Banco Santander, S.a. · BME:SAN
Banco Santander — Debt Investor Presentation (July 2020)
55 slides from Banco Santander's debt investor presentation, Jul 29, 2020
Slide 1: H1 2020 Fixed Income Investors Presentation
H1 2020 FIXED INCOME INVESTORS PRESENTATION Here to help you prosper
Slide 2: Important information
Important information Non-IFRS and alternative performance measures In addition to the financial information prepared in accordance with International Financial Reporting Standards (“IFRS”) and derived from our financial statements, this presentation contains certain financial measures that constitu
Slide 3: Important information
Important information Forward-looking statements speak only as of the date of this presentation and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or r
Slide 4: Index
Index 1 2 3 4 5 6 7 COVID-19 & H1 Santander Capital Asset Liquidity & Concluding Glossary summary Business Quality Funding Remarks Model & Strategy 4
Slide 5: Pre-COVID activity gradually returning as lockdowns lifted
COVID & H1 summary Following a sharp slowdown in Q1 and early Q2, pre-COVID activity gradually began to return as lockdowns were lifted in the latter part of the quarter… % Branches open Peak lockdown June 78% 26% Nearly full operational activity in our: 77% 99% Lockdown Branches: c. 90% Group’s bra
Slide 6: Signs of normalisation in new retail lending
COVID & H1 summary … which is reflected in signs of normalisation in new retail lending, particularly in Europe… New Mortgage lending1 New Consumer lending1 (daily average, constant EUR mn) (daily average, constant EUR mn) 223 336 340 20 195 302 313 16 16 161 49 274 46 15 52 54 14 73 100 112 115 13
Slide 7: Corporate lending and CIB volumes reduced from April peak
COVID & H1 summary … while corporate lending, which has been supported by government guarantees, and CIB volumes have reduced from their peak in April New SME and Corporates lending1 CIB change stock of loans (daily average, constant EUR mn) (L&A to customers excluding reverse repos, constant EUR bi
Slide 8: Top line resilient, profit impacted by COVID provisions
COVID & H1 summary In this challenging environment, top line growth remained resilient though profit was impacted by COVID-related provisions and accounting valuation adjustments % change Constant EUR mn H1'20 H1'19 Euros Euros Net interest income 16,202 17,636 -8 0 Net fee income 5,136 5,863 -12 -4
Slide 9: Detail of net capital gains and provisions
COVID & H1 summary Detail of net capital gains and provisions H1’19 H1’20 Capital gains Prisma (Argentina) +150 Goodwill impairment -10,100 Restructuring costs -704 • UK: -6,101 • Spain: -600 • US: -2,330 • UK: -92 • Poland: -1,192 • Poland: -12 • SCF (Nordics and others): -477 Property sales (Corpo
Slide 10: Credit quality remains robust
COVID & H1 summary Credit quality remains robust despite these circumstances, supported by mitigation measures and volume increases Loan-loss provisions Credit quality ratios EUR bn and YoY growth % Jun-19 Mar-20 Jun-20 +78% YoY Cost of credit 0.98% 1.17%1 1.26% NPL ratio 3.51% 3.25% 3.26% Coverage
Slide 11: Index
Index 1 2 3 4 5 6 7 COVID-19 & H1 Santander Capital Asset Liquidity & Concluding Glossary summary Business Quality Funding Remarks Model & Strategy 11
Slide 12: Our business model drives predictable and profitable growth
Santander Business Model & Strategy Our business model drives predictable and profitable growth 1 SCALE Local scale and global reach 2 CUSTOMER FOCUS Unique personal banking relationships strengthen customer loyalty 3 DIVERSIFICATION Our geographic and business diversification make us more resilient
Slide 13: In-market scale in core markets
Santander Business Model & Strategy We have in-market scale in our core markets, with customers distributed 1 across geographies with high growth potential Market shares Customers distributed across geographies Jun-20 10% Loans 1 Billion 8% Deposits Total Population 12% 18% Loans 3% Loans 15% 11% De
Slide 14: Increasing customer loyalty
Santander Business Model & Strategy Our focus on increasing customer loyalty via unique personal banking 2 relationships... Total customers Loyal customers Loyal / Active 146 mn (+3%) 21.5 mn (+4%) customers Individuals (mn) Companies (k) +4% +4% 29.9% 30.7% 144 145 146 146 19.7 1,741 1,804 142 18.9
Slide 15: Acceleration in digital adoption
Santander Business Model & Strategy … together with an acceleration in digital adoption… 39.9 mn (+15% YoY) Steady growth in our digital customers: +3.1 mn in H1’20 Digital customers1 vs. +2.0 mn in H2’19 Strong engagement and digital sales: 47% in Q2’20 +27% YoY +23% YoY (44% in H1’20 and 36% in 20
Slide 16: Doing business in a more responsible and sustainable way
Santander Business Model & Strategy …and doing business in a more responsible and sustainable way… 2 Culture Sustainability Engagement Women 86% of employees 40% Group Board >EUR 20 bn EUR 1 bn EUR 1 bn Leader mobilised in Green finance Santander first Santander second proud to work for Santander (+
Slide 17: Operational excellence, resilient top line and cost savings
Santander Business Model & Strategy … improves operational excellence by helping to deliver resilient top line 2 performance and increased cost savings Resilient revenue despite COVID crisis… …with one of the best cost-to-income among peers1 Total income, constant EUR mn Cost-to-income, Peer data Q1
Slide 18: Geographic and business diversification
Santander Business Model & Strategy Our geographic and business diversification, coupled with our 3 subsidiaries model… Loan portfolio by country Loan portfolio by business Breakdown of total gross loans excluding reverse repos, % of operating areas ex. SGP Breakdown of total gross loans excluding r
Slide 19: Strong balance sheet growth
Santander Business Model & Strategy … with strong balance sheet growth… 3 Loans and advances to customers in core markets Customer funds in core markets EUR bn and YoY growth %, Jun-20 YoY EUR bn and YoY growth %, Jun-20 YoY 204 1% 312 -2% 238 4% 213 5% Europe 102 3% Europe 38 3% 38 4% 43 3% 30 4% 3
Slide 20: Group net operating income growth
Santander Business Model & Strategy … support Group net operating income growth … Underlying Net operating income attributable profit Contribution to Group’s H1’20 (vs. H1’19) (EUR mn) (EUR mn) Underlying profit 4,314 1,075 Europe 35% -10% -54% North 3,301 617 20% America +2% -29% South 5,093 1,383
Slide 21: Resilient throughout the cycle
Santander Business Model & Strategy … which is resilient throughout the cycle 3 Resilient profit generation throughout the cycle PPP/Loans well above most European peers1 Group pre-provision profit, EUR bn %, Peers Mar-20, Santander data Jun-20 Peer 1 3.4 2.8 26.2 25.5 25.6 23.9 24.4 23.6 23.7 23.0
Slide 22: Long-term stable and predictable growth
Santander Business Model & Strategy Moreover, our results show long-term stable and predictable growth 3 Predictable results with the lowest volatility among peers coupled with growth in earnings Quarterly reported EPS volatility1, 1999-Q1’20 679% 336% 120% 106% 85% 77% 67% 43% 41% 35% 9% US IT CH C
Slide 23: Medium-term strategy based on three pillars
Santander Business Model & Strategy The Group’s medium-term strategy is based on three main pillars to drive profitable growth in a responsible way Improve Optimise Accelerate operating capital digitalisation through performance allocation Santander Global Platform Continue building a more Responsib
Slide 24: Improving operational performance
Santander Business Model & Strategy Improving operational performance: Further leveraging our diversification and scale and adding value via our global businesses and shared capabilities Accelerating growth Global capabilities to enhance operating with sustainable profitability efficiency across the
Slide 25: Continuing to improve capital allocation
Santander Business Model & Strategy Continuing to improve capital allocation: Ongoing capital allocation optimisation to improve profitability Rebalancing to Improved Active management more profitable pricing, and senior team regions and processes and alignment businesses governance Strong profitabi
Slide 26: Accelerating digitalisation
Santander Business Model & Strategy Accelerating Digitalisation: Best-in-class Global payments and digital banking solutions for SMEs and Individuals Enhance our competitive position in E-commerce (Getnet reached a market share of around 22% in Brazil) Global Merchant Further additional functionalit
Slide 27: Index
Index 1 2 3 4 5 6 7 COVID-19 & H1 Santander Capital Asset Liquidity & Concluding Glossary summary Business Quality Funding Remarks Model & Strategy 27
Slide 28: Capital levels exceed minimum regulatory requirements
Capital Santander’s capital levels, both phased-in and fully loaded, exceed minimum regulatory requirements SREP capital requirements and MDA Assumed capital requirements (fully loaded) Jun-20 Jun-20 15.48% 15.46% >15% 13.02% +246 bps 2.00% T2 13.02% +244 bps 2.08% 2.00% T2 1.64% AT1 1.54% T2 2.38%
Slide 29: Solid capital ratios: CET1 at top end of target
Capital We have solid capital ratios: CET1 in Q2 at the top end of our 11-12% target after strong organic capital generation in the quarter CET1 ratio % H1'19 H1'20 Diff. CET1 ratio 11.30% 11.84% 54 bps FL Total capital ratio 14.80% 15.46% 66 bps FL Leverage ratio 4.97% 4.78% -19 bps (1) Accrual of
Slide 30: Strong fundamentals for AT1 bond holders
Capital Strong fundamentals for AT1 bond holders Distance to trigger1 Santander Group’s CET1 levels are well above the minimum loss absorption trigger of 5.125%: EUR 38 bn The first line of defense is the Group’s strong pre-provision profitability providing a high capacity to absorb provisions d
Slide 31: AT1 issuances distributed by call date
Capital AT1 issuances distributed by call date AT1 issuances outstanding at Jun-20 Nominal Reset EUR mn Currency EUR Coupon Structure Next call date Spread Banco Santander S.A. EUR 1,500 6.25% PNC7 11-Sep-21 564 bps Banco Santander S.A. EUR 750 6.75% PNC5 25-Apr-22 680.3 bps Banco Santander S.A. EUR
Slide 32: FX hedging policy on capital ratio and P&L
Capital FX hedging policy on capital ratio and P&L… Stable capital ratio hedge Our P&L Policy Hedged Exposure Group CET1 11.84%1 Strategic management of the exposure to exchange rates on equity and dynamic on the countervalue of the units’ annual results in euros Mitigate impact of FX volatility
Slide 33: Interest rate risk hedging
Capital … and interest rate risk hedging Mostly positive interest rate sensitivity ALCO portfolios reflect our geographic diversification Net interest income sensitivity to a +/-100 bp parallel shift Distribution of ALCO portfolios by country EUR mn, May-20 %, Jun-20 Argentina; +100 bps -100 bps 3%
Slide 34: Index
Index 1 2 3 4 5 6 7 COVID-19 & H1 Santander Capital Asset Liquidity & Concluding Glossary summary Business Quality Funding Remarks Model & Strategy 34
Slide 35: Cost of credit estimation and credit quality
Asset Quality Cost of credit estimation of 140-150 bps at year-end reiterated. Credit quality supported by volume increases and mitigation measures Credit quality ratios NPL ratios by country % % Q2 2019 Q2 2020 Spain 7.02 6.55 4.08% 3.93% SCF 2.24 2.52 UK 1.13 1.08 3.73% 3.62% Poland 4.21 4.57 NPL
Slide 36: Supporting customers via moratoria
Asset Quality Santander is supporting customers’ financial challenges, in many cases via moratoria, of which c. 80% are to individuals (c. 90% of which secured) # clients Total amount (mn) o/w government % lending 30 Jun 20 o/w government programmes portfolio programmes (EUR bn) c. 60% are residen
Slide 37: Index
Index 1 2 3 4 5 6 7 COVID-19 & H1 Santander Capital Asset Liquidity & Concluding Glossary summary Business Quality Funding Remarks Model & Strategy 37
Slide 38: Autonomous subsidiaries model
Liquidity and Funding The Group’s business model combines local knowledge with global best practices through legally, financially and operationally autonomous subsidiaries… Legal autonomy structure Dec-19 Santander S.A. Santander Consumer Santander Finance1 Holdings USA Banco Santander UK Group Sant
Slide 39: Resolution groups and multiple entry points
Liquidity and Funding … divided into different resolution groups that can be resolved separately though multiple entry points MPE resolution strategy Dec-19, EUR bn Banking Union European Union 3rd Countries Spain1 Poland Brazil Mexico Resolution Group PE PE PE PE PE Point of Entry Portugal UK Chile
Slide 40: Autonomous capital and liquidity model
Liquidity and Funding Santander follows an autonomous capital and liquidity model Capital ratios by country Mar-20, %, local figures (phased-in) US UK 16.66 15.25 21.12 17.76 14.25 14.40 Portugal 19.58 Brazil 19.18 Poland 13.81 15.95 16.79 Mexico 12.61 14.91 16.23 11.40 12.50 Santander 14.91 S.A. 11
Slide 41: Liquidity management principles
Liquidity and Funding Santander’s liquidity management is based on the following principles Decentralised liquidity model Needs derived from medium- and long-term activity must be financed by medium- and long-term instruments High contribution from customer deposits, due to the retail nature o
Slide 42: Stock of issuances across instruments and entities
Liquidity and Funding Stock of issuances shows diversification across instruments and entities Debt outstanding by type Debt outstanding by issuer entity EUR bn and %, Jun-20 EUR bn and %, Jun-20 Preference shares; Other; Sub debt; 9.2; 5% US; 8.6; 5% 7.8; 4% 12.4; 7% Brazil; 3.1; 2% Chile; 9.3; 5%
Slide 43: Conservative and decentralised funding model
Liquidity and Funding Conservative and decentralised liquidity and funding model EUR 26 bn1 issued in public markets in H1’20 Very manageable maturity profile EUR bn, Jun-20 EUR bn, Jun-20 12.3 49.6 1.5 San S.A. 1.6 3.3 9.1 7.9 7.4 7.0 5.6 SCF 4.4 5.9 2.5 3.9 3.1 2.2 0.8 3.6 3.4 3.5 0.5 12.2 14.5 2.
Slide 44: Issuances YTD against funding plan
Liquidity and Funding Issuances YTD against funding plan 2020 Funding plan and issuances EUR bn, Jun-20 Covered Bonds + Senior Senior Non-Preferred Hybrids TOTAL Plan Issued Plan Issued Plan Issued Plan Issued Santander S.A 4-5 3.0 7-8 7.0 1-2 1.5 1 12-15 11.5 SCF 6-8 3.6 - 0.0 - 0.0 6-8 3.6 UK 6-8
Slide 45: Santander S.A. MREL requirement
Liquidity and Funding Santander S.A. MREL requirement1 22.90% 28.60% 16.81% 24.35% 19.53% 11.48% €114bn €109bn €74bn 2018 Total 2019 Total 2019 2018 Total 2019 Total 2019 MREL MREL Subordination MREL MREL Subordination Requirement Requirement Requirement 2 Requirement Requirement Requirement 2 % Tot
Slide 46: TLAC ratios for the Resolution Group
Liquidity and Funding TLAC ratios for the Resolution Group headed by Banco Santander, S.A. TLAC Ratio EUR mn Dec-19 Mar-20 Own Funds 91,294 91,550 • The TLAC ratio as at 31-Mar-20 increased by 75 bps to of which: Common Equity Tier 1 (CET1) capital 75,683 75,821 19.71%1 (compared to an expected year
Slide 47: Well-funded, highly liquid balance sheet
Liquidity and Funding Well-funded, diversified, prudent and highly liquid balance sheet (large % contribution from customer deposits), actively reinforcing already strong LCR ratios following COVID -19 crisis Liquidity Balance Sheet EUR bn, Jun-20 1,234 1,234 Liquidity Coverage Net Stable Funding Ra
Slide 48: Key liquidity metrics
Liquidity and Funding The main metrics show the strength and stability of the Group’s liquidity position Evolution of key liquidity metrics1 LTD and MLT funding metrics by geography Jun-20 (Deposits + M/LT funding) 2016 2017 2018 2019 Jun-20 LTD Ratio / Loans 2 2 Loans / net assets 75% 75% 76% 77% 7
Slide 49: Banco Santander S.A. ratings
Liquidity and Funding Banco Santander S.A. ratings Moody's S&P Fitch Direction Date last Direction Direction Date last Rating Rating Date last change Rating last change last change last change change change Covered Bonds Aa1 03/12/2019 ↑ - - - AA 04/12/2019 ↑ Senior Debt (P)A2 17/04/2018 ↑ A 06/04/2
Slide 50: Parent and subsidiaries senior debt ratings
Liquidity and Funding Santander Parent & Subsidiaries’ Senior Debt Ratings Moody's S&P Fitch Direction Date last Direction Date last Date last Direction Rating Outlook Rating last Outlook Rating Outlook change last change change change last change change Group (P)A2 17/04/2018 ↑ STABLE A 06/04/2018
Slide 51: Index
Index 1 2 3 4 5 6 7 COVID-19 & H1 Santander Capital Asset Liquidity & Concluding Glossary summary Business Quality Funding Remarks Model & Strategy 51
Slide 52: Concluding Remarks
Concluding Remarks Concluding Remarks The Group’s stable capital generation has been supported by strong pre-provision profits providing Santander with a high capacity to absorb provisions Strong capital levels in line with Santander’s business model based on geographic diversification, solid ma
Slide 53: Index
Index 1 2 3 4 5 6 7 COVID-19 & H1 Santander Capital Asset Liquidity & Concluding Glossary summary Business Quality Funding Remarks Model & Strategy 53
Slide 54: Glossary and Acronyms
Glossary Glossary and Acronyms ADIs: Available distributable items mn: Million bn: Billion MPE: Multiple Point of Entry bps: Basis points MREL: Minimum Required Eligible Liabilities BTL: Buy-to-Let NII: Net interest income CCoB: Capital Conservation Buffer NPL: Non-performing loans CCyB: Countercycl
Slide 55: Thank You.
Thank You. Our purpose is to help people and businesses prosper. Our culture is based on believing that everything we do should be:
Banco Santander — Debt Investor Presentation (July 2020) on 6ix