,426
4,566
157,118
88,232
1,621
67,265
16,717
2,362
7,489
6,866
3,401
3,284
3,529
2,524
4,837
23,897
33,222
3,050
4,209
1,288
901,894 316,323 396,180 189,391
110,564 129,301 138,732 146,656
60,318
20,997
5,278
12,327
3,392
2,965
2,640
2,430
2,560
5,124
Public sector
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
Large companies
SMEs and individual entrepreneurs
Households – other (broken down by
purpose)
Of which:
Residential
Consumer loans
Other purposes
Total*
Memorandum item
Refinanced and restructured
transactions**
*
**
***
In addition, the Group has granted advances to customers amounting to EUR 14,305 million, bringing the total of loans and advances to EUR 916,199 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 2020 provided by the latest available appraisal value of the collateral.
Note 53 contains information relating to the refinanced/
restructured loan book.
609
Annual report 2020
Contents
2018
EUR million
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
Balance at the end of
the year
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
In addition, at 31 December 2020, the Group had EUR 497
million (EUR 706 million at 31 December 2019 and EUR 757
million at 31 December 2018) in purchased credit-impaired
assets, which relate mainly to the business combinations
carried out by Grupo Santander.
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” during 2020, 2019 and 2018:
Stage 1
Stage 2
Stage 3
Total
849,939
50,476
31,837 932,252
(43,170) 43,170
(5,120)
5,120
(8,734)
8,734
13,459
(13,459)
1,831
(1,831)
578
(578)
—
—
—
—
—
—
53,555
(2,951)
(659) 49,945
—
—
(8,930)
(8,930)
(51,335)
(4,229)
(3,375) (58,939)
817,906
66,104
30,318 914,328
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
2020
EUR million
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
Balance at the end of
the year
2019
EUR million
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
Balance at the end of
the year
610
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
c) Impairment losses on loans and advances to customers at
amortised cost and at fair value through other
comprehensive income
2020
EUR million
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:
EUR million
Amount at beginning of the year
22,242
23,307
25,936
2020
2019
2018
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
Change of perimeter
Write-off of impaired balances
against recorded impairment
allowance
Exchange differences and other
changes
13,385
11,108
10,501
20,909
19,192
17,850
(7,524)
(8,084)
(7,349)
(82)
—
—
(8,930) (12,593) (12,673)
(3,020)
420
(457)
Amount at end of the year
23,595
22,242
23,307
Loss allowance at the
beginning of the year
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 of the
exposure and
modifications in the
credit risk
Write-offs
FX and other
movements
Loss allowance at the
end of the year
Which correspond to:
Impaired assets
Other assets
Of which:
Individually calculated
Collective calculated
13,658
13,933
14,906
9,937
8,309
8,401
2019
EUR million
2,679
3,555
4,905
Loss allowance at the
beginning of the year
20,916
18,687
18,402
Transfers
In addition, additions with a debit to fixed-income results
amounting to EUR 79 million were recorded in the year
(releases amounting to EUR 170 million and additions
amounting EUR 43 million as of 31 December 2019 and 2018,
respectively), written-off assets recoveries have been
recorded in the year amounting to EUR 1,221 million (EUR
1,586 million and EUR 1,558 million at 31 December 2019
and 2018, respectively) and EUR 139 million were recorded in
the account for losses on renegotiation or contractual
modification at 31 December 2020 (with no amount recorded
at 31 December 2019 and 2018). 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'; amounts EUR 12,382 million (EUR
9,352 million and EUR 8,986 million at 31 December 2019
and 2018, respectively).
Following is the movement of the loan loss provision broken
down by impairment stage of loans and advances to
customers during 2020, 2019 and 2018:
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 of the
exposure and
modifications in the
credit risk
Write-offs
FX and other
movements
Loss allowance at the
end of the year
Stage 1
Stage 2
Stage 3
Total
3,835
4,474
13,933
22,242
(1,040)
2,880
1,840
(255)
2,386
2,131
(971)
2,066
1,095
294
(976)
(682)
303
(727)
(424)
53
(138)
(85)
1,966
535
7,009
9,510
—
—
(8,930)
(8,930)
(588)
(573)
(1,941)
(3,102)
4,265
5,672
13,658
23,595
Stage 1
Stage 2
Stage 3
Total
3,658
4,743
14,906
23,307
(964)
3,235
2,271
(214)
1,296
1,082
(3,065)
5,612
2,547
301
(1,048)
(747)
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
611
Annual report 2020
Contents
2018
EUR million
Loss allowance at the
beginning of the year
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 of the
exposure and
modifications in the
credit risk
Write-offs
FX and other
movements
Loss allowance at the
end of the year
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
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 Loans to customers' considered
to be impaired due to credit risk is as follows:
EUR million
Balance at beginning of year
Net additions
Written-off assets
Changes in the scope of
consolidation
2020
2019
2018
32,543
34,218
36,280
10,577
10,755
10,821
(8,930)
(12,593)
(12,673)
(39)
—
177
Exchange differences and other
Balance at end of year
(3,336)
163
(387)
30,815
32,543
34,218
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 2020, the Group’s written-off assets totalled
EUR 39,087 million (EUR 46,209 million and EUR 47,751
million at 31 December 2019 and 2018, respectively).
612
Auditor's
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' and considered to be
impaired due to credit risk at 31 December 2020, classified
by geographical location of risk and by age of the first
maturity of each operation:
EUR million
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)
4,520
1,766
1,306
3,084
1,766
12,442
719
353
524
1,038
701
3,335
542
202
18
554
444
679
317
31
140
314
8,145
2,136
144
1,097
275
Total
14,605
4,774
2,023
5,913
3,500
1,760
1,481
11,797
30,815
* The amounts referring to the year 2020 for the United Kingdom have been considered in the line Other OECD countries, instead of in the line European Union
(excluding Spain) due to the leaving of the United Kingdom from the European Union (see note 1.h).
The detail at 31 December 2019 is as follows:
EUR million
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
4,018
2,659
1,725
1,426
1,948
With balances past due by
90 to 180
days
180 to 270
days
270 days
to 1 year
More than
1 year
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:
EUR million
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)
.
5,671
2,940
1,906
1,414
1,221
13,152
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
Total
16,382
7,911
2,676
2,737
4,512
2,083
1,929
12,887
34,218
613
Annual report 2020
Contents
Securitisation is used as a tool for the management of
regulatory capital and as a means of diversifying the Group's
liquidity sources.
The breakdown of securitized loans held on the balance
sheet, according to the nature of the financial instrument in
which they are originated, is shown below:
EUR million
Retained on the balance sheet
88,662
93,553
88,767
2020
2019
2018
Of which
Securitised mortgage
assets
30,145
31,868
33,900
Of which: UK assets
9,034
13,002
13,519
Other securitised assets
58,517
61,685
54,867
Total*
88,662
93,553
88,767
* Note 22 details the liabilities associated with these securitisation
transactions.
Additionally at 31 December 2020, there are EUR 599 million
(EUR 676 million and EUR 797 million in 2019 and 2018,
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.
At 31 December 2020, Grupo Santander had loans that had
been fully derecognised and for which it retained servicing
amounting to EUR 13,999 million (EUR 16,786 million and
EUR 17,645 million at 31 December 2019 and 2018,
respectively).
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 2020:
EUR million
Without associated real
collateral
With real estate collateral
Gross Allowance
amount recognised
Estimated
collateral
value*
11,611
14,659
7,852
—
3,687
10,348
With other collateral
4,545
2,119
1,759
Total
30,815
13,658
12,107
* 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 2020, 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:
EUR million
Loans and advances to
customers
Of which public sector
Total
e) Transferred credits
Less
than 1
2 to 3
1 to 2
month months months
1,232
1
1,232
337
—
337
311
—
311
'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.
614
Auditor's
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 2020, 2019
and 2018 is as follows:
EUR million
Trading derivatives
Interest rate risk
2020
2019
2018
Notional
amount
Market
value
Notional
amount
Market
value
Notional
amount
Market
value
Forward rate agreements
Interest rate swaps
Options, futures and other derivatives
515,889
3,789,169
698,500
—
218,252
(8)
308,340
3,638
4,322,199
2,573
4,197,246
(891)
794,140
(907)
543,138
Credit risk
Credit default swaps
Foreign currency risk
12,378
(133)
23,701
(71)
18,889
Foreign currency purchases and sales
Foreign currency options
Currency swaps
Securities and commodities derivatives and other
Total
304,280
45,074
394,178
70,861
(45)
(7)
(814)
920
325,720
44,763
379,176
61,966
5,830,329
2,668
6,169,917
(441)
(182)
275,449
54,215
(1,162)
334,524
579
381
59,932
5,791,733
(1)
115
(514)
33
301
2
(416)
1,078
598
12. Non-current assets
The detail of Non-current assets held for sale in the
consolidated balance sheets is as follows:
EUR million
Tangible assets
Of which:
2020
2019
2018
4,445
4,588
5,424
Foreclosed assets
4,081
4,485
5,334
Of which property assets in
Spain*
Other tangible assets held for
sale
Other assets
Total
3,485
3,667
4,488
364
—
103
13
90
2
4,445
4,601
5,426
* During 2019, the sale of real estate assets to Cerberus from foreclosures
materialized, generating losses of EUR 180 million.
At 31 December 2020, the allowances recognised for the
total non-current assets held for sale represented 48%
(EUR 48% in 2019 and EUR 49% in 2018). The charges
recorded in those years amounted to EUR 250 million, EUR
279 million and EUR 320 million, respectively, and the
recoveries during these exercises are amounted to EUR 35
million, EUR 133 million and EUR 61 million, respectively.
615
Annual report 2020
Contents
13. Investments
a) Breakdown
b) Changes
The changes in the investments were as followed:
The detail, by company, of Investments is as follows:
EUR million
2020
2019
2018
EUR million
Balance at beginning of year
8,772
7,588
6,150
Acquisitions (disposals) of
companies and capital increases
(reductions)
Of which:
676
(123)
(1,761)
Ebury Partners Limited (note 3)
Santander Vida Seguros y
Reaseguros (note 3)
WiZink Bank, S.A.
409
219
—
—
—
—
—
—
(1,033)
Changes in the consolidation
method (note 3)
Of which:
Project Quasar Investments
2017, S.L.
Popular Spain Holding de
Inversiones, S.L.U. (former
Allianz Popular, S.L.)
Caceis
Metrovacesa, S.A.
Santander CACEIS Latam Holding
1, S.L. - Consolidado (former
Santander Securities Services
Latam Holding, S.L.)
Effect of equity accounting
Dividends paid and reimbursements
of share premium
Exchange differences and other
changes
Balance at end of year
(1,359)
1,368
2,967
(956)
—
1,701
(409)
—
1,010
—
—
—
1,255
—
—
—
(96)
349
324
—
737
(186)
(407)
(404)
(185)
22
(101)
7,622
8,772
7,588
In 2020, 2019 and 2018 there was no evidence of material
impairment on the Group’s investments.
c) Impairment adjustments
During the years 2020, 2019 and 2018 there was no evidence
of significant impairment in the Group's associated interests.
Associated entities
Merlin Properties, SOCIMI, S.A.
Metrovacesa, S.A.
Caceis (note 3)
Zurich Santander Insurance
America, S.L. - Consolidated
Companies Santander Insurance -
Consolidated
Ebury Partners Limited (note 3)
Popular Spain Holding de Inversiones,
S.L.U. (former Allianz Popular, S.L.)
(note 3)
Project Quasar Investment 2017 S.L.*
Other companies
Joint Ventures entities
Santander Vida Seguros y Reaseguros
(note 3)
Santander CACEIS Latam Holding 1, S.L.
- Consolidated (former Santander
Securities Services Latam Holding, S.L.)
U.C.I., S.A. - Consolidated
Other companies
2020 2019 2018
1,581 1,511 1,358
1,157 1,226 1,255
1,077 1,010
—
955 1,009
961
439
388
402
392
—
—
—
409
431
— 1,351 1,701
533
529
511
6,130 7,447 6,609
381
170
163
326
168
617
349
206
600
1,492 1,325
—
202
614
979
* At 31 December 2020, the Group does not hold significant influence over this
company, despite holding a 49% interest in it, since it does not meet any of
the requirements established in the Standard by which an entity is
considered to exercise significant influence over another.
Of the entities included above, at 31 December 2020, the
entities Merlin Properties, SOCIMI, S.A, Metrovacesa S.A.,
Compañía Española de Viviendas en Alquiler, S.A. and Unicre -
Instituição Financeira de Crédito, S.A. are the only listed
companies.
616
Auditor's
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):
EUR million
Total assets
Total liabilities
Net assets
2020
2019
2018
183,735
164,215
74,765
(167,209) (144,602)
(58,153)
16,526
19,613
16,612
Investments in Group joint
ventures and associates in the
net assets of associates
Goodwill
Of which:
Zurich Santander Insurance
America, S.L. -
Consolidated
Caceis
Santander Vida Seguros y
Reaseguros, S.A. -
Consolidated
Sociedades Santander
Insurance - Consolidated
Popular Spain Holding de
Inversiones, S.L.U. (former
Allianz Popular, S.L.)
Total Group share
Total income
Total profit
5,760
1,862
6,729
2,043
6,157
1,431
526
337
255
205
526
466
526
—
73
—
205
205
—
347
347
7,622
8,772
7,588
12,758
14,172
12,174
703
1,375
1,867
A summary of the financial information at the end of
December 2020 of the main associates and joint ventures
(obtained from the information available at the date of
preparation of the consolidated financial statements) is
shown below:
EUR million
Joint ventures entities
25,179
23,045
4,127
231
Total
assets
Total
liabilities
Total
income
Total
profit
Of which:
U.C.I., S.A. -
Consolidated
Santander Vida
Seguros y
Reaseguros, S.A. -
Consolidated
Santander Caceis
Latam Holding, S.L. -
Consolidated
Associated entities
Of which:
Caceis
Zurich Santander
Insurance América,
S.L. - Consolidated
Sociedades
Santander Insurance
- Consolidated
Total
12,032
11,696
248
(33)
3,901
3,645
1,998
81
517
128
81
158,556 144,164
8,631
10
472
119,533 117,109
1,990
189
13,021
12,144
4,566
315
2,408
1,933
722
183,735 167,209 12,758
80
703
617
Annual report 2020
Contents
14. Insurance contracts linked to pensions
The detail of Insurance contracts linked to pensions in the
consolidated balance sheets is as follows:
EUR million
Assets relating to insurance
contracts covering post-
employment benefit plan
obligations:
Banco Santander, S.A.
2020
2019
2018
174
174
192
192
210
210
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:
EUR million
2020
2019
2018
Direct
insurance
and
assumed
Total
(balance
ceded payable)
Direct
insurance
and
assumed
Total
(balance
ceded payable)
Direct
insurance
and
assumed
reinsurance Reinsurance
reinsurance Reinsurance
reinsurance Reinsurance
Total
(balance
ceded payable)
51
189
126
63
561
23
86
910
(45)
(137)
(122)
(15)
(59)
(11)
(9)
(261)
6
52
4
48
502
12
77
649
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
Technical provisions for:
Unearned premiums and
unexpired risks
Life insurance
Unearned premiums
and risks
Mathematical
provisions
Claims outstanding
Bonuses and rebates
Other technical
provisions
618
Auditor's
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:
EUR million
Tangible assets
Leased
out under
an operating
lease
Investment
property
For own use
Total For own use
Of which:
Right-of-use for operating lease
Leased
out under
an operating
lease
Investment
property
Total
Cost:
Balances at 1 January 2018
Additions / disposals (net) due to change
in the scope of consolidation
Additions / disposals (net)
Transfers, exchange differences and other
items
Balance 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
Balance at 31 December 2019
Additions / disposals (net) due to change
in the scope of consolidation
Additions / disposals (net)
Transfers, exchange differences and other
items
Balance at 31 December 2020
Accumulated depreciation:
Balances at 1 January 2018
Disposals due to change in the scope of
consolidation
Disposals
Charge for the year
Transfers, exchange differences and other
items
Balance at 31 December 2018
IFRS 16 Adoption impact
Balances at 1 January 2019
Disposals due to change in the scope of
consolidation
Disposals
Charge for the year
Transfers, exchange differences and other
items
Balance at 31 December 2019
Disposals due to change in the scope of
consolidation
Disposals
Charge for the year
Transfers, exchange differences and other
items
Balance at 31 December 2020
19,276
18,673
3,142
41,091
34
589
44
5,545
(630)
(182)
(552)
5,952
(1,164)
18,735
6,693
25,428
(5)
1,863
825
48
(291)
25,087
2,378
46,200
—
—
6,693
25,087
2,378
52,893
6,693
6,693
—
3,148
(15)
(20)
(310)
4,701
—
(997) *
(178)
(3,781)
(603)
(4,562)
(10)
27,108
24,454
1,450
53,012
5,686
(16)
827
1,082
512
7
1,073
(29)
1,310
(37)
(1,339) *
(3,023)
(1,844)
32
(4,835)
(362)
24,896
24,204
1,460
50,560
3,948
(10,920)
(6,104)
(189)
(17,213)
(12)
629
(1,159)
(34)
413
—
—
17
(46)
1,059
(13)
(1,172)
938
(10,524)
(2,679)
(8,404)
(14)
(1,755)
(199) (19,127)
—
—
—
—
(10,524)
(8,404)
(199)
(19,127)
—
—
—
37
3
356
(2,021)
—
2,149
—
6
32
9
2,537
(14)
(2,035)
(807)
212
(11,974)
1,045
(5,210)
31
1,288
(144) (17,328)
(40)
527
(1,906)
—
2,387
—
—
11
(40)
2,925
(8)
(1,914)
5
(765)
(3)
167
(706)
1,850
(11,543)
(2,762)
(5,585)
8
(904)
(133) (17,261)
90
(1,217)
* Includes contract extensions on operating leases and repurchases.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,693
6,693
—
(997)
(10)
5,686
(37)
(1,339)
(362)
3,948
—
—
—
37
(807)
5
(765)
(3)
167
(706)
90
(1,217)
619
Annual report 2020
Contents
EIR million
Impairment losses:
Balances at 1 January 2018
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
Impairment charge for the year
Releases
Disposals due to change in the scope of
consolidation
Disposals
Exchange differences and other
Balances at 31 December 2020
Tangible assets, net:
Balances at 31 December 2018
IFRS 16 Adoption impact
Balances at 1 January 2019
Balances at 31 December 2019
Balances at 31 December 2020
Tangible assets
Leased
out under
an operating
lease
Investment
property
For own use
Total For own use
Of which:
Right-of-use for operating lease
Leased
out under
an operating
lease
Investment
property
Total
(77)
(30)
6
—
40
(61)
—
(61)
(14)
8
—
(26)
(93)
(104)
4
—
20
33
(140)
(198)
(629)
(904)
(56)
—
—
15
(239)
—
(239)
(12)
6
—
222
(23)
(70)
2
—
—
31
(60)
(8)
5
—
16
(616)
—
(94)
11
—
71
(916)
—
(616)
(916)
(36)
3
—
316
(333)
(11)
5
—
3
(62)
17
—
512
(449)
(185)
11
—
23
(28)
(364)
36
(564)
—
—
—
—
—
—
—
(4)
1
—
—
(6)
(9)
8,150
6,693
14,843
15,041
13,213
16,444
1,563
26,157
—
16,444
19,221
18,559
—
6,693
1,563
32,850
973
963
35,235
32,735
6,693
6,693
4,921
2,722
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4)
1
—
—
(6)
(9)
6,693
6,693
4,921
2,722
620
Auditor's
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:
EUR million
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
Land and buildings
IT equipment and fixtures
Furniture and vehicles
Construction in progress and other items
Balances at 31 December 2020
The carrying amount at 31 December 2020 in the foregoing
table includes the following approximate amounts EUR 6,299
million (EUR 7,737 million at 31 December 2019 and EUR
5,390 million at 31 December 2018) relating to property,
plant and equipment owned by group entities and branches
located abroad.
c) Tangible assets - Leased out under an operating lease
Grupo Santander 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.
Grupo Santander periodically assesses its investment in
operating leases for impairment in certain circumstances,
such as a 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
Tangible assets for own use
Accumulated
Cost depreciation
Impairment
losses
Of which:
Carrying Right-of-use for
operating lease
amount
6,127
5,605
6,686
317
(2,056)
(4,455)
(3,946)
(67)
(61)
—
—
—
18,735
(10,524)
(61)
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
13,081
5,562
6,085
168
(3,215)
(4,416)
(3,854)
(58)
(133)
—
—
(7)
9,733
1,146
2,231
103
2,716
1
5
—
24,896
(11,543)
(140)
13,213
2,722
amount by which the carrying amount of the assets exceeds
the fair value as estimated by discounted cash flows. In 2020,
2019 and 2018 the Group did not recognise any material
impairment in this respect.
Of the EUR 18,559 million that the Group had assigned to
operating leases at 31 December 2020 (EUR 19,221 million
and EUR 16,444 million at 31 December 2019 and 2018,
respectively), EUR 13,455 million (EUR 14,799 million at 31
December 2019) relate to vehicles of Santander Consumer
USA Holdings Inc.. The variable lease payments of various
items of this entity are not representative.
In addition, the maturity analysis of the payments for assets
leased out under operating leases from Santander Consumer
USA Holdings Inc. is as follows:
EUR million
Maturity Analysis
2021
2022
2023
2024
2020
3,841
4,288
4,344
1,593
621
Annual report 2020
Contents
d) Tangible assets - Investment property
The changes in goodwill were as follows:
The fair value of investment property at 31 December 2020
amounted to EUR 1,055 million (EUR 1,076 million at 31
December 2019 and EUR 1,825 million at 31 December
2018). A comparison of the fair value of investment property
at 31 December 2020, with the net book value shows gross
unrealised gains of EUR 92 million (EUR 103 million in 2019
and EUR 262 in 2018), attributed completely to the group.
EUR million
Balance at beginning of year
24,246
25,466
25,769
2020
2019
2018
Additions (note 3)
Of which:
SAM Investment Holdings Limited
The rental income earned from investment property and the
direct costs related both to investment properties that
generated rental income in 2020, 2019 and 2018 and to
investment properties that did not generate rental income in
those years are not material in the context of the consolidated
financial statements.
Santander España
Impairment losses
Of which:
Santander UK
17. Intangible assets – Goodwill
The detail of goodwill, based on the cash-generating units
giving rise thereto, is as follows:
EUR million
2020
2019
2018
Banco Santander (Brasil)
3,109
4,388
4,459
Santander Bank Polska
Santander Bank, National
Association
Santander Consumer USA
Santander Consumer Nordics
Disposals or changes in scope of
consolidation
Exchange differences and other
items
429
41
383
271
—
—
4
(10,100)
(1,491)
(6,101)
(1,491)
(1,192)
(1,177)
(1,153)
(277)
—
—
—
—
—
—
—
375
—
—
—
—
—
—
(130)
(2,104)
230
(556)
SAM Investment Holdings Limited
1,444
1,173
1,173
Balance at end of year
12,471 24,246
25,466
Santander Consumer Germany
1,314
1,236
1,217
Santander Bank Polska
1,104
2,427
2,402
Santander Portugal
Santander España
1,040
1,040
1,040
1,027
1,027
1,023
Santander Consumer USA
904
2,143
2,102
Santander Bank, National Association
594
1,828
1,793
Santander UK
Banco Santander - Chile
Grupo Financiero Santander (México)
Santander Consumer Nordics
Other companies
Total Goodwill
592
7,147
8,307
571
399
216
157
589
460
496
292
627
434
502
387
12,471 24,246 25,466
622
Grupo Santander has goodwill generated by cash-generating
units located in non-euro currency countries (mainly Brazil,
Poland, the United States, the United Kingdom, Chile, Mexico,
Norway and Sweden) 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 2020 there was a decrease of EUR
2,104 million (an increase of EUR 230 million in 2019 and a
decrease of EUR 556 million in 2018), due to exchange
differences and other items which, pursuant to current
standards, were recognised with a change 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), Grupo Santander performs an analysis of the
potential impairment of its recorded goodwill with respect to
its recoverable amount.The first step that must be taken in
order to perform this analysis is the identification of the cash-
generating units, which are the Group's smallest identifiable
groups of assets that generate cash inflows that are largely
independent of the cash flows of 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.
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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 budgets.
During the second quarter 2020, considering the worsening of
the macroeconomic environment caused by covid-19, an
impairment test was conducted for certain CGU. This test took
into account the negative evolution forecast by various
national and international organisations of magnitudes such
as GDP (which could take between two and three years to
recover in most countries), the unemployment rate, the
growth of credit portfolios, etc. As a result, the Group
recognised goodwill impairment of EUR 10,100 million. The
impairment was the result of a combination of factors, mainly
due to the new macroeconomic outlook mentioned above,
which caused the Group to project lower earnings in some
units, in addition to reducing the assumptions on perpetual
growth rates and increasing the discount rates used to
estimate the value in use of these CGU.
These goodwill impairment losses were recognized within
'Impairment or reversal of impairment on non-financial
assets, net - Intangible assets caption', of which EUR 6,101
million correspond to Santander UK (EUR 1,491 million in
2019), EUR 1,192 million to Santander Bank Polska, EUR
1,177 million to Santander Bank, National Association, EUR
1,153 million to Santander Consumer USA, and EUR 277
million to Santander Consumer Nordics. The recoverable
amount of the above cash-generating units is sensitive to
changes in cash flow projections, discount rates and nominal
perpetual growth rates; therefore, changes in these
assumptions could result in additional impairment losses. It
should be noted that goodwill is deducted from the CET1 for
regulatory purposes, therefore an impairment of this
intangible asset has no impact on the Group's capital ratios.
Grupo Santander'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 valuations
performed by internal and external experts.
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.
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
periods (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 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 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.
623
Annual report 2020
Contents
Following is a detail of the main assumptions taken into
account in determining the recoverable amount, at 2020
year-end, of the most significant cash-generating units which
were valued using the discounted cash flow method:
Santander UK
Santander Bank Polska
Santander Consumer USA
Santander Bank, National Association**
Santander Consumer Germany
SAM Investment Holdings Limited
Santander Portugal
Santander Consumer Nordics
2020
Discount rate*
Nominal
perpetual
growth rate
9.5%
10.0%
10.7%
11.6%
9.0%
10.1%
9.8%
10.1%
2.3%
3.5%
1.5%
2.5%
1.8%
2.5%
1.8%
2.0%
Projected period
5 years
5 years
3 years
5 years
5 years
5 years
5 years
5 years
Post-tax discount rate.
*
** Weighted information of the main assumptions of the segments to which goodwill has been allocated.
The assumptions taken into account to determine the
recoverable amount in the second quarter of 2020 did not
vary significantly from the measurement made at the end of
2020 and no additional impairment was recognized at 31
December 2020.
The discount and nominal perpetual growth rates taken into
account in 2019 and 2018 are presented below for
comparison purposes:
Santander UK
Santander Bank Polska**
Santander Consumer USA
Santander Bank, National Association***
Santander Consumer Germany
SAM Investment Holdings Limited
Santander Portugal
Santander Consumer Nordics
Discount rate*
2018
8.4%
n.a.
11.1%
10.6%
8.5%
9.6%
9.6%
9.2%
2019
8.5%
9.2%
9.5%
9.6%
8.2%
10.0%
8.9%
8.6%
Nominal
perpetual
growth rate
2018
2.5%
n.a.
1.5%
3.8%
2.5%
2.5%
2.0%
2.5%
2019
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.
*** Weighted information of the main assumptions of the segments to which goodwill has been allocated.
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 the
cash-generating units not reflecting an impairment charge in
2020 still exceeds their recoverable amount.
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 quoted market prices of
their shares at year-end. This value exceeded the amount to
be recovered. A significant reduction in the quoted market
prices of these cash generating unit could result in an
indication of impairment which in turn may lead to a goodwill
impairment charge in the future.
624
Auditor's
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
2020, 2019, and 2018 is as follows:
EUR million
With indefinite useful life:
Brand names
With finite useful life:
IT developments
Other
Accumulated amortisation
Development
Other
Impairment losses
Of which addition
Liberation
EUR million
With indefinite useful life:
Brand names
With finite useful life:
IT developments
Other
Accumulated amortisation
Development
Other
Impairment losses
Of which addition
liberation
31
Estimated December
2019
useful life
Net
additions
and
Application of
Change in Amortization amortization
scope of
disposals consolidation
and
impairment
Exchange
31
and differences December
2020
and other
impairment
3 -7 years
42
—
7,945
1,276
(5,686)
(5,139)
(547)
(136)
—
—
1,123
328
35
—
35
—
—
—
3,441
1,486
—
(34)
1
49
49
—
—
—
—
16
(896)
(792)
(104)
(142)
(142)
—
(1,038)
—
(5)
37
(224)
(17)
105
88
17
136
—
—
—
(910)
(149)
584
487
97
12
—
—
(468)
7,900
1,439
(5,809)
(5,307)
(502)
(130)
—
—
3,437
31
Estimated December
2018
useful life
Application of
Change in Amortization amortization
Net
additions
and
scope of
disposals consolidation
and
impairment
Exchange
31
and differences December
2019
and other
impairment
3-7 years
36
2
7,134
1,510
(5,432)
(4,743)
(689)
(154)
—
—
1,374
1
—
—
—
—
—
—
3,094
1,377
2
(19)
(24)
8
4
4
—
—
—
(33)
(966)
(874)
(92)
(73)
(75)
2
(1,039)
—
(639)
(248)
806
570
236
81
—
—
—
2
95
37
(102)
(96)
(6)
10
—
—
42
42
7,945
1,276
(5,686)
(5,139)
(547)
(136)
—
—
3,441
625
Annual report 2020
Contents
EUR million
31
Estimated December
2017
useful life
Net
additions
and
Application of
Change in Amortization amortization
scope of
disposals consolidation
and
impairment
Exchange
31
and differences December
2018
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
35
—
6,945
1,560
(5,386)
(4,721)
(665)
(240)
—
—
1,468
1
—
—
—
—
—
—
2,914
1,469
—
1
12
(1)
(1)
—
—
—
—
12
—
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
(1,253)
(1,153)
(100)
(117)
(118)
1
(1,370)
In 2020, 2019 and 2018, impairment losses of EUR 142
million, EUR 73 million and EUR 117 million, respectively,
were recognised under Impairment or reversal of impairment
on non-financial assets, net – intangible assets. This
impairment losses are 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:
EUR million
Transactions in transit
2020
2019
2018
88
157
143
Net pension plan assets (Note 25)
635
903 1,015
Prepayments and accrued income
2,806 3,129 3,089
Other (Note 2.n)
7,362 5,752 4,744
10,891 9,941 8,991
626
Auditor's
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:
EUR million
Classification
2020
2019
2018
2020
2019
2018
Financial liabilities held for trading
—
—
—
Financial liabilities designated at
fair value through profit or loss
34,343
34,917
39,597
EUR million
CENTRAL BANKS
Classification
Financial liabilities held for trading
Financial liabilities designated at fair
value through profit or loss
Financial liabilities at amortized cost
Type
Deposits on demand
Time deposits
—
—
—
2,490
12,854
14,816
112,804
62,468
72,523
115,294
75,322
87,339
10
5
5
108,090
67,424
82,797
Financial liabilities
at amortized cost
Geographical area
Spain
European Union (excluding Spain)*
United States and Puerto Rico
Other OECD countries*
South America
Rest of the world
Reverse repurchase agreements
7,194
7,893
4,537
115,294
75,322
87,339
Type
6,765
9,340
10,891
Time deposits-
Demand deposits-
Current accounts
Savings accounts
Other demand deposits
Fixed-term deposits and other
term deposits
Home-purchase savings
accounts
Discount deposits
Hybrid financial liabilities
Subordinated liabilities
Repurchase agreements
CREDIT INSTITUTIONS
Classification
Financial liabilities held for trading
—
—
—
Financial liabilities designated at fair
value through profit or loss
Financial liabilities at amortized cost
Type
Deposits on demand
Time deposits
62,620
90,501
89,679
69,385
99,841 100,570
5,727
9,136
6,154
43,308
61,406
53,422
Reverse repurchase agreements
20,179
29,115
40,873
Subordinated deposits
171
184
121
Currency:
Euro
Pound sterling
US dollar
Brazilian real
Other currencies
TOTAL
69,385
99,841 100,570
104,499
79,008
97,323
23,339
18,129
19,301
26,581
53,403
45,848
12,356
13,022
18,657
17,904
11,601
6,780
184,679 175,163 187,909
At 31 December 2020, the European Central Bank's targeted
longer-term refinancing operations (TLTRO (Targeted Long-
Term Refinancing Operation)) amounted to EUR 77,732
million, of which EUR 77,460 million correspond to TLRTO III
(EUR 46,201 million at 31 December 2019 and EUR 55,382
million at 31 December 2018). Total net reliance on European
Central Bank amounts to EUR 13,494 million.
In December 2020, the income recognized in the consolidated
consolidated income statement corresponding to TLTRO III
amounts to EUR 391 million. Note 50 contains a detail of the
residual maturity periods of financial liabilities at amortised
cost and of the related average interest rates.
* The amounts referring to the year 2020 for the United Kingdom have been
considered in the line Other OECD countries, instead of in the line European
Union (excluding Spain) due to the leaving of the United Kingdom from the
European Union (see note 1.h).
627
814,967
789,448 740,899
849,310 824,365 780,496
294,516
271,103 267,210
106,013
334,542 309,615
59,057
60,011
53,843
306,243
71,235
67,462
83,481
87,474
82,343
—
—
23
849,310 824,365 780,496
642,897
588,533 548,711
418,752
373,146 346,345
216,500
208,701 196,493
7,645
6,686
5,873
171,939
196,921 199,025
170,127
194,163 195,540
43
3
44
3
40
3
1,743
2,711
3,419
23
—
23
34,474
38,911
32,760
849,310 824,365 780,496
Annual report 2020
Contents
22. Marketable debt securities
a) Breakdown
The detail, by classification and type, of Marketable debt
securities is as follows:
EUR million
Classification
Financial liabilities
held for trading
Financial liabilities designated
at fair value through profit or loss
Financial liabilities
at amortized cost
Type
Bonds and debentures
outstanding
Subordinated
Notes and other securities
2020
2019
2018
—
—
—
4,440
3,758
2,305
230,829
258,219
244,314
235,269
261,977
246,619
191,577
208,455
195,498
21,686
20,878
23,676
22,006
32,644
27,445
235,269
261,977
246,619
The distribution of the book value of debt securities issued by
contractual maturity is shown below:
EUR million
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 More than 5
years
years
Total
—
—
—
—
—
—
2,259
9,068
—
1,985
6,668
—
741
3,505
17,440
21,686
14,476
34,814
29,037
22,959
105,530
9,025
25,116
15,508
20,662
86,047
3,942
9,975
8,089
—
—
—
22,006
15,269
18,628
31,590
60,671
48,050
61,061
235,269
The distribution by contractual maturity of the notional
amounts of these debt securities issued is as follows:
EUR million
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 More than 5
years
years
Total
—
—
—
—
—
—
2,168
8,982
—
1,905
6,605
—
732
3,463
17,233
21,428
13,895
33,415
27,871
22,039
101,293
8,939
24,878
15,361
20,466
85,231
4,158
10,521
8,531
—
—
—
23,210
15,308
19,031
31,365
59,025
46,695
59,738
231,162
628
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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
EUR million
2019
89,008
64,952
20,178
15,292
6,848
12,177
2020
89,031
61,174
16,569
8,398
5,624
10,781
2018
85,479
62,021
16,616
15,778
6,460
9,144
2020
Outstanding issue amount
in foreign currency (Million)
Annual
interest rate (%)
89,031
75,064
14,880
53,522
4,903,110
1.08 %
2.92 %
2.16 %
2.99 %
4.67 %
Balance at end of year
191,577
208,455
195,498
629
Annual report 2020
Contents
The changes in 'Bonds and debentures outstanding' were as
follows:
EUR million
Balance at beginning of year
Net inclusion of entities in the Group
Issues
Of which:
Santander Consumer USA Holdings Inc.
Banco Santander (Brasil) S.A.
Banco Santander, S.A.
Santander UK Group Holdings plc group
Santander Consumer Finance, S.A.
SC Germany S.A., Compartment Consumer 2020-1
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México
Santander International Products, Plc.
Santander Holdings USA, Inc.
Santander Consumer Bank AS
Banco Santander - Chile
SCF Rahoituspalvelut IX DAC
PSA Financial Services Spain, E.F.C., S.A.
Santander Consumer Bank AG
PSA Banque France
PSA Bank Deutschland GmbH
SCF Rahoituspalvelut VIII DAC
Redemptions and repurchases
Of which:
Banco Santander (Brasil) S.A.
Santander UK Group Holdings plc group
Santander Consumer USA Holdings Inc.
Banco Santander, S.A.
Santander Consumer Finance, S.A.
Banco Santander - Chile
Santander Holdings USA, Inc.
Santander Consumer Bank AS
Banco Santander Totta, S.A.
PSA Banque France
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México
Santander International Products, Plc.
PSA Bank Deutschland GmbH
Banca PSA Italia S.p.A.
Exchange differences and other movements
Balance at year-end
2020
208,455
2019
195,498
2018
176,719
785
54,905
—
64,184
—
68,306
12,246
11,036
10,220
6,320
2,394
1,800
1,770
1,588
1,269
773
766
650
605
500
385
—
15,631
13,227
12,066
4,547
5,150
—
577
848
2,778
1,572
1,644
—
—
750
1,132
1,104
15,627
16,422
7,683
14,984
3,605
—
560
249
1,210
1,342
1,483
—
—
—
716
600
—
(62,699)
799
(52,462)
—
(48,319)
(14,211)
(12,817)
(14,802)
(14,102)
(9,115)
(6,800)
(13,959)
(14,517)
(11,939)
(5,991)
(4,371)
(1,974)
(1,201)
(936)
(784)
(684)
(415)
(324)
—
—
(3,303)
(2,550)
(848)
(1,990)
(1,551)
(739)
—
(159)
(722)
(902)
—
(4,752)
(2,366)
(204)
(903)
(1,268)
(41)
—
(579)
(491)
(488)
(600)
(9,869)
1,235
(1,208)
191,577
208,455
195,498
630
Auditor's
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 and Banco Santander
- Chile.
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.
d) Guarantees
Set forth below is information on the liabilities secured by
assets:
EUR million
2020
2019
2018
Asset-backed securities
35,753
38,616
38,140
Of which, mortgage-backed
securities
2,274
3,819
5,197
Other mortgage securities
49,425
50,269
46,026
Of which: mortgage-backed
bonds
24,736
24,736
22,023
Territorial covered bond
869
1,270
1,270
86,047
90,155
85,436
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: includes asset-backed
securities, notes issued by securitization funds
collateralized mainly by mortgage loans that do not meet
the above requirements and other loans (mainly personal
loans with an average maturity of five years and loans to
SMEs with average maturities of seven years) and private
issues of Santander Consumer Usa Holdings Inc
collateralized by vehicles assigned under operating leases.
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
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 Grupo
Santander's 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.
Grupo Santander’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.
Grupo Santander entities have specialised document
comparison procedures and tools for verifying customer
information and solvency (see note 53).
Grupo Santander 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
631
Annual report 2020
Contents
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 'person especially
related' to the issuing entity in accordance with Royal
Legislative Decree 1/2020, of 5 May, approving the revised
text of the Bankruptcy Law and Law 22/2003, of 9 July, on
Bankruptcy (the Insolvency Law'), will enjoy the special
privilege established in Article 270.1.1 of the aforementioned
Insolvency Law. Without prejudice to the foregoing, in
accordance with Article 242.10 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 (Article 14 of Law
2/1981 of 25 March 1981 regulating the mortgage market).
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 it would be necessary to proceed in
accordance with the terms of Article 212.1 and, in accordance
with the requirements of Article 413 of the Insolvency Law,
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 Grupo
Santander totalled EUR 24,736 million at 31 December 2020
(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 2020 and 2019 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.
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).
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:
EUR million
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
2020
2019
2018
76,554
84,720
85,610
57,382
59,517
60,195
17,610
14,569
15,807
Mortgage-backed bonds
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
632
Auditor's
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,
deposits and markatable debt securities, 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 50 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.
2020
Outstanding issue
amount in foreign
currency (million)
13,570
7,351
507
—
Annual interest
rate (%)
3.86 %
5.16 %
8.89 %
—
EUR million
2019
12,542
6,506
655
—
2020
13,570
5,991
565
—
2018
14,001
7,813
628
—
1,754
1,359
1,378
21,880
21,062
23,820
196
7,425
321
7,709
345
9,717
633
Annual report 2020
Contents
b) Changes
The changes in Subordinated markatable debt securities in
the last three years were as follows:
EUR million
Balance at beginning of year
Net inclusion of entities in the Group
(Note 3)
Placements
Of which:
Banco Santander, S.A.
Banco Santander - Chile
Banco Santander México, S.A.,
Institución de Banca Múltiple, Grupo
Financiero Santander México
Santander Bank Polska S.A.
Net redemptions and repurchases*
Of which:
2020
2019
2018
20,878
23,676 21,382
—
—
—
4,075
1,056
3,266
3,722
1,056
2,750
353
—
—
—
—
—
—
281
235
(2,838)
(4,009)
(1,259)
Banco Santander, S.A.
Santander UK plc
Santander UK Group Holdings plc
Santander Bank, National
Association
Banco Santander (Brasil) S.A.
(1,671)
(3,782)
(740)
(316)
(16)
—
(401)
(313)
—
(111)
(19)
(163)
—
(124)
(61)
Banco Santander México, S.A.,
Institución de Banca Múltiple, Grupo
Financiero Santander México
Santander Holdings USA, Inc.
Exchange differences and other
movements
Balance at end of year
—
—
(69)
—
(125)
(195)
(429)
155
287
21,686 20,878 23,676
* The balance relating to issuances, redemptions and repurchases (EUR 1,237
million), together with the interest paid in remuneration of these issuances
including PPCC (EUR 942 million), is included in the cash flow from financing
activities.
c) Other disclosures
This caption includes contingent convertible or redeemable
preferred participations, as well as other subordinated
financial instruments issued by consolidated companies,
which do not qualify as equity (preferred shares).
Preferred shares do not have voting rights and are non-
cumulative. They have been subscribed by third parties
outside the Group, and except for the issues of Santander UK
plc mentioned below, the rest are redeemable by decision of
the issuer, according to the terms of each issue.
Banco Santander's contingently convertible preferred
participations are subordinated debentures and rank after
common creditors and any other subordinated credit that by
law and/or by their terms, to the extent permitted by Spanish
law, ranks higher than the contingently convertible preferred
participations. Their remuneration is conditioned to the
obtainment of sufficient distributable profits, and to the
limitations imposed by the regulations on shareholders'
equity, and they have no voting rights. The other issues of
Banco Santander S.A. mentioned in this caption are also
subordinated debentures and, for credit ranking purposes,
they rank behind all the common creditors of the issuing
entities and ahead of any other subordinated credit that ranks
634
pari passu with the Bank's contingently convertible preferred
participations.
The main issues of subordinated debt securities issued,
broken down by company, are detailed below:
Issues by Banco Santander, S.A.
In December 2020, Banco Santander, S.A. issued
subordinated debentures with a ten-year term of USD 1,500
million. The issue bears interest at an annual rate of 2.749%,
payable semiannually.
In October 2020, it carried out a ten-year subordinated
debenture issue for an amount of EUR 1,000 million. The
issue bears interest at an annual rate of 1.625%, payable
annually.
In March 2020, it proceeded to redeem early and voluntarily
the entire outstanding issue of Tier 1 Contingently Convertible
Preferred Participations Series I/2014, for a total nominal
amount of EUR 1,500 million.
In January 2020, it carried out a placement of contingently
convertible preferred participations into newly issued
ordinary shares of the Bank (the 'PPCCs'), excluding the pre-
emptive subscription rights of its shareholders and for a
nominal amount of EUR 1.5 billion (the 'Issue' and the
'PPCCs').
The Issue was made at par and the remuneration of the
PPCCs, the payment of which is subject to certain conditions
and is also discretionary, was set at 4.375% per annum for
the first six years, revised every five years thereafter by
applying a margin of 453.4 basis points over the 5-year Mid-
Swap Rate (5-year Mid-Swap Rate).
On March 5, May 8 and September 2, 2014, three issues of
contingently convertible preferred participations into newly
issued ordinary shares of the Bank (the PPCC) were made, for
a nominal amount of EUR 1,500 million, USD 1,500 million
and EUR 1,500 million respectively, the payment of which is
subject to certain conditions and is also discretionary. The
remuneration of the issues was set at 6.25% p.a. for the first
five years (revised thereafter by applying a margin of 541
basis points over the 5-year Mid-Swap Rate) for the March
issue, at 6.375% p.a. for the first five years revised thereafter
by applying a margin of 478.8 basis points over the 5 year
Mid-Swap Rate)- for the May issue and at 6.25% p.a. for the
first seven years (reviewed every five years thereafter by
applying a margin of 564 basis points over the 5 year Mid-
Swap Rate) for the September issue.
In April 2019, the voluntary early redemption of the preferred
shares relating to the second issue made on 8 May 2014 was
communicated for an amount of USD 1,500 million at the
redemption date.
At 8 February 2019, Banco Santander, S.A, carried out an issue
of PPCC for a nominal amount of USD 1,200 million (EUR
1,056 million). The remuneration of the issues 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 (revised thereafter by applying a
margin of 489.9 points over the mid-swap rate).
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
At 19 March 2018, a "PPCC" issue was carried out, for a
nominal amount of EUR 1,500 million. The remuneration of
the issue, the payment of which is subject to certain
conditions and is also discretionary, was set at 4.75% per
annum, payable quarterly, for the first seven years (revised
thereafter by applying a margin of 410 basis points over the
Mid-swap rate).
option on the fifth anniversary of the issue date in the amount
of PLN 1 billion. The issue bears floating interest at Wibor
(6M) + .0160 basis points payable semi-annually.
The accrued interests from the subordinated liabilities during
2020 amounted to EUR 571 million (EUR 645 million and EUR
770 million during 2019 and 2018, respectively).
At 8 February 2018, a ten-year subordinated debenture issue
of EUR 1,250 million was carried out. The issue bears interest
at an annual rate of 2.125% payable annually.
Interests from the PPCC during 2020 amounted to EUR 552
million (EUR 595 million and EUR 560 million in 2019 and
2018, respectively).
At 25 April and 29 September 2017, Banco Santander, S.A.
carried out issues of PPCC, for a nominal amount of EUR 750
million, and EUR 1,000 million respectively. The remuneration
of the PPCC, the payment of which is subject to certain
conditions and is also discretionary, was set at 6.75% per
annum for the first five years (revised thereafter by applying a
margin of 680.3 basis points over the 5-year Mid-Swap Rate)
for the issue disbursed in April, at 5.25% per annum for the
first six years (revised thereafter by applying a margin of
499.9 basis points over the 5 year Mid-Swap Rate) for the
issue disbursed in September.
Issues by Banco Santander - Chile
In June 2020, Banco Santander Chile issued subordinated
debentures for a term of fifteen years, in the amount of UF
5 million (equivalent to USD 185 million). The issue bears
annual interest at 3.5%.
In April 2020, Banco Santander Chile issued two subordinated
debentures, the first for a term of fourteen years, for an
amount of UF 3 million (equivalent to USD 100 million),
bearing annual interest at 3%, and the second for a term of
nineteen years, for an amount of UF 3 million (equivalent to
USD 100 million), bearing annual interest at 3.15%.
Issues Banco Santander (Brasil) S.A.
On 29 January 2014 Banco Santander (Brasil) S.A. issued Tier
1 perpetual subordinated notes for a nominal amount of USD
1,248 million and the Group acquired 89.6% of the issue. The
notes are perpetual and would be converted into common
shares of Banco Santander (Brasil) S.A. if the common equity
Tier 1 ratio, calculated as established by the Central Bank of
Brazil, were lower than 5.125%. This issue was fully
redeemed in fiscal year 2019.
At 1 October 2018, a ten-year subordinated debenture issue
was made by by Banco Santander México, S.A. Institución de
Banca Múltiple, Grupo Financiero Santander México for a
nominal amount of USD 1,300 millions and at an interest rate
of 5.95%, with the group having acquired 75% of the issue.
Additionally, at 30 December 2016, a nominal amount of USD
500 million was made, with the Group having acquired 88.2%
of the issue. The perpetual debentures are automatically
converted into shares when the Regulatory Capital Ratio
(CET1) is equal to or less than 5.125% at the conversion price.
Issues by Santander Bank Polska S.A.
At 20 April 2018, Santander Bank Polska S.A. carried out a
ten-year subordinated debenture issue with a redemption
24. Other financial liabilities
The detail of Other financial liabilities in the consolidated
balance sheets is as follows:
EUR million
Trade payables
Clearing houses
Tax collection accounts:
Public Institutions
2020
2019
2018
1,177
1,279
1,323
599
165
434
4,122
4,122
3,968
Factoring accounts payable
222
409
263
Unsettled financial transactions
5,080
3,693
3,373
Lease liabilities (note 2.l)
3,049
5,108
190
Other financial liabilities
12,719
15,459 15,113
26,968 30,235 24,664
Note 50 contains a detail of the residual maturity periods of
other financial liabilities at each year-end.
Lease liabilities
The cash outflow of leases in 2020 was EUR 789 million (EUR
946 million in 2019).
The analysis of the maturities of lease liabilities as of 31
December 2020 is shown below:
EUR million
Maturity Analysis - Discounted payments
Between 3 and 5 years
Later than 5 years
Total discounted payments at the end of
the year
2020
2019
594
981
637
837
766
1,254
875
2,213
3,049
5,108
During 2020 and 2019, there were no significant variable
lease payments not included in the valuation of lease
liabilities.
635
Issues by Banco Santander México, S.A., Institución de
Banca Múltiple, Grupo Financiero Santander México
Within 1 year
Between 1 and 3 years
Annual report 2020
Contents
25. Provisions
a) Breakdown
The detail of Provisions in the consolidated balance sheets is
as follows:
EUR million
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
2020
2019
2018
3,976
6,358
5,558
1,751
1,382
1,239
2,200
3,057
3,174
700
2,225
739
2,451
779
2,475
10,852
13,987
13,225
The changes in 'Provisions' in the last three years were as
follows:
EUR million
Post employment
plans
Long term
employee benefits
Contingent liabilities
and commitments Other provisions
2020
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
(5)
(217)
84
69
(370)
6
(376)
2
547
(303)
(1,551)
(1)
(333)
—
(521)
3,976
1,382
—
782
11
7
764
787
(23)
—
—
(408)
—
—
—
—
(5)
1,751
739
(1)
50
—
—
50
490
(440)
—
—
—
—
—
—
—
(88)
700
5,508
(2)
1,934
—
—
1,934
2,258
(324)
—
—
—
—
—
—
(2,485)
(530)
4,425
Total
13,987
(8)
2,549
95
76
2,378
3,541
(1,163)
2
547
(711)
(1,551)
(1)
(333)
(2,485)
(1,144)
10,852
636
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
2019
2018
Post
employment
plans
Long term
employee
benefits
Contingent
liabilities and
commitments
Other
provisions
Total
Post
employment
plans
Long term
employee
benefits
Contingent
liabilities and
commitments
Other
provisions
Total
Balances at beginning of year
5,558
1,239
779
5,649 13,225
6,345
1,686
814
5,841 14,686
Incorporation of Group companies,
net
Additions charged to income
Interest expense (note 39)
Staff costs (note 47)
Provisions or reversion of provisions
Addition
Release
—
173
128
65
(20)
10
(30)
Other additions arising from
insurance contracts linked to pensions
Changes in value recognised in equity
4
1,520
(1)
729
17
7
705
713
(8)
—
—
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
(331)
(612)
—
(1)
(455)
—
(110)
—
—
—
—
27
—
(31)
—
—
(31)
422
—
(1)
2,836
3,707
—
—
145
72
2,836
3,490
4,276
5,421
(453)
(1,440)
(1,931)
—
—
—
—
—
—
—
—
—
—
—
—
—
4
1,520
—
(1)
(455)
(2,907)
(2,907)
—
38
165
78
(205)
7
(212)
(7)
(482)
—
251
21
6
224
227
(3)
—
—
—
(2)
(368)
—
—
—
—
—
(943)
(332)
(625)
6,358
1,382
739
5,508 13,987
5,558
1,239
(9)
(70)
(162)
366
(73)
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:
EUR million
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
2020
2019
2018
1,881
3,951
3,930
1,695
1,676
1,321
1,303
1,189
1,172
449
329
130
1,646
2,078
1,498
56
61
50
5,727
5,719
7,740
7,731
6,797
6,791
—
(49)
—
—
(49)
455
(30)
(30)
2,253
2,493
—
—
186
84
2,253
2,223
4,612
5,301
(504)
(2,359) (3,078)
—
—
—
—
—
—
—
—
—
—
—
—
(7)
(482)
(957)
—
(2)
(368)
(3)
(2,548) (2,551)
17
779
133
443
5,649 13,225
637
Annual report 2020
Contents
i. Spanish entities - Post-employment plans and other
similar obligations
At 31 December 2020, 2019 and 2018, 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 2020, 443 employees benefited from the pre-
retirement and incentivised retirement plan, being the
provision set up to cover these commitments of EUR 84
million. In 2019 and 2018 the provisions accounted for
benefit plans and contribution commitments were EUR 688
million and 209 million respectively. In December 2020,
Banco Santander reached an agreement with the workers'
representatives to implement an early retirement and
voluntary redundancy plan to which 3,572 employees are
expected to apply during 2021; additionally, a total of 64
people are expected to apply for early retirement and
voluntary redundancy offers in other societies in Spain. The
provision set up to cover these commitments amounts to EUR
688 million.
In December 2019 Banco Santander reached an agreement
with the workers' representatives to offer during 2020 to part
of its passive personnel, the possibility of receiving the
pensionable rights derived from the collective bargaining
agreement in the form of a single consideration or divided
into a maximum of 5 equal annuities. The proposal was also
extended to personnel with pensionable rights recognized
under individual contracts or agreements. The number of
beneficiaries who exercised the voluntary option of accepting
the substitution of the life annuity for the payment of a lump
sum in the form of a capital sum or in instalments of a
maximum of 5 annuities amounted to 15,613 people. The
effect of the reduction of the aforementioned commitments is
shown in the tables below under the headings 'Benefits paid
in settlement' in the amount of EUR 1,551 million and 'Effect
of reduction/settlement' in the amount of EUR 362 million.
The expenses incurred by the Spanish companies in 2020,
2019 and 2018 in respect of contributions to defined
contribution plans amounted to EUR 89 million, EUR 89
million and EUR 87 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:
Annual discount rate
Mortality tables
Cumulative annual CPI
growth
Annual salary increase rate
Annual social security
pension increase rate
Annual benefit increase rate
Post-employment plans
Other similar obligations
2020
0.60%
2019
0.80%
2018
1.55%
PE2020 M/F
Col. Order 1 PERM/F-2000
PERM/F-2000
2020
0.60%
PE2020 M/F Col.
Order 1
2019
0.80%
2018
1.55%
PERM/F-2000
PERM/F-2000
1.00%
1,25%*
1.00%
N/A
1.00%
1.25%*
1.00%
N/A
1.00%
2.00%*
1.00%
N/A
1.00%
N/A
N/A
0%
1.00%
N/A
1.00%
N/A
N/A
N/A
0% From 0% to 1.50%
* Corresponds to the group’s defined-benefit obligations.
638
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The discount rate used for the flows was determined by
reference to high-quality corporate bonds (at least AA in
euros) matching the durations of the commitments. From the
bond portfolio considered, callable, putable and sinkable
bonds, which could distort the rates, are excluded.
Any changes in the main assumptions could affect the
calculation of the obligations. At 31 December 2020, if the
discount rate used had been decreased or increased by 50
basis points (bp), there would have been an increase or
decrease in the present value of the post-employment
obligations of 5.43% (-50 bp) to -5.10% (+50
bp),respectively, and an increase or decrease in the present
value of the long-term obligations of 1.11% (-50 bp) to
-1.08% (+50 bp), respectively.
Expected rate of return on plan assets
Expected rate of return on reimbursement rights
The funding status of the defined benefit obligations in 2020
and the two preceding years is as follows:
EUR million
Present value of the obligations
To current employees
Vested obligations to retired employees
To pre-retirees employees
Long-service bonuses and other benefits
Other
Less - Fair value of plan assets
Provisions - Provisions for pensions
Of which:
Internal provisions for pensions
Insurance contracts linked to pensions (note 14)
Unrecognised net assets for pensions
The amounts recognised in the consolidated income
statements in relation to the aforementioned defined benefit
obligations are as follows:
EUR million
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*
*Including reduction/settlement effect
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
2020
2019
2018
2020
2019
2018
0.60%
0.60%
0.80%
0.80%
1.55%
1.55%
0.60%
N/A
0.80%
N/A
1.55%
N/A
Post-employment plans
2020
2019
2018
Other similar obligations
2020
2019
2018
60
59
60
3,318
5,393
5,332
—
—
41
3,419
1,542
1,877
—
—
42
5,494
1,547
3,947
—
—
35
5,427
1,500
3,927
—
—
—
—
—
—
1,688
1,317
1,187
18
1
18
—
17
—
1,707
1,335
1,204
12
14
15
1,695
1,321
1,189
1,707
3,759
3,720
1,695
1,321
1,189
174
(4)
192
(4)
210
(3)
—
—
—
—
—
—
Post-employment plans
2020
2019
2018
Other similar obligations
2020
2019
2018
10
26
(1)
—
2
—
(372)
(335)
12
53
(2)
—
3
1
(29)
38
18
73
(4)
—
3
1
(4)
87
1
9
—
(3)
—
772
(15)
764
1
15
—
7
1
687
(2)
709
1
18
—
7
5
208
—
239
639
Annual report 2020
Contents
In addition, in 2020 'Other comprehensive income – Items not
reclassified to profit or loss – Actuarial gains or (-) losses on
defined benefit pension plans' has increased by EUR 84
million with respect to defined benefit obligations (increased
of EUR 278 million and decreased of EUR 65 million in 2019
and 2018, respectively).
The changes in the present value of the accrued defined
benefit obligations were as follows:
EUR million
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
Present value of the obligations at end of year
Post-employment plans
Other similar obligations
2020
5,494
2019
5,427
2018
5,912
—
10
39
—
(372)
(359)
(1,551)
2
163
91
72
(7)
—
12
72
1
(29)
(400)
—
3
407
15
392
1
3,419
5,494
(36)
18
99
1
(4)
(423)
—
3
(145)
(21)
(124)
2
5,427
2020
1,335
—
1
9
772
(15)
(392)
—
—
(3)
(8)
5
—
2019
1,204
(1)
1
15
687
(2)
(599)
—
1
7
(9)
16
22
1,707
1,335
2018
1,660
—
1
18
208
—
(617)
—
5
6
(3)
9
(77)
1,204
The changes in the fair value of plan assets and of insurance
contracts linked to pensions were as follows:
640
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Plan Assets
EUR million
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
Fair value of plan assets at end of year
Insurance Contracts linked to pensions
EUR million
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)
Fair value of insurance contracts linked to
pensions at end of year
Post-employment plans
Other similar obligations
2020
2019
2018
2020
2019
2018
1,547
1,500
1,640
—
13
(94)
5
76
(5)
1,542
—
19
(108)
8
128
—
1,547
—
26
(115)
21
(73)
1
1,500
14
—
—
(2)
—
—
—
12
15
—
—
(2)
—
—
1
14
17
—
—
(2)
—
(1)
1
15
Post-employment plans
Other similar obligations
2020
2019
2018
2020
2019
2018
192
—
1
(21)
—
2
174
210
—
2
(24)
—
4
192
238
—
4
(27)
2
(7)
210
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
(1)
—
—
—
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 2020 to fund its
defined-benefit pension obligations.
The plan assets and the insurance contracts linked to
pensions are instrumented mainly through insurance policies.
ii. United Kingdom
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 91 million in
2020 (EUR 93 million in 2019 and EUR 93 million in 2018).
The following table shows the estimated benefits payable at
31 December 2020 for the next ten years:
EUR million
2021
2022
2023
2024
2025
2026 to 2030
1,038
771
660
548
464
1,619
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.
641
Annual report 2020
Contents
2. Actuarial assumptions used: unbiased and mutually
compatible. Specifically, the most significant actuarial
assumptions used in the calculations were as follows:
The amounts recognised in the consolidated income
statements in relation to the aforementioned defined benefit
obligations are as follows:
2020
2019
2018
EUR million
Annual discount
rate
Mortality tables
Cumulative
annual CPI growth
Annual salary
increase rate
Annual pension
increase rate
1.28 %
The S3 Middle
tables weighted
at 84% of the
CMI_2018
projection with
2.11 %
The S3 Middle
tables weighted
at 84% of the
CMI_2018
projection with
an initial addition an initial addition
of 0.15%,
smoothing
parameter 7 and parameter 7 and
improving
1.25%.
of 0.15%,
smoothing
improving
1.25%.
108/86
S2 Light
2.90 %
Current service cost
Interest cost (net)
Provisions or reversal of provisions, net
Cost of services provided
Others
2020
2019
2018
30
27
(12)
(24)
(1)
—
(1)
17
—
—
—
3
31
(6)
—
—
—
25
2.95 %
1.00 %
3.01 %
3.22 %
1.00%
1.00 %
In addition, in 2020 'Other comprehensive income – Items not
reclassified to profit or loss – Actuarial gains or (-) losses on
defined benefit pension plans' increase by EUR 568 million
with respect to defined benefit obligations (2019: increased
of EUR 601 million; 2018: decreased of EUR 481 million).
2.85 %
2.91%
2.94 %
The changes in the present value of the accrued defined
benefit obligations were as follows:
EUR million
Present value of the obligations at
beginning of year
Current service cost
Interest cost
Benefits paid
Contributions made by employees
Past service cost
2020
2019
2018
14,297 12,079 13,056
30
27
31
284
352
320
(445)
(441)
(489)
17
—
18
—
24
—
Actuarial (gains)/losses
2,060 1,594
(766)
Demographic actuarial (gains)/losses
34
48
(21)
Financial actuarial (gains)/losses
2,026 1,546
(745)
Exchange differences and other items
(771)
668
(97)
Present value of the obligations at
end of year
15,472 14,297 12,079
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 2020, 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 10.25% (-50 bp) and
-9.32% (+50 bp), 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 5.35% (+50 bp) and -6.73% (-50 bp),
respectively. These changes would be offset in part by
increases or decreases in the fair value of the assets.
The funding status of the defined benefit obligations in 2020
and the two preceding years is as follows:
EUR million
Present value of the obligations
15,472
14,297
12,079
2020
2019
2018
Less-
Fair value of plan assets
Provisions - Provisions for pensions
Of which:
15,575
(103)
14,755
(458)
12,887
(808)
Internal provisions for pensions
Net assets for pensions
449
329
130
(552)
(787)
(938)
642
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The changes in the fair value of the plan assets were as
follows:
EUR million
Fair value of plan assets at beginning of
year
14,755
12,887 13,239
Expected return on plan assets
296
376
326
2020
2019
2018
Benefits paid
Contributions
Actuarial gains/(losses)
(443)
(441)
(489)
274
1,492
244
993
209
(285)
Brazilian National Treasury Secretariat for a term coinciding
with that of the obligations. In Brazil the discount rate used
was between 6.82% and 7.14%, the CPI 3.25% and the
mortality table the AT-2000.
Any changes in the main assumptions could affect the
calculation of the obligations. At 31 December 2020, 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 5.59% and -5.10%,
respectively.These changes would be offset in part by
increases or decreases in the fair value of the assets.
Exchange differences and other items
(113)
Fair value of plan assets at end of year 15,575 14,755 12,887
(799)
696
In 2021 the Group expects to make current contributions to
fund these obligations for amounts similar to those made in
2020.
The main categories of plan assets as a percentage of total
plan assets are as follows:
Equity instruments
Debt instruments
Properties
Other
2020
2019
2018
9%
55%
10%
26%
12%
46%
11%
31%
17%
50%
10%
23%
The following table shows the estimated benefits payable at
31 December 2020 for the next ten years:
EUR million
2021
2022
2023
2024
2025
2026 to 2030
400
343
368
382
405
2,320
iii. Other foreign subsidiaries
Certain of the consolidated foreign entities have acquired
commitments to their employees similar to post-employment
benefits.
At 31 December 2020, 2019 and 2018, 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
103 million in 2020 (EUR 110 million at 31 December 2019
and EUR 107 million at 31 December 2018).
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.
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
643
Annual report 2020
The funding status of the obligations similar to post-
employment benefits and other long-term benefits in 2020
and the two preceding years is as follows:
EUR million
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:
Internal provisions for pensions
Net assets for pensions
Unrecognised net assets for pensions
2020
8,434
112
7,182
1,140
1,694
(83)
(471)
Contents
2018
9,116
167
7,743
1,206
Of which
business in Brazil
2019
5,541
10,717
112
5,340
89
617
(57)
(471)
176
8,826
1,715
2,129
1,541
(116)
(298)
(77)
(258)
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:
EUR million
EUR million
2020
2019
2018
32
101
34
101
Present value of the obligations at
beginning of year
Incorporation of Group companies, net
2020
2019
2018
10,717
9,116
9,534
(84)
35
465
—
(5)
—
32
36
34
651
646
—
(1)
(6)
(199)
(544)
(666)
(634)
—
3
5
—
5
6
—
5
3
176
1,652
390
Current service cost
Interest cost
Pre-retirement cost
Effect of curtailment/settlement
Benefits paid
Benefits paid due to settlements
Contributions made by employees
Past service cost
Actuarial (gains)/losses
Demographic actuarial (gains)/losses
23
3
(59)
Financial actuarial (gains)/losses
153
1,649
449
Exchange differences and other items
(2,334)
(78)
(693)
Present value of the obligations
at end of year
8,434 10,717
9,116
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
35
72
11
5
—
12
6
—
5
3
(6)
(5)
(1)
118
150
(203)
(66)
In addition, in 2020 'Other comprehensive income – Items not
reclassified to profit or loss – Actuarial gains or (-) losses on
defined benefit pension plans' decreased by EUR 105 million
with respect to defined benefit obligations (increased EUR
641 million and increased EUR 64 million in 2019 and 2018,
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'.
644
Auditor's
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:
EUR million
EUR million
2020
2019
2018
2020
2019
2018
2019
2018
Provisions for taxes
Fair value of plan assets at beginning
of year
Incorporation of Group companies, net
8,826
7,743 7,927
(86)
—
—
Expected return on plan assets
410
573
573
Benefits paid
Benefits paid due to settlements
Contributions
Actuarial gains/(losses)
(488)
(613)
(602)
—
63
—
214
536
1,021
—
199
308
Exchange differences and other items
(662)
Fair value of plan assets at end of year 7,182 8,826 7,743
(2,079)
(112)
In 2021 the Group expects to make contributions to fund
these obligations for amounts similar to those made in 2020.
The main categories of plan assets as a percentage of total
plan assets are as follows:
Equity instruments
Debt instruments
Properties
Other
2020
11%
84%
1%
4%
8%
84%
1%
7%
7%
83%
1%
9%
The following table shows the estimated benefits payable at
31 December 2020 for the next ten years:
EUR million
2021
2022
2023
2024
2025
2026 to 2030
482
488
494
502
509
2,639
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
1,647 1,381 1,647
Recognised by other EU companies
539 1,100 1,044
Recognised by other companies
2,239 3,027 2,958
Of which:
Brazil
1,475 2,484 2,496
4,425 5,508 5,649
Set forth below is the detail, by type of provision, of the
balance at 31 December 2020, 2019 and 2018 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:
EUR million
Provisions for employment-related
proceedings (Brazil)
Provisions for other legal proceedings
Provision for customer remediation
Regulatory framework-related
provisions
Provision for restructuring
Other
2020
2019
2018
600
759
864
437
776
859
1,163 1,522 1,451
395
725
652
69
810
67
641
105
492
951 1,018 1,226
4,425 5,508 5,649
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.
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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.
The group's 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 2020 of the breakdown
provisions are shown below:
With respect to provisions for labor and other legal
proceedings, in Brazil, provisions of EUR 176 million and EUR
178 million were recorded, making payments of EUR 318
million and EUR 138 million, respectively. The remaining
variation is mainly due to currency depreciation.
With respect to provisions for customer compensation, the
decline is mainly due to the exchange rate effect and
utilizations in the United Kingdom of EUR 147 million. In
addition, EUR 21 million was provided in Poland to cover the
CHF mortgage portfolio in the year.
On the regulatory framework side, EUR 99 million was
provisioned in the United Kingdom and a utilization of EUR 97
million was made in the year (Bank Levy and FSCS). In
addition, in Poland, EUR 124 million were provided for under
the regulatory framework and paid during the year.
In addition, restructuring provisions amounted to EUR 299
million in Spain, EUR 182 million in the United Kingdom, EUR
41 million in Poland, EUR 66 million in Portugal and EUR 51
million in the Consumer Unit. This increase is partially offset
by the use of EUR 158 million in the United Kingdom, EUR 99
million in Spain, EUR 61 million in Consumer and EUR 32
million in Portugal.
646
e) Litigation and other matters
i. Tax-related litigation
At 31 December 2020 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, actually
Santander Brasil Tecnología S.A.) and Banco Santander
(Brasil) S.A. in relation to the Provisional Tax on Financial
Movements (CPMF) of the years 2000 to 2002. The
administrative discussion ended unfavourably for both
companies, and on July 3, 2015, filed a lawsuit requesting
the cancellation of both tax assessments. The lawsuit was
judged unfavorably in first instance. Therefore, both
plaintiffs appealed to the court of second instance. On
December 2020, the appeal was decided unfavorably and is
pending a motion of clarification, which could be appealed
to higher courts. There is a provision recognized for the
estimated loss.
Auditor's
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. The administrative discussion
ended unfavourably, and the CARF decision has been
appealed at the Federal Justice. 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 (Brasil) 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.
• Brazilian tax authorities have issued infringement notices
against Getnet Adquirência e Serviços para Meios de
Pagamentos S.A and Banco Santander (Brasil) S.A. as jointly
liable in relation to corporate income tax (IRPJ and CSLL) for
2014 to 2018 questioning the tax-deductibility of the
amortization of the goodwill from the acquisition of Getnet
Tecnologia Proces S.A., considering that the company
would not have complied with the legal requirements for
such amortization. A defense against the tax assessment
notices was submitted. The notice related to the fiscal years
2014 and 2015 has already been appealed at the CARF,
meanwhile the one related to the fiscal years of 2016 to
2018 is pending on judgment. No provision was recognized
as it is considered to be a contingent liability.
The total amount for the aforementioned Brazil lawsuits that
are fully provisioned is EUR 821 million, and for lawsuits that
qualify as contingent liabilities is EUR 2,972 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
Massachusetts entered a 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, consistent with the September 5, 2019
judgment. The Congressional Joint Committee on Taxation
has completed its review of the proposed resolution of the
2006 and 2007 tax years, with no objection. The Company
and the IRS are now finalizing that resolution, which will
have no impact on net 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 of the financial goodwill 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
Advocate-General has issued his conclusions proposing the
dismissal of the appeal. 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 2020 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. At 31 December 2020, the
remaining provision for PPI redress and related costs was
GBP 76 million – EUR 85 million - (GBP 189 million – EUR
222 million at 31 December 2019). There was no additional
provision in 2020.
Cumulative complaints from the inception of the PPI
complaints process to 31 December 2020, regardless of the
likelihood of Santander UK incurring in liability, were 4.6
million. At 31 December 2020, there are an estimated 3,500
complaints still requiring assessment and, Santander UK
has also entered into a commercial negotiation with the
Official Receiver.
Although the deadline for bringing complaints has passed,
customers can still commence litigation for PPI mis-selling.
Provision has been made for the best estimate of any
obligation to pay compensation in respect of current stock
and estimated future claims. There are ongoing factual
issues to be resolved regarding such litigation which may
have legal consequences including the volume and quality
of future litigation claims. As a result, the extent of the
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Annual report 2020
Contents
potential liability and amount of any compensation to be
paid remains uncertain.
In relation to a specific PPI portfolio of complaints, there is a
legal dispute regarding allocation of liability for pre-2005
PPI policies underwritten by two affiliates (Axa France) that
Axa Group acquired from Genworth Financial International
Holdings, Inc. in September 2015. The dispute involves a
Santander Cards UK Limited (formerly known as GE Capital
Bank Limited which was acquired by Banco Santander, S.A.
from GE Capital group in 2008) which was distributor of the
refer pre-2005 PPI policies and Santander Insurance
Services UK Limited (the Santander Entities).
In July 2017, Santander UK plc notified Axa France that the
Santander Entities did not accept liability for losses on PPI
policies relating to this period, but entered in a Complaints
Handling Agreement –that included a standstill agreement-
agreeing to handle complaints on Axa affiliates behalf,
paying these latter companies redress assessed to be due to
relevant policyholders on a without prejudice basis.
After the termination of the Complaints Handling
Agreement, on 30 December 2020 Axa France has provided
written notice to the Santander Entities to terminate the
standstill agreement, and that the Santander Entities are
liable to reimburse AXA France for pre-2005 PPI mis-selling
losses currently estimated at GBP 631 million (EUR 706
million). This dispute is at an early stage and there are
ongoing factual issues to be resolved which may have legal
consequences including in relation to liability. These issues
create uncertainties which mean that it is not currently
practicable to reliably predict the resolution of the matter
including timing or the significance of the possible impact.
The provision for this dispute includes the best estimate of
Santander UK’s liability to the specific portfolio.
• 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
before the Court of Barcelona in charge of the bankruptcy
proceedings, a total of EUR 66 million from the liquidation
resulting from the early termination of financial
transactions due to Delforca's non-payment of the equity
swaps. In the same bankruptcy proceedings, Delforca and
Mobiliaria Monesa have in turn claim the Bank to repay EUR
56.8 million, which the Bank received for the enforcement
of the agreed guarantee, as a result of the aforementioned
liquidation. In 2009, Mobiliaria Monesa, S.A. (parent of
Delforca) filed a civil procedure with the Courts of
Santander against the Bank claiming damages that have not
been specified to date. The procedure is suspended.
• 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
648
to Banespa, to pay this half-yearly bonus for the period
from 1996 to the present. On 20 March 2019, the Supreme
Federal Court (STF) rejected the extraordinary appeal filed
by Banco Santander Brasil. The Bank filed a rescission action
to nullify the decisions of the main proceedings and
suspend the execution of the judgment, which was deemed
inadmissible, and its execution has been suspended until
the publication of the decision. At the moment we have the
legal opinion of the bank's external advisers, who have
classified the risk as probable. The recorded provisions are
considered sufficient to cover the risks associated with the
legal claims that are being substantiated as of today.
• “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 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. On
29 May 2020, the Supremo Tribunal Federal approved the
extension of the agreement for 5 additional years starting
from 3 June 2020. Condition for this extension was to
include in the agreement actions related to the “Collor I
Plan”. The provisions recorded for the economic plan
processes are considered to be sufficient.
• Floor clauses: 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. Grupo
Santander 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.
At 31 December 2020, after having processed most of the
customer requests, the potential residual loss associated
with ongoing court proceedings is estimated at EUR 51
million, amount which is fully covered by provisions.
• Banco Popular´s acquisition: considering the declaration
setting out the resolution of Banco Popular Español, S.A.U.,
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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..
At this stage, it is not possible to foresee the total number
of claims that could be filed by the former holders of shares
and capital instruments (arising from the acquisition by
investors of such shares and capital instruments of Banco
Popular prior to resolution, including in particular, without
limitation, the shares acquired in the context of the capital
increase with pre-emptive subscription rights carried out in
2016), and their economic implications (especially
considering that the decision to resolve in application of the
new regulation has no precedent, and that it may be
possible that future claims do not specify a specific amount,
put forward new legal interpretations or involve a large
number of parties).
In this respect, on 2 September 2020, the Provincial Court of
La Coruña has referred a preliminary ruling to the Court of
Justice of the European Union (“CJEU”) asking for the correct
interpretation of Article 60(2) of Directive 2014/59/EU of
the European Parliament and of the Councill, dated 15 May
2014, which establishes a framework for the restructuring
and resolution of credit institutions and investment firms.
This article establishes that, in cases of redemption of
capital instruments in a bank resolution, no liability shall
remain in relation to the amount of the instrument that has
been redeemed. The judgement given by the CJEU in this
case is likely to condition the outcome on the judicial
proceedings that are currently open.
The estimated cost of any compensation to shareholders
and bondholders of Banco Popular recognized in the 2017
accounts amounted to EUR 680 million, of which EUR 535
million were applied to the commercial loyalty program.
The provisions recorded are considered sufficient to cover
the risks associated with the court claims currently being
dealt with. However, if additional amounts have to be paid
for claims already raised with an undetermined economic
interest or for new claims, this could have a significant
adverse effect on the Santander Group's results and
financial situation.
Likewise, the Central Court of Instruction 4 is currently
conducting preliminary proceedings 42/2017, in which,
amongst other things, is being investigated the following:
(i) the accuracy of the prospectus for the capital increase
with pre-emptive subscription rights carried out by Banco
Popular in 2016; and (ii) the alleged manipulation of the
share price of Banco Popular until the resolution of the
bank, in June 2017. During the course of the proceedings,
on 30 April 2019, the Spanish National Court, ruled in favour
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. In this procedure, Banco
Santander has the status of possible subsidiary civil liability.
• 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.
Grupo Santander 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. For this reason, the Bank has not recognized
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 served
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. On 19 May 2020, SC entered
into settlements with all the attorneys general resolving
this investigation. The agreement had no significant impact
for the Group.
• Financial Industry Regulatory Authority (FINRA) Puerto Rico
Arbitrations: as of 31 December 2020, Santander Securities
LLC (SSLLC) had received 770 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 141
arbitration cases that remained pending as of 31 December
2020.
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 many mortgage loan agreements in
Spain and was published by the Bank of Spain. Consumers
in Spain have brought lawsuits against most of the Spanish
649
Annual report 2020
Contents
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 was
referred to the Court of Justice of the European Union
through a preliminary ruling procedure. On 3 March 2020
the CJEU rendered its decision.
The CJEU ruled that, being the IRPH a valid index, national
courts are entitled to examine its use on each particular
contract in order to verify whether the transparency
requirements have been met. When carrying out the
transparency control, national courts have to take into
account all the circumstances surrounding the conclusion of
the particular contract, including whether essential
information relating to the calculation of that rate was
easily accessible and the provision of data relating to past
fluctuations of the index. Finally, with regards to the effects
of nullity of an IRPH index clause, the CJUE entitles national
courts to substitute it with another statutory index, thus not
declaring the nullity of the whole contract.
On 12 November 2020, the Supreme Court has issued four
judgments applying the doctrine established by the CJUE
that resolve individual appeals in which the validity of the
IRPH clauses was questioned. The Court understands that in
those cases there is a lack of transparency because the
financial institutions had not been able to prove the delivery
to the client of the information on the evolution of the index
in the two years prior to the contract. However, the
Supreme Court reminds that the lack of transparency does
not automatically imply the invalidity of the clause, but
rather it is necessary to analyze whether this lack of
transparency generates abusiveness. The Supreme Court
resolves that in the case of the IRPH, that specific lack of
transparency does not mean that the clause is abusive to
the detriment of the client, so the clause is valid and fully
applicable.
Currently, the balance of the relevant mortgage indexed to
IRPH loans held by the Group, equals approximately EUR
3.1 billion.
• Banco Santander, S.A. 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. Trial will take place on 10 March 2021.
650
• 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.
On March 2021, the Supreme Court is expected to take a
position regarding the key issues in disputes concerning
loans based on foreign currency, clarifying the discrepancies
and unifying the court jurisprudence.
In December 2020, the Chairman of the Financial
Supervision Authority announced a high-level proposal for
voluntary settlements between banks and borrowers under
which active loans based on Swiss francs would be
converted into PLN loans with interest at the WIBOR rate
and an appropriate margin. No details of the proposal, or
legal or tax considerations, were provided as at the date of
publication of these financial statements. This proposal is
currently under analysis within the Bank, as well as by
representatives of the financial sector in consultation with
the competent authorities. Depending on the results of this
analysis, the Bank will decide whether to adhere to this
proposal and will proceed to include additional scenarios in
the models for calculating provisions and reflect the
estimated impact on their level. The Group considers that
the maximum risk associated to this proposal, assuming
that 100% of customers choose to convert their active loans
as proposed, would amount to approximately PLN 3.5bn
(EUR 768 million).
While these two events could lead to significant changes in
the level of expected provisions, in the opinion of the
Management Board, as at the date of these financial
statements it is not possible to reliably estimate the value
of their impact on the financial position of the Group.
As of 31 December 2020, Santander Bank Polska and
Santander Consumer Bank Poland have a portfolio of
mortgage loans denominated in, or indexed to, CHF of
approximately PLN 9,853 million (EUR 2,161 million). At the
same date, the provision registered is PLN 603 million (EUR
132 million). 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 and the
process of analysing and deciding on the proposal described
above has not yet been completed. Santander Bank Polska
and Santander Consumer Bank Poland will continue to
monitor and assess appropriateness of those provisions in
the upcoming reporting periods.
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.
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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 was 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. On 1 January 2018 those entities that were
part of the aforementioned Consolidated Tax Group were
integrated in the Consolidate Tax Group which parent
company is Banco Santander.
The other entities have the corresponding years open for
review, pursuant to their respective tax regulations.
Because of the possible different interpretations which can be
made of the tax regulations, the outcome of the tax audits of
the rest of years subject to review 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 materialize, and that in
any event the tax charge arising therefrom would not
materially affect the Group’s consolidated financial
statements.
With the information available to it, Grupo Santander
considers that, at 31 December 2020, 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.
26. Other liabilities
The detail of Other liabilities in the consolidated balance
sheets is as follows:
EUR million
2020
2019
2018
498
663
803
6,309
6,909
6,621
5,529
5,220
5,664
12,336 12,792 13,088
Transactions in transit
Accrued expenses and deferred
income
Other
27. Tax matters
a) Consolidated Tax Group
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), 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, as there are sound
arguments as proof in the appeals filed against them pending
at the National Appellate Court (tax years 2003 to 2007) and
the Economic Administrative Court (tax years 2009-2011).
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 2020 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.
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c) Reconciliation
d) Tax recognised in equity
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:
In addition to the income tax recognised in the consolidated
income statement, the Group recognised the following
amounts in consolidated equity in 2020, 2019 and 2018:
EUR million
Consolidated profit (loss) before
tax:
From continuing operations
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 reassessment of
deferred taxes
Permanent differences
and other **
Current income tax
Effective tax rate
Of which:
Continuing operations
Discontinued operations
(note 37)
Of which:
Current taxes
Deferred taxes
Income tax (receipts)/payments
2020
2019
2018
(2,076)
12,543
14,201
—
—
—
(2,076)
12,543
14,201
(623)
3,763
4,260
362
243
509
560
(43)
(71)
(24)
502
(80)
(71)
(35)
719
(99)
(57)
(35)
29
(97)
(221)
2,500
(612)
—
3,364
5,632
1,130
4,427
338
4,886
—
35.29%
34.40%
5,632
4,427
4,886
—
—
—
4,214
1,418
2,946
3,962
4,763
465
123
2,593
3,342
* 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.
** In 2020 and 2019 it includes mainly the impairment of goodwill and in 2018
the recognition of tax credits in Portugal.
EUR million
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
Other recognised income and
expense of investments in
subsidiaries, joint ventures and
associates
Total
e) Deferred taxes
2020
2019
2018
(82)
500
(225)
(165)
499
(199)
92
(42)
—
(9)
43
(26)
208
5
(832)
(17)
124
(50)
195
(811)
167
8
126
(4)
(332)
7
(101)
'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.
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annual accounts
Notes to the consolidated
annual accounts
Appendix
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 2020, 2019 and 2018 is as follows:
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').
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, that become Ordinary Law
12838/2013, 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.
EUR million
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
2020
2019
2018
Monetizable* **
Other
Monetizable* **
Other
Monetizable* **
Other
10,721
—
10,721
—
—
7,134
3,587
—
—
—
—
—
—
8,525
1,093
7,432
2,139
483
1,007
875
1,373
5,933
5,933
1,791
2,311
440
11,233
11,525
10,866
12,392
—
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
Not deductible from regulatory capital.
*
** Banco Popular Español, S.A.U. considered that part of its monetizable assets were converted into credit against the Tax Administration in 2017 income tax return,
as the circumstances of the aforementioned regulations were met at the end of that year (EUR 995 million). The Spanish tax authorities have expressly confirmed
the nature of these assets as monetizable, but they consider that conditions for conversion are not met at the end of 2017, without prejudice to the conversion in
future years.
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Annual report 2020
Contents
to the deferred tax assets recognised in the Group on the
basis of the results of the analyses performed, except in
Spain, where the Group considers that the changes in the key
assumptions on which the projected results of its tax group
are based, arising from the impact of covid-19, have resulted
in the recognition of an impairment of EUR 2,500 million of
deferred tax assets under 'Income Tax' in the income
statement.
Finally, and given the degree of uncertainty of these
assumption on the referred variables, 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 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 estimate that the
maximum recovery period of the deferred tax assets
recognized as of 31 December 2020 would be 15 years.
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 10,026 million, of which EUR 7,420 million
were for monetizable temporary differences with the right to
conversion into a credit against the Public Finance, EUR
2,226 million for other temporary differences and EUR 380
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 5,310
million, of which EUR 3,131 million were for monetizable
temporary differences, EUR 1,781 million for other temporary
differences and EUR 398 million for tax losses and credits.
Grupo Santander 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 1,254 million, of which EUR 966 million were for
temporary differences and EUR 288 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.
Grupo Santander 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.
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.
During 2020, taking into account the uncertainties about the
economic impacts derived from the covid-19 health crisis, the
Group has reassessed the ability to generate future taxable
income in relation to the recoverability of deferred tax assets
recorded in the main Group companies. Management
considers that the recovery period of these assets would not
be affected and that it is not necessary to make adjustments
654
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annual accounts
Notes to the consolidated
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Appendix
The changes in Tax assets - Deferred and Tax liabilities -
Deferred in the last three years were as follows:
EUR million
Deferred tax assets
Tax losses and tax credits
Temporary differences
Of which monetizable
Deferred tax liabilities
Temporary differences
EUR million
Deferred tax assets
Tax losses and tax credits
Temporary differences
Of which monetizable
Deferred tax liabilities
Temporary differences
EUR million
Deferred tax assets
Tax losses and tax credits
Temporary differences
Of which monetizable
Deferred tax liabilities
Temporary differences
Foreign
currency
balance
translation
differences
and other
items
(2,465)
(266)
(2,199)
(1,125)
851
851
(Charge)/Credit
to income
(1,016)
(2,065)
1,049
613
(402)
(402)
(1,418)
(1,614)
Balances at
31 December
2019
22,758
3,427
19,331
11,233
(6,522)
(6,522)
16,236
(Charge)/Credit to
asset and liability
valuation
adjustments
38
—
38
—
156
156
194
Acquisition for
the year (net)
(69)
(3)
(66)
—
(16)
(16)
(85)
Balances at
31 December
2020
19,246
1,093
18,153
10,721
(5,933)
(5,933)
13,313
Balance 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
adjustments
(92)
Acquisition for
the year (net)
(13)
—
(92)
—
(366)
(366)
(458)
—
(13)
—
—
—
(13)
Balance at 31
December
2019
22,758
3,427
19,331
11,233
(6,522)
(6,522)
16,236
IFRS 9
Adoption
impact
31 (Balance at 1
January
2018)
Balances at
December
2017
23,210
4,457
18,753
11,046
(4,837)
(4,837)
18,373
680
—
680
273
—
—
680
Foreign
currency
balance
translation
differences
and other
items
(Charge)/
Credit to
asset and
liability
valuation
adjustments
(807)
1
(808)
(844)
(114)
(114)
(921)
149
—
149
—
(315)
(315)
(166)
(Charge)/
Credit to
income
241
(128)
369
391
(364)
(364)
(123)
Acquisition Balance at 31
for the year
December
2018
(net)
(215)
(54)
(161)
—
62
62
23,258
4,276
18,982
10,866
(5,568)
(5,568)
(153)
17,690
655
Also, the Group did not recognise deferred tax assets relating
to tax losses, tax credits for investments and other incentives
amounting to approximately EUR 9,800 million, the use of
which EUR 400 million is subject, among other requirements,
to time limits.
Annual report 2020
Contents
On 27 November 2019 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.
In Chile, Law n.º 21,210 on modernization of Chilean tax law
was enacted in 2020. It includes several modifications to
different tax laws in force in Chile. Among the aspects
included, it is worth highlighting the substitute tax that on a
temporary basis until 30 April 2022 allows taxing at 30%
(instead of the generally applicable 35%) with a credit of the
first category tax paid, the tax profits generated up to the 31
December 2016, reducing the fiscal cost of its distribution and
other measures about asset depreciation and indirect taxes.
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 2020/21. 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.
f) Tax reforms
The following significant tax reforms were approved in 2020
and previous years:
In Spain, Royal Decree-Law 3-2016 was approved in
December 2016, which meant the reduction of the limits both
for the integration of deferred monetizable tax assets, as well
as for the set-off of negative tax and deductions in order to
avoid double taxation. 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 the non
deductibility of the losses generated from the transmission of
participations performed from 1 January 2017. On the other
hand, in 2020 the General State Budget Law for 2021 was
approved. This law establishes, among other tax measures, in
Corporation Tax the reduction of the exemption on dividends
and capital gains to 95% (previously 100%) from January 1st
2021, considering that a 5% as participation management
expenses is not exempt, and additionally the elimination of
the exemption on dividends and capital gains from
investments below 5% equity but whose acquisition value is
over EUR 20 million, although in this case, investments
previous to January 1st 2021 will benefit from a grandfather
ruling until 2026.
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 of 19%, and
it was to be 17% from 1 April 2020. However, a change in
policy in March 2020 has meant that the 19% rate remains
applicable for the foreseeable future. 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, Constitutional Amendment 103/19 modifying the
social security system approved in 2019, included, 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 the IOF (Tax
on financial operations) on credit operations, and as a
measure to prevent impacts of covid-19, the applicable rate is
reduced from 0.38% to 0% from 04/03/2020 to 26/11/2020.
In Argentina, the Law n.º 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.
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Appendix
28. Non-controlling interests
b) Changes
Non-controlling interests include the net amount of the
equity of subsidiaries attributable to equity instruments that
do not belong, directly or indirectly, to the Bank, including the
portion attributed to them of profit for the year.
a) Breakdown
The detail, by Group company, of 'Equity - Non-controlling
interests' is as follows:
EUR million
Santander Bank Polska S.A.
Grupo PSA
Banco Santander - Chile
Banco Santander (Brasil) S.A.
Santander Consumer USA Holdings
Inc.
Banco Santander México, S.A.
Institución de Banca Múltiple, Grupo
Financiero Santander México
Other companies*
2020
2019
2018
1,676
1,597
1,538
1,622
1,569
1,409
1,218
1,101
1,085
1,014
1,167
1,114
986
1,565
1,652
461
333
1,093
1,806
1,655
1,493
8,783
8,987
9,384
Profit/(Loss) for the year attributable
to non-controlling interests
1,063
1,601
1,505
Of which:
Grupo PSA
Banco Santander (Brasil) S.A.
Santander Consumer USA
Holdings Inc.
Banco Santander - Chile
Santander Bank Polska S.A.
Banco Santander México, S.A.
Institución de Banca Múltiple,
Grupo Financiero Santander
México
Other companies
TOTAL
255
233
201
198
81
266
373
230
283
162
232
292
218
279
173
61
34
195
92
216
95
9,846 10,588 10,889
* 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 1,275 million in
2020 (EUR 1,346 million and EUR 1,280 million in 2019 and 2018,
respectively).
The changes in Non-controlling interests are summarised as
follows:
EUR million
Balance at the end of the previous
year
Effect of changes in accounting
policies*
Balance at beginning of year
Other comprehensive income**
Other
Profit attributable to non-
controlling interests
Modification of participation rates
Change of perimeter
Dividends paid to minority
shareholders
Changes in capital and others
concepts
Balance at end of year
2020
2019
2018
10,588 10,889 12,344
—
—
(1,292)
10,588 10,889 11,052
(818)
310
(109)
76
(611)
(54)
1,063
1,601
1,505
(632)
(1,623)
(54)
110
(65)
(660)
(465)
(895)
(687)
164
196
(147)
9,846 10,588 10,889
* 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, SA, 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.
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.
c) Other information
The financial information on the subsidiaries with significant
non-controlling interests at 31 December 2020 is
summarised below:
EUR million*
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
150,573
138,026
12,547
10,866
2,352
66,880
61,902
4,978
2,263
629
80,239
73,739
6,500
3,651
823
46,890
41,816
5,074
1,524
240
43,706
37,097
6,609
4,575
806
* Information prepared in accordance with the segment reporting criteria described in note 51 and, therefore, it may not coincide with the information published
separately by each entity.
657
Annual report 2020
Contents
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.
658
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
a) Breakdown of Other comprehensive income - Items that
will not be reclassified in results and Items that can be
classified in results
EUR million
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)
Non-current assets classified as held for sale
Share in other income and expenses recognised in investments, joint ventures and associates
2020
(33,144)
(5,328)
2019
(24,168)
(4,288)
2018
(24,125)
(2,936)
(5,002)
(4,764)
(3,609)
—
(2)
—
—
1
—
—
1
—
(308)
514
597
—
159
—
44
(159)
(44)
(16)
(27,816)
(3,124)
(26,911)
295
(39)
(19,880)
(5,464)
(16,701)
300
2,411
2,321
—
—
—
—
—
—
—
75
(21,189)
(4,312)
(17,661)
277
828
—
—
(487)
(336)
(321)
• Decreased of EUR 194 million in accumulated actuarial
losses corresponding to the Group’s business in Brazil,
mainly due to the revaluation of the asset portfolio, which
offset losses in the value of the obligations as a result of the
decrease in the discount rate - from 7.05% to 6.82% in
pension benefits and 7.22% to 7.14% in medical benefits-,
as well as to inflation and variations in the other
hypotheses.
The other modification in accumulated actuarial profit or
losses is a decreased of the losses of EUR 433 million as a
result of the evolution of exchange rates and other effects,
mainly in Brazil and the United Kingdom (depreciation of the
brazilian real and the pound sterling).
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
recognised income.
The provisions against equity in 2020 amounted to EUR 25
million - see Consolidated statement of recognised income
and Note 25.b -, with the following breakdown:
• Increase of EUR 84 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 0.80% to 0.60%- and the change in the
mortality tables.
• Increase of EUR 568 million in the cumulative actuarial
losses relating to the Group´s businesses in the UK, mainly
due to the evolution experienced by the discount rate–
reduction from 2.11% to 1.28%.
659
Annual report 2020
Contents
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
Since the year started on 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.
The following is a breakdown of the composition of the
balance as of 31 December 2020 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:
Capital gains by
valuation
Capital losses by
valuation
Net gains/losses by
valuation
Fair Value
2020
28
65
7
525
625
525
100
(849)
(76)
(4)
(4)
(933)
(31)
(902)
2019
(821)
(11)
3
521
(308)
494
(802)
1,032
314
25
1,412
2,783
1,424
1,359
Capital gains by
valuation
Capital losses by
valuation
Net gains/losses by
valuation
Fair Value
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
EUR million
Equity instruments
Domestic
Spain
International
Rest of Europe
United States
Latin America and rest
Of which:
Publicly listed
Non publicly listed
EUR million
Equity instruments
Domestic
Spain
International
Rest of Europe
United States
Latin America and rest
Of which:
Publicly listed
Non publicly listed
660
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
Equity instruments
Domestic
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
2018
20
160
9
708
897
818
79
(216)
(76)
(8)
(300)
(18)
(282)
(196)
84
9
700
597
800
(203)
417
652
42
1,560
2,671
1943
728
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 change in 2020 reflects the negative effect of the
generalized depreciation of the main currencies, especially
the brazilian real, the pound sterling and the US dollar,
whereas the change in 2019 reflected the positive effect of
the appreciation of the pound sterling and the US dollar and
the negative effect of the depreciation of the brazilian real.
The change in 2018 showed the negative effect of the
generalised depreciation of a large part of the currencies,
mainly the brazilian real and the pound sterling.
Of the change in the balance in these years, a loss of EUR
2,104 million, a profit of EUR 230 million and a loss of EUR
556 million in 2020, 2019 and 2018, respectively relate to the
measurement of goodwill.
The detail, by country is as follows:
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).
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
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 (see note 7).
Net balance at end of year*
(30,035)
(22,165)
(21,973)
2020
2019
2018
Of which:
Brazilian real
Pound sterling
Mexican peso
Argentine peso*
Chilean peso
US dollar
Polish zloty
Other
(17,417)
(13,579)
(12,950)
(4,205)
(3,091)
(2,288)
(1,776)
387
(788)
(857)
(3,135)
(3,924)
(2,439)
(2,312)
(2,094)
(1,930)
(1,560)
(1,238)
1,654
1,330
(501)
(511)
(491)
(458)
*
Grupo Santander has changed its accounting policy in relation to the
presentation of exchange differences and the effects of hyperinflation of
the operations generated in Argentina, reclassifying at 1 January 2019 and
2018 an amount of EUR -1,984 million and -1,585 million from the
heading 'Other reserves' to 'Accumulated other comprehensive
income' (see note 2.a and 33.b).
661
Annual report 2020
Contents
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' at 31 December
2020, 2019 and 2018 is as follows:
EUR million
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
EUR million
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
EUR million
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
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 2020, 2019 and 2018, 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 a provision of EUR 19
million, EUR 12 million and EUR 1 million in 2020, 2019 and
2018, respectively.
662
Revaluation gains
Revaluation losses Net revaluation gains/ (losses)
Fair value
31 December 2020
693
915
785
181
2,574
—
(69)
(73)
(21)
(163)
693
846
712
160
2,411
19,314
23,116
51,026
24,714
118,170
Revaluation gains
Revaluation losses Net revaluation gains/ (losses)
Fair value
31 December 2019
947
664
839
81
2,531
(2)
(38)
(121)
(49)
(210)
945
626
718
32
2,321
32,413
19,052
51,284
20,096
122,845
Revaluation gains
Revaluation losses Net revaluation gains/ (losses)
Fair value
31 December 2018
326
373
448
37
1,184
(3)
(55)
(117)
(178)
(353)
323
318
331
(141)
831
38,550
17,494
42,599
19,777
118,420
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:
EUR million
Balance at beginning of year
Revaluation gains/(losses)
Net amounts transferred to profit or loss
Balance at end of year
Of which:
2020 2019 2018
(335)
(320)
(170)
(22)
16
7
(222)
(118)
20
(489)
(335)
(320)
Zurich Santander Insurance América, S.L.
(298)
(171)
(183)
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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 2020 is set forth below.
31. Issued capital
a) Changes
At 31 December 2017, Banco Santander’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, Banco Santander’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., Institución de Banca Múltiple, Grupo Financiero
Santander México. (see Note 3.a).
Therefore, Banco Santander’s new capital consisted 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.
On 3 December 2020, a capital increase of EUR 361 million
was made, with a charge to the share premium, through the
issue of 722,526,720 shares (4.35% of the share capital).
Therefore, Banco Santander's share capital at 31 December
2020 was consisted of EUR 8,670 million, represented by
17,340,641,302 shares of EUR 0.50 of nominal value each
and all of them of a unique class and series.
Banco Santander’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), each CDI representing one Bank’s share. They are also
listed on the New York Stock Exchange under American
Depositary Receipts (BDR), each BDR representing one share.
During 2019 and 2018 the number of markets where the
Bank is listed was reduced; the Bank's shares was delisted
from Buenos Aires, Milan, Lisboa and São Paulo's markets.
At 31 December 2020, no shareholder held more than 3% of
Banco Santander’s total share capital (which is the threshold
generally provided under Spanish regulations for a significant
holding in a listed company to be disclosed). Even though at
31 December 2020, certain custodians appeared in our
shareholder registry 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 whom exceeded that
threshold individually. These custodians were State Street
Bank (13.54%),The Bank of New York Mellon Corporation
(8.25%), Chase Nominees Limited (7.74%), EC Nominees
Limited (3.55%), BNP Paribas (3.07%) and Caceis Bank
(3.01%).
On 24 October 2019, BlackRock Inc. reported to the CNMV its
significant holding of voting rights in Banco Santander
(5.426%). It also specified that it was holding shares on
behalf of a number of funds or other investment entities,
none of which exceeded 3% individually. No changes have
been communicated since then. There may be some overlap
in the holdings declared by the above mentioned custodians
and asset manager.
At 31 December 2020, neither our shareholder registry nor
the CNMV's registry showed any shareholder residing in a tax
haven with a shareholding equal to, or greater than, 1% of
our share capital (which is the other threshold applicable
under Spanish regulations).
b) Other considerations
Under Spanish law, only shareholders at the general meeting
have the authority to increase share capital. However, they
may delegate the authority to approve or execute capital
increases to the board of directors. Grupo Santander´s Bylaws
are fully aligned with Spanish law and do not establish any
different conditions for share capital increases.
At 31 December 2020 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; 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 2020 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 39 million
shares, which represented 0.22% of the Bank’s share capital
(40 and 63 million shares, representing 0.24% and 0.39% of
the share capital in 2019 and 2018, respectively). In addition,
the number of Bank shares owned by third parties and
received as security was 237 million shares (equal to 1.37%
of the Bank’s share capital).
At 31 December 2020 the capital increases in progress at
Group companies and the additional capital authorised by
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 Corporate Enterprises Act 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).
663
Annual report 2020
Contents
i. Legal reserve
Under the Consolidated Spanish Corporate Enterprises Act,
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 2020 Banco Santander transferred EUR 72 million from the
Share premium account to the Legal reserve (EUR 38 million
and EUR 10 million in 2019 and 2018, respectively).
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 2020 the Legal reserve was of the stipulated level.
ii. Reserve for treasury shares
According to the Consolidated Text of the Corporate
Enterprises Act, an unavailable reserve equivalent to the
amount for which Banco Santander's shares owned by
subsidiaries are recorded. This reservation shall be freely
available when the circumstances which have obliged its
constitution disappear. In addition, this reserve covers the
outstanding balance of loans granted by the Group with
Banco Santander's share guarantee and the amount
equivalent to the credits granted by the Group companies to
third parties for the acquisition of own shares.
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 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.
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 10 September 2019.
The decrease in 2020 is due to the reduction of EUR
361 million to cover the capital increase on 3 December (see
note 31).
Also, in 2020, and an amount of EUR 72 million was
transferred from the Share premium account to the Legal
reserve (EUR 38 million and EUR 10 million in 2019 and 2018,
respectively) (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:
EUR million
Restricted reserves
Legal reserve
Own shares
Revaluation reserve Royal Decree-
Law 7/1996
Reserve for retired capital
Unrestricted reserves
Voluntary reserves*
Consolidation reserves attributable
to the Bank
2020
2019
2018
2,460
2,595
2,580
1,734
1,662
1,624
672
879
902
43
11
43
11
43
11
10,422 10,664 12,099
6,128
4,603
5,737
4,294
6,061
6,362
Reserves of subsidiaries
47,601 43,449 39,522
Reserves of entities accounted for
using the equity method
1,504
1,210
972
61,987 57,918 55,173
*
In accordance with the commercial regulations in force in Spain.
664
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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:
2020
2019
2018
14,067 12,400 10,755
8,447
8,079
8,207
4,793
4,528
4,260
4,230
3,810
3,436
4,186
4,012
2,841
3,404
3,116
2,963
2,960
2,823
2,729
2,161
1,895
1,847
1,748
1,738
1,387
1,335
146
208
695
823
714
EUR million
Banco Santander (Brasil) S.A.
(Consolidated Group)
Santander UK Group
Group Santander Holdings USA
Banco Santander México, S.A.,
Institución de Banca Múltiple, Grupo
Financiero Santander México
Santander Consumer Finance Group
Banco Santander - Chile
Banco Santander Totta, S.A.
(Consolidated Group)
Banco Santander Río S.A.
Santander Bank Polska S.A.
Santander Investment, S.A.
Santander Seguros y Reaseguros,
Compañía Aseguradora, S.A.
Banco Santander Internacional SA
(former Banco Santander (Suisse)
SA)
Other companies and consolidation
adjustments*
Of which, restricted
equity instruments are deducted directly from equity, net of
any related tax effect.
The Bank’s shares owned by the consolidated companies
accounted for 0.164% of issued share capital at 31 December
2020 ( 0.051% and 0.075% at 31 December 2019 and 2018,
respectively).
The average purchase price of the Bank’s shares in 2020 was
EUR 2.51 per share and the average selling price was EUR
2.56 per share.
The effect on equity, net of tax, arising from the purchase and
sale of Bank shares is of EUR 1 million profit in 2020 (EUR 6
million loss and EUR 0 million profit in 2019 and 2018,
respectively).
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.
247
348
369
a) Guarantees and contingent commitments granted
(672)
(269)
(194)
47,601 43,449 39,522
3,155
3,193
2,964
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:
* 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, S.A. issued
contingent redeemable perpetual bonds (the fidelity bonds)
amounting to EUR 981 million nominal value -EUR 686
million fair value. On 31 December 2020 amounted to EUR
627 million.
Additionally, at 31 December 2020 the Group had other
equity instruments amounting to EUR 163 million.
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
2020
2019
2018
Loans commitment granted
241,230 241,179 218,083
Of which doubtful
274
352
298
Financial guarantees granted
12,377
13,650
11,723
Of which doubtful
Financial guarantees
Credit derivatives sold
124
154
181
12,358
13,619
11,557
19
31
166
Other commitments granted
64,538
68,895
74,389
Of which doubtful
Technical guarantees
Other
548
747
983
33,526
33,890
35,154
31,012
35,005
39,235
The breakdown as at 31 December 2020 of the exposures and
the provision fund (see note 25) out of balance sheet by
impairment stage is EUR 310,435 million and EUR 377 million
(EUR 316,116 million and EUR 417 million in 2019 and EUR
297,409 million and EUR 382 million in 2018) in stage 1, EUR
6,764 million and EUR 182 million (EUR 6,355 million and
EUR 145 million in 2019 and EUR 5,324 million and EUR
145 million in 2018) in stage 2 and EUR 946 million and EUR
141 million (EUR 1,253 million and EUR 177 million in 2019
and EUR 1,462 million and EUR 265 million in 2018) in stage
3, respectively.
Income from guarantee instruments is recognised under 'Fee
and commission income' in the consolidated income
statements and is calculated by applying the rate established
665
Annual report 2020
Contents
in the related contract to the nominal amount of the
guarantee.
36. Hedging derivatives
Grupo Santander, 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, Grupo Santander 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.
Due to the replacement of the current rates by the alternative
rates defined in the note 1 of this report, in the section
'Amendments to IFRS 9, IAS 9 and IFRS 7 on reference interest
rates (IBOR Reform Phase I and II)',the nominal amount of
hedging instruments corresponding to the hedging
relationships directly affected by the uncertainties related to
the IBOR reforms is shown below. The percentage of the
nominal amount of derivatives affected with a maturity date
after the transition date of the reform represents 16.66% of
the total hedging derivatives:
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:
EUR million
Investment funds
Pension funds
2020
2019
2018
131,965
142,988
127,564
15,577
11,843
11,160
Assets under management
20,712
22,079
19,131
168,254 176,910 157,855
ii. Non-managed marketed funds
At 31 December 2020 there are non-managed marketed
funds totalling EUR 38,563 million (EUR 49,490 million and
EUR 42,211 million at 31 December 2019 and 2018,
respectively).
c) Third-party securities held in custody
At 31 December 2020 the Group held in custody debt
securities and equity instruments totalling EUR 209,269
million (EUR 229,381 million and EUR 940,650 million at 31
December 2019 and 2018, respectively) 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).
666
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
Total hedging instruments affected
Fair value hedges
Interest rate risk
Interest rate and foreign exchange risk
Cash flow hedges
Interest rate risk
Interest rate and foreign exchange risk
Exchange rate risk
Post-transition date agreement
Fair value hedges
Interest rate risk
Interest rate and foreign exchange risk
Cash flow hedges
Interest rate risk
Interest rate and foreign exchange risk
Exchange rate risk
GBP LIBOR
USD LIBOR
2020
CHF LIBOR
Others*
Total
38,304
37,450
854
18,768
1,741
16,528
499
57,072
16,036
15,608
428
13,883
980
12,405
498
29,919
16,163
14,600
1,563
18,508
12,772
4,484
1,252
34,671
14,381
13,563
818
10,912
8,023
2,853
36
25,293
1,315
464
851
1,462
—
378
1,084
2,777
1,267
416
851
1,371
—
308
1,063
2,638
1,899
1,899
—
395
—
395
—
2,294
1,834
1,834
—
395
—
395
—
2,229
57,681
54,413
3,268
39,133
14,513
21,785
2,835
96,814
33,518
31,421
2,097
26,561
9,003
15,961
1,597
60,079
*
Includes mainly JPY Libor and EONIA.
As for the hedged items directly affected by the uncertainties
related to the IBOR reforms, their nominal amount is shown
below, which represents 11.75% of the total notional amount
hedged:
EUR million
Total hedge items directly affected
Fair value hedges
Interest rate risk
Interest rate and foreign exchange risk
Exchange rate risk
Cash flow hedges
Interest rate risk
Interest rate and foreign exchange risk
Exchange rate risk
Post-transition date agreement
Fair value hedges
Interest rate risk
Interest rate and foreign exchange risk
Cash flow hedges
Interest rate risk
Interest rate and foreign exchange risk
Exchange rate risk
*
Includes mainly JPY Libor and EONIA.
GBP LIBOR
USD LIBOR
2020
CHF LIBOR
Others*
Total
33,544
33,266
278
—
5,633
1,741
3,892
—
411
384
—
27
12,614
12,578
—
36
39,177
13,025
27,508
27,508
—
3624
980
2,644
—
31,132
384
384
—
7947
7,911
—
36
8,331
—
—
—
—
1,347
—
169
1,178
1,347
—
—
—
1191
—
100
1,091
1,191
1,717
1,109
608
—
—
—
—
—
1,717
1,717
1,109
608
0
—
—
—
35,672
34,759
886
27
19,594
14,319
4,061
1,214
55,266
29,609
29,001
608
12762
8,891
2,744
1,127
1,717
42,371
667
Annual report 2020
Contents
The following tables contains details of the hedging
instruments used in the Group's hedging strategies as of 31
December 2020, 2019 and 2018:
Million euros
2020
Carrying amount
Assets
4,199
3,528
—
—
2,985
184
338
11
1
9
293
210
83
378
8
—
370
—
—
Liabilities
4,671
3,850
—
—
2,747
886
205
11
—
1
47
47
—
771
1
13
757
3
3
3,436
1,739
478
—
—
237
204
15
22
555
265
—
7
283
2,362
262
2,100
—
36
10
26
—
5
5
690
690
690
—
522
322
—
108
7
85
—
802
195
—
7
600
275
—
264
11
140
4
136
—
—
—
459
459
459
—
Nominal value
199,260
181,582
47
9,282
94,713
69,740
7,404
51
15
330
9,037
8,422
615
8,434
426
304
7,704
207
207
139,156
74,731
7,492
3,640
46,547
12,123
2,057
2,872
23,483
9,151
499
408
13,425
27,021
5,218
19,682
2,121
13,907
3,701
10,206
—
14
14
22,210
22,210
22,210
—
360,626
8,325
6,869
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 futures
Interest rate and exchange rate risk
Interest rate swap
Call money swap
Currency swap
Credit risk
CDS
Cash flow hedges
Interest rate risk
Futures
Fx forward
Future interest rate
Interest rate 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
Hedges of net investments in foreign operations
Exchange rate risk
FX forward
Deposits taken
668
Changes in fair
value used for
calculating hedge
ineffectiveness
(451)
(456)
Balance sheet line items
1
Hedging derivatives
(48) Hedging derivatives
(27) Hedging derivatives
(486) Hedging derivatives
Hedging derivatives
Hedging derivatives
Hedging derivatives
Hedging derivatives
104
—
—
—
11
11
—
(11)
Hedging derivatives
Hedging derivatives
Hedging derivatives
1
(8) Hedging derivatives
(4) Hedging derivatives
Hedging derivatives
5
5
232
75
135
(208) Hedging derivatives
(10) Hedging derivatives
Hedging derivatives
Hedging derivatives
Hedging derivatives
Hedging derivatives
145
—
13
(401)
(155) Hedging derivatives
(143) Hedging derivatives
Hedging derivatives
(103) Hedging derivatives
—
679
129
550
—
(129)
Hedging derivatives
Hedging derivatives
Hedging derivatives
(1) Hedging derivatives
(132) Hedging derivatives
Hedging derivatives
4
8
8
3
3
—
3
(216)
Hedging derivatives
Hedging derivatives
Deposits
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
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
Hedges of net investments in foreign operations
Exchange rate risk
FX forward
2019
Carrying amount
Nominal value
Assets
Liabilities
Changes in fair
value used for
calculating hedge
ineffectiveness Balance sheet line items
(1,522)
(1,346)
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
3,649
3,160
1
32
2,297
472
349
9
—
—
55
1
54
428
1
4
423
—
—
6
6
1,618
(1,540)
261
147
—
97
12
5
—
660
216
—
11
433
—
640
5
622
13
53
4
42
7
4
4
781
781
781
(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
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
3,570
3,032
—
—
2,651
91
272
9
1
8
73
24
49
465
16
—
449
—
—
—
—
3,398
277
33
—
99
30
98
17
463
237
—
12
214
—
2,625
133
2,492
—
33
5
28
—
—
—
248
248
248
362,464
7,216
6,048
(3,062)
669
Annual report 2020
Contents
EUR million
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
670
2018
Carrying amount
Assets
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
Liabilities
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
Nominal value
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
318,807
8,607
6,363
Balance sheet line items
Changes in fair
value used for
calculating hedge
ineffectiveness
96
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
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Considering within the Group the main entities or groups by
the weight of their hedges, the following are the main types
of hedges being carried out in Santander UK Group Holdings
plc group, Banco Santander, S.A., Grupo Consumer, Banco
Santander México, S.A., Institución de Banca Múltiple, Grupo
Financiero Santander México and Banco Santander (Brasil)
S.A.
Santander UK Group Holdings plc group enters into fair value
and cash flow hedging derivatives depending on the exposure
of the underlying. Only designated risks are hedged and
therefore other risks, such as credit risk, are managed but not
hedged.
Within fair value hedges, Santander UK Group Holdings plc
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 Holdings plc 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 e 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 o loss cross
currency swaps.
Within the cash flow hedges, Santander UK Group Holdings
plc 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 Holdings plc group obtains financing
in the international markets, it assumes a significant exposure
to currency risk mainly USD and EUR. In addition, it also holds
debt securities for liquidity purposes which assume exposure
mainly in JPY. To manage this exchange rate risk, spot,
forward y 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 Holdings plc 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. At 31 December 2020,
outgoing cash flow is no longer expected to occur due to
changes in Banco Santander's share 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 Banco Santander's income statement. To mitigate
these risks, Banco Santander contracts derivatives, mainly
interest rate Swaps, Cross Currency Swaps, Cap&Floors, Forex
Forward y Credit Default Swaps. 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, cap&floors, forex forward y credit default swaps.
In addition, Banco Santander 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 methodology used by Banco Santander, S.A. to measure
the effectiveness of fair value hedges is based on comparing
the market values 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 and
minimizing volatility in the income statement. 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.
There is a macro hedge of structured loans in which the
interest rate risk of fixed-rate loans (mortgage, personal or
with other guarantees) granted to legal entities in commercial
or corporate banking and Wealth clients in the medium-long
term is hedged. This hedge is instrumented as a macro hedge
of fair value, the main hedging instruments being Interest
Rate Swap and Cap&Floors. In case of total or partial
cancellation or early repayment, the customer is obliged to
pay/receive the cost/receipt of the cancellation of the interest
rate risk hedge managed by the Bank.
Regarding cash flow hedges, the objective is to hedge the
cash flow exposure to changes in interest rates and exchange
rates.
For retrospective purposes, the 'Hypothetical Derivative'
methodology is used to measure effectiveness. By means of
this methodology, the hedged risk is modeled as a derivative
instrument -not real-, created exclusively for the purpose of
measuring the effectiveness of the hedge, and which must
comply with the fact that its main characteristics coincide
with the critical terms of the hedged item throughout the
period for which the hedging relationship is designated. This
hypothetical derivative does not incorporate characteristics
that are exclusive to the hedging instrument. Additionally, it is
worth mentioning that any risk component not associated
with the hedged objective risk and effectively documented at
the beginning of the hedge is excluded for the purpose of
671
Annual report 2020
Contents
calculating the effectiveness. The market value of the
hypothetical derivative that replicates the hedged item is
compared with the market value of the hedging instrument,
verifying that the hedged risk is effectively mitigated and that
the impact on the income statement due to potential
ineffectiveness is residual.
Prospectively, the variations in the market values of the
hedging instrument and the hedged item (represented by the
hypothetical derivative) are measured in the event of parallel
shifts of a positive basis point in the affected market curves.
There is another macro-hedge, this time of cash flows, the
purpose of which is to actively manage the risk-free interest
rate risk (excluding credit risk) of a portion of the floating rate
assets of Banco Santander, S.A., through the arrangement of
interest rate derivatives whereby the bank exchanges floating
rate interest flows for others at a fixed rate agreed at the time
the transactions are arranged. The items affected by the
Macro-hedging have been designated as those in which their
cash flows are exposed to interest rate risk, specifically the
floating rate mortgages of the Banco Santander, S.A. network
referenced to Euribor 12 Months or Euribor Mortgage, with
annual renewal of rates, classified as sound risk and which do
not have a contractual floor (or, if not, this floor is not
activated). The hedged position affecting the Macro Cash
Flow Hedge at the present time is EUR 30,000 million.
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.
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 México, S.A., Institución de Banca Múltiple,
Grupo Financiero Santander México 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. Only the interest rate and
exchange rate risk is hedged, if applicable, and therefore
other risks, such as credit risk, are managed but not hedged
by the entity.
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 México, S.A.,
Institución de Banca Múltiple, Grupo Financiero Santander
México 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. 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 (Brasil) S.A. 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.
672
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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 (Brasil) S.A. 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.
Regarding net foreign investments hedges, basically, they are
allocated in Banco Santander, S.A. and Santander Consumer
Finance Group. Grupo Santander assumes as a priority risk
management objective to minimize -to the limit determined
by the Group's Financial Management- the impact on the
calculation of the capital ratio of its permanent investments
included within the Group's consolidable perimeter, and
whose shares or equity interests are legally denominated in a
currency other than that of the Group's parent company. For
this purpose, financial instruments (generally derivatives) are
contracted to hedge the impact on the capital ratio of changes
in forward exchange rates. Grupo Santander mainly hedges
the risk for the following currencies: BRL, CLP, MXN, CAD,
COP, CNY, GBP, CHF, NOK, USD, and PLN. The instruments
used to hedge the risk of these investments are forex swaps,
forex forward and spot currency purchases/sales.
In the case of this type of hedges, ineffectiveness scenarios
are considered to be of low probability, given that the
hedging instrument is designated considering the position
determined and the spot rate at which the position is located.
The following table sets out the maturity profile of the
hedging instruments used in Grupo Santander non-dynamic
hedging strategies:
673
Annual report 2020
Contents
31 December 2020
Up to one
month
7,132
One to three
months
14,221
Three months
to one year
44,897
One year to
five years
95,343
More than five
years
Total
37,667 199,260
5,616
—
430
3,943
1,021
157
—
—
65
1,516
901
615
—
—
—
—
—
—
10,489
6,019
5,213
—
806
—
—
—
1,746
1,532
—
—
214
1,691
816
875
—
1,033
1,000
33
—
—
2,435
2,435
2,435
9,667
39,921
90,913
35,465 181,582
11
—
4,804
4,662
190
—
—
—
4,264
4,264
—
282
—
—
282
8
8
11,629
6,707
—
—
4,626
1,502
253
326
2,336
2,243
—
—
93
972
—
972
—
1,614
1,433
181
—
—
5,086
5,086
5,086
20
3,128
24,807
11,241
674
51
—
—
3,257
3,257
—
1,711
—
—
1,711
8
8
44,127
33,070
—
—
29,511
1,550
338
1,671
4,616
3,040
—
—
1,576
5,634
981
4,653
—
807
578
229
—
—
12,831
12,831
12,831
16
4,255
33,333
49,624
3,619
—
15
51
—
—
—
4,239
370
262
3,607
191
191
61,186
26,959
2,279
3,640
11,219
7,890
1,056
875
13,071
2,336
499
408
9,828
15,687
2,402
11,164
2,121
5,456
690
4,766
13
13
1,858
1,858
1,858
—
47
1,469
9,282
27,826
94,713
3,192
69,740
2,764
7,404
—
—
214
—
—
—
51
15
330
9,037
8,422
615
2,202
8,434
56
42
2,104
—
—
426
304
7,704
207
207
11,725 139,156
1,976
74,731
—
—
7,492
3,640
385
46,547
1,181
12,123
410
—
2,057
2,872
1,714
23,483
—
—
—
9,151
499
408
1,714
13,425
3,037
27,021
1,019
5,218
2,018
19,682
—
2,121
4,997
—
13,907
3,701
4,997
10,206
1
1
—
—
—
14
14
22,210
22,210
22,210
20,056
30,936
101,855
158,387
49,392 360,626
EUR million
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
Future interest rate
Interest rate and exchange rate risk
Interest rate swap
Call money swap
Currency swap
Credit risk
CDS
Cash flow hedges
Interest rate risk
Futuros FX y c/v plazo FX
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
Equity risk
Option
Hedges of net investments in foreign operations:
Exchange rate risk
FX forward
674
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
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
Hedges of net investments in foreign
operations
Exchange rate risk
FX forward
Up to one
month
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
—
—
2,735
2,735
2,735
31 December 2019
One to three
months
14,591
Three months to
one year
43,236
One year to five
years
90,707
More than five
years
48,198
9,055
37,627
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
—
—
—
4,191
4,191
4,191
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
14,324
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
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
11,753
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
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
675
25,057
24,694
31 December 2018
Up to one
month
9,377
One to three
months
17,989
Three months
to one year
23,773
One year
to five years
78,541
More than five
years
49,039
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
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
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
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
46,310
—
1,391
32,407
10,426
1,875
—
15
196
—
—
2,556
370
20
2,166
168
64
104
5
5
12,821
552
—
—
217
335
—
933
—
—
—
—
933
—
9,524
3,210
6,314
1,812
—
1,812
—
—
—
—
—
150,777
61,860
318,807
Contents
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
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
Annual report 2020
EUR million
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
Hedges of net investments in foreign
operations
Exchange rate risk
FX forward
676
Auditor's
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 Holdings plc 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 and interest rate instruments
Nominal
Average GBP/EUR exchange rate
Average fixed interest rate (%) EUR
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Foreign exchange risk
Exchange and interest 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
31 December 2020
EUR million
Up to one
month
One to three
months
Three months
to one year
One year
to five years
More than five
years
Total
2,704
0.690
1.180
1.870
—
—
—
—
1,602
—
—
1.293
1,630
—
1.465
2.010
8,481
0.650
0.230
1.720
—
—
30,946
53,170
0.820
3.020
2.890
147
1.141
4.640
0.730
0.980
2.490
776
1.170
1.780
104,351
1,183
9,050
3.720
2.340
4.160
260
1.167
3.560
999
0.460
2,815
0.570
8,869
1.450
1,180
1.330
13,863
2,244
137.977
—
1.316
4,317
135.607
—
1.323
—
—
—
—
3,858
1.354
—
3.180
8,328
132.271
1.163
1.304
11,816
1.253
1.609
2.480
1,246
17,737
—
1.179
—
2,792
1.197
1.381
3.390
20,096
677
Annual report 2020
Contents
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 and interest 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 and interest 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
31 December 2019
EUR million
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)
—
—
—
—
—
—
—
—
1,395
—
—
1.286
954
1.274
—
2.490
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
2,491
145.928
1.144
1.252
4,417
143.086
1.117
1.293
—
—
—
—
7,626
1.169
1.536
2.160
7,019
140.815
1.153
1.299
15,089
1.311
1.581
2.870
15,322
30,960
—
—
—
—
7,291
1.209
1.450
2.960
678
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2018
EUR million
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
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 and interest rate instruments
Nominal
Average GBP/EUR exchange rate
Average GBP/USD exchange rate
Average fixed interest rate (%) USD
Average fixed interest rate (%) EUR
Cash flow hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) GBP
Foreign exchange risk
Exchange and interest 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
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
—
—
1.304
—
—
—
—
147.215
146.372
—
1.307
—
—
—
—
1.280
1.310
2,859
1.252
1.633
2.340
7,132
145.319
1.135
1.305
21,288
1.271
1.545
2.660
2.849
1.261
2.179
585
1.168
—
3.923
7.950
—
—
—
—
—
—
5,687
7,608
17,673
33,642
9,495
1.217
1.511
2.900
679
Annual report 2020
Contents
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
Average fixed interest rate (%) RON
Foreign exchange risk
Exchange and interest rate instruments
Nominal
Average fixed interest rate (%) GBP/EUR
Average fixed interest rate (%) USD/EUR
Average COP/USD exchange rate
Average CNY/EUR exchange rate
Average SAR/EUR exchange rate
Average PEN/USD exchange rate
Average AUD/EUR exchange rate
Average JPY/EUR exchange rate
Interest rate and foreign exchange rate risk
Exchange and interest 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
Average fixed interest rate (%) USD/COP
Average fixed interest rate (%) COP/USD
Average fixed interest rate (%) USD/CLP
Average AUD/EUR exchange rate
Average COP/USD exchange rate
Average CZK/EUR exchange rate
Average EUR/GBP exchange rate
Average EUR/COP exchange rate
Average EUR/USD 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/CLP exchange rate
Average USD/MXN exchange rate
680
31 December 2020
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than five
years
Total
2,073
—
0.647
—
—
0.698
—
833
—
1.165
409
—
0.551
—
—
0.570
—
4,149
0.901
1.171
3,628.140
3,603.595
8.108
4.484
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.102
4.514
3.609
1.609
124.612
282
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.113
—
—
—
—
—
—
—
—
—
—
—
2,165
—
0.388
—
—
2.031
—
3,008
0.916
1.178
—
7.997
—
—
—
—
818
—
—
4.380
—
—
2.195
—
—
8.030
6.000
0.930
—
3,437.200
—
—
0.0002
—
—
113.370
—
—
—
—
0.0003
0.001
0.050
17,430
14,294
36,371
7,990
4,804
1.375
0.820
0.800
0.465
3.004
3.610
—
—
—
—
—
—
—
—
—
2,621
4.000
0.860
—
4.849
2.580
0.568
—
—
6.659
—
—
1.499
—
25.539
—
—
0.891
8.782
133.840
14.696
—
4.727
1.092
0.0003
—
—
4.072
1.927
0.403
—
3.562
—
—
—
—
—
—
—
—
—
—
1,083
4.660
—
—
—
—
1.281
3.605
1.243
7.231
—
—
1.508
—
—
—
—
—
—
125.883
—
9.606
—
1.105
0.0003
—
—
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2020
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than five
years
Total
8
8
191
—
207
Credit risk
Credit risk instruments
Nominal
Cash flow hedges
Interest rate and foreign exchange rate risk
Interest rate and foreign exchange rate instruments
Nominal
Average EUR/GBP exchange rate
Average EUR/USD exchange rate
Average AUD/EUR exchange rate
Average RON/EUR exchange rate
Average JPY/EUR exchange rate
Average CHF/EUR exchange rate
Interest rate risk
Bond Forward instruments
Nominal
Average fixed interest rate (%) EUR
Hedges of net investments in foreign operations
Exchange rate risk
Exchange and interest rate instruments
Nominal
Average BRL/EUR exchange rate
Average CLP/EUR exchange rate
Average COP/EUR exchange rate
Average GBP/EUR exchange rate
Average MXN/EUR exchange rate
Average PLN/EUR exchange rate
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,247
1.080
—
—
—
—
—
3,242
1.102
0.882
1.625
4.810
120.568
—
3,164
—
5,000
(0.2580)
23,000
(0.2498)
4,279
(0.2359)
2,229
5.270
4,554
5.308
11,570
6.332
1,858
—
869.633
861.546
864.339
932.215
—
0.909
23.121
4.427
—
4,471.305
0.916
25.456
4.420
0.907
26.788
4.516
—
—
—
—
208
4,697
—
—
—
—
—
1.102
—
—
—
—
—
—
—
—
—
35,443
20,211
681
Annual report 2020
Contents
31 December 2019
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to More than five
years
five years
Total
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 and interest rate instruments
Nominal
Average fixed interest rate (%) GBP/EUR
Average fixed interest rate (%) USD/EUR
Average fixed interest rate (%) USD/CLP
Average CNY/EUR exchange rate
Average SAR/EUR exchange rate
Interest rate and foreign exchange rate risk
Exchange and interest 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
Average fixed interest rate (%) USD/COP
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
16,707
10,219
28,446
8,891
4,197
1.43
0.79
0.80
0.46
3.12
—
—
—
—
—
—
2,599
4.00
0.86
—
4.85
2.58
0.66
—
—
7.62
1.4989
25.407
—
—
8.7820
6.82
2.58
0.40
—
3.93
—
—
—
—
—
—
949
4.66
—
—
—
—
1.28
3.61
1.24
7.22
1.508
26.030
—
—
—
8
—
5.30
—
—
—
211
—
—
106
—
2.41
—
—
—
3,903
0.86
1.12
1,406
—
3.20
—
—
2.05
4,777
0.87
1.12
747.72
747.90
746.70
8.01
—
346
—
—
6.16
—
2.52
0.54
—
—
5.67
—
—
—
0.0003
8.7185
—
4.16
14
—
—
—
—
—
—
—
—
7.54
—
—
—
—
—
—
—
—
—
—
0.0003
—
7.91
4.18
289
—
—
—
—
—
—
—
—
—
—
—
1.1711
—
—
—
—
—
—
—
—
—
130.4700
132.4608
125.8830
—
—
—
—
0.0003
—
14.6960
—
—
9.6060
4.7271
1.0924
0.0003
0.0520
—
0.0003
—
—
13
—
244
—
257
Interest rate and foreign exchange rate risk
Interest rate and foreign exchange rate instruments
Nominal
Interest rate risk
Bond Forward instruments
Nominal
—
—
353
4,410
207
4,970
11,626
—
1,792
5,443
—
18,861
682
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Hedges of net investments in foreign operations
Exchange rate risk
Exchange and interest 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
31 December 2019
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to More than five
years
five years
Total
2,592
4.59
3,838
4.74
822.13
822.32
13,595
4.74
811.64
3,359
4.88
824.36
—
0.89
—
23.49
4.37
—
3,828.61
0.91
10.77
23.10
4.38
0.94
10.87
23.27
4.39
—
—
—
—
—
23,384
—
—
—
—
—
—
—
—
683
Annual report 2020
Contents
31 December 2018
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to More than five
years
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
—
—
—
—
—
—
6.13
—
—
—
—
—
—
—
—
—
—
—
—
1,942
—
373
4.46
—
—
—
—
22.98
—
3,656
461
—
—
—
—
—
—
6.71
—
—
1.15
—
—
—
—
—
—
—
0.0003
120
—
—
7.54
—
—
—
—
—
—
—
0.0003
—
—
—
—
—
0.269
0.0003
2,083
4.00
0.86
—
2.52
0.64
—
9.47
1.50
951
4.80
—
—
—
1.28
3.61
—
1.50
25.407
26.030
—
—
—
8.718
132.014
14.696
—
—
—
—
—
—
—
125.883
—
9.606
—
0.0003
—
—
49
5
54
—
—
—
—
6,130
0.0051
20
0.0055
8,092
20,746
497
—
766.01
—
3728.01
0.91
—
—
10,587
4.46
768.25
8.14
3685.8
0.89
24.51
4.38
9,289
4.73
795.1
—
—
—
24.5
4.26
—
—
—
—
—
—
—
—
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 and interest rate instruments
Nominal
Interest rate and foreign exchange rate risk
Exchange and interest 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
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/BRL exchange rate
Average USD/COP 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 and interest 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
684
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Santander Consumer Finance 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 and interest 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 NOK/EUR exchange rate
Average CHF/EUR exchange rate
Average CAD/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 and interest rate instruments
Nominal
Average NOK/EUR exchange rate
Average CNY/EUR exchange rate
31 December 2020
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
241
—
501
0.004
(0.590)
(0.547)
2,052
(0.009)
(0.570)
4,744
(0.045)
(0.553)
68
—
—
88
—
—
1.075
10.341
1.072
10.426
249
10.075
1.582
1.075
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
652
7.454
0.006
71
0.135
125
0.172
612
0.175
1,481
0.181
11
—
—
151.400
—
92
—
1.084
—
—
112
—
1.116
1.501
815
—
1.123
1.525
116.990
125.071
60
510
700
426
10.302
10.556
10.381
10.446
—
—
—
—
—
—
—
—
1.088
—
—
—
7.456
7.473
—
—
—
—
—
—
206
10.141
—
501
10.962
7.639
1,260
10.861
—
9.281
1.089
—
—
4.287
0.890
0.150
—
—
—
519
(0.005)
8,057
—
—
—
—
—
—
—
—
—
—
—
405
652
2,289
48
1,078
10.590
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,696
1,967
685
Annual report 2020
Contents
31 December 2019
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
Average SEK/EUR exchange rate
—
10.687
Interest rate and foreign exchange rate risk
Interest rate and exchange rate instruments
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) EUR
Average fixed interest rate (%) CHF
Foreign exchange risk
Exchange and interest rate instruments
Nominal
Average DKK/EUR exchange rate
Average PLN/EUR exchange rate
Average CHF/EUR exchange rate
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 and interest rate instruments
Nominal
Average NOK/EUR exchange rate
Average CNY/EUR exchange rate
686
159
(0.164)
(0.700)
1,394
(0.027)
(0.700)
2,154
(0.119)
(0.630)
5,669
(0.110)
(0.560)
118
7.458
4.382
1.093
187
7.465
4.302
1.096
—
—
—
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
18
9,394
(0.123)
—
—
—
—
—
—
—
—
—
—
—
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
9.241
1.085
—
7.466
—
—
—
—
—
—
7.468
—
—
—
143
9.920
—
1.094
1.528
7.474
1.121
1.491
—
131.960
123.116
1,025
10.448
9.082
1.090
—
7.460
—
—
—
452
10.318
9.281
1.089
—
7.457
4.287
0.410
0.330
352
9.878
7.968
597
10.186
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,782
1,092
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2018
EUR million
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 and interest 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 and interest 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 and interest 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
253
(0.197)
(0.659)
17
7.455
—
—
—
—
—
—
—
85
0.183
339
0.101
0.108
0.896
0.654
0.134
—
—
—
Hedges of net investments in foreign operations
Foreign exchange risk
Exchange rate instruments
Nominal
Average NOK/EUR exchange rate
Average CNY/EUR exchange rate
181
282
103.751
103.538
—
—
480
102.963
121.796
672
(0.125)
(0.696)
3,488
(0.036)
(0.679)
6,883
(0.065)
(0.561)
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
—
—
—
—
448
—
0.134
—
0.004
313
0.183
423
0.183
2,368
0.099
0.108
0.870
0.652
0.134
0.234
0.897
0.008
1,061
0.099
0.108
0.900
0.656
—
0.233
—
0.008
—
—
—
63
11,359
(0.113)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
423
1,027
920
4,325
943
687
Annual report 2020
Contents
Banco Santander México, S.A., Institución de Banca
Múltiple, Grupo Financiero Santander México
31 December 2020
EUR million
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
Interest rate and foreign exchange rate
Exchange and interest 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 and interest rate instruments
Nominal
Average BRL/USD exchange rate
Average EUR/MXN exchange rate
Interest rate and foreign exchange rate
risk
Exchange and interest rate instruments
Nominal
Average EUR/MXN exchange rate
Average GBP/MXN exchange rate
Average USD/MXN exchange rate
Average fixed interest rate (%) USD
Average fixed interest rate (%) EUR
Average fixed interest rate (%) GBP
9
—
—
—
—
—
—
—
—
—
—
—
—
132
—
0.250
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
49
—
11
—
—
—
—
—
—
—
—
164
0.073
100
0.117
—
—
—
—
—
—
—
—
48
—
1,954
—
2,062
559
859
1,429
—
—
—
—
—
—
—
—
299
0.072
2,513
0.126
0.167
104
0.192
0.260
—
—
0.026
0.068
—
—
—
—
—
—
—
—
—
—
—
—
—
37
—
—
0.182
0.041
—
—
463
2,745
141
688
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2019
EUR million
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
Interest rate and foreign exchange rate
Exchange and interest 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 and interest rate instruments
Nominal
Average BRL/MXN exchange rate
Interest rate and foreign exchange rate
risk
Exchange and interest 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
6
5.005
140
8.475
1
21.230
—
—
—
—
0.500
—
—
—
—
890
3.550
2
—
—
—
—
—
1.510
—
5
—
—
13.300
—
3.930
—
—
—
—
—
—
—
133
—
—
—
—
7.930
—
—
174
8.420
66
—
—
—
4.680
—
—
—
2.500
—
—
103
4.320
163
—
23.130
16.220
—
2.628
—
1.083
121
7.126
2,262
6.584
423
20.992
25.196
13.300
—
2.460
2.076
6.750
—
533
7.182
2,793
5.210
208
—
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
—
—
18.227
—
4.125
0.151
—
2,703
1,690
533
3,786
549
689
Annual report 2020
Contents
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
Exchange and interest 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 and interest rate instruments
Nominal
Average EUR/MXN exchange rate
Average GBP/MXN exchange rate
Average USD/MXN exchange rate
Average BRL/MXN exchange rate
31 December 2018
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
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
690
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Banco Santander (Brasil) S.A.
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) BRL
Foreign exchange risk
Exchange and interest rate instruments
Nominal
Average USD/BRL exchange rate
Interest rate and foreign exchange rate
risk
Exchange and interest rate instruments
Nominal
Average USD/BRL 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 and interest rate instruments
Nominal
Average USD/BRL exchange rate
Average fixed interest rate (%) BRL
31 December 2020
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
430
2.000
614
6.260
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,129
2.000
4,254
2.000
1,469
2.000
9,282
—
—
—
—
—
—
—
—
—
231
6.260
—
—
—
367
6.260
—
3,640
2.000
499
6.260
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
614
367
3,640
499
231
691
Annual report 2020
Contents
Fair value hedges
Interest rate risk
Interest rate instruments
Nominal
Average fixed interest rate (%) BRL
Foreign exchange risk
Exchange and interest rate instruments
Nominal
Average USD/BRL exchange rate
Interest rate and foreign exchange rate
risk
Exchange and interest 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 and interest rate instruments
Nominal
Average EUR/MXN exchange rate
Average fixed interest rate (%) BRL
31 December 2019
EUR million
Up to one
month
One to three
months
Three months
to one year
One year to
five years
More than
five years
Total
16
7.920
—
—
606
9.250
6,065
6.880
5,638
0.040
12,325
—
—
—
—
—
—
—
—
—
—
—
—
1
3.730
90
3.750
193
3.830
—
—
—
—
—
—
—
—
—
—
7
—
4.570
—
—
—
—
—
772
4.500
9,290
4.570
—
—
—
—
—
389
4.570
—
284
7
772
9,290
389
—
—
—
—
—
—
—
—
—
—
—
—
692
Auditor's
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 and interest 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 and interest rate instruments
Nominal
Average USD/BRL exchange rate
31 December 2018
EUR million
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
36
3.551
3,030
6.500
26
3.648
3,529
10.055
1,378
10.030
316
3.642
38
3.265
7,620
411
119
6.500
—
—
10,023
—
—
238
3.135
272
693
Annual report 2020
Contents
The following table contains details of the hedged exposures
covered by the Group's hedging strategies at 31 December
2020, 2019 and 2018:
Change in fair
value of hedged
item for
ineffectiveness
assessment
553
Cash flow reserves or
conversion reserves
Continuing
hedges
—
Discontinued
hedges
—
469
132
(20)
372
(1)
174
(21)
(167)
(13)
1
(13)
(1)
100
86
57
(40)
(3)
(3)
(3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
EUR million
31 December 2020
Carrying amount of
hedged items
Accumulated amount
of fair value
adjustments on the
hedged item
Assets Liabilities
52,055
141,608
Assets Liabilities Balance sheet line item
3,369
2,914
128,279
48,137
3,183
2,727
Fair value hedges
Interest rate risk
Deposits
Bond
19,000
4,406
25,430
24,317
656
975
Securities loans
Repo
61,898
15,723
62
574
1,153
19
Liquidity facilities
6,228
4,450
380
Issuances assurance
—
3,190
Securitization
—
11,138
Exchange rate risk
Liquidity facilities
Deposits
Bonds
8,718
118
1,889
6,711
—
—
—
—
—
—
40
5
22
13
15 Loans and advances/
Deposits
1,638 Debt instruments/ Debt
instruments issued
— Loans and advances
16 Loans and advances/
Deposits
(16) Loans and advances/
Deposits
25 Debt instruments/ Debt
instruments issued
1,049 Debt instruments/ Debt
instruments issued
—
— Loans and advances/
Deposits
— Loans and advances/
Deposits
— Loans and advances/
Deposits
Interest and Exchange
rate risk
4,391
3,918
143
187
Borrowed deposits
1,229
—
13
— Loans and advances/
Deposits
Bonds
2,333
3,130
130
84 Debt instruments
Securitization
Repos
Credit risk
Bonds
—
829
220
220
689
99
—
—
—
—
3
3
101 Debt instruments
2 Loans and advances/
Deposits
—
— Debt instruments
694
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
31 December 2020
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
532
Cash flow reserves or
conversion reserves
Continuing
hedges
420
(87)
Discontinued
hedges
(43)
(11)
Cash flow hedges
Interest rate risk
Firm commitment
Deposits
Government bonds
Liquidity facilities
Secondary market
loans
Equity portfolio
Highly likely
scheduled
transactions
Exchange rate risk
Deposits
Bonds
Issuances assurance
Secondary market
loans
Senior securitization
Highly likely
scheduled
transactions
Interest and Exchange
rate risk
Deposits
Bonds
Securitization
Inflation risk
Deposits
Bonds
Equity risk
Highly likely
scheduled
transactions
Other assets/liabilities
Deposits and loans
and advances
Debt instruments
Loans and advances
Loans and advances
Equity portfolio
Other assets/liabilities
Deposits and loans
and advances
Debt instruments
Loans and advances
Debt instruments
Other assets/liabilities
Deposits and loans
and advances
Debt instruments
Debt instruments
Deposits and loans
and advances
Debt instruments
Highly likely scheduled
transactions
314
6
(28)
382
(47)
(1)
2
—
204
72
(228)
14
298
48
—
52
30
(169)
105
64
41
(4)
(4)
—
—
—
139
21
(377)
126
—
—
4
(68)
(57)
46
(3)
(4)
(50)
—
(4)
108
576
(111)
(86)
(25)
6
6
(11)
(11)
(11)
409
(87)
680
—
4
(4)
(11)
—
—
—
0
—
—
—
—
—
—
—
—
—
—
(32)
(32)
—
0
—
14
14
14
(29)
695
Net foreign investments
hedges
Exchange rate risk
Equity instruments
22,150
22,150
22,150
—
—
—
—
—
—
—
—
— Equity instruments
163,758
52,055
3,369
2,914
1,085
Annual report 2020
Contents
EUR million
31 December 2019
Carrying amount of
hedged items
Accumulated amount
of fair value
adjustments on the
hedged item
Assets Liabilities
60,487
134,958
Assets Liabilities Balance sheet line item
2,768
2,298
122,560
55,538
66,087
8,814
2,764
1,584
33,202
24,145
1,150
2,099
(5) Loans and advances/
Deposits
1,302 Debt instruments/ Debt
instruments issued
Change in fair
value of hedged
item for
ineffectiveness
assessment
1,583
Cash flow reserves or
conversion reserves
Continuing
hedges
—
Discontinued
hedges
—
1,370
578
825
—
177
(4)
(206)
58
3
37
18
154
—
4
152
(2)
(4)
(1)
(3)
5
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18 Loans and advances/
Deposits
(219) Loans and advances/
Deposits
12 Debt instruments/ Debt
instruments issued
991 Debt instruments/ Debt
instruments issued
—
— Loans and advances/
Deposits
— Loans and advances/
Deposits
— Debt instruments
199
— Loans and advances/
Deposits
51 Loans and advances/
Deposits
150 Debt instruments
(2) Loans and advances/
Deposits
—
— Loans and advances/
Deposits
— Debt instruments
—
— Debt instruments
Fair value hedges
Interest rate risk
Deposits
Bond
Repo
22,057
589
Liquidity facilities
1,214
4,531
Issuances assurance
—
3,171
Securitization
—
14,288
Exchange rate risk
Liquidity facilities
Deposits
Bonds
Interest and Exchange
rate risk
8,613
57
2,912
5,644
3,532
—
—
—
—
4,949
Borrowed deposits
460
—
27
3
—
—
19
3
1
15
(21)
—
Bonds
2,262
3,366
(16)
Securitization
Repos
Inflation risk
Deposits
Bonds
Credit risk
Bonds
—
810
—
—
—
253
253
1,483
100
—
—
—
—
—
—
(5)
—
—
—
6
6
696
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
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
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 securitization
Highly likely
scheduled
transactions
Interest and Exchange
rate risk
Deposits
Bonds
Securitization
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
Cash flow reserves or
conversion reserves
Change in fair
value of hedged
item for
ineffectiveness
assessment
(204)
(128)
18
1
(24)
(121)
(2)
—
(32)
(3)
(237)
—
194
15
(1)
Continuing
hedges
522
4
(11)
(5)
(22)
27
3
12
130
140
4
(3)
(9)
(4)
2
(169)
510
54
29
(252)
20
23
(3)
—
7
7
98
98
—
—
—
(6)
(25)
541
(22)
(24)
2
—
(2)
(2)
(98)
(98)
—
—
—
Discontinued
hedges
(79)
(74)
—
14
(63)
(25)
—
—
(4)
—
(4)
—
—
—
—
—
—
—
—
0
—
—
—
(1)
(1)
—
—
—
—
—
(79)
697
136,028
60,487
2,768
2,298
1,379
522
Annual report 2020
Contents
EUR million
31 December 2018
Accumulated amount
of fair value
adjustments on the
hedged item
Assets Liabilities Balance sheet line item
1,915
1,765
25
—
48
—
—
—
5
9
(4)
21
19
2
—
—
—
3
—
3
—
—
Change in fair
value of hedged
item for
ineffectiveness
assessment
(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)
Cash flow reserves or
conversion reserves
Continuing
hedges
—
Discontinued
hedges
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
447
111
(75)
47
72
65
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(10)
(12)
—
—
—
(12)
—
—
1,478
(1) Deposits and loans 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
— Debt instruments
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
1,886
1,021
27,235
21,759
792
Carrying amount of
hedged items
Assets Liabilities
46,830
110,669
104,393
39,251
59,319
1,370
13,874
—
3,965
—
—
—
3,378
1,614
1,764
2,776
561
—
232
2,013
13,316
—
—
—
—
7,474
Fair value hedges
Interest rate risk
Deposits
Bond
Repo
Loans of securities
Liquidity facilities
Issuances assurance
Securitization
Equity instruments
Exchange rate risk
Deposits
Bonds
Interest and Exchange
rate risk
Borrowed deposits
751
—
1,591
—
434
—
68
—
68
54
54
3,571
3,358
99
446
105
105
—
—
—
Bonds
Securitization
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
698
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Exchange rate risk
Deposits
Bonds
Secondary market
loans
Senior securitization
CLO
Interest and Exchange
rate risk
Deposits
Bonds
Securitization
Inflation risk
Deposits
Bonds
Liquidity facilities
Equity risk
Highly likely
scheduled
transactions
Other risks
Bonds
Other assets/liabilities
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
Net foreign investments
hedges
Exchange rate risk
Firm commitment
Equity instruments
792
792
13
779
—
—
—
—
10
10
—
10
—
—
— Other assets/liabilities
— Equity instruments
(416)
83
(309)
(179)
(11)
—
4
7
(13)
10
15
25
(3)
(7)
17
17
—
—
—
—
—
—
(23)
(8)
(16)
(21)
21
1
341
2
(9)
348
22
25
(3)
—
(4)
(4)
—
—
—
—
—
—
2
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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 at 31 December 2020 is EUR 729 million (EUR
340 million in 2019 and EUR 71 million in 2018).
699
Annual report 2020
Contents
The net impact of the coverages are shown in the following
table:
EUR million
31 December 2020
Ineffective
recognised
in the Line of the income statement
income that includes the
statement ineffectiveness of cash flows
104
9
(7) Gains or losses of financial
assets/liabilities
(27) Gains or losses of financial
assets/liabilities
(3) Gains or losses of financial
assets/liabilities
24 Gains or losses of financial
assets/liabilities
5 Gains or losses of financial
assets/liabilities
16 Gains or losses of financial
assets/liabilities
1 Gains or losses of financial
assets/liabilities
1
1 Gains or losses of financial
assets/liabilities
92
72 Gains or losses of financial
assets/liabilities
(25) Gains or losses of financial
assets/liabilities
41 Gains or losses of financial
assets/liabilities
4 Gains or losses of financial
assets/liabilities
2
2 Gains or losses of financial
assets/liabilities
(53)
7
— 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
— Gains or losses of financial
assets/liabilities
— Gains or losses of financial
assets/liabilities
Reclassified amount of reserves to the income
statement due to:
Cover transaction Line of the income
affecting the income statement that includes
statement reclassified items
851
118
81
—
Interest income/
(charges)
51
(15) Interest income/
(charges)
Interest income/
(charges)
Interest income/
(charges)
1
—
Earnings/
(losses)
recognised
in another
cumulative
overall
result
(67)
69
149
15
(197)
111
—
(9)
Fair value hedges
Interest rate risk
Deposits
Bonds
Repo
Fixed-income securities loans
Liquidity lines
Securitizations
Equity instruments
Exchange rate risk
Fixed-income securities loans
Interest rate and exchange rate
risk
Deposits
Bonds
Securitizations
Repo
Credit risk
Bonds
Cash flow hedges
Interest rate risk
Firm Commitment
Deposits
Bonds
Liquidity lines
Loans secondary markets
Highly likely scheduled
transactions
700
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Exchange rate risk
Deposits
Bonds
Repo
Loans secondary markets
Securitizations
CLO
Highly likely scheduled
transactions
Interest rate and exchange rate
risk
Deposits
Bonds
Securitizations
Inflation risk
Deposits
Asset bonds
Equity risk
Highly probable planned
transactions
Net foreign investments
hedges
Exchange rate risk
Equity instruments
Earnings/
(losses)
recognised
in another
cumulative
overall
result
(194)
Ineffective
recognised
income
statement
9
EUR million
31 December 2020
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
Cover transaction Line of the income
that includes the
ineffectiveness of cash flows
affecting the income
statement
(132)
statement that includes
reclassified items
(197)
11
47
—
4
— Gains or losses of financial
assets/liabilities
— Gains or losses of financial
assets/liabilities
3
Gains or losses of financial
assets/liabilities
(48)
— Gains or losses of financial
assets/liabilities
—
—
170
3
133
34
(121)
(94)
(27)
9
9
3
3
3
— Gains or losses of financial
assets/liabilities
(5) Gains or losses of financial
assets/liabilities
(62)
— Gains or losses of financial
assets/liabilities
(8)
(54) Gains or losses of financial
assets/liabilities
(7)
(6) Gains or losses of financial
assets/liabilities
(1) Gains or losses of financial
assets/liabilities
—
— Gains or losses of financial
assets/liabilities
—
—
— Gains or losses of financial
assets/liabilities
(64)
51
7
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
(39) Interest income/
17
(129)
48
14
(charges) / Gains or
losses of financial
assets/liabilities
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
(50) Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
844
125
(39) Interest income/
(charges)
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
758
21
23
Interest income/
(charges)
(2) Interest income/
(charges)
—
—
—
—
—
851
701
Annual report 2020
Contents
EUR million
31 December 2019
Earnings/
(losses)
recognised
in another
cumulative
overall
result
Ineffective
coverage
recognised
in the Line of the income statement
income that includes the
statement ineffectiveness of cash flows
Reclassified amount of reserves to the income
statement due to:
Cover transaction Line of the income
affecting the income statement that includes
statement reclassified items
Fair value hedges
Interest rate risk
Deposits
Bonds
Securitizationss
Equity instruments
58
5
7 Gains or losses of financial
assets/liabilities
5 Gains or losses of financial
assets/liabilities
(7) Gains or losses of financial
assets/liabilities
— Gains or losses of financial
assets/liabilities
Risk of Exchange rate
(3)
Deposits
Bonds
Risk of interest rate and
exchange rate
Deposits
Securitizations
Inflation risks
Deposits
Bonds
Cash flow hedges
Interest rate risk
Firm Commitment
Deposits
Bonds
Liquidity lines
Loans secondary markets
Highly likely scheduled
transactions
(1) Gains or losses of financial
assets/liabilities
(2) Gains or losses of financial
assets/liabilities
56
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 Gains or losses of financial
assets/liabilities
(86)
1
— 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
— Gains or losses of financial
assets/liabilities
8
(263)
65
(37)
(254)
(48)
(1)
12
(1,112)
8
(37) Interest income/
(charges)
7
Interest income/
(charges)
(26) Interest income/
(charges)
61
Interest income/
(charges)
3
Interest income/
(charges)
—
Interest income/
(charges)
702
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
31 December 2019
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
Cover transaction Line of the income
that includes the
ineffectiveness of cash flows
affecting the income
statement
(364)
statement that includes
reclassified items
Earnings/
(losses)
recognised
in another
cumulative
overall
result
145
148
Ineffective
coverage
recognised
income
statement
(34)
Exchange rate risk
Deposits
Bonds
Repo
(31) Gains or losses of financial
assets/liabilities
11
—
— Gains or losses of financial
assets/liabilities
— Gains or losses of financial
assets/liabilities
Loans secondary markets
12
2
Gains or losses of financial
assets/liabilities
Securitizations
CLO
Highly likely scheduled
transactions
(27)
(1)
2
(4) Gains or losses of financial
assets/liabilities
— Gains or losses of financial
assets/liabilities
(1) Gains or losses of financial
assets/liabilities
Interest rate and exchange rate
risk
168
(53)
Deposits
Bonds
Securitizations
Inflation risk
Deposits
Asset bonds
Equity risk
Highly probable planned
transactions
Other risks
Bonds
Net foreign investments
hedges
Exchange rate risk
Equity instruments
(8)
(16)
192
(44)
(49)
5
2
2
—
—
—
—
—
8
— Gains or losses of financial
assets/liabilities
(4) 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
—
—
— Gains or losses of financial
assets/liabilities
(28)
(39) Interest income/
154
(charges) / Gains or
losses of financial
assets/liabilities
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
(4) Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
8
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
(166) Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
(13) Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
(304) Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
(769)
(10) Interest income/
(charges)
57
Interest income/
(charges)
(816) Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
Interest income/
(charges)
Interest income/
(charges)
13
9
4
—
—
—
—
—
—
—
(1,112)
703
Annual report 2020
Contents
EUR million
31 December 2018
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
that includes the
ineffectiveness of cash flows
Cover transaction Line of the income
affecting the income
statement
statement that includes
reclassified items
Ineffective
coverage
recognised
income
statement
75
(18)
(24) Gains or losses of financial
assets/liabilities
(61) Gains or losses of financial
assets/liabilities
1 Gains or losses of financial
assets/liabilities
46 Gains or losses of financial
assets/liabilities
12 Gains or losses of financial
assets/liabilities
8 Gains or losses of financial
assets/liabilities
95
39 Gains or losses of financial
assets/liabilities
8 Gains or losses of financial
assets/liabilities
49 Gains or losses of financial
assets/liabilities
(1) Gains or losses of financial
assets/liabilities
(2)
(2) Gains or losses of financial
assets/liabilities
8
(4)
— Gains or losses of financial
assets/liabilities
(21) Gains or losses of financial
assets/liabilities
2
16
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
317
57
(24) Interest income/
(charges)
Interest income/
(charges)
Interest income/
(charges)/ Gains or
losses of financial
assets/liabilities
Interest income/
(charges)/ Gains or
losses of financial
assets/liabilities
Interest income/
(charges)
Interest income/
(charges)
16
15
47
3
—
—
Earnings/
(losses)
recognised
in another
cumulative
overall
result
200
193
(2)
50
104
85
2
(46)
—
Fair value hedges
Interest rate risk
Deposits
Bonds
Repo
Loans of fixed-income securities
Liquidity lines
Securitizations
Interest rate and exchange rate
risk
Deposits
Bonds
Securitizations
CLO
Other risks
Securitizations
Cash flow hedges
Interest rate risk
Firm Commitment
Deposits
Bonds
Loans secondary markets
Liquidity lines
Repo
Securitizations
704
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
31 December 2018
Reclassified amount of reserves to the income
statement due to:
in the Line of the income statement
Cover transaction Line of the income
that includes the
ineffectiveness of cash flows
affecting the income
statement
(631)
statement that includes
reclassified items
Earnings/
(losses)
recognised
in another
cumulative
overall
result
(20)
Ineffective
coverage
recognised
income
statement
(688)
(25)
(698)
Exchange rate risk
Deposits
Asset bonds
(25)
43
Repo
—
—
Loans secondary markets
5
4
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
Securitizations
CLO
Interest rate and exchange rate
risk
Deposits
Bonds
Securitizations
Inflation risk
Deposits
Asset bonds
Equity risk
Highly probable planned
transactions
Other risks
Bonds
Net foreign investments
hedges
Exchange rate risk
Equity instruments
24
1
45
1
(4)
48
11
14
(3)
(8)
(8)
(21)
(21)
—
—
—
(37) Gains or losses of financial
assets/liabilities
— Gains or losses of financial
assets/liabilities
700
743 Gains or losses of financial
assets/liabilities
447 Gains or losses of financial
assets/liabilities
(490) 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
—
—
— Gains or losses of financial
assets/liabilities
200
83
(563) Interest income/
(charges)/ Gains or
losses of financial
assets/liabilities
(168) Interest income/
(charges)/ Gains or
losses of financial
assets/liabilities
— Gains or losses of
financial assets/
liabilities
(75) Interest income/
150
(charges)/ Gains or
losses of financial
assets/liabilities
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
25
Interest income/
(charges) / Gains or
losses of financial
assets/liabilities
887
35
Interest income/
(charges)
581
271
Interest income/
(charges)/ Gains or
losses of financial
assets/liabilities
Interest income/
(charges)/ Gains or
losses of financial
assets/liabilities
Interest income/
(charges)
Interest income/
(charges)
4
3
1
—
—
—
—
—
—
—
317
705
Annual report 2020
Contents
The following table shows the movement in the impact of
equity for the year:
The detail of the main interest and similar income items
earned in 2020, 2019 and 2018 is as follows:
EUR million
EUR million
Balance at beginning of year
Cash flow hedges
Interest rate risk
Amounts transferred to income
statements
Gain or loss in value CFE -
recognized in equity
Exchange rate risk
Amounts transferred to income
statements
Gain or loss in value CFE -
recognized in equity
2020
2019
2018
300
277
152
Loans and advances, central banks
431
1,314
1,320
Loans and advances, credit institutions
894
1,785
1,555
2020
2019
2018
67
(264)
172
Debt instruments
5,022
6,378
6,429
(118)
(8)
(57)
185
(194)
(256)
146
229
(20)
132
364
631
(326)
(218)
(651)
Loans and advances, customers
38,788
46,180 43,489
Other interest
606
1,128
1,532
45,741 56,785 54,325
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.
Interest rate and exchange rate risk
170
168
45
Amounts transferred to income
statements
Gain or loss in value CFE -
recognized in equity
Inflation risk
Amounts transferred to income
statements
Gain or loss in value CFE -
recognized in equity
Equity risk
Amounts transferred to income
statements
Gain or loss in value CFE -
recognized in equity
Net foreign investments hedges
Exchange rate risk
Amounts transferred to income
statements
Gain or loss in value CFE -
recognized in equity
Non-controlling interest
Taxes
Balance at end of year
(844)
769
(887)
1,014
(121)
(601)
(44)
932
11
(21)
(13)
(4)
(100)
(31)
9
—
9
3
—
3
56
5
2
—
2
—
—
—
32
(17)
15
(8)
—
(8)
—
—
—
(25)
(50)
295
300
277
37. Discontinued operations
No operations were discontinued in 2020, 2019 or 2018.
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.
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 2020, 2019 and 2018 is as follows:
EUR million
Central banks deposits
2020
2019
2018
366
468
421
Credit institution deposits
1,652
2,576
2,588
Customer deposits
Debt securities issued and
subordinated liabilities
5,599 10,137
9,062
5,119
6,679
6,073
Marketable debt securities
4,548
6,034
5,303
Subordinated liabilities (note 23)
Provisions for pensions (note 25)
Lease Liabilities
571
95
186
645
145
273
770
186
9
Other interest expense
730
1,224
1,645
13,747 21,502 19,984
Most of the interest expense and similar charges was
generated by the Group’s financial liabilities that are
measured at amortised cost.
706
40. Dividend income
41. Commission income
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:
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.
The detail of fee and commission income is as follows:
EUR million
Dividend income classified as
Financial assets held for trading
Non-trading financial assets
mandatorily at fair value through
profit or loss
Financial assets at fair value
through other comprehensive
income
2020
2019
2018
EUR million
272
388
241
31
34
23
88
391
111
533
106
370
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
Other fees and commissions
2020
2019
2018
265
328
334
1,284
1,382
1,371
2,986
3,858
3,514
484
110
478
155
475
138
5,129
6,201
5,832
888
170
943
180
1,024
124
2,289
2,631
2,433
3,347
3,754
3,581
394
316
336
316
364
281
485
293
283
251
458
305
1,362
1,423
1,297
500
409
366
612
521
293
546
549
291
1,911
2,545
2,568
3,186
3,971
3,954
13,024 15,349 14,664
707
Annual report 2020
Contents
As explained in note 44, the above breakdown should be
analysed in conjunction with the 'Exchange differences, net':
EUR million
Exchange differences, net
(2,093)
(932)
(679)
2020
2019
2018
b) Financial assets and liabilities at fair value through profit
or loss
The detail of the amount of the asset balances is as follows:
EUR million
Loans and receivables:
46,589
59,624
56,323
2020
2019
2018
Central banks
Credit institutions
Customers
Debt instruments
Equity instruments
Derivatives
9,481
6,473
9,226
12,139
21,649
23,099
24,969
31,502
23,998
41,573
36,402
36,609
12,849
15,787
12,198
67,137
63,397
55,939
168,148 175,210 161,069
Grupo Santander 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 2020 the exposure to credit risk of the
derivatives presented in the balance sheet is not significant
because they are subject to netting and collateral
agreements (see note 2.f).
• Loans and advances to credit institutions and Loans and
advances to customers included reverse repos amounting
to EUR 25,856 million at 31 December 2020.
Also, mortgage-backed assets totalled EUR 1,656 million.
• Debt instruments include EUR 35,789 million of Spanish
and foreign government securities.
At 31 December 2020 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.
42. 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:
EUR million
Commissions assigned to third
parties
Cards
By collection and return of effects
Other fees assigned
Other commissions paid
Brokerage fees on lending and deposit
transactions
Sales of insurance and pension funds
Other fees and commissions
2020
2019
2018
1,856
2,350 1,972
1,249
1,616 1,358
12
595
12
722
11
603
1,153
1,220 1,207
26
248
879
27
232
961
42
232
933
3,009 3,570 3,179
43. Gains or losses on financial assets and
liabilities
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
liabilities:
EUR million
Gains or losses on financial assets and
liabilities not measured at fair value
through profit or loss, net
Financial assets at amortized cost
Other financial assets and liabilities
Of which debt 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
2020
2019
2018
1,107
1,136
(31)
1,138
1,179
308
828
804
604
39
565
563
3,211
1,349
1,515
82
292
331
(171)
(286)
(57)
51
(28)
83
4,280
2,463
2,476
* 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.
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annual accounts
Notes to the consolidated
annual accounts
Appendix
The detail of the amount of the liability balances is as follows:
45. Other operating income and expenses
EUR million
Deposits
Central banks
Credit institutions
Customer
2020
2019
2018
43,598
57,111
65,304
2,490
12,854
14,816
6,765
9,340
10,891
34,343
34,917
39,597
Marketable debt securities
4,440
3,758
2,305
Short positions
Derivatives
16,698
14,123
15,002
64,469
63,016
55,341
Other financial liabilities
—
126
449
129,205 138,134 138,401
At 31 December 2020, 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.
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 2020 is EUR 119 million lower than their
carrying amount (EUR 26 million at 31 December 2019 and
EUR 32 million at 31 December 2018).
44. Exchange differences, net
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.
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 43).
Other operating income and Other operating expenses in the
consolidated income statements include:
EUR million
Insurance activity
Income from insurance and
reinsurance contracts issued
Of which:
Insurance and reinsurance
premium income
2020
2019
2018
210
120
51
1,452
2,534
3,175
1,349
2,404
3,011
Reinsurance income (note 15)
103
130
164
Expenses of insurance and
reinsurance contracts
Of which:
Claims paid, other insurance-
related expenses and net
provisions for insurance contract
liabilities
Reinsurance premiums paid
Other operating income
Non- financial services
Other operating income
Other operating expense
Non-financial services
Other operating expense:
Of which, credit institutions deposit
guarantee fund and single
resolution fund
(1,242)
(2,414)
(3,124)
(1,063)
(2,183)
(2,883)
(179)
(231)
(241)
1,920
1,797
1,643
362
1,558
379
367
1,418
1,276
(2,342)
(2,138)
(2,000)
(350)
(351)
(270)
(1,992)
(1,787)
(1,730)
(1,005)
(212)
(911)
(221)
(895)
(306)
Most of Banco Santander’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.
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46. Staff costs
a) Breakdown
The detail of Staff costs is as follows:
EUR million
Wages and salaries
Social Security costs
Additions to provisions for defined
benefit pension plans (note 25)
Contributions to defined
contribution pension funds
Other Staff costs
2020
2019
2018
8,095
9,020
8,824
1,277
1,426
1,412
76
72
84
283
292
287
1,052
1,331
1,258
10,783 12,141 11,865
b) Headcount
The average number of employees in the Group and Banco
Santander, S.A., by professional category, was as follows:
Average number of employees
Banco Santander, S.A.:
Senior management
Other line personnel
Rest of Spain
Santander UK plc
Santander Brasil
Other companies*
2020
2019
2018
21
20
22
26,527
29,147
30,399
26,548
29,167
30,421
8,878
8,269
7,944
16,790
17,961
18,757
44,554
47,253
46,645
97,121
98,464
98,062
193,891 201,114 201,829
* Does not include staff affected by discontinued operations.
The number of employees, at the end of 2020, 2019 and
2018, was 191,189, 196,419 and 202,713, respectively.
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The functional breakdown (final employment), by gender,
at 31 December, 2020 is as follows:
Functional breakdown by gender
Europe
North America
South America
Senior executives
Other executives
Other personnel
Men
1,115
228
320
1,663
Women
365
50
101
516
Men
7,350
956
3,246
11,552
Women
4,290
453
2,257
7,000
Men
32,937
15,816
26,614
75,367
Women
41,998
20,875
32,218
95,091
The same information, expressed in percentage terms at 31
December, 2020 is as follows:
Functional breakdown by gender
Europe
North America
South America
Senior executives
Other executives
Other personnel
Men
75%
82%
76%
76%
Women
25%
18%
24%
24%
Men
63%
68%
59%
62%
Women
37%
32%
41%
38%
Men
44%
43%
45%
44%
Women
56%
57%
55%
56%
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 2020,
is as follows:
c) Share-based payments
The main share-based payments granted by the Group in
force at 31 December, 2020, 2019 and 2018 are described
below.
i. Bank
Number of employees*
Senior management
Management
Collaborators
2020
7
110
3,460
3,577
* 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 Mexico.
The number of Group employees with disabilities at 2019 and
2018, was 3,584 and 3,436, respectively, (not including
Mexico in 2019 and the United States in 2018).
Likewise, the average number of employees of Banco
Santander, S.A. with disabilities, equal to or greater than 33%,
during 2020 was 319 (318 and 241 employees during 2019
and 2018). At the end of fiscal year 2020, there were 317
employees (295 and 304 employees at 31 December, 2019
and 2018, respectively).
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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Annual report 2020
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Description and plan beneficiaries
Conditions
Calculation Base
Fifth cycles (2015):
• 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, ninth and tenth cycle (2017, 2018,
2019 and 2020):
• 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.
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 op 3 top 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.
Deferred
variable
remuneration
systems
(i) Deferred and
conditional
variable
remuneration
plan (2015,
2016, 2017,
2018, 2019 and
2020)
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
sixth cycles, and over three or five
years for the fifth, seventh, eighth,
ninth and tenth 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
(fifth cycle)
•
In the case of the sixth, seventh,
eighth, ninth and tenth cycle, the
beneficiaries are Material Risk
Takers (Identified staff) that are
not beneficiaries of the Deferred
Multiyear Objectives Variable
Remuneration Plan.
For the fifth and sixth cycles (2015 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.
iv. Significant changes in the Group’s economic
capital or risk profile
In the case of the seventh, eight, ninth and tenth
cycles (2017 to 2020), 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:
v.
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.
vi.
vii. 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.
viii. 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.
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.
iv. significant changes in the Group's economic
capital or risk profile.
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.
(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
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Notes to the consolidated
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Appendix
Deferred
variable
remuneration
systems
(iii)Deferred
Multiyear
Objectives
Variable
Remuneration
Plan (2016,
2017, 2018,
2019 and 2020)
Description and plan beneficiaries
Conditions
Calculation Base
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.
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. breach by the beneficiary of the internal
regulations, including in particular that
relating to risks.
Poor performance of the Group.
iii. material restatement of the Group’s
consolidated financial statements, except
when appropriate under a change in
accounting regulations.
iv. Significant changes in the Group’s economic
capital or risk profile.
In 2017, 2018, 2019 and 2020 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:
v.
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.
vi.
vii. 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.
viii. 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.
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.
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, 2021 and 2022 (over
2016, 2017, 2018 and 2019, 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 and fifth cycle) for the 2019-2021 and
2020-2022 period.
• Compliance with the fully-loaded common
equity tier 1 (“CET1”) ratio target for financial
years 2019, 2020, 2021 and 2022, respectively.
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Description and plan beneficiaries
Conditions
Calculation Base
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.
Vested share options can be exercised until
maturity, with all options lapsing after ten years
and eight years from granting for the 2019 and
2020 incentive, respectively.
The 2019 and 2020 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.
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.
platform.
2. Launch of a Global Merchant Services (GMS)
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.
5. Launch of our international payments app
based on blockchain Pago FX to non-Santander
customers.
The milestones for the 2020 Digital
Transformation Award were: (i) rolling out the
global merchant services (GMS) platform in 3 new
geographies, enhancing the platform functionality
and achieving volume targets for transactions and
participating merchants; (ii) doing the commercial
rollout of the global trade services (GTS) platform
in 8 new geographies, enhancing platform
functionality, and achieving volume targets for on-
boarded clients and monthly active users; (iii)
launching OpenBank in a new market and
migrating the retail banking infrastructure to
“new-mode” bank; (iv) launch the global platform
SuperDigital in at least 4 countries, driving target
active user growth; (v) deploying machine learning
across pre-defined markets for 4 priority use cases,
rolling out Conversion Rate Optimization (Digital
marketing) for at least 40 sales programs,
delivering profit targets, and driving reduction of
agent handled calls in contact centers; (vi)
successfully implementating initiatives related to
on-board and identity services, common API
(application programming interface) layer,
payment hubs, mobile app for SMEs and virtual
assistant services; and (vii) launching the PagoFX
global platform in at least 4 countries.
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
Deferred
variable
remuneration
systems
(iv) Digital
Transformation
Award (2019 y
2020)
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Notes to the consolidated
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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 01/01/2018
Options granted (sharesave)
Options exercised
Options cancelled (net) or not exercised
Plans outstanding at 31/12/2018
Options granted (sharesave)
Options exercised
Options cancelled (net) or not exercised
Plans outstanding at 31/12/2019
Options granted (sharesave)
Options exercised
Options cancelled (net) or not exercised
Plans outstanding at 31/12/2020
Exercise
price in
pounds
sterling*
Year
granted
Employee group
Number of
persons**
Date of
commencement
of exercise period
Date of
expiry of
exercise
period
3.46
2018
Employees
4,880
01/11/18 01/11/21
01/11/18 01/11/23
3.16
3.76
2.83
2019
Employees
5,606
01/11/19 01/11/22
01/11/19 01/11/24
2.83
3.42
1.65
2020
Employees
5,012
11/01/20 11/01/23
11/01/20 11/01/25
2.75
2.96
Number of
shares (in
thousand)
27.201
6,210
(3,340)
(3,233)
26,838
9,594
(7,978)
(5,081)
23,373
11,642
(860)
(12,993)
21,162
* At 31 December, 2020, 2019 and 2018, the euro/pound sterling exchange rate was EUR 1.1168 GBP 1, EUR 1.1754 GBP 1; EUR 1.1179 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 see deducted between GBP 5
and GBP 500 from their net monthly pay over a period of
three or five years. At the end of the chosen period, the
employee may choose between collecting the amount
contributed, the interest accrued and a bonus (tax-exempt in
the United Kingdom) or exercising options on shares of the
Bank in an amount equal to the sum of such three amounts at
a fixed price. The exercise price will be the result of 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 21to 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, April 12, 2019, and April 3, 2020 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 2018, 2019 and 2020:
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
2018, 2019 and 2020 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.
b) 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 GBP 0.21 (GBP 0.49
and GBP 0.53 in 2019 and 2018, respectively).
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Annual report 2020
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47. Other general administrative expenses
a) Breakdown
The detail of Other general administrative expenses is as
follows:
EUR million
Property, fixtures and supplies
(note 2.k)
Technology and systems
Technical reports
Advertising
Taxes other than income tax
Communications
Surveillance and cash courier services
Per diems and travel expenses
Insurance premiums
Other administrative expenses
2020
2019
2018
827
975
1,968
2,119
2,161
1,550
672
523
537
473
325
73
88
677
685
522
518
416
226
86
707
646
557
527
405
225
76
1,900
1,872
1,828
7,537
8,138
8,489
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.
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 172.4 million in 2020 (EUR
227.6 million and EUR 173.9 million in 2019 and 2018,
respectively).
The Audit fees and Audit-related 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 2020, 2019 and 2018
is as follows:
Number of branches
Group
2020
2019
2018
2,989
3,286
4,427
8,247
8,666
8,790
11,236 11,952 13,217
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:
Spain
Group
EUR million
Audit fees
Audit-related fees
Tax fees
All other fees
Total
2020
2019
2018
95.8
102.4
93.9
6.0
0.8
1.2
7.8
0.7
2.3
6.8
0.9
3.4
103.8 113.2 105.0
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
Grupo Santander.
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.
716
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
48. 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:
EUR million
Gains:
Tangible and intangible assets
Investments
Of which:
Custody Business (note 3)
Prisma
Losses:
Tangible and intangible assets
Investments
2020
2019
2018
89
60
—
—
131
124
1,219
989
194
2
—
—
149
1,350
126
(34)
(1)
(35)
(55)
(4)
(59)
114 1,291
(92)
(6)
(98)
28
49. 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:
EUR million
Net balance
Tangible assets
Impairment
Gain (loss) on sale
Other gains and other losses
2020
2019
2018
(171)
(232)
(123)
(215)
(146)
(259)
44
(86)
136
—
(171)
—
(232)
—
(123)
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Annual report 2020
Contents
50. Other disclosures
a) Residual maturity periods and interest rates
The detail, by maturity, of the balances of certain items in
the consolidated balance sheet and the interest rate of the
outstanding balances at year-end is presented below:
31 December 2020
EUR million
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
Interest
rate
153,839
—
—
—
—
—
—
153,839
(0.06) %
—
—
—
—
6,664
6,664
—
—
4,420
4,244
176
176
7,738
7,019
719
719
19,923
18,365
1,558
1,558
21,302
19,969
1,333
1,333
58,123
52,642
5,481
5,481
118,170
108,903
9,267
9,267
2.96 %
2.05 %
51,513
57,047
60,288
109,561
150,399
120,376
409,194
958,378
1,327
5,760
3,059
5,257
7,818
26,078
2.53 %
—
51,513
—
21,337
30,176
2,857
54,190
10,762
4,405
58,961
103,801
147,340
115,119
401,376
932,300
—
—
4,545
3,910
673
3,207
—
34
1,064
400
12,499
37,838
39,023
54,416
99,891
143,460
115,085
399,912
881,963
205,352
63,711
64,708
117,299
170,322
141,678
467,317 1,230,387
640,613
632,305
150
14,370
84,875
64,630
5,204
7,158
617,785
52,268
90,394
67,707
5,295
15,227
47,185
93,296
175,238
61,142
109,856
3,216
9,940
83,112
5,618
80,041
32,464
15,827
5,934
83,731
1,248,188
22,287
990,391
—
112,804
4,373
62,620
47,986
21,126
10,703
17,914
814,967
—
14,981
18,276
30,994
59,526
47,143
59,909
230,829
8,308
5,264
4,411
1,160
5,856
434
1,535
26,968
2.32 %
2.14 %
3.67 %
3.04 %
(0.44) %
1.62 %
0.64 %
1.94 %
640,613
84,875
90,394
93,296
175,238
80,041
83,731 1,248,188
0.82 %
(435,261)
(21,164)
(25,686)
24,003
(4,916)
61,637
383,586
(17,801)
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 amortized cost
Debt instruments
Loans and advances
Central banks
Credits institutions
Customers
Liabilities
Financial liabilities
at amortized cost
Deposits
Central banks
Credit institutions
Customer deposits
Marketable debt
securities* **
Other financial liabilities
Difference (assets less
liabilities)
*
**
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).
Grupo Santander’s net borrowing position with the European
Central Bank (ECB) was EUR 13,494 million at 31 December
2020, mainly because in last period the Group borrowed
funds under the ECB's targeted longer-term refinancing
operations (LTRO, TLTRO) programme. (see note 20).
Grupo Santander has accounted as "On demand", those
financial liabilities assumed, in which the counterparty may
require the payments.
In addition, when Grupo Santander 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.
718
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2019
EUR million
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
Interest
rate
101,067
—
—
—
—
—
—
101,067
0.37 %
—
—
—
—
6,933
6,879
54
54
2,704
2,699
5
5
7,689
7,554
135
135
19,101
17,489
1,612
1,612
17,989
17,063
926
926
68,429
66,721
1,708
1,708
122,845
118,405
4,440
4,440
3.07 %
1.84 %
51,702
73,890
76,229
116,511
150,365
103,584
423,201
995,482
—
51,702
—
17,665
34,037
152,769
619,003
607,051
99
23,526
583,426
1,563
72,327
17,086
6,223
49,018
80,823
99,203
76,101
462
14,494
61,145
1,847
3,073
2,549
3,642
17,115
29,789
3.23 %
74,382
113,438
147,816
99,942
406,086
965,693
—
—
—
4,602
7,435
3,963
—
428
1,388
627
18,474
40,943
69,780
106,003
143,853
99,514
404,071
906,276
78,933
124,200
169,466
121,573
491,630
1,219,394
4.78 %
1.04 %
4.85 %
4.12 %
88,546
159,120
134,799
61,627
111,190
64
18,922
42,641
33,229
14,245
63,716
64,781
28,424
9,327
27,030
61,282
14,224
190
5,668
8,366
68,792
1,230,745
7,443
942,417
—
4,319
3,124
62,468
90,501
789,448
(0.12) %
2.97 %
0.91 %
2.38 %
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 amortized cost
Debt instruments
Loans and advances
Central banks
Credits institutions
Customers
Liabilities
Financial liabilities
at amortized cost
Deposits
Central banks
Credit institutions
Customer deposits
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
619,003
99,203
88,546
159,120
134,799
61,282
68,792
1,230,745
1.29 %
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.
719
Annual report 2020
Contents
31 December 2018
EUR million
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
Average
interest
rate
113,663
—
—
—
—
—
—
113,663
0.11 %
1,886
487
1,399
1,399
6,023
6,022
3,329
3,328
12,873
12,830
19,432
19,415
10,705
10,661
64,172
64,076
118,420
116,819
1
1
1
1
43
43
17
17
44
44
96
96
1,601
1,601
3.11 %
1.41 %
46,247
56,818
71,627
102,036
134,697
107,921
426,753
946,099
16
1,534
1,319
6,646
2,474
1,783
23,924
37,696
3.30 %
46,231
55,284
70,308
95,390
132,223
106,138
402,829
908,403
—
4
—
6,711
6,003
5,314
—
947
15,574
1,024
15,601
35,480
63,597
89,383
126,909
105,191
386,231
857,322
74,956
114,909
154,129
118,626
490,925
1,178,182
6.07 %
1.66 %
4.96 %
4.17 %
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 amortized cost
Debt instruments
Loans and advances
Central banks
Credit institutions
Customers
Liabilities
Financial liabilities
at amortized cost
Deposits
Central banks
Credit institutions
Customer deposits
Marketable debt
securities*
—
10,092
36,139
161,796
545,284
536,134
304
15,341
520,489
23
5,389
49,872
62,841
87,782
74,440
2,130
13,413
58,897
93,293
127,522
182,670
67,406
91,958
107,459
2,629
24,724
40,053
507
64,433
16,384
75,067
8,759
34,267
56,927
18,833
2,520
6,412
9,901
78,152
1,171,630
6,871
903,101
—
4,646
2,225
72,523
89,679
740,899
(0.22) %
2.19 %
0.90 %
2.59 %
237
11,347
18,817
33,536
71,805
37,919
70,653
244,314
Other financial liabilities
8,913
1,995
7,070
2,028
3,406
175
628
24,215
545,284
87,782
93,293
127,522
182,670
56,927
78,152
1,171,630
1.27 %
Difference (assets less
liabilities)
(383,488)
(24,941)
(18,337)
(12,613)
(28,541)
61,699
412,773
6,552
*
Includes promissory notes, certificates of deposit and other short-term debt issues.
720
Auditor's
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
2020, 2019 and 2018 is as follows:
31 December 2020
EUR million
Financial liabilities at amortized 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
629,043
62,872
67,567
60,465
108,326
150
14,334
614,559
—
8,308
5,204
7,158
50,510
15,298
5,264
5,293
15,209
47,065
19,009
4,411
3,217
9,606
47,642
31,103
1,160
82,803
5,031
20,492
58,645
5,856
32,260
15,827
5,903
10,530
46,118
22,228
982,761
—
112,494
4,333
61,574
17,895
808,693
56,730
226,903
434
1,535
26,968
637,351
83,434
90,987
92,728
172,827
78,812
80,493 1,236,632
Financial liabilities at amortized cost
Deposits
Central banks
Credit institutions
Customer
Marketable debt securities
Other financial liabilities
.
31 December 2019
EUR million
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
EUR million
Financial liabilities at amortized 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
721
Annual report 2020
Contents
Below is a breakdown of contractual maturities for the rest of
financial assets and liabilities as of 31 December 2020, 2019
and 2018:
31 December 2020
EUR million
Within 1
months
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than 5
years
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
5,760
4,288
—
6,734
5,268
—
27,753
10,044
—
22,473
15,526
—
18,014
13,681
—
1,472
1,466
17,709
6,947
4,310
34,211
114,945
18,330
67,137
—
—
—
—
—
—
12,500
14,834
181
78
12,319
14,756
343
6,935
5,041
9,138
1,514
4,104
275
—
85
190
—
—
190
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,205
162
7,043
—
2,728
4,315
—
—
—
—
—
—
—
—
—
—
—
—
3,680
407
3,273
—
590
23
3
20
3,933
719
3,214
—
12
—
—
—
—
—
—
—
—
—
69
—
—
69
—
—
69
—
—
1,534
469
1,293
1,107
1,083
2,683
3,202
4,776
9,615
5,990
276
—
276
6,565
1,432
5,133
—
357
4,142
3,234
615
293
—
—
293
2,783
2,783
2,839
9,615
37,894
299
3
296
48,717
2,979
45,738
9,481
12,136
24,121
4,486
3,234
700
552
—
—
552
2,783
2,783
8,325
173
8
132
205
381
1,081
1,980
TOTAL FINANCIAL ASSETS
20,242
22,045
36,383
27,465
23,480
51,621
181,236
722
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
31 December 2020
EUR million
Within 1
months
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than 5
years
years
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
16,754
1,132
15,622
3,727
3,206
521
6,286
5,800
486
—
—
—
—
—
—
13,468
13,459
841
3,673
8,945
9
—
2,619
3
—
—
—
—
—
—
—
—
—
—
—
—
1,732
1,709
2,228
1,954
866
112
731
23
—
200
6
783
935
236
274
—
588
40
17,635
17,566
16,036
16,036
20,729
20,729
69
—
—
—
—
—
—
2,893
2,497
—
1,493
1,004
396
—
748
74
—
—
—
—
—
—
—
1,121
518
—
171
347
603
—
641
64
—
—
—
—
—
—
—
26,596
23,461
—
381
23,080
3,135
—
Total
81,167
64,469
16,698
—
—
—
—
—
—
48,038
43,598
2,490
6,765
34,343
4,440
—
2,073
6,869
99
286
TOTAL FINANCIAL LIABILITIES
32,844
5,665
9,142
21,350
17,862
49,497
136,360
*
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 2020
EUR million
Within 1
months
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than 5
years
years
Total
104,725
1,809
39,205
9,496
852
4,529
145,739
14,877
28,207
3,732
10,497
42,436
47,876
40,458
10,468
241,230
4,134
5,101
1,169
3,207
681
1,999
12,377
64,538
57,111
44,834
13,148
318,145
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.
723
Annual report 2020
Contents
31 December 2019
EUR million
Within
1 month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
years
Total
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
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
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
3,488
5,573
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
724
Auditor's
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
EUR million
Within
1 month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
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
Memorandum items
Loans commitment granted
Financial guarantees granted
Other commitments granted
MEMORANDUM ITEMS
31 December 2019
EUR million
Within
1 month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
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
725
Annual report 2020
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
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
TOTAL FINANCIAL ASSETS
Within
1 month
1 to 3
months
4,512
2,691
—
1,821
—
—
—
3,564
3,165
—
399
—
—
—
21,598
13,045
604
20,994
1,211
14,587
5,196
3,215
—
1,876
1,339
—
2
1,337
—
—
609
106
7
13,038
5,433
4,131
3,474
346
—
20
326
—
—
326
—
—
166
7
31 December 2018
EUR million
1 to 3
years
3 to 12
months
3 to 5 More than
5 years
years
Total
6,793
899
—
5,894
—
—
—
5,625
304
5,321
2,582
778
1,961
17
—
—
17
—
—
17
—
—
22,084
15,189
—
6,895
—
—
—
5,215
727
4,488
—
1,327
3,161
125
—
—
125
—
—
125
—
—
474
2,167
20
28
19,350
14,098
—
5,252
—
—
—
4,065
348
3,717
—
579
3,138
2
—
2
—
—
—
—
—
—
957
59
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
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
868
1,088
30,040
17,128
12,929
29,619
24,433
59,286
173,435
726
Auditor's
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
EUR million
Within
1 month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
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
Memorandum items
Loans commitment granted
Financial guarantees granted
Other commitments granted
MEMORANDUM ITEMS
31 December 2018
EUR million
Within
1 month
1 to 3
months
3 to 12
months
1 to 3
years
3 to 5 More than
5 years
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
727
Annual report 2020
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 EUR million
Cash, cash balances at central banks and other
deposits on demand
Financial assets/liabilities held for trading
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 at fair value through other
comprehensive income
Financial assets at amortized cost
Investments
Tangible assets
Intangible assets
Financial liabilities at amortized cost
Liabilities under insurance contracts
Other
2020
2019
2018
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
76,882
—
65,205
—
61,372
—
66,448
50,494
60,526
45,262
56,217
40,989
2,248
—
2,611
—
8,231
—
24,015
18,347
25,938
29,593
32,244
35,997
79,688
610,152
1,671
21,617
9,609
—
—
—
—
—
76,402
656,564
1,355
24,662
21,942
—
—
—
—
—
67,926
598,629
1,189
19,903
23,016
—
—
—
—
—
—
—
726,516
13
—
—
752,188
13
—
—
694,362
29
26,433
22,801
25,410
23,428
24,506
20,567
918,763
818,171
960,615
850,484
893,233
791,944
728
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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.
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.
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
EUR million
Assets
Loans and
advances
Debt
instruments
2020
2019
2018
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
932,300
940,258
—
65,755
874,503
26,078
26,532
6,753
11,899
7,880
965,693
975,523
—
82,045
893,478
908,403
914,013
—
88,091
825,922
29,789
30,031
10,907
9,971
9,153
37,696
38,095
20,898
11,246
5,951
958,378
966,790
6,753
77,654
882,383
995,482 1,005,554
10,907
92,016 902,631
946,099 952,108
20,898
99,337 831,873
ii) Financial liabilities measured at other than fair value
EUR million
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
2020
2019
2018
Deposits
990,391
990,807
—
263,517 727,290
Debt
instruments
230,829
241,174 91,771
125,031
24,372
942,417
942,397
—
245,143
697,254
903,101
902,680
—
302,414 600,266
258,219
266,784
84,793
149,516
32,475
244,314
247,029
72,945
143,153
30,931
1,221,220 1,231,981 91,771 388,548 751,662
1,200,636 1,209,181
84,793 394,659 729,729
1,147,415 1,149,709
72,945 445,567 631,197
*
At 31 December 2020, the Group had other financial liabilities that amounted to EUR 26,968 million, EUR 30,109 million in 2019 and EUR 24,215 million in
2018.
The main valuation methods and inputs used in the estimates
at 31 December 2020 of the fair values of the financial assets
and liabilities in the foregoing table were as follows:
• Financial assets at amortised cost: 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-.
• 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.
729
Annual report 2020
Contents
d) Exposure of the Group to Europe’s peripheral countries
The detail at 31 December 2020, 2019 and 2018, 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 2020*
EUR million
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
Short
positions
Spain
Portugal
Italy
Ireland
9,765
(5,665)
202
556
—
(582)
(307)
—
7,048
4,148
2,468
—
—
—
—
—
Financial
assets at
amortized
cost
993
631
1,277
—
Loans and
advances to
customers**
Total net
direct
exposure
Direct
risk
Indirect
risk (CDS)s
12,104
24,245
546
4,331
21
—
8,730
4,015
—
—
1
—
—
—
(1)
—
*
**
***
Information prepared under EBA standards. Also, there are government debt instruments on insurance companies balance sheets amounting to EUR 14,241
million (of which EUR 12,571 million, EUR 1,281 million, EUR 387 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 6,134 million (of which EUR 5,509 million, EUR
345 million and EUR 280 million to Spain, Portugal and Italy, respectively).
Presented without taking into account the valuation adjustments recognised (EUR 23 million).
Other than CDS refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDS refers to
the exposure to CDS based on the location of the underlying.
Sovereign risk by country of issuer/borrower at 31 December 2019*
EUR million
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
amortized
cost
Short
positions
Loans and
advances to
customers**
Total net
direct
exposure
Direct
risk
Indirect
risk (CDS)
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 securities 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 CDS refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDS refers to
the exposure to CDS based on the location of the underlying.
730
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Sovereign risk by country of issuer/borrower at 31 December 2018*
EUR million
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
amortized
cost
Short
positions
Loans and
advances to
customers**
Total net
direct
exposure
Direct
risk
Indirect
risk (CDS)
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
—
—
—
—
*
**
**
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 and 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 (EUR 4,870 million, EUR 366
million and EUR 386 million to Spain, Portugal and Italy, respectively).
Presented without taking into account the Other comprehensive income recognised (EUR 34 million).
Other than CDS refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDS refers to
the exposure to CDS based on the location of the underlying.
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 2020,
2019 and 2018 is as follows:
Exposure to other counterparties by country of issuer/borrower at 31 December 2020***
Million euros
Debt instruments
Financial
assets held
for trading
and financial
assets
designated
at fair value
through
profit
or loss
619
140
425
—
22
Financial
assets
at fair value
through other
comprehensive
income
Non-trading
financial
assets
mandatorily
at fair value
through profit
or loss
943
22
493
—
2
—
—
—
2,337
556
Balances
with
central
banks
62,023
3,937
10
—
—
Reverse
repurchase
agreements
3,837
—
7,098
—
—
Spain
Portugal
Italy
Greece
Ireland
MtM Derivatives**
Financial
assets
at
amortized
cost
Loans and
advances
to
customers*
Total net
direct
exposure
24
203,226
270,674
Other
than
CDS
2,581
685
2,933
129
—
9
34,935
41,967
13,437
21,592
1,001
14
14
10,523
13,447
—
153
CDS
(4)
—
(4)
—
—
*
**
***
Also, the Group has off-balance-sheet exposure other than derivatives -contingent liabilities and commitments- amounting to EUR 76,377 million, EUR
8,591 million, EUR 4,173 million, EUR 200 million and EUR 797 million to counterparties in Spain, Portugal, Italy, Greece and Ireland, respectively.
Presented without taking into account valuation adjustments or impairment corrections (EUR 8,129 million).
Other than CDS refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. 'CDS' refers to
the exposure to CDS based on the location of the underlying.
731
Annual report 2020
Contents
Exposure to other counterparties by country of issuer/borrower at 31 December 2019***
EUR million
Debt instruments
Financial
assets held
for trading
and financial
assets
designated
at fair value
through
profit
or loss
656
190
625
—
55
Financial
assets
at fair value
through other
comprehensive
income
Non-trading
financial
assets
mandatorily
at fair value
through profit
or loss
1,195
32
606
—
1,718
321
—
—
—
592
MtM Derivatives**
Financial
assets
at
amortized
cost
1,501
2,956
153
—
22
Loans and
advances
to
customers*
Total net
direct
exposure
194,817
227,813
33,403
39,804
12,284
20,093
12
12
11,875
14,262
Other
than
CDS
2,417
931
512
—
232
CDS
2
—
—
—
—
Balances
with
central
banks
21,696
2,814
182
—
—
Reverse
repurchase
agreements
7,627
409
6,243
—
—
Spain
Portugal
Italy
Greece
Ireland
*
**
***
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 CDS refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. 'CDS' refers to
the exposure to CDS based on the location of the underlying.
Exposure to other counterparties by country of issuer/borrower at 31 December 2018*
EUR million
Debt instruments
Financial
assets held
for trading
and financial
assets
designated
at fair value
through
profit
or loss
412
11
84
—
21
Financial
assets
at fair value
through other
comprehensive
income
Non-trading
financial
assets
mandatorily
at fair value
through profit
or loss
1,760
90
635
—
1,093
320
—
—
—
16
Derivatives***
Financial
assets
at
amortized
cost
2,662
3,821
—
—
25
Loans and
advances
to
customers
Total net
direct
exposure
****
202,149 258,075
33,596
38,887
10,830
17,896
80
80
10,633
11,788
Other
than
CDS
3,880
1,132
253
28
127
CDS
(6)
—
—
—
—
Balances
with
central
banks
42,655
1,369
51
—
—
Reverse
repurchase
agreements
8,117
—
6,296
—
—
Spain
Portugal
Italy
Greece
Ireland
*
**
***
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 excluding Other comprehensive income and impairment losses recognised (EUR 9,385 million).
Other than CDS refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. 'CDS' refers to
the exposure to CDS based on the location of the underlying.
732
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Following is certain information on the notional amount of
the CDS at 31 December 2020, 2019 and 2018 detailed in
the foregoing tables:
2020
EUR million
Spain
Portugal
Italy
2019
EUR million
Spain
Portugal
Italy
2018
EUR million
Spain
Portugal
Italy
Sovereign
Other
Sovereign
Other
Sovereign
Other
Sovereign
Other
Sovereign
Other
Sovereign
Other
Sovereign
Other
Sovereign
Other
Sovereign
Other
Notional amount
Fair value
Bought
—
546
—
52
326
220
Sold
—
273
—
—
206
11
Net
—
273
—
52
120
209
Bought
Sold
Net
—
(13)
—
—
(3)
(4)
—
9
—
—
2
—
—
(4)
—
—
(1)
(4)
Notional amount
Fair value
Bought
—
127
27
—
314
60
Sold
—
340
27
—
9
60
Notional amount
Bought
—
151
26
—
—
205
Sold
—
382
26
—
265
75
Net
—
(213)
—
—
305
—
Net
—
(231)
—
—
(265)
130
Bought
Sold
Net
—
(2)
—
—
(5)
(2)
—
4
—
—
—
2
Fair value
Bought
Sold
—
(2)
—
—
—
(5)
—
(4)
—
—
—
5
—
2
—
—
(5)
—
Net
—
(6)
—
—
—
—
733
Annual report 2020
Contents
51. Main and secondary segments
reporting
We base segment reporting on financial information
presented to the chief operating decision maker, which
excludes certain statutory results items that distort year-on-
year comparisons and are not considered for management
reporting. 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.
Grupo Santander has aligned the information in this note with
the underlying information used internally for management
reporting and with that presented in Grupo Santander's other
public documents.
Grupo Santander executive committee has been determined
to be its chief operating decision maker. Grupo Santander's
operating segments reflect its organizational and managerial
structures. Grupo Santander 's executive committee reviews
internal reporting based on these segments to assess
performance and allocate resources.
The segments are split by geographic area in which profits are
earned and type of business. We prepare the information by
aggregating the figures for Grupo Santander’s various
geographic areas and business units, relating it to both the
accounting data of the units integrated in each segment and
that provided by management information systems.The same
general principles as those used in Grupo Santander are
applied.
In 2020, we maintain the general criteria applied in 2019, as
well as the business segments with the following exceptions,
which only affect the secondary segments:
1. Following the creation of the reporting segment
Santander Global Platform in 2019, which comprises our
global digital services under a single unit, and its
incorporation in both primary and secondary segments, in
2020 for better monitoring of its evolution and
contribution to the Group's results, at the secondary
segment level in addition to the results generated by the
platforms, 50% of the results generated by countries in
products linked to these platforms are considered. These
results were previously included in Retail Banking.
2. Annual adjustment of the perimeter of the Global
Customer Relationship Model between Retail Banking and
Santander Corporate & Investment Banking and between
Retail Banking and Wealth Management & Insurance.
These changes in the secondary segments have no impact on
the primary segments and do not affect the Group’s figures.
a) Main segments
This main 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: which comprises all the business activities carried
out in the region, mainly in Spain, Santander Consumer
Finance, the United Kingdom, Portugal and Poland
• 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
Santander Bank, Santander Consumer USA, the
specialized unit Banco Santander International, Santander
Investment Securities (SIS) and the New York branch. The
sale of Banco Santander Puerto Rico was completed in
September 2020, which was previously included in the
US.
• South America: includes all the financial activities carried
out by Grupo Santander through its banks and subsidiary
banks in the region, mainly in Brazil, Chile and Argentina.
• Santander Global Platform: which comprises our global
digital services under a single unit, includes Global
Payments Services (global trade services, global merchant
services, superdigital, pagoFX), our fully digital bank
Openbank, S.A. 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, Grupo Santander continues
to maintain the area of Corporate Centre, that includes the
centralized activities relating to equity stakes in financial
companies, financial management of the structural exchange
rate position, assumed within the sphere of Grupo
Santander’s assets and liabilities committee, as well as
management of liquidity and of shareholders’ equity via
issuances.
As Grupo Santander’s holding entity, this area manages all
capital and reserves and allocations of capital and liquidity
with the rest of businesses. It also incorporates amortization
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.
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.
To allow better comparability of the secondary segments,
2019 data has been provided on a new basis.
There are no customers located in any of the areas that
generate income exceeding 10% of Total income.
After these changes, the operating business areas are
structured in two levels:
734
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The condensed balance sheets and income statements of the
various main segments are as follows:
EUR million
Balance sheet (condensed)
Total assets
Loans and advances to customers
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
Europe
North
America
South
America
2020
Santander
Global
Platform
Corporate
Centre
1,077,537
223,313
238,263
12,901
182,587
Intra-Group
eliminations
Total
(226,351) 1,508,250
675,894
120,557
113,731
973
5,044
—
916,199
224,793
86,925
48,266
41,659
28,469
38,398
15,363
20,526
42,957
49,300
17,266
15,009
1,022,954
199,611
218,797
622,826
102,906
111,791
208,408
120,166
55,919
15,635
54,583
86,899
71,238
15,487
174
37,966
36,583
16,159
5,997
23,702
16,505
10,864
90
5,551
41,989
21,280
35,434
8,303
19,466
49,851
49,851
—
—
10,917
61,173
(142,513)
225,796
13
230
768
11,521
10,961
274
—
130
156
1,918
1,644
112,808
106,558
826
38,555
57,240
493
9,444
1,380
76,029
—
—
—
—
12
12
—
—
—
—
—
176,554
82,769
(83,838)
106,932
(142,513) 1,416,928
—
849,310
(142,513)
184,679
—
—
—
(83,838)
—
—
—
—
—
235,269
108,135
39,535
91,322
153,267
131,965
15,577
5,725
53,549
34,789
11,915
6,187
658
*
**
***
****
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.
735
Annual report 2020
Contents
EUR million
Balance sheet (condensed)
Total assets
Loans and advances to customers
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
Europe
North
America
South
America
2019
Santander
Global
Platform
Corporate
Centre
1,057,038
223,857
253,804
10,234
168,352
Intra-Group
eliminations
Total
(190,590) 1,522,695
676,904
133,726
125,122
702
5,764
—
942,218
180,389
22,885
51,360
9,063
32,803
(107,894)
188,606
104,381
53,893
41,471
33,746
10,759
22,741
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
10
187
272
9,760
9,460
82
—
106
112
474
—
—
—
—
840
2,406
126,539
77,989
793
—
—
184,596
82,047
(82,696)
125,228
(107,894) 1,412,036
—
824,365
12,253
(107,894)
175,163
54,495
636
9,812
90,363
—
—
—
(82,696)
11
11
—
—
—
—
—
—
—
—
261,977
107,374
43,157
110,659
176,911
142,988
11,844
22,079
49,489
Other non-managed marketed customer funds
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.
736
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
Balance sheet (condensed)
Total assets
Loans and advances to customers
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
Europe
North
America
South
America
2018
Santander
Global
Platform
Corporate
Centre
1,020,737
200,919
237,480
8,781
170,614
Intra-Group
eliminations
Total
(179,260) 1,459,271
639,966
116,196
119,912
337
6,509
1
882,921
172,298
118,221
49,263
40,989
28,845
27,302
9,974
18,602
48,318
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
91,895
26,048
43,758
11,379
5,966
21,873
12,785
10,436
98
2,251
108,248
38,584
31,504
28,570
8,699
21,875
68,172
61,515
—
6,657
128
8,168
39,840
(100,400)
197,069
—
146
130
8,492
8,284
111
—
38
59
289
367
367
—
—
—
377
2,113
—
1
191,124
70,808
121,775
82,439
(78,862)
117,349
(100,399) 1,351,910
235
—
780,496
30,879
(100,398)
187,909
41,783
1,334
8,208
88,175
—
(1)
—
(78,861)
7
7
—
—
—
—
—
—
—
—
246,619
95,007
41,879
107,361
157,855
127,564
11,160
19,131
42,211
Other non-managed marketed customer funds
28,555
13,528
*
**
***
****
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.
737
Annual report 2020
The condensed income statements for the main segments are
as follows:
EUR million
Underlying income statement (condesed)
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
2020
Europe North America South America
14,047
4,736
885
25
8,469
1,661
251
630
10,723
3,566
765
(209)
19,693
11,011
14,845
(10,314)
9,379
(4,300)
(913)
4,166
(1,131)
3,035
—
3,035
379
2,656
(4,631)
6,380
(3,917)
(130)
2,333
(579)
1,754
—
1,754
262
1,492
(5,312)
9,533
(3,923)
(319)
5,291
(1,927)
3,364
—
3,364
437
2,927
Santander
Global
Platform
129
81
(1)
(17)
192
(381)
(189)
(3)
(11)
(203)
52
(151)
—
(151)
(1)
(150)
Corporate
centre
(1,374)
(29)
287
(25)
(1,141)
(329)
(1,470)
(31)
(412)
(1,913)
69
(1,844)
—
(1,844)
—
(1,844)
Contents
Total
31,994
10,015
2,187
404
44,600
(20,967)
23,633
(12,174)
(1,785)
9,674
(3,516)
6,158
—
6,158
1,077
5,081
*
**
***
****
*****
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 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 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.
738
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
Underlying income statement (condesed)
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
14,201
5,260
1,036
504
North
America
8,926
1,776
230
672
2019
South
America
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)
(1,617)
(373)
(1,990)
(36)
(237)
(2,263)
157
(2,106)
—
(2,106)
(9)
(2,097)
Total
35,283
11,779
1,531
901
49,494
(23,280)
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.
'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 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 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.
739
Annual report 2020
EUR million
Underlying income statement (condesed)
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
79
7
—
(12)
74
(142)
(68)
—
(2)
(70)
17
(53)
—
(53)
1
(54)
Corporate
Centre
(987)
(68)
12
(14)
(1,057)
(426)
(1,483)
(115)
(101)
(1,699)
14
(1,685)
—
(1,685)
—
(1,685)
Contents
Total
34,341
11,485
1,797
801
48,424
(22,779)
25,645
(8,873)
(1,995)
14,777
(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. 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.
740
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
b) Secondary segments
At this secondary level, Grupo Santander is structured into
Retail Banking, Santander Corporate & Investment Banking,
Wealth Management & Insurance and Santander Global
Platform.
• Retail Banking: this covers all customer banking
businesses, including consumer finance, except those of
corporate banking which are managed through Santander
Corporate & Investment Banking, asset management,
private banking and insurance, which are managed by
Wealth Management & Insurance and 50% of the
countries’ results generated by digital services, which are
included in Santander Global Platform. 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 the asset
management business (Santander Asset Management),
the corporate unit of Private Banking and International
Private Banking in Miami and Switzerland and the
insurance business (Santander Insurance).
• Santander Global Platform: which comprises our global
digital services under a single unit (breakdown in the
primary segment definition), as well as 50% of the results
generated by these services in the commercial network.
Although Santander Global Platform and Wealth
Management & Insurance do not meet the quantitative
thresholds defined in IFRS 8, these segments are considered
reportable by Grupo Santander and are disclosed separately
because Grupo Santander's management believes that
information about these segments is useful to users of the
financial statements.
There are no customers located in a place different from the
location of the Group's assets that generate revenues in
excess of 10% of ordinary revenues.
The condensed income statements are as follows:
741
Annual report 2020
Contents
EUR million
Underlying income statement (condensed)
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/(loss) from continuing operations
Net profit/(loss) from discontinued operations
Consolidated profit/(loss)
Non-controlling interests
Attributable profit/(loss) to the parent
2020
Santander
Corporate &
Investment
Banking
Wealth
Management &
Insurance
Santander
Global
Platform
2,953
1,551
690
204
5,398
(2,069)
3,329
(467)
(135)
2,727
(783)
1,944
—
1,944
121
1,823
455
1,194
103
383
2,135
(907)
1,228
(28)
(1)
1,199
(291)
908
—
908
41
867
416
449
145
(17)
993
(816)
177
(39)
(9)
129
(58)
71
—
71
32
39
Retail
Banking
29,544
6,850
962
(141)
37,215
(16,846)
20,369
(11,609)
(1,228)
7,532
(2,453)
5,079
—
5,079
883
4,196
Corporate
centre
(1,374)
(29)
287
(25)
(1,141)
Total
31,994
10,015
2,187
404
44,600
(329)
(1,470)
(20,967)
23,633
(31)
(12,174)
(412)
(1,913)
69
(1,844)
—
(1,844)
—
(1,844)
(1,785)
9,674
(3,516)
6,158
—
6,158
1,077
5,081
*
**
***
****
*****
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 an addition 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 an addition 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.
742
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
Underlying income statement (condensed)
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/(loss) from continuing operations
Net profit/(loss) from discontinued operations
Consolidated profit/(loss)
Non-controlling interests
Attributable profit/(loss) to the parent
2019
Santander
Corporate &
Wealth
Investment Management &
Insurance
Banking (SCIB)
Santander
Global
Platform
2,728
1,520
689
289
5,226
570
1,199
117
340
375
549
149
(13)
2,226
1,060
Retail
Banking
32,862
8,561
872
303
42,598
Corporate
Centre
(1,252)
(50)
(296)
(18)
(1,616)
Total
35,283
11,779
1,531
901
49,494
(18,926)
(2,281)
(955)
(745)
(373)
(23,280)
23,672
(9,101)
(1,619)
12,952
(4,047)
8,905
—
8,905
1,325
7,580
2,945
(155)
(91)
2,699
(815)
1,884
—
1,884
171
1,713
1,271
23
(12)
1,282
(302)
980
—
980
51
929
315
(52)
(5)
258
(95)
163
—
163
36
127
(1,989)
26,214
(36)
(237)
(2,262)
156
(2,106)
—
(2,106)
(9)
(2,097)
(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. 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.
743
Annual report 2020
Contents
EUR million
Underlying income statement (condensed)
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/(loss) from continuing operations
Net profit/(loss) from discontinued operations
Consolidated profit/(loss)
Non-controlling interests
Attributable profit/(loss) to the parent
2018
Santander
Corporate &
Wealth
Investment Management &
Insurance
Banking (SCIB)
Santander
Global
Platform
2,461
1,534
898
184
5,077
(2,101)
2,976
(199)
(97)
2,680
(832)
1,848
—
1,848
157
1,691
527
1,142
131
299
364
546
147
(11)
2,099
1,046
(873)
1,226
(10)
(4)
1,212
(285)
927
—
927
52
875
(623)
423
(21)
(4)
398
(125)
273
—
273
43
230
Retail
Banking
31,976
8,331
609
343
41,259
(18,756)
22,503
(8,528)
(1,789)
12,186
(4,002)
8,184
—
8,184
1,230
6,954
Corporate
Centre
(987)
(68)
12
(14)
(1,057)
(426)
(1,483)
(115)
(101)
(1,699)
14
(1,685)
—
(1,685)
1
(1,686)
Total
34,341
11,485
1,797
801
48,424
(22,779)
25,645
(8,873)
(1,995)
14,777
(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. 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.
744
Auditor's
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.
Grupo Santander assets and liabilities for management
reporting purposes do not differ from the statutory reported
figures and therefore are not reconciled.
EUR million
2020
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
Adjusted profit for the year from continuing operations
Profit from discontinued operations (net)
Consolidated profit/(loss)
Non-controlling interests
Attributable profit/(loss) to the parent
Underlying
results
Adjustments
Statutory
results
31,994
10,015
2,187
404
44,600
(20,967)
23,633
(12,174)
(1,785)
9,674
(3,516)
6,158
—
6,158
1,077
5,081
—
—
—
(321)
(321)
(163)
(484)
(258)
(11,008)
(11,750)
(2,116)
(13,866)
—
(13,866)
(14)
(13,852)
31,994
10,015
2,187
83
44,279
(21,130)
23,149
(12,432)
(12,793)
(2,076)
(5,632)
(7,708)
—
(7,708)
1,063
(8,771)
*
**
***
****
*****
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 an addition 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 for an addition 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:
• Adjustment to the valuation of goodwill arising from the
Group's acquisitions in the amount of EUR -10,100 million,
which is included in the line 'Other gains (losses) and
provisions'.
• Adjustment to the valuation of the deferred tax assets of
the consolidated tax group in Spain in the amount of EUR
-2,500 million, which is included in the 'Tax on profit' line.
• Restructuring costs with a net impact of EUR -1,114 million,
which are included for their gross amount mainly in the line
'Other gains (losses) and provisions'.
• Other charges of EUR -138 million (related to sales of non-
performing loans in Spain, cancellation of pension
commitment costs and other expenses), which are
recorded gross in 'Other gains (losses) and provisions', 'Net
loan-loss provision' and 'Administrative expenses and
depreciation and amortization'.
745
Annual report 2020
Contents
EUR million
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/(loss)
Non-controlling interests
Attributable profit/(loss) 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. 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 EUR 31 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:
• Impairment of the goodwill assigned to Santander UK and
• Provisions related to intangible assets and others,
provisions for PPI in the UK, with a net impact of EUR
-1,491 million and EUR -183 million, respectively, reflected
in the line 'Other gains (losses) and provisions'.
amounting to EUR -174 million, which are included for their
gross amount in the line 'Other gains (losses) and
provisions'.
• Restructuring costs with a net impact of EUR -864 million,
which are included in the line 'Other gains (losses) and
provisions'.
• Losses related to real estate assets and holdings in Spain
with a net impact of EUR -405 million, which are included in
the 'Other operating income' and 'Other gains (losses) and
provisions' lines.
• 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 at their gross amount in the line 'Other gains
(losses) and provisions'.
• Positive impact due to changes in tax regulations in Brazil
for a net amount of EUR 551 million, which is included in
the line "Tax on profit'.
746
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
2018
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/(loss)
Non-controlling interests
Attributable profit/(loss) to the parent
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. 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 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.
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Annual report 2020
Contents
52. 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.
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 recognized.
EUR million
Assets
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
Financial guarantees granted and Others
Loan commitments and Other commitments
granted
Derivative financial instruments
2020
Associates and joint ventures Members of the board of directors Executive vicepresident Other related parties
8,473
151
562
6,934
423
403
3,593
944
2,557
12
80
1,269
106
(8)
49
1,154
(32)
4,097
14
253
3,830
—
—
—
—
—
—
4
—
4
—
—
—
—
—
—
—
—
1
—
1
—
24
—
—
24
—
—
16
—
16
—
—
—
—
—
—
—
—
1
—
1
—
95
—
—
95
—
—
159
—
159
—
—
3
2
—
—
1
—
52
3
13
36
748
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
EUR million
Assets
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
Financial guarantees granted and Others
Loan commitments and Other commitments
granted
Derivative financial instruments
EUR million
Assets
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
Financial guarantees granted and Others
Loan commitments and Other commitments
granted
Derivative financial instruments
2019
Associates and joint ventures Members of the board of directors Executive vicepresident Other related parties
9,659
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
—
—
26
—
—
12
—
12
—
—
—
—
—
—
—
—
3
2
1
—
104
—
—
104
—
—
57
—
57
—
—
2
1
—
—
1
—
49
38
6
5
2018
Associates and joint ventures Members of the board of directors Executive vicepresident Other related parties
7,202
—
704
6,142
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
—
—
30
—
—
12
—
12
—
—
—
—
—
—
—
—
3
1
2
—
256
—
—
256
—
—
363
—
363
—
—
31
14
(1)
—
18
—
782
508
64
210
749
The remaining required information is detailed in notes 5, 14
and 46.c.
Annual report 2020
Contents
53. Risk management
a) Cornerstones of the risk function
Grupo Santander´s risk principles below are compulsory. They
comply with regulatory requirements and are inspired by best
market practices:
1. All employees are risk managers. Employees must
understand the risks inherent in their jobs, avoiding them
wherever the impact is unknown or exceeds our risk
appetite.
2. Engagement of top management, who must act and
communicate to manage risks consistently, supervise our
risk culture and make sure we keep our risk profile within
our risk appetite.
3. Independent risk management and control functions,
consistent with our model of three lines of defence.
4. A forward-looking, comprehensive approach to risk
management and control for all businesses and risk
types.
5. Detailed, timely information to detect, assess, manage
and report risks to the appropriate level of management.
Grupo Santander’s holistic control structure stands on these
principles, plus a series of strategic tools and procedures
embedded in group´s risk appetite statement, such as the risk
profile assessment, scenario analysis, the risk reporting
structure and the annual planning and budget process.
1. Main risks of the group's financial instruments
Grupo Santander's classification of risks ensures effective risk
management, control and reporting. Our risk framework
distinguishes these key risk types:
• Credit risk relates to financial loss arising from the default
or credit quality deterioration of a customer or
counterparty, to which Santander has directly provided
credit or assumed a contractual obligation.
• Market risk results from changes in interest rates,
exchange rates, equities, commodities and other market
factors, and from their effect on profit or capital.
• Liquidity risk occurs if liquid financial resources are not
enough to meet due obligations or can only be obtained at
a high cost.
• Structural risk relates to the changing value or margin of
assets or liabilities in the banking book owing to changes in
market factors and balance sheet behaviour. It includes
risks from insurance, pension activities or an inadequate
quantity or quality of capital to fulfil internal business
objectives, regulatory requirements or market
expectations.
• Operational risk is the possibility of losses from
inadequate or failed internal processes, people and
systems or from external events. It includes legal risk and
conduct risk.
750
• Regulatory compliance risk is the risk of not fulfilling legal
and regulatory requirements and supervisors´expectations,
and may lead to fines, financial penalties or other
sanctions.
• Model risk involves potential losses resulting from
inaccurate predictions that lead to sub-optimal decision-
making, or from a misuse or inadequate implementation of
a model.
• Reputational risk consists of potential losses from damage
to its reputation amongst employees, customers,
shareholders/investors and the wider community.
• Strategic risk relates to losses or damage to the medium-
and long-term interests of key stakeholders owing to
strategic decision-making, poor execution of strategy or
failure to adapt to external developments.
Grupo Santander also considers environmental and climate-
related risk drivers (whether physical or transition-led) as
factors that could impact the exiting risks in the medium and
long-term.
2. Risk governance
Grupo Santander 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.
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 led by the 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 functions that originate risks
make up the first line of defence, which identifies,
measures, controls, monitors and reports risks. It adheres
to all risk management policies and procedures, making
sure risks fit within risk appetite and other limits.
• Second line: The Risk and Compliance & Conduct functions
form the second line of defence to provide independent
oversight and challenge to risk management decisions
from the first line. The second line of defence ensures risks
are managed according to risk appetite, strenghtening our
risk culture across Grupo Santander.
• Third line: The Internal Audit function is independent to
assure senior management about the quality and
effectiveness of internal controls, risk management.
governance and systems, helping to safeguard our value,
solvency and reputation.
The Risk, Compliance & Conduct and Internal Audit functions
are separate and independent. Each has its own direct access
to the board of directors and its committees.
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
2.2 Risk and Compliance committee structure
The board of directors' duties include risk and compliance
management and control. It regularly revises and approves
risk appetite and frameworks, strengthening and promoting
our risk culture. In its duties, the board is supported by the
risk supervision, regulation and compliance committee and
the Grupo Santander executive committee.
The Group chief risk officer (Group CRO) is responsible for
devising risk strategy, overseeing all risks, and challenging
and advising business lines on their risk management.
The Group chief compliance officer (Group CCO) promotes
the adherence to rules, supervisory requirements, principles
of good conduct and values. This role determines the
compliance and conduct strategy, and independently
oversees and challenges the compliance and conduct risk
management of the first line of defence.
Both the Group CRO and CCO have direct access, and report
to, the risk supervision, regulation and compliance committee
and the board of directors.
The executive risk, risk control and general compliance
committees are also at the top of Grupo Santander's risk and
compliance governance, with authority delegated by the
board of directors. Further detail is provided in the table
below:
Executive risk committee
(ERC)
Risk control committee
(RCC)
General compliance
committee
Duties:
This committee is responsible for
risk management duties delegated
by the board, being authorized to
accept, modify or scale those actions
or transactions that may expose the
entity to a relevant risk as well as
the most significant models. It takes
the highest-level risk-related
decisions within the group’s risk
appetite.
This committee is responsible for risk
control and for providing a holistic
view of all risks. It determines if the
risks business lines are being
managed according to risk appetite. It
also identifies, monitors and
evaluates the impact of current and
emerging risks on the group's risk
profile.
The committee is responsible for
reviewing significant compliance and
conduct risk events, and evaluating
related measures. It devises and
assesses corrective actions for
compliance risks owing to
shortcomings in management and
control or new risks.
Chair:
CEO
Composition:
Group CRO
Group CCO
Nominated executive directors and
other senior managers from the
Risk, Finance and Compliance &
Conduct functions (the Group CRO
has veto power over committee
resolutions).
Senior managers from the Risk,
Compliance & Conduct, Finance,
Accounting and Management
Control functions (CRO from
subsidiaries regularly report on
their own risk profiles).
Senior managers from the
Compliance & Conduct, Risk,
Accounting and Management
functions. The committee chair has a
casting vote over committee
resolutions.
Risk functions have forums and regular meetings to manage
and control the risks under their scope. Their responsibilities
include:
• Reporting to the Group CRO, Group CCO, the risk control
committee and general compliance committee on risk
management according to risk appetite.
• Amid the covid-19 pandemic, coordination and
communication with our subsidiaries is essential to making
sure our actions were effective, underpinned by written
communication, meetings, reporting and enhanced
governance. In early March, we implemented specific
weekly reporting mechanisms so all units could provide
detailed, standardized information.
• Monitoring each risk factor regularly.
• Overseeing measures to meet supervisor and auditor
expectations.
Grupo Santander may set up additional governance for special
cases.
Grupo Santander monitored the pandemic intensively
through special situation forums such as the credit risk war
room, in addition to our regular governance framework.
Close coordination between our subsidiaries and Group-
wide and local contingency plans (including scenario
analysis) strengthened resources and governance. As the
crisis developed, it became a multidisciplinary task force
composed of members from relevant functions to steer
units in managing credit risk with these special work
streams in place: i) monitoring and reporting; ii) sectorial
intelligence; iii) portfolio management; iv) credit strategy;
v) regulatory assurance; vi) credit forecasting and vii)
collections and recoveries.
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Annual report 2020
Contents
• Furthermore, in view of Brexit, Grupo Santander and
Santander UK set up steering committees and separate
working groups to monitor the transition; develop
contingency plans; and escalate and make decisions to
minimise impact on our business and customers.
2.3 The Group’s relationship with subsidiaries regarding risk
management
In all Grupo Santander's subsidiaries, the risk and compliance
management and control models are 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.
As part of the aggregate supervision function for all risks,
Grupo Santander challenges and validates subsidiaries’
policies and transactions. This creates a common risk
management and control model across the group.
In 2020, a new approach was taken in the relationship with
the Group´s subsidiaries with the creation of three regions
(Europe, North America and South America) and the
appointment of three risk regional leaders. The aim is to
enhance the identification of synergies under a common
operating model and common platforms, leveraging the
Group's global and regional scale, as well as simplifying
processes and strengthening control mechanisms to support
business growth while optimizing capital allocation and
better serving Group´s customers.
In this sense, each local CRO must regularly interact with, and
report to, the risk regional leaders, the Group CRO and the
Group CCO. Additionally, periodic follow-up meetings are
held between the different risk areas and the local
counterparts.
Furthermore, the Group CRO, the Group CCO, and Risk
Regional Leaders take part in appointments, target setting
and local CRO evaluations and remuneration to make sure
risks are appropriately controlled.
Grupo Santander undertook various initiatives to enhance the
relationship between the Group and its subsidiaries and apply
an advanced risk management mode:
• It is worth highlighting, the close collaboration in relation
to covid-19 to share best practices, experiences, provide
support in scenario analysis, additional provision
estimations, etc.
• Development of organizational structures, subsidiary
benchmarks and a strategic vision of the Risk and
Compliance function to promote the most advanced and
efficient risk management infrastructures and practices.
• Cooperation to share best practices, strengthen processes
and drive innovation for a quantitative impact.
• Identification of talent in the Risk and Compliance teams,
encouraging international mobility through the global risk
talent programme.
• Risk Subject Matter Experts to bring together a community
of specialists.
752
3. Management processes and tools
Grupo Santander has these effective risk management
processes and tools:
3.1 Risk appetite and structure of limits
Risk appetite is the volume and type of risks deemed prudent
to assume for the business strategy of the Group, even under
unexpected circumstances. It considers adverse scenarios that
could have a negative impact on capital and liquidity,
profitability and/or the share price.
The board sets the group's risk appetite statement (RAS)
every year. The boards of Grupo Santander's subsidiaries also
set their own risk appetites annually, in line with the
consolidated Group-wide RAS. Each of those risk appetites
cascades down into specific, detailed limits and policies based
on risk type, portfolio and segment.
Business model and risk appetite fundamentals
Grupo Santander's risk appetite is consistent with the risk
culture and its unique business model built on customer
focus, scale and diversification. At the core of our risk appetite
are:
• A medium-low target risk profile that is predictable,
centred on retail and commercial banking, internationally
diversified operations and strong market share;
• stable, recurrent earnings and shareholder remuneration,
sustained by sound capital, liquidity and sources of funding;
• self-run subsidiaries with their own sources of capital and
liquidity and risk profiles that do not compromise Grupo
Santander’s solvency;
• an independent risk function with active senior
management that embeds a strong risk culture and drives a
sustainable return on capital;
• a global, holistic view through extensive control and
monitoring of risks, businesses and markets;
• a focus on products the Group knows well;
• A conduct model that protects Grupo Santander's
customers;
• A remuneration policy that reconciles employees and
executives' interests to risk appetite and long-term results.
Santander risk appetite principles
The principles informing our risk appetite are:
• The board and senior management's responsibility for
risk appetite.
• An enterprise-wide view, risk profile back-testing and
challenge, using quantitative metrics and qualitative
indicators.
• A forward-looking approach based on plausible
assumptions and adverse/stress scenarios to reflect our
desired risk profile in the short and medium term.
• Strategic and business plans embedded in daily
management by policies and limits.
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
• Common standards aligning each subsidiary with Grupo
3.2. Risk profile assessment (RPA)
Santander.
• Regular reviews, regulatory requirements and best
practices with mechanisms in place to keep the risk profile
stable and mitigate non-compliance.
Limits structure, monitoring and control
Grupo Santander risk appetite is expressed in qualitative
terms and limits structured on these five core elements.
1 Earnings volatility
The maximum loss Grupo Santander can tolerate in an
acute stress scenario.
2 Solvency
• The minimum capital position Grupo Santander can
tolerate in an acute stress scenario.
• The maximum leverage we can accept in an acute
scenario.
3 Liquidity
• Minimum structural liquidity position.
• Minimum liquidity horizon Grupo Santander is willing
to accept in 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 • Maximum operational risk losses.
• Maximum risk profile.
• Qualitative non-financial risk indicators:
◦ Fraud
◦ Technological
◦ Security and cyberrisk
◦ Reputational
◦ Others
While risk appetite limits are regularly monitored,
specialized control functions report on risk profile and
compliance with limits to the board and its committees every
month.
Risk appetite limits cascade down to business units, risk types
and portfolios. This makes risk appetite an effective tool for
managing risks. Management policies and limits are directly
based on the principles and limits in the risk appetite
statement.
Key 2020 developments
Grupo Santander thoroughly reviewed the impact of covid-19
and the adequacy of our risk appetite to cope with the new
environment. Risk appetite limits remained broadly
unchanged despite extraordinarily challenging conditions.
Management focused on enhancing control over market
volatility, better representation and visibility of emerging
risks such as cyber security and other non-financial risks.
Grupo Santander´s risk appetite statement also strengthened
its commitment to corporate social responsibility (CSR), the
environment and the Paris Agreement's transition to a low-
carbon and climate-resilient economy.
Grupo Santander routinely identifies risk types to
systematically and objectively evaluate its risk profile. This
helps address major threats to is business plan and strategic
objectives.
Risk identification results inform Group´s risk profile
assessment (RPA), which involves all lines of defence. It
reinforces Group´s risk culture in analysing how risks evolve
and identifying improvement areas. Grupo Santander´s RPA
methodology covers these areas:
• Risk performance, to understand residual risks by type
with international standard and indicators.
• Control environment, to measure the target-operating
model of Grupo Santander's advanced risk management
according to regulatory requirements and best market
practices.
• Forward-looking, based on stress metrics and top risks to
the strategic plan.
In 2020, Grupo Santander upgraded its control environment
standards and reviewed risk performance metrics, focusing
on strategic, compliance and conduct metrics. The inclusion of
the 'control score' in the non-financial risks control
environment enabled the Group to better capture its risk
profile.
Covid-19 had a negative impact on Grupo Santander's risk
performance. In triggering all scenarios the Group consider
(including those most severe), it led to a higher risk profile,
driven by higher provisions and budgetary deviations with
respect to profits. Non-financial risk profile remained stable,
with operational losses below 2019 figures, and better
liquidity performance.
The impact of covid-19 as a catalyst for relevant and
emerging risks was also key in the deterioration of our risk
profile in 2020. This deterioration has been contained by a
solid control environment, especially in credit risk, driven by
ATOMiC and collections and recovery preparation plans. All of
this has allowed us to maintain our risk profile at a 'medium-
low' level.
3.3. Scenario analysis
The scenarios that Grupo Santander analyse include
macroeconomic and other variables that can affect the risk
profile in those markets in which Grupo Santander operate.
Scenario analysis is a useful tool for managing risks at all
levels, so Grupo Santander can gauge our resilience under
stressed conditions and formulate mitigating actions on
income, capital and liquidity if needed. For this, the Research
and Public Policy team is key in defining scenarios, as well as
our governance and control, including the review of our top
management and the three lines of defence.
Grupo Santander's scenario analyses are consistent and
robust because the Group:
• Creates and runs models that estimate how metrics such as
credit losses will perform in the future.
• Back-tests and regularly challenges model results.
753
Annual report 2020
Contents
• Relies on expert opinions and a vast understanding of our
portfolios.
• Exerts robust control over models, scenarios, assumptions,
results and mitigating management actions.
Grupo Santander has recurrently achieved excellent
quantitative and qualitative results in the European Banking
Authority (EBA) stress tests.
The global economic uncertainty caused by the covid-19 crisis
made it exceptionally difficult for businesses to plan ahead.
Our scenario analyses were key in identifying new action
points, developing business responses, adjusting our risk
strategy and preserving our strength and solvency.
- IFRS 9. Since 1 January 2018, regulatory provision
requirements have included scenario analyses in related
processes, models and methodologies.
- Credit and market risk stress test exercises not only as a
response to regulatory exercises but also as a key tool
integrated in Grupo Santander’s risk management.
Amid the covid-19 pandemic and following supervisory
guidelines, the Research department created a set of
additional macroeconomic scenarios under a long-term stable
outlook approach to account for the observed worsening in
most indicators and assess expected losses. Grupo Santander
developed the scenarios through a robust process with great
effort from the teams involved, ensuring their consistency.
Applications of scenario analysis
3.4. Risk Reporting Structure (RRS)
Grupo Santander run scenario analysis at all levels under a
forward-looking approach that helps Grupo Santander
anticipate potential impacts on its solvency or liquidity. Grupo
Santander run a systematic review of our risk exposure under
a baseline scenario and various adverse and favourable
scenarios.
Grupo Santander´s reporting continues to streamline
processes, controls and reports to senior management. The
Enterprise Wide Risk Management team updates and
compiles the risk profile overview under a forward-looking
approach so senior management can assess actual and future
risks and take appropriate actions.
Scenario analysis forms an integral part of several key Group
processes:
• Regulatory exercises under the guidelines of the EU
supervisor and national supervisors.
• Internal capital adequacy assessment (ICAAP) and
liquidity assessment (ILAAP), for which Grupo Santander
follows its own methodology to assess capital and liquidity
under stress scenarios and support planning and
management.
There are three main types of risk reports: the weekly and
monthly risk reports distributed to senior management;
subsidiaries’ risk reports; and reports on each risk factor
identified in the risk framework.
Grupo Santander's strong risk reporting structure is
characterized by:
• Balancing data, analysis and qualitative comments,
including forward-looking measures, risk appetite alerts,
limits and emerging risks.
• Risk appetite, which includes stressed metrics to set the
• Covering all risk factors in the risk framework.
• Combining a holistic and reliable view with deeper analysis
of each risk factor, our subsidiaries and markets.
• Following the same structure and criteria and provides a
consolidated view to analyse all risks.
• Following risk data aggregation (RDA) criteria to report on
metrics, ensuring data quality and consistency.
To respond to the covid-19 crisis, the reporting function, as
acknowledged by the ECB's Single Supervisory Mechanism
(SSM), increased the frequency, customized reports and
produced new ones for the board and senior committees. It
focused on critical topics such as macroeconomic conditions,
health indicators, customer support measures and risk areas
to enable close monitoring and easier decision-making.
maximum risk we can assume. The risk appetite and capital
and liquidity scenario exercises are closely interrelated but
have different frequencies and granularity.
• Climate change analyses to identify scenarios of risks and
opportunities. Pilot analyses are covering the wholesale
portfolio.
• Recurrent risk management:
- Budget and strategic planning: when implementing a
new risk approval policy, in Grupo Santander’s risk profile
assessment by senior management or when monitoring
specific portfolios or lines of business
- The systematic process of identifying and analysing our
top risks, each of which is associated with a
macroeconomic or idiosyncratic scenario to assess their
potential impact.
- The recovery plan, which is drawn up every year to
determine Grupo Santander’s tools to overcome an
extremely severe financial crisis. The plan provides
financial and macroeconomic stress scenarios with
degrees of severity as well as idiosyncratic and systemic
events.
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b) Credit risk
1. Introduction to the credit risk treatment
Credit risk refers to a potential financial loss from the default
or credit quality deterioration of a customer or other third
party with whom Grupo Santander has a contractual
obligation. It is our most important risk, both in terms of
exposure and capital consumption. It also includes
counterparty risk, country risk and sovereign risk.
Credit risk management
Grupo Santander identifies, analyses, controls and decides on
credit risk based on holistic view of the credit risk cycle, which
includes the transaction, the customer and the portfolio.
Business and risk areas and top managers are part of this
process.
Credit risk identification is key to managing and controlling
Grupo Santander's portfolios effectively. Grupo Santander
classify external and internal risks in each business and adopt
corrective and mitigating measures when needed through
these processes:
1.1. Planning
Grupo Santander´s planning helps to set business targets and
define specific action plans within our risk appetite
framework.
Strategic commercial plans (SCP) are a management and
control tool the business and risk areas prepare for Grupo
Santander's credit portfolios. They determine commercial
strategies, risk policies, resources and infrastructure, ensuring
a holistic view of the portfolios. They provide managers with
an updated view of credit portfolio quality to measure credit
risk, run internal controls over the defined strategy coupled
with regular monitoring, detect significant deviations in risk
and potential impacts, and take corrective actions when
necessary. They also align with Grupo Santander's risk
appetite and its subsidiaries’ capital targets, and are approved
and monitored by senior managers at each subsidiary before
being reviewed and validated by Grupo Santander.
1.2. Risk assessment and credit rating
To analyse customers’ ability to meet contractual obligations,
Grupo Santander uses valuation and parameter estimation
models in each of the segments. Grupo Santander's credit
quality valuation models are based on credit rating drivers,
which Grupo Santander monitors to calibrate and adjust the
decisions and ratings they assign. Depending on each
segment, drivers can be:
• Rating: from mathematical algorithms that have a
quantitative model based on balance sheet ratios or
macroeconomic variables, and a qualitative module
supplemented by the credit analyst’s expert judgement. It
is used for SCIB, corporate, institutional and SME segments
(with individualised treatment).
• Scoring: an automatic system to evaluate credit
applications that assigns an individual score to customers
for subsequent decision-making, generally in the retail and
smaller SME segments.
Grupo Santander's parameter estimation models follow
econometric models built on Grupo Santander's portfolios'
historical defaults and losses. Grupo Santander uses them to
calculate economic and regulatory capital as well as IFRS 9
provisions for each portfolio.
Grupo Santander regularly monitoring and evaluate models'
appropriateness, predictive capacity, performance,
granularity, compliance with policies and other related
factors. Grupo Santander reviews ratings with the latest
available financial and economic information. Grupo
Santander has also increased the reviews for customers who
are under closer observation or have automatic warnings in
the risk management systems.
1.3. Credit risk mitigation techniques
We approve risks generally on the basis of borrowers’ ability
to pay in fulfilment of financial obligations, notwithstanding
any additional collateral or personal guarantees we can
require from them. To determine this, we analyse funds or
net cash flows from their businesses or income with no
guarantors or the assets pledged as collateral. We always
consider guarantors and collateral when deciding to approve
a loan as a secondary means of recourse if the first channel
fails.
In general, a guarantee is as a reinforcement measure added
to a credit transaction to mitigate a loss due to a failure to
meet a payment obligation.
Grupo Santander has credit risk mitigation techniques for
various types of customer and products. Some are for specific
transactions (e.g., property) while others apply to a series of
transactions (e.g., derivatives netting and collateral). Grupo
Santander can be grouped into personal guarantees,
guarantees in the form of credit derivatives or collateral.
1.4. Definition of limits, pre-classifications and pre-approvals
Grupo Santander uses SCPs to manage credit portfolios,
defining limits for each of them and for new originations, in
line with the Group´s credit risk appetite and its target risk
profile. Transposing the risk appetite to portfolio
management strengthens controls over our credit portfolios.
Grupo Santander´s limits, pre-classifications and pre-
approvals processes determine the risk we can assume with
each customer. The business and risk areas set risk limits that
are approved by the executive risk committee (or delegated
committees) and should reflect a transaction’s expected risk-
return
Grupo Santander applies various limits models to each
segment:
• Large corporate groups: are subject to a pre-classification
model based on a system for measuring and monitoring
economic capital. Pre-classification models express the
level of risk Grupo Santander is willing to assume in
transactions with customers/groups in terms of capital at
risk, nominal cap and maximum tenors. To manage limits
with financial entities, Grupo Santander uses Credit
Equivalent Risk (CER), which includes actual and expected
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subsidiaries in 2019. It helps set individual monitoring levels
and frequencies, policies, and actions for customers based on
credit quality and particular circumstances.
In addition to monitoring customer credit quality, Grupo
Santander defines control procedures to analyse portfolios
and performance, as well as any deviations from planning or
approved alert levels.
1.7. Recovery and collections management
The Collections & Recoveries area carries out recoveries,
which are important to risk management. It defines a global,
enterprise-wide management strategy with guidelines and
general lines of action for Grupo Santander's subsidiaries
based on the economic environment. business model and
other local recovery conditions. Recovery management
follows regulatory requirements set out in the EBA Guidelines
on the management of non-performing and forborne
exposures. In addition, Grupo Santander applies specific
policies on recovery management that include the principles
of the different strategies.
The Collections & Recoveries areas directly manage
customers. As sustained value creation is based on effective
and efficient collections, digital channels that develop new
customer relations are gaining importance. Grupo Santander
diverse customer base requires segmentation to manage
recoveries appropriately. The highly technological and digital
processes Grupo Santander follows help us attend to large
groups of customers with similar profiles and products. Grupo
Santander's personalized management, however, focuses on
customer profiles that require a special manager and
approach.
Grupo Santander splits recovery management into four
phases: arrears, non-performing loans, write-offs and
foreclosed assets. Grupo Santander may uses mechanisms to
rapidly reduce assets like sales of foreclosed assets or non-
performing loans pool sales. Grupo Santander constantly
seeks alternatives to legal action in order to collect debt.
Grupo Santander includes debt instruments as written-off
loans (even if they are not past-due) if an individual analysis
of the solvency of a transaction and the borrower leads us to
believe recovery is remote due to a notorious and
unrecoverable impairment. Though this may lead to full or
partial cancellation and de-recognition of the gross carrying
amount of debt, it does not mean we interrupt negotiations
and legal proceedings to recover debt. In countries with high
exposure to real estate risk, we have efficient sales
management instruments that help maximize recovery and
optimize balance sheet stocks.
risks with customers according to risk appetite and credit
policies.
• Corporates and institutions: that meet certain requirements
(strong relationships, rating, etc.): Grupo Santander uses
simpler pre-classification model with an internal limit. It
establishes a reference point in a customer's level of risk
based on repayment capacity, overall indebtedness and a
pool of banks.
Transactions with large corporates, corporates and
institutions above certain limits or with special
characteristics could require approval from a senior credit
analyst or a committee.
• For individual customers and SMEs with low turnover,
Grupo Santander manages large volumes of credit
transactions with automatic decision models to classify
customers and transactions.
1.5. Scenario analysis
Grupo Santander´s scenario analyses determine the potential
risks in its credit portfolios and provide a better
understanding of our portfolios' performance under various
macroeconomic conditions. They allow us to anticipate
management strategies that will avoid future deviations from
defined plans and targets. They simulate the impact of
alternative scenarios in portfolios’ credit parameters (PD,
LGD) and expected credit losses. We compare findings with
portfolios’ credit profile indicators to find the right measures
for managers to take. Credit risk management of portfolios
and SCPs incorporate scenario analyses.
1.6. Monitoring
Regularly monitoring business performance and comparing it
to pre-defined plans is key to our management of risk. Grupo
Santander's holistic monitoring of customers helps detect
impacts on risk performance and credit quality early. Grupo
Santander assigns customers a classification with a pre-
defined course of action and ad hoc measures to correct any
deviations. Monitoring, which considers transaction forecasts
and characteristics, in addition to changes in classification, is
performed by local and global risk teams supported by the
Internal Audit unit and is based on customer segmentation:
• For SCIB, monitoring is initially a function of business
managers and risk analysts who maintain direct
relationships with customers, manage portfolios and
provide Grupo Santander with an up-to-date view of
customers’ credit quality to anticipate concerning
situations.
• For commercial banking, institutions and SMEs assigned a
credit analyst, Grupo Santander tracks customers requiring
closer monitoring and review their ratings based on
relevant indicators.
• Monitoring of individual customers, businesses and smaller
SMEs follows a system of automatic alerts to detect shifts
in portfolios’ performance.
Monitoring uses the Santander Customer Assessment Note
(SCAN) tool. Grupo Santander fully rolled it out in our
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2. Main aggregates and variations
Following are the main aggregates relating to credit risk
from our activities with customers:
Main credit risk performance metrics from activity with customers
December 2020 data
Non-performing loans
(EUR million)
2019
2020
2018
22,792
13,796
23,519
25,287
14,824
16,651
2,455
3,202
1,584
1,496
2,938
2,025
405
1,529
913
5,688
3,429
2,051
93
5
344
2,416
2,786
1,834
1,447
3,165
2,331
389
2,244
2,739
2,279
1,317
3,510
2,688
450
1,787
2,043
834
6,972
4,727
1,947
171
4
138
822
6,639
4,418
1,925
179
4
252
Credit risk with customers *
(EUR million)
2019
2018
2020
Europe
Spain
SCF
UK
Portugal
Poland
722,429
221,341
104,032
263,671
40,693
31,578
722,661
688,810
213,668
105,048
275,941
37,978
33,566
227,401
97,922
252,919
38,340
30,783
North America
131,611
143,839
125,916
US
SBNA
SC USA
Mexico
99,135
49,862
29,050
32,476
105,792
56,640
29,021
38,047
92,152
51,049
26,424
33,764
South America
129,575
143,428
138,134
Brazil
Chile
Argentina
Santander Global Platform
Corporte Centre
Total Group
74,712
42,826
4,418
979
4,862
88,893
42,000
5,044
706
5,872
84,212
41,268
5,631
340
4,953
* Includes gross lending to customers, guarantees and documentary credits.
Key figures by geographic region are described below:
• Europe: the NPL ratio fell 10 bps to 3.15% from 2019 due
to a significant reduction in non-performing loans in Spain
and Portugal, offsetting the increase observed in the UK.
• North America: the NPL ratio slightly increased 3 bps to
2.23% from 2019, due to the decline in total lending both in
Mexico and SBNA, although the ratio declined in Santander
US by 16 bps due to good performance in SC USA. In terms
of NPL stock, a decrease of 7.2% was observed in the year.
• South America: the NPL ratio decreased by 47 bps to 4.39%.
In Brazil and Argentina, they dropped 73 bps and 128 bps
respectively from 2019. However, they slightly increased in
Chile (+15 bps vs 2019).
989,456
1,016,507
958,153
31,767
33,799
35,692
NPL ratio (%)
2019
2018
2020
3.15
6.23
2.36
1.21
3.89
4.74
2.23
2.04
0.81
5.26
2.81
4.39
4.59
4.79
2.11
0.51
7.08
3.21
3.25
6.94
2.30
1.01
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
2.29
1.08
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
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Information on the estimation of impairment losses
Estimation of expected credit losses:
The covid-19 health crisis has been unexpected, unpredictable
and severe, but it is estimated to be of a temporary nature.
Grupo Santander priority in these circumstances has been to
look after the health of its employees, customers and
shareholders, but also to help reduce the economic impact of
the pandemic. This includes trying to offer the best solutions
to help customers.
Conceptually, the phases in managing the effects of covid-19
have been:
–
Identification of customers or groups affected or
potentially affected by the pandemic.
– Early relief of temporary financial difficulties caused by
covid-19 through measures promoted by
governments, central banks, and financial institutions.
– Monitoring the evolution of customers, to ensure that
they continue to be provided with the best solution for
their situation, and also to guarantee that their
potential impairment is correctly reflected in the risk
management and accounting. This point is particularly
relevant at the expiry of any moratorium or liquidity
support measures to which customers may have
availed themselves.
– Monitoring is accompanied by recovery management
activities when necessary.
These conceptual phases do not occur sequentially but overlap
in time. Additionally, the continuous interaction and
coordination between the different subsidiaries is proving to
be a fundamental asset in the management of this crisis. The
experience obtained in the fight against the health crisis and
its financial consequences in our different geographies, and
the different speeds at which it has been developing in each of
them, allow us to share the best practices identified and to
implement in an agile and efficient manner those strategies
and concrete actions that have been most successful, always
adapted to the local reality of each market.
Measures to support the economy
In accordance with the comments made earlier regarding the
relief of our clients' temporary financial difficulties caused by
the pandemic, Grupo Santander has adopted measures to
foster the economic resilience of our clients during the crisis in
all regions. The most outstanding of these include the
following:
– Providing liquidity and credit facilities to companies
facing difficulties.
– Facilitate grace periods or moratoriums in many of
their markets.
– Optional, temporary increase of the limit on credit
cards and overdrafts.
– Support customers with potential difficulties (elderly,
SMEs, etc.) by being proactive and trying to cover their
needs.
758
– Temporary reduction or suspension of commissions
(when withdrawing money from ATMs, on interest-
free online purchases, on bank transfers...).
– Guaranteeing covid-19 coverage in health insurance.
– Advising clients in financial difficulties through
specialised teams.
Regarding the covid-19 pandemic, Grupo Santander has
implemented measures in all its subsidiaries to provide
liquidity and credit facilities, as well as to facilitate payment
deferrals for people and businesses facing hardship.
In relation to the specific liquidity measures, shortages or
moratoriums, a series of support programmes have been
implemented in accordance with the guidelines set by
regulatory and supervisory authorities, as well as by
governments, central banks and supranational entities. The
main objective is to mitigate the temporary impact on the
activity of customers. The absence of appropriate measures
and their adequate prudential and accounting treatment could
worsen the economic consequences of the crisis, generating
procyclical effects that would lengthen its duration and
impact.
The different measures offered can be grouped into the
following categories:
– Government liquidity measures: Generally speaking,
these are lending facilities provided by the bank to
legal entities, which have government guarantees on a
specific percentage of the exposure generated in the
event of default. Examples of this type of measure
include ICO (Instituto de Crédito Oficial) loans in Spain
or the Paycheck Protection Program (PPP) in the
United States.
– Government moratorium measures: In this case, the
government authorities define a series of
requirements, which, in the event that they are met by
the beneficiary, involve the granting of moratoriums by
the bank on the payment of capital and/or interest on
the various credit operations that customers may have
contracted. The general expiration of the moratorium
measures is short term. Some governments and
institutions have re-extended the terms of the initial
moratoriums, especially those that were launched in
the very short term in the initial phase, with less
visibility of the potential duration of the crisis, but re-
extensions are also being short term.
The specific characteristics of these programs vary
depending on how they are defined by the national
governments of the countries in which Grupo
Santander operates. The criteria used to grant these
loans also depend on the requirements established by
the authorities of each country in accordance with the
legislation in force in each case.
–
Internal/sectoral moratorium measures: This is,
broadly speaking, the granting of moratoriums by the
bank on the payment of capital and/or interest on the
various credit operations that customers may have
contracted. In this case, the specific characteristics of
these measures, in terms of terms, amounts, etc., vary
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Appendix
according to each geography, product or customer
segment in order to adapt them as best as possible to
the reality of the local market and its regulation, as
well as to the needs of the customer and the product
contracted. In many cases, the general conditions of
application have been agreed on a sectoral basis, for
example through the national banking associations.
– Other internal measures: This category includes all
those measures not included in the previous sections.
As regards the moratorium measures granted, it should be
noted, as detailed below, that the amount amounted to EUR
112,000 million. Of these, around 63% corresponded to
residential mortgages, mainly in the UK where the portfolio
has a low average loan to value (<50%). The moratoriums
granted on consumer loans (EUR 20bn; 18% of total) are
mainly car loans . The granting of new moratoriums has
slowed down in the second half of the year.
The 79% of total moratoriums (EUR 89,000 million) have
already expired by the end of December 2020, showing a good
performance, with only 3% of them classified as stage 3 in
accordance with IFRS 9.
Estimation of expected loss
In the context described in the previous sections, many
regulators and supervisors have highlighted the uncertainties
surrounding the economic impacts of the health crisis. This is
also evident in the frequent updates of macroeconomic
forecasts, with different perspectives and views on the depth
and duration of the crisis. Thus, the guidance (including IASB,
ESMA, EBA and ECB) does not set a mechanistic approach to
estimating expected credit losses under IFRS 9, in order to
prevent this variability in economic conditions from translating
into volatility in results, with its potential pro-cyclical effects
on the economy.
Thus, Grupo Santander analyses losses under IFRS 9 on the
basis of three types of elements:
1. Continuous monitoring of customers
Monitoring the credit quality of customers may be more
complex in the current circumstances, in the absence of
certain contractual payments on transactions subject to a
moratorium, however, the total amount of loans still subject
to these measures has been significantly reduced during the
year. This amount was around EUR 23,000 million at the end
of December 2020, of which approximately 78% is secured.
For such monitoring, and in addition to the application of
internal customer monitoring policies, all available
information should be used. The availability of information
and its relevance is different in the various portfolios of the
different countries in which Grupo Santander operates, but it
may include, but is not limited to the following:
– The payment of interest in the case of principal-only
shortfalls.
– The payment of other operations of the same client in
the institution (not subject to moratorium).
–
Information on payment of loans in other entities
(through credit bureaus).
– Customer financial information: average balances in
current accounts, availability/use of limits, etc.
– Available behavioural elements (variables that feed
the behavioural scores, etc.).
–
Information gathered from customer contacts
(surveys, calls, questionnaires, etc.). This may include:
customers who have taken up furlough programs,
direct government aid, etc.
2. Forward-looking vision
As reflected by the IASB, macroeconomic uncertainty makes
the usual application of IFRS 9 expected loss calculation
models difficult but does not exempt the incorporation of the
prospective feature of the standard. To this end, the European
Central Bank has recommended the use of a stable, long-term
view (long-run) of the macroeconomic forecasts, which takes
into account in the assessment the multiple support measures
explained above.
3. Additional elements
Additional elements will be required when necessary because
they have not been captured under the two previous
elements. This includes, among others, the analysis of sectors
most affected by the pandemic if their impacts are not
sufficiently captured by the macroeconomic scenarios. Also
collective analysis techniques, when the potential impairment
in a group of clients cannot be identified individually.
With the elements indicated above, Grupo Santander
evaluates in each of the geographical areas the evolution of
the credit quality of its customers, for the purposes of their
classification in Grupo Santander financial statements.
In terms of classification, Grupo Santander has generally
maintained the criteria and thresholds for classification during
the pandemic, incorporating the regulatory interpretations of
the effect of moratoria on classification (in particular, the
European Banking Authority's 'Guidelines on legislative and
non-legislative moratoria on loan repayments applied in
covid-19 crisis'). In this way, moratoriums that meet the
specifications of these guidelines are not considered as
automatic indicators for identifying these contractual changes
as forbearances or classifying them in stage 2. However, this
does not exempt the rigorous application of IFRS 9 in the
monitoring of customer credit quality and, using individual or
collective analysis techniques, the timely detection of
significant increases in risk in certain transactions or groups of
transactions.
Sound and accurate assessment of SICR has been one of the
key areas of focus of the Group to identify and record any
material increase in credit risk at an early stage. With that
purpose, the SICR framework has not been relaxed due to
covid-19 crisis. Not relying solely on conventional qualitative
and quantitative triggers (e.g. days past due as a trigger), the
determination of SICR has also been strengthened through
collective assessments. This was done with the aim to
responsibly anticipate the expected additional deterioration
inherent to specific sector and client clusters, whose credit risk
deemed to have increased, without the need to identify which
individual client has suffered a SICR, avoiding “wait and see”
approaches and ensuring that risks are adequately assessed,
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In addition, depending on the transactions credit quality, the
exposure is divided into three categories according to Standard
and Poor's ratings:
Exposure and impairment losses by stage
EUR million
2020
Credit quality **
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
489,518
9,124
—
498,642
From BB- to CCC
276,516
55,838
—
332,354
Default
—
—
30,436
30,436
Total exposure **
766,034
64,962
30,436 861,432
Impairment
losses***
4,458
5,461
13,503
23,422
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
2019
Credit quality **
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
552,763
5,532
—
558,295
From BB- to CCC
306,880
47,365
—
354,245
Default
—
—
31,363
31,363
Total exposure **
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).+ loan
commitments granted.
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
From AAA to BB
685,507
7,176
—
692,683
From BB- to CCC
222,495
47,439
—
269,935
Default
—
—
30,795
30,795
Total exposure **
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.
classified and measured in the balance sheet. Different
assessments have been carried out for this purpose: (i) Top-
down Unlikeliness to Pay analysis; (ii) Identification of high
risk segments or vulnerable sectors; (iii) Stress on payment
holidays; (iv) Surveys on payment capacity and (v) Stress of
roll rates based on past delinquency indicators.
Regarding moratoria measures, a rigorous identification and
regular monitoring of customer credit quality and payment
behavior have been performed and through specific individual
or collective assessment, the timely detection of SICR have
been assured.
Grupo Santander, within its governance processes, deployed
guidelines across all our subsidiaries to assure a coherent and
homogeneous criteria and governance to manage the new
treatment and specific impacts on provisions derived from the
pandemic. Directions were provided regarding the calculation
of the macroeconomic impact of the crisis through an overlay
and potential collective assessments, considering incurred
deterioration, as result of the covid-19 contingency. These
documents also include monitoring guide in order to ensure
the adequacy of the overlay and to anticipate any update if
required.
Details of the exposure by stage can be found in Notes 6, 7,
10, as well as in this note of these consolidated annual
accounts. These Notes shows the levels of provisions for the
year, which amount to EUR 12,173 million, including the
provisions to cover the impact to date on expected losses
resulting from the pandemic.
Grupo Santander 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 (United
Kingdom, Spain, United States, Brazil, also Chile, Mexico,
Portugal, Poland, Argentina and Santander Consumer
Finance), which represent approximately 96% of the total
Group's provisions. The table below shows the impairment
losses associated with each stage as of 31 December 2020,
2019 and 2018.
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The remaining units that form the totality of the Group
exposure, contributed EUR 98,121 million in stage 1, EUR
3,613 million in stage 2, and EUR 1,322 in stage 3 (In 2019
EUR 38,174 million in stage 1, EUR 442 million in stage 2, and
EUR 1,056 million in stage 3 and 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 180 million in stage
1, EUR 393 million for stage 2, and EUR 277 million in stage 3
(In 2019 EUR 264 million, EUR 306 million and EUR 91 and 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 478,093 (EUR
507,479 million in 2019), 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
was 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.
As of 31 December 2020, the Group had EUR 497 million net
of provisions (EUR 706 million and EUR 757 million at 31
December 2019 and 2018, respectively) 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.
• Holistic vision: the approach selected must be a
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.
Covid-19 credit risk management and customer support
programmes
In the context of the general response of Santander to the
covid-19 pandemic, and specifically with the purpose to help
the customers from the credit perspective and foster their
economic resilience during the crisis, Grupo Santander
implemented several actions in addition to those listed above,
the following:
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Some policies disclosed by supervisors include the Bank of
England measures to respond to the economic shock from
Covid-19; EBA's Statement on the application of the prudential
framework regarding Default, Forbearance and IFRS9 in light of
Covid-19 measures; and the Federal Reserve's SR 20-4 / CA
20-3 - Supervisory Practices Regarding Financial Institutions
Affected by Coronavirus.
In light of these statements, we accounted for deviations in
local books based on stable long-term macroeconomic
forecasts with a post model adjustment and a collective and/
or individual assessment to reflect reality and recognize
expected credit losses on assets deemed subject to a
significant increase in credit risk, without the need to identify
individual financial instruments.
The overlay was considered as the best option to recognize
the increase in expected loss, as a mechanistic application of
the Expected Credit Loss (ECL) methodology, which in the
current context may have led to unpredictable results. The
additional provisions associated to different macroeconomic
scenarios were calculated using internal models; however an
overlay over the monthly IFRS 9 calculation was considered, in
order to enhance the oversight and control of the ECL
estimation accuracy.
In addition, the aforementioned scenarios considered to
support the overlay calculation were based on a long-run
approach, following the indications of numerous international
organizations and supervisors.
Amid maximum uncertainty, this long-term approach is to
avoid volatility in provisions as a result of the sharp economic
downturn, on account of the exceptional nature of the overlay
and the battery of support economic measures taken by
central banks and governments.
In this regard, at the end of 2020, the Group has recorded an
additional provision for impairment of financial assets at
amortized cost the allowance for credit losses of EUR
3,105 million due to the effect of the covid-19 pandemic (EUR
622 million in stage 1, EUR 1,663 million in stage 2 and EUR
820 million in stage 3).
• The severity of the pandemic's effects was significantly
different depending on the economic sector. Consequently,
Santander launched a process to identify those that could be
more affected in order to focus credit risk management on
them.
• Due to the covid-19 crisis, great focus was placed on
collections & recoveries readiness across Grupo Santander
to deal with the impact expected on its portfolios once the
support measures granted have expired.
At 31 December 2020, Grupo Santander had granted payment
moratoria to 4.8 million customers for an overall amount of
EUR 112,000 million, which represents 12% of the lending
portfolio.
The payment moratoria distribution by business line can be
observed in the following table:
Clients (Million)
Of which
government
programmes
0.7
0.5
3.9
1.0
0.2
0.1
4.8
1.6
Total amount
(EUR million)
Of which government
programmes
69,938
56,936
19,951
4,060
21,948
9,182
111,837
70,178
% Lending
portfolio
22 %
9 %
7 %
12 %
Mortgages
Consumer
SME &
Corporates
Total
At the end of 2020, 79% of total moratoria granted by the
Group had expired and only 3% of the total was classified in
stage 3.
The following table shows the distribution by business line:
EUR million
Individuals
Mortgages
Consumer
SME & corporates
Total*
Total moratoria
89,889
69,938
19,951
21,948
111,837
Total
portfolio
543,321
312,949
230,372
336,489
879,810
Of which
expired
72,662
55,020
17,642
15,847
88,509
* Total portfolio includes segmented exposure and excludes off-balance
Over 60% of the outstanding loans under moratoria are
mortgages.
Total loans granted under government liquidity programmes
amounted to EUR 38,314 million, with an average government
guarantee coverage of 81%.
Covid-19 overlay quantification
Numerous international organizations and supervisors have
underlined the importance of responsibly adapting and
applying the accounting and prudential policies to the
containment measures put in place to combat the effects of
the covid-19 health crisis, which are of a temporary and
exceptional nature.
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3.Detail of the main geographical areas
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.
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3.1. United Kingdom
Credit risk with customers in the UK (including Santander
Consumer UK) decreased by 4.4% (+0.9% in local currency)
year-on-year to EUR 263,671 million. Mortgage lending and
loans to SME, supported by government-backed covid-19
measures were the key drivers of this YoY increase. UK
portfolio accounts for 27% of Santander's loan portfolio.
More than 320,000 customers (not including SCF UK)
benefited from payment holidays, in line with the guidance
issued by the Financial Conduct Authority (FCA). Customers
applied for this facility generally for a three-month period,
with the option of extending it for a further three months, if
needed.
The NPL ratio increased in 2020, to 1.21% (+20 bps vs year-
end 2019), driven by adjustments made in the corporate and
commercial banking segment to account for covid-19.
Mortgage portfolio
Because of its size, we closely monitor Santander UK’s
mortgage portfolio for the entity itself and Grupo Santander.
As of December 2020, it amounted to EUR 189,076 million,
growing by +2.7% in local currency. It consists of first lien
residential mortgages (no mortgages involve second or
successive liens on properties).
Mortgage lending growth was resilient after the market
reopened in May. In the third quarter, the mortgage market
was particularly active, due to pent up demand from the
covid-19 lockdown and the temporary reduced stamp duty
rates, which have led to improved new mortgage pricing.
In accordance with Grupo Santander's risk management
principles, all properties are appraised independently before
new mortgages are approved. Property values used as
collateral for granted mortgages are updated quarterly by an
independent agency with an automatic appraisal system in
line with market practices and legislation.
Geographically, credit exposures are predominantly in the
South East 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, 2020,
2019 and 2018, is shown below.
In addition, depending on the current operations credit
quality, the exposure is divided in three categories according
to Standard and Poor's ratings:
Exposure and impairment losses by stage
EUR million
Credit quality *
From AAA to BB
From BB- to CCC
Default
Total exposure **
Impairment
losses***
2020
Stage 1
Stage 2
Stage 3
Total
184,065
2,227
34,965
16,814
—
—
186,292
51,779
—
—
3,229
3,229
219,030
19,041
3,229 241,300
223
557
668
1,448
* 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).
Exposure and impairment losses by stage
EUR million
Credit quality *
From AAA to BB
From BB- to CCC
Default
Total exposure **
Impairment
losses***
2019
Stage 1
Stage 2
Stage 3
Total
238,985
2,032
40,281
12,543
—
—
241,017
52,824
—
—
2,821
2,821
279,266
14,575
2,821 296,662
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 and undrawn
exposure) + loan commitments granted.
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
From AAA to BB
225,929
1,900
From BB- to CCC
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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The Government support measures taken in the United
Kingdom in response to the covid-19 pandemic are detailed
below:
• The moratoriums granted initially had a term of 3 months.
• In June the majority of the moratoriums started to expire
and between June and July there were extensions of
another 3 months worth some 11 billion euros so that from
August onwards almost all that remained in force were
extensions.
• The government approved in October that moratoriums
could continue to be applied for until March 31, 2021, as
long as a client had not already exceeded 6 months of
moratoriums in total.
• The moratoriums granted entailed a deferral of principal
and interest.
At 31 December 2020, moratoriums had been granted to
323,265 customers, for a total amount of EUR 43,944 million,
equivalent to 19.05% of the loan portfolio. The distribution of
moratoriums by portfolio is shown below:
EUR million
Individuals
Mortgages
Consumer
SME & corporates
Total*
Total moratoria
41,626
41,274
352
2,318
43,944
Total
portfolio
194,783
188,255
6,528
28,918
223,701
Of which
expired
38,850
38,544
306
2,253
41,103
* Total portfolio includes segmented exposure and excludes off-balance
Of the total moratoriums expired at December 31, 2020, EUR
34,365 million were classified in stage 1, EUR 6,052 million in
stage 2 and EUR 686 million in stage 3.
At the end of 2020, 93.54% of total moratoria granted by the
Group had expired and only 1.67% of those was classified in
stage 3.
Total loans granted under government liquidity programmes
amounted to EUR 5,515 million, at 31 December 2020. The
UK represents 13% of the total exposure in Bounce Back
Loans (BBLS) that are 100% covered by the government's
guarantee scheme.
In relation to the overlay calculated to recognize the increase
in expected loss due to the current situation of uncertainty, it
has been calculated taking into account the adequate and
accurate identification of those significant increases in risk
(SICR) that may have occurred, not only based on quantitative
and qualitative indicators but also through collective
assessments as explained above in the section on estimation
of expected loss in Grupo Santander.
Of the total impairment credit losses, mainly EUR 505 million
corresponds to the overlay calculated as of December 31,
2020 (EUR 17 million in stage 1, EUR 275 million in stage 2
and EUR 213 million in stage 3).
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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. The evolution forecasted in 2020 for the next five
years of the main macroeconomic indicators used by
Santander UK to estimate expected losses is presented below:
Variables
Interest rate
Unemployment rate
Housing price change
GDP growth
2021 - 2025
Pessimistic
scenario 3
-0.10 %
8.42 %
0.86 %
0.28 %
Pessimistic
scenario 2
2.10 %
7.20 %
0.89 %
1.79 %
Pessimistic
scenario 1
0.26 %
5.98 %
1.00 %
1.71 %
Base scenario
0.26 %
6.04 %
1.14 %
3.62 %
Optimistic
scenario 1
1.20 %
4.79 %
1.08 %
3.07 %
The five-year projected development generated in 2019 to
estimate the expected loss is shown below:
Variables
Interest rate
Unemployment rate
Housing price change
GDP growth
Pessimistic
scenario 2
2.60 %
7.29 %
-0.07 %
0.01 %
Pessimistic
scenario 1
1.80 %
5.08 %
-0.01 %
0.01 %
2020 - 2024
Base scenario
0.85 %
4.03 %
0.02 %
0.02 %
Optimistic
scenario 1
1.75 %
3.14 %
0.04 %
0.02 %
Optimistic
scenario 2
1.90 %
2.57 %
0.06 %
0.03 %
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 31
December 2020, 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 3
Pessimistic scenario 2
Pessimistic scenario 1
Base scenario
Optimistic scenario 1
Optimistic scenario 2
2020
10 %
25 %
15 %
45 %
5 %
— %
2019
0 %
15 %
30 %
40 %
10 %
5 %
2018
0 %
10 %
30 %
40 %
15 %
5 %
In the case of Santander UK, the additional provisions for
covid-19 were calculated using the own model.
The sensitivity analysis of the main portfolios expected loss to
variations of +/-100 bp for the macroeconomic variables used
in the construction of the scenarios is as follows:
GDP Growth
-100 bp
100 bp
Housing price change
-100 bp
100 bp
Unemployment rate
-100 bp
100 bp
Change in provision
Mortgages
Corporates
15.31 %
-2.06 %
7.48 %
-9.59 %
15.84 %
-2.72 %
10.16 %
-9.88 %
-5.79 %
28.93 %
-9.64 %
10.02 %
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 PD 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 360 bp and 30 bp.
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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
Santander España’s credit risk totalled EUR 221,341 million
(22% of Grupo Santander’s total). It is appropriately
diversified in terms of products and customer segments.
In a backdrop of lower economic and credit growth, with a
significant deterioration in macroeconomic figures after the
covid-19 lockdown from March to May, new lending to
consumers, SMEs and corporates increased, helped by
Instituto de Crédito Oficial (ICO) financing lines and other
liquidity programmes. Total credit risk increased by +3.6%
compared to December 2019, including ICO loans by EUR
25.510 million.
The total portfolio’s NPL ratio was 6.23%, 71 bp less than in
December 2019, Fewer defaults reduced the ratio by 48 bp,
due to overall better performance driven by customer support
programmes, the cure of several restructured debts and
portfolio sales. Additionally, this positive effect was helped by
the aforementioned growth in the loan portfolio, which
decreased the ratio by 21 bps.
Additional provisions related to covid-19 increased the
coverage rate to 47% (+6 p.p. vs. December 2019). Moreover,
NPL reduction was mostly with loans with higher expected
loss.
Cost of credit reflects the higher provisions due to the
pandemic.
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,
2020, 2019 and 2018, is shown below. In addition, depending
on the current credit quality of the operations, the exposure is
divided in three categories according to Standard and Poor's
ratings:
Exposure and impairment losses per stage
EUR million
2020
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
146,992
1,517
— 148,509
From BB- to CCC
40,630
11,541
—
52,171
Default
—
—
13,762
13,762
Total exposure **
187,622
13,058
13,762 214,442
Impairment
losses***
479
732
5,277
6,488
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
2019
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
139,673
From BB- to CCC
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
From AAA to BB
171,266
289
— 171,555
From BB- to CCC
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 2019 and, EUR 125,544,
EUR 66 and EUR 1,657 million in 2018 of exposure 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 in
2019 and EUR 132 million, EUR 48 million and EUR
957 million in 2018, in stage 1, stage 2 and stage 3,
respectively.
The real estate unit in Spain (UAI) was consolidated within
Santander Spain in 2019, (this process was completed in
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2020). Consequently, unlike in 2019 and 2018, in 2020 the
perimeter is aligned.
The Government support measures taken in Spain in
response to the covid-19 pandemic are detailed below:
• Moratoriums on mortgages were granted with moratoriums
of up to 12 months, 25% of which were legislative
moratoriums of 3 months, some of which were extended in
the last quarter of the year.
• The legal moratoriums granted entailed a deferral of
principal and interest, unlike the sectoral moratoriums
which only involved a deferral for principal.
• In the consumer portfolio, moratoriums of up to 6 months
were granted.
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. The projected evolution for a period of
five years of the main macroeconomic indicators used by
Santander Spain for estimating expected losses is presented
below:
Variables
Interest rate
Unemployment rate
Housing price change
GDP growth
2020 - 2024
Pessimistic
scenario Base scenario
Optimistic
scenario
-0.12 %
-0.12 %
13.71 %
-0.26 %
11.65 %
1.62 %
0.77 %
1.61 %
0.80 %
9.59 %
3.22 %
2.34 %
At 31 December 2020, moratoriums had been granted to
248,336 customers, for a total amount of EUR 9,438 million,
equivalent to 4.70% of the loan portfolio. The distribution of
moratoriums by portfolio is shown below:
In the case of Santander Spain, the previously projected
macroeconomic scenarios up to 2024 have been
complemented with an additional scenario, the 'long-run'
scenario, as indicated below.
EUR million
Individuals
Mortgages
Consumer
SME & corporates
Total*
Total moratoria
9,267
7,828
1,439
171
9,438
Total
portfolio
71,577
43,919
17,658
126,568
198,145
Of which
expired
2,476
1,346
1,130
12
2,488
* Total portfolio includes segmented exposure and excludes off-balance
Of the total moratoriums expired at 31 December 2020, EUR
1,921 million were classified in stage 1, EUR 374 million in
stage 2 and EUR 193 million in stage 3.
At the end of 2020, 26.36% of total moratoria granted by the
Group had expired and only 7.74% of these was classified in
stage 3.
Total loans granted under government liquidity programmes
amounted to EUR 25,510 million. Spain represents 67% of the
Group's total exposure to government liquidity programs. It
has the longest maturities (in both the SME and corporate
segments) due to the nature of these legislative programs.
In relation to the overlay calculated to recognize the increase
in expected loss due to the current situation of uncertainty, it
has been calculated taking into account the adequate and
accurate identification of those significant increases in risk
(SICR) that may have occurred, not only based on quantitative
and qualitative indicators but also through collective
assessments as explained above in the section on estimation
of expected loss in Grupo Santander.
Of the total impairment credit losses, EUR 466 million
corresponds to the overlay calculated as of December 31,
2020 (EUR 37 million in stage 1, EUR 261 million in stage 2
and EUR 168 million in stage 3).
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:
Pessimistic scenario
Base scenario
Optimistic scenario
2020
30 %
40 %
30 %
2019
30 %
40 %
30 %
2018
30 %
40 %
30 %
Regarding the the long-run scenario used to calculate the
post-model adjustment, the projected evolution of the main
macroeconomic indicators for a period of five years is shown
below:
Variables
Interest rate
Unemployment rate
Housing price change
GDP growth
Long-run scenario
-0.29 %
14.35 %
1.20 %
0.79 %
The sensitivity analysis of the main portfolios expected loss to
variations of +/-100 bp for the macroeconomic variables used
in the construction of the scenarios is as follows:
GDP Growth
-100 bp
100 bp
Housing price change
-100 bp
100 bp
Change in provision
Mortgages Corporate
Rest
6.24 %
8.17 %
8.63 %
-2.63 %
-4.50 %
-5.48 %
1.42 %
8.14 %
7.73 %
-1.12 %
-3.12 %
-3.74 %
768
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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 0.1 and 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.
Residential mortgage portfolio
Residential mortgages in Spain, including Santander
Consumer Finance business, amounted to EUR 59,605 million
in 2020 (EUR 62,236 million and EUR 63,290 million in 2019
and 2018,respectively), 99.35% of which have a mortgage
guarantee (99.51% and 99.14% in 2019 and 2018,
respectively).
EUR million
Home purchase loans to families
Without mortgage guarantee
With mortgage guarantee
EUR million
Home purchase loans to families
Without mortgage guarantee
With mortgage guarantee
EUR million
Home purchase loans to families
Without mortgage guarantee
With mortgage guarantee
2020
Gross amount
Of which, non -
performing
59,605
387
59,218
1,850
75
1,775
2019
Gross amount
Of which, non -
performing
62,236
306
61,930
2,649
14
2,635
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 27% (26% and 28%
in 2019 and 2018, respectively).
• The 86% of the portfolio has a LTV below 80% calculated
as total risk/latest available house appraisal.
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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):
2020
Loan to value ratio
EUR million
Gross amount
Of which, watchlist /non-performing
Businesses portfolio
More than
More than 40% More than 60% 80% and less
than or equal
to 100%
and less than
80%
and less than
60%
Less than or
equal to 40%
15,570
170
18,028
222
17,585
318
5,205
305
More than
100%
2,830
760
Total
59,218
1,775
Credit risk with SME and corporates amounted to EUR
149,646 million. Accounting for 68% of total credit risk, this is
Santander Spain's main lending segment. Most of the
portfolio corresponds to customers with an assigned credit
analyst to monitor their loans throughout the risk cycle.
The portfolio is highly diversified and not concentrated in any
sector.
The NPL ratio of this portfolio ended the year at 6.13%
(compared with 9.73% and 27.58% at December 2019 and
2018, respectively) 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 32.95%
(35.31% and 35.27% in 2019 and 2018, respectively).
2020
Excess of gross
exposure over
maximum
recoverable
amount of
effective
collateral
Specific
allowance
397
20
70
58
EUR million
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
Gross
amount
2,871
176
924
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)
2020
Carrying amount
237,165
1,508,250
1,591
The portfolio’s NPL ratio stood at 7.04% in December 2020.
Even though total risk decreased, the NPL ratio fell by 21 bp
compared to December 2019 owning to better performance
driven by customer support programmes, the cure of several
restructured exposures in corporates and portfolio sales.
2020 growth was mainly focused in liquidity support
programs (ICO).
Real estate activity
The Real Estate Unit in Spain (UAI) was consolidated within
Santander Spain in 2019, (this process was completed in
2020). The part of the portfolio resulting from the past
financial crisis and the new business that is identified as
viable should be differentiated. 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
Reductions*
Written-off assets
Balance at end of year
2020
2019
2018
2,939
4,812
6,472
(100)
(29)
(6)
(24)
(38)
2,871
(1,685)
(1,267)
(159)
2,939
(293)
4,812
* Includes portfolio sales, cash recoveries and third-party subrogations and
new production.
770
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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
2020
164
2,707
1,454
844
610
1,185
1,124
61
68
44
24
2,871
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.
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.
• 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.
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.
• 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 2020, the net balance of these assets
amounted to EUR 3,962 million (gross amount: EUR 7,937
million; recognised allowance: EUR 3,975 million, of which
EUR 2,834 million related to impairment after the foreclosure
date).
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Annual report 2020
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2020
Gross carrying
amount
Valuation
adjustments
Of which
impairment
losses on assets
since time of
foreclosure
Carrying
amount
6,810
3,568
2,563
3,242
2,140
527
1,613
178
178
—
4,492
1,656
2,836
892
235
7,937
846
171
675
70
70
—
2,652
888
1,764
305
102
3,975
644
130
514
36
36
—
1,883
559
1,324
200
71
2,834
1,294
356
938
108
108
—
1,840
768
1,072
587
133
3,962
The following table shows the detail of the assets foreclosed
by the businesses in Spain at the end of 2020:
EUR million
Property assets arising from financing provided to construction and property
development companies
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 961 million (mainly
Project Quasar Investment 2017, S.L.), and equity instruments
foreclosed or received in payment of debts amounting to EUR
66 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.
772
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
The gross movement in foreclosed properties were as follows
(EUR billion):
EUR billion
Exposure and impairment losses by stage
EUR million
2019
2020
2019
2018
Credit quality *
Stage 1
Stage 2
Stage 3
Total
Gross additions
Disposals
Difference
3.3. United States
0.5
(0.9)
(0.4)
0.7
(2.7)
(2.0)
0.8
(1.8)
(1.0)
Santander US’s credit risk increased to EUR 99,135 million by
the end of 2020. It represents 10% of Grupo Santander's total
credit risk and includes these subsidiaries:
Santander Bank National Association (SBNA)
Santander Bank N.A.’s business is mainly retail and
commercial banking. It accounts for 84% of Santander US's
total credit risk, of which 39% is with individuals and
approximately 61% with corporates. Its primary goals include
increasing the SCIB business (16% of the portfolio) by
enhancing customer experience and growing core customers
and deposits through digital, branch and commercial
transformation initiatives; leveraging its deposit base to
support its commercial real estate businesses; and
strengthening its auto finance partnership.
The 12% decrease in lending in 2020 affected all segments.
Minus the exchange rate effect, the drop was lower, standing
at 4%.
The NPL ratio increased to 0.81% (12 bp in the year) as of
December 2020 and credit increased to 0.85% due to
provisions stemming from the covid-19 pandemic.
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, 2020, 2019 and 2018, is shown below. In
addition, depending on the current credit quality of the
operations, the exposure is divided in three categories
according to Standard and Poor's ratings:
Exposure and impairment losses by stage
EUR million
2020
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
From BB- to CCC
Default
18,105
24,380
—
1,778
2,977
—
Total exposure**
42,485
4,755
—
—
403
403
19,883
27,357
403
47,643
Impairment
losses***
344
316
42
702
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). Excludes
portfolio not segmented by rating (0.9%)
Includes provisions for undrawn authorized lines (loan commitments).
***
From AAA to BB
27,078
763
From BB- to CCC
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 and undrawn
exposures) + loan commitments granted.
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
From AAA to BB
5,149
—
From BB- to CCC
60,391
3,784
Default
—
—
Total exposure**
65,540
3,784
—
—
448
448
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.
The Government support measures taken in the United States
in response to the covid-19 pandemic are detailed below:
• There were no legislative moratoriums, all were sectoral.
Mortgage moratoriums were granted for up to 12 months,
while consumer moratoriums were granted for 1-3 months.
• Once the latter expired, a new round of moratoriums of 1-3
months was granted.
• The moratoriums granted entailed a deferral of principal
and interest.
As of 31 December 2020, SBNA had granted moratoriums to
39,235 customers, for a total amount of EUR 5,333 million,
equivalent to 11.09% of the loan portfolio. The distribution of
moratoriums by portfolio is shown below:
EUR million
Individuals
Mortgages
Consumer
SME & corporates
Total*
Total moratoria
1,618
850
768
3,715
5,333
Total
portfolio
16,332
7,466
8,866
29,411
45,743
Of which
expired
1,369
677
692
3,428
4,797
* Total portfolio includes segmented exposure and excludes off-balance.
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Annual report 2020
Contents
Of the total moratoriums expired at December 31, 2020, EUR
2,980 million were classified in stage 1, EUR 1,694 million in
stage 2 and EUR 123 million in stage 3.
At the end of 2020, 89.96% of total moratoria granted by the
Group had expired and only 2.56% of these was classified in
stage 3.
Total loans granted under government liquidity programmes
in SBNA amounted to EUR 967 million.
In relation to the overlay calculated to recognize the increase
in expected loss due to the current situation of uncertainty, it
has been calculated taking into account the adequate and
accurate identification of those significant increases in risk
(SICR) that may have occurred, not only based on quantitative
and qualitative indicators but also through collective
assessments as explained above in the section on estimation
of expected loss in Grupo Santander.
Of the total impairment credit losses, EUR 220 million
corresponds to the overlay calculated as of December 31,
2020 (EUR 175 million in stage 1, EUR 30 million in stage 2
and EUR 15 million in stage 3).
For the estimation of expected losses, prospective
information is taken into account. Specifically, Santander
Bank, National Association considers four macroeconomic
scenarios, which are updated periodically. The evolution
projected in 2020 for a period of five years of the main
macroeconomic indicators used Santander Bank, National
Association to estimate expected losses is presented below:
Variables
Interest rate (annual averaged)
Unemployment rate
House price change
GDP growth
The five-year projected development generated in 2019 to
estimate the expected loss is shown below:
Variables
Interest rate (annual averaged)
Unemployment rate
House price change
GDP growth
774
2021 - 2025
Unfavourable
scenario 2
Unfavourable
scenario 1
Base scenario
Favourable
scenario
0.78 %
5.83 %
2.67 %
3.05 %
0.27 %
7.34 %
2.17 %
2.76 %
0.63 %
5.21 %
3.40 %
2.60 %
0.99 %
4.36 %
3.79 %
3.40 %
2020 - 2024
Unfavourable
scenario 2
Unfavourable
scenario 1
Base scenario
Favourable
scenario
1.06 %
7.71 %
2.60 %
1.60 %
2.22 %
2.68 %
3.68 %
2.05 %
2.29 %
-0.87 %
4.53 %
2.07 %
2.70 %
-2.10 %
4.69 %
2.75 %
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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:
2020
2019
Pessimistic scenario 2
17.5 %
17.5 %
Pessimistic scenario 1*
20 %
20 %
Base scenario
Optimistic scenario
32.5 %
32.5 %
30 %
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 the case of SBNA, no additional 'long-run' scenario was
generated for the calculation of the post model adjustment,
but the additional provisions for covid-19 were calculated
using the own model.
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 bp In the case of some portfolios, the
behaviour score supplements this criterion.
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,
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
SC USA presents higher risk indicators than other Santander
US units due to the nature of its business. Its automobile
financing business through loans and leases represents 97%
of its revenues. It also has a smaller personal lending
portfolio (3%).
SC USA's focus remains on managing the relationship
between profitability and risk through pricing while improving
the dealer experience.
In 2020, loan originations grew by more than 20% from 2019,
mainly in the prime segment on the back of the commercial
relationship we have had with Fiat Chrysler Automobiles (FCA
Group) since 2013 (renewed in July 2019). Auto originations
improved particularly in the third quarter as covid-19
restrictions were lifted and dealership activity returned to
normal. Prime loans remained elevated from the prior year
due to FCA Group incentive programmes.
The NPL ratio dropped to 5.26% (-90 bp in the year). Cost of
credit at the end of December stood at 8.09% (-133 bp in the
year). Annual net credit losses decreased from last year due
to the lower charge-offs resulting from covid-19 loan
extensions, federal stimulus and higher recoveries driven by
the higher auction prices. Furthermore, due to the decrease in
NPL, the coverage ratio grew to 230% (+55 bp in the year).
Leases carried out exclusively under the FCA Group
agreement, primarily with highly creditworthy customers,
decreased by 6% to EUR 13,903 million, providing stable and
recurring earnings. The management and mitigation of
residual value remains a priority.
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 2020, 2019 and 2018, is shown below. In
addition, depending on the current credit quality of the
operations, the exposure is divided in three categories
according to Standard and Poor's ratings:
Exposure and impairment losses by stage
EUR million
2020
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
From BB- to CCC
Default
Total exposure **
Impairment
losses***
1,689
12
21,491
4,831
—
—
23,180
4,843
—
—
1,019
1,019
1,701
26,322
1,019
29,042
911
1,820
726
3,457
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
2019
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
From BB- to CCC
Default
Total exposure **
Impairment
losses***
1,029
14
20,083
6,277
—
—
21,112
6,291
—
—
1,600
1,600
1,043
26,360
1,600
29,003
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) + loan
commitments granted.
Includes provisions for undrawn authorized lines (loan commitments).
***
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Annual report 2020
Contents
In SC USA, better performance than initially expected has
been observed in the used car price indices (Manheim index)
and customer impairment resulting from government
assistance programs, thus counteracting this effect through
an overlay reflecting possible reductions in the Manheim
index and a levelling effect of impairment by applying
historical levels of distribution by stage, which incorporates
migrations of exposure and their respective reserves from
stage 1 to stage 2 and stage 3.
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.
For the expected losses estimation, prospective information
should be taken into account. Specifically, Santander
Consumer USA Holdings Inc. considers four macroeconomic
scenarios, periodically updated over a 5-year time horizon.
Exposure and impairment losses by stage
EUR million
2018
Credit quality *
Stage 1
Stage 2
Stage 3
From AAA to BB
From BB- to CCC
224
—
20,313
6,600
Default
Total exposure **
Impairment losses
—
20,537
824
—
6,600
1,720
Total
224
26,913
2,218
29,355
—
—
2,218
2,218
667
3,211
* Detail of credit quality ratings calculated for Group management purposes.
** Amortised cost assets + loans and advances + loan commitments granted.
As of December 31, 2020, SC USA had granted moratoriums
to 600,899 customers, for a total amount of EUR
8,912 million, equivalent to 30.68% of the loan portfolio. The
distribution of moratoriums by portfolio is shown below:
EUR million
Individuals
Mortgages
Consumer
SME & corporates
Total
Total moratoria
8,912
—
Total
portfolio
29,050
—
8,912
29,050
—
—
8,912
29,050
Of which
expired
8,005
—
8,005
—
8,005
Of the total moratoriums expired at December 31, 2020, EUR
6,280 million were classified in stage 1, EUR 1,770 million in
stage 2 and EUR 554 million in stage 3.
At the end of 2020, 89.82% of total moratoria granted by the
SC USA had expired and only 6.92% of these was classified in
stage 3.
Given the nature of its business focused on auto financing for
individuals, no loans were granted by liquidity programs in SC
USA.
In relation to the overlay calculated to recognize the increase
in expected loss due to the current situation of uncertainty, it
has been calculated on the basis of a macroeconomic effect,
and taking into account the adequate and accurate
identification of those significant increases in risk (SICR) that
may have occurred, not only based on quantitative and
qualitative indicators but also through collective assessments
as explained above in the section on estimation of expected
loss in Grupo Santander.
Of the total impairment credit losses, EUR 702 million
corresponds to the overlay calculated as of December 31,
2020 (EUR -104 million in stage 1, EUR 578 million in stage 2
and EUR 228 million in stage 3).
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annual accounts
Notes to the consolidated
annual accounts
Appendix
The evolution forecasted in 2020 for a period of five years of
the main macroeconomic indicators used by in Santander
Consumer USA Holdings Inc in the estimation of expected
losses is shown below:
Variables
Interest rate (year averaged)
Unemployment rate
Housing price growth
GDP Growth
ManheimA
index
A. US used vehicle price car index.
The five-year projected development generated in 2019 to
estimate the expected loss is shown below:
Variables
Interest rate (year averaged)
Unemployment rate
Housing price growth
GDP Growth
ManheimA
index
A. US used vehicle price car index
Unfavourable
scenario 1
Unfavourable
scenario 2
Base scenario
Favourable
scenario
2021 - 2025
0.78%
5.83%
2.67%
3.05%
1.60%
0.27%
7.34%
2.17%
2.76%
1.57%
0.63%
5.21%
3.40%
2.60%
1.61%
0.99%
4.36%
3.79%
3.40%
1.64%
2020 - 2024
Unfavourable
scenario 1
Unfavourable
scenario 2
Base scenario
Favourable
scenario
1.06 %
7.71 %
2.60 %
1.60 %
-1.20 %
2.22 %
2.68 %
3.68 %
2.05 %
0.50 %
2.29 %
-0.87 %
4.53 %
2.07 %
1.60 %
2.70 %
-2.10 %
4.69 %
2.75 %
3.10 %
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:
2020
2019
2018
The sensitivity analysis of the main portfolios expected loss to
variations of +/-100 bp for the macroeconomic variables used
in the construction of the scenarios is as follows:
Change in provision
SC Auto
Pessimistic scenario 2
17.5%
17.5%
20.0%
Manheim index
Pessimistic scenario 1*
20.0%
20.0%
n.a.
Base scenario
Optimistic scenario
32.5%
32.5%
60.0%
30.0%
30.0%
20.0%
* The exercise carried out in 2019 includes two adverse scenarios compared to
one in 2018, due to the evolution of the local methodology.
In the case of SC USA, no additional 'long-run' scenario was
generated for the calculation of the post model adjustment,
but the additional provisions for covid-19 were calculated
using the own model.
-0.01
0.01
Unemployment Rate
-0.01
0.01
House Price Change
-0.01
0.01
GDP growth
-0.01
0.01
1.91 %
-1.21 %
-4.29 %
6.48 %
3.22 %
-2.06 %
3.11 %
-1.94 %
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 bp to 60 bp.
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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 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. Banco Santander (Brasil) S.A.
Economic growth had one of the most moderate declines in
Latin America between March and April. Recovery started in
May, owing to relaxed confinement measures, the reopening
of businesses, fiscal and monetary stimuli, low inflation
(4.5% in December vs 4% target), and an expansive monetary
policy, with the official rate of interest at 2% from 4.50% at
the end of 2019.
Santander Brasil's credit risk amounted to EUR
74,712 million. It decreased by 16% from 2019. Minus the
exchange rate effect, it grew by 19%. As of December 2020,
Santander Brasil accounts for 8% of Grupo Santander's loan
book.
In line with strategy, growth was prominent in retail
segments with a more conservative risk profile, driven by
customer engagement and loyalty and by new business on
digital channels, which significantly increased last year.
The profitability of the SME portfolio increased significantly,
boosted by an active loan origination under government
programmes (EUR 1,790 million) to combat the pandemic
that provided SMEs with liquidity to adapt to the new
environment.
A proactive credit risk management approach was key to
achieving a profitable increase in market share, while credit
quality indicators remained at moderate levels.
Net loan-loss provisions stood almost flat at EUR 3,018
million (-0.6% compared to 2019), favoured by the exchange
rate effect. In local currency, provisions grew +31% mainly
driven by additional provisions related to covid-19.
Cost of credit rose to 4.35% from 3.93% at the end of 2019,
driven by the current convid-19 pandemic context, as well as
the aforementioned provisions performance.
778
Information on the estimation of impairment losses
The detail of Banco Santander (Brasil) S.Al exposure and
impairment losses associated with each of the stages at
31December, 2020, 2019 and 2018, is shown below. In
addition, depending on the current credit quality of the
operations, the exposure is divided in three categories
according to Standard and Poor's ratings:
Exposure and impairment losses
EUR million
2020
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
38,686
210
From BB- to CCC
26,166
5,942
—
—
38,896
32,108
Default
—
—
3,428
3,428
Total exposure **
64,852
6,152
3,428
74,432
Impairment
losses***
971
777
2,132
3,880
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
EUR million
2019
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
45,765
308
From BB- to CCC
32,698
5,393
—
—
46,072
38,091
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
EUR million
2018
Credit quality *
Stage 1
Stage 2
Stage 3
Total
From AAA to BB
51,150
472
From BB- to CCC
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.
The Government support measures taken in the Brazil in
response to the covid-19 pandemic are detailed below:
• The moratoriums for individuals were granted for a term of
2 months with an additional extension of one month.
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annual accounts
Notes to the consolidated
annual accounts
Appendix
• In the case of legal entities, the moratoriums were for up to
6 months in line with BNDES (Banco Nacional de
Desenvolvimento Econômico e Social) programs. These
were granted slightly later than those granted to
individuals.
• The moratoriums granted entailed a deferral of principal
and interest.
As of 31 December 2020, moratoriums had been granted to
1,728,197 customers, for a total amount of EUR
6,369 million, equivalent to 9.45% of the loan portfolio. The
distribution of moratoriums by portfolio is shown below:
EUR million
Individuals
Mortgages
Consumer
SME &
Corporates
Total*
Total moratoria
Total
portfolio
of which:
Expired
4,518
2,177
2,341
1,851
35,182
7,196
27,987
29,874
6,369
65,056
4,451
2,129
2,321
1,437
5,888
* Total portfolio includes segmented exposure and excludes off-balance
Of the total moratoriums expired at 31 December 2020, EUR
4,448 million were in stage 1, EUR 1,037 million in stage 2
and EUR 403 million in stage 3.
At the end of 2020, 92.44% of the total moratoriums granted
by Brazil had expired and only 6.84% of these was classified
in stage 3.
Total loans granted by liquidity programmes in Brazil
amounted to EUR 2,019 million as of 31 December 2020.
In relation to the overlay calculated to recognize the increase
in expected loss due to the current situation of uncertainty, it
has been calculated on the basis of a macroeconomic effect,
and taking into account the adequate and accurate
identification of those significant increases in risk (SICR) that
may have occurred, not only based on quantitative and
qualitative indicators but also through collective assessments
as explained above in the section on estimation of expected
loss in Grupo Santander.
Of the total impairment losses, EUR 523 million related to the
overlay calculated at 31 December 2020 (EUR 243 million in
stage 1, EUR 193 million in stage 2 and EUR 87 million in
stage 3).
For the expected losses estimation, prospective information is
taken into account. Particularly, Santander Brazil considers
three macroeconomic scenarios, periodically updated. The
evolution for a period of five years of the main
macroeconomic indicators used to estimate the expected
losses in Santander Brazil is as follows:
Variables
Interest rate
Unemployment rate
Housing price
change
GDP Growth
Burden income
2020 - 2024
Pessimistic
scenario Base scenario
Optimistic
scenario
8.70 %
16.48 %
-1.24 %
-1.40 %
21.70 %
5.60 %
9.58 %
2.69 %
2.38 %
4.45 %
8.04 %
6.39 %
4.41 %
20.39 %
19.02 %
In the case of Santander Brazil, the scenarios projected up to
2024 have been complemented with an additional scenario
that counts with the appropriate extension to reflect loss
materialization, taking into account the loan portfolios
shorter average terms and the expected deterioration in the
following periods.
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
2020
10 %
80 %
10 %
2019
10 %
80 %
10 %
2018
10 %
80 %
10 %
Regarding the the additional scenario used to calculate the
post-model adjustment, the projected evolution of the main
macroeconomic indicators for a period of five years is shown
below:
Variables
Interest rate
Unemployment rate
Housing price change
GDP Growth
Burden income
2020-2024
Pessimistic
scenario Base scenario
Optimistic
scenario
5.97 %
18.00 %
-0.88 %
-1.62 %
22.30 %
4.25 %
12.34 %
1.84 %
1.40 %
20.80 %
4.25 %
12.34 %
1.84 %
1.40 %
20.80 %
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The sensitivity analysis of the main portfolios expected loss to
variations of +/-100 bp for the macroeconomic variables used
in the construction of the scenarios is as follows:
Change in provision
Consumer
Corporate
Rest
The average evolution forecasted in 2020 for a period of five
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:
GDP Growth
-100 bp
100 bp
Burden income
-100 bp
100 bp
Interest rate (Selic)
-100 bp
100 bp
2021 - 2025
Pessimistic
scenario
Base Optimistic
scenario
scenario
0.89 %
1.66 %
0.75 %
Variable
-0.91 %
-1.49 %
-0.41 %
Global GDP growth
3.03 %
3.39 %
3.56 %
-0.82 %
1.61 %
1.56 %
0.69 %
-0.43 %
1.49 %
-1.43 %
2.11 %
0.55 %
8.42 %
-0.29 %
1.54 %
The five-year projected development generated in 2019 to
estimate the expected loss is shown below:
2020 - 2024
Variable
Pessimistic
scenario
Base Optimistic
scenario
scenario
Global GDP growth
3.04 %
3.55 %
3.83 %
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, considering that a significant reduction
has occurred when this decrease reaches values between 3.2
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.
Regarding the the long-run scenario used to calculate the
post-model adjustment, the projected evolution of the main
macroeconomic indicators for the next five years is shown
below:
Variable
Global GDP growth
Long-run scenario
1.54 %
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
2020
30 %
40 %
30 %
2019
30 %
40 %
30 %
2018
20 %
60 %
20 %
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.
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) n.º 575/2013, counterparty
credit risk, which includes derivative instruments,
transactions with a repurchase obligation, stock and
commodities lending, transactions with deferred repayment
and financing of guarantees, arises from the likelihood that a
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Notes to the consolidated
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Appendix
counterparty will default before the final settlement of the
transaction's cash flows.
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 the
Montecarlo simulation to calculate exposures for some
countries and products. We also calculate capital at risk and
unexpected loss, which is the difference between the
economic capital, net of guarantees and recoveries, and
expected loss.
After market close, the exposures are recalculated by
adjusting transactions to their new time frame, adapting
potential future exposure and applying mitigation measures
(netting, collateral, etc.) to control exposures directly against
the limits approved by senior management. Grupo Santander
runs risk control with an integrated system in real time that
enables us to know the exposure limit with any counterparty,
product and maturity and in any of Santander’s subsidiaries 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.
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.
Grupo Santander 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 mitigation effect contained in the
regulation.
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 2020.
The detail, by activity and geographical area of the Group's
risk concentration at 31 December 2020 is as follows:
EUR million
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 2020
Spain
69,467
43,121
32,070
11,051
14,882
Other EU
countries
49,359
30,571
28,988
1,583
37,661
America
75,831
83,960
74,032
9,928
27,883
Rest of the
world
83,686
8,462
7,913
549
33,143
Total
278,343
166,114
143,003
23,111
113,569
400,329
125,608
85,897
131,578
57,246
19,105
5,723
232,469
143,032
501,901
324,193
160,037
17,671
3,921
2,924
59,037
59,726
86,076
60,556
17,881
7,639
3,531
1,864
48,120
32,382
93,301
34,102
57,033
2,166
5,631
798
86,515
38,634
6,022
137
38,797
12,290
112,954
209,570
38,762
69,263
4,929
190,773
15,860
2,937
392,107
1,460,256
339,154
296,789
432,206
* For the purposes of this table, the definition 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'.
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4.3. Sovereign risk and exposure to other public sector entities
Sovereign risk occurs in transactions with a central bank. It
includes the regulatory cash reserve, issuer risk with the
Treasury (public debt portfolio) and risk from transactions
with government institutions whose funding only come from
the state’s budgetary revenue and not commercial operations.
The historic criteria of Grupo Santander can differ from
regular EBA stress test standards. Though the EBA does
include national, regional and local government institutions, it
does not include deposits with central banks, exposures with
insurance companies, indirect exposures via guarantees and
other instruments.
According to our management criteria, local sovereign
exposure in currencies other than the official currency of the
country of issuance is not significant (EUR 12,080 million,
3.8% of total sovereign risk). Furthermore, exposure to non-
local sovereign issuers involving cross-border risk
is even
less significant (EUR 7,168 million, 1.8% of total sovereign
risk).
25
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 in line with regulatory requirements and our
strategy to manage this portfolio.
2020
Portfolio
The shifts in our sovereign risk in our countries is due to our
liquidity management strategy and the hedging of interest
and exchange rates risks. Santander's exposure spreads
among countries with varied macroeconomic outlooks and
dissimilar growth, interest and exchange rate scenarios.
The shifts observed in the different countries exposure is due
to our liquidity management strategy and the hedging of
interest and exchange rates risks. Santander's exposure
spreads among countries with varied macroeconomic
outlooks and dissimilar scenarios in terms of growth, interest
and exchange rates.
Our investment strategy for sovereign risk considers country’s
credit quality to set the maximum exposure limits:
AAA
AA
A
BBB
Less than BBB
2018
2020 2019
18%
25%
25%
14%
18%
20%
24%
18%
15%
23%
11%
20%
31%
13%
25%
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 2020:
Financial assets Financial assets at
fair value through
other
comprehensive
designated at
fair value
through profit
or loss
Non-trading
financial assets
Financial mandatorily at fair
value through
assets at
profit or loss
income amortized cost
4,100
(380)
249
—
—
(29)
(1,672)
16
7
589
5,127
8,005
148
19
—
7,048
4,148
2,468
—
—
1,687
612
10,263
121
9,501
17,281
10,256
6,732
397
3,776
13,097
4,962
1,298
—
—
2,396
963
668
942
5,458
5,309
2,768
75
542
976
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Country
Spain
Portugal
Italy
Greece
Ireland
Rest Eurozone
UK
Poland
Rest of Europe
US
Brazil
Mexico
Chile
Rest of America
Rest of the world
Total
2019
2018
Total net direct
exposure
35,366
49,640
8,689
2,735
—
—
1,809
10,363
8,366
777
16,299
28,998
13,673
3,460
1,029
4,813
8,753
261
—
—
2,778
10,869
11,229
329
8,682
27,054
10,415
1,776
893
6,222
Total net
direct
exposure
24,245
8,730
4,015
—
—
4,054
(97)
10,947
1,070
15,548
27,717
21,029
6,955
958
4,752
16,179
74,290
39,454
—
129,923
136,377
138,901
25
Countries that are not considered low risk by Banco de España.
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Appendix
5. Forborne loan portfolio
Grupo Santander's internal forbearance policy acts as a
reference for our subsidiaries locally. It shares the principles
of regulations and supervisory expectations. It includes the
requirements of the EBA guidelines on management of non
performing and forborne exposures. It defines forbearance as
the modification of the payment conditions of a transaction to
allow a customer experiencing financial difficulties (current or
foreseeable) to fulfil their payment obligations. If forbearance
is not allowed, there would be reasonable certainty that the
customer would not be able to meet their financial
obligations.
In addition, this policy also sets down rigorous criteria for
evaluating, classifying and monitoring forbearances to ensure
the strictest possible care and diligence in recovering due
amounts. Thus, it dictates that we must adapt payment
obligations to customers' current circumstances. Our
forbearance policy also defines classification criteria to ensure
we recognize risks appropriately. They must remain classified
as non-performing or in watch-list for a prudential period for
reasonable certainty of repayment.
Forbearances may never be used to delay the immediate
recognition of losses or hinder the appropriate recognition of
risk of default. Thus, we must recognize losses as soon as we
deem any amounts irrecoverable.
The forborne portfolio stood at EUR 29,159 million at the end
of December 2020. In terms of credit quality, 51% of the
loans are classified as non-performing loans, with average
coverage of 43%.
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.
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CURRENT REFINANCING AND RESTRUCTURING BALANCES
Amounts in EUR million, except number of transactions that are in units
Without real guarantee
Total
With real guarantee
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
—
40
615
—
21
22
—
17
565
—
9
123
—
7
38
—
—
55
—
1
29
176,310
4,936
45,872
9,872
6,444
828
4,475
6,395
2,569,758
2,746,723
131
4,059
9,038
1,557
427,282
473,736
802
10,117
20,121
599
6,239
12,728
38
1,561
2,444
246
3,657
8,162
—
—
—
—
—
—
—
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 2020, 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 4,454 million, without these modifications
having a material impact on the income statement. Also,
during 2020, 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 EUR 1,478 million.
The transactions presented in the foregoing tables were
classified at 31 December 2020 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.
Attending to the credit attention 49% 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 43% of the non-
performing portfolio)
The table below shows the changes in 2020 in the forborne
loan portfolio (net of provisions):
EUR million
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
2020
23,430
8,351
2,249
(5,449)
(293)
(1,314)
(3,728)
20,997
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Appendix
2020
Without real guarantee
Of which, non-performing/Doubtful
With real guarantee
Maximum amount of the actual
collateral that can be considered
Number of
transactions
Gross amount
Number of
transactions
Real estate
guarantee
Rest of real
guarantees
—
19
323
—
1
12
—
9
358
—
3
79
—
3
26
103,692
3,160
31,861
6,147
3,944
3,838
1,299,317
1,403,351
—
50
1,762
4,935
—
1,023
148,862
181,090
509
3,831
10,060
—
—
255
2,703
6,676
—
—
—
49
355
14
241
645
—
Impairment of
accumulated value
or accumulated
losses in fair value
due to credit risk
—
1
27
4,091
225
2,272
6,391
—
c) Market, structural and liquidity risk
1. Activities subject to market risk and types of market risk
Activities subject to market risk encompass transactions
where risk is assumed as a consequence of potential changes
in interest rates, inflation rates, exchange rates, stock prices,
credit spreads, commodity prices, volatility and other market
factors; the liquidity risk from our products and markets, and
the balance sheet liquidity risk. Therefore, they include
trading risks and structural risks.
• Interest rate risk arises from changes in interest rates that
could adversely affect the value of a financial instrument, a
portfolio or the group as a whole. It affects loans, deposits,
debt securities and most assets and liabilities in trading
books and derivatives.
• Inflation rate risk originates from changes in inflation rates
that could adversely affect the value of a financial
instrument, a portfolio or the entire group. It affects
instruments such as loans, debt securities and derivatives,
where returns are linked to future inflation values or a
change in the current rate.
• Exchange rate risk is the sensitivity to movements in
exchange rates of a position’s value not denominated in the
base currency. A long or open position in a foreign currency
may produce a loss if it depreciates against the base
currency. Exposures affected by this risk include non-euro
investments in subsidiaries and transactions in foreign
currency.
• Equity risk is the sensitivity of the value of an open
positions in equities to adverse movements in their market
prices or future dividend expectations. This affects
positions in shares, stock market indexes, convertible
bonds and derivatives with shares as the underlying asset
(put, call, equity swaps, etc.).
• Credit spread risk is the sensitivity of the value of an open
positions in fixed income securities or credit derivatives to
movements in the 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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1. Trading market risk management
Setting market risk limits is a dynamic process that follows
predefined risk appetite levels. It is part of senior
management's annual limits plan that extends to all
subsidiaries.
The standard methodology for risk management and control
in trading, measures the maximum expected loss with a
specific level of confidence and time frame. The standard for
historical simulation is a confidence level of 99% over one
day. We apply statistical adjustments efficiently to
incorporate recent developments affecting our levels of risk.
Our time frame is two years or at least 520 days from the
reference date of the VaR calculation.
• Commodity price risk is the risk from changes in
commodity prices. Our exposure to this risk is not
significant, mainly coming from our customers’ derivative
transactions in commodities.
• Volatility risk is the sensitivity of the value of a portfolio to
changes in the volatility of risk factors such as interest
rates, exchange rates, shares and credit spreads. This risk is
incurred by all financial instruments, in which volatility is a
variable in valuation. The most significant case is the
financial options portfolio.
All these market risks can be partly or fully mitigated with
derivatives such as options, futures, forwards and swaps.
There are other types of market risk that require more
complex hedging:
• Correlation risk is the sensitivity of the portfolio to changes
in the relationship between risk factors (correlation) of the
same type (e.g., two exchange rates) or different types
(e.g., an interest rate and the price of a commodity).
• Market liquidity risk originates when Grupo Santander or a
subsidiary cannot reverse or close a position without 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. This risk
could also increase depending on how exposures are
distributed among products and currencies.
• Pre-payment or cancellation risk originates when on-
balance- sheet instruments (such as mortgages or
deposits) may have options that allow holders to buy or sell
them or alter future cash flows. Potential mismatches on
the balance sheet 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 arises from an entity’s involvement in
underwriting or placing securities or other types of debt
when it assumes the risk of having to acquire issued
securities partially if they have not fully been taken up by
potential buyers.
• Balance sheet liquidity risk must also be considered. Unlike
market liquidity risk, it is defined as the possibility of
meeting payment obligations late or at an excessive cost.
Losses may be caused by 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.
Grupo Santander ensures make sure we comply with the
Basel Committee’s Fundamental Review of the Trading Book
and the EBA guidelines on balance-sheet interest-rate risk.
Through several projects, Santander aims to provide risk
managers and control teams with the best tools to manage
market risks under the right governance framework for the
models used, to report risk metrics, and help satisfy
requirements on these risks.
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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:
Main market risk metric
Balance sheet
amount
VaR
Other
Main risk factor for
'Other' balance
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 designated at fair value through other
comprehensive income
Financial assets at amortized 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 amortized cost
Hedging derivatives
Changes in the fair value of hedged items in portfolio hedges of
interest rate risk
Other liabilities
Total liabilities
Equity
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 2020 and the ES at 97.5% as of
the end of December 2020:
153,839
114,945
4,486
48,717
120,953
958,378
8,325
1,980
96,627
1,508,250
81,167
48,038
1,248,188
6,869
286
32,380
1,416,928
91,322
114,945
3,234
35,337
2,783
153,839
1,252
13,380
Interest rate
Interest rate, spread
Interest rate, Equity
market
Interest rate
118,170
958,378
8,325
Interest rate, spread
Interest rate
Interest rate, exchange
1,980
Interest rate
81,167
14,641
33,397
1,248,188
6,869
Interest rate, spread
Interest rate
Interest rate, spread
Interest rate, exchange
286
Interest rate
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VaR statistics and expected shortfall by risk factor
EUR million. VaR at 99% and ES at 97.5% with one day time horizon
A
2020
VaR (99%)
Min
Average
Max
Latest
ES (97.5%)
Latest
2019
VaR
2018
VaR
Average
Latest
Average
Latest
6.5
(6.0)
4.7
2.1
2.6
3.1
0.0
5.0
(4.6)
3.2
2.1
1.3
3.1
0.0
2.8
0.7
1.6
0.0
0.5
2.4
(0.8)
2.3
0.2
0.8
12.5
(13.1)
9.2
4.4
5.9
5.5
0.5
10.5
(10.6)
7.9
4.3
3.5
5.5
0.0
6.6
(2.2)
3.4
0.3
5.1
5.6
(3.4)
5.2
1.0
2.7
54.8
(15.8)
29.2
14.7
12.9
11.4
2.5
39.1
(21.9)
24.0
15.0
10.7
11.4
0.0
13.7
(5.3)
7.1
1.2
10.7
26.4
(13.8)
26.3
6.3
7.6
8.3
(11.8)
8.1
(12.6)
5.4
3.1
6.0
4.5
1.1
8.0
(8.9)
6.5
3.0
2.9
4.5
0.0
2.9
(1.1)
3.3
0.1
0.5
4.5
(4.3)
4.1
0.5
4.2
5.9
3.7
5.5
4.5
1.0
9.3
(8.8)
7.2
3.6
2.7
4.5
0.0
2.7
(0.9)
3.0
0.1
0.5
5.0
(3.7)
4.2
0.5
4.2
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
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
9.7
(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
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.
By the end of December, VaR had decreased by EUR 2 million
vs. the end of 2019. Average VaR increased slightly by EUR
0.4 million. By risk factor, average VaR increased in most
factors due to higher market volatility along the year. By
geographic area, average VaR rose in Europe and North
America but remained at low levels.
VaR by risk factor has generally remained stable over the last
few years. Temporary rises are due more to temporary
increases in the volatility of market prices than to significant
changes in positions.
Grupo Santander's exposure to complex structured
instruments and assets is very limited, this is a reflection of
our risk culture and prudent risk management. At the end of
December 2020, the exposures in this area were:
• Hedge funds: exposure was EUR 344 million (all indirect),
acting as counterparty in derivatives transactions. We analyse
the risk related to this type of counterparty on a case by case
basis, establishing percentages of collateralization based on
each fund’s features and assets.
• Monolines: no exposure at the end of December 2020.
Grupo Santander's policy for approving new transactions in
these products remains extremely prudent and conservative.
It is strictly supervised by top management.
Backtesting
Actual losses can differ from those forecast by VaR due to the
aforementioned limitations of this metric. Grupo Santander
regularly analyses the accuracy of the VaR calculation model
to confirm its reliability. The most important tests have
backtesting:
• For hypothetical P&L backtesting and for the total portfolio,
we observed overshootings in VaR at 99% on 9 and 12
March and on 7 July and on 30 December.
• In the case of VaE at 99%, overshootings was observed on
20 March.
• Most of overshootings were due to the strong market
variations caused by the health crisis.
• The overshootings we observed in 2020 are consistent with
the assumptions in the VaR calculation model.
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IBOR Reform
Since 2015, central banks and regulators in several major
jurisdictions have convened Working Groups (WGs) to find
and implement the transition to suitable replacements for
some existing ‘IBOR’ benchmarks, such as Euro Overnight
Index Average (EONIA) and London Interbank Offered Rates
(LIBORs).
On 27 July 2017, the Chief Executive of the U.K. Financial
Conduct Authority (the FCA), which regulates the LIBOR,
announced that the FCA will no longer persuade or compel
banks to submit rates for the calculation of the LIBOR
benchmarks after 2021. This announcement indicates that
the continuation of LIBORs on the current basis cannot be
guaranteed after 2021. Therefore, after 2021 LIBORs may
cease to be calculated.
Additionally, on 13 September 2018 the WG euro RFR
recommended that the Euro Short Term Rate (€STR) shall
replace EONIA. Since 2 October 2019, the date on which the
€STR became available, EONIA changed its methodology to
be calculated as the €STR plus a spread of 8.5 basis points.
This change in EONIA’s methodology is intended to facilitate
the market’s transition from EONIA to €STR, with the former
expected to be discontinued by the 3 January 2022.
On October 2020, the International Swaps and Derivatives
Association (ISDA) launched the IBOR Fallbacks Protocol,
which will become effective on 25 January 2021, and will
provide derivatives market participants with new IBOR
fallbacks for legacy and new derivatives contracts. Banco
Santander S.A. and several subsidiaries have adhered to this
protocol.
On December 2020, ICE Benchmark Administration (IBA), the
FCA-regulated and authorized administrator of LIBOR,
announced its intention that one week and two months USD
LIBOR settings will cease at end-2021, while the rest of USD
LIBOR tenors (Overnight and 1, 3, 6 and 12 months) will cease
at end-June 2023.
On December 2020, the European Union Council endorsed
new rules amending of the EU Benchmark Regulation (BMR).
The aim of the amendments to the Benchmark Regulation is
to make sure that a statutory replacement benchmark can be
established by the regulators by the time a systemically
important benchmark is no longer in use, and thus protect
financial stability on EU markets. It is likely that the
regulators decide to use these powers in order to mitigate, as
much as possible, systemic risks that might result from the
phasing out of the London Inter-Bank Offered Rate (LIBOR) by
the end of 2021. The new rules give the Commission the
power to replace so-called 'critical benchmarks', which could
affect the stability of financial markets in Europe, and other
relevant benchmarks, if their termination would result in a
significant disruption in the functioning of financial markets in
the EU. The Commission will also be able to replace third-
country benchmarks if their cessation would result in a
significant disruption in the functioning of financial markets
or pose a systemic risk for the financial system in the EU..
Interest rate benchmarks have an extended footprint in a
significant number of contracts that Santander Group is
holding and are used in multiple processes. The most relevant
interest rate benchmarks for Santander are EURIBOR, EONIA,
USD-LIBOR, GBP-LIBOR, and CHF-LIBOR. Santander Group
uses these benchmarks as the reference rate not only for
derivatives, but also for loans, discounting products, deposits,
collateral agreements and floating rate notes, among others.
The main risks to which Santander is exposed arising from
financial instruments because of the transition are: (i) legal
risks arising from potential changes required to
documentation for new and existing transactions; (ii) risk
management, financial and accounting risks arising from
market risk models and from valuation, hedging,
discontinuation and recognition of financial instruments
linked to benchmark rates; (iii) business risk of a decrease in
revenues of products linked to indices that will be replaced;
(iv) pricing risks arising from how changes to benchmark
indices could impact pricing mechanisms on some
instruments; (v) operational risks arising from the potential
requirement to adapt IT systems, trade reporting
infrastructure and operational processes; (vi) conduct risks
arising from the potential impact of communication with
customers and engagement during the transition period and
(vii)litigation risks regarding our existing products and
services, which could adversely impact our profitability.
In order to monitor the risks and address the challenges of the
transition, Santander launched the IBOR Transition
Programme in 2019. This programme has a group wide scope
and reports on a regular basis to Executive Management
involving statutory committees. Its main objective is to ensure
a smooth operational transition and to anticipate and address
any potential customer and conduct related issues that could
arise from the IBOR transition. It also aims to ensure that all
impacted areas, business units and geographies understand
the risks associated with the transition in a homogeneous
way and can take appropriate measures to mitigate them.
Santander’s IBOR Transition Programme is aligned with the
recommendations, guidance and milestones defined by
regulators and working groups of different jurisdictions and is
structured around the following areas: Technology &
Operations, Legal, Client Outreach, Risk Management &
Models, Conduct & Communications and Accounting &
Finance.
Santander is engaged with the public and private sector
initiatives in connection with IBOR transition. As part of this
involvement, Santander participates in the WG Risk Free Rate
Groups of different jurisdictions in Europe and America.
Santander provides active feedback on the multiple
consultations issued by industry forums, market associations,
bank associations and other public organisms on this issue.
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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 2020, in line with previous years.
Structural VaR
A standardized metric such as VaR can be used for monitoring
total market risk for the banking book (excluding the trading
activity of SCIB). Santander distinguishes fixed income
considering interest rates and credit spreads on ALCO
portfolios, exchange rates and equities.
In general, structural VaR is not material in terms of our
volume of total assets or equity.
Structural VaR
EUR million. Structural VaR 99% with a temporary horizon of one day.
Structural VaR
Diversification effect
VaR interest rate*
VaR exchange rate
VaR equities
2020
2019
2018
Min
Average
Max
611.4
911.0
1,192.1
Latest
903.1
Average
511.4
Latest
729.1
Average
568.5
Latest
556.8
(227.2)
(349.8)
(261.0)
(263.4)
(304.2)
(402.0)
(325.0)
(267.7)
345.5
317.8
175.3
465.1
499.9
295.9
581.9
547.0
324.2
345.5
502.6
318.5
345.6
308.1
161.9
629.7
331.7
169.8
337.1
338.9
217.6
319.5
324.9
180.1
* Includes credit spread VaR on ALCO portfolios.
Structural interest rate risk
• Europe
The most significant risk to the economic value of equity was
also in the US (EUR 1,035 million).
The EVE and NII sensitivities of our main balance sheets
(Santander Spain and Santander UK) are usually positive.
• South America
Exposure in all countries was moderate in relation to the
annual budget and capital levels in 2020.
By the end of December 2020, considering the scenarios
previously mentioned, the most significant risk of NII
sensitivity was in the euro, at EUR 191 million; the Polish
zloty, at EUR 66 million; the British pound yield curve at
EUR 25 million; and the US dollar, at EUR 19 million, all
relating to the risk of rate cuts.
The most significant risk in economic value of equity was in
the euro interest rate curve, at EUR 2,236 million; the
British pound at EUR 643 million ; the US dollar at EUR
142 million; and the Polish zloty at EUR 22 million, all
relating to the risk of rate cuts.
• North America
The EVE and NII of our North American balance sheets
(excluding the EVE of Mexico) usually show positive
sensitivities to interest rates.
Exposure in all countries was moderate in relation to the
annual budget and capital levels in 2020.
By the end of December, the most significant risk to net
interest income was mainly in the US (EUR 61 million).
The economic value and net interest income in our South
American balance sheets are usually positioned for interest
rate cuts.
Exposure in all countries was moderate in relation to the
annual budget and capital levels in 2020.
By the end of December, the most significant risk to net
interest income was mainly located in Chile (EUR 80 million)
and Brazil (EUR 68 million).
The most significant risk to the economic value of equity was
also mainly in Chile (EUR 313 million) and Brazil (EUR
278 million).
Structural foreign currency rate risk/results hedging
The structural exchange rate risk is driven by transactions in
foreign currencies related to permanent financial
investments, their results and related hedges. The dynamic
management of this risk seeks to limit the impact on the core
capital ratio of foreign exchange rate movements. In 2020,
hedging of the core capital ratio for foreign exchange rate risk
was kept close to 100%.
In December 2020, the largest exposures of permanent
investments (with their potential impact on equity) were (in
order) in US dollars, British pounds sterling, Brazilian real,
Mexican pesos, Chilean pesos and Polish zlotys. Santander
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Notes to the consolidated
annual accounts
Appendix
hedges some positions (which are permanent in nature) with
foreign exchange-rate derivatives. The Finance Division is also
responsible for foreign exchange rate risk management,
hedging expected results and dividends in subsidiaries whose
base currency is not the euro.
• 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.
Structural equity risk
• Limited recourse to short-term funding.
Grupo Santander maintains equity positions in its banking
book as well as in its trading portfolio. These positions are
maintained as equity instruments or equity stakes depending
on the percentage owned or control.
The equity portfolio in the banking book at the end of
December 2020 was diversified between securities in various
countries, e.g. Spain, China, Morocco and Poland. Most of the
portfolio is invested in the finance and insurance sectors.
Among other sectors with lower exposure allocations real
estate is included.
Structural equity positions are exposed to market risk. VaR is
calculated for these positions with market price data series or
proxies. By the end of September 2020, the VaR at 99% over a
one day time horizon was EUR 319 million (EUR 170 million
and EUR 180 million at the end of 2019 and 2018,
respectively).
2.2. Methodologies
Structural interest rate risk
Grupo Santander analyses the potential impact of changes in
interest rate levels on EVE and NII. Depending on the changes
in rates, impacts will be different and therefore various
subtypes of interest rate risk need to be monitored and
managed, such as repricing, curve or basis risk.
Based on the balance-sheet interest rate position and the
market situation and outlook, financial actions (such as
transacting positions or setting interest rates for products
marketed) may be needed to attain the desired risk profile
determined by Grupo Santander.
The suite of metrics used to monitor interest rate risks
includes the sensitivity of NII and EVE to changes in interest
rates, and value at risk (VaR) for calculating economic capital.
Structural exchange-rate risk/hedging of results
These activities are monitored daily via position
measurements, VaR and results.
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.
• 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.
Grupo Santander’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.
• Medium- and long-term (M/LT) funding needs must be
covered by medium- and long-term instruments.
Over the course of the year, all dimensions of the plan are
monitored.
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Annual report 2020
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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.
iii. Asset encumbrance
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 2020 (thousand of million of
euros):
Residual
>1 month
maturities of
the liabilities Unmatured <=1month <=3 months
>3 months
<=12
months
>1 year
<=2 years
>2 years
<=3 years
3 years
5 years
<=5 years <=10 years
>10 years
Total
Committed
assets
Guarantees
received
35.7
29.7
40.2
30.6
10.2
35.5
32.4
106.4
50.5
23.9
15.6
350.4
3.9
16.9
1.4
0.5
1.6
—
0.1
84.7
The reported Group information as required by the EBA at
2020 year-end is as follows:
On-balance-sheet encumbered assets
EUR billion
Loans and advances
Equity instruments
Debt securities
Other assets
Total assets
Encumbrance of collateral received
EUR billion
Carrying amount of
encumbered assets
Fair value of
encumbered assets
Fair value of non- Carrying amount of non-
encumbered assets
encumbered assets
249.5
5.8
61.9
33.2
350.4
5.8
60.7
884.7
9.9
114.6
148.7
1,157.9
9.9
115.4
Encumbered assets and collateral received and matching
liabilities
Fair value of
encumbered
collateral received
or own debt
securities issued
Fair value of
collateral received or
own debt securities
issued available for
encumbrance
EUR billion
Collateral received
Loans and advances
Equity instruments
Debt securities
Other collateral
received
Own debt securities
issued other than own
covered bonds or ABSs
84.7
—
3.5
80.3
0.9
—
43.0
—
5.9
37.1
—
0.9
792
Assets, collateral
received and own
debt securities issued
other than covered
bonds and ABSs
encumbered
Matching liabilities,
contingent liabilities
or securities lent
Total sources of
encumbrance (carrying
amount)
306.3
435.1
On-balance-sheet encumbered assets amounted to EUR
350,400 million, of which 71% are loans (mortgage loans,
corporate loans, etc.). Off-balance-sheet encumbered assets
amounted to EUR 84,700 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
435,100 million of encumbered assets, which give rise to EUR
306,300 million matching liabilities.
As of December 2020, total asset encumbrance in funding
operations represented 26.6% of the Group’s extended
balance sheet under EBA criteria (total assets plus guarantees
received: EUR 1,635,900 million as of December 2020). This
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Notes to the consolidated
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Appendix
percentage has been increased from 24.1% that presented
the Group as of December 2019. This increase was mainly
due to Grupo Santander's use of the financing programmes
launched by central banks in response to the pandemic.
d) Capital risk
In the second line of defence, capital risk management can
independently challenge business and first-line activities by:
• Supervising capital planning and adequacy exercises
through a review of the main components affecting the
capital ratios.
• Identifying key metrics to calculate the Group’s regulatory
capital, setting tolerance levels and analysing significant
variations, as well as single transactions with impact on
capital.
• Reviewing and challenging the execution of capital actions
proposed in line with capital planning and risk appetite.
Grupo Santander commands a sound solvency position, above
the levels required by regulators and by the European Central
bank.
Regulatory capital
At 1 January 2021, at a consolidated level, the Group must
maintain a minimum capital ratio of 8.85% of CET1 (4.50%
being the requirement for Pillar I, 0.84% being the
requirement for Pillar 2R (requirement), 2.50% being the
requirement for capital conservation buffer, 1.00% being the
requirement for G-SIB and 0.01% being the requirement for
anti-cyclical capital buffer).
In 2020, the solvency target set was achieved. Santander’s
CET1 ratio stood at 12.34% (figures calculated by applying
the transitional provisions of IFRS 9) 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
EUR million
Subscribed capital
Share premium account
Reserves
Treasury shares
Attributable profit
Approved dividend
Shareholders’ equity on
public balance sheet
Valuation adjustments
Non-controlling interests
Total Equity on public
balance sheet
Goodwill and intangible
assets
Eligible preference shares
and participating securities
Accrued dividend
Other adjustments*
Tier 1* **
2020
8,670
52,013
62,777
2019
8,309
52,446
56,526
2018
8,118
50,993
53,988
(69)
(31)
(59)
(8,771)
6,515
7,810
—
(1,662)
(2,237)
114,620
122,103
118,613
(33,144)
(22,032)
(22,141)
9,846
10,588
10,889
91,322
110,659
107,361
(15,711)
(28,478)
(28,644)
9,102
(478)
(5,734)
9,039
(1,761)
(9,923)
9,754
(1,055)
(9,700)
78,501
79,536
77,716
* Fundamentally for non-computable non-controlling interests and deductions
and reasonable filters in compliance with CRR.
* Figures calculated by applying the transitional provisions of IFRS 9.
Grupo Santander must also maintain a minimum capital ratio
of 10.63% of tier 1 and a minimum total ratio of 13.01%.
The following table shows the capital coefficients and a detail
of the eligible internal resources of the Group:
Capital coefficients
Level 1 ordinary eligible
capital (EUR million)
Level 1 additional eligible
capital (EUR million)
Level 2 eligible capital
(EUR million)
Risk-weighted assets (EUR
million)
Level 1 ordinary capital
coefficient (CET 1)
Level 1 additional capital
coefficient (AT1)
Level 1 capital coefficient
(TIER1)
Level 2 capital coefficient
(TIER 2)
2020
2019
2018
69,399
70,497
67,962
9,102
9,039
9,754
12,514
11,531
11,009
562,580
605,244
592,319
12.34%
11.65%
11.47%
1.61%
1.49%
1.65%
13.95%
13.14%
13.12%
2.23%
1.91%
1.86%
Total capital coefficient
16.18%
15.05%
14.98%
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Annual report 2020
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Eligible capital
EUR million
Eligible capital
2020
2019
2018
Common Equity Tier I
69,399
70,497
67,962
8,670
8,309
8,118
Capital
(-) Treasure shares and
own shares financed
Share Premium
Reserves
(126)
(63)
(64)
swaps (CDS).
52,013
52,446
50,993
64,766
57,368
55,036
• 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.
• A charge for the potential risk of security funding
transactions.
• Lastly, it includes a charge for the risk of credit derivative
With the publication of Regulation (EU) 2019/876 of 20 May,
2019, amending Regulation (EU) n.º 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-SIB, 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-SIB) from January
2023.
EUR million
Leverage
Level 1 Capital
Exposure
Leverage Ratio
2020
2019
2017
78,501
79,536
77,716
1,471,480
1,544,614
1,489,094
5.33%
5.15%
5.22%
Global systemically important banks
Grupo Santander 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.
Other retained earnings
(34,937)
(22,933)
(23,022)
Minority interests
Profit net of dividends
6,669
(9,249)
6,441
3,092
6,981
4,518
Deductions
(18,407)
(34,163)
(34,598)
Goodwill and intangible
assets
Others
Additional Tier I
Eligible instruments AT1
T1-excesses-subsidiaries
Residual value of
dividends
Others
Tier II
(15,711)
(28,478)
(28,644)
(2,696)
(5,685)
(5,954)
9,102
8,854
248
—
—
9,039
9,209
(170)
—
—
9,754
9,666
88
—
—
12,514
11,531
11,009
Eligible instruments T2
13,351
12,360
11,306
Gen. funds and surplus
loans loss prov. IRB
—
—
—
T2-excesses - subsidiaries
(837)
(829)
(297)
Others
—
—
—
Total eligible capital
91,015
91,067
88,725
Note: Banco Santander and its affiliates had not taken part in any State aid
programmes.
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.
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annual accounts
Notes to the consolidated
annual accounts
Appendix
54. Explanation added for translation
to English
These accompanying Consolidated Financial Statements,
translation of the Consolidated Financial Statements
originally issued in Spanish, are presented on the basis of the
regulatory financial reporting framework applicable to the
Group in Spain (see note 1.b).
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Appendix
Appendix I
Subsidiaries of Banco Santander, S.A.
1
% of ownership
held by
Banco Santander % of voting power (d)
EUR million
Indirect
Direct
0.00% 100.00%
Year
2020
100.00%
Year
2019
100.00% Real estate
Activity
Capital +
reserves
66
Net Carrying
results amount
11
6
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
100.00% Leasing
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% Leasing
0.00% 100.00%
100.00%
100.00% Holding
company
-
(b)
-
- Securitization
0.00% 100.00%
100.00%
100.00% Securitization
-
(b)
-
- Securitization
0.00% 100.00%
100.00%
100.00% Finance
company
0.00% 100.00%
100.00%
100.00% Leasing
Company
2 & 3 Triton Limited
A & L CF (Guernsey) Limited (n)
A & L CF June (2) Limited (e)
A & L CF June (3) Limited (e)
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
Abbey National International Limited
Abbey National Nominees Limited
Abbey National PLP (UK) Limited
Abbey National Property Investments
Abbey National Treasury Services
Investments Limited
Abbey National Treasury Services
Overseas Holdings
Abbey National UK Investments
Abbey Stockbrokers (Nominees)
Limited
Abbey Stockbrokers Limited
Ablasa Participaciones, S.L.
Administración de Bancos
Latinoamericanos Santander, S.L.
Aduro S.A.
Location
United
Kingdom
Guernsey
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
India
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Jersey
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Spain
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
18.94%
81.06%
100.00%
Spain
24.11%
75.89%
100.00%
Uruguay
0.00% 100.00%
100.00%
Aevis Europa, S.L.
AFB SAM Holdings, S.L.
Afisa S.A.
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
ALIL Services Limited (j)
Aljardi SGPS, Lda.
Isle of Man
Portugal
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
Alliance & Leicester Cash Solutions
Limited
United
Kingdom
0.00% 100.00%
100.00%
100.00% Financial
services
100.00% Securities
company
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Holding
company
100.00% Finance
company
100.00% Securities
company
100.00% Securities
company
100.00% Holding
company
100.00% Holding
company
- Payments and
collections
services
management
company
100.00% Services
100.00% Holding
company
100.00% Finance
company
1
0
6
1
19
0
0
0
8
0
0
4
0
0
531
0
0
0
0
0
(1)
0
(1)
0
0
0
0
0
63
0
0
0
0
0
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4
0
0
154
0
0
0
0
0
335
(125)
714
2,547
(9)
1,864
0
1
0
4
0
1,202
0
0
0
0
0
0
(7)
0
0
1
0
4
0
1,148
0
797
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
Company
Alliance & Leicester Commercial Bank
Limited
Alliance & Leicester Investments
(Derivatives) Limited
Location
United
Kingdom
United
Kingdom
Alliance & Leicester Investments (No.2)
Limited
United
Kingdom
Alliance & Leicester Investments
Limited
Alliance & Leicester Limited
Alliance & Leicester Personal Finance
Limited
Altamira Santander Real Estate, S.A.
Alternative Leasing, FIL
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)
Argenline S.A. (j) (p)
Asto Digital Limited
Athena Corporation Limited
Atlantes Azor No. 1
Atlantes Azor No. 2
Atlantes Mortgage No. 2
Atlantes Mortgage No. 3
Atlantes Mortgage No. 4
Atlantes Mortgage No. 5
Atlantes Mortgage No. 7
Atual - Fundo de Invest Multimercado
Crédito Privado Investimento no
Exterior
Atual Serviços de Recuperação de
Créditos e Meios Digitais S.A.
Auto ABS Belgium Loans 2019, SA/NV
Auto ABS DFP Master Compartment
France 2013
Auto ABS French Lease Master
Compartiment 2016
Auto ABS French Leases 2018
Auto ABS French Loans Master
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 Italian Rainbow Loans 2020-1
S.R.L.
798
100.00%
0.00%
100.00%
100.00% Real estate
(151)
(219)
% of ownership
held by
Banco Santander % of voting power (d)
Indirect
Direct
0.00% 100.00%
Year
2020
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
Year
Activity
2019
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
99.99%
0.00%
99.99%
- Investment fund
100.00%
0.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
100.00% Holding
company
100.00% Holding
company
100.00% Holding
company
100.00% Holding
company
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00%
99.91%
100.00%
100.00% E-commerce
100.00% Services
100.00% E-commerce
100.00% Services
Inactive
100.00%
EUR million
Capital +
reserves
0
Net
results
0
Carrying
amount
0
0
0
0
0
(226)
0
0
0
0
0
63
0
0
92
0
2
2
2
0
3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
63
0
0
27
0
0
0
2
0
0
0
United
Kingdom
United
Kingdom
United
Kingdom
Spain
Spain
United
Kingdom
United
Kingdom
Spain
United
Kingdom
Brazil
Chile
Mexico
Argentina
Portugal
Uruguay
0.00% 100.00%
100.00%
United
Kingdom
United
Kingdom
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Brazil
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
0.00%
89.99%
100.00%
100.00% Finance
company
100.00% Finance
company
100.00% Financial
services
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Investment fund
53
(17)
38
(3)
(5)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
198
10
187
Brazil
0.00%
89.99%
100.00%
100.00% Financial
services
262
14
246
Belgium
France
France
France
France
France
Italy
Italy
Italy
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
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
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
% of ownership
held by
Banco Santander % of voting power (d)
Company
Auto ABS Spanish Loans 2016, Fondo
de Titulización
Location
Spain
Direct
Year
2020
Year
2019
Activity
EUR million
Capital +
reserves
0
Net Carrying
results amount
0
0
Spain
Spain
Switzerland
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Spain
Germany
Brazil
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Brazil
Ireland
Italy
Brazil
Spain
Brazil
Portugal
Brazil
Chile
Brazil
Mexico
Auto ABS Spanish Loans 2018-1, Fondo
de Titulización
Auto ABS Spanish Loans 2020-1, Fondo
de Titulización
Auto ABS Swiss Leases 2013 GmbH
Auto ABS UK Loans 2017 Holdings
Limited
Auto ABS UK Loans 2017 Plc
Auto ABS UK Loans 2019 Holdings
Limited
Auto ABS UK Loans 2019 Plc
Auto ABS UK Loans Holdings Limited
Auto ABS UK Loans PLC
Autodescuento, S.L.
Autohaus24 GmbH
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.
Azor Mortgages PLC
Banca PSA Italia S.p.A.
Banco Bandepe S.A.
Banco de Albacete, S.A.
Banco Hyundai Capital Brasil S.A.
Banco Madesant - Sociedade
Unipessoal, S.A.
Banco PSA Finance Brasil S.A.
Banco Santander - Chile
Banco Santander (Brasil) S.A.
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
- Securitization
(1)
(3)
Indirect
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
0.00%
93.89%
93.89%
93.89% Vehicles
purchase
0.00%
46.95%
100.00%
- Renting
0.00%
89.99%
100.00%
100.00%
IT services
99.99%
0.01%
100.00%
99.99%
0.01%
100.00%
99.99%
0.01%
100.00%
100.00%
0.00%
100.00%
99.97%
0.03%
100.00%
99.00%
1.00%
100.00%
100.00%
0.00%
100.00%
99.99%
0.01%
100.00%
99.00%
1.00%
100.00%
99.00%
1.00%
100.00%
99.99%
0.01%
100.00%
0.00%
89.99%
100.00%
100.00% Renting
100.00% Renting
100.00% Renting
100.00% Renting
100.00% Renting
100.00% Air transport
100.00% Renting
100.00% Renting
100.00% Renting
100.00% Air transport
100.00% Renting
100.00% Finance
company
-
(b)
-
- Securitization
0.00%
50.00%
50.00%
0.00%
89.99%
100.00%
100.00%
0.00%
100.00%
0.00%
44.99%
50.00%
0.00% 100.00%
100.00%
50.00% Banking
100.00% Banking
100.00% Banking
50.00% Banking
100.00% Banking
0.00%
44.99%
50.00%
0.00%
67.12%
67.18%
0.04%
89.95%
90.58%
0.00%
91.79%
100.00%
50.00% Banking
67.18% Banking
90.52% Banking
100.00% Finance
company
0
0
0
0
(2)
0
0
0
0
0
0
0
0
(12)
1
(3)
3
49
19
34
7
77
3
1
13
1
2
23
153
0
442
828
14
47
0
2
0
0
1
4
4
(26)
0
(11)
0
0
(3)
0
0
(1)
117
0
57
14
0
4
0
0
0
0
0
0
0
0
0
18
0
4
28
6
0
8
63
3
1
10
2
3
19
218
0
153
759
9
23
1,083
(7)
1,076
39
4
19
3,677
594
3,226
10,219
2,206
11,070
74
14
81
Mexico
0.00%
92.47%
100.00%
Mexico
0.00%
92.68%
100.00%
100.00% Holding
company
100.00% Finance
company
6
8
0
0
6
8
799
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
% of ownership
held by
Banco Santander % of voting power (d)
Location
Portugal
Indirect
Direct
0.00% 100.00%
Year
2020
100.00%
Year
Activity
2019
100.00% Banking
EUR million
Capital +
reserves
185
Net
results
1
Carrying
amount
128
Colombia
0.00% 100.00%
100.00%
100.00% Banking
142
4
140
0.00% 100.00%
100.00%
100.00% Banking
958
98
1,057
0.00% 100.00%
100.00%
16.68%
75.11%
91.80%
100.00% Banking
91.77% Banking
1,065
5,663
(1)
793
832
6,547
Company
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
Banco Santander Perú S.A.
Banco Santander Río S.A.
Banco Santander S.A.
Banco Santander Totta, S.A.
Bansa Santander S.A.
BEN Benefícios e Serviços S.A.
Bilkreditt 6 Designated Activity
Company (j)
Bilkreditt 7 Designated Activity
Company
BRS Investments S.A.
United
States
Switzerland
Mexico
Peru
Argentina
Uruguay
Portugal
Chile
Brazil
Ireland
Ireland
99.00%
1.00%
100.00%
0.00%
99.31%
99.26%
97.75%
2.25%
100.00%
0.00%
99.86%
99.96%
0.00% 100.00%
100.00%
0.00%
89.99%
100.00%
100.00% Banking
99.25% Banking
100.00% Banking
99.96% Banking
100.00% Real estate
100.00% Payment
services
-
-
(b)
(b)
-
-
- Securitization
- Securitization
0.00%
98.00%
98.00%
98.00% Real estate
Argentina
0.00% 100.00%
100.00%
Cántabra de Inversiones, S.A.
Spain
100.00%
0.00%
100.00%
Cántabro Catalana de Inversiones, S.A.
Spain
100.00%
0.00%
100.00%
Canyon Multifamily Impact Fund IV LLC
(c)
Capital Street Delaware LP
Capital Street Holdings, LLC
Capital Street REIT Holdings, LLC
Capital Street S.A.
United
States
United
States
United
States
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
United
States
Luxembourg
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
100.00% Finance
company
100.00% Holding
company
100.00% Holding
company
100.00% Holding
company
100.00% Holding
company
100.00% Holding
company
100.00% Finance
company
Insurance
brokerage
Carfax (Guernsey) Limited (n)
Guernsey
0.00% 100.00%
100.00%
100.00%
Carfinco Financial Group Inc.
Carfinco Inc.
Casa de Bolsa Santander, S.A. de C.V.,
Grupo Financiero Santander México
Cater Allen Holdings Limited
Cater Allen International Limited
Cater Allen Limited
Cater Allen Lloyd's Holdings Limited
Cater Allen Syndicate Management
Limited
CCAP Auto Lease Ltd.
United
States
Centro de Capacitación Santander, A.C. Mexico
Canada
Canada
Mexico
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
96.42%
0.00%
96.42%
0.00%
96.42%
100.00%
0.00%
99.97%
99.97%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00%
80.24%
100.00%
96.42% Holding
company
100.00% Finance
company
99.97% Securities
company
100.00% Holding
company
100.00% Securities
company
100.00% Banking
100.00% Holding
company
100.00% Advisory
services
100.00% Leasing
0.00%
91.79%
100.00%
100.00% Non-profit
institute
1
0
Certidesa, S.L.
Spain
0.00% 100.00%
100.00%
100.00% Aircraft rental
(66)
(7)
800
172
1,100
317
3,715
22
11
0
0
27
122
78
275
0
0
0
0
29
18
61
(178)
121
527
191
3,415
23
10
0
0
34
0
312
(34)
267
21
0
13
1,116
0
0
58
48
49
0
0
(1)
0
0
3
0
0
0
8
3
0
0
22
0
13
1,119
0
0
72
42
52
0
0
607
33
248
0
0
0
0
0
0
(20)
42
18
1
0
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
Company
Chrysler Capital Auto Funding I LLC
Chrysler Capital Auto Funding II LLC
Chrysler Capital Auto Receivables LLC
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.
Community Development and
Affordable Housing Fund LLC (o)
Compagnie Generale de Credit Aux
Particuliers - Credipar S.A.
Compagnie Pour la Location de
Vehicules - CLV
Comunidad Laboral Trabajando
Argentina S.A.
Comunidad Laboral Trabajando Iberica,
S.L. Unipersonal, en liquidación (j)
Consulteam Consultores de Gestão,
Lda.
Consumer Lending Receivables LLC
Crawfall S.A. (g) (j)
Darep Designated Activity Company
Decarome, S.A.P.I. de C.V.
% of ownership
held by
Banco Santander % of voting power (d)
Direct
0.00%
Indirect
80.24%
Year
2020
100.00%
0.00%
80.24%
100.00%
0.00%
80.24%
100.00%
0.00%
80.24%
100.00%
0.00%
80.24%
100.00%
0.00%
80.24%
100.00%
0.00%
85.00%
100.00%
0.00%
96.00%
96.00%
Year
Activity
2019
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Finance
company
100.00% Collection
services
- Asset
management
EUR million
Capital +
reserves
11
Net Carrying
results amount
0
17
4
0
0
0
(157)
(43)
32
(35)
(40)
(25)
3
-
0
-
0
0
0
0
0
3
-
0.00%
50.00%
100.00%
100.00% Banking
363
79
428
Location
United
States
United
States
United
States
United
States
United
States
United
States
Mexico
United
States
France
France
0.00%
50.00%
100.00%
100.00% Banking
20
Argentina
0.00% 100.00%
100.00%
100.00% Services
Spain
0.00% 100.00%
100.00%
100.00% Services
Portugal
100.00%
0.00%
100.00%
100.00% Real estate
United
States
Uruguay
Ireland
Mexico
0.00%
80.24%
100.00%
100.00% Securitization
100.00%
0.00%
100.00%
100.00%
0.00%
100.00%
0.00% 100.00%
100.00%
100.00% Services
100.00% Reinsurances
100.00% Finance
company
Deva Capital Advisory Company, S.L.
Spain
0.00% 100.00%
100.00%
Deva Capital Holding Company, S.L.
Spain
100.00%
0.00%
100.00%
Deva Capital Investment Company, S.L. Spain
0.00% 100.00%
100.00%
Deva Capital Management Company,
S.L.
Deva Capital Servicer Company, S.L.
Spain
Spain
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
Digital Procurement Holdings N.V.
Netherlands
0.00% 100.00%
100.00%
Diners Club Spain, S.A.
Dirección Estratega, S.C.
Dirgenfin, S.L., en liquidación (j)
Drive Auto Receivables Trust 2016-C
Drive Auto Receivables Trust 2017-1
Drive Auto Receivables Trust 2017-2
Drive Auto Receivables Trust 2017-3
Drive Auto Receivables Trust 2017-A
Drive Auto Receivables Trust 2017-B
Drive Auto Receivables Trust 2018-1
Spain
Mexico
Spain
United
States
United
States
United
States
United
States
United
States
United
States
United
States
75.00%
0.00%
75.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
100.00% Advisory
services
100.00% Holding
company
100.00% Holding
company
100.00% Advisory
services
100.00% Holding
company
100.00% Holding
company
75.00% Cards
100.00% Services
100.00% Real estate
development
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
2
0
0
0
0
0
0
0
0
26
0
0
0
0
0
7
16
1
0
0
0
0
0
8
16
1
140
(12)
140
49
12
72
4
12
0
(8)
(9)
(20)
(11)
(15)
(18)
(9)
(20)
0
(8)
2
0
(3)
0
1
31
35
32
50
28
28
43
48
4
74
1
8
0
0
0
0
0
0
0
0
0
801
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
% of ownership
held by
Banco Santander % of voting power (d)
Company
Drive Auto Receivables Trust 2018-2
Direct
Location
United
States
Year
2020
Year
2019
Activity
- Securitization
EUR million
Capital +
reserves
(74)
Net Carrying
results amount
0
68
Indirect
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitization
(99)
- Securitization
(100)
- Securitization
- Securitization
(87)
(88)
- Securitization
(124)
- Securitization
(160)
70
62
53
61
78
97
- Securitization
(185)
100
- Securitization
- Securitization
- Securitization
100.00% Services
100.00% Finance
company
Inactive
90.00%
100.00% Services
Insurance
100.00%
100.00% Finance
company
51.00% Finance
company
100.00% Holding
company
0
0
0
0
23
1
16
130
11
244
(112)
(124)
0
0
4
0
42
3
0
52
0
0
0
0
0
0
0
0
0
0
0
28
1
52
112
4
140
Mexico
Peru
0.00%
91.79%
100.00%
100.00%
0.00%
100.00%
0.00%
90.00%
90.00%
0.00%
89.99%
100.00%
0.00%
89.99%
100.00%
0.00%
51.00%
100.00%
0.00%
51.00%
51.00%
0.00% 100.00%
100.00%
Drive Auto Receivables Trust 2018-3
Drive Auto Receivables Trust 2018-4
Drive Auto Receivables Trust 2018-5
Drive Auto Receivables Trust 2019-1
Drive Auto Receivables Trust 2019-2
Drive Auto Receivables Trust 2019-3
Drive Auto Receivables Trust 2019-4
Drive Auto Receivables Trust 2020-1
Drive Auto Receivables Trust 2020-2
EDT FTPYME Pastor 3 Fondo de
Titulización de Activos
Electrolyser, S.A. de C.V.
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.
Finsantusa, S.L. Unipersonal
First National Motor Business Limited
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
Spain
France
Brazil
Brazil
Portugal
Spain
Spain
United
Kingdom
0.00% 100.00%
100.00%
100.00% Leasing
First National Motor Contracts Limited United
Kingdom
0.00% 100.00%
100.00%
100.00% Leasing
First National Motor Facilities Limited
First National Motor Finance Limited
First National Motor Leasing Limited
First National Motor plc
First National Tricity Finance Limited
Fondation Holding Auto ABS Belgium
Loans
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
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Belgium
Spain
Spain
Spain
Spain
Spain
0.00% 100.00%
100.00%
100.00% Leasing
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
100.00% Advisory
services
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)
-
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
802
1,269
(10)
1,020
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
6
0
0
0
0
0
0
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
% of ownership
held by
Banco Santander % of voting power (d)
Location
Spain
Direct
EUR million
Capital +
reserves
0
Net Carrying
results amount
0
0
Indirect
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
Year
2020
Year
2019
Activity
-
-
-
-
-
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
Company
Fondo de Titulización de Activos
Santander Hipotecario 8
Fondo de Titulización de Activos
Santander Hipotecario 9
Fondo de Titulización PYMES Santander
13
Fondo de Titulización PYMES Santander
14
Fondo de Titulización PYMES Santander
15
Fondo de Titulización RMBS Santander
4
Fondo de Titulización RMBS Santander
5
Fondo de Titulización Santander
Consumer Spain Auto 2016-1
Fondo de Titulización Santander
Consumer Spain Auto 2016-2
Fondo de Titulización Santander
Financiación 1
Fondos Santander, S.A. Administradora
de Fondos de Inversión (en liquidación)
(j)
Fortensky Trading, Ltd.
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 (i)
Fundo de Investimentos em Direitos
Creditórios Multisegmentos NPL
Ipanema VI – Não padronizado
Gamma, Sociedade Financeira de
Titularização de Créditos, S.A.
GC FTPYME Pastor 4 Fondo de
Titulización de Activos
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
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Uruguay
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Spain
Brazil
Brazil
Brazil
Chile
Spain
United
Kingdom
Gestión de Instalaciones Fotovoltaicas,
S.L. Unipersonal
Gestión de Inversiones JILT, S.A.
Gestora de Procesos S.A. en liquidación
(j)
Spain
Spain
Peru
0.00% 100.00%
100.00%
100.00% Fund
management
company
100.00% Finance
company
Ireland
0.00% 100.00%
100.00%
Fosse (Master Issuer) Holdings Limited United
Kingdom
-
(b)
-
- Securitization
0.00% 100.00%
100.00%
100.00% Securitization
(124)
(2)
0.00% 100.00%
100.00%
100.00% Securitization
-
(b)
-
- Securitization
0.00% 100.00%
100.00%
100.00% Securitization
-
-
-
-
(b)
(b)
(b)
(b)
-
-
-
-
- Securitization
- Investment fund
126
- Investment fund
0
- Investment fund
63
16
Portugal
0.00%
99.86%
100.00%
100.00% Securitization
Spain
-
(b)
-
- Securitization
Mexico
0.00% 100.00%
100.00%
100.00% Services
0.00% 100.00%
100.00%
99.99%
0.01%
100.00%
100.00% Accounting
services
100.00% Services
0.00% 100.00%
100.00%
100.00% Payments and
0.00% 100.00%
100.00%
collections
services
100.00% Electricity
production
100.00%
0.00%
100.00%
100.00% Services
0.00% 100.00%
100.00%
100.00% Holding
company
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5
0
0
0
0
0
0
0
1
0
7
0
1
1
4
1
1
5
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
8
0
0
0
1
0
0
5
0
803
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
Grupo Empresarial Santander, S.L.
Spain
99.11%
0.89%
100.00%
Company
Getnet Adquirência e Serviços para
Meios de Pagamento S.A.
Global Vosgos, S.L. Unipersonal
Golden Bar (Securitisation) S.R.L.
Golden Bar Stand Alone 2016-1
Golden Bar Stand Alone 2018-1
Golden Bar Stand Alone 2019-1
Golden Bar Stand Alone 2020-1
Golden Bar Stand Alone 2020-2
Grupo Financiero Santander México,
S.A. de C.V.
GTS El Centro Equity Holdings, LLC (c)
United
States
GTS El Centro Project Holdings, LLC (c) United
States
Spain
Portugal
Portugal
Ireland
Portugal
Ireland
Spain
Bahamas
Guaranty Car, S.A. Unipersonal
Hipototta No. 13
Hipototta No. 4 FTC
Hipototta No. 4 plc
Hipototta No. 5 FTC
Hipototta No. 5 plc
Hispamer Renting, S.A. Unipersonal
Holbah II Limited
% of ownership
held by
Banco Santander % of voting power (d)
Location
Brazil
Direct
0.00%
Indirect
89.99%
Year
2020
100.00%
Activity
Year
2019
100.00% Payment
services
Spain
100.00%
0.00%
100.00%
Italy
Italy
Italy
Italy
Italy
Italy
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
Mexico
100.00%
0.00%
100.00%
0.00%
58.40%
58.40%
0.00%
58.40%
100.00%
- Holding
company
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
100.00% Holding
company
100.00% Holding
company
57.40% Holding
company
100.00% Holding
company
0.00% 100.00%
100.00%
100.00% Automotive
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
0.00% 100.00%
100.00%
100.00% Renting
0.00% 100.00%
100.00%
100.00% Holding
company
100.00% Holding
company
Holbah Santander, S.L. Unipersonal
Spain
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
100.00% Securitization
-
(b)
-
- Securitization
(10)
0
8
0
0.00% 100.00%
100.00%
100.00% Securitization
(6)
(4)
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Germany
Spain
United
States
Spain
Spain
0.00% 100.00%
100.00%
100.00% Securitization
0.00% 100.00%
100.00%
100.00%
Internet
technology
0.00%
51.00%
51.00%
97.17%
2.83%
100.00%
0.00% 100.00%
100.00%
0.00% 100.00%
100.00%
0.00%
100.00%
51.00% Banking
100.00% E-commerce
100.00% Holding
company
100.00% Finance
company
100.00% Holding
company
100.00%
0.00%
100.00%
100.00% Holding
0.00% 100.00%
100.00%
100.00%
company
Inactive
United
Kingdom
Netherlands 100.00%
Luxembourg
-
(b)
-
- Securitization
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.
Insurance Funding Solutions Limited
Interfinance Holanda B.V.
Inversiones Capital Global, S.A.
Unipersonal
Inversiones Marítimas del
Mediterráneo, S.A.
Isar Valley S.A.
804
EUR million
Capital +
reserves
280
Net Carrying
results amount
293
45
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3,484
33
2,483
4,297
626
4,195
27
28
2
0
(48)
(5)
(40)
(11)
1
404
(1)
(1)
0
0
0
1
0
1
0
27
27
2
0
0
0
0
0
1
60
533
72
141
750
0
0
0
0
8
391
6
0
0
705
6
0
2
(5)
1
3,567
(277)
3,290
0
0
0
0
0
0
148
(41)
120
3
0
2
0
0
0
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by
Banco Santander % of voting power (d)
Company
Isla de los Buques, S.A.
Location
Spain
Direct
99.98%
Indirect
0.02%
Klare Corredora de Seguros S.A.
Chile
0.00%
33.63%
Landcompany 2020, S.L.
Spain
17.22%
82.78%
Year
2020
Year 2019 Activity
100.00% 100.00% Finance
50.10%
company
Insurance
brokerage
100.00% 100.00% Real estate
50.10%
management
100.00% 100.00% Securitization
EUR million
Capital +
reserves
1
Net Carrying
results amount
1
0
9
(2)
2
1,739
(35)
1,702
0.00% 100.00%
0.00% 100.00%
100.00% 100.00% Securitization
-
(b)
-
- Securitization
0.00% 100.00%
100.00% 100.00% Securitization
0.00% 100.00%
100.00% 100.00% Securitization
0.00% 100.00%
100.00% 100.00% Securitization
-
(b)
-
- Securitization
61.59%
0.00%
61.59%
61.59% Agricultural
holding
0.00% 100.00%
100.00% 100.00% Factoring
46.00%
100.00%
0.00%
0.00%
46.00% Real estate
46.00%
100.00% 100.00% Real estate
investment
-
(b)
-
- Mortgage credit
company
96.34%
0.00%
0.00%
61.59%
99.90%
0.10%
96.34%
100.00% 100.00% Real estate
96.34% Cards
100.00% 100.00% Financial
advisory
- IT services
100.00%
0.00%
50.10%
50.10%
- IT services
0.00%
50.10%
100.00%
- IT services
-
(b)
-
- Renting
0.00% 100.00%
100.00% 100.00% Services
0.00% 100.00%
100.00% 100.00% Financial
services
-
-
(b)
(b)
-
-
- Securitization
- Securitization
0.00% 100.00%
100.00% 100.00% Securitization
-
(b)
-
- Securitization
Mexico
0.00%
50.10%
Langton Funding (No.1) Limited
Langton Mortgages Trustee (UK)
Limited
Langton PECOH Limited
Langton Securities (2008-1) plc
Langton Securities (2010-1) PLC
Langton Securities (2010-2) PLC
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Langton Securities Holdings Limited United
Laparanza, S.A.
Liquidity Limited
Luri 1, S.A., en liquidación (j) (m)
Luri 6, S.A. Unipersonal
MAC No. 1 Limited
Master Red Europa, S.L.
Mata Alta, S.L.
Merciver, S.L.
Mercury Trade Finance Solutions,
S.A. de C.V.
Mercury Trade Finance Solutions,
S.L.
Mercury Trade Finance Solutions,
S.p.A.
Merlion Aviation One Designated
Activity Company
Moneybit, S.L.
Mortgage Engine Limited
Motor 2015-1 Holdings Limited
Motor 2016-1 Holdings Limited
Motor 2016-1 PLC
Motor 2017-1 Holdings Limited
Motor 2017-1 PLC
Motor Securities 2018-1 Designated
Activity Company
Mouro Capital I LP
Multiplica SpA
Kingdom
Spain
United
Kingdom
Spain
Spain
United
Kingdom
Spain
Spain
Spain
Spain
Chile
Ireland
Spain
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Ireland
United
Kingdom
Chile
0.00% 100.00%
100.00% 100.00% Securitization
(5)
-
(b)
-
- Securitization
0.00% 100.00%
100.00%
- Investment fund
0.00% 100.00%
100.00% 100.00% Payment
services
100.00% 100.00% Finance
company
Naviera Mirambel, S.L.
Spain
0.00% 100.00%
(25)
0
0
1
1
0
0
28
(1)
0
1,358
0
1
0
1
0
11
0
17
31
(3)
0
0
0
0
0
0
5
0
5
0
0
0
0
0
0
0
0
0
8
0
0
0
0
0
0
0
0
0
0
0
0
16
0
0
1,371
0
1
0
1
0
(1)
30
0
5
(6)
(4)
0
0
0
0
(1)
(1)
22
0
0
0
0
25
0
0
0
0
0
0
0
0
5
0
805
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
Company
Naviera Trans Gas, A.I.E.
Naviera Trans Iron, S.L.
Naviera Trans Ore, A.I.E.
Naviera Trans Wind, S.L. (j)
Naviera Transcantábrica, S.L.
Location
Spain
Spain
Spain
Spain
Spain
Naviera Transchem, S.L. Unipersonal Spain
Peru
NeoAuto S.A.C.
Newcomar, S.L., en liquidación (j)
Norbest AS
Spain
Norway
% of ownership held
by
Banco Santander % of voting power (d)
Direct
99.99%
Indirect
0.01%
100.00%
99.99%
99.99%
100.00%
0.00%
0.01%
0.01%
0.00%
Year
2020
Year 2019 Activity
100.00% 100.00% Renting
100.00% 100.00% Leasing
100.00% 100.00% Renting
100.00% 100.00% Renting
100.00% 100.00% Leasing
100.00%
0.00%
100.00% 100.00% Leasing
0.00%
55.00%
55.00%
- Vehicles
purchase by
internet
40.00%
40.00%
80.00%
80.00% Real estate
7.94%
92.06%
100.00% 100.00% Securities
Novimovest – Fundo de Investimento
Imobiliário
NW Services CO.
Open Bank Argentina S.A.
Open Bank, S.A.
Open Digital Market, S.L.
Open Digital Services, S.L.
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)
PagoFX Europe S.A.
Portugal
0.00%
78.63%
78.74%
78.74%
investment
Investment fund
United
States
Argentina
Spain
Spain
Spain
Mexico
0.00% 100.00%
100.00% 100.00% E-commerce
0.00%
99.66%
100.00%
0.00%
0.00% 100.00%
99.97%
100.00%
0.03%
0.00%
- Banking
100.00%
100.00% 100.00% Banking
100.00% 100.00% Services
100.00% 100.00% Services
100.00% 100.00% Holding
company
Switzerland
100.00%
0.00%
100.00% 100.00% Fund
management
company
Ireland
Ireland
0.00%
57.20%
54.10%
54.10% Fund
management
company
0.00%
44.49%
51.93%
51.57% Fund
management
company
Belgium
0.00% 100.00%
PagoFX HoldCo, S.L.
Spain
0.00% 100.00%
PagoFX UK Ltd
PagoNxt Merchant Solutions, S.L.
PagoNxt, S.L.
Parasant SA
United
Kingdom
Spain
0.00% 100.00%
0.00% 100.00%
Spain
99.99%
0.01%
Switzerland
100.00%
0.00%
100.00% 100.00% Payment
services
100.00% 100.00% Payment
services
100.00% 100.00% Payment
services
100.00% 100.00% Holding
company
100.00% 100.00% Holding
company
100.00% 100.00% Holding
company
PBD Germany Auto 2018 UG
(Haftungsbeschränkt)
PBD Germany Auto Lease Master
2019
PBE Companies, LLC
PECOH Limited
Pereda Gestión, S.A.
Phoenix C1 Aviation Designated
Activity Company
PI Distribuidora de Títulos e Valores
Mobiliários S.A.
Pingham International, S.A.
Popular Spain Holding de
Inversiones, S.L.U.
Portal Universia Argentina S.A.
806
United
States
United
Kingdom
Spain
Ireland
Uruguay
Spain
Germany
Luxembourg
-
-
(b)
(b)
-
-
- Securitization
- Securitization
0
0
0.00% 100.00%
100.00% 100.00% Real estate
102
0.00% 100.00%
100.00% 100.00% Securitization
99.99%
0.01%
100.00% 100.00% Holding
company
-
(b)
-
- Renting
Brazil
0.00%
89.99%
100.00% 100.00% Leasing
0.00% 100.00%
100.00% 100.00% Services
100.00%
0.00%
100.00%
40.00%
Insurance
726
(225)
Argentina
0.00%
75.75%
75.75%
75.75%
Internet
0
0
0
EUR million
Capital +
reserves
15
Net
results
(2)
Carrying
amount
44
22
24
3
5
1
1
1
93
304
5
10
217
0
0
1
0
0
0
0
0
(1)
0
0
(2)
5
0
129
(114)
7
25
4
5
2
0
7
0
0
(1)
65
(23)
3
(1)
21
17
3
4
1
1
0
92
239
2
9
221
0
0
4
23
0
0
1
42
2
302
(32)
269
1,081
(133)
901
1,051
59
917
0
0
0
0
2
5
(8)
0
0
0
102
0
4
0
38
0
502
0
44
7
51
0
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by
Banco Santander % of voting power (d)
Company
Portal Universia Portugal, Prestação
de Serviços de Informática, S.A.
Location
Portugal
Indirect
Direct
0.00% 100.00%
Year
2020
Year 2019 Activity
Internet
100.00% 100.00%
EUR million
Capital +
reserves
0
Net Carrying
results amount
0
0
Brazil
0.00%
89.99%
100.00% 100.00%
Investment fund
34
(1)
28
Prime 16 – Fundo de Investimentos
Imobiliário
PSA Bank Deutschland GmbH
PSA Banque France
PSA Consumer Finance Polska Sp. z
o.o.
PSA Finance Belux S.A.
Germany
France
Poland
0.00%
50.00%
0.00%
50.00%
0.00%
40.22%
50.00%
50.00% Banking
50.00% Banking
50.00%
100.00% 100.00% Finance
company
Belgium
0.00%
50.00%
50.00%
PSA Finance Polska Sp. z o.o.
Poland
0.00%
40.22%
50.00%
PSA Finance UK Limited
PSA Financial Services Nederland
B.V.
PSA Financial Services Spain, E.F.C.,
S.A.
PSA Renting Italia S.p.A.
PSRT 2018-A
PSRT 2019-A
Punta Lima Wind Farm, LLC (c)
Punta Lima, LLC
Retop S.A. (f)
Return Capital Serviços de
Recuperação de Créditos S.A.
Return Gestão de Recursos S.A.
United
Kingdom
Netherlands
Spain
Italy
United
States
United
States
United
States
United
States
Uruguay
Brazil
Brazil
0.00%
50.00%
50.00%
0.00%
50.00%
50.00%
0.00%
50.00%
50.00%
50.00% Finance
company
50.00% Finance
company
50.00% Finance
company
50.00% Finance
company
50.00% Finance
company
0.00%
50.00%
100.00% 100.00% Renting
-
-
(b)
(b)
-
-
- Securitization
- Securitization
0.00% 100.00%
100.00% 100.00% Electricity
production
0.00% 100.00%
100.00% 100.00% Leasing
100.00%
0.00%
0.00%
89.99%
100.00% 100.00% Finance
company
100.00% 100.00% Collection
services
0.00%
89.99%
100.00% 100.00% Fund
management
company
Inactive
Riobank International (Uruguay)
SAIFE (j)
Roc Aviation One Designated Activity
Company
Roc Shipping One Designated Activity
Company
Rojo Entretenimento S.A.
SAM Asset Management, S.A. de
C.V., Sociedad Operadora de Fondos
de Inversión
SAM Investment Holdings, S.L.
Uruguay
0.00% 100.00%
100.00% 100.00%
Ireland
Ireland
Brazil
Mexico
-
-
(b)
(b)
-
-
- Renting
- Renting
0.00%
85.13%
94.60%
94.60% Services
0.00% 100.00%
100.00% 100.00% Fund
management
company
SAM UK Investment Holdings
Limited (j)
SANB Promotora de Vendas e
Cobrança Ltda.
Sancap Investimentos e
Participações S.A.
United
Kingdom
Brazil
92.37%
7.63%
0.00%
89.99%
Brazil
0.00%
89.99%
0.00% 100.00%
100.00% 100.00% Holding
company
100.00% 100.00% Finance
company
100.00% 100.00% Holding
company
100.00% 100.00% Services
Santander (CF Trustee Property
Nominee) Limited
Santander (CF Trustee) Limited (d)
United
Kingdom
United
Kingdom
Santander (UK) Group Pension
Schemes Trustees Limited (d)
Santander Ahorro Inmobiliario 1, S.A. Spain
United
Kingdom
-
(b)
-
- 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% Real estate
rental
Santander Ahorro Inmobiliario 2, S.A. Spain
99.91%
0.00%
99.91%
517
1,113
1
116
36
332
76
50
82
1
17
5
42
15
229
463
0
42
10
122
14
289
101
174
7
76
40
19
44
9
0
0
0
(2)
(3)
21
3
6
41
14
(9)
(4)
16
3
0
0
0
(1)
0
18
3
0
0
41
41
63
3
0
0
0
0
18
161
0
2
0
0
0
1
147
38
147
0
0
0
1
1
0
0
0
0
0
0
0
0
1
1
807
Spain
92.37%
7.62%
100.00% 100.00% Fund
management
1,389
(13)
1,597
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
Company
Santander Alternatives SICAV RAIF
(c)
Santander Asesorías Financieras
Limitada
Santander Asset Finance (December)
Limited
Santander Asset Finance plc
Santander Asset Management -
S.G.O.I.C., S.A.
% of ownership held
by
Banco Santander % of voting power (d)
Location
Luxembourg
Indirect
Direct
0.00% 100.00%
Chile
0.00%
67.44%
Year
2020
100.00%
Year 2019 Activity
- Investment
company
100.00% 100.00% Securities
company
United
Kingdom
United
Kingdom
Portugal
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% Fund
management
company
Santander Asset Management Chile
S.A.
Chile
0.01%
99.94%
100.00% 100.00% Securities
investment
Santander Asset Management
Luxembourg, S.A.
Luxembourg
Santander Asset Management S.A.
Administradora General de Fondos
Chile
Santander Asset Management UK
Holdings Limited
Santander Asset Management UK
Limited
United
Kingdom
United
Kingdom
Santander Asset Management, LLC
Santander Asset Management, S.A.,
S.G.I.I.C.
Puerto Rico
Spain
0.00% 100.00%
100.00% 100.00% Fund
management
company
0.00% 100.00%
100.00% 100.00% Fund
management
company
0.00% 100.00%
100.00% 100.00% Holding
company
0.00% 100.00%
100.00% 100.00% Management of
46
funds and
portfolios
0.00% 100.00%
100.00% 100.00% Management
0.00% 100.00%
100.00% 100.00% Fund
Spain
100.00%
0.00%
management
company
100.00% 100.00% Services
Colombia
0.00% 100.00%
100.00% 100.00% Advisory
EUR million
Capital +
reserves
0
Net
results
0
Carrying
amount
4
59
64
257
4
(6)
6
14
195
2
263
4
2
(1)
4
11
3
0
1
9
18
2
0
50
(2)
0
39
0
162
12
0
0
132
186
201
1
393
1
1
Santander Back-Offices Globales
Mayoristas, S.A.
Santander Banca de Inversión
Colombia, S.A.S.
Santander Bank & Trust Ltd.
Santander Bank Polska S.A.
Santander Bank, National
Association
Santander Brasil Administradora de
Consórcio Ltda.
Santander Brasil Gestão de Recursos Brazil
Ltda.
Santander Brasil Tecnologia S.A.
United
States
Brazil
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
Santander Cards UK Limited
Santander Chile Holding S.A.
Santander Consulting (Beijing) Co.,
Ltd.
Santander Consumer (UK) plc
Santander Consumer Auto
Receivables Funding 2013-B2 LLC
Santander Consumer Auto
Receivables Funding 2013-B3 LLC
Santander Consumer Auto
Receivables Funding 2018-L1 LLC
808
Bahamas
Poland
0.00% 100.00%
67.41%
0.00%
0.00% 100.00%
100.00% 100.00% Banking
67.47% Banking
67.41%
100.00% 100.00% Banking
51
5,414
15
172
11,160
(1,444)
22
4,288
9,712
0.00%
89.99%
100.00% 100.00% Services
0.00% 100.00%
0.00%
89.99%
100.00%
0.00%
100.00% 100.00% Securities
investment
IT services
100.00% 100.00%
100.00% 100.00% Venture capital
Brazil
Spain
Brazil
Ireland
United
Kingdom
United
Kingdom
Chile
Mexico
0.00% 100.00%
100.00% 100.00%
0.00%
89.99%
0.00% 100.00%
0.00% 100.00%
100.00% 100.00%
100.00% 100.00% Cards
100.00% 100.00% Cards
Investment
company
Insurance
0.00% 100.00%
100.00% 100.00% Finance
company
22.11%
77.73%
99.84%
99.84% Holding
company
100.00% 100.00% Advisory
China
0.00% 100.00%
United
Kingdom
United
States
United
States
United
States
0.00% 100.00%
0.00%
80.24%
0.00%
80.24%
0.00%
80.24%
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
67
337
20
5
10
15
(8)
93
151
40
47
9
0
1
43
0
0
1
96
487
26
3
0
52
0
94
108
1,499
223
1,434
8
0
4
681
116
290
(256)
(4)
(13)
107
90
78
0
0
0
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
Company
Santander Consumer Auto
Receivables Funding 2018-L3 LLC
Location
United
States
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 Auto
Receivables Funding 2020-B1 LLC
Santander Consumer Auto
Receivables Funding 2020-L1 LLC
Santander Consumer Auto
Receivables Funding 2020-L2 LLC
Santander Consumer Auto
Receivables Grantor Trust 2021-A
Santander Consumer Auto
Receivables Grantor Trust 2021-B
Santander Consumer Auto
Receivables Trust 2021-A
Santander Consumer Auto
Receivables Trust 2021-B
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.
Santander Consumer Banque S.A.
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
Germany
Norway
Austria
Poland
Belgium
Italy
France
Santander Consumer Credit Services
Limited
Santander Consumer Finance
Benelux B.V.
United
Kingdom
Netherlands
% of ownership held
by
Banco Santander % of voting power (d)
Direct
0.00%
Indirect
80.24%
0.00%
80.24%
0.00%
80.24%
0.00%
80.24%
0.00%
80.24%
0.00%
80.24%
Year
2020
Year 2019 Activity
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
0.00%
80.24%
100.00%
0.00%
80.24%
100.00%
0.00%
80.24%
100.00%
- Finance
company
- Finance
company
- Finance
company
- Inactive
- Inactive
- Inactive
- Inactive
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
0.00%
80.44%
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
100.00% 100.00% Banking
100.00% 100.00% Banking
100.00% 100.00% Banking
100.00% 100.00% Banking
100.00% 100.00% Banking
100.00% 100.00% Banking
100.00% 100.00% Banking
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
IT
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
Santander Consumer Finance Global
Services, S.L.
Santander Consumer Finance
Limitada
Santander Consumer Finance Oy
Santander Consumer Finance
Schweiz AG
Santander Consumer Finance, S.A.
Santander Consumer Financial
Solutions Sp. z o.o.
Santander Consumer Finanse Sp. z
o.o. (j)
0.00% 100.00%
100.00% 100.00%
Spain
Chile
49.00%
34.23%
Finland
0.00% 100.00%
Switzerland
0.00% 100.00%
100.00% 100.00% Leasing
Spain
Poland
100.00%
0.00%
0.00%
80.44%
100.00% 100.00% Banking
- Leasing
100.00%
Poland
0.00%
80.44%
100.00% 100.00% Services
Santander Consumer Holding Austria
GmbH
Santander Consumer Holding GmbH Germany
Austria
Santander Consumer International
Puerto Rico LLC
Santander Consumer Leasing GmbH Germany
Puerto Rico
0.00% 100.00%
0.00% 100.00%
0.00%
80.24%
100.00% 100.00% Holding
company
100.00% 100.00% Holding
company
100.00% 100.00% Services
0.00% 100.00%
100.00% 100.00% Leasing
Santander Consumer Mediación
Operador de Banca-Seguros
Vinculado, S.L.
Spain
0.00%
94.61%
100.00% 100.00%
Insurance
intermediary
EUR million
Capital +
reserves
36
Net
results
22
Carrying
amount
0
33
26
(171)
35
26
0
0
0
0
0
0
0
3,313
2,429
381
712
1,168
898
506
(36)
108
6
57
287
41
(13)
23
42
18
3
(91)
65
6
0
0
0
0
404
163
36
68
3
66
40
0
15
2
13
27
7
0
0
0
0
0
0
0
0
0
0
0
0
5,070
2,188
363
486
1,170
603
492
0
190
5
37
166
60
9,995
145
10,021
2
14
0
1
2
12
364
18
518
5,455
225
6,077
7
20
1
3
74
0
8
101
0
809
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
Company
Santander Consumer Multirent Sp. z
o.o.
Location
Poland
% of ownership held
by
Banco Santander % of voting power (d)
Direct
0.00%
Indirect
80.44%
Year
2020
Year 2019 Activity
100.00% 100.00% Leasing
EUR million
Capital +
reserves
24
Net Carrying
results amount
5
3
Santander Consumer Operations
Services GmbH
Germany
0.00% 100.00%
100.00% 100.00% Services
Santander Consumer Receivables 10
LLC
United
States
Santander Consumer Receivables 11
LLC
United
States
Santander Consumer Receivables 3
LLC
Santander Consumer Receivables 7
LLC
Santander Consumer Receivables
Funding LLC
Santander Consumer Renting, S.L.
Santander Consumer S.A.
United
States
United
States
United
States
Spain
Argentina
0.00%
80.24%
0.00%
80.24%
0.00%
80.24%
0.00%
80.24%
0.00%
80.24%
0.00% 100.00%
0.00%
99.32%
Santander Consumer S.A.S.
Colombia
0.00% 100.00%
Santander Consumer Services GmbH Austria
Santander Consumer Services, S.A.
Portugal
0.00% 100.00%
0.00% 100.00%
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Leasing
100.00% 100.00% Finance
company
100.00% 100.00% Financial
advisory
100.00% 100.00% Services
100.00% 100.00% Finance
company
Spain
Spain
-
-
(b)
(b)
-
-
- Securitization
- Securitization
Germany
0.00% 100.00%
100.00% 100.00%
IT services
15
10
625
1
82
249
139
200
90
359
(81)
1
(1)
(1)
0
0
1
0
0
5
18
0
0
0
0
0
39
2
1
0
6
0
0
22
3,839
742
4,281
4,766
(382)
3,517
0
38
2
1
0
9
0
0
0
871
81
52
101
475
2
5
94
0
55
28
20
16
0.00%
80.24%
80.24%
72.40% Holding
company
0.00%
80.24%
100.00% 100.00% Finance
company
-
(b)
-
- Securitization
0.00%
91.79%
100.00% 100.00% Cards
0.00%
67.20%
100.00% 100.00%
Insurance
brokerage
0.00%
83.23%
0.00%
89.99%
0.00%
89.99%
99.50%
0.50%
100.00% 100.00% Securities
company
100.00% 100.00% Securities
company
100.00% 100.00% Holding
company
100.00% 100.00% Services
81.00%
19.00%
100.00% 100.00% Fund
100.00% 100.00%
100.00% 100.00% Finance
100.00%
0.00%
0.00%
80.24%
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
management
company
IT services
company
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
(4)
0
193
(2)
1
14
90
0
3
(97)
0
25
23
33
31
42
0
977
53
44
103
505
2
2
0
0
0
0
0
0
0
Santander Consumer Spain Auto
2019-1, Fondo de Titulización
Santander Consumer Spain Auto
2020-1, Fondo de Titulización
Santander Consumer Technology
Services GmbH
Santander Consumer USA Holdings
Inc.
Santander Consumer USA Inc.
Santander Consumo 3, F.T.
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 Customer Voice, S.A.
Santander de Titulización, S.G.F.T.,
S.A.
Santander Digital Assets, S.L.
Santander Drive Auto Receivables
LLC
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
810
United
States
United
States
Spain
Mexico
Chile
Chile
Brazil
Brazil
Spain
Spain
Spain
United
States
United
States
United
States
United
States
United
States
United
States
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by
Banco Santander % of voting power (d)
Company
Santander Drive Auto Receivables
Trust 2018-2
Location
United
States
Direct
Year
2020
Year 2019 Activity
EUR million
Capital +
reserves
(23)
Net Carrying
results amount
0
40
Indirect
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitization
(101)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Inactive
- Inactive
- Inactive
- Inactive
(49)
(38)
(52)
(62)
(85)
0
0
0
0
0
0
0
0
14
55
51
42
48
48
64
65
(102)
(121)
(223)
(223)
0
0
0
0
2
(15)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
11
28
214
14
185
8
3
0
414
40
22
0
0
0
3
1
6
8
0
0
393
41
1
49.48%
10.19%
59.66%
59.66% Venture capital
United
Kingdom
Spain
0.00% 100.00%
100.00%
0.00%
100.00% 100.00% Finance
company
100.00% 100.00% Payment
services
Spain
99.97%
0.03%
100.00% 100.00% Services
United
Kingdom
Poland
0.00% 100.00%
100.00% 100.00% Real estate
0.00%
67.41%
100.00% 100.00% Finance
company
Spain
100.00%
0.00%
100.00% 100.00% Real estate
Chile
Poland
0.00%
99.84%
100.00% 100.00% Factoring
0.00%
67.41%
100.00% 100.00% Financial
services
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
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 2020-1
Santander Drive Auto Receivables
Trust 2020-2
Santander Drive Auto Receivables
Trust 2020-3
Santander Drive Auto Receivables
Trust 2020-4
Santander Drive Auto Receivables
Trust 2021-1
Santander Drive Auto Receivables
Trust 2021-2
Santander Drive Auto Receivables
Trust 2021-3
Santander Drive Auto Receivables
Trust 2021-4
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.
Santander Factoring S.A.
Santander Factoring Sp. z o.o.
Santander Factoring y Confirming,
S.A., E.F.C.
Santander Finance 2012-1 LLC
Santander Financial Exchanges
Limited
Santander Financial Services plc
Santander Financial Services, Inc.
Spain
100.00%
0.00%
100.00% 100.00% Factoring
191
64
126
United
States
United
Kingdom
United
Kingdom
Puerto Rico
0.00% 100.00%
100.00%
0.00%
0.00% 100.00%
0.00% 100.00%
Santander Finanse Sp. z o.o.
Poland
0.00%
67.41%
Santander Fintech Holdings, S.L.
Spain
99.97%
0.03%
100.00% 100.00% Financial
services
100.00% 100.00% Finance
company
100.00% 100.00% Banking
100.00% 100.00% Finance
company
100.00% 100.00% Financial
services
100.00% 100.00% Holding
company
2
0
0
0
2
0
355
(13)
375
255
(33)
225
55
13
6
0
19
13
811
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by
Banco Santander % of voting power (d)
Company
Santander Fintech Limited
Santander Fundo de Investimento
Santillana Multimercado Crédito
Privado Investimento No Exterior (e)
Santander Fundo de Investimento
SBAC Referenciado di Crédito Privado
(h)
Santander Gestión de Recaudación y
Cobranzas Ltda.
Santander Global Consumer Finance
Limited
Santander Global Facilities, S.A. de
C.V.
Santander Global Facilities, S.L.
Santander Global Operations, S.A.
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.
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
Location
United
Kingdom
Brazil
United
Kingdom
Mexico
Spain
Spain
Uruguay
Spain
Brazil
Chile
Spain
Spain
United
Kingdom
Spain
Spain
Spain
Brazil
Spain
United
States
Mexico
Santander Insurance Agency, U.S.,
LLC
United
States
Santander Insurance Services UK
Limited
Santander Intermediación Correduría
de Seguros, S.A.
United
Kingdom
Spain
Direct
100.00%
Indirect
0.00%
Year 2019 Activity
100.00% 100.00% Finance
Year
2020
company
EUR million
Capital +
reserves
219
Net Carrying
results amount
144
(15)
-
(b)
-
- Investment fund
308
100
0
Brazil
0.00%
89.10%
100.00% 100.00%
Investment fund
1,121
28
993
Chile
0.00%
99.84%
0.00% 100.00%
100.00% 100.00% Financial
services
100.00% 100.00% Finance
company
100.00%
0.00%
100.00%
100.00%
0.00%
0.00%
0.00% 100.00%
100.00%
0.00%
100.00% 100.00% Real estate
management
100.00% 100.00% Real estate
100.00% 100.00% Services
100.00% 100.00% Services
100.00% 100.00% Sports activity
0.00% 100.00%
100.00% 100.00%
IT services
0.00% 100.00%
100.00% 100.00%
IT services
6
7
0
0
5
7
108
11
120
236
(163)
33
0
23
3
25
0
0
(2)
1
(1)
71
24
0
21
1
20
100.00%
0.00%
100.00% 100.00%
0.00% 100.00%
100.00% 100.00%
IT services
IT services
395
98
16
(22)
346
76
0.00% 100.00%
100.00% 100.00% Leasing
-
-
-
(b)
(b)
(b)
-
-
-
- Securitization
- Securitization
- Securitization
4
0
0
0
0.00%
89.99%
100.00% 100.00% Real estate
60
0
0
0
0
1
3
0
0
0
54
99.95%
0.05%
100.00%
0.00%
0.00%
91.79%
100.00% 100.00% Holding
company
100.00% 100.00% Holding
company
100.00% 100.00% Finance
company
0.00% 100.00%
100.00% 100.00%
Insurance
100.00%
0.00%
100.00% 100.00% Asset
100.00%
0.00%
100.00% 100.00%
management
Insurance
brokerage
100.00% 100.00% Holding
company
100.00% 100.00% Banking
100.00% 100.00% Finance
company
100.00% 100.00% Holding
company
100.00% 100.00% Securities
company
100.00% 100.00% Banking
0.00% 100.00%
100.00%
0.00%
0.00% 100.00%
100.00%
- Fund
management
3,355
1,177
2,355
16,775
(685) 12,221
14
(9)
1
40
22
1
0
1
2
0
5
1
41
18
0
1,506
176
1,032
575
520
218
399
1,405
1
3
17
0
35
3
0
529
321
29
434
245
1
Santander International Products,
Plc. (l)
Santander Inversiones S.A.
Ireland
99.99%
0.01%
100.00% 100.00% Finance
company
Chile
0.00% 100.00%
Santander Investment Bank Limited Bahamas
Santander Investment Chile Limitada Chile
0.00% 100.00%
0.00% 100.00%
Santander Investment I, S.A.
Spain
100.00%
0.00%
Santander Investment Securities Inc. United
States
Spain
Luxembourg
Santander Investment, S.A.
Santander Investments GP 1 S.à.r.l.
812
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by
Banco Santander % of voting power (d)
Direct
0.00%
Indirect
67.41%
Year
2020
Year 2019 Activity
100.00% 100.00% Securities
company
EUR million
Capital +
reserves
11
Net Carrying
results amount
7
0
0.00% 100.00%
100.00% 100.00% Management of
28
7
6
Location
Poland
United
Kingdom
Spain
Ireland
Poland
Brazil
United
States
United
Kingdom
Spain
Mexico
Mexico
Brazil
Mexico
Company
Santander Inwestycje Sp. z o.o.
Santander ISA Managers Limited
Santander Lease, S.A., E.F.C.
Santander Leasing Poland
Securitization 01 Designated Activity
Company
Santander Leasing S.A.
Santander Leasing S.A.
Arrendamento Mercantil
Santander Leasing, LLC
Santander Lending Limited
Santander Mediación Operador de
Banca-Seguros Vinculado, S.A.
Santander Merchant Platform
Operations, S.A. de C.V.
Santander Merchant Platform
Services, S.A. de C.V.
Santander Merchant Platform
SoluçõesTecnológicas Brasil Ltda.
Santander Merchant Platform
Solutions México, S.A. de C.V.
Santander Merchant Platform
Solutions S.A.
Santander Merchant Platform
Solutions Uruguay S.A.
Santander Merchant 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
Ireland
Ireland
Ireland
Ireland
Ireland
Santander Private Banking Gestión,
S.A., S.G.I.I.C.
Spain
100.00%
0.00%
100.00% 100.00% Leasing
-
(b)
-
- Securitization
funds and
portfolios
0.00%
67.41%
0.00%
89.99%
100.00% 100.00% Leasing
99.99% Leasing
100.00%
0.00% 100.00%
100.00% 100.00% Leasing
0.00% 100.00%
100.00% 100.00% Mortgage credit
100.00%
0.00%
100.00% 100.00%
0.00%
95.98%
100.00%
0.00%
95.98%
100.00%
0.00% 100.00%
100.00% 100.00%
0.00%
95.98%
100.00%
company
Insurance
intermediary
- Financial
services
- Financial
services
IT services
- Holding
company
- Payment
methods
66
0
131
907
0
(5)
0
3
12
0
51
0
28
827
0
229
(3)
231
5
0
0
29
13
7
0
0
0
44
0
0
(6)
15
(2)
0
0
(1)
3
1
1
23
73
6
0
2
0
491
(248)
219
91
18
184
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
- Securitization
(20)
3
0
6
- Securitization
(11)
(5)
- Securitization
(2)
(3)
- Securitization
(16)
(6)
- Securitization
(1)
(8)
3
0
0
0
0
0
Argentina
0.00%
99.66%
100.00%
Uruguay
0.00% 100.00%
Argentina
0.00% 100.00%
100.00%
- Payment
methods
100.00% 100.00% Finance
company
Santander Mortgage Holdings
Limited
Santander Paraty Qif PLC
United
Kingdom
Ireland
0.00% 100.00%
100.00% 100.00% Financial
services
0.00%
89.99%
100.00% 100.00%
Investment
company
Santander Pensiones, S.A., E.G.F.P.
Spain
0.00% 100.00%
Santander Pensões - Sociedade
Gestora de Fundos de Pensões, S.A.
Portugal
100.00%
0.00%
100.00% 100.00% Pension fund
management
company
100.00% 100.00% Pension fund
management
company
100.00%
0.00%
100.00% 100.00% Fund
42
10
35
management
company
Santander Private Banking s.p.a. in
Liquidazione (j)
Italy
100.00%
0.00%
100.00% 100.00% Finance
company
Santander Private Banking UK
Limited
United
Kingdom
0.00% 100.00%
100.00% 100.00% Real estate
13
284
0
0
7
388
813
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by
Banco Santander % of voting power (d)
EUR million
Location
Spain
Direct
99.99%
Indirect
0.01%
Year
2020
Year 2019 Activity
100.00% 100.00% Real estate
Capital +
reserves
4
Net Carrying
results amount
4
0
Spain
Spain
100.00%
0.00%
100.00% 100.00% Real estate
100.00%
0.00%
0.00%
80.24%
100.00% 100.00%
100.00% 100.00% Securitization
Inactive
Company
Santander Private Real Estate
Advisory & Management, S.A.
Santander Private Real Estate
Advisory, S.A.
Santander Real Estate, S.A.
Santander Retail Auto Lease Funding
LLC
United
States
Santander Retail Auto Lease Trust
2018-A
Santander Retail Auto Lease Trust
2019-A
Santander Retail Auto Lease Trust
2019-B
Santander Retail Auto Lease Trust
2019-C
Santander Retail Auto Lease Trust
2020-A
Santander Retail Auto Lease Trust
2020-B
Santander Retail Auto Lease Trust
2021-A
Santander Retail Auto Lease Trust
2021-B
United
States
United
States
United
States
United
States
United
States
United
States
United
States
United
States
Santander Revolving Auto Loan Trust
2019-A
United
States
-
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Inactive
- Inactive
- Inactive
- Securitization
(126)
23
Santander Revolving Auto Loan Trust
2021-A
Santander Río Asset Management
Gerente de Fondos Comunes de
Inversión S.A.
Santander Río Trust S.A.
Santander Río Valores S.A.
Santander RMBS 6, Fondo de
Titulización
Santander S.A. Sociedad
Securitizadora
Santander Secretariat Services
Limited
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.
Santander Technology USA, LLC
United
States
Argentina
Argentina
Argentina
0.00%
99.97%
0.00%
99.35%
0.00% 100.00%
100.00% 100.00% Fund
management
company
100.00% 100.00% Services
100.00% 100.00% Securities
company
Spain
Chile
United
Kingdom
United
States
Spain
-
(b)
-
- Securitization
0.00%
67.24%
100.00% 100.00% Fund
management
company
0.00% 100.00%
0.00% 100.00%
100.00%
0.00%
100.00% 100.00% Holding
company
100.00% 100.00% Securities
company
Insurance
100.00% 100.00%
Mexico
0.00%
91.79%
100.00% 100.00% Services
Mexico
United
States
0.00%
91.79%
0.00% 100.00%
100.00% 100.00% Financial
services
IT services
100.00% 100.00%
Santander Tecnología Argentina S.A. Argentina
0.00%
99.35%
100.00% 100.00%
Santander Tecnologia e Inovação
Ltda.
Santander Tecnología España, S.L.U. Spain
Brazil
0.00%
89.99%
100.00% 100.00%
100.00%
0.00%
100.00% 100.00%
Mexico
0.00%
91.79%
100.00% 100.00%
IT services
IT services
IT services
IT services
2
1
45
38
1
1
4
4
Portugal
0.00%
99.91%
100.00% 100.00%
Insurance
144
27
Portugal
99.85%
0.06%
99.91%
99.91% Holding
company
3,805
7
5,551
Santander Tecnología México, S.A.
de C.V.
Santander Totta Seguros, Companhia
de Seguros de Vida, S.A.
Santander Totta, SGPS, S.A.
814
13
1
0
82
38
26
28
0
0
0
0
0
0
0
43
24
13
13
44
24
0
0
0
4
0
2
0
1
0
0
4
0
1
0
0
0
44
(8)
36
1,301
151
1,188
6
2
4
1
9
2
85
(11)
74
14
1
0
0
0
0
0
0
0
0
0
0
0
3
0
2
0
0
0
1
1
45
36
47
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by
Banco Santander % of voting power (d)
Company
Santander Towarzystwo Funduszy
Inwestycyjnych S.A.
Location
Poland
Direct
50.00%
Indirect
33.70%
Year
2020
Year 2019 Activity
100.00% 100.00% Fund
management
company
Inactive
100.00% 100.00%
100.00% 100.00% Finance
company
100.00% 100.00% Finance
company
100.00% 100.00% Services
EUR million
Capital +
reserves
4
Net Carrying
results amount
15
25
16
1
16
14,823
269
15,056
49
23
0
3
45
17
Hong-Kong
0.00% 100.00%
77.67%
22.33%
100.00%
0.00%
0.00% 100.00%
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Mexico
0.00% 100.00%
100.00% 100.00% Banking
15,732
289
14,725
0.00% 100.00%
100.00% 100.00%
IT services
-
(b)
-
- Securitization
27
7
9
0
1
(1)
6
0
2
5,905
2,440
6,477
Switzerland
0.00% 100.00%
Spain
69.76%
30.24%
100.00% 100.00% Asset
management
100.00% 100.00% Holding
company
Santander Trade Services Limited
Santander UK Group Holdings plc
Santander UK Investments
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 como Fiduciaria
del Fideicomiso Bursa
Santander Wealth Management
International SA
Santusa Holding, S.L.
SC Austria Finance 2013-1 S.A.
SC Austria Finance 2020-1
Designated Activity Company
SC Germany Auto 2014-2 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 2016-1 UG
(haftungsbeschränkt)
SC Germany Consumer 2018-1 UG
(haftungsbeschränkt)
SC Germany Mobility 2019-1 UG
(haftungsbeschränkt)
SC Germany S.A.
SC Germany S.A., Compartment
Consumer 2020-1
SC Germany S.A., Compartment
Mobility 2020-1
SC Germany Vehicles 2013-1 UG
(haftungsbeschränkt)
Luxembourg
Ireland
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Luxembourg
Luxembourg
Luxembourg
Germany
Germany
SC Germany Vehicles 2015-1 UG
(haftungsbeschränkt)
SC Poland Consumer 15-1 Sp. z.o.o. Poland
Poland
SC Poland Consumer 16-1 Sp. z o.o.
Ireland
SCF Ajoneuvohallinto I Limited (j)
Ireland
SCF Ajoneuvohallinto II Limited
Ireland
SCF Ajoneuvohallinto IX Limited
Ireland
SCF Ajoneuvohallinto KIMI VI Limited
Ireland
SCF Ajoneuvohallinto VII Limited
Ireland
SCF Ajoneuvohallinto VIII Limited
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
0
0
0
0
0
- Securitization
(1)
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
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
815
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
Company
SCF Eastside Locks GP Limited
SCF Rahoituspalvelut I Designated
Activity Company (j)
SCF Rahoituspalvelut II Designated
Activity Company
SCF Rahoituspalvelut IX DAC
SCF Rahoituspalvelut KIMI VI
Designated Activity Company
SCF Rahoituspalvelut VII Designated
Activity Company
SCF Rahoituspalvelut VIII Designated
Activity Company
SCM Poland Auto 2019-1 DAC
SDMX Superdigital, S.A. de C.V.
Location
United
Kingdom
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Mexico
Ireland
Secucor Finance 2013-I Designated
Activity Company (q)
Services and Promotions Delaware
United
Corp.
States
Services and Promotions Miami LLC United
States
Spain
Servicio de Alarmas Controladas por
Ordenador, S.A.
Servicios de Cobranza, Recuperación
y Seguimiento, S.A. de C.V.
Sheppards Moneybrokers Limited
Shiloh III Wind Project, LLC
Silk Finance No. 5
Sixt Leasing (Schweiz) AG
Sixt Leasing GmbH
Sixt Leasing SE
Sixt Location Longue Durée S.à.R.L.
Sixt Mobility Consulting AG
United
Kingdom
United
States
Portugal
Switzerland
Austria
Germany
France
Switzerland
% of ownership held
by
Banco Santander % of voting power (d)
Year
2020
Year 2019 Activity
100.00% 100.00% Real estate
Indirect
Direct
0.00% 100.00%
-
-
-
-
-
-
-
(b)
(b)
(b)
(b)
(b)
(b)
(b)
-
-
-
-
-
-
-
management
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Securitization
- Payment
platform
Mexico
0.00%
85.00%
85.00%
85.00% Finance
company
0.00% 100.00%
100.00%
-
(b)
-
- Securitization
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
0.00% 100.00%
100.00% 100.00% Advisory
services
0.00% 100.00%
-
(b)
0.00%
46.95%
0.00%
46.95%
0.00%
46.95%
0.00%
46.95%
-
100.00%
100.00% 100.00% Electricity
production
- Securitization
- Renting
- Renting
- Leasing
- Renting
100.00%
100.00%
92.07%
0.00%
46.95%
100.00%
EUR million
Capital +
reserves
0
Net Carrying
results amount
0
0
0
0
1
0
0
0
0
0
0
60
53
2
32
0
0
0
0
0
0
0
0
0
0
2
2
0
1
0
0
0
0
0
0
0
0
0
0
62
55
1
28
0
279
20
299
0
12
(2)
191
9
1
(2)
1
0
0
1
0
0
1
1
0
0
3
0
0
0
0
0
175
0
0
0
0
0
0
- Consulting
services
- Consulting
services
- Consulting
services
- Consulting
services
- Consulting
services
Sixt Mobility Consulting B.V.
Netherlands
0.00%
46.95%
100.00%
Sixt Mobility Consulting GmbH
Germany
0.00%
46.95%
100.00%
0.00%
46.95%
100.00%
0.00%
46.95%
100.00%
Sixt Mobility Consulting Österreich
GmbH
Sixt Mobility Consulting S.à.R.L.
SMPS Merchant Platform Solutions
México, S.A de C.V
Sociedad Integral de Valoraciones
Automatizadas, S.A.
Sociedad Operadora de Tarjetas de
Pago Santander Getnet Chile S.A.
Austria
France
Mexico
Spain
Chile
0.00%
95.98%
100.00%
- Collection and
12
14
25
payment
services
100.00%
0.00%
100.00% 100.00% Appraisals
0.00%
67.12%
100.00%
- Collection and
payment
services
1
19
0
(1)
1
12
Socur S.A. (f)
Uruguay
100.00%
0.00%
100.00% 100.00% Finance
company
29
23
59
816
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Subsidiaries of Banco Santander, S.A.
1
Company
Sol Orchard Imperial 1 LLC (c)
Solarlaser Limited
Sovereign Community Development
Company
Sovereign Delaware Investment
Corporation
Sovereign Lease Holdings, LLC
Sovereign REIT Holdings, Inc.
Sovereign Spirit Limited (n)
Location
United
States
United
Kingdom
United
States
United
States
United
States
United
States
Bermudas
% of ownership held
by Banco Santander
% of voting power
(d)
Direct
0.00%
Indirect
58.40%
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
Activity
Year
2020
Year
2019
100.00% 100.00% Electricity
production
100.00% 100.00% Real estate
100.00% 100.00% Holding
company
100.00% 100.00% Holding
company
100.00% 100.00% Financial
services
100.00% 100.00% Holding
company
EUR million
Capital +
reserves
27
Net
results
(1)
Carrying
amount
26
0
35
122
0
0
1
0
35
124
184
20
204
6,833
90
6,923
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
3,954
211
10,521
Suleyado 2003, S.L. Unipersonal
Spain
0.00% 100.00%
100.00% 100.00% Securities
investment
- Real estate
management
Summer Empreendimentos Ltda.
Brazil
0.00%
89.99%
100.00%
Super Pagamentos e Administração
de Meios Eletrônicos S.A.
Superdigital Argentina S.A.U.
Superdigital Colombia S.A.S.
Argentina
Colombia
0.00% 100.00%
100.00% 100.00% Payment
services
- IT services
100.00%
0.00%
99.97%
99.97%
- IT services
Brazil
0.00% 100.00%
Superdigital Holding Company, S.L.
Spain
0.00% 100.00%
100.00% 100.00% Holding
company
Superdigital Perú S.A.C.
Suzuki Servicios Financieros, S.L.
Svensk Autofinans WH 1 Designated
Activity Company
Swesant SA
Peru
Spain
Ireland
0.00% 100.00%
100.00%
0.00%
51.00%
51.00%
- Financial
services
Intermediation
51.00%
-
(b)
-
- Securitization
Switzerland
0.00% 100.00%
100.00% 100.00% Holding
SXT Dienstleistungen GmbH & Co. KG Germany
0.00%
46.95%
100.00%
company
- Services
SXT Leasing Verwaltungs GmbH
Germany
0.00%
46.95%
100.00%
- Portfolio
management
Taxagest Sociedade Gestora de
Participações Sociais, S.A.
Teatinos Siglo XXI Inversiones S.A.
Portugal
0.00%
99.86%
Chile
50.00%
50.00%
100.00% 100.00% Holding
company
100.00% 100.00% Holding
company
The Alliance & Leicester Corporation
Limited
The Best Specialty Coffee, S.L.
Unipersonal
Tikgi Aviation One Designated
Activity Company
Time Retail Finance Limited (j)
TIMFin S.p.A.
Tonopah Solar I, LLC
TOPSAM, S.A de C.V.
United
Kingdom
Spain
Ireland
United
Kingdom
Italy
United
States
Mexico
0.00% 100.00%
100.00% 100.00% Real estate
100.00%
0.00%
100.00% 100.00% Restaurant
-
(b)
-
services
- Renting
0.00% 100.00%
100.00% 100.00% Services
0.00%
51.00%
51.00%
- Finance
company
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)
Totta (Ireland), PLC (h)
Brazil
0.00%
89.99%
100.00% 100.00% Telemarketing
Argentina
0.00%
99.99%
99.99%
99.99% Advisory
services
Ireland
0.00%
99.86%
100.00% 100.00% Finance
company
23
3
9
0
0
84
0
7
0
10
1
0
56
(1)
0
(2)
0
0
(2)
0
2
0
8
0
0
0
23
8
57
0
0
82
0
0
0
0
0
0
0
1,434
236
2,145
14
1
(2)
0
6
5
2
11
0
451
0
0
0
0
(2)
0
0
(1)
0
9
14
1
0
0
3
5
1
9
0
450
817
Annual report 2020
Contents
Subsidiaries of Banco Santander, S.A.
1
% of ownership held
by Banco Santander
% of voting power
(d)
Company
Totta Urbe - Empresa de
Administração e Construções, S.A.
Trabajando.com Mexico, S.A. de C.V.
en liquidación (j)
Trabajando.com Perú S.A.C.
Location
Portugal
Direct
0.00%
Indirect
99.86%
Year
2020
Year
2019
100.00% 100.00% Real estate
Activity
Mexico
0.00% 100.00%
100.00%
99.87% Services
Peru
0.00% 100.00%
100.00% 100.00% Services
Trade Maps 3 Hong Kong Limited
Hong Kong
Trade Maps 3 Ireland Limited (j)
Ireland
-
-
(b)
(b)
-
-
- Securitization
- Securitization
Trans Rotor Limited (j)
Transolver Finance EFC, S.A.
United
Kingdom
Spain
Tresmares Growth Fund Santander,
SCR, S.A.
Tresmares Santander Direct Lending, Spain
SICC, S.A.
Tuttle and Son Limited
Spain
United
Kingdom
100.00%
0.00%
100.00% 100.00% Renting
0.00%
51.00%
51.00%
51.00% Leasing
100.00%
0.00%
100.00%
99.60%
0.00%
99.60%
- Holding
company
- Fund
management
0.00% 100.00%
100.00% 100.00% Payments and
collections
services
Universia Brasil S.A.
Universia Chile S.A.
Brazil
Chile
0.00% 100.00%
100.00% 100.00%
Internet
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.
Universia Holding, S.L.
Universia México, S.A. de C.V.
Universia Perú, S.A.
Universia Uruguay, S.A.
Spain
Spain
Mexico
Peru
Uruguay
0.00%
89.45%
89.45%
89.45%
Internet
100.00%
0.00%
100.00% 100.00% Holding
0.00% 100.00%
100.00% 100.00%
0.00% 100.00%
100.00%
99.73%
Internet
0.00% 100.00%
100.00% 100.00%
Internet
company
Internet
Uro Property Holdings, SOCIMI, S.A.
Spain
99.99%
0.00%
99.99%
22.77% Real estate
Wallcesa, S.A.
Wave Holdco, S.L.
Spain
Spain
Waypoint Insurance Group, Inc.
United
States
WIM Servicios Corporativos, S.A. de Mexico
C.V.
100.00%
0.00%
0.00% 100.00%
0.00% 100.00%
0.00% 100.00%
100.00% 100.00% Financial
services
100.00% 100.00% Holding
company
100.00% 100.00% Holding
company
100.00% 100.00% Advisory
WTW Shipping Designated Activity
Company
Ireland
100.00%
0.00%
100.00% 100.00% Leasing
EUR million
Capital +
reserves
127
Net Carrying
results amount
100
1
0
0
0
0
7
62
1
149
0
0
0
0
2
0
0
0
0
0
5
0
0
0
0
0
0
0
0
0
0
0
5
17
1
148
0
0
0
0
2
18
(9)
15
0
0
0
163
(937)
0
0
0
9
0
0
0
0
179
0
54
(16)
38
8
0
13
0
0
1
8
0
9
a. Amount according to the provisional books of each company at the date of publication of these annexes generally referring to 31 December 2020 without taking
into account, where applicable, interim dividends paid during the year. In the carrying amount (cost net of provision), the Group's percentage ownership has been
applied to the figure for each holding company, disregarding goodwill impairments made in the consolidation process. The figures for foreign companies are
converted into euro at the year-end exchange rate.
b. Companies over which effective control is exercised.
c. Data as at 31 December 2019, latest available accounts.
d. Data as at 31 March 2020, latest available accounts.
e. Data as at 30 June 2020, latest available accounts.
f. Data as at 30 September 2020, latest available accounts.
g. Data as at 31 July 2020, latest available accounts.
h. Data as at 30 November 2020, latest available accounts.
i. Date as at 31 October 2020, latest available accounts.
j.
Company in liquidation as at 31 December 2020.
k. Pursuant to Article 3 of Royal Decree 1159/ 2010, of 17 September, approving the rules for the preparation of consolidated annual accounts, in order to
determine the voting rights, voting rights held directly by the parent company have been added to those held by subsidiaries or other persons acting in their own
name but on behalf of a Group company. For these purposes, the number of votes corresponding to the parent company, in relation to its indirect subsidiaries, is
that corresponding to the subsidiary which has a direct holding in the share capital of the latter.
Company with Tax Residence in Spain.
l.
m. See note 2.b.i.
n. Company with Tax Residence in the United Kingdom.
o. Company recently incorporated to the Group, with no available accounts.
p. Data as at 31 May 2020, latest available accounts.
q. Data as at 31 January 2020, latest available accounts.
r. Data as at 31 December 2004, latest available accounts.
1. The companies issuing preference shares and participating interests are listed in Annex III, together with other relevant information.
818
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Appendix II
Societies of which Grupo Santander owns more than 5% (c), entities associated with Grupo Santander
and jointly controlled entities
% of ownership
held by Banco
Santander
% of voting power
(b)
Location
Caymand
Island
Netherlands
Direct
Indirect
(h)
-
Year
2020
Year
2019
-
8.89%
0.00%
8.89%
Activity
- Leasing
- Holding
company
EUR million
Type of Capital +
company reserves
-
Net Carrying
results amount
-
-
356
356
20
Chile
0.00%
13.42%
20.00%
20.00% Payment and
collection
services
Associated
57
20
Portugal
0.00%
48.95%
49.00%
49.00% Insurance
Portugal
0.00%
48.95%
49.00%
49.00% Insurance
Portugal
0.00%
19.97%
20.00%
20.00% Inactive
Joint
venture
—
Joint
venture
Joint
venture
—
—
—
—
53
17
133
22
15
0
0
0
-
-
-
-
-
-
403
104
(42)
565
519
46
Aguas de Fuensanta, S.A. (k) Spain
Spain
Alcuter 2, S.L. (k)
36.78%
0.00%
36.78%
36.78% Food
37.23%
0.00%
37.23%
37.23% Technical
services
0.00%
15.00%
15.00%
15.00% Real estate
Spain
Brazil
0.00%
30.00%
33.33%
33.33% Investment
fund
Joint
venture
Banco RCI Brasil S.A.
Brazil
0.00%
35.90%
39.89%
39.89% Banking
1,898
192
28
Spain
20.00%
0.00%
20.00%
20.00% Advertising
Associated
328
101
1
Morocco
0.00%
5.11%
5.11%
5.11% Banking
—
48,831
4,307
637
Argentina
0.00%
14.17%
14.17%
Poland
0.00%
6.74%
10.00%
14.17% Motorway
concession
10.00% Pension fund —
—
management
154
104
(33)
107
99
24
Poland
0.00%
6.74%
10.00%
10.00% Insurance
—
3,271
264
129
Mexico
0.00%
50.00%
50.00%
50.00% Banking
China
China
France
Brazil
0.00%
20.00%
20.00%
6.54%
0.00%
6.54%
0.00%
30.50%
30.50%
0.00%
15.88%
17.65%
20.00% Finance
company
6.54% Banking
30.50% Custody
services
17.61% Payment and
collection
services
Joint
venture
Joint
venture
158
59
Associated
1,052
102
—
278,755 19,490
2,529
Associated 120,704
4,020
189
—
253
171
28
Spain
50.00%
0.00%
50.00%
50.00% Venture capital Associated
Portugal
0.00%
49.98%
49.98%
Chile
0.00%
22.37%
33.33%
49.98% Real estate
services
33.33% Payment and
collection
services
Joint
venture
Associated
0
0
13
0
0
8
0
0
2
819
Company
Abra 1 Limited (k)
Achmea Tussenholding, B.V.
(b)
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)
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)
Aviva Towarzystwo
Ubezpieczeń na Życie S.A.
(b)
Banco S3 Caceis México,
S.A., Institución de Banca
Múltiple
Bank of Beijing Consumer
Finance Company
Bank of Shanghai Co., Ltd.
(consolidado) (b)
CACEIS (consolidado)
Câmara Interbancária de
Pagamentos - CIP
Cantabria Capital, SGEIC,
S.A.
CCPT - ComprarCasa, Rede
Serviços Imobiliários, S.A.
Centro de Compensación
Automatizado S.A.
2
4
4
6
Annual report 2020
Contents
Societies of which Grupo Santander owns more than 5% (c), entities associated with Grupo Santander
and jointly controlled entities
% of ownership
held by Banco
Santander
% of voting power
(b)
EUR million
Location
Spain
Direct
0.00%
Indirect
49.00%
Year
2020
49.00%
Year
2019
49.00% Technology
Activity
Type of
company
Associated
Capital +
reserves
3
Net
results
2
Carrying
amount
0
Ireland
49.00%
0.00%
49.00%
Ireland
49.00%
0.00%
49.00%
49.00% Insurance
brokerage
49.00% Insurance
brokerage
Associated
960
164
31
Associated
1,378
229
48
Ireland
49.00%
0.00%
49.00%
49.00% Services
Associated
Chile
Brazil
Spain
0.00%
8.37%
12.47%
0.00%
25.00%
25.00%
20.18%
0.00%
20.18%
12.45% Financial
services
25.00% Financial
services
20.18% Finance
company
Associated
Joint
venture
—
29
29
1
3
12
(1)
1
1
0
145
131
10
Spain
23.33%
0.55%
23.88%
23.88% Credit
insurance
—
927
351
24
7
0
(1)
0
0
(5)
Spain
Spain
Spain
Spain
Portugal
United
States
United
Kingdom
Poland
24.07%
0.00%
24.07%
24.07% Real estate
Associated
507
328
21.98%
0.00%
21.98%
21.98% Real estate
development
—
38
(324)
32.21%
0.00%
36.21%
36.21% Services
19.90%
0.00%
19.90%
0.00%
27.54%
27.58%
0.00%
36.30%
36.30%
0.00%
45.45%
45.45%
0.00%
13.13%
22.00%
- Consulting
services
27.58% Cork industry —
—
33.60% Holding
company
6.39% Payment
services
—
Joint
venture
Spain
50.00%
0.00%
50.00%
Portugal
0.00%
36.57%
36.62%
36.62% Real estate
—
Associated
445
28
(34)
21.99% Electricity
production
50.00% Payment
services
—
Associated
0
83
0
(1)
1
58
1
(12)
0
87
2
3
185
25
0
20
170
United
States
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
0.00%
25.73%
25.73%
23.56% Banking
—
89,406
1,440
51
-
-
-
-
-
-
-
-
(h)
(h)
(h)
(h)
(h)
(h)
(h)
(h)
-
-
-
-
-
-
-
-
- Securitizations
- Securitizations
- Securitizations
- Securitizations
- Securitizations
- Securitizations
- Securitizations
- Securitizations
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
150
406
487
678
570
85
217
387
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Company
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
Comder Contraparte Central
S.A
Companhia Promotora UCI
Compañía 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)
Condesa Tubos, S.L. (b)
Connecting Visions
Ecosystems, S.L.
Corkfoc Cortiças, S.A. (b)
Corridor Texas Holdings LLC
(consolidado) (b)
Ebury Partners Limited
(consolidado) (d) (m)
Eko Energy Sp. z o.o (b) (e)
Euro Automatic Cash
Entidad de Pago, S.L.
FAFER- Empreendimentos
Urbanísticos e de
Construção, S.A. (c) (e)
Federal Reserve Bank of
Boston (b)
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
Hipotecaria UCI 10
Fondo de Titulización
Hipotecaria UCI 12
Fondo de Titulización, RMBS
Prado II
820
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Societies of which Grupo Santander owns more than 5% (c), entities associated with Grupo Santander
and jointly controlled entities
Company
Fondo de Titulización, RMBS
Prado III
Fondo de Titulización, RMBS
Prado IV
Fondo de Titulización, RMBS
Prado V
Fondo de Titulización, RMBS
Prado VI
Fondo de Titulización, RMBS
Prado VII
Fortune Auto Finance Co.,
Ltd
Fremman limited
Gestora de Inteligência de
Crédito S.A.
Gire S.A.
Spain
Spain
Spain
Spain
China
HCUK Auto Funding 2017-2
United
Ltd
Kingdom
Healthy Neighborhoods
United
States
Equity Fund I LP (b)
Hyundai Capital UK Limited United
Location
Spain
Direct
% of ownership
held by Banco
Santander
Indirect
(h)
(h)
(h)
(h)
(h)
-
-
-
-
-
% of voting power
(b)
Year
2020
Year
2019
Activity
-
-
-
-
-
- Securitizations
- Securitizations
- Securitizations
- Securitizations
- Securitizations
0.00%
50.00%
50.00%
50.00% Finance
company
United
Kingdom
Brazil
33.00%
0.00%
4.99%
0.00%
18.00%
20.00%
Argentina
0.00%
57.93%
58.33%
- Finance
company
20.00% Collection
services
58.33% Payment and
collection
services
-
(h)
-
- Securitizations
0.00%
22.37%
22.37%
22.37% Real estate
Kingdom
Brazil
0.00%
50.01%
50.01%
0.00%
44.99%
50.00%
Luxemborg
0.00%
36.36%
36.36%
50.01% Finance
company
50.00% Insurance
brokerage
36.36% Securities
investment
Luxemborg
0.00%
40.20%
40.20%
40.20% Holding
company
Hyundai Corretora de
Seguros Ltda.
Imperial Holding S.C.A. (e)
(i)
Imperial Management S.à
r.l. (b) (e)
Índice 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.
Spain
0.00%
51.00%
51.00%
51.00% Information
system
Joint
venture
Spain
Mexico
Spain
0.00%
20.00%
20.00%
0.00%
20.00%
20.00%
0.00%
50.00%
50.00%
20.00% Holding
company
20.00% IT services
50.00% Real estate
EUR million
Type of Capital +
company reserves
321
Net Carrying
results amount
0
0
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Associated
Joint
venture
Associated
Joint
venture
—
Joint
venture
Joint
venture
—
—
—
Associated
Joint
venture
Joint
venture
Associated
318
341
372
0
0
0
0
0
0
0
0
0
2,205
303
42
1
198
123
779
14
3
37
22
0
14
(3)
(15)
12
0
(1)
3,787
256
45
0
0
0
1
0
2
0
1
0
0
(112)
0
(5)
0
4
0
1
(3)
0
0
0
(1)
0
(2)
0
0
1
Inverlur Aguilas II, S.L.
Spain
0.00%
50.00%
50.00%
50.00% Real estate
Inversiones en Resorts
Mediterraneos, S.L., en
liquidación (e)
Spain
0.00%
43.28%
43.28%
43.28% Real estate
Inversiones Ibersuizas, S.A.
(b)
Inversiones ZS América Dos Chile
Ltda
Spain
25.42%
0.00%
25.42%
25.42% Venture capital —
20
21
(1)
0.00%
49.00%
49.00%
49.00% Real estate and Associated
297
297
37
securities
investment
Inversiones ZS América SpA Chile
0.00%
49.00%
49.00%
49.00% Real estate and
Associated
365
325
35
J.C. Flowers I L.P. (b)
JCF AIV P L.P. (b)
LB Oprent, S.A.
United
States
Canada
Spain
0.00%
10.60%
0.00%
0.00%
7.67%
4.99%
38.33%
0.00%
38.33%
securities
investment
0.00% Holding
company
4.99% Holding
company
- Industrial
machinery rent
Loop Gestão de Pátios S.A.
Brazil
0.00%
32.12%
35.70%
Lusimovest Fundo de
Investimento Imobiliário
Portugal
0.00%
25.73%
25.77%
35.70% Business
services
25.77% Investment
fund
—
—
Associated
Joint
venture
Associated
2
4
3
6
3
4
1
3
107
101
(1)
0
0
(1)
1
821
Annual report 2020
Contents
Societies of which Grupo Santander owns more than 5% (c), entities associated with Grupo Santander
and jointly controlled entities
% of ownership
held by Banco
Santander
% of voting power
(b)
EUR million
Location
Portugal
Direct
0.00%
Indirect
49.94%
Year
Year
2020
2019
49.99% 100.00% Insurance
Activity
Type of
company
Associated
Capital +
reserves
14
Net
results
9
Carrying
amount
(1)
Company
Mapfre Santander Portugal
- Companhia de Seguros,
S.A.
Massachusetts Business
Development Corp.
(consolidado) (b)
United
States
0.00%
21.61%
21.61%
21.60% Finance
company
MB Capital Fund IV, LLC (b) United
States
Spain
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)
Nowotna Farma Wiatrowa
Sp. z o.o (b)
Odc Ambievo Tecnologia e
Inovacao Ambiental,
Industria e Comercio de
Insumos Naturais S.A.
Canada
Canada
Spain
Poland
Brazil
0.00%
21.51%
21.51%
19.00%
5.81%
24.81%
Spain
31.94%
17.52%
49.45%
Luxemborg
0.00%
7.67%
0.00%
0.00%
99.49%
4.99%
0.00%
91.89%
4.99%
37.23%
0.00%
37.23%
21.51% Finance
company
22.78% Real estate
investment
49.46% Real estate
development
0.00% Holding
company
4.99% Holding
company
4.99% Holding
company
37.23% Technical
services
0.00%
12.97%
21.73%
0.00%
18.17%
20.19%
21.73% Electricity
production
20.19% Technology
Operadora de Activos Beta,
S.A. de C.V.
Parque Solar Páramo, S.L.
Mexico
Spain
0.00%
49.99%
49.99%
92.00%
0.00%
25.00%
49.99% Finance
company
25.00% Electricity
production
Germany
Poland
0.00%
10.00%
10.00%
0.00%
33.70%
50.00%
10.00% Software
50.00% Management
Payever GmbH
POLFUND - Fundusz
Poręczeń Kredytowych S.A.
Popular Vida 2020,
Compañía de Seguros y
Reaseguros, S.A.U.
Procapital - Investimentos
Imobiliários, S.A. (b) (e)
Project Quasar Investments
2017, S.L. (consolidado) (b)
Promontoria Manzana, S.A.
(consolidado) (b)
PSA Corretora de Seguros e
Serviços Ltda.
PSA Insurance Europe
Limited
PSA Life Insurance Europe
Limited
PSA UK Number 1 plc (e)
Redbanc S.A.
Redsys Servicios de
Procesamiento, S.L.
(consolidado)
Spain
0.00%
49.00%
49.00%
- Insurance
Joint
venture
2,889
Portugal
0.00%
39.96%
40.00%
40.00% Real estate
Spain
Spain
Brazil
Malta
Malta
United
Kingdom
Chile
Spain
49.00%
0.00%
49.00%
20.00%
0.00%
20.00%
0.00%
44.99%
50.00%
49.00% Holding
company
20.00% Holding
company
50.00% Insurance
0.00%
50.00%
50.00%
50.00% Insurance
0.00%
50.00%
50.00%
50.00% Insurance
0.00%
50.00%
50.00%
50.00% Leasing
0.00%
22.44%
33.43%
20.00%
0.06%
20.06%
33.43% Services
20.08% Cards
Retama Real Estate, S.A.
Spain
0.00%
50.00%
50.00%
50.00% Services
Rías Redbanc S.A.
RMBS Green Belem I
Uruguay
Portugal
0.00%
25.00%
25.00%
25.00% Services
-
(h)
-
- Securitizations
Santander Assurance
Solutions, S.A.
Spain
0.00%
73.99%
73.99%
- Insurance
intermediary
822
—
—
66
8
23
18
1
2
Associated
13,306
6,145
564
Associated
2,679
2,345
(4)
—
—
—
—
—
—
Associated
Joint
venture
Associated
Associated
0
16
4
-
92
1
0
24
2
26
0
15
4
-
12
1
0
1
2
20
73
0
1
0
-
8
(1)
0
0
0
0
21
—
—
2
13
0
9,435
3,870
(1,229)
Associated
1,126
353
(32)
Joint
venture
Joint
venture
Joint
venture
Associated
Associated
Associated
Joint
venture
—
Joint
venture
Joint
venture
0
249
104
5
29
105
0
66
10
5
10
69
0
25
15
0
0
2
34
(43)
(1)
3
362
8
1
0
4
0
0
0
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Societies of which Grupo Santander owns more than 5% (c), entities associated with Grupo Santander
and jointly controlled entities
% of ownership
held by Banco
Santander
% of voting power
(b)
EUR million
Company
Santander Auto S.A.
Location
Brazil
Direct
0.00%
Indirect
44.99%
Year
2020
50.00%
Year
2019
50.00% Insurance
Activity
Type of
company
Associated
Capital +
reserves
16
Net
results
6
Carrying
amount
(1)
Poland
0.00%
33.03%
49.00%
49.00% Insurance
Associated
305
32
25
Poland
0.00%
33.03%
49.00%
49.00% Insurance
Associated
115
50
14
Brazil
0.00%
50.00%
50.00%
50.00% Securities
investment
Joint
venture
183
138
13
Servicios de Infraestructura Chile
de Mercado OTC S.A
SIBS-SGPS, S.A. (b)
Portugal
Santander Aviva
Towarzystwo Ubezpieczeń
na Życie S.A.
Santander Aviva
Towarzystwo Ubezpieczeń
S.A.
Santander Caceis Brasil
Distribuidora de Títulos e
Valores Mobiliários S.A.
Santander Caceis Brasil
Participações S.A.
Santander Caceis Colombia
S.A. Sociedad Fiduciaria
Santander Caceis Latam
Holding 1, S.L.
Santander Caceis Latam
Holding 2, S.L.
Santander Generales
Seguros y Reaseguros, S.A.
Santander Mapfre Seguros y
Reaseguros, S.A.
Santander Vida Seguros y
Reaseguros, S.A.
Sepacon 31, S.L. (k)
Siguler Guff SBIC Fund LP
(b)
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. (c)
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 (b)
Stephens Ranch Wind
Energy Holdco LLC
(consolidado) (b)
Syntheo Limited (e)
Spain
Spain
Spain
Spain
Spain
Spain
United
States
Spain
Spain
Spain
Chile
Ireland
United
States
United
Kingdom
Brazil
0.00%
50.00%
50.00%
Colombia
0.00%
50.00%
50.00%
0.00%
50.00%
50.00%
0.00%
50.00%
50.00%
0.00%
49.00%
49.00%
50.00% Holding
company
50.00% Finance
company
50.00% Holding
company
50.00% Holding
company
49.00% Insurance
0.00%
49.99%
49.99%
49.99% Insurance
0.00%
49.00%
49.00%
49.00% Insurance
37.23%
0.00%
37.23%
0.00%
8.37%
12.48%
0.00%
16.52%
16.55%
0.00%
20.00%
20.00%
37.23% Technical
services
12.48% Services
16.56% Portfolio
management
20.00% Investment
fund
—
—
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Associated
Joint
venture
—
Associated
154
140
14
8
9
(1)
714
714
2
2
0
0
657
207
22
45
35
(9)
816
371
38
-
17
148
2
-
14
67
2
4
7
-
0
10
(1)
0
7
1
0
18.11%
0.00%
18.11%
27.15%
0.00%
27.15%
18.11% Payment
methods
27.15% Building
materials
Associated
464
—
97
Spain
45.70%
0.00%
45.70%
42.50% Payment
services
Joint
venture
101
34
Spain
25.50%
0.23%
25.73%
Spain
22.21%
0.00%
22.21%
25.73% Financial
services
22.21% Financial
services
21.32%
0.00%
21.32%
0.00%
19.66%
29.29%
-
(h)
-
21.32% Payment
services
29.29% Securities
deposit
- Leasing
0.00%
19.20%
19.20%
21.30% Electricity
production
—
—
—
Associated
Joint
venture
—
17
11
31,470
1,177
(947)
11
7
25
9
6
0
1
1
0
210
209
(6)
0.00%
50.00%
50.00%
50.00% Payment
services
—
1
0
0
823
Annual report 2020
Contents
Societies of which Grupo Santander owns more than 5% (c), entities associated with Grupo Santander
and jointly controlled entities
% of ownership
held by Banco
Santander
% of voting power
(b)
EUR million
Location
Brazil
Direct
0.00%
Indirect
17.83%
Year
2020
19.81%
Year
2019
Activity
19.81% Security
Type of
company
Associated
Capital +
reserves
86
Net
results
54
Carrying
amount
2
Company
Tbforte Segurança e
Transporte de Valores Ltda.
Tbnet Comércio, Locação e
Administração Ltda.
Tecnologia Bancária S.A.
Teka Industrial, S.A.
(consolidado) (b)
Tonopah Solar Energy
Holdings I, LLC
(consolidado) (b)
Trabajando.com Chile S.A.
Transbank S.A.
Tresmares Growth Fund II,
SCR, S.A.
Tresmares Growth Fund III,
SCR, S.A.
U.C.I., S.A.
UCI Hellas Credit and Loan
Receivables Servicing
Company S.A.
UCI Mediação de Seguros
Unipessoal, Lda.
UCI Servicios para
Profesionales Inmobiliarios,
S.A.
Unicre-Instituição
Financeira de Crédito, S.A.
Unión de Créditos
Inmobiliarios, S.A., EFC
VCFS Germany GmbH
Venda de Veículos Fundo de
Investimento em Direitos
Creditórios
Brazil
Brazil
Spain
United
States
Chile
Chile
Spain
Spain
Spain
0.00%
17.83%
19.81%
19.81% Telecommunic
ations
0.00%
17.83%
19.81%
19.81% ATM
0.00%
9.42%
9.42%
0.00%
26.80%
26.80%
9.42% Household
appliances
26.80% Holding
company
0.00%
33.33%
33.33%
0.00%
16.78%
25.00%
33.33% Services
25.00% Cards
40.00%
0.00%
40.00%
40.00%
0.00%
40.00%
50.00%
0.00%
50.00%
Greece
0.00%
50.00%
50.00%
Portugal
0.00%
50.00%
50.00%
Spain
0.00%
50.00%
50.00%
Portugal
0.00%
21.83%
21.86%
Spain
0.00%
50.00%
50.00%
- Holding
company
- Holding
company
50.00% Holding
company
50.00% Financial
services
50.00% Holding
company
50.00% Insurance
brokerage
50.00% Real estate
services
21.86% Finance
company
50.00% Mortgage
credit company
Germany
0.00%
50.00%
50.00%
50.00% Marketing
Brazil
-
(h)
-
- Securitizations
UCI Holding Brasil Ltda
Brazil
0.00%
50.00%
50.00%
Volvo Car Financial Services
UK Limited
Webmotors S.A.
United
Kingdom
Brazil
0.00%
50.00%
50.00%
- Leasing
0.00%
62.99%
70.00%
70.00% Services
0.00%
48.79%
48.79%
48.79% Insurance
Associated
60
57
2
Associated
—
369
938
86
167
20
(10)
Joint
venture
Associated
Associated
—
—
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
461
140
(65)
1
(2)
1,154
29
22
424
1
1
0
2
81
16
13
62
0
(1)
0
0
0
0
(2)
(1)
10
0
0
0
0
Associated
371
87
23
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Joint
venture
Associated
12,218
363
(25)
0
102
76
43
0
98
76
24
0
3
0
9
11,557
535
119
0.00%
48.79%
48.79%
48.79% Insurance
Associated
151
1
31
0.00%
49.00%
49.00%
0.00%
49.00%
49.00%
49.00%
0.00%
49.00%
49.00% Holding
company
49.00% Holding
company
49.00% Holding
company
49.00% Insurance
Associated
1,074
936
138
Associated
386
384
0
Associated
1,679
1,490
165
Associated
38
8
12
Argentina
0.00%
49.00%
49.00%
Brazil
Brazil
Spain
Spain
Spain
Zurich Santander Brasil
Seguros e Previdência S.A.
Zurich Santander Brasil
Seguros S.A.
Zurich Santander Holding
(Spain), S.L.
Zurich Santander Holding
Dos (Spain), S.L.
Zurich Santander Insurance
América, S.L.
Zurich Santander Seguros
Argentina S.A. (j)
824
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Societies of which Grupo Santander owns more than 5% (c), entities associated with Grupo Santander
and jointly controlled entities
% of ownership
held by Banco
Santander
% of voting power
(b)
EUR million
Location
Chile
Direct
0.00%
Indirect
49.00%
Year
2020
49.00%
Year
2019
49.00% Insurance
Activity
Type of Capital +
company reserves
240
Associated
Net Carrying
results amount
34
36
Chile
0.00%
49.00%
49.00%
49.00% Insurance
Associated
236
47
Mexico
0.00%
49.00%
49.00%
49.00% Insurance
Associated
780
144
Uruguay
0.00%
49.00%
49.00%
49.00% Insurance
Associated
29
13
15
97
7
Company
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.
a. Amount according to the provisional books at the date of publication of these annexes of each company generally referring to 31 December 2020, unless
otherwise indicated because the annual accounts have not yet been prepared. Data for foreign companies are converted into euros at the year-end exchange rate.
b. Data as at 31 December 2019, latest available accounts.
c. Data as at 31 December 2018, latest available accounts.
d. Grupo Santander has the right to receive 50.38% of the dividends distributed by the company.
e. Company in liquidation as at 31 December 2020.
f.
Pursuant to Article 3 of Royal Decree 1159/ 2010, of 17 September, approving the rules for the preparation of consolidated annual accounts, in order to
determine the voting rights, voting rights held directly by the parent company have been added to those held by subsidiaries or other persons acting in their own
name but on behalf of a group company. For these purposes, the number of votes corresponding to the parent company, in relation to its indirect subsidiaries, is
that corresponding to the subsidiary which has a direct holding in the capital of the latter.
g. Excluding the Group companies listed in Appendix I, as well as those which are of negligible interest with respect to the true and fair view that the consolidated
accounts must express (in accordance with articles 48 of the Commercial Code and 260 of the Corporate Enterprises Act).
h. Companies over which joint control is maintained.
i. Data as at 31 October 2020, latest available accounts.
j. Data as at 30 June 2020, latest available accounts.
k. Company with no financial information available.
l. Data as at 30 November 2017, latest available accounts.
m. Data as at 30 April 2019, latest available accounts.
825
Annual report 2020
Contents
Appendix III
Issuing subsidiaries of shares and preference shares
% of ownership held by
Banco Santander
Company
Emisora Santander España, S.A.
Unipersonal
Santander UK (Structured Solutions)
Limited
Sovereign Real Estate Investment
Trust
Location
Spain
United
Kingdom
United States
Direct
100.00%
Indirect
Activity
0.00% Finance
company
0.00%
0.00%
100.00% Finance
company
100.00% Finance
company
EUR million (a)
Capital
2
Reserves
0
Cost of
preferred
0
Net
results
0
0
0
4,552
(2,971)
0
55
0
19
a. Amount according to the books of each interim company as at 31 December 2020, converted into euro (in the case of foreign companies) at the year-end
exchange rate.
826
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Appendix IV
Notifications of acquisitions and disposals of investments in
2020
With respect to compliance with Article 125 of the Securities
Market Law, no communications required under this article
were made in 2020.
In relation to the information required by 155 of the
Corporate Enterprises Act, on the shareholdings in which
Grupo Santander owns more than 10% of the capital of
another company, and the successive acquisitions of more
than 5% of the share capital, see appendices I, II and III.
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Annual report 2020
Contents
Appendix V
Other information on the Group’s banks
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 2020, 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 2020, 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
April 2020 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
828
(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.
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
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
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
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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..
The shares composing the share capital of Banco Santander
(Brasil) S.A. have no par value and there are no pending
payments. At 2020 year-end, the bank’s treasury shares
consisted of 18,828,962 ordinary shares and 18,828,962
preferred shares, with a total of 37,657,924 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 2020, 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
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.
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Annual report 2020
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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 2020, 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 2020 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.
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
Not applicable.
g) Quoted equity instruments
Not applicable.
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
own shares and 0.01% to Santander Global Facilities, S.A. de
C.V..
On June 15, 2020, Gesban México Servicios Administrativos
Globales, S.A. de C.V., acquired the 1,340 shares of Banco
Santander México owned by Santander Global Facilities, S.A.
de C.V.
830
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 represent
the 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.
On September 30, 2020, the General Extraordinary
Shareholders' Meetings of Banco Santander México and
Santander Vivienda, S.A. de C.V., SOFOM E.R., GFSM, were
held. In such meetings the merger by absorption of Banco
Santander México with Santander Vivienda, S.A. de C.V.,
SOFOM E.R., GFSM, was approved. This merger did not result
in a movement of the share capital of Banco Santander
México, since it was a shareholder of 99.99998% of the
shares representative of the share capital of Santander
Vivienda , S.A. de C.V., SOFOM, E.R., GFSM, and such
circumstance results in the material and legal impossibility
for Banco Santander México, S.A., Institución de Banca
Multiple, Grupo Financiero Santander México to perform the
redemption of the shares, since these shares are already
integrated into the assets of the merger.
b) Ongoing capital stock increases.
To this date there are not on going 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.
• 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
Auditor's
report
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:
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.
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
Amount
equivalent in UDIs, dollars or any
other foreign currency
Available
$25,621 million Mexican
pesos
Con t.c. fix according to
Banxico 31/Dec/ 2019
Private banking structured bonds Act
Not
Revolving*
16-Ago-34 20,000 million Mexican pesos
$4,379 million Mexican pesos
Structured bonds without public offering
16-Feb-32 10,000 million Mexican pesos
$10,000 million Mexican
pesos
Senior Bonds
Capital Notes AT1
Capital Notes
Notas Senior 144.ª/RegS
Not
Revolving
Not
Revolving
Not
Revolving
Not
Revolving
09-Nov-22 1,000 million American dollars
N/A
perpetual
500 million American dollars
1-Oct-2028 1,300 millon American dollars
17-
Apr-2025
1,750 millon American dollars
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.
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Annual report 2020
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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.
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.
(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
832
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.
On January 30, 2019, Banco Santander México paid off the
total remaining due amount of the Subordinated Notes
2013.
On April 17th., 2020, Banco Santander Mexico issued an
international Senior Note, due on five years in the global
market, on the amount of 1,750 million dollars, with a rate of
5.375 per cent, whereas the demand exceeded three times
the placed amount. The due date of such notes will be April
17th, 2025.
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 1,256,189,353 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 416,525 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.
Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
b) Capital increases in progress
At 31 December 2020, there were no equity increases 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
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.
f) Non-Group entities which hold, directly or through
subsidiaries, 10% or more of equity
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 2020, 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
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.
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 2020, there were no approved capital
increases.
c) Capital authorised by the shareholders at the general
meeting
Share capital at 31 December 2020 amounted to CLP
891,302,881,691.
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
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, 2020, 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.
b) Capital increases in progress
At 31 December, 2020, there were no equity increases in
progress.
c) Capital authorised by the shareholders at the general
meeting
There was one share capital increase in 2020 – on 22 June
2020 Annual General Meeting decided to increase the share
capital of the Bank in order to settle the Incentive Scheme VI.
The Incentive Scheme VI was introduced on 17 May 2017
when the shareholders resolved to approve the it as an
initiative to attract, motivate and retain the Bank’s
employees. Delivery of the shares was tied to the
achievement of certain targets in the years from 2017 to
2019. The share capital was increased by the amount of PLN
1,010, 090, i.e. 101,009 ordinary bearer O series shares were
833
Annual report 2020
Contents
issued with the nominal value of PLN 10 each. As of 31
December 2020 the Bank’s share capital amounted to PLN
1,021,893,140 and was divided into 102,189,314 ordinary
bearer shares with a nominal value of PLN 10 each.
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
All the shares of Santander Bank Polska S.A. are listed on the
Warsaw Stock Exchange.
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Auditor's
report
Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
Appendix VI
Annual banking report
Grupo Santander’s total tax contribution (taxes incurred
directly and by third parties, generated in the course of
business) is around EUR 14,500 million, including more than
EUR 6,400 million in taxes incurred directly (corporate income
tax, non-recoverable VAT and other indirect taxes, employer
Social Security contributions, payroll taxes and other taxes
and levies).
This report complies 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 Act 10/2014 of 26 June on the regulation,
supervision and capital adequacy of credit institutions.
The criteria used to prepare this report were:
a) Name(s), activities and location
Appendices I to III to the consolidated financial statements
contain details of the companies operating in each
jurisdiction, including their name(s), location and activities.
Santander main activity in the jurisdictions where operate is
commercial banking. The group primarily operates in ten
markets through subsidiaries that are autonomous in capital
and liquidity. This has clear strategic and regulatory
advantages, since it limits the risk of contagion between
units, imposes a double layer of global and local oversight,
and facilitates crisis management and resolution.
b) Turnover and profit or loss before tax
Turnover in this report is Total income, and profit or loss
before tax, Operating profit/(loss) before tax, both as defined
and presented in the consolidated income statement that
forms part of the consolidated financial statements.
c) Number of full time equivalent employees
The data on full-time equivalent employees stem from the
average headcount of each jurisdiction.
d) Tax on profit or loss
In the absence of specific criteria, we have included the
amount effectively paid (EUR 2,946 million) in respect of
taxes whose effect is recognized under Income tax in the
consolidated income statement.
Taxes effectively paid by the companies in each jurisdiction
include:
• Supplementary payments relating to income tax returns,
usually for prior years.
• Advances,prepayments, withholdings made or borne in
respect of tax on profit or loss for the year. Given their
nominal amount, we included taxes borne abroad in the
jurisdiction of the company that bore them.
• Refunds received with respect to prior years’ returns.
• Where appropriate, the amount payable from assessments
and litigation relating to these taxes.
The foregoing form part of the cash flow statement and differ
from the corporate income tax expense recognized in the
consolidated income statement (EUR 5,632 million or,
discounting extraordinary results, EUR 3,516 million, see note
27 and 52.c). This is because each country’s tax regulations
establish:
• when taxes must be paid. There is often a mismatch
between the payment dates and the generation of the
income bearing the tax.
• their own calculation criteria to define temporary or
permanent restrictions on expense deduction, exemptions
and relief or deferrals of certain income, generating the
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. In certain cases, special
regimes such as the tax consolidation of companies in the
same jurisdiction are established.
e) Public subsidies
In the context of the legally-required disclosures, this was
interpreted as any aid or subsidy in line with the European
Commission’s Guidance on the notion of State aid. Grupo
Santander did not receive public subsidies in 2020.
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Annual report 2020
Contents
The breakdown of information is as follows :
Jurisdiction
Germany
Argentina
Austria
Bahamas
Belgium
2
Brazil
Canada
Chile
China
Colombia
3
Spain
United States
Denmark
Finland
France
Hong Kong
Ireland
Isle of Man
Italy
Jersey
Luxembourg
Mexico
Norway
Netherlands
Peru
Poland
Portugal
Puerto Rico
United Kingdom
Singapore
Sweden
Switzerland
Uruguay
Consolidated Group Total
Turnover (million of euros)
1,522
1,095
173
7
88
10,519
53
2,226
21
41
6,675
7,321
189
114
697
70
(10)
13
459
26
188
3,700
258
86
103
1,859
1,342
8
4,750
7
165
137
377
44,279
2020
Employees
4,519
8,938
344
32
177
42,947
189
11,105
66
240
35,109
15,657
238
172
952
158
3
58
872
70
16
21,177
528
280
212
13,632
6,769
610
22,987
13
277
251
1,532
190,130
Gross profit or loss before
1
tax (EUR million)
520
176
71
—
40
3,842
12
815
3
5
(10,158)
(1,068)
50
37
355
2
(25)
8
207
10
181
1,052
115
32
51
446
412
(28)
496
2
53
50
160
(2,076)
Tax on profit or loss (EUR
million)
161
104
16
2
6
764
1
365
—
4
342
(14)
11
6
40
3
1
1
91
1
30
189
49
53
16
267
175
—
204
—
21
7
30
2,946
1.
2.
3.
It includes the goodwill impairment losses of EUR 10,100 million recognized by Grupo Santander in 2020 (EUR 7,770 million recognized in Spain and EUR 2,330
million in the United States).
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 is EUR 612 million.
Includes the Corporate Centre.
At 31 December 2020, the group’s return on assets (ROA)
was 0.50%.
836
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Consolidated
annual accounts
Notes to the consolidated
annual accounts
Appendix
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CONSOLIDATED DIRECTORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
IN THE FORM REQUIRED UNDER SPANISH LAW.
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CONSOLIDATED DIRECTORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
IN THE FORM REQUIRED UNDER SPANISH LAW.
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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
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.
840
Shareholder and investor relations
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
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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