Transcription

31 October 2018Portugal9M'18 Earnings Presentation

DisclaimerBanco Santander, S.A. ("Santander") cautions that this presentation contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of1995. Forward-looking statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RORAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”,“estimate”, “future” and similar expressions. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our futurebusiness development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning thedevelopment of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but arenot limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3)competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflectedin the Annual Report on Form 20-F filed with the Securities and Exchange Commission of the United States of America (the “SEC”) –under “Key Information-Risk Factors”- and in the Documento de Registrode Acciones filed with the Spanish Securities Market Commission (the “CNMV”) –under “Factores de Riesgo”- could affect the future results of Santander and could result in other results deviating materiallyfrom those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.Forward-looking statements speak only as of the date of this presentation and are based on the knowledge, information available and views taken on such date; such knowledge, information and views maychange at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published bySantander. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on suchinformation as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the informationcontained in the presentation. No investment activity should be undertaken on the basis of the information contained in this presentation. In making this presentation available, Santander gives no advice andmakes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever.Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United Statesexcept pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or inducement toengage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period willnecessarily match or exceed those of any prior year. Nothing in this presentation should be construed as a profit forecast.The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicableaccounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries.In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this presentation includes certain alternative performance measures as defined in the Guidelines onAlternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415es) as well as Non-IFRS measures. The APMs and Non-IFRS Measures areperformance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and thereforehave neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the SantanderGroup but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines andcalculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. Please refer to thequarterly financial Report for further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the financial datapresented in the consolidated financial statements prepared under IFR, see Section 26 of the Documento de Registro de Acciones for Banco Santander filed with the CNMV on July 4, 2017 (available on theWeb page of the CNMV -www.cnmv.es- and at Banco Santander -www.santander.com) and Item 3A of the Annual Report on Form 20-F for the year ended December 31, 2016, filed with the U.S. Securitiesand Exchange Commission on March 31, 2017 (the “Form 20-F”). For a discussion of the accounting principles used in translation of foreign currency-denominated assets and liabilities to euros, see note 2(a)to our consolidated financial statements on Form 20-F and to our consolidated financial statements available on the CNMV’s website (www.cnmv.es) and on Banco Santander’s website (www.santander.com).2

Index1.Macroeconomic environment and financial system2.Strategy and business3.Results4.Appendix3

Macroeconomic environmentand financial system01

Macroeconomic environmentSustained growth dynamics with declining unemployment Fiscal Balance (% of GDP)Annual GDP Growth (real, %)2.82.21.91.81.5-0.9-1.020172018 (e)-0.5-0.32019 (e)2020 (e)-2.0201620172018 (e)2019 (e)2020 (e)2016Unemployment Rate (%, annual average)Annual inflation rate (%)11.11.71.48.91.66.91.26.35.30.6201620172018 (e)2019 (e)2020 (e)Source: Statistics Portugal, Ministry of Finance, Santander Portugal forecasts and estimates201620172018 (e)2019 (e)2020 (e)5

Macroeconomic environment based on improved competitiveness and deleveragingInvestment dynamics (total economy)Consumer 6.314.715.015.315.5Retail sales (YoY) -1.4Consumer 8Q3'1836.941.915.715.5Q1'18Q2'18Investment rate (%GDP)Savings rate (%GDP)Q1'17Q2'17Q3'17Q4'17Deleveraging dynamicsTradable sector 110499Exports (%GDP)28.217.716.911496942019 (e)2020 (e)Credit to households (%GDP)Imports (%GDP)Public debt (%GDP)2000-0920172018 (e)2019 (e)2020 (e)Source: Statistics Portugal, Ministry of Finance, Santander Portugal forecasts and estimates201620172018 (e)6

Financial system: Loan and deposit evolutionLoan growth is flatteningTotal loans (EUR bn)218.7216.6216.2215.7215.4 High indebtedness is the main constraint for the privatesector credit growthYoY(%)-1.9-1.4-1.0-1.7-2.7 Banks continue “cleaning” their balance sheets fromimpaired assetsSep-17Dec-17Mar-18Jun-18Aug-18Total deposits (EUR cated resources into Government retail debt andcorporates financed their investments with own funds0.7Sep-17Dec-17Mar-18 Deposits hovered around high levels, as householdsJun-18Aug-18Source: Statistics Portugal, Ministry of Finance, Santander Portugal forecasts and estimates7

Strategy andbusiness02

Our FranchiseSantander Totta is the first privately owned bank in Portugal, by loansSTRATEGIC PRIORITIESConclusion of the operational and technologicalintegration of Banco Popular PortugalKEY DATAContinue gaining profitable market shareYoY Var.Gross loans137,093-2.1%Deposits137,141 8.2%364 15.3%RoTE211.6%-11bpsEfficiency ratio47.5%-137bpsLoans’ market share318.3% 7bpsDeposits’ market share315.8% 77bpsLoyal customers4736 8.2%Digital customers4691 25.4%Branches667-5.4%6,910-0.8%Attributable profit1Continue transformation of the Bank to simplify it,bring it closer to customers and make it more efficient9M’18Improve efficiency and cost of creditEmployees(1)(2)(3)(4)EUR mnUnderlying RoTEAs of Aug/2018 (last available). Local criteria. YTD variationsThousands9

CustomersDynamic growth in the most valuable customer segmentsLoyal individuals (k)689644 7% The number of loyal customers continues to grow, underpinned bythe 1 2 3 strategy Sep-17Sep-18Loyal companies (k)4836 30% while the focus on corporates was reflected in the increase incustomers, aligned with strong market share in new loansSep-17Sep-18Digital customers (k) 25%691551 The number of digital customers continued to grow, as we increasethe digital functionalities available to household as well as corporatecustomers (CrediSimples, mutual funds, new corporate mobile app)Sep-17Sep-1810

StrategyRetail and digital servicesThe Bank sponsored theAgroglobal fair promotingseveral debates aimed atreflection on the agriculturalsector and closer proximity toits customers and partners400,000World 1 2 3 accounts276,000252,000InsuranceprotectionThe Bank sponsoredthe EuropeanInnovation Academy(EIA), promotingentrepreneurship inyoung peopleSantander Totta launched theSIM account, a simpler, moreeconomic and digital account,aimed at customers at thebeginning of their active life orwith lower incomeIn order to attract universitystudents, the Bank launchedthe enrollment campaignaimed at helping themthrough the entirebureaucratic processThe Bank made available theimmediate transfer servicewhich allows that in any banktransfer the funds becomeavailable in the recipient'saccount within 10 secondsIn October, Moody’supgraded BST LT debt anddeposits rating to Baa3/P-3and Baa2/P-2, respectivelySantander launched a campaign tohighlight its investment in corporatesocial responsibility with special focus onthree areas: social welfare, volunteeringand training. In the last 5 years, the Bankdedicated EUR 32.5 million to supportsociety in Portugal11

Total loans performanceLoans to individuals continued to increase, while total loans declined due toloan portfolio sales in the corporate sectorTotal loans (EUR bn)37.937.537.437.137.1Sep-18YoY (%)QoQ (%)21.7 1.3 0.619.3 1.6 0.51.6 3.3 0.6Corporates12.7-9.4-0.8Other(*)2.7 10.0-0.0Total37.1-2.1 0.1Loans to Corporates (**)17.2-5.4-0.7Total Loans (**)41.6-1.1 0.0Individualsfrom which:MortgageConsumer creditSep-17Dec-17Mar-18Jun-18Sep-18(*) Includes Government, Institutional and other sectors(**) includes commercial paper12

Total funding performanceTotal customer funds stable from the previous quarter, but increasing YTDTotal customer funds (EUR bn)42.743.243.445.345.3Sep-18YoY (%)QoQ (%)Demand14.7 10.5-1.0Time and Savings18.5 1.5 0.433.3 5.3-0.23.9 41.2 4.0Deposits & financial insurance37.1 8.2 0.2Securities placedInvestment funds and other4.3-10.4-0.53.8 7.0-2.345.3 6.0-0.1Total DepositsFinancial insuranceTotal Customer FundsSep-17Dec-17Mar-18Jun-18Sep-1813

Results03

Net interest incomeNII impacted by lower yield on loansNet interest income (EUR mn)218221222213Yield on loans 8Q3'18Cost of deposits (%)Q3'17Q4'17Q1'18Q2'18Q3'181NIM 0.18%0.15%Official interest rate 2 (%)0.000.00(1) Group criteria(2) Quarter averageQ3'17Q4'17Q1'18Q2'18Q3'1815

Fee incomeNet fee income grew slightly in the quarter due to the evolution of credit cards,insurance and mutual fundsNet fee income (EUR mn)93929891929M'189M'17YoY (%) QoQ (%)Credit6264-3.2-4.8Credit cards6662 6.3 2.3Mutual funds1815 23.2 0.8Insurance7470 5.3 3.2Other6056 7.1-0.5Total281268 4.8 0.2Note: “Other” includes BaPop commissionsQ3'17Q4'17Q1'18Q2'18Q3'1816

Gross incomeQuarterly evolution in gross income affected by the decrease in gains onfinancial transactionsGross income (EUR mn)3453303413463239M'189M'17Net interest income646566 14.2-1.1Net Fees281268 4.8 0.2Subtotal927834 11.2-0.7Gains/losses on financial transactions6374-14.6-84.1Other206 218.1 132.31,010914 10.5-6.9Gross incomeQ3'17Q4'17Q1'18Q2'18YoY (%) QoQ (%)Q3'1817

Operating expensesEfficiency continued to improve YoYOperating expenses (EUR mn)1661671589M'189M'17YoY (%) QoQ (%)Personnel costs and admin.expenses449418 7.5-4.8Depreciation andamortisation3129 6.2-2.9Total480447 7.4-4.747.5%48.9%6677056,9106,967165157Efficiency ratio(with amortisations)Number of branchesNumber of employeesQ3'17Q4'17Q1'18Q2'18Q3'1818

Net operating income after loan-loss provisions (LLP)The cost of credit remained lowLLP and cost of credit (EUR mn, %)370.10%Cost ofcredit0.04%0.08%0.03%11QoQ (%)Net Operating Income530467 13.4-8.9LLPs2022-10.8-510445 14.6-14.9NPL ratio7.4%8.4%NPL coverage ratio53.4%56.1%after LLPsNet LLP-10Q1'18YoY (%)Net Op. Income0Q4'179M'170.10%8Q3'179M'18Q2'18Q3'1819

Attributable profit9M’18 PBT boosted by improved efficiency and lower cost of creditUnderlying attributable profit (EUR mn)1271191149M'189M'17YoY (%) QoQ (%)Underlying profit before taxes492407 21.1 4.8Tax on profit14689 64.3-6.5Underlying consolidated profit346318 9.0 10.8Underlying attributable profit to the Group344316 8.9 10.9Net capital gains and provisions (*)200--100.0Attributable profit to the Group364316 3114Effective tax rateAttributable profit (EUR mn1)80119127(*) Provisions and restructuring costs associated with inorganic operations, net of tax impacts20

Concluding remarksImproving business and results in the context of sustained economic growthMarketEnvironment&FinancialSystem Economic activity continued to evolve at a positive pace, led by exports and investment. GDPis expected to grow around 2% in 2018 and 2019 The fiscal deficit narrowed to 0.7% of GDP in Q2'18, aligned with the annual target of 0.7% Loan dynamics continue to be affected by NPL management With the full integration of Banco Popular Portugal we will continue to focus on strengtheningStrategy&Businessour position in the SME market, particularly small businesses Digital transformation continues at a fast pace with constant deliveries helped byinvestment through new agile culture Sound capital and liquidity base Improving underlying profit, with better efficiency and low cost of creditResults Conclusion of Banco Popular integration (IT&OP integration concluded on 14 Oct.) Stabilisation of the loan book, considering the management of credit from Popular21

Appendix04

AppendixBalance sheetEUR million30-Sep-18 30-Sep-17Loans and advances to customersCash, central banks and credit institutionsDebt securitieso/w: designated at fair value through equityOther financial assetsOther assetsTotal assetsCustomer depositsCentral banks and credit institutionsDebt securities issuedOther financial liabilitiesOther liabilitiesTotal liabilitiesTotal equityOther managed and marketed customer fundsMutual fundsPension fundsManaged 64281587.03.22.534.323

AppendixIncome statementEUR million9M'18Net interest incomeNet feesGains (losses) on financial transactionsOther operating incomeGross incomeOperating expensesGeneral administrative expensesPersonnelOther general administrative expensesDepreciation and amortisationNet operating incomeNet loan-loss provisionsOther incomeUnderlying profit before taxesTax on profitUnderlying profit from continuing operationsNet profit from discontinued operationsUnderlying consolidated profitMinority interestsUnderlying attributable profit to the GroupNet capital gains and provisionsAttributable profit to the 020.38.9—15.324

AppendixIncome statementEUR millionQ1'17Net interest incomeNet feesGains (losses) on financial transactionsOther operating incomeGross incomeOperating expensesGeneral administrative expensesPersonnelOther general administrative expensesDepreciation and amortisationNet operating incomeNet loan-loss provisionsOther incomeUnderlying profit before taxesTax on profitUnderlying profit from continuing operationsNet profit from discontinued operationsUnderlying consolidated profitMinority interestsUnderlying attributable profit to the GroupNet capital gains and provisionsAttributable profit to the 114—11425

Thank you.Our purpose is to help peopleand business prosper.Our culture is based on believingthat everything we do should be:

9 Santander Totta is the first privately owned bank in Portugal, by loans Our Franchise STRATEGIC PRIORITIES KEY DATA 9M'18 YoY Var. Attributable profit1 364 15.3% RoTE2 11.6% -11bps Efficiency ratio 47.5% -137bps Loans' market share3 18.3% 7bps Deposits' market share3 15.8% 77bps Loyal customers4 736 8.2% Digital customers4 691 25.4%