BANCO SANTANDER S.A. MORTGAGE COVERED BONDS … · Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements. These forward-looking statements

4Q’17

BANCO SANTANDER S.A.MORTGAGE COVERED BONDSINVESTOR PRESENTATION

(“Cédulas Hipotecarias”)

22

Important information

Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements. These forward-looking statements are found in

various places throughout this presentation and include, without limitation, statements concerning our future business development and economic

performance. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a

number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These

factors include, but are not limited to: (1) general market, macro-economic, 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. The risk factors that we have indicated in our past and future filings

and reports, including those with the Securities and Exchange Commission of the United States of America (the “SEC”) could adversely affect our

business and financial performance. 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 on which they are made and are based on the knowledge, information available and views taken

on the date on which they are made; such knowledge, information and views may change at any time. Santander does not undertake any obligation to

update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where

relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such

person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public

information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the

information contained in the presentation. In making this presentation available, Santander gives no advice and makes no recommendation to buy, sell

or otherwise deal in shares in Santander or in any other securities or investments whatsoever.

Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No

offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an

exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the

purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 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 will necessarily match or exceed those of any prior year. Nothing in this presentation should be construed as

a profit forecast.

Content

Spanish macroeconomic environment

Santander Group

Santander Spain – Main figures

Mortgage Covered Bonds (Banco Santander S.A.)

Appendix

44

Macroeconomic environment

3.4 3.3 3.1 2.7 2.4

2015 2016 2017 (e) 2018 (e) 2019 (e)

Annual GDP Growth (%, real)

Unemployment rate (%)Inflation (annual change, %)

Interest rate (official rate, %)

0.05 0.00 0.00 0.00

0.50

2015 2016 2017 2018 (e) 2019 (e)

-0.5-0.2

2.01.7 1.7

2015 2016 2017 2018 (e) 2019 (e)

22.119.6

17.215.2 13.9

2015 2016 2017 2018 (e) 2019 (e)

The expansionary cycle in the Spanish economy is expected to continue in the coming years, with

interest rates rises not anticipated before 2019…

Source: Santander Research Department

55

Macroeconomic environment

…backed by the adjustments and the structural reforms undertaken

Source: Santander Research Department

Annual GDP Growth (%, real)

-1.7

1.4

3.4 3.3 3.1

-0.2

1.42.0 1.8

2.4

2013 2014 2015 2016 2017 (e)

Spain

Eurozone

Contribution to GDP growth(% YoY)

-4

-2

0

2

4

6

2013 2014 2015 2016 2017 (e) 2018 (e)

Net external demand Domestic demand GDP y-o-y data

Investment (exc. Construction)(% GDP)

10.0 9.7

8.28.7 9.0 8.9 9.0 9.4

9.9 10.0 10.2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3Q17

Housing: sales and permits(thousands of units)

30

40

50

60

70

80

90

100

250

300

350

400

450

500

550

2010 2011 2012 2013 2014 2015 2016 3Q'17

New building permits

Sales

66

Source: ECB and Bank of Spain. Other Monetary Financial Institutions.

Total banking system volumes

Loans to customers Savings

Loans to Households & Non Financial entities are decreasing at a slower pace than 2016

In savings, the flow from deposits to mutual funds continues

958 989 999

414 380 318

77 54 7088 94 80

1,537 1,517 1,467

Dec'15 Dec'16 Nov'17

Mutual

Funds 220 235 261

Public sector

in Spain

Non-monetary financial

institutions EMU

Other non-resident

sectors in Spain

Households & non-financial

entities in Spain

EUR billion EUR billionYTD

-1.1%

-1.3%

YTD

+10.7%

-3.3%

+1.0%

1,232 1,196 1,181

5561 64

90 88 79

78 65 70

1,4551,410

1,394

Dec'15 Dec'16 Nov'17

77

Spanish NPL ratios in a downward trend and in line with EU average

4.84.2

0

4

8

12

IT IE HU PL ES EU AT FR BE DK NL DE NO GB FI SE

European Banks

Total NPL ratio by country (%)

Spain

Mortgage NPL ratios (%)

Source: Bank of Spain (Sep-17) and EBA Risk Dashboard (Sep-17)

MACROECONOMIC ENVIRONMENT – CREDIT QUALITY

0

1

2

3

4

5

6

7

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

88

50

60

70

80

90

100

110

4Q01 4Q03 4Q05 4Q07 4Q09 4Q11 4Q13 4Q15

2010 2011 2012 2013 2014 2015 2016 2017*

92 7844 34 35 50 64 80

Housing starts (thousand units)

2010 2011 2012 2013 2014 2015 2016 2017*

491

349 364301

366 402458

517Finished houses:

2013: 442014: 312015: 302016: 26

Nov’17*: 36 (thousands)

Source: Ministry of Development and General Council of Notaries

Nov’17/Nov’16: +24%

Total housing sales (thousand units)

Source: Ministry of Development

3Q’17: 65

Base 100: 3Q’07 “peak”

100

Source: Ministry of Development and Bank of Spain (appraisal methodology)

3Q’17 / 3Q’16:+1%

(real terms)

Housing: Prices(price index per m2 in real terms)

* Accumulated 12 months

At an advanced stage: adjustment ended in flows and prices, started in stocks

MACROECONOMIC ENVIRONMENT - SPANISH HOUSING MARKET ADJUSTMENT

Housing: Prices (Spanish regions)

Price increases

Price decreases

Source: Ministry of Development

3Q'17 vs Minimum

Content


Santander Group



Appendix

1010

FY’17 FINANCIAL HIGHLIGHTS – Group including Popular2017 YoY change

Committed to generating value

for shareholders

Improved capital adequacy and

profitability

EPS €0.404; +1%

Cash DPS €0.19; +11%

FL CET1 10.84%

Underlying RoTE 11.8%

Attributable profit

€7,516 mill.; +14%(constant euros)

€6,619 mill.; +7%Strong and high quality profit growth

Underlying att. profit

Improved profitability and earnings per share together with a higher capital ratio

1111

Digital

Mobile

Individuals

Companies

+4.5 mill. +21%

+5.2 mill. +50%

+1.9 mill. +14%

+138k +10%

Loyal customers: 17.3 million

− 15.8 million individuals and 1.5 million companies

Digital customers: 25.4 million

− Of which 15.6 million mobile

NPL ratio 3.38%; -55 bps

Cost of credit 1.12%; -6 bps

Loans1 +2%

Customer funds1 +8%

More loyal and digital customers, thanks to enhanced customer experience,

drive growth in NII, fee income, volumes and credit quality

NII1

€11,308 mill.; +11%

€33,293 mill.; +7%

Fee income1

(1) % change in constant euros

FY’17 FINANCIAL HIGHLIGHTS – Group excluding Popular2017 YoY change

1212

2,582 2,6082,836 2,913

7,6327,969

8,342 8,458

Excellent P&L quality and strong top-line growth...

Net interest income 34,296 10 10

Net fees 11,597 14 13

Customer revenues 45,892 11 11

Other income 2,499 -3 -2

Gross income 48,392 10 10

Operating expenses -22,918 9 9

Net operating income 25,473 12 11

Net loan-loss provisions -9,111 -4 -6

Underlying PBT 13,550 20 21

Underlying attrib. profit 7,516 14 14

Net capital gains and provisions -897 115 117

Attributable Profit 6,619 7 7

€Mn Constant

eurosEuros

2017 % vs. 2016

1,6381,523

1,679 1,734 1,790 1,711

2,022 1,993

1,700

1,8541,909

1Q'16 2Q 3Q 4Q 1Q'17 2Q 3Q 4Q

635 535 519 560

1Q'16 2Q 3Q 4Q 1Q'17 2Q 3Q 4Q

NII

Fees

Other

Incl. Pop

Excl. Pop

Quarterly gross income performance excluding Popular(constant €Mn)

Underlying attributable profit(constant €Mn)

Note: Contribution to the SRF (net of tax) recorded in 2Q’16 and 2Q’17. Contribution to the DGF (net of tax) in 4Q’16 and 4Q’17.

1313

Individuals demand deposits, 38%

Individuals time deposits, 13%

Individuals mutual funds, 14%Consumer, 4%

SMEs, 9%

Corporates, 13%

GCB, 9%

Mature markets

Customer funds: growth in 8 core units

Dec’17 €Bn YoY change

Other individuals, 11%

Home mortgages, 36%

Consumer, 18%

SMEs, 9%

Corporates, 15%

GCB, 11%

Loan portfolio

by businessesCustomer funds

by businesses

Spain 149 -2%

UK 236 1%

USA 75 -4%

SCF 92 6%

Portugal 31 8%


Developing markets

Poland 23 5%

Brazil 74 7%

Mexico 27 5%

Chile 38 3%

Argentina 8 44%

Mature markets


Spain 251 12%

UK 210 3%

USA 59 -9%

SCF 35 2%

Portugal 32 2%


Developing markets

Poland 28 2%

Brazil 107 24%

Mexico 36 6%

Chile 33 0%

Argentina 13 53%

Note: Loans excluding repos. Customer funds: deposits excluding repos + marketed mutual funds. % change in constant euros

2017 BALANCE SHEET – Volumes’ performance excluding Popular

Loan portfolio: growth supported by developing markets

…and highly diversified balance sheet, by geography and product

1414

Credit quality ratios NPL ratios by country

Cost of credit ratios by country

%,

Coverage ratio

73 74

71

65

NPL ratio

including Popular

11%

Coverage ratio

NPL ratio

2017Banco Popular

49%

Cost of credit

4.36

3.93

3.38

4.08

2015 2016 2017

1.251.18

1.121.07

2015 2016 2017

%

%

All asset quality ratios improved with cost of credit achieving the Investor Day goals

Dec 16 Dec 17

Spain 5.41 4.72SCF 2.68 2.50Poland 5.42 4.57Portugal 8.81 5.71United Kingdom 1.41 1.33Brazil 5.90 5.29Mexico 2.76 2.69Chile 5.05 4.96Argentina 1.49 2.50USA 2.28 2.79

Dec 16 Dec 17

Spain 0.37 0.33SCF 0.47 0.30Poland 0.70 0.62Portugal 0.18 (0.04)United Kingdom 0.02 0.08Brazil 4.89 4.36Mexico 2.86 3.08Chile 1.43 1.21Argentina 1.72 1.85USA 3.68 3.42

1515

3.03% 3.28% 3.26% 3.25% 3.06%2.76%

3.04% 2.90% 2.83%2.97%

1.02% 1.36% 1.40% 1.65%2.44%

1.69% 1.43% 1.25% 1.18% 1.07%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Profit generation supported by high capacity to absorb provisions

Predictable results with the lowest volatility amongst peers coupled with growth in earnings

Cost of credit

Pre-provision profit / loans

Profitability drivers

Note: 2017 figures include Popular

(1) Source: Bloomberg, with GAAP Criteria. Note: Standard deviation of the quarterly EPS starting from the first available data since Jan’99.

High and recurring pre-provision profit leads to predictable growth

4x6x1x2x3x2x5x1x-1x-9x1x

711% 358%

128%113%92%

78%52% 46%

9%

44% 32%

Quarterly reported EPS volatility1

Net income increase 1999-2016

EPS volatility calculated using quarterly date from Jan’99-Sep’17

1616

€ billion, Dec’17

185

21

96

132

849

154

45

778

Assets Liabilities

ST Funding

Securitisations

Equity and other

Net loans to

customers

Financial assets

Fixed assets & other

Deposits

M/LT Funding

Group

133% 126% 130%120%

Liquidity Coverage Ratio (LCR)

1

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

Liquidity Balance Sheet1

Well-funded, prudent and highly liquid balance sheet

Additionally, the Group, as well as all its main units have Net Stable Funding ratio

(NSFR) above 100%

1717

Debt outstanding by type(EUR MM; as of 31 December 2017)

Debt outstanding by issuer entity(%; as of 31 December 2017)

44,313 10,365

62,877

23,085

12,049

1,272

31%

33%

10%4%6%

5%

7%

4% Parent Co.

UK

Brazil SCF

Chile

US

Diversified funding strategy

Others

SANTANDER GROUP– FUNDING STRATEGY

Senior

40%

Subord

8%

Mortgage

Covered Bonds

29%

Preferred

7%

Senior

TLAC

15%

Others

1%

All figures including Popular

Popular

Content


Santander Group



Appendix

1919

Our Franchise in SPAIN – excl. Popular

The financial group includes retail networks, global businesses and specialised entities

(1) Million euros; (2) Underlying ROTE; (3) Other non-resident sector in Spain as of Nov 2017 (lastest available) excluding Popular. Including Popular: Market share Loans 18.3% and Deposits 18.9%.(4) Millions.

KEY DATA 2017 Var. YoY2017 STRATEGIC PRIORITIES

Predictable, sustainable and profitable growth

Bank of choice for SMEs and corporates

Improve efficiency and customer experience

Best bank to work for

Gross loans1 148,585

Customer funds1 251,196

Attributable profit1 1,180

ROTE2 10.11% +122 bp

Efficiency ratio 57.2% -154 bp

Loans’ market share3 12.9 +20 bp

Deposits’ market share3 14.1 +136 bp

Loyal customers4 1.9

Digital customers4 3.2

Branches 2,843

Employees 22,916

+42%

+15%

-2%

-0%

-2%

+12%

+46%

20

NII 686 -5.5 2,909 -5.5

Fee income 562 10.3 2,067 16.1

Gross income 1,368 -4.7 5,694 1.5

Operating expenses -841 3.2 -3,259 -1.1

LLPs -110 5.8 -513 -12.3

PBT 395 -14.3 1,714 17.5

Underlying att. profit 265 -14.8 1,180 15.4

Non-recurring2 0 — 0 -100.0

Attributable profit 265 -14.8 1,180 46.4

2.10% 2.04% 2.04% 1.96% 1.96%

0.47% 0.46% 0.46% 0.46% 0.48%

4Q'16 1Q'17 2Q 3Q 4Q

SPAIN – excl. Popular

Loyal customers (million) 1.3 1.9

Digital customers (million) 2.7 3.2

NPL ratio (%) 5.41 4.72

Cost of credit (%) 0.37 0.33

Efficiency ratio (%) 58.8 57.2

RoTE (%) 8.9 10.1

ACTIVITY

Cost of deposits

Yield on loans

Volumes in €Bn

Note: Loans excluding repos. Funds: deposits excluding repos + marketed mutual funds. Underlying RoTE in 2016

(1) €Mn

(2) 2016 profit included -€216Mn related to capital gains from the disposal of the stake in VISA Europe

and restructuring costs

P&L1 4Q'17 %3Q'17 2017 %2016KEY DATA 2016 2017

Building lasting relations with customers and ongoing digital transformation

Market share gain in mortgages and corporates. Leaders in mobile payments and GCB

Profit backed by fee income (more than offsets pressure on NII), cost control and LLPs. NII + Fee income:+2.4%

QoQ impacted by DGF and higher costs (POS integration perimeter and hardware depreciation)

149

251

Loans Funds

-2%YoY

+12%YoY

0%QoQ

+5%QoQ

21

41.1

11.7

5.7

29.4

6.0

Gross value

Jun’17

Blackstone

transaction

and other

Gross value

Dec’17

Provisions Net value

Dec’17

Real estate exposure1

(1) Santander Real estate Activity in Spain and Banco Popular

€Bn

Net value€Bn

Dec’17

Real estate assets 4.7

Foreclosed assets 3.5

Rental assets 1.2

RE non-performing loans (NPLs) 1.0

RE assets + RE non-performing loans 5.7

Accelerating the reduction of real estate exposure in Spain

Content


Santander Group



Appendix

Note: All figures excluding Popular

2323

The Mortgage Covered Bonds are direct obligations of Banco Santander S.A.

collateralised by its mortgage portfolio

Banco Santander S.A. mortgage portfolio is a low risk profile business, focused on residential and first

home financing…

…well diversified by geography and maturity and an adequate LTV

Santander mortgage covered bonds (CH) show a high overcollateralisation level…

…and have a three notches of rating uplift (i.e. Aa2 by Moody’s) compared to

Santander LT senior unsecured (A3 by Moody’s).

Santander is a relevant player in the Spanish mortgage business (Parent bank market

share ~10%), a key commercial product in our customer-focused business model

Note.- Banco Santander S.A. total mortgage portfolio: EUR 70,875 mill.

…CH represent ~29% of total funding at Santander Group. Santander is one of the top issuers in Spain

MORTGAGE COVERED BONDS (BANCO SANTANDER S.A.) - MAIN FIGURES

2424

13,442

8,528

21,970

Mortgage covered bonds description

53,173

Total cover pool

December 2017

December 2017

EUR million

Collateral description(cover pool - 100% mortgage loans)

(1) Only over mortgage covered bonds (CH) in markets. Considering 100% CH, 242% (Dec'17)(2) Eligible cover pool (Dec'17): EUR 37,416 mill.

Retained

In the market

Average loan size (€ thousand) 99.7

Number of loans (thousand) 533.4

Loan seasoning (year) 6.8

Remaining loan maturity (year) 14.3

Average cover pool LTV (%) 64

Eligible pool LTV (%) 46

Eligible portfolio NPL ratio (%) 2.6

Interest rate type 10% fixed; 90% FRN

1 2

EUR million

Maximum issuance capacity: EUR 29,933 mill.

(80% eligible cover pool portfolio(2))

Collateralisation rate(1)

Outstanding

396%

MORTGAGE COVERED BONDS (BANCO SANTANDER S.A.) - MAIN FIGURES

2525

Cover pool portfolio: EUR 53.2 billion

74%

21%

5%

66%

29%

5%

(1) Developer mortgage product. (2) Estimate from mortgages to individuals. (3) Finished and under construction buildings with residential purposes

Households

Other

business

activities

Residential3

Other

December 2017

GuaranteesSegments

Developer

activities1Land

Second

home2

97%

3%

First home2

Low risk portfolio focused on residential and first home financing...

MORTGAGE COVERED BONDS - 1) COLLATERAL DESCRIPTION (1/5)

2626

Madrid 29.7

Cataluña 17.7

Andalucia 15.2

Comunidad Valenciana 7.1

Canarias 5.2

Pais Vasco 4.0

Castilla y Leon 3.5

Castilla La Mancha 2.7

Galicia 2.7

Baleares 2.6

Aragón 2.5

Cantabria 1.9

Murcia 1.5

Extremadura 1.4

Asturias 1.3

Navarra 0.6

La Rioja 0.4

Total 100.0

Madrid

Cataluña

Castilla y León

País Vasco

Aragón, Nav., La Rioja

Cantabria, Asturias

Baleares

Galicia

ComunidadValenciana

Andalucía

Canarias

Castilla-LM, Extremadura

Murcia

Regions with unemployment rates < Spain’s average

Regions with unemployment rates > Spain’s average

67%

33%

December 2017Regions

% Back-book

... concentrated in urban areas, with lower unemployment rates …


2727

37%

37%

22%

4%

< 10 years

10-20years

20-30years

> 30 years

Distribution by maturity1 Maturity profile2,3

December 2017 EUR million

(1) Bucket “< 10 years” includes lines of credit and past due and non-performing loans undergoing legal proceedings (2) Excluding lines of credit and past due and non-performing loans undergoing legal

proceedings (3) See annex for detailed data

0

500

1,000

1,500

2,000

2,500

3,000

3,500

210020552047203920312023 Average remaining loan maturity: 14.3 years

Average loan seasoning: 6.8 years2017

… well distributed by maturity…


2828

December 2017

Cover pool portfolio

(1) Total cover pool portfolio excluding high LTV loans (residential >80% and commercial >60%, without additional guarantees); loans w/o appraised value and non-euro loans; 100% developer loans; and others

Eligible portfolio1

December 2017

0

25

50

75

100

0-20% 20-40% 40-60% 60-80% >80%

1229

3722

Outstanding by LTVinterval (%)

... and with an adequate loan to value

11

34

63

85

100

Cumulative (%)

12

41

78

100 100

Cumulative (%)

64% = LTV

(weighted average)

46% = LTV

(weighted average)


0

25

50

75

100

0-20% 20-40% 40-60% 60-80% >80%

1123 29 22 15

Outstanding by LTVinterval (%)

2929

EUR million


Maturity profile

2017 35.8 2034 2,309.1 2051 192.7

2018 964.3 2035 2,174.2 2052 310.3

2019 667.5 2036 1,931.6 2053 93.5

2020 914.8 2037 2,050.7 2054 143.8

2021 1,662.5 2038 1,038.0 2055 176.3

2022 1,645.3 2039 1,068.1 2056 151.3

2023 1,729.6 2040 1,017.9 2057 210.2

2024 2,104.4 2041 843.0 2058 3.0

2025 1,823.6 2042 1,306.4 2059 5.0

2026 1,960.6 2043 435.7 2060 0.2

2027 2,368.6 2044 876.8 2061 0.3

2028 1,892.6 2045 1,184.5 2080 0.3

2029 2,016.0 2046 1,497.0 2100 0.1

2030 1,709.4 2047 2,246.8 TOTAL 49,232.5

2031 1,732.5 2048 223.0 Matured 3,940.8

2032 2,197.5 2049 225.0

2033 1,901.3 2050 191.8

3030

% over total outstanding, December 2017

Distribution by maturity Maturity profile

December 2017

100% issued in euros Average maturity: 5.2 years

2018 2019 2020 2021 >2020

2,500

200

1,250

6,250

11,770

Retained

In the market

Average maturity ~5y due to low issuing activity in recent years

MORTGAGE COVERED BONDS - 2) DESCRIPTION

18%

28%

54%

< 2021

2018-2020

2021

Content


Santander Group



Appendix

3232

APPENDIX – CHARACTERISTICS OF THE MAIN EUROPEAN COVERED BOND PROGRAMMES (1/3)

3333


3434


3535

Spain. Covered bonds outstanding (€mn) Spain. Covered bonds issuance (€mn)

APPENDIX – SPANISH CH MARKET: VOLUMES

3636

Spain. Covered bonds outstanding by collateral, size, currency and coupon (€mn)

APPENDIX – SPANISH CH MARKET: VOLUMES

Thank you

Our purpose is to help people and

businesses prosper.

Our culture is based on the belief that

everything we do should be

Documents

BANCO SANTANDER S.A. MORTGAGE COVERED BONDS … · Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements. These forward-looking statements