Banco Santander, S.a. · BME:SAN
Banco Santander — Investor Day (2023)
42 slides from Banco Santander's investor day presentation, Mar 7, 2023
Slide 1: José García Cantera, Group CFO
José García Cantera Group CFO 1
Slide 2: Important information
Important information Forward-looking statements Santander hereby warns that this document contains “forward-looking statements” as per the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements can be understood through words and expressions like “expect”, “project”,
Slide 3: Important information
Important information Nonetheless, the APMs and non-IFRS measures are supplemental information; their purpose is not 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 compariso
Slide 4: Entering a new phase of shareholder value creation
Entering a new phase of shareholder value creation 2023-2025 targets Strength Disciplined capital allocation CET1 FL RWA with RoRWA > CoE >12% TNAVps+DPS c.85% Double-digit growth Average Shareholder remuneration through-the-cycle Profitability Payout RoTE 50% Cash dividend + SBB 15-17% Note: Target
Slide 5: Macro framework of our guidance
Macro framework of our guidance | Market consensus, IMF & forward curves EUR and USD OIS fwd. curve (%) 1.1% -0.6% 1.4% 1.7% 1.2% 5 GDP 2023e (-4.1pp) (-4.7pp) (-0.6pp) (-1.4pp) (-1.9pp) (Δ22) 4.9% 9.0% 3.5% 6.3% 4.7% CPI (-3.9pp) (-0.1pp) (-4.6pp) (-1.7pp) (-4.7pp) 4 2.4% 0.9% 1.0% 1.6% 1.5% GDP 3
Slide 6: Against this backdrop, we are aiming to:
Against this backdrop, we are aiming to: Capitalize from higher rates Expand customer margins Positive sensitivity to increasing Ensure proper pricing of new deposits rates in most countries Focus on cost efficiency Optimize risk-reward in higher risk businesses Fostering ONE transformation Maintain
Slide 7: Business risk profile, financial management, profitability, capital allocation, shareholder value
Low Conservative Capital business risk financial Improving allocation Shareholder profile management profitability strategy value creation 7
Slide 8: Low business risk profile
\ yy \ Ui, “fe Ysera © M ‘a UG \ Low ' business risk profile @ Santander
Slide 9: Diversified commercial banking model and a retail deposits funded balance sheet
Diversified commercial banking model and a retail deposits funded balance sheet Regions’ contribution1 Balance Sheet Loans Deposits Loans Deposits 57% 67% 33% Mortgages Demand 48% deposits2 16% 13% 23% SMEs & Corporates Time 9% deposits2 12% DCB SMEs & 24% 15% 14% 14% SCIB Corporates 17% SCIB 18% Ot
Slide 10: Balance sheet: 1/3 mortgages primarily in Europe. Very low risk profile
Balance sheet: 1/3 mortgages primarily in Europe. Very low risk profile 33% 79% 12% c.90% Mortgages Loan-to-values <80% out of total portfolio 7% Others 2% New business with strong affordability metrics Average affordability rate 27% Improved overall risk profile in recent years Better LTV mix from
Slide 11: Balance sheet: 23% SMEs & Corporates, mainly in Europe
Balance sheet: 23% SMEs & Corporates, mainly in Europe 23% SMEs 81% 3% 16% SMEs & Corporates out of total portfolio Corporates 51% 28% 21% Corporates SMEs SMEs Corporates CRE Average LTV < c.50% c.75% are secured loans Coverage 96% NPL coverage of total in 2022 portfolio > 100% Of which, 44% are ICO
Slide 12: Balance sheet: stable credit metrics in DCB with growing Auto market share
Balance sheet: stable credit metrics in DCB with growing Auto market share 12% SAN Market 80% Auto FY22 New business1 Transactions New auto +2% -4% vs. DCB Used auto +15% -11% 20% Consumer out of total portfolio loans Increasing market share in most countries Auto cost of risk path New business capt
Slide 13: Balance sheet: SCIB LatAm leaders, high-quality portfolio
Balance sheet: SCIB LatAm leaders, strengthening in Europe & US, with a high-quality portfolio 14% BBB+ 0.14% 1.28% SCIB Rating1 Cost of risk NPL ratio out of total portfolio Exposure by segment 2022 growth concentrated on investment grade buckets: 87% of the total portfolio Proactive management to
Slide 14: Balance sheet: Brazil well-balanced, focusing on higher rating customers & secured
Balance sheet: Brazil well-balanced, focusing on higher rating customers & secured Cost of risk path Improvement of our portfolio structure: Selective production, significantly increasing the exposure 4.89% 4.79% 4.50% 4.35% to lower risk and collateralized portfolios: 5.5 0% 5.0 0% 4.36% 4.06% 4.5
Slide 15: Balance sheet: US Auto Finance, shifting to Prime and more deposit funding
Balance sheet: US Auto Finance, shifting to Prime and more deposit funding Auto loan portfolio mix shift Illustrative US auto loan contribution margin (CM)1 % Deposit funding allows us to consistently compete across credit spectrum Yield 16% 15% 15% Prime NCO 6.6% 5.8% 5.8% 34% 41% 40% Near-Prime 16
Slide 16: Balance sheet: just 4% medium-high risk, with adequate risk-reward
Balance sheet: just 4% medium-high risk, with adequate risk-reward Balance sheet Our 4% higher risk portfolio has Loans delivered superior profitability in the last years Mortgages 33% Low 96% risk profile %LLPs o/Group RoRWA Consumer 2019-20221 2019-20221 SMEs & 23% Corporates 12% DCB 5% 2.7% Mediu
Slide 17: We expect CoR to remain at c.1% through-the-cycle and below 1.2% in 2023
We expect CoR to remain at c.1% through-the-cycle and below 1.2% in 2023 Credit provisions (€bn) CoR (%) 2025 targets Cost of risk Better starting point than previous crisis 1.28 c.0.3-0.4% 1.25 1.18 1.07 Downward trend in CoR in Spain 1.4 1.00 1.00 0.99 12 1.2 0.77 Gradual normalization in the UK 1
Slide 18: Conservative financial management
Conservative financial management
Slide 19: Our balance sheet: simple, transparent & easy to analyze
Our balance sheet: simple, transparent & easy to analyze Risk Stable deposit structure Solid liquidity ratios LCR NSFR LtD2 3 148% 116% 75% 3 Liquidity Coverage and Net Stable Funding Ratios 157% 137% 109% strong across all subsidiaries 125% 109% 105% Liquidity buffer consists of 98% EHQLA’s and div
Slide 20: We will continue rebuilding our EUR ALCO portfolio
We will continue rebuilding our EUR ALCO portfolio RateRisk risk Bond portfolio1 ALCO IRRBB portfolio ALCO portfolio in Spain €107bn Continue rebuilding Liquidity portfolio 10% 2% 13% ALCO portfolio: €25bn 3% 5% €2bn €16bn 18% Avg. 2022 Avg. 2023 €82bn target o/w HTC €35bn 13% ALCO IRRBB €82bn 16% A
Slide 21: Comfortable financial plan that complies with TLAC & MREL requirements
Comfortable financial plan that complies with TLAC & MREL requirements RateRisk risk Banco Santander S.A. funding plan Focused on optimizing liquidity and refinancing maturities: €bn 2023 2024 2025 Hybrids 0.5-1.5 2-3 2-3 For 2023, continue fulfilling the SNP+Senior 9-10 12-13 8-9 1.5% AT1 and 2% T2
Slide 22: Conservative approach to FX risk in P&L and capital ratio
Conservative approach to FX risk in P&L and capital ratio Risk Financial results CET1 ratio: 100% excess1 hedged Tactically: hedge to protect 2022 2025 target the Group P&L generated in non-Euro currencies Decisions based on FX Exposure €23bn c.€20bn current estimates 2023 P&L hedge Fully covered Pa
Slide 23: Improving profitability
Improving profitability @ Santander
Slide 24: We have ambitious profitability targets in all our businesses
We have ambitious profitability targets in all our businesses RoTE targets 2022 2025 Aiming to be the most profitable bank where we operate 9.3% c.15% 11.1% c.15%1 18.8% c.19% TNAVps Payout DCB 13.7% c.15% +DPS Double-digit 50% growth Cash + SBB Average through-the-cycle 13.4% 15-17% Note: Target pa
Slide 25: Strong revenue growth ahead…
Strong revenue growth ahead… 22-25 Group revenue % CAGR 22-25 target (Constant €) c.6-7% c.8-9% c.7-8% Revenue NII Fee Other Revenue 2022 income revenue1 2025 1) Other revenue includes gains (losses) on financial transactions and other operating income. 25
Slide 26: … led by NII mainly in Europe and higher fees leveraging global and network businesses
… led by NII mainly in Europe and higher fees leveraging on global and network businesses Wealth Management 2025 revenue targets & Insurance CAGR 22-25 (Constant €) Disciplined repricing of loans and deposits Capitalizing on our global Increasing global revenue and c.7-8% Network contribution (multi
Slide 27: Tailwinds from higher interest rates in 2023 support our c.7-8% revenue CAGR target
Tailwinds from higher interest rates in 2023 support our c.7-8% revenue CAGR target… 22-23 Δ Net interest income using forward rates with constant balance sheet and spreads Balance Δ Net interest NII sensitivity to Base β (%) sheet income β Δ 10pp € 1,700 25-30 (1.5%) £ 500 40-50 <(0.3%) $ 150 50-60
Slide 28: … & strong volumes and double-digit growth in fee income in 2023
… & strong volumes and double-digit growth in fee income in 2023 Net interest income Fee income 2023 Revenue Double-digit growth Double-digit growth Base interest rates Active customers2 c.+8pp c.+6% YoY Volumes Global and network Double-digit c.+2% YoY businesses growth Spread expansion +3pp increa
Slide 29: High-single digit growth in fee income supported by global and network businesses
High-single digit growth in fee income supported by our global and network businesses Global and network businesses target to reach >50% of total fee income by 2025 Active customers1 increase, +8% CAGR 22-25 Retail Main countries reaching c.40% in transactional fees c.8-9% on average % CAGR 22-25 ta
Slide 30: We will maintain our relentless drive to expand operating jaws
We will maintain our relentless drive to expand operating jaws 2022 2025 target One Transformation Cost growth below inflation1 (5%) (7.5%) Efficiencies, processes simplification and automation, the use of common platforms and synergies across the board Improve Costs containment paired with income g
Slide 31: Our aim is to remain best-in-class in operating leverage
Our aim is to remain best-in-class in operating leverage 22-25 Group efficiency ratio target 2025 targets Efficiency ratio Simplification and automation c.4-5% % CAGR 22-25 c.42% Shared tech platforms and services 45.8% Accumulated inflation will pressure personnel costs c.42% Consolidating contact
Slide 32: Corporate Centre weight trending downwards
Corporate Centre weight trending downwards Corporate Centre weight out of Group underlying profit1 2019 2022 2025 target 18% 13% 7% Reporting changes introduced in 2022 1 Our highly liquid balance sheet will now benefit improving allocation criteria and ensuring from a normalized interest rate envir
Slide 33: Revenue growth and costs containment will deliver best-in-class profitability
Revenue growth and costs containment will deliver best-in-class profitability 15-17% RoTE target Strong revenue growth ahead, CAGR 22-25 target led by NII and leveraging our (Constant €) c.+2pp global and network businesses c.7-8% c.+5pp (c.2pp) 15-17% (c.2pp) (c.1pp) Efficiency ratio 13% Unabated c
Slide 34: Capital allocation strategy
a Dit | allocation La “strategy
Slide 35: Clear road ahead (even post Basel III) to further increase shareholder remuneration
Clear road ahead (even post Basel III) to further increase shareholder remuneration CET1 fully loaded yearly average 130bps Δ ratio to 12% 10% (40bps) (10bps) (30bps) reach 12% Low payout (20bps) 2015-2022 due to scrips c.30bps 3 c.200bps 12% >12% (c.100bps) 2023-2025 (40-50bps) (20-25bps) (10-20bps
Slide 36: Capital allocation discipline is a key element to improve profitability and create value
Capital allocation discipline is a key element to improve profitability and create value Maximize capital productivity by: Value generation and profitability Asset rotation Increase RWAs with EVA>0 Front book pricing and risk transfer Base 100 EVA <0 portfolios EVA >0 portfolios activities 15% 20% 3
Slide 37: Shareholder value creation
Share’ oider @ Santander
Slide 38: 2016-2022: 7 years average 10% RoTE created 5% per share value
2016-2022: 7 years average 10% RoTE created 5% per share value1 in euros Value creation considering yearly 2016-2022 average of all components RoTE +10% FX (1%) (3%) +5% (1%) 0% (1%) c. €-3bn €bn +6.7 -0.5 -1.5 -0.8 -0.1 TNAVps Organic AT1s FX Interest Others3 Share count Value (BoP) generation2 Rat
Slide 39: 2022: value creation offset by interest rates, which will reverse over time
2022: value creation offset by interest rates, which will reverse over time Will reverse 10% +1% -0.03 0.03 (1%) -0.24 +3% +6% +0.04 0.41 -0.08 +2% +0.11 (6%) (2%) Buyback Cash DPS 3 4.37 4.12 €bn +6.3 -0.5 +0.4 -4.0 -5.4 TNAVps Organic AT1s FX Interest Others2 TNAVps Shareholder Value (BoP) generat
Slide 40: 2023-2025: TNAVps growth to benefit from higher profitability & share count accretion
2023-2025: TNAVps growth to benefit from higher profitability & share count accretion (SBB) 2016-2022 (5%) (1%) 15-17% c.+2% Double-digit 2023-2025 (5%) target 1 Looking at specific measures to reduce TNAV impacts Note: 2023-2025 TNAV build-up assuming value accretion generated by SBBs on future per
Slide 41: Entering a new phase of shareholder value creation
Entering a new phase of shareholder value creation 2023-2025 targets Strength Disciplined capital allocation CET1 FL RWA with RoRWA > CoE >12% TNAVps+DPS c.85% Double-digit growth Average Shareholder remuneration through-the-cycle Profitability Payout RoTE 50% Cash dividend + SBB 15-17% Note: Target
Slide 42: Thank You.
Thank You. Our purpose is to help people and business prosper. Our culture is based on believing that everything we do should be: 42