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Santander
SAN
#98
Rank
C$251.91 B
Marketcap
๐Ÿ‡ช๐Ÿ‡ธ Spain
Country
C$17.01
Share price
2.04%
Change (1 day)
114.85%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Santander
  2. Annual Reports (20-F)
  3. Financial Year 2020

Santander - 20-F annual report 2020


Text size:
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ending December 31, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number 001-12518
BANCO SANTANDER, S.A.
(Exact name of Registrant as specified in its charter)
Kingdom of Spain
(Jurisdiction of incorporation)
Ciudad Grupo Santander
28660 Boadilla del Monte (Madrid), Spain
(address of principal executive offices)
José G. Cantera
Banco Santander, S.A.
Ciudad Grupo Santander - 28660 Boadilla del Monte Madrid, Spain
Tel: +34 91 289 32 80 Fax: +34 91 257 12 82
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered, pursuant to Section 12(b) of the Act
Title of each className of each exchange on which registered
American Depositary Shares, each representing the right to receive one Share of Capital Stock of Banco Santander, S.A., par value euro 0.50 eachSANNew York Stock Exchange
Shares of Capital Stock of Banco Santander, S.A., par value euro 0.50 eachNot applicableNew York Stock Exchange *
Non-cumulative Preferred Stock Series 6SAN PRBNew York Stock Exchange
Senior Non Preferred Floating Rate Notes due 2023SAN 23ANew York Stock Exchange
3.500% Second Ranking Senior Debt Securities due 2022SAN 22New York Stock Exchange
4.250% Second Ranking Senior Debt Securities due 2027SAN27New York Stock Exchange
Second Ranking Senior Floating Rate Notes due 2022SAN22ANew York Stock Exchange
3.125% Senior Non Preferred Fixed Rate Notes due 2023SAN23New York Stock Exchange
3.800% Senior Non Preferred Fixed Rate Notes due 2028SAN28New York Stock Exchange
Series 76 2.706% Senior Preferred Fixed Rate Notes due 2024SAN24New York Stock Exchange
Series 77 3.306% Senior Non Preferred Fixed Rate Notes due 2023SAN29New York Stock Exchange
Series 37 3.848% Senior Non Preferred Fixed Rate Notes due 2023SAN23BNew York Stock Exchange
Series 38 4.379% Senior Non Preferred Fixed Rate Notes due 2028SAN28ANew York Stock Exchange
Series 36 Senior Non Preferred Floating Rate Notes due 2023SAN23CNew York Stock Exchange
Series 26 Subordinated Debt SecuritiesSAN /25New York Stock Exchange
Series 92 2.746% Senior Non Preferred Fixed Rate Notes due 2025SAN25New York Stock Exchange
Series 93 3.490% Senior Non Preferred Fixed Rate Notes due 2030SAN30New York Stock Exchange
Series 100 2.749% Tier 2 Subordinated Fixed Rate Notes due 2030SAN30ANew York Stock Exchange
*Banco Santander Shares are not listed for trading, but are only listed in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None (Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None (Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes ☒ No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. Yes ☒ No ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards as issued by the International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐No ☒

Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of business covered by the annual report 17,340,641,302 shares


Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

BANCO SANTANDER, S.A.
This annual report on Form 20-F for the year ended 31 December 2020, includes three parts: (i) consolidated directors’ report, (ii) consolidated financial statements, and (iii) supplemental information. Set forth below is a table listing the required items for Form 20-F and the location where the relevant disclosure in this annual report can be found.
CROSS REFERENCE TO FORM 20-F
Form 20-F Item Number and Caption
Location
Page
Presentation of Financial and Other Information
850
Cautionary Statement Regarding Forward-Looking Statements
851
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. Directors and Senior Management
Not required for Annual Report on Form 20-F
-
B. Advisers
Not required for Annual Report on Form 20-F
-
C. Auditors
Not required for Annual Report on Form 20-F
-
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
A. Offer Statistics
Not required for Annual Report on Form 20-F
-
B. Method and Expected Timetable
Not required for Annual Report on Form 20-F
-
ITEM 3.
KEY INFORMATION
A. Selected financial data
853
B. Capitalization and indebtedness
Not required for Annual Report on Form 20-F
-
C. Reasons for the offer and use of proceeds
Not required for Annual Report on Form 20-F
-
D. Risk factors
856
ITEM 4.
INFORMATION ON THE COMPANY
A. History and development of the company
845
Acquisitions, Dispositions, Reorganizations
582
Capital Increases
663
Recent Events
534
946
B. Business overview
309
Selected Statistical information
889
603
607
627
627
Competition in Spain
913
Supervision and Regulation
914
534
C. Organizational structure
801
534

Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Form 20-F Item Number and Caption
Location
Page
D. Property, plant and equipment
619
360
ITEM 4A.
UNRESOLVED STAFF COMMENTS
946
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Critical accounting policies
541
622
625
A. Operating results
316
910
B. Liquidity and capital resources
336
C. Research and development, patents and licenses, etc.
625
400
D. Trend information
403
E. Off-balance sheet arrangements
665
F. Tabular disclosure of contractual obligations
911
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and senior management
189
B. Compensation
588
240
C. Board practices
197
D. Employees
912
E. Share ownership
946
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major shareholders
177
B. Related party transactions
588
748
234
C. Interests of experts and counsel
Not required for Annual Report on Form 20-F
-
ITEM 8.
FINANCIAL INFORMATION
A. Consolidated statements and other financial information
Financial statements
502
Legal proceedings
636

Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Form 20-F Item Number and Caption
Location
Page
Shareholders remuneration
935
184
585
B. Significant Changes
Not applicable
-
ITEM 9.
THE OFFER AND LISTING
A. Offer and listing details
935
B. Plan of distribution
Not required for Annual Report on Form 20-F
-
C. Markets
935
179
D. Selling shareholders
Not required for Annual Report on Form 20-F
-
E. Dilution
Not required for Annual Report on Form 20-F
-
F. Expense of the issue
Not required for Annual Report on Form 20-F
-
ITEM 10.
ADDITIONAL INFORMATION
A. Share capital
Not required for Annual Report on Form 20-F
-
B. Memorandum and articles of association
938
176
183
197
234
240
C. Material contracts
941
D. Exchange controls
941
E. Taxation
942
F. Dividends and paying agents
Not required for Annual Report on Form 20-F
-
G. Statement by experts
Not required for Annual Report on Form 20-F
-
H. Documents on display
946
I. Subsidiary information
Not required for Annual Report on Form 20-F
-
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
460
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not required for Annual Report on Form 20-F
-
B. Warrants and Rights
Not required for Annual Report on Form 20-F
-
C. Other Securities
Not required for Annual Report on Form 20-F
-
D. American Depositary Shares
935
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable
-
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable
-

Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Form 20-F Item Number and Caption
Location
Page
ITEM 15.
CONTROLS AND PROCEDURES
948
ITEM 16
[Reserved]
A. Audit Committee Financial Expert
211
B. Code of Ethics
485
266
C. Principal Accountant Fees and Services
716
948
D. Exemptions from the Listing Standards for Audit Committees
Not applicable
-
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
935
F. Changes in Registrant’s Certifying Accountant
Not applicable
-
G. Corporate Governance
949
H. Mine Safety Disclosure
Not applicable
-
PART III
ITEM 17.
FINANCIAL STATEMENTS
502
ITEM 18.
FINANCIAL STATEMENTS
502
ITEM 19
EXHIBITS
952




BANCO SANTANDER, S.A.

TABLE OF CONTENTS
12
2.- Consolidated Financial Statements
502
3.- Supplemental information
848







Part 1.
Consolidated Directors´ Report



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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
Auditor's report and consolidated
financial statements
504
516
533
801
495
845

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Annual report 2020

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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
–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.
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'.
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);
12
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
–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.
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.
13
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Annual report 2020

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Contents
Business model
and strategy
The Santander Way remains unchanged...
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Our purposeOur aim as a bankOur how
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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
san-20201231_g9.jpg
An engaged
and motivated
team…
… generates
customer
loyalty…
We create value for
all our stakeholders
san-20201231_g10.jpg
san-20201231_g11.jpg
… so we can support our
communities
…leading to
strong financial
results for our
shareholders…
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For further information about our corporate culture, see chapter 1 'Responsible Banking'. In this chapter, data as of 2020, unless indicated otherwise.
14
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
Helping people and businesses prosper whilst adopting ESG practices
san-20201231_g13.jpg
Environmental: supporting the green transition
Helping customers go greenGoing 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
san-20201231_g14.jpg
Social: building a more inclusive society
Financially empowering peopleSupporting society
4.9 mn
people1 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.
san-20201231_g15.jpg
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
san-20201231_g16.jpg
Governance: doing business the right way
A strong cultureAn independent, diverse Board
86%
employees proud to work
for Santander
40%
women on Group
board
 >60%
Independent directors
15
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Annual report 2020

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Contents
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.
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A. Market share in lending as of Sep-20 including only private owned banks. UK benchmark covers mortgage market.
2. Customer focus
Personal relationships that increase customer loyalty

→ We serve 148 million customers, in markets with a total population of more than one billion people.
→ 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)                     
san-20201231_g18.jpg
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.


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Note. Underlying attributable profit contribution by region, excluding Santander Global Platform (which will upgrade to PagoNxt) and Corporate Centre.
Resilient profit generation throughout the cycleIn 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

san-20201231_g20.jpg
Net operating income = Total income - Operating expenses.

16
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
The Santander of Tomorrow – 3 priorities for profitable growth
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Building on our technology to further strengthen our customers’ loyalty and access new fee-based revenue pools
1One Santander
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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
2PagoNxt
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Our Group technology “backbone” solutions with payments at the core
3Digital
Consumer
Bank
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Openbank and Santander Consumer Finance driving profitable growth in Europe and new markets
17
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Annual report 2020

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Contents
1. One Santander: san-20201231_g25.jpg
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
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Medium term goal:
 Top 3 NPS in 9 countries
Medium term goal:
 Digital sales/total >50%
Medium term goal:
 Efficiency ratio A c.40%
…in order to drive customer growth and higher productivity and profitability san-20201231_g25.jpg
Medium term goals:
Europe B
→ 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
Underlying RoTE C: 10%-12%
Efficiency ratio A: c.45%
North
America
→ Expand collaboration to Commercial Banking, Auto and other retail segments
→ Build shared services
Underlying RoTE C D: 11-13%
Efficiency ratio A: c.40%
South
America
→ Expand Getnet and Superdigital to other countries
→ Common operating model for Consumer Finance
→ Focus on revenue growth opportunities (e.g. Agribusiness)
Underlying RoTE C: 19%-21%
Efficiency ratio A: 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.
18
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
2. PagoNxt:     san-20201231_g26.jpg
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
We serve more customers than any other bank
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148 mn
Customers
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Our key assets for growth acceleration
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→ 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
1Goal
san-20201231_g35.jpg
To become a world leading acquirer providing end-to-end best-in-class solutions
for in-store and online merchant payments
MERCHANT
Our merchant payment services on one global platform are now being used across the Group as Getnet
Market growthSantander’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
2Goal
san-20201231_g35.jpg
To deliver fast, efficient trade finance, supply chain and FX payments solutions
for international SMEs that were once only accessible to corporates
TRADE
Significant investments in 4 key assets: Ebury, One Trade, Mercury and PaymentsHub
Market growthSantander’s scale
 +3%
Annual growth
international trade
EUR 350 bn
International trade
revenue pool
>4 mn
Group SME customers
>200k
Group SME customers trading int.
3Goal
san-20201231_g35.jpg
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
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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.
19
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Annual report 2020

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Contents
3. Digital Consumer Bank: san-20201231_g37.jpg
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
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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
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Digital Banking APIs (SaaS model)
Openbank technology and data capabilities grow revenues
by adding services and improving productivity
Our ambition: to grow revenues and x2 PAT A in the medium term and build the most innovative consumer lending business in Europe
Great potential…
san-20201231_g41.jpg
… to build a new paradigm…
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… and deliver strong financial results
san-20201231_g42.jpg
c.18 mn
Active customers
→ 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
san-20201231_g43.jpg
4.5
Avg. products per customer
→ 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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Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 

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Annual report 2020

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Contents
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Responsible
banking

2020 Consolidated non-financial information statement
22
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
24
26
28
30
34
36
40
42
46
Acting responsibly towards customers
60
68
Shareholder value
70
72
74
Supporting the green transition71
Environmental and social risk analysis87
Financial inclusion and empowerment
91
ESG investment in Wealth Management and Insurance101
Supporting communities
99
Higher education
101
Community investment
107
109
111
122
123
128
128
Sustainability Accounting Standards Board (SASB) content index
159
23
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Annual report 2020

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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.
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"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
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People
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Customers
… Santander treats me responsibly
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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.
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Communities
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Shareholders
… Santander acts responsibly in society
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We focus on areas where our activity can have a major impact on helping people and businesses prosper.
I'm loyal to Santander because…
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How we helped people and businesses prosper in 2020
san-20201231_g52.jpg People
EUR 10,783 million
95%53.7%
Staff costsA
of employees are full-timeof employees are women
san-20201231_g53.jpg 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 77,132 million to othersB
EUR 469 million
to microenterprises via microfinance programmes
san-20201231_g54.jpg Shareholders
EUR 477 million
EUR 44,011 million
Total shareholder
remunerationC
market value at year end, second highest bank in the eurozone
san-20201231_g55.jpg Communities
EUR 204 million
EUR 110 million
EUR 94 million
invested in communitiesinvested in universitiesinvested in community programmes and projects
san-20201231_g56.jpg Suppliers
EUR 5,230 million
4,59294.7%
paid to suppliersD
suppliers selected under our global procurement model
local suppliersD
san-20201231_g57.jpg Tax contribution
EUR 6,443 million
EUR 2,946 million
EUR 3,497 million
Total taxes paid by the groupcorporate income taxother 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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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
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People
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Customers
3 millions
of surveys to measure customer satisfaction
42,670
banked individuals surveyed about Santander being Simple, Personal and Fair
22,500
employees surveyed in the 2020 global pulse survey
4,390
complaints through ethical channels

464,310
complaints received
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Key dialogue channels for stakeholders
1,432
agreements with universities and academic institutions

15,260
shareholders surveyed about Santander being Simple, Personal and Fair
27,446
shareholders and investors participated in studies and qualitative surveys
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Communities
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Shareholders
2,283
partnerships with social institutions and entities
322
social media profiles and 23 million followers
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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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.
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)
Group material topics matrixA
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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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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.
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.
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For more details on our strategy, see 'Challenge 1: New business environment' in this chapter.

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.
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.
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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.
Material issuesImpact on our value chain
Challenge 1
New business environment

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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 development
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 rightsPreventing 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

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Financial inclusion and empowerment
A financial system that is accessible and understandable to all builds trust, bolsters the economy and creates new business opportunities, helping communities prosper.
Climate strategy
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 policyA
General sustainability policyHuman rights policy
Environmental, social & climate change risk management policyB
Sensitive sectors 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.Outlines our general sustainability principles and voluntary commitments aimed at generating long-term value for our stakeholders.
Sets out how we protect human rights, in line with the UN Guiding Principles on Business and Human Rights.Details how we identify and manage environmental, social and climate change risks, in oil and gas, energy, mining and metals, and in soft commodities.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 policyC
Code of conduct in security marketsCybersecurity policy
Third-party certification policyD
Tax policyConflicts of interest policyFinancing of political parties policyPolicy on contributions for social purposeGlobal 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.
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The responsible banking function's core policies can be found on our corporate website.

Policy changes in 2020

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All local boards adopted our General sustainability, Corporate culture and Human rights policies.

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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.

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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
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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:
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•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.

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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.
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Strategic priorities: Embedding ESG in our busines model
What?How?
(E) Contribute to the Paris Agreement and a low-carbon economy
→ 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.



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SDGs where our activity and community investment carry the most weight
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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.


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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.
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We promote an inclusive and diverse workplace, ensuring equal opportunity as a strategic priority. We also run initiatives to drive diversity.



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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.
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Our skilled and committed team allows us to respond to customers' needs, help entrepreneurs create businesses and jobs, and strengthen local economies.
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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.
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We finance sustainable infrastructure and promote access to affordable housing to guarantee basic services and inclusive economic growth.




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We tackle climate change by reducing our own carbon footprint and helping our customers transition to a sustainable economy.
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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.
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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 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.



•CEO Partnership for Economic Inclusion. We're part of a 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
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UN Women's Empowerment PrinciplesInternational Wildlife Trade Financial Taskforce
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The Valuable 500Round Table on Responsible Soy
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UN Principles for Responsible InvestmentWorking group on Sustainable Livestock
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CDP (Carbon Disclosure Project)Climate Leadership Council
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UN Global Investors for Sustainable Development (GISD) AllianceThe 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
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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.
Ensuring business continuity:
As an essential service, we guaranteed our operations would continue with the same standards of quality
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Special measures in all our countries:
• Social distancing and shift patterns
• Designation of critical staff
• Segregation of technology infrastructure
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People:
Our priority was to keep our 191,000 employees healthy and safe
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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
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See section ‘A talented and engaged team’ in this chapter.
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Customers:
We supported our customers in three areas: Preserving their health, guaranteeing uninterrupted service on all channels and promoting their financial resilience
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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.
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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.
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Communities:
We collaborated on global initiatives to tackle the pandemic, raising more than EUR 100 million
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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.
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See section ‘Supporting communities’ in this chapter.
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Shareholders:
We met our obligations towards
shareholders.
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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
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See section ‘Shareholder value’.

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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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Contents
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.
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.
Our public commitments
20182019202020212025
Top 10 company to work forA
4 > > > > >
5 > > > >
6 ✔6
Women on the board
33% > > >
40% > > >
40% ✔40% - 60%
Women in senior leadership positionsB (%)
20% > > >
22.7% >
23.7% > >
> > > > > > > > > 30%
Equal pay gapC
3% > > > >
2% > > >
1.5% > >
> > > > > > > > >~0%
Financially empowered peopleD
2.0mn4.9mn10mn
Green finance raised and facilitatedE (EUR)
19bn33.8bn120bn
Electricity used from renewable energy sourcesF
43% > > >
50% > > >
57% > >
60% > > > > > >
100%
Becoming carbon neutral in our own operationsG
  > > > > >
0% ✔
Reduction of unnecessary single-use plastics in corporate buildings and branchesH
> > > > > >
75% > > >
98% > > >100%
Scholarships, internships and entrepreneurship programmesI
69k225k ✔200k
People helped through our community programmesJ
1.6mn4.0mn ✔4mn
Cumulative target
> > > > From… to…
A.According to external indexes in each country (Great Place to Work, Top Employer, Merco, etc.).
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.

F.In countries where we can confirm electricity from renewable sources at properties occupied by Grupo Santander.
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...
 
•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.
•Salesforce remuneration scheme: we significantly 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.
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…and promote inclusive and sustainable growth
 
•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.
•We joined the Green Recovery Alliance of the 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

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Member of Dow Jones Sustainability IndexAmong top 10 in Bloomberg Gender- Equality 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.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.
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One of the world’s best places to workTop Employers 2020
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 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.
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Best bank for diversity and inclusion, and for SMEsOne of the 100 most valuable brands in the world
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.
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
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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.
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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.
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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”.
san-20201231_g101.jpgPortugal
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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Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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
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Our "how"
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Our values
Simple | Personal | Fair

To help people and businesses prospers.
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Corporate behaviours
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Show
respect		Truly
listen		Talk straightKeep promises
Our
aim
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To be the best open financial services platform by acting responsibly and earning the lasting loyalty of our people, customers, shareholders and communities.Actively collaborateBring passionSupport peopleEmbrace change
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Leadership commitments
Being open and inclusive
Inspiring and executing transformation
Encouraging the team to prosper
 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
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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
ObjectivesAchievements
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Diversity and inclusion
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Drive our D&I strategy with enablers of an inclusive workplace
Implement global minimum standards on parental leave

•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.
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Speaking up
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Implement ethical channels in our core markets
•Our ethical channels with global minimum standards were implemented across our footprint.
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Acting responsibly towards our customers
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Uphold customer protection principles
Lay down corporate guidelines on vulnerable customers

•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.
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Responsible procurement
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Roll out an ESG pilot programme for suppliers
Enhance governance for critical suppliers
•Our pilot programme assessed c. 400 key suppliers according to environmental, social and governance (ESG) criteria.
•We improved our risk management model.
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Simplification
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Identify and map out projects that streamline processes
Improve metrics about simplification
•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.
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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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.
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).

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For more details on environmental and social risks, see section 2.5 in the 'Risk Management and Control' chapter.
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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.
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For more details on MyContribution model see 'Performance review and remuneration' in 'A talented and engaged team' section.
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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.

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.

Cybersecurity is the responsibility of everyone who works with Santander
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For more details on employees' cybersecurity training, see the section 'A talented and engaged team' in this chapter.
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For more details on our cybersecurity plan, see section '6.2 Operational risk management' in the 'Risk management and compliance' chapter.
93%91%75%79%
of employees can identify risks in their job every dayof employees see cyber security as a top priorityof employees feel encouraged by managers to report important information, even bad newsof employees say they can report unethical conduct without fear of retaliation
Source: Global Engagement survey 2019. Next survey expected in May 2021
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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
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Talent management
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Robust talent management means attracting and retaining the best talent while encouraging our people to learn and develop.
Performance reviews and remuneration
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Our performance reviews and remuneration align with our culture.
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Diversity and inclusion
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A diverse and inclusive workforce is pivotal to our cultural transformation and to delivering our strategy.
Employee experience
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A motivated workforce builds the best work environment that promotes wellbeing, flexible working schemes and speaking up.
Our goalAchievement 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
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Top 10
company in
6 geographiesB
A. According to a leading external source in each country (Great Place to Work, Top Employer, Merco, etc.).B. Spain, Portugal, Argentina, Mexico, Uruguay and Chile, using the latest publications at our disposal. In Portugal and Argentina the rankings used only consider companies with more than 1,000 employees.
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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 management figures20202019
Total employees (thousand)A
191196
% employees with a permanent contractA
97.997.9 
% employees working full timeA
94.994.9 
Employees joining/leaving (turnover)12.617.6 
% of workforce promoted6.78.3 
Average length of service (years)A
10.210.2 
% coverage of collective agreementsA
74.574.5 
A.At year end



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For more details, see the ‘Key metrics’ section in this chapter.
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.
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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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.

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
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.

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.
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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.
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 data20202019
Millions invested in training
61.3 102.6 
Investment per employee (euros)
320.7 522.3 
% employees trained
100.0 100.0 
Hours of training per employee
30.9 40.7
Employee satisfaction (over 10)
8.2 9.3
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For more details, see the ‘Key metrics' section in this chapter.



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.
→ 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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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.
→ 2nd 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.
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:
Restructuring
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.
san-20201231_g100.jpg 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.
san-20201231_g131.jpg External relocation programme
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 programme committed to achieving 100% reassignmentA and 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.
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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).

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.


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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'.
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.
•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%
of employees are women
-1 pp vs 2019
23.7%
of senior managers are womenA,+1 pp vs 2019
39.2
Average age of the workforce, + 0.6 pp vs 2019
1.9%
of employees have a disabilityB, +0.1 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.
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
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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 disabilitiesEmpowerment
→ Global mapping to share countries' best 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
→ Compulsory online diversity and 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
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For more details on our D&I initiatives, see the Diversity and Inclusion report in our corporate website.
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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.
In 2019, we set diversity targets for senior managers A; 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.
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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%
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.
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.
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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.
Our D&I strategy sets two objectives to foster the inclusion of people with disabilities:
•To meet (or exceed) the legal quota for employees with disabilities in a direct way, increasing the 2019 headcount of employees with disabilities by 1% in countries without a legal quota by 2025A.
•To comply with local accessibility laws, requiring the AA-level accessibility standards dictated by the Web Accessibility Initiative (WAI) for all new digital products.
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.
•Recruitment of talent with disability benchmarks through trainee programmes.
•Volunteering and mentoring for people with disabilities.
•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.



san-20201231_g100.jpg 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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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.
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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:What we do:How we do it:
Management of risks and ethical concerns, internal governanceEthical channels and whistleblowing lines, committees and forums
Protect
Ideas, solutions, simplification, improved processesAgile working, Validate (open innovation platform)
Innovate
Recognition, performance management, feedbackStarMeUp, MyContribution; Employee pulse surveys
Engage
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
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.
san-20201231_g99.jpg 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.

Types of issues received
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nLabour relations
nFraud and Conflicts of Interest
nProducts and financial services marketing
nAML and Terrorism financing
nCorporate Behaviours
nOthers
20202019
Issues received
4,390 4,473 
Issues deemed well-founded for investigation3,787 3,534 
Disciplinary actions1,083 920 
which led to dismissal315 294 
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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.
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For more details on our initiatives promoting employees' wellbeing, see "Our wellbeing" in this section

san-20201231_g96.jpg 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.
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).
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.
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For more details, see the 'Supporting Communities' section in this report.

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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.
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+26,000+56,000
employees participating in community activitieshours volunteered

Volunteering initiatives during covid-19
san-20201231_g137.jpg 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.
san-20201231_g138.jpg 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).

san-20201231_g100.jpg 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.
san-20201231_g97.jpg In Chile, volunteers provided online guidance and support to students from disadvantaged communities to continue their education.
san-20201231_g96.jpg 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.
san-20201231_g95.jpg 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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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.

san-20201231_g139.jpgBeHealthy
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 healthyA
A.2020 Global Pulse survey results
3.1%10,3050.07
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absenteeismA,B
thousand hours missed due to non-occupational illness and accidentsB
Severity rateC
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
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We focus on
our customers
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We listen to them and enhance their experience with us.
We protect our customers
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By identifying vulnerabilities and avoiding product
mis-selling.
We manage their complaints
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In case something goes wrong, we act and learn from it.
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.
•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.
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san-20201231_g99.jpg Emotional hub
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.
san-20201231_g96.jpg 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.

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.
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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.
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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.
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Top 3
6 of 9 countriesA

A.Santander US has a different objective and does not account for the metric.

South AmericaEuropeNorth America
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20185º3º3º2º3º5º3º1º3º9º
20194º2º2º2º3º4º3º2º4º9º
20203º2º1º3º2º5º1º6º4º9º
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
   BranchGeneral service, waiting time, branch assistance, layout
   ChannelsMobile, internet, ATM, CDM, contact centre, personal manager
   PersonalPersonal attention, kindness, employee professionalism
   SimpleUser-friendliness, speed and agility
   CommunicationsClear statements, information on offers and deals, coherent information
   ProblemsPercieved issues
   OthersData protection
IMAGEStrong and sound, social responsible, innovative, trustworthy, transparent
PRODUCT & PRICESimple product and service proposition, fees and charges, benefits, credit cards
Group NPS by channelA
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BranchContact CenterInternetMobile
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.
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Protecting consumers and helping vulnerable customers
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
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.

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.
Consumer protection principles
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Treat customers fairlyComplaints handlingConsideration of special customers' circumstances and prevention of over-indebtednessData protectionCustomer-centric design of products and services
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Responsible pricingFinancial educationTransparent communicationResponsible innovationSafeguarding 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.
san-20201231_g144.jpg "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.
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.

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.

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.
Conduct in collections and recoveries
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.
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.
•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 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.
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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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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.
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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.
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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.
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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 complaintsA (%)
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Banking procedures
Loans
Investments
Payments methods
Others
Insurance
Average resolution timeA (%)
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1 - 5 days
5 - 10 days
10 - 15 days
15 - 30 days
More than 30 days
ResolutionA, B (%)
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In favour of the Bank
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
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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.
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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.
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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
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Third-party certification policy
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Responsible behaviour principles for suppliers
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Risk control
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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.
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).
Grupo Santander works with 8,651 certified suppliers (-12% vs 2019)A. 21.8% were certified for the first time in 2020 (+5.1 pp vs 2019). Through AquanimaB, 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 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.
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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 certification data.B It currently collects data available on 10,252 third parties and18,789 services. It has 5,366 internal users.
→ 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.
→ We keep records of our key suppliers and service providers by geography based on those five risk areas.
→ 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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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.
→ 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.
→ using our internal transport services to take healthcare professionals from hotels to hospitals.
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Shareholder value
We build lasting loyalty among our four million shareholders by delivering profitable and sustainable growth
Communication with shareholders
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 shares
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)






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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.
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For further details on Santander Group's shareholder remuneration, see section '3.3 Dividends' in the Corporate Governance chapter.
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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
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For more information, see section 2.1. 'Share capital' in the Corporate Governance chapter.
n
BoardA
nRetail shareholdersnInstitutional investors
nAmericasnEuropenRest 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.
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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.
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
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For further details, see sections 1.4 'Active shareholder engagement during the pandemic’ and 3.1 'Shareholder engagement’ in the Corporate Governance chapter.
 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. We obtained the top score (100) in financial inclusion, anti-corruption policy and measures, fiscal strategy, customer relationship management, environmental reporting, and social reporting.
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.
In 2021, Santander is leading among our global peers in the Bloomberg Gender-Equality Index (BGEI). We are 7th overall and 5th among banks. This remains well above average (+18.67) and above financial services scores (+16.93 pp), with top mark in equal pay and gender pay parity.
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.
ESG analyst valuationsA
Rating/Scoring
2020
Vs.last year
2019
Vs. Sector average
S&P Global CSA
83q86
95th percentile, 14th out of 253 banks
MSCIB
BBB
=
BBB
Average among 192 banks
Sustainalytics
27.1p32.7
30th percentile, 289 of 978 banks
V.E (Vigeo Eiris)
62q63
74th percentile, 8th of 31 diversified banks
ISS-ESG
C
=
C
Decile rank of 2 out of 285 banks, equivalent to 80th percentile
CDPBpCAmong 28% of all banks scoring a B
BGEI85.13q90.39
1st global bank and 5th from 126 financial institutions
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
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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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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.
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.
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.
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
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.
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.
Tax
contribution
We pay our fair share in taxes everywhere we operate, contributing to the growth and progress of our communities.
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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
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Households

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SMEs

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Large companies
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Public sector
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Total customers
148 million
Loyal customers
22.8 million
Customer loans
EUR 916 billion
Customer deposits
EUR 849 billion
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.
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.
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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
EUR million
Residential324,152 
Consumer loans157,118 
Other purposes16,717 
Total497,987 
Companies and entrepreneursA
EUR million
Large companies167,390 
SMEs and entrepreneurs132,359 
Other purposes20,104 
Total
319,853 
A.See note 10. 'Loans and advances to customers' of the Auditor's report and consolidated financial statements.

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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
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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).
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Argentina: Lent ARS 1 billion (EUR 14.2 million) to SMEs to support teleworking.
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Chile: Gave USD 6 billion in pre-approved lending for consumer, mortgage and business customers.
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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.
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Brazil: Launched A Gente Banca, a new product to provide newsstands with loans to renovate their premises.
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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.
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Mexico: Participated in government-backed lines of credit to help one million micro-enterprises, in addition to four-month loan repayment deferrals.
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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.
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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.
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).
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.
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.
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 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.
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
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Aligning our portfolio to meet the Paris Agreement goals
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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.
Supporting our customers in the green transition
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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.

Reducing our environmental impact
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We are strongly committed to protecting the environment by reducing our footprint and have become carbon neutral.
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Target
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Progress

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
Green finance
Raised or facilitatedB
33.8 bn
120 bn
20192025
A. Includes our overall contribution to green finance: project finance, 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.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.
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.
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.

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.
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Further details on our Climate Report 2019-June2020 available at our corporate website.
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.
•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 assessment and using the PACTA methodologyA as an 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 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.
•In our own operations we have reduced CO2 emissions and 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.
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For more details on the RBSCC, see section 4.9 'Operations of the responsible banking, sustainability and culture committee' in the Corporate governance chapter.
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For more details on our policies and governance, see the 'Governance and priorities' section of this chapter.
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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.
Risk division climate change working group
involves different risk areas to develop and implement the risk-specific tasks set out in the TFCD roadmap.
SCIB ESG working group
has a broad agenda that includes climate-based business positioning and opportunities.
Sustainable bond steering group
oversees the issuance, management and reporting of Grupo Santander´s sustainable bonds.
Public Policy Sustainability working group
advises on regulatory developments and coordinates the group's response to public consultations.
Santander UK climate change working group
coordinates the plan to comply with the PRA's supervisory statement on climate change risk management.
Sustainable finance working group
incorporates areas and countries to provide key insights on green buildings, clean mobility, renewable energies and sustainable agro.
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 customers (according to the NACEA code) and 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.
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▪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 RiskC
Number of properties%
High; >1:302,9060.24
Medium: between 1:30 and 1:10010,0210.81
Low; >1:100049,6784.02
Very low; >1:10,00069,5235.63
Negligible ; <1;10,0001,102,43589.3
Total Properties1,234,563 100.00 
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.
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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.
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Further details on our Climate Report 2019-June2020 available at our Corporate Website.
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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.

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.


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.
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 corporate economyA, with a larger share of renewables (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.
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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.
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Production capacity across technologies (%)
20202025
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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/KWhB 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.
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For more details, see 2.6 'Environmental and social risk' section of the Compliance and conduct risk management.
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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.
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.
Santander Corporate and Investment Banking (SCIB) aims to become a reference in sustainable finance through ESG solutions.
Global Renewable Energy Project Finance Volume by MLA - FY 2020A
RankMandated ArrangerVol. (USDm)Nº.%share
1
Banco Santander6,2841436.7
2
Bank 15,638736.0
3
Bank 25,511635.9
4
Peer 1B
3,779764.0
5Bank 33,737524.0
6Bank 43,436543.7
7Bank 52,962283.2
8Peer 22,601322.8
9Peer 32,589402.8
10Bank 62,313242.5
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 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.
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.
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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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Renewable energy projects
In 2020, we helped finance greenfield renewable energy projects with a total installed capacity of 13,765 MW, preventing the emission of 60 million tons of CO2A. 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 10.3 million households.B
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
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Wind energy
77% --
77% 35%
77% 46%
201820192020
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Solar energy
22% 100%
22% 54%
18% 33%
201820192020
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OthersD
1% --
1% 11%
5% 21%
201820192020
Greenfield Brownfield
Breakdown of renewable MW financed by country in 2020E
(greenfield and brownfield)
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3,796 MW
681 MW
5,455 MW
630 MW
706 MW
2,169 MW
882 MW
0 MW
1,587 MW 17 MW
497 MW
0 MW
242 MW
0 MW
0 MW
3,510 MW
0 MW
306 MW
USAUnited KingdomSpainChileBrazilFrancePolandPortugalGermany
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
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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.
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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
RankLenderVol. (EUR m)Total Deals
1
Peer 199,30881 
2
Peer 272,53256 
3
Banco Santander70,62253 
4Bank 170,29350 
5Bank 264,69130 
6Bank 356,15132 
7Bank 453,99724 
8Bank 552,64833 
9Bank 650,50334 
10Peer 349,79047 
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
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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.
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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.
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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.
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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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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.
The Green Book products are specifically tailored to two main segments: individuals and SMEs/Corporates.
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.
Green book
Products for individuals and/or SMEs /corporatesCountries
Green mortgages
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Loan for energy efficiency
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Loan/lease for renewable energy installations
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Loan/lease for clean transportation
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Loan for low carbon agriculture
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Loan to foster circular economy
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Some of these green products include:
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Hipoteca Fija/Variable Online
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Crédito Pessoal para energias renováveis
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Eko leasing
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CDC Sustentável Solar
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.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.Financing for renovations and projects using renewable energy and energy efficient installations, as well as accessibility, ergonomic and air quality upgrades.
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.
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.




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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
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→ 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.
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→ 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.
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→ 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.
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→ 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:
→ 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

→ January 2021: 25th Santander Latin American Conference - New frontiers for sustainable finance and ESG as an asset class
→ 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 from renewable sourcesA.

A.In those countries where it is possible to certify renewable sourced electricity for the properties occupied by the Group.

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%.
Projects to offset CO2 emissions
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Reforestation
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Wind energy
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Hydropower
Planting of native species in over 1,000 hectares scorched by forest fires in Alcoroches (Guadalajara).Wind farm with 309 MW of installed capacity, including a social project to aid the development of local communities in Oaxaca.Hydropower plant with a capacity of 182 MW that helps the community through job creation.
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Reduction of N2O emissions
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Recovering energy from greenhouse gases
Eradication of the N2O produced at a nitric acid plant, reducing its impact on the atmosphere.
Capture of the methane produced at a landfill site in Spartanburg (South Carolina) to be converted into biogas for clean energy.
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Certified environmental management system
We measure and manage the directA 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 footprintC
Var. 2019-2020 (%)
Var. 2019-2020 (%)
2,064,113 M3
water consumed from the supply system
-29.7
194,159 T CO2 teq
total emissions (market based)
-41.6
920 MILL. KWH
total electricity
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57%
renewable energy
-13.5
Scope 1
24,818 T CO2 teq
direct emissions
8,902 T
total paper consumed
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83% recycled or certified paper
-46.0
Scope 2
128,633 T CO2
indirect electricity emissions
(market based)
5,926,139 KG
paper and cardboard waste
-38.9
282,216 T CO2 teq
indirect electricity emissions
(location based)
3,758,225 GJ
total internal energy consumption
-13.1
Scope 3
40,708 T CO2 teq
indirect emissions from employees travelling to work
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
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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.
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For more details on the policies and their governance, see the 'Risk management and compliance' chapter.
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The environmental, social & climate change risk management policy will be available on our corporate website.
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Contents
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
•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.

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.


Equator Principles
Project Finance
Category
A
B
C
TOTAL
1598
san-20201231_g202.gif Sector
Infrastructure
010
Oil & gas
100
Energy
0588
san-20201231_g203.gif Region
Americas
United States
090
Chile
040
Brazil
100
Europe
Spain
0268
United Kingdom0140
France
010
Poland020
Asia
Taiwan
010
san-20201231_g204.gif Type
Designated countriesA
1588
Non-designated countries
010
san-20201231_g205.gif Independent review
Yes
0578
No
120
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.



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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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Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
 Ensuring full compliance with human rights in our operations
Energy project in Southeast AsiaEnergy 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.
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 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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Contents
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:
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Access
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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
Finance
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We provide tailored finance to individuals and SMEs with difficulties obtaining credit or in financial distress.
2,023,411 people financially empowered in 2020
Resilience
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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
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Target
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Progress
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
Financially
empowered people
4.9mnB
10 mn
201920202025
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 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.
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.
In 2020, we focused on addressing the impact of the covid-19 pandemic, especially on the most vulnerable groups.
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 197,026A people, allowing those without a bank account to make online financial transactions, split bills with others and receive automated alerts about their finances.
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.
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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”
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Cuenta Life
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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.
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
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Financial inclusion branches and remote agents
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Branches in sparsely populated regions
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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.
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Correos postal service
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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
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Branch outbound calling
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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.
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 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.
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.
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
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EUR 231 million
outstanding credit to microentrepreneurs at the end of 2020 (-17%A 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.
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More details at www.santander.com.br/campanhas/microcredito

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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.
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More details at www.tuiio.com.mx/
International Finance Magazine named Santander Best Bank for Financial Inclusion in Mexico for Tuiio

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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
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Small business administration loans
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Superclub Comprometidos, Via Bana, Formar and Potrero Digital
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.
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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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.
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.
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Affordable housing programmes
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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
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Payment holidays
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IRIS solutions to manage impairmentsAgreements with multilateral entities
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).		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.
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For more details, see 'Meeting the needs of everyone in society' in this chapter.
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
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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
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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
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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.
Best practices
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Pioneros
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Anti-fraud training workshops
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Santander Life
This initiative in Spain trains customer service and branch employees online on teaching elderly customers at branches to use our app and go digital.
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 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.
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Tuiio
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Avançar
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.
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.
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Visit tuiio.com.mx/educacion-financiera for more details.

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Visit santandernegocioseempresas.com.br/ for more details.
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CAMPUS-Santander
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Akana
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Financial literacy blog
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.
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.
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.
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Visit santander.com.ar/banco/online/campus-santander for more details.
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Visit www.akana.es/FRONT/#/home for more details.
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Visit santander.pt/conta-em-ordem for more details.

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.

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.

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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.
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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Contents
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
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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
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SAM RV Global ESGGo Global Equity ESG
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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).



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For more details, see www.santanderassetmanagement.es
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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.









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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
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Support higher education
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Community investment
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EUR110 million
invested
156,748
scholarships and grants
EUR94 million invested
2.4 million
people helped
Our 2019-2021 commitment
→ To finance 200,000 scholarships/internships and programmes for entrepreneurs.
Our 2019-2021 commitment
→ To help four million people through various social action programmes.
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Covid-19 response in communities
san-20201231_g218.jpg more than105 mn
invested to help tackle the pandemicA
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.
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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.
san-20201231_g138.jpg Spain
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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.
Alliance with five other companies and donation to the Héroes con Bata initiative (INER and Fundación Gigante).

san-20201231_g144.jpg Portugal
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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.). Support to the Confederation of Production and Trade (CPC) through donations of medical supplies such as diagnosis tests, hospital equipment, etc.
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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.
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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.
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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:
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Education
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We support university students and graduates in developing their skills.
48,804
Santander Scholarship beneficiaries
Entrepreneurship
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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
Employability
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We offer internships, training programmes and career guidance services to university students.
75,237
beneficiaries of internship grants


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Target
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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
225kA
xxxxxxxxxxxxxxxxxxx2019
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.
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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
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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.
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Superamos Juntos supported more than 1,000 Brazilian students in financial difficulty.
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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.

IT and data reinforcement plans for universities
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In Spain, Fondo Supera helped supply around 5,000 computers and 10,000 Internet connectivity solutions and webcams to university students.
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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.
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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.
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 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:
san-20201231_g98.jpg 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.).
san-20201231_g138.jpg 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.
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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.

san-20201231_g96.jpg XVI Entrepreneur X Award
"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.
san-20201231_g99.jpg XV Santander X Award for Business Innovation
“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.

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X Santander Universities Entrepreneurship Awards
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".
san-20201231_g97.jpg II Santander Ideas X award
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.
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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.
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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.
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EUR 94 million
in community investment
2,366
partnerships with NGOs
and social welfare
institutions
2.4
million people
helped
22,630
volunteersA
A.Refer to Challenge 1 for more details about volunteers and volunteering hours.
Main lines of action
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Support for children’s education
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We support various projects to provide equal opportunities and access to quality education, especially in Latin America.
Support for social wellfare
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We promote and collaborate with numerous programmes that aim to impove the lives of people at risk of exclusion, poverty and vulnerability.
Support for the arts and culture
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We encourage culture and knowledge through programmes and initiatives that promote art, literature, education and talent.
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Target
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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
People helped
through community investment (millions)
4mnC
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx2019
4 mn 2021
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.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.
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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
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Fundación Belén Educa
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Korky.tv
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Amigo do Valor Special Edition
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Design the Future
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.


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
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Santander Ayuda
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Alzheimer Society and Age UK
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Fundación AMA - Familias vulnerables
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Communities impacted by covid
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.
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. 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. 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.
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Fundación Banco Santander
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Farol Santander
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Santander Argentina Foundation
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
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
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.
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.
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For more details on Grupo Santander's tax strategy, visit our Corporate Website.
Tax contribution
To contribute to the communities in our geographies, we pay all taxes borne directly by the group (taxes paid by the groupA) and collect others' taxes originating from our business operations (taxes from third partiesB).
In 2020, our tax contribution totalled EUR 14,496 million, including EUR 6,443 million in taxes directly paid by the group.
For every 100 euros in total income, EUR 33 are taxed, including:
•EUR 18 in taxes collected from third parties;
•EUR 15 in taxes paid directly by Santander.











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.
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.
→ Not give customers tax advice or planning strategies when marketing and selling financial products and services.
→ 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.





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.
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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 extraordinary results, EUR 3,516 millionD). 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).
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.
Tax disclosure by jurisdiction
EUR million
2020
Jurisdiction
Corporate
income tax
Other
taxes paid
Total
taxes paid by the Group
Third-party
taxes
Total
contribution
Spain
342 1,210 1,552 1,483 3,035 
UK
204 453 657 435 1,092 
Portugal
175 184 359 251 610 
Poland
267 207 474 149 623 
Germany
161 54 215 117 332 
Rest of Europe
333 250 583 55 638 
Total Europe
1,482 2,358 3,840 2,490 6,330 
Brazil
764 374 1,138 1,392 2,530 
Mexico
189 239 428 795 1,223 
Chile
365 64 429 231 660 
Argentina
104 285 389 2,236 2,625 
Uruguay
30 71 101 30 131 
Rest of Latin America
22 5 27 8 35 
Total Latin America
1,474 1,038 2,512 4,692 7,204 
United States
(14)99 85 866 951 
Other
4 2 6 5 11 
TOTAL
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 genderA
N0 employees
% men
% women
% graduates
Geographies
20202019202020192020201920202019
Spain
29,50429,0785252 4848 6970 
Brazil
42,76746,2484643 5457 6672 
Chile
10,49111,2674646 5454 4156 
Poland
10,38810,9023131 6969 8582 
ArgentinaB
9,0588,2545349 4751 5340 
MexicoC
21,57219,6734545 5555 5661 
Portugal
6,0156,2555454 4646 5755 
UK
20,94522,5614341 5759 1816 
USA
15,67717,0054243 5857 1115 
SCF
13,35912,4064747 5353 3134 
Others
11,41312,7705351 4749 4946 
Total191,189 196,4194645 5455 5153 
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 2019A
Senior managers
Other managers
Other employees
Men
Women
Total
Men
Women
Total
Men
Women
Total
Europe
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 
North America
246 82.0 %54 18.0 %300 983 69.1 %439 30.9 %1,422 15,467 42.9 %20,593 57.1 %36,060 
South America
284 76.6 %87 23.5 %371 3,550 59.8 %2,389 40.2 %5,939 26,192 41.8 %36,461 58.2 %62,653 
Group total
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 2020A
Senior managersB
Other managers
Other employees
Men
Women
Total
Men
Women
Total
Men
Women
Total
Europe
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 
North America228 82.0 %50 18.0 %278 956 67.9 %453 32.2 %1,409 15,816 43.1 %20,875 56.9 %36,691 
South America
319 76.0 %101 24.1 %420 3,247 59.0 %2,257 41.0 %5,504 26,614 45.2 %32,218 54.8 %58,832 
Group total
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 2019A
Number and % of total
aged <= 25
aged 26 - 35
aged 36 - 45
aged 46 - 50
age over 50
Europe
6,1956.91 %18,69620.85 %32,60936.36 %13,49215.05 %18,68220.83 %
North America
4,20311.12 %15,71441.59 %8,93223.64 %3,2908.71 %5,64314.94 %
South America
6,1298.89 %32,32446.87 %20,49429.72 %4,7566.90 %5,2607.63 %
Group total16,5278.41 %66,73433.98 %62,03531.58 %21,53810.97 %29,58515.06 %

3.2. Workforce distribution by age bracket 2020A
Number and % of total
aged <= 25
aged 26 - 35
aged 36 - 45
aged 46 - 50
age over 50
Europe
4,8715.53 %17,99620.44 %31,82736.14 %13,48415.31 %19,87722.57 %
North America4,70412.26 %15,59740.64 %9,31724.28 %3,2798.54 %5,48114.28 %
South America
4,1416.39 %29,49845.55 %20,79632.11 %5,0727.83 %5,2498.11 %
Group total13,7167.17 %63,09133,00%61,94032.40 %21,83511.42 %30,60716.01 %
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 2019A
Permanent / Full time
Permanent / Part-time
Men
Women
Total
Men
Women
Total
Europe
39,97651.1 %38,32949.0 %78,30584711.2 %6,74788.9 %7,594
North America
16,47944.6 %20,47655.4 %36,95515822.4 %54777.6 %705
South America
29,71843.8 %38,14056.2 %67,85825526.6 %70473.4 %959
Group total86,17347.1 %96,94552.9 %183,1181,26013.6 %7,99886.4 %9,258
Temporary / Full time
Temporary / Part-time
Men
Women
Total
Men
Women
Total
Europe
1,16637.6 %1,93662.4 %3,10219629.1 %47770.8 %673
North America
5746.7 %6553.3 %12200.0 %00.0 %0
South America
5437.5 %9062.5 %144150.0 %150.0 %2
Group total
1,27737.9 %2,09162.1 %3,36819729.2 %47870.8 %675
4.2. Distribution by type of contract 2020A
Permanent / Full time
Permanent / Part-time
Men
Women
Total
Men
Women
Total
Europe
39,325 50.9 %37,957 49.1 %77,282 874 11.7 %6,576 88.3 %7,450 
North America
16,681 44.9 %20,500 55.1 %37,181 135 24.9 %499 78.7 %634 
South America
29,927 46.9 %33,861 53.1 %63,788 232 25.6 %676 74.4 %908 
Group total
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
Women
Total
Men
Women
Total
Europe
992 37.4 %1,658 62.6 %2,650 211 31.4 %462 69.0 %673 
United Kingdom
184 32.7 %379 67.3 %563 0 0 %0 0 %0 
South America21 35.0 %39 65.0 %60 0 0 %0 0 %0 
Group total
1,197 36.6 %2,076 63.4 %3,273 211 31.4 %462 69.0 %673 
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
20202019
Men
Women
Total
Men
Women
Total
Employees with permanent /full time contract
85,796 94,435 180,231 87,111 97,701 184,813 
Employees with permanent/part-time contracts
1,155 7,717 8,872 1,251 8,075 9,326 
Employees with temporary/full-time contracts
1,441 2,291 3,732 1,813 2,761 4,574 
Employees with temporary/part-time contracts
211 470 681 225 526 752 
Group Total
88,603 104,913 193,516 90,401 109,064 199,465 

6.1. Annual rate of contracts by age bracket 2019
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
Employees with permanent /full time contract
12,787 60,831 59,303 20,586 31,307 184,813 
Employees with permanent/part-time contracts
1,200 2,635 2,534 902 2,056 9,326 
Employees with temporary/full-time contracts
1,294 3,854 745 174 325 4,574 
Employees with temporary/part-time contracts
247 269 151 32 53 752 
Group Total
15,527 65,771 62,733 21,694 33,740 199,465 

6.2. Annual rate of contracts by age bracket 2020
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
Employees with permanent /full time contract
10,668 58,474 59,343 20,825 30,922 180,231
Employees with permanent/part-time contracts
1,099 2,360 2,426 887 2,100 8,872
Employees with temporary/full-time contracts
1,001 1,621 652 159 298 3,732
Employees with temporary/part-time contracts
209 252 143 26 51 681
Group Total
12,977 62,707 62,564 21,898 33,370 193,516
7. Annual rate of contract by category
20202019
Senior Managers
Other Managers
Other employees
Total
Senior Managers
Other Managers
Other Employees
Total
Employees with permanent /full time contract
2,15018,911159,169180,2312,022 18,418 164,373 184,813 
Employees with permanent/part-time contracts
71548,7118,8724 227 9,095 9,326 
Employees with temporary/full-time contracts
13833,6363,73212 88 4,474 4,574 
Employees with temporary/part-time contracts
0166656810 165 587 752 
Total Grupo
2,17019,164172,182193,5162,038 18,898 178,528 199,465 

8. Employees who work in their home countryA,B
%
Managers
Other employees
Total
202020192020201920202019
 Europe
88.45 88.24 95.38 96.13 95.27 96.02 
North America
91.01 89.86 99.75 98.92 99.69 98.85 
South America
91.19 90.96 98.25 98.03 98.21 98.00 
Group total
89.30 89.09 97.24 97.34 97.15 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 regionA,B
%20202019
Europe1.641.63
North America0.210.20
South America3.273.19
Group total
1.901.84
9.2. Differently-abled employeesA,B
Number of employees
20202019
Spain
386361
Rest of the Group
3,1913,223
Total Group
3,5773,584
A. Data at year end.
B. Data from Mexico not included as it is confidential information.
10. Coverage of the workforce by collective agreementA
20202019
Countries
%
N0 Employees
%
N0 Employees
Spain
99.8029,44496.20 27,961 
Brazil
99.1942,42298.80 45,674 
Chile
100.0010,491100.00 11,267 
Poland
0.0000.00 0 
ArgentinaB
72.646,58099.20 8,188 
MexicoC
30.346,54422.50 4,429 
Portugal
99.145,96399.10 6,197 
UK
100.0020,94594.40 21,294 
US
0.0000.00 0 
SCF
98,6313,17694.00 11,663 
Other business units
60.016,84966.20 8,459 
Total Group
74.49142,41473.70 144,800 
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
aged <= 25
aged 26-35
aged 36-45
aged over 45
aged > 50
 Europe
41.4335.4214.304.404.46
North America30.7836.6415.425.1212.04
South America22.9554.7318.712.191.42
Group total
31.8442.6216.183.825.53
11.2. Distribution of new hires by age bracket 2020A
% of total
aged <= 25
aged 26-35
aged 36-45
aged over 45
aged > 50
Europe
25.9339.5723.556.134.82
North America36.4939.2914.754.504.97
South America19.6750.6722.183.973.51
Group total
28.8442.0519.584.954.58
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
20202019
Men
Women
Total
Men
Women
Total
 Europe
7.79 %6.24 %6.97 %10.56%9.50%9.98%
North America
18.14 %19.55 %18.92 %18.62%18.69%18.66%
South America9.03 %3.98 %6.34 %15.76%10.48%12.78%
Group total
10.20%8.25%9.15%13.67%11.78%12.63%
12. Distribution of dismissals A
by gender
20202019
Men
%B
Women
%B
Total
%B
Men
%B
Women
%B
Total
%B
Senior managers
301.81 %40.78 %341.56 %45 2.88 %12 2.63 %57 2.82 %
Other managers
4704.07 %2253.21 %6953.75 %752 6.4 %342 4.95 %1,094 5.86 %
Other employees
4,2675.66 %5,4665.75 %9,7335.71 %6,945 9.19 %8,245 8.23 %15,190 8.64 %
Total Group
4,7675.38 %5,6955.55 %10,4625.47 %7,742 8.71 %8,599 8 %16,341 8.32 %
by age
20202019
Men
Women
Total
Men
Women
Total
aged <=25
342363705451535986
aged 26-35
1,5021,8783,3801,9632,6034,566
aged 36-45
1,2861,9323,2181,8782,7104,588
aged 46-50
4995531,0526968661,562
aged >50
1,1379702,1072,7541,8854,639
Total Group
4,7665,696
10.462C
7,7428,59916,341
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 genderA
% of total20202019
Men
Women
Total
Men
Women
Total
Europe
8.719.469.1116.6116.2316.40
North America19.9216.8818.2223.2721.7622.43
South America
14.5414.1114.3118.1615.3816.62
Group total
12.7712.51
12.63B
18.3816.9917.61
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.
14.1 External turnover rate by age bracketA 2019
% of total
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
 Europe
39.3718.5510.437.7722.8416.40
North America
38.6424.6015.7318.4318.0122.43
South America
16.3015.0914.9117.0231.4316.62
Group total
30.3918.3112.7511.5623.5217.61
A.    Excludes temporary leaves of absence and transfers to other Group companies.
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14.2. External turnover rate by age bracketA 2020
% of total
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
Europe
26.3610.586.175.4810.589.11
North America32.5317.5214.9113.4516.3818.22
South America15.5014.1512.9612.9120.8814.31
Group total
25.2013.839.768.4013.3812.63
A. Excludes temporary leaves of absence and transfers to other Group companies.

15. By function, gender and regionA
Senior managers B
Other managers C
MenWomen
 GPG ratio
(Median) D
Men
Women
 GPG Ratio
(Median) D
Europe
432,989323,49219.00 %118,41889,36116.2 %
North America580,190460,6199.70 %184,548149,85515.6 %
South America404,829221,95329.00 %70,36652,09726.5 %
Group total
446,707318,95724.60 %117,44190,28617.2 %
Total remuneration (average)A
415,975 107,477 
Group Total 2019408,598 101,520 
Variation 2020 vs 2019
1.8%5.9%
Other employees C
Men
Women
 GPG Ratio
(Median) D
Men
Women
Ratio GPG
(Median) D
Total employees
Europe
50,98038,52420.7 %69,70144,07023.6 %56,050
North America45,34433,12517.6 %63,80538,43721.6 %49,626
South America24,03219,15315.2 %31,06420,62818.9 %25,269
Group total
40,14530,29526.3 %55,15134,47631.7 %43,867
Total remuneration (average)A
34,602 55,151 34,47631.7 %43,867
Group Total 201934,372 54,123 34,27330.8 %43,262
Variation 2020 vs 2019
0.7 %1.9 %0.6 %1.4 %


By Age Brackets
aged <= 25
aged 26-35
aged 36-45
aged 46-50
aged over 50
Total
Total remuneration (average)A
16,14026,94347,25364,86869,48243,867
Group Total 201917,59727,56347,22162,57466,21643,262
Variation 2020 vs 2019
(8.30)(2.20)0.103.704.901.40
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 euros20202019
Men
Women
Total
Men
Women
Total
Executive officers
6,247 7,239 6,743 6,571 9,952 7,698 
Non-executive officers
239207227354 251 292 
Senior officers
3,610 2,288 3,362 3,693 3,902 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
MenWomen% legal minimum wage
Germany
225.00 %193.00 %209.00 %
Argentina
338.00 %338.00 %338.00 %
Brazil
182.00 %182.00 %182.00 %
Chile
175.00 %136.00 %155.43 %
US
207.00 %207.00 %206.00 %
Spain
176.00 %176.00 %176.00 %
Mexico
128.00 %128.00 %128.00 %
Poland
100.00 %100.00 %100.00 %
Portugal
200.00 %200.00 %200.00 %
UK
130.00 %130.00 %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
MenWomen% legal minimum wage
Germany
100.32 %100.32 %100.32 %
Argentina
380.69 %380.69 %380.69 %
Brazil
178.62 %178.62 %178.62 %
Chile
179.14 %144.15 %161.64 %
US
236.45 %236.45 %236.45 %
Spain
175.29 %175.29 %175.29 %
Mexico
160.09 %160.09 %160.09 %
Poland
101.54 %100.00 %100.77 %
Portugal
188.98 %188.98 %188.98 %
UK
176.26 %176.26 %176.26 %
17. TrainingA
20202019
Total hours of training
5,913,435.048,002,784 
% employees trained
100.00100.0 
Total attendees
5,939,1586,024,981 
Hours of training per employee
30.9340.70 
Total investment in training
61,304,729102,586,146 
Investment per employee
320.65522.28 
Cost per hour
10.3712.82 
% female participants
53.6654.2 
% of e-learning training attendees
91.9784.6 
% of e-learning hours
48.0648.1 
Employee satisfaction (up to 10)
8.189.3 
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
20202019
Hours
Average
Hours
Average
Senior officers
65,27429.9777,861 38.6 
Managers
940,619 50.7 678,335 36.39 
Other employees
4,907,54228.797,246,558 41.23 
Group total
5,913,43530.938,002,784 40.74 
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19. Hours of training by gender
20202019
Average
Average
Men
31.7641.49 
Women
30.2140.13 
Group total
30.9340.74 
20. Absenteeism by gender and regionA,B ,C,D
20202019
Men
Women
Total
Men
Women
Total
Europe2.605.003.892.555.444.14
North America0.811.561.230.711.881.36
South America
2.073.993.121.623.262.53
Group total
2.083.973.111.904.003.06
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 rateA,B
%20202019
Men
Women
Total
Men
Women
Total
Europa
0.040.120.080.080.200.14
Norteamérica0.010.020.010.010.020.02
Sudamérica0.020.050.040.270.480.39
Group total
0.030.070.050.140.270.21
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 safetyA,B,C
20202019
Men
Women
Total
Men
Women
Total
Frequency rateD
1221.61 2.41 1.77 
Severity rateE
0.030.10.070.14 0.27 0.21 
No. of fatal occupational accidents
1010 1 1 
Work related illnessF
0000 0 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 customersA
20202019
var.
Europa
65,080,571 66,278,825 (2)%
España
13,970,512 13,711,173 2%
Portugal
3,047,020 3,062,608 (1)%
Reino UnidoB
25,156,638 25,078,945 —%
Polonia
5,213,476 5,047,909 3%
SCFC,D
17,598,056 19,286,148 (9)%
Resto Europa
94,869 92,042 3%
Norte América
24,034,601 23,395,482 3%
México
18,898,106 18,134,468 4%
Estados Unidos
5,136,495 5,261,014 (2)%
Sudamérica
56,929,320 53,933,059 6%
Brasil
48,347,665 46,089,431 5%
Chile
3,605,104 3,415,807 6%
Argentina
3,913,086 3,548,366 10%
Resto Sudamérica
1,063,465 879,455 21%
SGPE
2,211,543 1,187,935 86%
Total
148,256,035 144,795,301 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
20202019
Var .2020/2019 %.
Branches
Number of branches
11,236 11,952 (6.0)%
ATMs
Nº ATMs
40,451 39,593 2.2 %
Digital bankingA
UsersB
42.36 36.8 15.1 %
Visits
9,860 7,907 24.7 %
Monetary transactionsC
2,803 2,251 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
202020192018
SpainA
150,298 91,046 85,519 
PortugalB
4,036 4,655 4,298 
United KindomC
22,625 30,298 33,797 
Poland
6,057 6,193 4,480 
Brazil
146,067 133,841 111,829 
Mexico
80,031 75,459 60,740 
ChileD
8,328 6,474 6,171 
ArgentinaE
3,512 4,106 5,464 
US
4,292 4,097 4,160 
SCF
39,064 30,535 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 2019-2020A
20202019
Var. 2019-2020 (%)
Consumption
Water (m3)B
2,064,1132,938,024-29.7
Water (m3/employee)
11.0715.20-27.1
Normal electricity (millions of kwh)
395548-27.9
Green electricity (millions of kwh)
5265171.8
Total electricity (millions of kwh)
9201,064-13.5
Total internal energy consumption (GJ)C
3,758,2254,322,838-13.1
Total internal energy consumption (GJ/employee)
20.1622.37-9.9
Total paper (t)
8,90216,497-46.0
Recycled or certified paper (t)
7,34813,784-46.7
Total paper (t/employee)
0.050.09-44.1
Waste
— 
Paper and cardboard waste (kg)4
5,926,1399,705,579-2.1
Paper and cardboard waste (kg/employee)
31.7950.22-1.7
Greenhouse gas emissions
— 
Direct emissions (CO2 teq)E,F
24,81827,673-10.3
Indirect electricity emissions (CO2 teq)-MARKET BASEDG
128,633183,745-30.0
Indirect electricity emissions (CO2 teq)-LOCATION BASED
282,216322,414-12.5
Indirect emissions from displacement of employees (CO2 teq)H, I
40,708120,969-66.3
Total emissions (CO2 teq)- MARKET BASED
194,159332,387-41.6
Total emissions (CO2 teq/employee)
1.041.72-39.4
Average number of employees
186,429193,261-3.5
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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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
report where the info is available
Correspondence
with GRI indicators
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.
GRI 102-1
GRI 102-2
GRI 102-3
GRI 102-4
GRI 102-6
GRI 102-7
GRI 102-14
GRI 102-15
0. General Information
A description of the policies that the Group applies, which will include: the due diligence procedures applied 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):
Governance and priorities. Environmental and social risk analysis


GRI 103-2
GRI 103-3
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.
GRI 103-2
GRI 103-3
A talented and motivated team.
Governance and priorities. Responsible business practices.
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.
Supporting the green transition, Acting responsibly towards customers, Environmental and social risk analysis. Risk management and compliance chapter.
GRI 102-15
GRI 102-30
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
GRI 102-29
GRI 102-31
GRI 201-2
GRI 103-2 (GRI of environmental dimension)
Environmental footprint.
GRI 102-11
GRI 102-29
Environmental and social risks analysis
GRI 102-11
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 102-11
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Correspondence
with GRI indicators
1. Environmental Information
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.
Environmental footprint.
GRI 103-2 (GRI 302 y 305)
Circular economy and waste prevention and management:
Waste prevention measures, waste recycling measures, waste reuse measures; other forms of waste recovery and reuse; actions against food waste.
Environmental footprint.
GRI 103-2
(GRI 306)
GRI 301-2
GRI 306-1
Sustainable use of resources:
Use and supply of water according to local limitations
Environmental footprint. Key metrics
GRI 303-5
Consumption of raw materials and measures taken to improve the efficiency of its use.
Environmental footprint. Key metrics
GRI 103-2
(GRI 301)
GRI 301-1
GRI 301-2
Energy: direct and indirect consumption, measures taken to improve energy efficiency, use of renewable energies
Environmental footprint. Key metrics
GRI 103-2
(GRI 302)
GRI 302-1
GRI 302-3
Climate change:
Important elements of greenhouse gas emissions generated as a business activity (including goods and services produced)
Environmental footprint. Key metrics
GRI 103-2
(GRI 305)
GRI 305-1
GRI 305-2
GRI 305-3
GRI 305-4
Measures taken to adapt to the consequences of climate change
Supporting the green transition., Environmental footprint.
GRI 103-2
(GRI 305)
GRI 201-2
Reduction targets voluntarily established in the medium and long term to reduce greenhouse gas emissions and means implemented for this purpose.
Environmental footprint.
GRI 103-2
(GRI 305)
Protection of biodiversity:
Measures taken to preserve or restore biodiversity
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.
-
Impacts caused by the activities or operations of protected areas
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Description of the metric/concept included in the 11/2018 Law to be disclosed
Chapters/section of the Consolidated directors
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Correspondence
with GRI indicators
2. Social
Employment:
Total number and distribution of employees by gender, age, country and professional classification
Key Metrics.
GRI 103-2
(GRI 401)
GRI 102-8
GRI 405-1
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.
GRI 102-8
GRI 405-1
Number of dismissals by: gender, age and professional classification.
Key Metrics.
GRI 401-1
Average remuneration and its progression broken down by gender, age and professional classification
Key Metrics.
GRI 405-2
Salary gap and remuneration of equal or average jobs in society
A talented and motivated team, Diversity and Inclusion section.
GRI 103-2
(GRI 405)
GRI 405-2
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)
Key Metrics.
GRI 102-35
GRI 102-36
GRI 103-2
(GRI 405)
Implementation of work disconnection policies
A talented and motivated team, 3. The way we work section.
GRI 103-2
(GRI 401)
Employees with disabilities
Key metrics. A talented and motivated team, section 5: Our wellbeing.
GRI 405-1
Organisation of work:
Organisation of work time
A talented and motivated team, 3. The way we work section.
GRI 103-2
(GRI 401)
Number of absent hours
Key Metrics. A talented and motivated team, section 5: Our wellbeing.
GRI 403-9
Measures designed to facilitate work-life balance and encourage a jointly responsible use of said measures by parents
A talented and motivated team, 3. The way we work section.
GRI 103-2
(GRI 401)
Health and safety:
Conditions of health and safety in the workplace
A talented and motivated team, section 5: Our wellbeing.
GRI 102-41
Occupational accidents, in particular their frequency and severity, as well as occupational illnesses. Broken down by gender.
Key Metrics. A talented and motivated team, section 5: Our wellbeing.
GRI 403-9
GRI 403-10
Social relations:
Organisation of social dialogue (including procedures to inform and consult staff and negotiate with them)
What our stakeholders tell us. A talented and motivated team, Social dialogue and restructuring section. Acting responsibly towards customers
GRI 103-2
(GRI 402)
Percentage of employees covered by collective bargaining agreements by country
Key Metrics.
GRI 102-41
Balance of the collective bargaining agreements (particularly in the field of health and safety in the workplace)
A talented and motivated team, section 5: Our wellbeing.
GRI 403-6
GRI 403-9
Training:
The policies implemented in the field of training
A talented and motivated team, Talent management section.
GRI 103-2
(GRI 404)
GRI 404-2
Total number of hours of training by professional categories.
Key Metrics.
GRI 404-1
Accessibility:
Universal accessibility of people
A talented and motivated team, People with disabilities section. Acting responsibly towards customers. Higher education.
GRI 103-2
(GRI 405)
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, Diversity and Inclusion section.
GRI 103-2 (GRI 405 and 406)
Higher education.
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report where the info is available
Correspondence
with GRI indicators
3. Human Rights
Application of due diligence procedures in the field of Human RightsGovernance and priorities. Environmental and social risk analysis. Responsible Procurement.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 committedGovernance and priorities. Environmental and social risk analysis. Responsible Procurement.GRI 410-1
GRI 412-1
GRI 412-3
Complaints about cases of human rights violationsA talented and motivated team, , 1. Speaking up, active listening and taking action.GRI 406-1
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, Social dialogue and restructuring sectionGRI 103-2
(GRI 406)
4. Fight against corruption
Measures taken to prevent corruption and briberyGovernance and priorities. Risk management and compliance chapter, section 7.2 Compliance and conduct risk managementGRI 102-16
GRI 102-17
Measures to combat money launderingGovernance and priorities. Risk management and compliance chapter, section 7.2 Compliance and conduct risk managementGRI 103-2
(GRI 205)
GRI 205-1
GRI 205-2
GRI 205-3
Contributions to non-profit foundations and entitiesCommunity investment.GRI 413-1
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Correspondence
with GRI indicators
5.Information on the company
Commitments of the company to sustainable development:
The impact of the company’s activity on employment and local developmentHigher education. Community investment. Financial inclusion and empowerment.GRI 103-2
(GRI 203)
GRI 203-1
GRI 203-2
GRI 413-1
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
Relations maintained with the representatives of local communities and the modalities of dialogue with them.What our stakeholders tell us.GRI 102-43
GRI 413-1
Association or sponsorship actionsHigher education. Community investment.GRI 102-12
GRI 102-13
Outsourcing and suppliers:
Inclusion of social, gender equality and environmental issues in the procurement policyResponsible procurement.GRI 103-2 (GRI
204, 308 and 414)
Consideration in relations with suppliers and subcontractors of their responsibilityResponsible procurement.GRI 102-9
GRI 103-2 (GRI 204, 308 and 414)
GRI 204-1
GRI 308-1
GRI 414-1
Supervision and audit systems and resolution thereofResponsible procurement.GRI 103-2
(GRI 204)
Consumers:
Measures for the health and safety of consumersActing responsibly towards customers. Risk management and compliance chapter, section 7.2 Compliance and conduct risk managementGRI 103-2 (GRI 416, 417 and 418)
GRI 416-1
GRI 417-1
G4-FS15
Systems for complaints received and resolution thereofActing responsibly towards customers.
Key metrics. Risk management and complince chapter, section 7.2 Compliance and conduct risk management. GRI content index.		GRI 102-17
GRI 103-2 (GRI 416, 417 and 418)
GRI 416-2
GRI 417-2
GRI 418-1
Tax information:
The profits obtained country by countryAuditor's report and annual consolidate accounts.GRI 103-2
(GRI 201)
Taxes earned on benefits paid
Tax contribution.
Public grants received
GRI content index.
GRI 201-4
Any other relevant information:
*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.
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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.

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)

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


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.
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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 reportA
•Culture reportA
•Financial empowerment reportA
•Climate finance reportB

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.
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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.

2020 Annual Report- Responsible Banking chapter





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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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)


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


2020 Annual Report- Responsible Banking chapter - 2020 highlights

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
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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.

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.

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


3.2. 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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Principle 4: Stakeholders
We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.

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.


Annual report 2020 - Responsible banking chapter
• Governance and priorities
• What our stakeholders tell us

 
Other references:
- Stakeholder engagement & material concerns reportA


A. (These report is from 2019 and is available in our Corporate Website.)


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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.
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

2020Annual Report-
Corporate Governance chapter

Other references:
-2019 Stakeholder engagement & material concerns reportA
-2019 Culture thematic reportA


A. (These reports are from 2019 and are available in our corporate website: www.santander.com)



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.
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.
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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.

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.

  

2020 Annual Report-
Responsible Banking chapter



Other references:
-2019 Stakeholder engagement & material concerns reportA

A. (These report is from 2019 and is available at our Corporate Website.)




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.






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Global Reporting Initiative
(GRI) content index
GRI Standards: GENERAL DISCLOSURES
GRI Standard
Disclosure
Page
Omission
GRI 101: FOUNDATION
GRI 102: GENERAL DISCLOSURES
ORGANISATIONAL PROFILE
102-1 Name of the organization
Business model and strategy
-
102-2 Activities, brands, products, and services
Business model and strategy
-
102-3 Location of headquarters
Business model and strategy
-
102-4 Location of operations
Business model and strategy
-
102-5 Ownership and legal form
Business model and strategy
-
102-6 Markets served
Business model and strategy
-
102-7 Scale of the organization
Business model and strategy. Key Metrics
-
102-8 Information on employees and other workers
Key metrics
1
102-9 Supply chain
Responsible procurement
-
102-10 Significant changes to the organization and its supply chain
Responsible procurement
-
102-11 Precautionary Principle or approach
Environmental and social risk analysis, Environmental and social risk management policy section
-
102-12 External initiatives
Governance and priorities, Joint initiatives to promote our agenda section. Shareholder value, ESG indices and analysts section.
-
102-13 Membership of associations
Santander participates in industry associations representing financial activity in the countries where it operates, as the AEB in the case of Spain
-
STRATEGY
102-14 Statement from senior decision-maker
Chairman's letter.
-
102-15 Key impacts, risks, and opportunities
A strong and inclusive culture: The Santander Way. What our stakeholders tell us. Supporting the green transition. Risk management and compliance chapter.
-
ETHICS AND INTEGRITY
102-16 Values, principles, standards, and norms of behaviour
Governance and priorities. A strong and inclusive culture: The Santander Way. Acting responsibly towards customers.
-
102-17 Mechanisms for advice and concerns about ethics
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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GRI Standard
Disclosure
Page
Omission
GOVERNANCE
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
Corporate Governance chapter of the annual report.
-
102-21 Consulting stakeholders on economic, environmental, and social topics
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
What our stakeholders tell us. Shareholder value. Corporate Governance chapter of the annual report. Auditor's report and consolidated annual accounts.
-
102-24 Nominating and selecting the highest governance body
What our stakeholders tell us. Shareholder value. Corporate Governance chapter of the annual report. Auditor's report and consolidated annual accounts.
-
102-25 Conflicts of interest
What our stakeholders tell us. Corporate Governance chapter of the annual report. Auditor's report and consolidated annual accounts.
-
102-26 Role of highest governance body in setting purpose, values, and strategy
Shareholder value. Corporate Governance chapter of the annual report. Auditor's report and consolidated annual accounts.
-
102-27 Collective knowledge of highest governance body
Shareholder value. Corporate Governance chapter of the annual report. Auditor's report and consolidated annual accounts.
-
102-28 Evaluating the highest governance body’s performance
Shareholder value. Corporate Governance chapter of the annual report. Auditor's report and consolidated annual accounts.
-
102-29 Identifying and managing economic, environmental, and social impacts
Auditor's report and consolidated annual accounts. Risk management and compliance. Supporting the green transition
-
102-30 Effectiveness of risk management processes
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
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.
-
102-33 Communicating critical concerns
Auditor's report and consolidated annual accounts.
-
102-34 Nature and total number of critical concerns
Principles and governance. Acting responsibly towards customers.
-
102-35 Remuneration policies
A talented and engaged team, Diversity and inclusion section, equal pay subsection. Corporate Governance chapter of the Annual Report.
-
102-36 Process for determining remuneration
What our stakeholders tell us. Shareholder's value.Corporate Governance Chapter of the Annual Report. Report of the supervisory, risk and regulations committee.
-
102-37 Stakeholders’ involvement in remuneration
What our stakeholders tell us. Shareholder's value. Corporate Governance Chapter of the Annual Report. Report of the supervisory, risk and regulations committee.
-
102-38 Annual total compensation ratio
A talented and engaged team.
2
102-39 Percentage increase in annual total compensation ratio
A talented and engaged team.
2
STAKEHOLDER ENGAGEMENT
102-40 List of stakeholder groups
What our stakeholders tell us.
-
102-41 Collective bargaining agreements
What our stakeholders tell us.
-
102-42 Identifying and selecting stakeholders
What our stakeholders tell us.
-
102-43 Approach to stakeholder engagement
What our stakeholders tell us.
-
102-44 Key topics and concerns raised
What our stakeholders tell us.
-
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Page
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REPORTING PRACTICE
102-45 Entities included in the consolidated financial statements
Further information section of this chapter. Auditor's report and consolidated annual accounts.
-
102-46 Defining report content and topic Boundaries
Our approach. Further information sections of this chapter.
-
102-47 List of material topics
What our stakeholders tell us.
-
102-48 Restatements of information
Further information section of this chapter
-
102-49 Changes in reporting
Further information section of this chapter
-
102-50 Reporting period
Further information section of this chapter
-
102-51 Date of most recent report
Further information section of this chapter
-
102-52 Reporting cycle
Further information section of this chapter
-
102-53 Contact point for questions regarding the report
General information chapter.
-
102-54 Claims of reporting in accordance with the GRI Standards
Further information section of this chapter
-
102-55 GRI content index
GRI Content Index.
-
102-56 External assurance
Further information section of this chapter.
-

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GRI Standards: Topic-specific diclosures
Identified material aspect
Material aspect boundary
GRI Standard
Disclosure
Page
Scope
Omission
ECONOMIC STANDARDS
ECONOMIC PERFORMANCE
Ethical behaviour and risk management / Compliance and adapting to regulatory changes

Internal and external
GRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us. "Material aspect boundary" of GRI Content Index --
103-2 The management approach and its componentsPrinciples and governance "Page" of the GRI 201: Economic Performance" --
103-3 Evaluation of the management approachPrinciples and governance "Page" of the GRI 201: Economic Performance" --
€ million
2020
GRI 201: ECONOMIC PERFORMANCE
Economic value generated1
44,543 
Gross income44,600 
Net loss on discontinued operations0 
Gains/(losses) on disposal of assets not classified as non-current held for sale114 
Gains/(losses) on disposal of assets not classified as discontinued operations-171 
Economic value distributed24,156 
Dividends0 
Other administrative expenses (except taxes)7,537 
Personnel expenses10,783 
Income tax and other taxes2
5,632 
CSR investment204 
201-1 Direct economic value generated and distributedEconomic value retained (economic value generated less economic value distributed)20,387 Group-
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.

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201-2 Financial implications and other risks and opportunities due to climate changeSupporting the green transition. Key metrics
Group		-
201-3 Defined benefit plan obligations and other retirement plansThe 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.Group-
201-4 Financial assistance received from governmentThe Bank has not received significant subsidies or public aids during 2020. The detail may be consulted in Auditor´s report and annual consolidated accounts.Group-
MARKET PRESENCE
Attracting and retaining talent / Diversity / Community investmentInternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsA strong and inclusive culture:
The Santander Way Column “Page” of the GRI 201: Economic Performance.		--
103-3 Evaluation of the management approachA strong and inclusive culture:
The Santander Way. Column “Page” of the GRI 201: Economic Performance.		--
GRI 202: MARKET PRESENCE202-1 Ratios of standard entry level wage by gender compared to local minimum wageKey metrics.Group-
202-2 Proportion of senior management hired from the local communityKey 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-
INDIRECT ECONOMIC IMPACT
Community investmentExternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsFinancial inclusion and empowerment Community investment.--
103-3 Evaluation of the management approachFinancial inclusion and empowerment Community investment.--
GRI 203: INDIRECT ECONOMIC IMPACT203-1 Infrastructure investments and services supportedHigher education. Community investment.Group-
203-2 Significant indirect economic impactsHigher education. Community investment.Group-
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PROCUREMENT PRACTICES
Ethical behaviour and risk managementExternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsResponsible procurement.--
Ethical behaviour and risk managementExternalGRI 204: PROCUREMENT PRACTICES103-3 Evaluation of the management approachResponsible procurement.--
204-1 Proportion of spending on local suppliersResponsible procurement.Group3
ANTI-CORRUPTION
Ethical behaviour and risk management / Compliance and adapting to regulatory changes / Corporate governance-transparencyInternal and ExternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its components2020 highlights. A strong and inclusive culture: The Santander Way--
103-3 Evaluation of the management approach2020 highlights. A strong and inclusive culture: The Santander Way--
GRI 205: ANTI-CORRUPTION205-1 Operations assessed for risks related to corruptionRisk management and compliance chapterGroup-
205-2 Communication and training about anti-corruption policies and proceduresRisk management and compliance chapterGroup-
205-3 Confirmed incidents of corruption and actions takenRisk management and compliance chapterGroup4

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ANTI-COMPETITIVE BEHAVIOR
Ethical behaviour and risk management / Compliance and adapting to regulatory changesInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its components2020 highlights. A strong and inclusive culture: The Santander Way, and column “Page” of the GRI 206: Anti-competitive Behaviour.--
103-3 Evaluation of the management approach2020 highlights. A strong and inclusive culture: The Santander Way, and column “Page” of the GRI 206: Anti-competitive Behaviour.--
GRI 206: ANTI-COMPETITIVE BEHAVIOUR206-1 Legal actions for anti-competitive behaviour, anti-trust, and monopoly practices
•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.
Group5
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Compliance and risk management / Ethical behaviour Internal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its components2020 highlights. A strong and inclusive culture: The Santander Way,and column “Page” of the GRI 207: Tax.--
103-3 Evaluation of the management approach2020 highlights. A strong and inclusive culture: The Santander Way,and column “Page” of the GRI 207: Tax.--
GRI 207: TAX207-1 Approach to taxTax contributionGroup-
207-2 Tax governance, control, and risk managementTax contributionGroup-
207-3 Stakeholder engagement and management of concerns related to taxTax contributionGroup-
207-4 Country-by-country reportingInformation breakdown is not available, work is under way to present this information.--
ENVIRONMENTAL STANDARDS
MATERIALS
Internal environmental footprintInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us, and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsSupporting the green transition. Environmental footprint.--
103-3 Evaluation of the management approachSupporting the green transition. Environmental footprint.--
Internal environmental footprintInternal and externalGRI 301: MATERIALS301-1 Materials used by weight or volumeEnvironmental footprint. Key metrics. Group6
301-2 Recycled input materials usedThe percentage of the environmentally-friendly paper consumption with respect to the total consumption is 83%. This percentage includes both recycled and certified paper.Group6
301-3 Reclaimed products and their packaging materialsNot applicable due to the type of Group financial activity.Group-
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ENERGY
Internal environmental footprintInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsSupporting the green transition. Environmental footprint.--
103-3 Evaluation of the management approachSupporting the green transition. Environmental footprint.--
GRI 302: ENERGY302-1 Energy consumption within the organizationEnvironmental footprint. Key metrics.Group6
302-2 Energy consumption outside of the organizationKey metrics.Group6
302-3 Energy intensityKey metrics.Group6
302-4 Reduction of energy consumptionAn specific analysis of cause and effect relation for the implemented measures and of the obtained reduction is not available.Group-
302-5 Reductions in energy requirements of products and servicesNot applicable due to the type of Group financial activity.Group-
WATER
Internal environmental footprintInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsSupporting the green transition. Environmental footprint.--
103-3 Evaluation of the management approachSupporting the green transition. Environmental footprint.--
GRI 303: WATER AND EFFLUENTS303-1 Interactions with water as a shared resourceEnvironmental footprint. Group-
303-2 Management of water discharge-related impactsNot applicable due to the type of Group financial activity.Group-
303-3 Water withdrawalEnvironmental footprint. Key metrics.Group6
303-4 Water dischargeNot applicable due to the type of Group financial activity.Group-
303-5 Water consumptionEnvironmental footprint.Group-
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BIODIVERSITY
103-1 Explanation of the material topic and its boundaryNot material--
103-2 The management approach and its componentsNot material--
103-3 Evaluation of the management approachNot material--
304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areasNot materialGroup-
304-2 Significant impacts of activities, products, and services on biodiversityNot materialGroup-
304-3 Habitats protected or restoredNot materialGroup-
304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operationsNot materialGroup-
EMISSIONS
Internal environmental footprintInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsSupporting the green transition. Environmental footprint.--
103-3 Evaluation of the management approachSupporting the green transition. Environmental footprint.--
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Internal environmental footprintInternal and externalGRI 305: EMISSIONS305-1 Direct (Scope 1) GHG emissionsEnvironmental footprint. Key metrics.Group6
305-2 Energy indirect (Scope 2) GHG emissionsEnvironmental footprint. Key metrics.Group6
305-3 Other indirect (Scope 3) GHG emissionsEnvironmental footprint. Key metrics.Group6
305-4 GHG emissions intensityKey metrics.Group6
305-5 Reduction of GHG emissionsAn specific analysis of cause and effect relation for the implemented measures and of the obtained reduction is not available.Group-
305-6 Emissions of ozone-depleting substances (ODS)Not applicable due to the type of Group financial activity.Group-
305-7 Nitrogen oxides (NOX), sulfur oxides (SOX), and other significant air emissionsNot applicable due to the type of Group financial activity.Group-
EFFLUENTS AND WASTE
Internal environmental footprintInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsSupporting the green transition. Environmental footprint.--
103-3 Evaluation of the management approachSupporting the green transition. Environmental footprint.--
GRI 306: EFFLUENTS AND WASTE306-1 Water discharge by quality and destinationNot applicable due to the type of Group financial activity.Group-
306-2 Waste by type and disposal methodEnvironmental footprint and Key metrics.Group6
306-3 Significant spillsNot applicable due to the type of Group financial activity.Group-
306-4 Transport of hazardous wasteNot applicable due to the type of Group financial activity.Group-
306-5 Water bodies affected by water discharges and/or runoffNot applicable due to the type of Group financial activity.Group-
ENVIRONMENTAL COMPLIANCE
Ethical behaviour and risk management / Compliance and adapting to regulatory changesInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsA strong and inclusive culture:
The Santander Way		--
103-3 Evaluation of the management approachA strong and inclusive culture:
The Santander Way		--
GRI 307: ENVIRONMENTAL COMPLIANCE307-1 Non-compliance with environmental laws and regulationsThe 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.Group5
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SUPPLIER ENVIRONMENTAL ASSESSMENT
Ethical behaviour and risk managementInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsResponsible procurement.--
103-3 Evaluation of the management approachResponsible procurement.--
GRI 308: SUPPLIER ENVIRONMENTAL ASSESSMENT308-1 New suppliers that were screened using environmental criteriaResponsible procurement.Group3, 7
308-2 Negative environmental impacts in the supply chain and actions takenResponsible procurement.Group3, 7

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SOCIAL STANDARDS
EMPLOYMENT
Attracting and retaining talent / DiversityInternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsA talented and engaged team, talent management section.--
103-3 Evaluation of the management approachA talented and engaged team, talent management section.--
401-1 New employee hires and employee turnoverA talented and engaged team, talent management section. Key metrics.Group-
GRI 401: EMPLOYMENT401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employeesBenefits detailed in "A talented and engaged team", section "Corporate benefits" are regarding only full-time employees.Group-
401-3 Parental leaveInformation breakdown is not available, work is under way to present this information.Group-
LABOUR/MANAGEMENT RELATIONS
Attracting and retaining talent / DiversityInternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsColumn "Page" of the GRI 402: Labour/Management relations" --
103-3 Evaluation of the management approachColumn "Page" of the GRI 402: Labour/Management relations" --
GRI 402: LABOR/ MANAGEMENT RELATIONS402-1 Minimum notice periods regarding operational changesSantander 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-
OCCUPATIONAL HEALTH AND SAFETY
Attracting and retaining talent / DiversityInternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsA talented and engaged team. Column "Page" of the GRI 403: Occupational Safe and Safety.--
103-3 Evaluation of the management approachA talented and engaged team. Column "Page" of the GRI 403: Occupational Safe and Safety.--
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Attracting and retaining talent / DiversityInternalGRI 403: OCCUPATIONAL HEALTH AND SAFETY403-1 Occupational health and safety management systemBanco 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-
403-2 Hazard identification, risk assessment, and incident investigationA talented and engaged team, section 5: Our wellbeing.Group-
403-3 Occupational health servicesA talented and engaged team, section 5: Our wellbeing.Group-
403-4 Worker participation, consultation, and communication on occupational health and safetyAt Banco Santander SA, the percentage of
Representation in the Security Committee is 100%.		Banco Santander S.A. and SCF-
403-5 Worker training on occupational health and safetyA talented and engaged team, section 5: Our wellbeing.Group-
403-6 Promotion of worker healthA talented and engaged team, section 5: Our wellbeing.Group-
403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationshipsNot applicable due to the type of Group financial activity.Group
403-8 Workers covered by an occupational health and safety management system100% of Banco Santander employees are covered by health and safety management systems at work.Group1
403-9 Work-related injuriesA talented and engaged team, section 5: Our wellbeing. Key metrics.Group1
403-10 Work-related ill healthKey metrics.Group1
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TRAINING AND EDUCATION
Attracting and retaining talent / DiversityInternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsA talented and engaged team. “Page” of the GRI 404: Training and education. --
103-3 Evaluation of the management approachA talented and engaged team. “Page” of the GRI 404: Training and education. --
GRI 404: TRAINING AND EDUCATION404-1 Average hours of training per year per employeeA talented and engaged team, "Talent management" section. Key metrics.Group-
404-2 Programs for upgrading employee skills and transition assistance programsBanco 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.Group-
404-3 Percentage of employees receiving regular performance and career development omissions. A talented and engaged team, "Talent management" section. Regular performance and career development are received by the 100% of the employees.Group-
DIVERSITY AND EQUAL OPPORTUNITY
Attracting and retaining talent / Diversity / Incentives tied to ESG criteriaInternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsA talented and engaged team. "Diversity and Inclusion" section.--
103-3 Evaluation of the management approachA talented and engaged team. "Diversity and Inclusion" section.--
Attracting and retaining talent / Diversity / Incentives tied to ESG criteriaInternalGRI 405: DIVERSITY AND EQUAL OPPORTUNITIES405-1 Diversity of governance bodies and employeesA talented and engaged team. "Diversity and Inclusion" section. Key metrics. Corporate governance chapter of the Annual Report.Group-
405-2 Ratio of basic salary and remuneration of women to menA talented and engaged team. "Diversity and Inclusion" section. Key metrics. Group8
NON-DISCRIMINATION
Ethical behaviour and risk management / Compliance and adapting to regulatory changesInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsA talented and engaged team. "Diversity and Inclusion" section--
103-3 Evaluation of the management approachA talented and engaged team. "Diversity and Inclusion" section.--
GRI 406: NON-DISCRMINATION406-1 Incidents of discrimination and corrective actions takenA talented and engaged team, section 1: "Speaking up, active listening and taking action". Risk management and compliance chapter. Group-
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FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING
Not materialNot applicableGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryNot material--
103-2 The management approach and its componentsNot material--
103-3 Evaluation of the management approachNot material--
GRI 407: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at riskNot materialGroup-
CHILD LABOR
Not materialNot applicableGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryNot material--
103-2 The management approach and its componentsNot material--
103-3 Evaluation of the management approachNot material--
GRI 408: CHILD LABOR408-1 Operations and suppliers at significant risk for incidents of child laborNot materialGroup-

Identified material aspect
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GRI Standard
Disclosure
Page
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Omission
FORCED OR COMPULSORY LABOR
Not materialNot applicableGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryNot material--
103-2 The management approach and its componentsNot material--
103-3 Evaluation of the management approachNot material--
GRI 409: FORCED OR COMPULSORY LABOR409-1 Operations and suppliers at significant risk for incidents of forced or compulsory laborNot materialGroup-
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SECURITY PRACTICES
Ethical behaviour and risk management / Compliance and adapting to regulatory changesInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsColumn "Page" of the GRI 410: Security Practices.--
103-3 Evaluation of the management approachColumn "Page" of the GRI 410: Security Practices. --
GRI 410: SECUTIRY PRACTICES410-1 Security personnel trained in human rights policies or proceduresSantander requires to its Safety Services suppliers during the hiring process compliance with Human Rights RegulationsBanco Santander S.A.-
RIGHTS OF INDIGENOUS PEOPLES
Ethical behaviour and risk management / Compliance and adapting to regulatory changesExternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsColumn "Page" of the GRI 411: Rights of Indigenous People --
103-3 Evaluation of the management approachColumn “Page” of the GRI 411: Rights of Indigenous People. --
GRI 411: RIGHTS OF INIDGENOUS PEOPLE411-1 Incidents of violations involving rights of indigenous peopleThe 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.Group9
HUMAN RIGHTS ASSESSMENT
Ethical behaviour and risk management / Compliance and adapting to regulatory changesExternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsColumn "Page" of the GRI 412: Human Rights assessment--
103-3 Evaluation of the management approachColumn "Page" of the GRI 412: Human Rights assessment --
Ethical behaviour and risk management / Compliance and adapting to regulatory changesExternalGRI 412: HUMAN RIGHTS ASSESSMENT412-1 Operations that have been subject to human rights Omissions or impact
assessments		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.Group9
412-2 Employee training on human rights policies or proceduresA talented and engaged team, Learning and development section.Group10
412-3 Significant investment agreements and contracts that include human rights clauses or that underwent human rights screeningThe 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.Group10
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LOCAL COMMUNITIES
Community investmentExternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.Group-
103-2 The management approach and its componentsFinancial inclusion and empowerment, Supporting higher education, Community investment and Supporting the green transition.Group-
103-3 Evaluation of the management approachFinancial inclusion and empowerment, Supporting higher education, Community investment and Supporting the green transition.Group-
GRI 413: LOCAL COMMUNITIES413-1 Operations with local community engagement, impact assessments, and development programsFinancial 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-
413-2 Operations with significant actual and potential negative impacts on local communitiesEnvironmental and social risk analysisGroup-
SUPPLIER SOCIAL ASSESSMENT
Control and management of risks, ethics and complianceInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsResponsible procurement.--
103-3 Evaluation of the management approachResponsible procurement.--
GRI 414: SUPPLIER SOCIAL ASSESSMENT414-1 New suppliers that were screened using social criteriaResponsible procurement.Group3, 7
414-2 Negative social impacts in the supply chain and actions takenResponsible procurement.Group3, 7
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PUBLIC POLICY
Ethical behaviour and risk management / Compliance and adapting to regulatory changesInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its components2020 highlights,A strong and inclusive culture: The Santander Way. A talented and engaged team. Government and priorities “Page” of the GRI 415: Public Policy.--
103-3 Evaluation of the management approach2020 highlights,A strong and inclusive culture: The Santander Way. A talented and engaged team. Government and priorities “Page” of the GRI 415: Public Policy.--
GRI 415: PUBLIC POLICY415-1 Political contributionsThe 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 ConductGroup-
CUSTOMER HEALTH SAFETY
Products and services that are transparent and fairGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsActing responsibly towards our customers, protecting consumers and helping
vulnerable customers section		--
103-3 Evaluation of the management approachActing responsibly towards our customers, protecting consumers and helping
vulnerable customers section.		--
GRI 416: CUSTOMER HEALTH AND SAFETY416-1 Assessment of the health and safety impacts of product and service categoriesResponsible 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.  Group-
416-2 Incidents of non-compliance concerning the health and safety impacts of products and servicesThe 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.Group5
MARKETING AND LABELING
Products and services that are transparent and fairInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsActing responsibly towards our customers, protecting consumers and helping
vulnerable customers section.		--
103-3 Evaluation of the management approachActing responsibly towards our customers, protecting consumers and helping
vulnerable customers section.		--
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Omission
Products and services that are transparent and fairInternal and externalGRI 417: MARKETING AND LABELING417-1 Requirements for product and service information and labelingResponsible 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		Group-
417-2 Incidents of non-compliance concerning product and service information and labeling
•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.

Group5
417-3 Incidents of non-compliance concerning marketing communications
•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.
Group5
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Identified material aspect
Material aspect boundary
GRI Standard
Disclosure
Page
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CUSTOMER PRIVACY
Measures taken for customer satisfactionInternal and ExternalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its componentsActing responsibly towards our customers,
--
103-3 Evaluation of the management approachResponsible business practices
--
GRI 418: CUSTOMER PRIVACY418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer dataThe 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.Group5
SOCIOECONOMIC COMPLIANCE
Products and services that are transparent and fair / Ethical behaviour and risk managementInternal and externalGRI 103: MANAGEMENT APPROACH103-1 Explanation of the material topic and its boundaryWhat our stakeholders tell us and column "Material aspect boundary" of GRI Content Index.--
103-2 The management approach and its components2020 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.		--
103-3 Evaluation of the management approach2020 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.		--
GRI 419: SOCIOECONOMIC COMPLIANCE419-1 Non-compliance with laws and regulations in the social and economic areaThe 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.Group5
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GRI Standards - financial services sector disclosures
Identified material aspect
Material aspect boundary
G4 Standard
Disclosure
Page
Scope
Omission
FINANCIAL SERVICES SECTOR DISCLOSURES
PRODUCT PORTFOLIO
Ethical behaviour and risk management / Compliance and adapting to regulatory changes / Products and services that are transparent and fair / Products and services offering social and environmental added valueInternal and externalFS1Policies with specific environmental and social components applied to business linesGovernance and priorities, Supporting the green transition and Environmental and social risks analysis.Group-
FS2Procedures for assessing and screening environmental and social risks in business linesGovernance and priorities, Supporting the green transition and Environmental and social risks analysisGroup-
FS3Processes for monitoring clients´ implementation of and compliance with environmental and social requirements included in agreements of transactionsGovernance and priorities, Supporting the green transition and Environmental and social risks analysis.Group-
FS4Process(es) for improving staff competency to implement the environmental and social policies and procedures as applied to business linesSupporting the green transition, Management and staff training section.Group-
FS5Interactions with clients/ investees/business partners regarding environmental and social risks and opportunities2020 highlights. Governance and priorities, Joint initiatives to promote our agenda section. Shareholder value. Risk management and compliance chapter.Group-
FS6Percentage of the portfolio for business lines by specific region, size (e.g. micro/ SME/large) and by sectorActing responsibly towards customers. Meeting the needs of everyone in society. Group-
FS7Moneraty value of products and services designed to deliver a specific social benefit for each business line broken down by purposeSupporting the green transition. ESG investment in Wealth Management and Insurance.Group-
FS8Monetary value of products and servicies designed to deliver a specific environmental benefit foir each business line broken down by purposeSupporting the green transition. ESG investment in Wealth Management and Insurance.Group-
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AUDIT
Ethical behaviour and risk management / Compliance and adapting to regulatory changesInternal and externalFS9Coverage and frequency of audits to assess implementation of environmental and social policies and risk assesment proceduresThe 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.Group-
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 valueInternalFS10Percentage and number of companies held in the instituition´s portfolio with which the reporting organization has interacted on environmental or social issuesEnvironmental and social risks analysisGroup9
FS11Percentage of assets subject to positive and negative environmental or social screeningEnvironmental and social risks analysisGroup9
FS12Voting policy(ies) applied to environmental or social issues for shares over which the reporting organization hold the right to vote shares or advises on votingThe 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 rightsGroup-
FS13Access points in low-populated or economically disadvantaged areas by typeFinancial inclusion and empowermentGroup-
FS14Initiatives to improve access to financial servicies for disadvantaged peopleFinancial inclusion and empowerment, sustainable finance and Key metrics.Group-
FS15Policies for the fair design and sale of financial products and serviciesActing responsibly towards customersGroup-
FS16Initiatives to enhance financial literacy by type of beneficiaryActing responsibly towards customersGroup-
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.
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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
TopicIndustryAccounting MetricCodeResponse
Data SecurityCommercial Banks

Consumer Finance		(1) Number of data breaches, (2) percentage involving personally identifiable information (PII), (3) number of account holders affected.FN-CB-230a.1
FN-CF-230a.1
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'.
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Financial Inclusion & Capacity BuildingCommercial Banks(1) Number and (2) amount of loans outstanding 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.
Commercial Banks(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.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.
Commercial BanksNumber of no-cost retail checking accounts provided to previously unbanked or underbanked customers.FN-CB-240a.3
Refer to ‘Financial inclusion and empowerment‘ section of this chapter.
Commercial BanksNumber 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 AnalysisCommercial BanksCommercial 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 BanksDescription 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 ActivitiesInvestment Banking & Brokerage(1) Number and (2) total value of investments and loans incorporating integration of environmental, social, and governance (ESG) factors, by industry.FN-IB-410a.2
Refer to ‘Supporting the green transition’ section of this chapter.
Investment Banking & BrokerageDescription 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.
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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 FN-CB-510a.1 FN-IB-510a.1 Refer to GRI 206-1 discloses legal actions for anticompetitive behavior, anti-trust, and monopoly practices.
For further information, refer to ’Litigation and other matters’ section on the Auditor's report and consolidated financial statements.
Asset Management & Custody Activities
Commercial Banks
Investment Banking & Brokerage
Description of whistleblower policies and procedures.FN-AC-510a.2 FN-CB-510a.2 FN-IB-510a.2
Refer to ‘Ethical Channels’ in the section 'A talented and engaged team' of this chapter.
For further information, see our ‘General Code of Conduct’, available on our website.
Systemic Risk ManagementCommercial Banks

Investment Banking & Brokerage		Global Systemically Important Bank (G-SIB) score, by categoryFN-CB-550a.1. FN-IB-550a.1.
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 activitiesFN-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.
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Employee Diversity & InclusionCommercial 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 employeesFN-AC-330a.1 FN-IB-330a.1
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.
Activity metricsCommercial Banks(1) Number and (2) value of checking and savings accounts by segment: (a) personal and (b) small business.FN-CB-000.A
Refer to ‘Consolidated annual accounts‘ in Auditor's report and consolidated financial statements.
Commercial Banks(1) Number and (2) value of loans by segment: (a) personal, (b) small business, and (c) corporate.FN-CB-000.B
Refer to ‘Consolidated annual accounts‘ in Auditor's report and consolidated financial statements.
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Corporate
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1.1 Board skills and diversity
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1.3 Alignment of executive compensation with the Group objetives and the covid-19 crisis
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1.4 Active shareholder engagement during the pandemic
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3. Shareholders. Engagement and general meeting
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3.1 Shareholder engagement
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191
197
202
210
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4.6 Nomination committee activities in 2020
216
4.7 Remuneration committee activities in 2020
220
4.8 Risk supervision, regulation and compliance committee activities in 2020
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4.9 Responsible banking, sustainability and culture committee activities in 2020
228
4.10 Innovation and technology committee activities in 2020
232
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4.12 Related-party transactions and conflicts of interest
234
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6.2 Remuneration of directors for supervisory and collective decision-making duties: policy applied in 2020
240
6.3 Remuneration of directors for executive duties
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6.4 Directors' remuneration policy for 2021, 2022 and 2023 submitted to a binding shareholder vote
254
6.5 Preparatory work and decision-making process with a description of the participation of the remuneration committee
260
6.6 Remuneration of non-director members of senior management
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6.7 Prudentially significant disclosures document
262
7. Group structure and internal governance
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263
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8. Internal control over financial reporting (ICFR)
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266
267
8.3 Control activities
268
269
270
9. Other corporate governance information
274
9.1 Reconciliation withw the CNMV's corporate governance report model
274
9.2 Statistical information on corporate governance required by the CNMV
278
9.3 Table on compliance with or explanations of recommendations on corporate governance
299
9.4 Reconciliation to the CNMV's remuneration report model
301
9.5 Statistical information on remuneration required by the CNMV
302
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'.
→     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'.
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1. 2020 Overview
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'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:


•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 downTaking up role
Guillermo de la Dehesa (external)Luis Isasi (external)
Ignacio Benjumea (external)Sergio Rial (executive)
Esther Giménez-Salinas (independent)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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•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
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.

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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 goalsHow we have delivered
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.
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%.
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.
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.
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.
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.
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2020 goalsHow we have delivered
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.
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.
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'.
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'.
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.
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.
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.
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
% of share capital
BoardA
1.05 %
Institutional
58.10 %
Retail
40.85 %
Total
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
% of share capital
Europe
76.03 %
Americas
22,32%
Rest of the world
1.65 %
Total
100 %
Number of shares
% of share capital
1-3,000
8.76 %
3,001-30,000
17.71 %
30,001-400,000
12.55 %
Over 400,000
60.98 %
Total
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
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.
Issues of contingent convertible preferred securities
Date of issuance
Nominal amount
Discretionary remuneration per annum
Conversion
Maximum number
of shares in case
of conversion A
11/09/2014
EUR 1,500 million
6.25% for the first seven yearsIf, at any time, the CET1 ratio of Banco Santander or the Group is less than 5.125%299,401,197
25/04/2017
EUR 750 million
6.75% for the first five years207,125,103
29/09/2017
EUR 1,000 million
5.25% for the first six years263,852,242
19/03/2018
EUR 1,500 million
4.75% for the first seven years416,666,666
08/02/2019
USD 1,200 million
7.50% for the first five years388,349,514
14/01/2020
EUR 1,500 million
4.375% for the first six years604,594,921
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.

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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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 held at any time cannot exceed 10% of 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.
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.
•Disclosure to the markets of treasury shares trading.
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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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
20202019
January
0.09 %0.07 %
February
0.06 %0.02 %
March
0.11 %0.01 %
April
0.17 %0.01 %
May
0.17 %0.02 %
June
0.15 %0.02 %
July
0.15 %0.02 %
August
0.17 %0.03 %
September
0.17 %0.04 %
October
0.18 %0.04 %
November
0.17 %0.05 %
December
0.16 %0.05 %
In 2020, the Group's treasury share trades consisted of the following values:
Acquisitions and transfers of treasury shares in 2020
AcquisitionsTransfers
EUR (except number of shares)Number of sharesTotal par valueTotal cash amountAverage purchase priceNumber of sharesTotal par valueTotal cash amountAverage purchase priceProfit (loss) net of taxes
Discretionary trading51,678,26525,839,133143,415,0002.8331,669,37315,834,687104,550,0003.301,193,000
Client induced trading A
250,301,349125,150,675614,843,0002.46250,301,349125,150,675614,843,0002.460
Total301,979,614150,989,807758,258,0002.51281,970,722140,985,361719,393,0002.561,193,000
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 2020A
% of voting rights represented by shares
Reported on
acquired since last notice
transferred since last notice
held at reference date of notice
25/03/2020B
1.032%0.89%0.23%
11/11/20201.002%1.048%0.185%
21/12/20200.162%0.184%0.157%
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.
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'.
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
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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 32nd largest in the world among the financial institutions.
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
20202019
Shares (million)17,340.6 16,618.1 
Price (EUR)
Closing priceA
2.538 3.575 
Change in the price-29.0 %-6.1 %
Maximum for the periodA
3.799 4.487 
Date of maximum for the period17/2/202017/4/2019
Minimum for the periodA
1.439 3.244 
Date of minimum for the period24/9/20209/3/2019
Average for the periodA
2.288 3.798 
End-of-period market capitalisation (EUR million)44,011 61,986 
Trading
Total volume of shares traded (million)19,334 19,334 
Average daily volume of shares traded (million)74.2 75.8 
Total cash traded (EUR million)45,034 77,789 
Average daily cash traded (EUR million)175,2305,1
A.    Data adjusted to the December 2020 capital increase.
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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
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.
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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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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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
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.
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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
0.091 %
By proxy
Cast by post or direct delivery
49.410 %
By electronic means
13.193 %
Remote voting
Cast by post or direct delivery
0.600 %
By electronic means
1.711 %
Total
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:
VOTES A
QuorumD
ForB
AgainstB
BlankC
AbstentionC
1. Annual accounts and corporate management
1A. Annual accounts and directors’ reports for 2019
99.74 0.26 0.03 3.08 65.00 
1B. Consolidated statement of non-financial information for 2019
99.75 0.25 0.04 2.86 65.00 
1C. Corporate management 2019
99.68 0.32 0.04 3.14 65.00 
2. Application of resultsE
–––––
3. Appointment, re-election or ratification of directors
3A. Setting of the number of directors
99.64 0.36 0.03 2.89 65.00 
3B. Appointment of Luis Isasi Fernández de Bobadilla
99.38 0.62 0.04 2.92 65.00 
3C. Appointment of Sergio Agapito Lires Rial
98.65 1.35 0.04 2.90 65.00 
3D. Ratification of the appointment and re-election of Pamela Ann Walkden
99.63 0.37 0.04 2.89 65.00 
3E. Re-election of Ana Patricia Botín-Sanz de Sautuola y O'Shea
98.31 1.69 0.03 2.86 65.00 
3F. Re-election of Rodrigo Echenique Gordillo
96.38 3.62 0.04 2.90 65.00 
3G. Re-election of Esther Giménez-Salinas i Colomer
99.40 0.60 0.03 2.89 65.00 
3F. Re-election of Sol Daurella Comadrán99.21 0.79 0.04 2.88 65.00 
4. Re-election of the external auditor for Financial Year 202099.73 0.27 0.03 2.85 65.00 
5. Authorization to acquire treasury shares
98.03 1.97 0.03 2.87 65.00 
6. Authorization granted to the board to increase share capital93.07 6.93 0.03 2.85 65.00 
7A. Increase in share capital. Offer to acquire bonus share rights at a guaranteed priceE
–––––
7B. Increase in share capital. Offer to acquire bonus share rights at a guaranteed price
99.41 0.59 0.03 2.84 65.00 
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)
99.49 0.51 0.03 2.85 65.00 
9. Directors' remuneration policy
94.40 5.60 0.03 3.28 65.00 
10. Maximum total annual remuneration of directors in their capacity as directors
95.87 4.13 0.03 3.31 65.00 
11. Maximum ratio of fixed and variable components in executive directors' total remuneration
98.78 1.22 0.03 3.28 64.65 
12. Remuneration plans that include that inclthe delivery of shares or share options:
12A. Deferred multiyear objectives variable remuneration plan
96.13 3.87 0.03 3.28 65.00 
12B. Deferred conditional variable remuneration plan
97.49 2.51 0.03 3.29 65.00 
12C. Digital Transformation Award
99.40 0.60 0.03 3.29 65.00 
12D. Group buy-out policy
98.89 1.11 0.04 3.32 65.00 
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VOTES A
QuorumD
ForB
AgainstB
BlankC
AbstentionC
12E. Plan for employees of Santander UK Group Holdings and other companies of the Group in the UK
99.26 0.74 0.03 3.28 65.00 
13. Authorisation to implement the resolutions approved
99.70 0.30 0.03 2.85 65.00 
14. Annual directors' remuneration report
93.77 6.23 0.03 3.45 65.00 
15. Corporate action to demand director liabilityF
0.00 100.00 0.00 0.13 62.69 
16 to 30. Dismissal and removal of directorsG
0.00 100.00 0.00 0.13 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
0.167 %
By proxy
Cast by post or direct delivery
7.441 %
By electronic means
35.845 %
Remote voting
Cast by post or direct delivery
0.589 %
By electronic means
16.300 %
Total
60.342 %
Voting results and resolutions
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:
VOTES A
QuorumD
ForB
AgainstB
BlankC
AbstentionC
1. Application of results
99.520.480.063.2660.34
2. Appointment, re-election or ratification of directors
2A. Setting of the number of directors
98.96 1.04 0.09 3.42 60.34 
2B. Appointment of R. Martín Chávez Márquez
98.58 1.42 0.10 3.42 60.34 
3A. Examination and approval of the balance sheet as at 30 June 2020
99.57 0.43 0.08 3.37 60.34 
3B. Increase in share capital with a charge to reserves
98.43 1.57 0.06 3.26 60.34 
4. Conditional distribution of share premium reserve
99.41 0.59 0.03 3.18 60.34 
5. Authorisation to implement the resolutions approved
99.58 0.42 0.08 3.29 60.34 
6 to 20. Dismissal and removal of directorsE
0.00 100.00 0.00 0.30 43.45 
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
→ 15 directors, including 12 non-executive and 3 executive
→ Majority of independent directors (66.67%)
→ Balanced presence of men and women (40%-60%)
Effective governance
→ Specialised committees advising the board
→ The responsible banking, sustainability and culture committee shows the board's commitment to this matter
→ 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

José Antonio Álvarez
Vice chairman and CEO
Executive director
òp

Homaira Akbari
Member
Non-executive director
(independent)
òpŸ

Luis Isasi
Member
Non-executive director
ò¢p
Ana Botín
Executive chairman
Executive director
òP p

Sergio Rial
Member
Executive director

Álvaro Cardoso
Member
Non-executive director
(independent)
pPŸ

Sol Daurella
Member
Non-executive director
(independent)
¢¢Ÿ

Pamela Walkden
Member
Non-executive director
(independent)
òP

Bruce Carnegie-Brown
Vice chairman and lead independent director
Non-executive director
(independent)
ò¢P¢Pp

Gina Díez
Member
Non-executive director
(independent)

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.
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Ana
Botín-Sanz de Sautuola y O’Shea
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.

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.



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José Antonio
Álvarez Álvarez
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.
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,
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Bruce
Carnegie-Brown
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.
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
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Homaira
Akbari
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.
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
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Javier
Botín-Sanz de Sautuola y O’Shea
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.
Positions in other Group companies: None.
Membership of board committees: None.
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.
Non-executive director

Mr Botín joined the board in 2004.
Nationality: Spanish. Born in 1973 in Santander, Spain.
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
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Álvaro
Cardoso de Souza
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.


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.
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Sol
Daurella Comadrán
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.

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
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Henrique
de Castro
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.

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.

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Gina
Díez Barroso
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.
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
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Luis
Isasi Fernández de Bobadilla
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.
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.
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Ramiro
Mato García-Ansorena
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.
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),
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Ramón Martín
Chávez Márquez
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.
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.
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Sergio
Rial
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.

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.
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Belén
Romana García

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.

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).
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Pamela
Walkden
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.
Positions in other Group companies: None.
Membership of board committees: Audit committee (chairman).
Skills and competencies: Ms Walkden is a recognised financial expert in view of her broad, international experience in banking and auditing.


Non-executive director (independent)

Mrs Walkden joined the board in 2019.
Nationality: British. Born in 1960 in Worcester, England.
Education: Master's Degree in Economics from Cambridge University.
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,
san-20201231_g244.jpg
Jaime
Pérez Renovales
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.

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.
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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.
Term of independent directors
san-20201231_g245.jpg
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
san-20201231_g246.jpg

197
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
Tenure and equity ownershipA
Board of directorsTenure
Banco Santander shareholdingC
Date of first appointmentDate of last appointment
End date B
DirectIndirectShares representedTotal% of share capital
Executive chairman
Ana Botín
04/02/1989
03/04/2020
03/04/2023
1,138,67528,612,07429,750,7490.172%
Vice chairman and chief executive officer
José Antonio Álvarez
25/11/2014
12/04/2019
12/04/2022
1,820,7541,820,7540.010%
Vice chairman
Bruce
Carnegie-Brown
25/11/2014
12/04/2019
12/04/2022
59,94059,9400.000%
Members
Homaira Akbari
27/09/2016
23/03/2018
23/03/2021
67,82645,913113,7390.001%
Javier Botín
25/07/2004
12/04/2019
12/04/2022
5,502,08319,466,853
123,904,169D
148,873,1050.858%
Álvaro Cardoso
1/04/2018
01/04/2018
23/03/2021
000.000%
R. Martín Chávez
27/10/202027/10/2020
27/10/2023
000.000%
Sol Daurella
25/11/2014
03/04/2020
03/04/2023
149,483476,837626,3200.004%
Henrique de Castro
17/07/2019
17/07/2019
12/04/2022
2,9822,9820.000%
Gina Díez
22/12/2020
22/12/2020
03/04/2023
000.000%
Luis Isasi
19/05/202019/05/2020
03/04/2023
000.000%
Ramiro Mato
28/11/2017
12/04/2019
12/04/2022
156,860156,8600.001%
Sergio Rial30/05/202030/05/2020
03/04/2023
171,913171,9130.001%
Belén Romana
22/12/2015
12/04/2019
12/04/2022
20842120.000%
Pamela Walkden
29/10/2019
03/04/2020
03/04/2023
2,6082,6080.000%
Total
9,073,33248,601,681123,904,169181,579,1821.047%
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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•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
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.
199
Resposible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
Board skills and diversity matrix
Executive
Independent
Other external
Ana Botín (chairman)José Antonio Álvarez (vice chairman - CEO)Sergio Rial
Bruce Carnegie-Brown (vice chairman and lead independent director)Homaira AkbariR. Martín Chávez Sol DaurellaHenrique de CastroÁlvaro CardosoGina Díez BarrosoRamiro MatoBelén RomanaPamela WalkdenJavier BotínLuis Isasi
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
Continental Europe (80%)
•
•
•
•
•
•
•
•
•
•
•
•
US/UK (93.3%)
•
•
•
•
•
•
•
•
•

•
•
•
•
•
Latam (73.3%)
•
•
•
•
•
•
•
•
•
•
•
Others (46.7%)
•
•
•
•
•
•
•

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
Continental Europe (60%)
•
•
•
•
•
•
•
•
•
US/UK (80%)
•
•
•
•
•
•
•
•
•
•
•
•
Latam (20%)
•
•
•
Others (6.7%)
•
Age (years old)Less than 55 (13.3%)
•
•
From 55 to 65 (73.4%)
•
•
•
•
•
•
•
•
•
•
•
More than 65 (13.3%)
•
•
BOARD TENURE
0 to 3 years (53.4%)
•
•
•
•
•
•
•
•
4 to 11 years (33.3%)
•
•
•
•
•
12 years or more (13.3%)
•
•

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Committees skills and diversity matrix
Executive committeeAudit committeeNomination committeeRemuneration committeeRisk supervision, regulation and compliance committeeInnovation and technology committeeResponsible banking, sustainability and culture committee
SKILLS AND EXPERIENCE
THEMATIC SKILLS
Banking
100%60%100%80%100%71.4%80%
Other financial services
100%60%33.3%40%60%71.4%60%
Accounting, auditing and financial literacy
100%100%100%100%100%100%100%
Retail
100%80%66.7%80%80%71.4%80%
Digital and information technology
66.7%60%66.7%60%40%85.7%40%
Risk management
100%80%100%80%100%85.7%100%
Business strategy
100%100%100%100%100%100%100%
Responsible business and sustainability
83.3%60%100%60%80%85.7%100%
Human resources, culture, talent and remuneration
100%100%100%100%100%100%100%
Legal and regulatory
16.7%20%33.3%20%40%28.6%20%
Governance and control
100%80%100%80%100%85.7%100%
International experience
Continental Europe
100%80%100%100%80%100%80%
US/UK
100%100%100%100%100%100%100%
LatAm
66.7%60%33.3%60%80%71.4%60%
Others
33.3%60%100%80%40%42.9%40%
HORIZONTAL SKILLS
Top management
100%100%100%100%100%100%100%
Government, regulatory and public policy
16.7%20%
–
–
20%14.3%20%
Academia and education
50%40%100%60%40%57.1%60%
Significant tenure
100%80%66.7%80%80%85.7%100%
DIVERSITY
Female
33.3%60%33.3%20%20%42.9%60%
Country of origin / international education
Continental Europe
83.3%60%33.3%60%60%57.1%60%
US/UK
100%80%66.7%60%100%85.7%80%
Latam
–
–
–
–
20%
–
20%
Others
–
20%
–
–
–
14.3%20%
Age (years old)Less than 55
–
–
33.3%20%
–
–
20%
From 55 to 65 83.3%80%66.7%80%60%100%40%
More than 65 16.7%20%
–
–
40%
–
40%
BOARD TENURE
0 to 3 years
33.3%60%33.3%60%80%28.6%40%
4 to 11 years
50%40%66.7%40%20%57.1%60%
12 years or more
16.7%
–
–
–
–
14.3%
–
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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
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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).
•Financial reporting, and general information reported to shareholders, investors and the general public, as well as the processes and controls that ensure full disclosure.
•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.
•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
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.
•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
203
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 chairmanChief executive officer
•The chairman is the highest-ranking officer in Grupo 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 chief executive officer is entrusted with the day-to-day 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 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.

•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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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
DutiesActivities in 2020
Facilitate discussion and open dialogue among independent directors, even by coordinating meetings of non-executive directors; and engage with them to consider their views.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 directors and coordinate her succession plan.Leadership in the annual assessment of the chairman in order 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.
See section 3.1'Shareholder engagement'.
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.Although lead independent director did not replace the chair of the board in any meetings he was fully committed with its proper functioning.
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.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 mattersSupport and proposal
in strategic areas
Board
committees		Executive
committee		Audit
committee		Nomination
committee		Responsible banking,
sustainability and
culture committee
Risk supervision,
regulation and
compliance committee		Remuneration
committee		Innovation and
technology committee
External
advisory
board		International advisory board (members are non-directors)

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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 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.
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.
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 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 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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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 heldA
Santander
Average Spain
US average
UK average
Board
20 11.0 7.9 7.7 
Executive committee
46 10.1 — — 
Audit committee
15 8.5 8.2 5.7 
Nomination committee
13 6.7 4.5 4.1 
Remuneration committee
13 6.7 5.9 5.1 
Risk supervision,
regulation and compliance committee
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
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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.
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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


Board


Executive


Audit
Nomination


Remuneration
Risk supervision, regulation and complianceInnovation and technologyResponsible banking, sustainability and culture
Average attendance
98%94%97%100%100%97%93%97%
Individual attendance
Ana Botín
20/20
44/46
_
_
_
_
4/4
4/4
José Antonio Álvarez
20/20
46/46
_
_
_
_
4/4
_
Bruce Carnegie-Brown
20/20
42/46
_
13/13
13/13
_
4/4
_
Homaira Akbari
20/20
_
15/15
_
_
_
4/4
4/4
Ignacio BenjumeaA
10/10
20/20
_
_
6/6
5/5
2/2
2/2
Javier Botín
20/20
_
_
_
_
_
_
_
Álvaro Cardoso
18/20
_
_
_
_
12/13
_
3/4
R. Martin ChávezB
3/3
_
_
_
3/33/31/1
_
Sol Daurella
20/20
_
_
13/13
13/13
_
_
4/4
Henrique de Castro
20/20
_
14/15
_
13/13
_
2/4
_
Guillermo de la DehesaC
7/7
13/13
_
3/3
3/3
_
1/1
_
Gina DíezD
1/1
_
_
_
_
_
_
_
Rodrigo Echenique
20/20
_
_
13/13
_
_
_
_
Esther Giménez-SalinasE
17/17
_
_
10/10
_
10/10
_
4/4
Luis IsasiF
10/1027/27
_
_
8/89/9
_
_
Ramiro Mato
18/20
43/46
14/15
_
_
14/14
_
4/4
Sergio RialG
10/10
_
_
_
_
_
_
_
Belén Romana
20/20
39/46
15/15
_
_
12/13
4/4
4/4
Pamela Walkden
20/20
_
15/15
_
_
_
_
_
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
Average of hours per memberA
Average of hours per chairB
Board20 132B264B
Executive committee46 230 460 
Audit committee15 150 300 
Nomination committee13 52 104 
Remuneration committee13 52 104 
Risk supervision, regulation and compliance committee13 130 260 
Responsible banking, sustainability and culture committee
4 20 40 
Innovation and technology committee
4 16 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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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.
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:
CountryTotal amount in local currency
Total amount in EUR A
United KingdomGBP 52,500 58,029
ArgentinaARS 5,602,905 54,246
BrazilBRL 228,125 35,703
ChileCLP 48,871,337 55,751
SpainB
EUR 1,137,781 1,137,781
TotalEUR 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.
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•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
Category
Appointed on
Chairman
Ana Botín
Executive
11/12/1989
Members
José Antonio Álvarez
Executive
3/01/2015
Bruce Carnegie-Brown
Independent
12/02/2015
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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•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.
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
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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
Category
Appointed on
Chairman
Pamela Walkden
Independent
29/10/2019A
Members
Homaira Akbari
Independent
26/06/2017
Henrique de Castro
Independent
21/10/2019
Ramiro Mato
Independent
28/11/2017
Belén Romana
Independent
22/12/2015
Secretary
Jaime Pérez Renovales
A. Committee chair since 26 April 2020.
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
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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.
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.
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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
•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.
Report to the board about applied tax policies
•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.
213
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
Duties
Actions taken
Independence
PwC’s remuneration for audit and non- audit services
•Monitored PwC’s remuneration, including the following fees for audit and non-audit services provided to the group
EUR million
202020192018
Audit
95.8 102.4 93.9 
Audit-related services
6.0 7.8 6.8 
Tax advisory services
0.8 0.7 0.9 
Other services
1.2 2.3 3.4 
Total
103.8 113.2 105.0 
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:
Company
Group companies
Total
Amount of non-audit work (thousands of EUR)4871,513 2,000 
Amount of non-audit work as a % amount of audit work0.5 %1.4 %1.9 %
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).
Non-audit services. Assess threats to the independence and protective measures
•Reviewed services rendered by PwC and confirmed its independence. For those purposes:
•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
•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
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
Actions taken
Internal audit function
Assess the performance of internal audit function
•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.
Internal control systems
Monitor internal control systems
•
•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 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.
Other activities
•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
•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'.
Approval of related party transactions
•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.
215
Responsible
banking
 
Corporate
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.
•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.
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
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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.
Composition
Position
Category
Appointed on
Chairman
Bruce Carnegie-Brown
Independent
12/02/2015A
Members
R. Martín Chávez
Independent
2/12/2020
Sol Daurella
Independent
23/02/2015
Secretary
Jaime Pérez Renovales
A. Committee chair since 12 February 2015.
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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.

The chart below shows the committee’s approximate time allocation to each function.
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Duties and activities in 2020
This section summarizes the nomination committee’s activities in 2020.
Duties
Actions taken
Composition of the board and its committees
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.
Appointment, re-election, confirmation and removal of directors and committee members
•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'.
Succession planning
Succession planning for executive directors and senior managers
•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.
217
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
Duties
Actions taken
Director status verification
Annual director status confirmation
•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).
Regular assessment
Annual suitability assessment of directors and key roles
•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 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.
Senior Management
Appointment of key positions
•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.
Talent and director training
•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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Contents
Duties
Actions taken
Internal governance oversight
•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.
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.
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.
219
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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
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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
PositionCategoryAppointed on
ChairmanBruce Carnegie-BrownIndependent
12/02/2015A
MembersR. Martín ChávezIndependent27/10/2020
Sol DaurellaIndependent23/02/2015
Henrique de CastroIndependent29/10/2019
Luis Isasi
Other external
19/05/2020
SecretaryJaime Pérez Renovales
A. Committee chair since 12 February 2015.

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.
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Duties and activities in 2020
This section summarises the remuneration committee’s activities in 2020.
Duties
Action taken
Remuneration of directors and senior management
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.
Propose the annual directors' remuneration report to the board
•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.
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Remuneration policy for 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 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.
Assist the board of directors in supervising compliance with remuneration policies
•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.
Gender pay
•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.
Internal governance
Governance
•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.
The director remuneration policy report
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.
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.
•Manage and improve pay equality across the Group.
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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
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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
Appointed on
Chairman
Álvaro Cardoso Independent
23/04/2018A
Members
R. Martín Chávez Independent27/10/2020
Luis Isasi Other external19/05/2020
Ramiro Mato Independent28/11/2017
Belén Romana Independent28/10/2016
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.
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A.    All topics about regulatory and supervisory relations discussed in 2020 are included in each task provided in the chart.
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Duties and activities in 2020
This section summarizes the risk supervision, regulation and compliance committee’s activities in 2020.
Duties
Actions taken
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
•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.
Covid-19
•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.

Risk management and control
•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
Actions taken
Collaboration to establish rational remuneration policies and practices
•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.
Capital and liquidity
Assist the board in approving capital and liquidity strategies and supervising their implementation
•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.
Compliance and conduct
Supervise the Compliance and Conduct function
•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 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.
Financial crime compliance (FCC)
•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.

Product governance and consumer protection
•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
Actions taken
Governance
Corporate governance and internal governance
•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.
Regulators and supervisors
Regulatory and supervisory relations
•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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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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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
Appointed on
Chairman
Ramiro Mato
Independent
01/07/2018A
Members
Homaira Akbari
Independent
01/07/2018
Álvaro Cardoso
Independent
24/07/2018
Sol Daurella
Independent
01/01/2018
Belén Romana
Independent
01/07/2018
SecretaryJaime 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.
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Duties and activities in 2020
This section summarizes the responsible banking, sustainability and culture committee’s activities in 2020 based on ESG criteria.
DutiesActions taken
Environmental (E)
Sustainable banking
Environmental and climate change
•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.
Santander environmental footprint
•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.
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.
Governance
•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.

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DutiesActions taken
Responsible banking initiatives and challenges
•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.
Commitment to sustainability goals
•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.
Culture and values
Culture
•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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DutiesActions taken
Stakeholders engagement
Non-financial information
•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.
Indexes and ratings
•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.
Shareholders and other stakeholders
•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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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
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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
Appointed on
Chairman
R. Martín Chávez
Independent
27/10/2020A
Members
Ana Botín
Executive
23/04/2007
Homaira Akbari
Independent
27/09/2016
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.
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.
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Duties and activities in 2020
This section summarizes the innovation and technology committee’s activities in 2020.
DutiesActions taken
Innovation
Innovation
•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).
Cybersecurity
Cybersecurity
•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.
Digital
Digital
•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.
Technology and operations
Technology and operations
•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.
Data management
Data management
•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
Positions
Chairman
Larry Summers
Former Secretary of the US Treasury and president emeritus of Harvard University
Members
Sheila C. Bair
Former chairman of the Federal Deposit Insurance Corporation. Former president of Washington College
Mike Rhodin
Board member of TomTom, Syncsort and HzO. Former IBM senior Vice President
Marjorie Scardino
Former CEO of Pearson and director of Twitter
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 SPAINBorn 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.
Lindsey Argalas
HEAD OF SANTANDER DIGITALBorn 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).
Alexandra BrandãoGLOBAL HEAD OF HUMAN RESOURCES (*)
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.
Juan Manuel Cendoya
GROUP HEAD OF COMMUNICATIONS, CORPORATE MARKETING AND RESEARCHBorn 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.
José Doncel
GROUP HEAD OF ACCOUNTING AND FINANCIAL CONTROLBorn 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.
Keiran Foad
GROUP CHIEF RISK OFFICERBorn 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 OFFICERBorn 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 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.
José María Linares
GLOBAL HEAD OF CORPORATE & INVESTMENT BANKINGBorn 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.
 Mónica López-Monís
GROUP HEAD OF SUPERVISORY AND REGULATORY RELATIONS
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.
Javier Maldonado
GROUP HEAD OF COSTSBorn 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 AND OPERATIONSBorn in 1970, Dirk Marzluf joined Grupo Santander in 2018 as senior 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 & INSURANCEBorn 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)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.
Jaime Pérez Renovales
GROUP HEAD OF GENERAL SECRETARIAT AND HUMAN RESOURCES (*)
See profile in section 4.1 'Our directors'.
Javier San Félix
HEAD OF SANTANDER GLOBAL PAYMENTSBorn 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.
António Simões
REGIONAL HEAD OF EUROPE
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.
Marjolein van Hellemondt-Gerdingh
GROUP CHIEF COMPLIANCE OFFICERBorn 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
Director remuneration in their capacity as such
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.
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
A. Composition and limits
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:
20202019
Amount per director in euros1 Apr to 31 Dec1 Jan to 31 Mar
Members of the board of directors49,500 22,500 90,000 
Members of the executive committee93,500 42,500 170,000 
Members of the audit committee22,000 10,000 40,000 
Members of the appointments committee13,750 6,250 25,000 
Members of the remuneration committee13,750 6,250 25,000 
Members of the risk supervision, regulation and compliance committee22,000 10,000 40,000 
Members of the responsible banking, sustainability and culture committee 8,250 3,750 15,000 
Chairman of the audit committee38,500 17,500 70,000 
Chairman of the appointments committee27,500 12,500 50,000 
Chairman of the remuneration committee27,500 12,500 50,000 
Chairman of the risk supervision, regulation and compliance committee38,500 17,500 70,000 
Chairman of the responsible banking, sustainability and culture committee27,500 12,500 50,000 
Lead director60,500 27,500 110,000 
Non-executive vice chairmen16,500 7,500 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.
20202019
Attendance fees per director per meeting in euros 1 Apr to 31 Dec1 Jan to 31 Mar
Board of directors2,080 2,600 2,600 
Audit committee and risk supervision, regulation and compliance committee1,360 1,700 1,700 
Other committees (excluding executive committee) 1,200 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:
Amount in euros
DirectorsExecutive Non-executive20202019
Annual allotmentBoard and committee attendance feesTotal by-law stipulated emoluments and attendance fees
BoardN
ECACASCRCRSRCCRBSCCTotal
Ms Ana Botín-Sanz de Sautuola y O’Shea—76,500 144,500 — — — — 12,750 233,750 55,220 288,970 333,800 
Mr José Antonio Álvarez Álvarez—76,500 144,500 — — — — — 221,000 48,620 269,620 312,800 
Mr Bruce Carnegie-BrownI326,380 144,500 — 21,250 21,250 — — 513,380 81,620 595,000 700,000 
Ms Homaira AkbariI76,500 — 34,000 — — — 12,750 123,250 79,040 202,290 225,900 
Mr Francisco Javier Botín-Sanz de Sautuola y O’SheaA
N76,500 — — — — — — 76,500 44,720 121,220 136,800 
Mr Álvaro Antonio Cardoso de SouzaB
I136,000 — — — — 34,000 12,750 182,750 60,420 243,170 275,500 
Mr Ramón Martín Chávez MárquezC
I8,086 — — 548 5,269 8,430 — 22,333 15,120 37,453 — 
Ms Sol Daurella ComadránI76,500 — — 21,250 21,250 — 12,750 131,750 81,920 213,670 239,700 
Mr Henrique Manuel Drummond Borges Cirne de CastroD
I76,500 — 34,000 — 21,250 — — 131,750 85,040 216,790 86,746 
Ms Gina Díez BarrosoE
I1,973 — — — — — — 1,973 2,080 4,053 — 
Mr Luis Isasi Fernández de BobadillaF
N44,389 83,847 — — 12,361 19,790 — 160,387 42,640 203,027 — 
Mr Ramiro Mato García-AnsorenaI119,000 144,500 34,000 — — 34,000 12,750 344,250 86,160 430,410 500,300 
Mr Sergio RialG
—42,000 — — — — — — 42,000 20,800 62,800 — 
Ms Belén Romana GarcíaI98,044 144,500 34,000 — — 34,000 12,750 323,294 93,980 417,274 524,600 
Mrs Pamela Ann WalkdenH
I114,454 — 34,000 — — — — 148,454 66,140 214,594 33,915 
Mr Rodrigo Echenique GordilloI
N74,724 — — 20,757 — — — 95,481 60,020 155,501 219,134 
Mr Ignacio Benjumea Cabeza de VacaJ
N34,500 65,167 — — 9,583 15,333 5,750 130,333 43,140 173,473 432,700 
Mr Guillermo de la Dehesa RomeroK
N23,100 43,633 — 6,417 6,417 — — 79,567 28,180 107,747 398,800 
Ms Esther Giménez-Salinas i ColomerL
I63,532 — — 17,648 — 28,236 10,589 120,005 71,400 191,405 228,768 
Mr Carlos Fernández GonzálezM
I— — — — — — — — — — 213,249 
Total1,545,182 915,147 170,000 87,870 97,380 173,789 92,839 3,082,207 1,066,260 4,148,467 4,862,712 
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
Type
Policy
Implementation in 2020

Gross annual salary

Fixed
•Paid in cash on a monthly basis.

•Ana Botin: EUR 3,176 thousand.
•José Antonio Álvarez: EUR 2,541 thousand.


Variable remuneration

Variable
•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).
•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.


Pension scheme

Fixed
•Annual contribution of 22% of base salary.
•No change since 2018

Variable
•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.

Other remuneration

Fixed
•Includes life, accident and medical insurance, and other in-kind compensation.
•Includes a fixed remuneration supplement in cash (not considered salary or pensionable) since supplementary death and disability benefits were eliminated.
•No change for Ana Botín or José Antonio Álvarez since 2018.
•Payment for non-compete commitment
•N/A.

Shareholding policy

N/A
•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.
•Policy updated during 2020 to assure compliance with recommendation 62 to the Good Governance Code for Listed Companies of the CNMV
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.
It also maintained the fixed pension contribution of 22% of gross annual salary it had declared in 2019 for 2020.
Executive directors’ gross annual salary and fixed annual contribution to pension for 2020 and 2019 were as follows:
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EUR thousand20202019
Gross annual salaryFixed annual pension contributionTotalGross annual salaryFixed annual pension contributionTotal
Ms Ana Botín-Sanz de Sautuola y O’Shea3,176 699 3,875 3,176 699 3,875 
Mr José Antonio Álvarez Álvarez2,541 559 3,100 2,541 559 3,100 
Mr Rodrigo Echenique GordilloA— — — 600 — 600 
Total5,717 1,258 6,975 6,317 1,258 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.
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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.
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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)Quantitative metricsQualitative
Total weighted scoreB
Metrics% Achievement over targetAssessment
Weighted assessmentA
ComponentAssessment
Customers (20%)
Net Promoter Score (NPS)C
Target: TOP3 in 6 countries.
Achieved: TOP3 in 6 countriesD
81.3 %8.13 %Evaluation of the robustness of the governance, culture and management of conduct risk with our clients +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.20.33 %
Number of loyal customersD

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.		 + 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.		6.23 %
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. 		 + 3.10% - Reinforced capital ratio and above the target, despite the significant increase in provisions due to the context of the year39.10 %
Return (50%)
Ordinary net profit (ONP)E
Target: €8,243.2 million
Result: €4,581.15 millionG
0.0 %0.00 %Suitability of business
growth compared to the
previous year, considering
the market environment
and competitors. 		 +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.5.41 %
RoTE - Return on Tangible Equity
% Target: 11,34%
% Achieved: 6.71%G
0.0 %0.00 %Sustainability and solidity of results. Efficient cost
management and
achievement of efficiency
goals. 		 + 0.30% - Sustainable growth in a global crisis environment, with more efficient use of capital in term of profitability.
Progress in the commitments assumed to promote the Group's Responsible Banking agenda and incorporate it into its business strategy (additional indicator in 2020) + 3.28% - Progress exceeding forecasts in most of the Group's responsible banking agenda commitments.
Exceptional adjustmentElements (non-exhaustive) under consideration: macro-economic environment, general control environment, compliance with internal and external regulations, prudent and efficient liquidity and capital planning management.
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)%
TOTAL
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:
•The Group’s ONP1 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:
20192020% Var. 2020 vs 2019
SalaryBonusTotalSalaryBonusTotal
Chairman3,176 6,512 9,688 3,176 1,668 4,844 (50)%
CEO2,541 4,352 6,893 2,541 906 3,447 (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 thousand20202019
In cashIn sharesTotalIn cashIn sharesTotal
Ms Ana Botín-Sanz de Sautuola y O’Shea534 534 1,068 2,084 2,084 4,168 
Mr José Antonio Álvarez Álvarez290 290 580 1,393 1,393 2,786 
Mr Rodrigo Echenique Gordillo— — — 640 640 1,280 
Total824 824 1,648 4,117 4,117 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 general shareholders' meeting, and no circumstances triggering malus clauses occur2:
Deferred variable remuneration linked to long-term objectives (fair value)
EUR thousand20202019
In cashIn sharesTotalIn cashIn sharesTotal
Ms Ana Botín-Sanz de Sautuola y O’Shea210 210 420 821 821 1,642 
Mr José Antonio Álvarez Álvarez 114 114 228 548 548 1,096 
Mr Rodrigo Echenique Gordillo — — — 252 252 504 
Total324 324 648 1,621 1,621 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:

Metrics
Weight
Target and compliance scales (metrics ratios)
A
Earnings per share (EPS) growth in 2022 vs 2019
33 %
If EPS growth ≥ 15%, then metric ratio is 1.5
If EPS growth ≥ 10% but < 15%, then metric ratio is 1 – 1.5C
If EPS growth ≥ 5% but < 10%, then metric ratio is 0 – 1C
If EPS growth < 5%, then metric ratio is 0
B
Relative Total Shareholder Return (TSR)A in 2020-2022 within a peer group
33 %
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 – 1D
If ranking of Santander below percentile 33, then metric ratio is 0
C
Fully loaded target common equity Tier 1 ratio (CET1)B for 2022

33 %
If CET1 is ≥ 12%, then metric ratio is 1
If CET1 is ≥ 11% but < 12%, then metric ratio is 0 – 1E
If CET1 is < 11%, then metric ratio is 0
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.
•'C' is the CET1 ratio according to compliance with the CET1 target for 2022 described in the table 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.
•v) Malus and clawback
Deferred amounts (whether or not contingent on multi-year targets) will be earned if the beneficiariy continues to work with the group3, 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
Factors
Risk
Significant failures in risk management by Banco Santander, or by a business or risk control unit.
Capital
An increase in capital requirements at the Banco Santander or one of its business units not planned at the time that exposure was generated.
Regulation and internal codes
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.
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.
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 thousand2020 2019 
Ms Ana Botín-Sanz de Sautuola y O’Shea1,155 1,145 
Mr José Antonio Álvarez Álvarez864 858 
Total2,019 2,003 
These are the amounts corresponding to each executive director as of 31 December 2020 and 2019 in the pension scheme:
EUR thousand2020 2019 
Ms Ana Botín-Sanz de Sautuola y O’Shea49,444 48,104 
Mr José Antonio Álvarez Álvarez18,082 17,404 
Mr Rodrigo Echenique Gordillo— 13,268 
Total67,526 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:
2020BRL thousandEUR thousand
Base salary12,645 2,175 
Other fixed benefits39 7 
Pensions5,041 867 
Variable remuneration30,240 5,201 
Total47,965 8,250 
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.
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.)
H. Individual remuneration of directors for all items in 2020
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.
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EUR thousand
Directors20202019
Bylaw-stipulated emolumentsSalary and bonus of executive directorsTotalTotal
Board and board committees annual allotmentBoard and committee attendance feesFixed SalaryImmediate payment bonus (50% in shares)Deferred payment bonus (50% in shares)TotalPension ContributionOther remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea234553,1766674004,2431,1551,1316,8189,954
Mr José Antonio Álvarez Álvarez221492,5413622173,1208641,7646,0188,270
Mr Bruce Carnegie-Brown51382——————595700
Ms Homaira Akbari12379——————202226
Mr Francisco Javier Botín-Sanz de Sautuola y O’SheaA
7745——————122137
Mr Álvaro Antonio Cardoso de SouzaB
18360——————243276
Mr Ramón Martín Chávez MárquezC
2215——————37—
Ms Sol Daurella Comadrán13282——————214240
Mr Henrique Manuel Drummond Borges Cirne de CastroD
13285——————21786
Ms Gina Díez BarrosoE
22——————4—
Mr Luis Isasi Fernández de BobadillaF
16043—————740943—
Mr Ramiro Mato García-Ansorena34486——————430500
Mr Sergio RialG
4221——————63—
Ms Belén Romana García32394——————417525
Mrs Pamela Ann WalkdenH
14866——————21434
Mr Rodrigo Echenique GordilloI
9560—————1,8001,9554,874
Mr Ignacio Benjumea Cabeza de VacaJ
13043—————102275524
Mr Guillermo de la Dehesa RomeroK
8028——————108399
Ms Esther Giménez-Salinas i ColomerL
12071——————191228
Mr Carlos Fernández GonzálezM
—————————214
Total 20203,0811,0665,7171,0296177,3632,0195,53719,066—
Total 20193,7701,0946,3175,1463,08714,5502,0035,770—27,187
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.
EUR thousand
20202019
(50% in shares)A
(50% in shares)A
Ms Ana Botín-Sanz de Sautuola y O’Shea420 1,642 
Mr José Antonio Álvarez Álvarez 228 1,096 
Mr Rodrigo Echenique GordilloB
— 504 
Total648 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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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 directorsVariable Components / fixed components (%)
Ms Ana Botín-Sanz de Sautuola y O’Shea40 %
Mr José Antonio Álvarez Álvarez 24 %
Mr Sergio Rial167 %
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.
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
san-20201231_g261.jpg
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:
Directors' remuneration1
20202019201820172016
• Executive Directors
Ms Ana Botín-Sanz de Sautuola y O’Shea6,818 9,954 10,483 10,582 9,800 
Mr José Antonio Álvarez Álvarez6,018 8,270 8,645 8,893 8,255 
Mr Sergio RialA
63 — — — — 
• Non-Executive Directors2
Mr Bruce Carnegie-Brown595 700 732 731 721 
Mr Francisco Javier Botín-Sanz de Sautuola y O’SheaB
122 137 121 124 115 
Ms Sol Daurella Comadrán214 240 215 207 191 
Ms Belén Romana GarcíaC
417 525 414 297 219 
Ms Homaira AkbariD
202 226 199 159 32 
Mr Ramiro Mato García-AnsorenaE
430 500 450 36 — 
Mr Álvaro Cardoso de SouzaF
243 276 148 — — 
Mr Henrique Manuel Drummond Borges Cirne de CastroG
217 86 — — — 
Mrs Pamela Ann WalkdenH
214 34 — — — 
Mr Luis Isasi Fernández de BobadillaI
943 — — — — 
Mr Ramón Martín Chávez MárquezJ
37 — — — — 
Ms Gina Díez BarrosoK
4 — — — — 
Company’s performance
Underlying profit attributable to the Group5.0818.2528.0647.5166.621
Ordinary RoTE7,44%11,79%12,08%11,82%11,08%
Employees' average remuneration43.86743.26241.52240.519n.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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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
Aspect aligning risk, performance and remuneration
Metrics balance
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.
Financial thresholds
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.
Long-term objectives
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.
Individual performance
The discretion of the board to consider the performance of each executive director in the award of their individual variable remuneration.
Variable remuneration cap
200% of fixed remuneration.
Control functions involvement
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 and clawback
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.
Payment in shares
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
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.
ii) Variable remuneration components
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
no malus clauses described under section 6.3 B vi) are triggered.
•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:
•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.
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The scorecard below provides the detailed quantitative metrics, qualitative assessment factors and weightings:
Category and weightingQuantitative metrics
Qualitative assessment
Customers (20%)
NPSA
Accomplishment of objectives in the rules on risk conduct with customers.
Shareholders (80%)Risks - Cost of Credit Ratio (10%)Appropriate management of
risk appetite and excesses
recognised.

Adequate management of
operational risk.
Capital - Capital Ratio (CET1)(20%) B
Efficient capital management
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).
The final three payments will also be subject to long-term objectives described in section D) below.
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:
EPS growth in 2023
(% vs. 2020)
‘EPS Ratio'
≥ 125%1.5
≥ 100% but < 125%
1 – 1.5A
≥ 70% but < 100%
0 - 1A
< 70%
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
'TRS Ratio'
Above the 66th percentile
1
Between the 33rd and 66th percentile (both inclusive)
0 – 1A
Below the 33rd percentile
0
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
CET1 ratio
≥ 12%1
≥ 11% pero < 12%
0 – 1A
< 11%0
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.
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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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.
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.
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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
6*4 
Mr José Antonio Álvarez Álvarez
6 — 
* 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:
Number
% of totalA
Votes cast10,429,789,36696.55 %
Number
% of totalA
Votes against649,059,4356.01 %
Votes in favour9,777,014,10190.51 %
Abstentions372,790,8603.45 %
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).

Some senior managers’ contracts were amended in 2018 in the same manner described under 6.3.C and D in respect of
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:
EUR thousand
Short-term and deferred salary remuneration
Year
Number of people
Fixed
Immediately receivable variable remuneration (50% in shares)A
Deferred variable remuneration (50% in shares)B
Pension contributions
Other remunerationC
TotalD
20201821,642 11,479 4,941 6,039 6,312 50,413 
20191822,904 15,337 6,673 6,282 15,337 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
Number of people
Deferred variable remuneration
subject to long-term
metricsA (50% in shares)B
2020185,188 
2019187,007 
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).
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 disclosures report4 of Banco Santander, S.A. explains the 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).
•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.
4 The 2020 Pillar III disclosures report can be found on our corporate website.
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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.
•Customer funds are secured by the deposit guarantee 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.
•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 the group CEO.
•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
Board of directors
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Group executive chairmanA
The GSGM enhances control and oversight through:
Presence of Group Santander on the subsidiaries' boards of directors, establishing guidelines for board dynamics and effectiveness.
Group CEOB
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Regional headsC
CEO /
Country head
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Reporting of the CEO/country heads to the Group CEO /regional heads and group executive committee.
Control management and business functions4D
Control management and business functionsD
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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.

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.
•It is dynamic and constantly updated in order to reflect the 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.
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.
•The calculation of provisions and of contingent liabilities.
•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.
•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 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:
•The efficiency and effectiveness of the processes and systems referred to above.
•The compliance with applicable regulations and supervisory requirements.
•The reliability and integrity of financial and operational 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.
•Confirm the effectiveness of a sample of controls based on an internal audit risk assessment methodology.
•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.
•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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and financial review
 
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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.1Yes
A.2Yes
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on their own account.
A.3Yes
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'.
A.4No
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on their own account so this section does not apply.
A.5No
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on their own account so this section does not apply.
A.6No
See section 2.3 'Significant shareholders' where we explain there are no significant shareholders on their own account so this section does not apply.
A.7Yes
A.8YesNot applicable.
A.9Yes
A.10No
A.11Yes
A.12No
A.13No
A.14Yes
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Section in the CNMV model
Included in
statistical report
Comments
B. GENERAL SHAREHOLDERS’ MEETING
B.1No
See 'Quorum and majorities for passing resolutions at general meeting' in section 3.2.
B.2No
See 'Quorum and majorities for passing resolutions at general meeting' in section 3.2.
B.3No
See 'Rules for amending our Bylaws' in section 3.2.
B.4Yes
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 .
B.5Yes
See 'Voting results and resolutions' in sections 3.4 and 3.5.
B.6Yes
See 'Shareholder participation at general meetings' in section 3.2 and section 9.2 'Statistical information on corporate governance as required by the CNMV'.
B.7No
See 'Quorum and majorities for passing resolutions at general meeting' in section 3.2.
B.8No
See 'Corporate website' in section 3.1.
C. MANAGEMENT STRUCTURE
C.1 Board of directors
C.1.1Yes
See 'Size' in section 4.2.
C.1.2Yes
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'.
C.1.3Yes
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'.
C.1.4Yes
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.
C.1.5No
See 'Diversity' in section 4.2 and 'Duties and activities in 2020' in section 4.6.
C.1.6No
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.
C.1.7No
See 'Diversity' in section 4.2. and 'Duties and activities in 2020' in section 4.6.
C.1.8No
Not applicable, since there are no proprietary directors. See 'Composition by type of director' in section 4.2.
C.1.9No
See 'Group executive chairman and chief executive officer' in section 4.3 and 'Functions' in section 4.4.
C.1.10No
See section 4.1 'Our directors'.
C.1.11Yes
C.1.12Yes
See 'Board and committees attendance' in section 4.3.
C.1.13Yes
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'.
C.1.14Yes
C.1.15Yes
See 'Rules and regulations of the board' in section 4.3.
C.1.16No
See 'Election, renewal and succession of directors' in section 4.2.
C.1.17No
See 'Board assessment in 2020' in section 4.3 and 'Duties and activities in 2020' in section 4.6.
C.1.18No
See 'Board assessment in in 2020' in section 4.3.
C.1.19No
See 'Director election, renewal and succession' in section 4.2.
C.1.20No
See 'Board meetings' in section 4.3.
C.1.21YesNot applicable.
C.1.22No
See 'Diversity' in section 4.2.
C.1.23Yes
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'.
C.1.24No
See 'Board meetings' in section 4.3.
C.1.25Yes
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'.
C.1.26Yes
See 'Board and committees attendance' in section 4.3. and section 9.2 'Statistical information on corporate governance as required by the CNMV'.
C.1.27Yes
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Section in the CNMV model
Included in
statistical report
Comments
C.1.28No
See 'Duties and activities in 2020' in section 4.5.
C.1.29Yes
See section 4.1 'Our directors' and section 'Secretary of the board' in section 4.3.
C.1.30No
See section 3.1 'Shareholders' engagement' and 'Duties and activities in 2020' in section 4.5
C.1.31Yes
C.1.32Yes
See 'Duties and activities in 2020' in section 4.5 and section 9.2 'Statistical information on corporate governance as required by the CNMV'.
C.1.33YesNot applicable.
C.1.34Yes
C.1.35Yes
See ‘Board meetings' and ‘Committee meetings' in section 4.3.
C.1.36No
See 'Election, renewal and succession of directors' in section 4.2.
C.1.37No
Not applicable. See 'Duties and activities in 2020' in section 4.6.
C.1.38NoNot applicable.
C.1.39Yes
C.2 Board committees
C.2.1Yes
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'.
C.2.2Yes
C.2.3No
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.1No
See 'Related-party transactions' in section 4.12.
D.2Yes
Not applicable. See 'Related-party transactions' in section 4.12.
D.3Yes
Not applicable. See 'Related-party transactions' in section 4.12.
D.4Yes
D.5Yes
Not applicable. See 'Related-party transactions' in section 4.12.
D.6No
See 'Conflicts of interests' in section 4.12
D.7Yes
Not applicable. See section 2.3 'Significant shareholders' and 'Conflicts of interests' in section 4.12.
E. CONTROL AND RISK MANAGEMENT SYSTEMS
E.1No
E.2No
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.
E.3No
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.
E.4No
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.
E.5No
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.
E.6No
F. ICFRS
F.1No
F.2No
F.3No
F.4No
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Section in the CNMV model
Included in
statistical report
Comments
F.5No
See section 8.5 'Monitoring'.
F.6NoNot applicable.
F7No
G. DEGREE OF COMPLIANCE WITH CORPORATE GOVERNANCE RECOMMENDATIONS
GYes
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
HNo
See sections 'Tax contribution' and 'Governance and priorities', in particular, 'Joint initiatives to promote our agenda', in the Responsible banking chapter.
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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
Share capital
(euros)
Number of
shares
Number of
voting rights
03/12/20208,670,320,65117,340,641,30217,340,641,302
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:
% of voting rights
attributed to shares
% of voting rights through
financial instruments
Name or corporate name of sharerholder
Direct
Indirect
Direct
Indirect
Total % of voting rights
BlackRock Inc.0 5.08 %0 3.46 %5.43 %
Details of the indirect shares:
Name or corporate name of the indirect shareholderName or corporate name of the direct shareholder% of voting rights attributed to shares% of voting rights through financial instrumentsTotal % of voting rights
BlackRock Inc.Subsidiaries of BlackRock Inc.5.08%3.46%5.43%
A.3 Complete the following tables on company directors holding voting rights through company shares:
% of voting rights
attributed to shares
% of voting rights
through financial
instruments
Total %
of voting rights
% of voting rights that may be transferred
through financial
instruments
Name or corporate name of director
Direct
Indirect
Direct
Indirect
Direct
Indirect
Ana Botín-Sanz de Sautuola y O’Shea0.00 0.17 0.00 0.00 0.17 0.00 0.00 
José Antonio Álvarez Álvarez0.01 0.00 0.00 0.00 0.01 0.00 0.00 
Bruce Carnegie-Brown0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Homaira Akbari0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Javier Botín-Sanz de Sautuola y O’Shea0.03 0.55 0.00 0.00 0.58 0.00 0.00 
Álvaro Cardoso de Souza0.00 0.00 0.00 0.00 0.00 0.00 0.00 
R. Martin Chávez Márquez0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Sol Daurella Comadrán0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Henrique de Castro0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Gina Díez Barroso0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Luis Isasi Fernández de Bobadilla0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Ramiro Mato García-Ansorena0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Sergio Rial0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Belén Romana García0.00 0.00 0.00 0.00 0.00 0.00 0.00 
Pamela Walkden0.00 0.00 0.00 0.00 0.00 0.00 0.00 
% total voting rights held by the board of directors0.76 %
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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
% of share
capital affected
Brief description of agreement
Expiry date, if
applicable
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.		0.58%
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.
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
% of share
capital affected
Brief description of concerted action
Expiry date, if
applicable
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.		0.58%
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.
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
Number of shares held indirectly*
% of total share capital
028,439,0220.16%
(*)Through:
Name or corporate name of the direct shareholder
Number of shares held directly
Pereda Gestión, S.A.26,700,000 
Banco Santander Río, S.A.981,853 
Banco Santander México, S.A.757,169 
Total:28,439,022 
A.11 Estimated free float:
%
Estimated free float93.64%
A.14 Indicate whether the company has issued securities not traded in a regulated market of the European Union.
Yes þ No o
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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:
Attendance data
Date of General Meeting
% attending in person
% by proxy
% remote voting
Total
Electronic means
Other
23/03/20180.82 %47.61 %0.38 %15.74 %64.55 %
of which free float:0.18 %47.61 %0.38 %15.74 %63.91 %
Attendance data
Date of General Meeting
% attending in
person
% by proxy
% remote voting
Total
Electronic means
Other
12/04/20190.77 %65.30 %0.57 %1.86 %68.49 %
of which free float:0.63 %64.30 %0.57 %1.86 %67.36 %
Attendance data
Date of General Meeting
% attending in
person
% by proxy
% remote voting
Total
Electronic means
Other
23/07/20190.65 %41.82 %0.30 %16.45 %59.22 %
of which free float:0.58 %41.82 %0.30 %16.45 %58.15 %
Attendance data
Date of General Meeting
% attending in
person
% by proxy
% remote voting
Total
Electronic means
Other
03/04/20200.09 %62.60 %1.71 %0.60 %65.00 %
of which free float:0.01 %61.58 %1.71 %0.60 %63.90 %
Attendance data
Date of General Meeting
% attending in
person
% by proxy
% remote voting
Total
Electronic means
Other
27/10/20200.17 %43.29 %0.59 %16.30 %60.34 %
of which free float:0.11 %42.16 %0.59 %16.30 %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

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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 directors17
Minimum number of directors12
Number of directors fixed by GSM15
C.1.2 Complete the following table with the directors’ details:
Name or corporate
name of director
Representative
Category of
director
Position in
the board
Date of first
appointment
Date of last
appointment
Election procedure
Ana Botín-Sanz de Sautuola y O’SheaN/AExecutiveChairman04/02/198903/04/2020Vote in general shareholders’ meeting
José Antonio Álvarez ÁlvarezN/AExecutiveChief executive officer25/11/201412/04/2019Vote in general shareholders’ meeting
Bruce Carnegie-BrownN/ANon-executive independentLead independent director25/11/201412/04/2019Vote in general shareholders’ meeting
Homaira AkbariN/ANon-executive independentDirector27/09/201623/03/2018Vote in general shareholders’ meeting
Javier Botín-Sanz de Sautuola y O’SheaN/AOther external Director25/07/200412/04/2019Vote in general shareholders’ meeting
Álvaro Cardoso de SouzaN/ANon-executive independentDirector01/04/201801/04/2018Vote in general shareholders’ meeting
R. Martin Chávez MárquezN/ANon-executive independentDirector27/10/202027/10/2020Vote in general shareholders' meeting
Sol Daurella ComadránN/ANon-executive independentDirector25/11/201403/04/2020Vote in general shareholders’ meeting
Henrique de CastroN/ANon-executive independentDirector07/07/201907/07/2019Vote in general shareholders’ meeting
Gina Díez BarrosoN/ANon-executive independentDirector22/12/202022/12/2020Co-option
Luis Isasi Fernández de BobadillaN/AOther externalDirector19/05/202019/05/2020Vote in general shareholders' meeting
Ramiro Mato García-AnsorenaN/ANon-executive independentDirector28/11/201712/04/2019Vote in general shareholders´ meeting
Sergio RialN/AExecutiveDirector30/5/202030/05/2020Vote in general shareholders' meeting
Belén Romana GarcíaN/ANon-executive independentDirector22/12/201512/04/2019Vote in general shareholders’ meeting
Pamela WalkdenN/ANon-executive independentDirector29/10/201903/04/2020Vote in general shareholders' meeting
Total number of directors15
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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
Category of director at the time he/her left
Date of last appointment
Date of leave
Board committees he or she was a member of
Indicate whether he or she has left before the expiry of his or her term
Ignacio Benjumea Cabeza de VacaOther external23/03/201807/05/2020Executive committee, Remuneration committee, Risk supervision, regulation and compliance committee, Responsible banking, sustainability and culture committee and Innovation and technology committeeNO
Guillermo de la Dehesa RomeroOther external23/03/201803/04/2020Executive committee, Nomination committee and Innovation technology committeeYES
Esther Giménez-Salinas i ColomerNon-executive independent03/04/202027/10/2020Nomination committee, Risk supervision, regulation and compliance committee and Responsible banking, sustainability and culture committeeYES
Rodrigo Echenique GordilloOther external03/04/202022/12/2020Nomination committeeYES
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
Profile
Ana Botín-Sanz de Sautuola y O’SheaGroup executive chairman
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
José Antonio Álvarez ÁlvarezCEO
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Sergio RialSantander Head Regional for South America
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Total number of executive directors3
% of the Board20.00 %
Proprietary non-executive directors
Name or corporate name of director
Name or corporate name of significant shareholder represented or having proposed his or her appointment
Profile
N/AN/AN/A
Total number of proprietary non-executive directors0
% of the Board0 %
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Independent non-executive directors
Name or corporate name of director
Profile
Bruce Carnegie-Brown
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Homaira Akbari
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Álvaro Cardoso de Souza
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
R. Martín Chávez Márquez
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Sol Daurella Comadrán
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Henrique de Castro
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Gina Díez Barroso
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Ramiro Mato García-Ansorena
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Belén Romana Garcia
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Pamela Walkden
See section 4.1 'Our directors' in the 'Corporate governance' chapter in the annual report.
Total number of independent directors10
% of the Board66.67 %
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
Description of the relationship
Reasoned statement
Homaira AkbariBusinessWhen 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.
Sol Daurella FinancingWhen 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.
Henrique de CastroBusinessWhen 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.
Gina DíezFinancingWhen 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.
Belén RomanaBusinessWhen 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.
283
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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
Reasons for not qualifying under other category
Entity, executive or shareholder with whom it maintains a relationship
Profile
Javier Botín-Sanz de Sautuola y O’Shea
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.
Banco Santander, S.A.
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
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.
See section 4.1 'Our directors' in the Corporate governance chapter in the annual report.
Total number of other non-executive directors2
% of the Board13.33 %
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
Date of change
Previous category
Current category
N/A
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
% of total directors of each category
FY 2020FY 2019FY 2018FY 2017FY 2020FY 2019FY 2018FY 2017
Executive111133.33 %50.00 %33.33 %33.33 %
Proprietary————0.00 %0.00 %0.00 %0.00 %
Independent554450.00 %55.55 %44.44 %50.00 %
Other external————0.00 %0.00 %0.00 %0.00 %
Total:665540.00 %40.00 %33.33 %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
Name of the listed company
Position
Ana Botín-Sanz de Sautuola y O’SheaThe Coca-Cola CompanyDirector
Homaira AkbariLandstar System, Inc.Director
Temenos AGDirector
Sol Daurella ComadránCoca-Cola European Partners plc.Chairman
Henrique de CastroFiserv Inc.Director
Luis Isasi Fernández de BobadillaCompañía de Distribución Integral Logista, S.A.U.Director
Sergio RialDelta Airlines IncDirector
Belén Romana GarcíaAviva plc.Director
Six Group AG (SIX)Director
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)19,066 
Amount of accumulated pension rights of current directors (EUR thousand)67,526 
Amount of accumulated pension rights of former directors (EUR thousand)51,723 
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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
Position (s)
Rami Aboukhair HurtadoCountry head - Santander Spain
Lindsey Tyler ArgalasHead of Santander Digital
Alexandra BrandãoHead of Human Resources
Juan Manuel Cendoya Méndez de VigoGroup head of Communications, Corporate Marketing and Research
José Fransisco Doncel RazolaGroup head of Accounting and Financial Control
Keiran Paul FoadGroup Chief Risk Officer
José Antonio García CanteraGroup Chief Financial Officer
Juan Guitard MarínGroup Chief Audit Executive
José Maria Linares PerouGlobal head of Corporate & Investment Banking
Mónica Lopez-Mónís GallegoGroup head of Supervisory and Regulatory Relations
Javier Maldonado TrinchantGroup head of Costs
Dirk MarzlufGroup head of Technology and Operations
Víctor Matarranz Sanz de MadridGlobal head of Wealth Management
José Luis de Mora Gil-GallardoGroup head of Strategy and Corporate Development and Head of Consumer Finance (Santander Consumer Finance)
Jaime Pérez RenovalesGroup head of General Secretariat and Human Resources
Javier San Félix GarcíaHead of Santander Global Payments Services
Antonio SimõesHead regional of Europe
Marjolein van Hellemondt-GerdinghGroup Chief Compliance Officer
Number of women in senior management4
Percentage of total senior management22.22%
Total remuneration accrued by the senior management (EUR thousand) 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 meetings20
Number of board meetings held without the chairman’s attendance0
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 meetings3
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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 committee15
Number of meetings of the responsible banking, sustainability and culture committee4
Number of meetings of the innovation and technology committee4
Number of meetings of the nomination committee13
Number of meetings of the remuneration committee13
Number of meetings of the risk supervision, regulation and compliance committee13
Number of meetings of the executive committee46
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 present20
% of votes cast by members present over total votes in the fiscal year98.56 %
Number of board meetings with all directors being present (or represented having given specific instructions)18
% of votes cast by members present at the meeting or represented with specific instructions over total votes in the fiscal year99.27 %
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
Position
José Francisco Doncel RazolaGroup 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
Representative
Jaime Pérez RenovalesN/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
CompanyGroup companiesTotal
Amount of non-audit work (EUR thousand)4871,513 2,000 
Amount of non-audit work as a % of amount of audit work0.5 %1.4 %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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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:
Individual financial statements
Consolidated financial statements
Number of consecutive years55
Company
Group
Number of years audited by current audit firm/Number of years the company’s or its Group financial statements have been audited (%)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 beneficiaries19
Type of beneficiaryDescription of the agreement:
EmployeesThe 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:
Board of directorsGeneral Shareholders’ Meeting
Body authorising clauses√
YES
NO
Is the general shareholders’ meeting informed of such clauses?√
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and financial review
 
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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
Position
Type
Ana Botín-Sanz de Sautuola y O’SheaChairmanExecutive director
José Antonio Álvarez ÁlvarezMemberExecutive director
Bruce Carnegie-BrownMemberExternal independent director
Luis Isasi Fernández de BobadillaMemberOther external director
Ramiro Mato García-AnsorenaMemberExternal independent director
Belén Romana GarcíaMemberExternal independent director
% of executive directors33.33 %
% of proprietary directors0.00 %
% of independent directors50.00 %
% of other non-executive directors16.67 %
Audit committee
Name
Position
Type
Pamela WalkdenChairmanExternal independent director
Homaira AkbariMemberExternal independent director
Henrique de CastroMemberExternal independent director
Ramiro Mato García-AnsorenaMemberExternal independent director
Belén Romana GarcíaMemberExternal independent director
% of executive directors0 %
% of proprietary directors0 %
% of independent directors100 %
% of other non-executive directors0 %
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
Position
Type
Bruce Carnegie-Brown
Chairman
External independent director
R. Martin Chávez Márquez
Member
External independent director
Sol Daurella Comadrán
Member
External independent director
% of executive directors
0 %
% of proprietary directors
0 %
% of independent directors
100 %
% of other executive directors
0 %
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Remuneration committee
Name
Position
Type
Bruce Carnegie-Brown
Chairman
External independent director
R. Martin Chávez MárquezMemberExternal independent director
Sol Daurella Comadrán
Member
External independent director
Henrique de Castro
Member
External independent director
Luis Isasi Fernández de BobadillaMemberOther external director
% of executive directors
0 %
% of proprietary directors
0 %
% of independent directors
80 %
% of other external directors
20 %
Risk supervision, regulation and compliance committee
Name
Position
Type
Álvaro Cardoso de Souza
Chairman
External independent director
R. Martin Chávez MárquezMemberExternal independent director
Luis Isasi Fernández de Bobadilla
Member
Other external director
Ramiro Mato García-Ansorena
Member
External independent director
Belén Romana García
Member
External independent director
% of executive directors
0 %
% of proprietary directors
0 %
% of independent directors
80 %
% of other external directors
20 %
Responsible banking, sustainability and culture committee
Name
Position
Type
Ramiro Mato García-Ansorena
Chairman
External independent director
Homaira Akbari
Member
External independent director
Álvaro Cardoso de Souza
Member
External independent director
Sol Daurella Comadrán
Member
External independent director
Belén Romana García
Member
External independent director
% of executive directors
0 %
% of proprietary directors
0 %
% of independent directors
100 %
% of other external directors
0 %
Innovation and technology committee
Name
Position
Type
R. Martín Chávez Márquez
Chairman
External independent director
Ana Botín-Sanz de Sautuola y O'SheaMemberExecutive director
José Antonio Álvarez Álvarez
Member
Executive director
Bruce Carnegie-Brown
Member
External independent director
Homaira Akbari
Member
External independent director
Henrique de Castro
Member
External independent director
Belén Romana García
Member
External independent director
% of executive directors
28.58 %
% of proprietary directors
0.00 %
% of independent directors
71.42 %
% of other external directors
0.00 %
289
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.
Number of female directors
FY 2020FY 2019FY 2018FY 2017
Number
%
Number
%
Number
%
Number
%
Audit committee
3 60.00 %3 60.00 %2 50.00 %2 50.00 %
Responsible banking, sustainability and culture committee
3 60.00 %5 62.50 %5 62.50 %— 0.00 %
Innovation and technology committee
3 42.85 %3 37.50 %3 42.85 %4 44.40 %
Nomination committee
1 33.33 %2 40.00 %1 25.00 %1 20.00 %
Remuneration committee
1 20.00 %1 20.00 %1 20.00 %1 20.00 %
Risk supervision, regulation and compliance committee
1 20.00 %2 40.00 %2 33.30 %2 33.30 %
Executive committee
2 33.33 %2 28.50 %2 25.00 %1 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
Brief description of the transaction
Amount (EUR thousand)
Banco Santander (Brasil) S.A.
(Cayman Islands Branch)
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.
84,870 
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. 1,503 
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. 769 
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 2020.146,552 
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 2020.85 
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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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:
a) Changes taking place since the previous annual general meeting.
b) The specific reasons for the company not following a given Good Governance Code recommendation, and any alternative procedures followed in its stead.
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.
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) Report on auditor independence.
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
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
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governance
 
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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
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
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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.
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
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 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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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:
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:
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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.
b) Participate actively in the preparation of risk strategies and in key decisions about their management.
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.
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
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:
a) Committees should be formed exclusively by non-executive directors, with a majority of independents.
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
55. Environmental and social sustainability policies should identify and include at least:
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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
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
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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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9.3 Table on compliance with or explanations of recommendations on corporate governance
Recommendation
Comply / Explain
Information
1
Comply
See section 3.2 'Shareholder rights'.
2
Not applicable
See 'Conflicts of interest' in section 4.12. and section 2.3 'Significant shareholders'.
3
Comply
See section 3.1 'Shareholder engagement'.
4
Comply
See section 3.1 'Shareholder engagement'.
5
Partially 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'.
6
Comply
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'.
7
Comply
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'.
8
Comply
See 'Rules and regulations of the board' in section 4.3 and section 4.5 'Audit committee activities in 2020'.
9
Comply
See 'Participation of shareholders at the general meeting' in section 3.2.
10
Comply
See 'Supplement to the annual general meeting notice' in section 3.2.
11
Not applicable
See section 3.6 'Our coming 2021 AGM'.
12
Comply
See section 4.3 'Board functioning and effectiveness'.
13
Comply
See 'Size' in section 4.2.
14
Comply
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.
15
Comply
See section 4.2 'Board composition'.
16
Comply
See 'Composition by type of director' in section 4.2.
17
Comply
See 'Composition by type of director' and 'Election, renewal and succession of directors' in section 4.2.
18
Comply
See 'Corporate website' in section 3.1 and section 4.1 'Our directors'.
19
Not applicable
See 'Composition by type of director' and 'Tenure and equity ownership' in section 4.2.
20
Comply
See 'Election, renewal and succession of directors' in section 4.2.
21
Comply
See 'Election, renewal and succession of directors' in section 4.2.
22
Comply
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.
23
Comply
See 'Election, renewal and succession of directors' in section 4.2.
24
Comply
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.
25
Comply
See 'Board and committees attendance' in section 4.3 and 'Duties and activities in 2020' in section 4.6.
26
Comply
See 'Board meetings' and 'Board and committee attendance' in section 4.3.
27
Comply
See 'Board meetings' and 'Board and committee attendance' in section 4.3.
28
Comply
See 'Board meetings' in section 4.3.
29
Comply
See 'Board meetings' in section 4.3.
30
Comply
See 'Training of directors and induction programmes for new directors' in section 4.3.
31
Comply
See 'Board meetings' in section 4.3.
32
Comply
See section 3.1 'Shareholder engagement' and 'Duties and activities in 2020' in section 4.6.
33
Comply
See section 4.3 'Board functioning and effectiveness'.
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Recommendation
Comply / Explain
Information
34
Comply
See 'Lead independent director' in section 4.3.
35
Comply
See 'Secretary of the board' in section 4.3.
36
Comply
See 'Board assessment in 2020' in section 4.3.
37
Comply
See 'Rules and regulations of the board' in section 4.3 and 'Composition' in section 4.4.
38
Comply
See 'Committee meetings' in section 4.3 and section 4.4 'Executive committee activities in 2020'.
39
Comply
See 'Rules and regulations of the board' in section 4.3 and 'Composition' in section 4.5.
40
Comply
See 'Duties and activities in 2020' in section 4.5 and section 8.5 'Monitoring'.
41
Comply
See 'Rules and regulations of the board' in section 4.3 and 'Duties and activities in 2020' in section 4.5.
42
Comply
See 'Rules and regulations of the board' in section 4.3 and 'Duties and activities in 2020' in section 4.5.
43
Comply
See 'Committee meetings' in section 4.3.
44
Comply
See 'Duties and activities in 2020' in section 4.5.
45
Comply
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.
46
Comply
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.
47
Comply
See 'Composition' in section 4.6 and 'Composition' in section 4.7.
48
Comply
See 'Structure of board committees' in section 4.3.
49
Comply
See 'Duties and activities in 2020' in section 4.6.
50
Comply
See 'Duties and activities in 2020' in section 4.7.
51
Comply
See 'Duties and activities in 2020' in section 4.7.
52
Comply
53
Comply
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.
54
Comply
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.
55
Comply
See 'Duties and activities in 2020' in section 4.9 and 'Responsible Banking' chapter.
56
Comply
57
Comply
58
Comply
59
Comply
60
Comply
61
Comply
62
Comply
63
Comply
64
Comply
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9.4 Reconciliation to the CNMV’s remuneration report model
Section in the CNMV model
Included in statistical report
Further information elsewhere and comments
A. Remuneration policy for the present fiscal year
A.1No
•See section 6.4.
•See sections 4.7 and 6.5.
•See 'Summary of link between risk, performance and reward' in section 6.3.
A.2No
See section 6.4.
A.3No
See section 6.4.
A.4No
See section 6.5.
B. Overall summary of application of the remuneration policy over the last fiscal year
B.1No
See sections 6.1, 6.2. and 6.3.
B.2No
See 'Summary of link between risk, performance and reward' in section 6.3.
B.3No
See sections 6.2 and 6.3.
B.4No
See section 6.5.
B.5No
See section 6.2 and 6.3
B.6No
See 'Gross annual salary' in section 6.3.
B.7No
See 'Variable remuneration' in section 6.3.
B.8NoNot applicable.
B.9No
See 'Main features of the benefit plans' in section 6.3.
B.10No
See 'Other remuneration' in section 6.3.
B.11No
See 'Terms and conditions of executive directors´ contracts' in section 6.4.
B.12NoNo remuneration for this component.
B.13No
See note 5 to the consolidated financial statements.
B.14No
See 'Insurance and other remuneration and benefits in kind' in section 6.4.
B.15No
See 'Remuneration of board members as representatives of the Bank' in section 6.3.
B.16NoNo remuneration for this component.
C. Breakdown of the individual remuneration of directors
CYes
See section 9.5.
C.1 a) i)
Yes
See section 9.5.
C.1 a) ii)
Yes
See section 9.5.
C.1 a) iii)
Yes
See section 9.5.
C.1 a) iii)
Yes
See section 9.5.
C.1 b) i)
Yes
See section 9.5.
C.1 b) ii)
No
Not awarded.
C.1 b) iii)
No
Not awarded.
C.1 b) iv)
No
Not awarded.
C.1 c)
Yes
See section 9.5.
D. Other information of interest
D
No
See section 4.7
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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.
Number% of total
Votes cast10,429,789,36696.55 %
Number% of total
Votes against649,059,4356.01 %
Votes in favour9,777,014,10190.51 %
Abstentions372,790,8603.45 %
C. ITEMISED INDIVIDUAL REMUNERATION ACCRUED BY EACH DIRECTOR
DirectorsTypePeriod of accrual in year 2020
Ms Ana Botín-Sanz de Sautuola y O’SheaExecutiveFrom 01/01/2020 to 31/12/2020
Mr José Antonio Álvarez Álvarez
ExecutiveFrom 01/01/2020 to 31/12/2020
Mr Bruce Carnegie-BrownIndependentFrom 01/01/2020 to 31/12/2020
Ms Homaira AkbariIndependentFrom 01/01/2020 to 31/12/2020
Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea
Other external From 01/01/2020 to 31/12/2020
Mr Álvaro Antonio Cardoso de Souza
IndependentFrom 01/01/2020 to 31/12/2020
Mr Ramón Martín Chávez MárquezIndependentFrom 27/10/2020 to 31/12/2020
Ms Sol Daurella Comadrán
IndependentFrom 01/01/2020 to 31/12/2020
Mr Henrique Manuel Drummond Borges Cirne de Castro
IndependentFrom 01/01/2020 to 31/12/2020
Ms Gina Díez Barroso
IndependentFrom 22/12/2020 to 31/12/2020
Mr Luis Isasi Fernández de Bobadilla
IndependentFrom 19/05/2020 to 31/12/2020
Mr Ramiro Mato García-Ansorena
IndependentFrom 01/01/2020 to 31/12/2020
Mr Sergio Rial
ExecutiveFrom 30/05/2020 to 31/12/2020
Ms Belén Romana García
IndependentFrom 01/01/2020 to 31/12/2020
Mrs Pamela Ann Walkden
IndependentFrom 01/01/2020 to 31/12/2020
Mr Rodrigo Echenique Gordillo
Other externalFrom 01/01/2020 to 22/12/2020
Mr Ignacio Benjumea Cabeza de Vaca
Other externalFrom 01/01/2020 to 05/05/2020
Mr Guillermo de la Dehesa Romero
Other externalFrom 01/01/2020 to 03/04/2020
Ms Esther Giménez-Salinas i Colomer
IndependentFrom 01/01/2020 to 27/10/2020
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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)
NameFixed remunerationPer diem allowancesRemuneration for membership of Board's committeesSalaryShort-term variable remunerationLong-term variable remuneration1Severance payOther groundsTotal year 2020Total year 2019
Ms Ana Botín-Sanz de Sautuola y O’Shea77 55 157 3,176 534 828 — 525 5,352 6,119 
Mr José Antonio Álvarez Álvarez77 49 144 2,541 290 559 — 710 4,370 4,957 
Mr Bruce Carnegie-Brown326 82 187 — — — — — 595 700 
Ms Homaira Akbari77 79 46 — — — — — 202 226 
Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea77 45 — — — — — — 122 137 
Mr Álvaro Antonio Cardoso de Souza136 60 47 — — — — — 243 276 
Mr Ramón Martín Chávez Márquez8 15 14 — — — — — 37 — 
Ms Sol Daurella Comadrán77 82 55 — — — — — 214 240 
Mr Henrique Manuel Drummond Borges Cirne de Castro77 85 55 — — — — — 217 86 
Ms Gina Díez Barroso2 2 — — — — — — 4 — 
Mr Luis Isasi Fernández de Bobadilla44 43 116 — — — — 740 943 — 
Mr Ramiro Mato García-Ansorena119 86 225 — — — — — 430 500 
Mr Sergio Rial42 21 — — — — — — 63 — 
Ms Belén Romana García98 94 225 — — — — — 417 525 
Mrs Pamela Ann Walkden114 66 34 — — — — — 214 34 
Mr Rodrigo Echenique Gordillo75 60 20 — — 414 1,800 — 2,369 3,926 
Mr Ignacio Benjumea Cabeza de Vaca35 43 95 — — — — 102 275 524 
Mr Guillermo de la Dehesa Romero23 28 57 — — — — — 108 399 
Ms Esther Giménez-Salinas i Colomer64 71 56 — — — — — 191 228 
Mr Carlos Fernández González— — — — — — — — — 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.
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II) Table of changes in share-based remuneration schemes and gross profit from consolidated shares or financial instruments
Financial instruments at start of year 2020Financial instruments granted at start of year 2020Financial instruments consolidated during 2020Instruments
matured but
not exercised 		Financial instruments at end of year 2020
NameName of Plan No. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent shares /
handed over		Price of the consolidated sharesNet proft
from shares
handed over or
consolidated
fnancial
instruments
(EUR thousand)		No. of instrumentsNo. of instrumentsNo of equivalent shares
Ms Ana Botín-
Sanz de Sautuola
y O’Shea		1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)		216,308216,308——165,043165,0432.68544351,265— — 
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)		206,775206,775———— — — — 206,775 206,775 
3rd cycle of deferred variable remuneration
plan linked to multi-year targets (2018)		309,911309,911———— — — — 309,911 309,911 
4th cycle of deferred variable remuneration
plan linked to multi-year targets (2019)		319,390319,390———— — — — 319,390 319,390 
5th cycle of deferred variable remuneration
plan linked to multi-year targets (2020)		——310,615310,615198,792198,792 2.685 534 — 111,823 111,823 
Financial instruments at start of year 2020Financial instruments granted at start of year 2020Financial instruments consolidated during 2020Instruments
matured but
not exercised		Financial instruments at end of year 2020
NameName of Plan No. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent shares /
handed over		Price of the consolidated sharesNet proft
from shares
handed over or
consolidated
fnancial
instruments
(EUR thousand)		No. of instrumentsNo. of instrumentsNo of equivalent shares
Mr José Antonio
Álvarez Álvarez		1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)		145,998145,998——111,396111,3962.68529934,602— — 
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)		138,283138,283———— — — — 138,283 138,283 
3rd cycle of deferred variable remuneration
plan linked to multi-year targets (2018)		207,097207,097———— — — — 207,097 207,097 
4th cycle of deferred variable remuneration
plan linked to multi-year targets (2019)		213,449213,449———— — — — 213,449 213,449 
5th cycle of deferred variable remuneration
plan linked to multi-year targets (2020)		——168,715168,715107,976107,976 2.685 290 — 60,739 60,739 
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Financial instruments at start of year 2020Financial instruments granted at start of year 2020Financial instruments consolidated during 2020Instruments
matured but
not exercised		Financial instruments at end of year 2020
NameName of Plan No. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent shares /
handed over		Price of the consolidated sharesNet proft
from shares
handed over or
consolidated
fnancial
instruments
(EUR thousand)		No. of instrumentsNo. of instrumentsNo of equivalent shares
Mr Rodrigo Echenique
Gordillo		1st cycle of deferred variable remuneration
plan linked to multi-year targets (2016)		108,134108,134——82,50682,5062.68522225,628— — 
2nd cycle of deferred variable remuneration
plan linked to multi-year targets (2017)		107,764107,764———— — — — 107,764 107,764 
3rd cycle of deferred variable remuneration
plan linked to multi-year targets (2018)		164,462164,462———— — — — 164,462 164,462 
4th cycle of deferred variable remuneration
plan linked to multi-year targets (2019)		98,09298,092———— — — — 98,092 98,092 
Comments
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.
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III) Long-term saving systems
NameRemuneration from
consolidation of rights to savings system
Ms Ana Botín-Sanz de Sautuola y O’Shea1,155 
Mr José Antonio Álvarez Álvarez864 
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)
20202019
Name2020201920202019Systems with consolidated economic rightsSystems with unconsolidated economic rightsSystems with consolidated economic rightsSystems with unconsolidated economic rights
Ms Ana Botín-Sanz de Sautuola y O’Shea1,155 1,145 — — 49,444 — 48,104 — 
Mr José Antonio Álvarez Álvarez864 858 — — 18,082 — 17,404 — 
Mr Rodrigo Echenique Gordillo— — — — — — 13,268 — 
iv) Details of other items (Thousands of EUR)
NameItemAmount remunerated
Ms Ana Botín-Sanz de Sautuola y O’SheaLife and accident insurance and fixed remuneration supplement insurance584 
Other remuneration 22 
NameItemAmount remunerated
Mr José Antonio Álvarez ÁlvarezLife and accident insurance and fixed remuneration supplement insurance1,045 
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 Fixed remunerationPer diem allowancesRemuneration for membership of Board's committeesSalaryShort-term variable remunerationLong-term variable remunerationSeverance payOther groundsTotal year 2020Total year 2019
Ms Homaira Akbari
184 — — — — — — — 184 — 
Mr Álvaro Antonio Cardoso de Souza310 — — — — — — 25 335 325 
Mr Ramón Martín Chávez Márquez17 — — — — — — — 17 — 
Mr Henrique Manuel Drummond Borges Cirne de Castro17 — — — — — — — 17 — 
Ms Gina Díez Barroso14 — — — — — — — 14 — 
Mr Sergio Rial— — — 2,175 1,664 — — 181 4,020 — 
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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 2020Instruments
matured but
not exercised 		Financial instruments
at end of year 2020
NameName of Plan No. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent sharesNo. of instrumentsNo. of equivalent shares /
handed over		Price of the consolidated sharesNet proft
from shares
handed over or
consolidated
fnancial
instruments
(EUR thousand)		No. of instrumentsNo. of instrumentsNo of equivalent shares
Mr Sergio Rial5th cycle of deferred variable remuneration
plan linked to multi-year targets (2020)		——355,263355,263227,367227,367 7.32 1,664 — 127,896 127,896 
iii) Long term saving systems
NameRemuneration from
consolidation of rights to savings system
Mr Sergio Rial693 
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)
20202019
Name2020201920202019Systems with consolidated economic rightsSystems with unconsolidated economic rightsSystems with consolidated economic rightsSystems with unconsolidated economic rights
Mr Sergio Rial693 — — — — — — — 
iv) Detail of other items (Thousands of EUR)
NameItemAmount Remunerated 2020
Mr Sergio RialFundo de Pensão do Governo174 
Other remuneration7 
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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 companyRemuneration accrued in group companies
Name
Total cash remuneration1
Gross profit on consolidated shares or financial instruments1Contributions to the long-term savings planRemuneration for other itemsTotal 2020Total 2019Total cash remunerationGross profit on consolidated shares or financial instrumentsContributions to the long-term savings planRemuneration for other itemsTotal 2020Total 2019
Ms Ana Botín-Sanz de Sautuola y O’Shea5,352 977 1,155 606 8,090 9,954 — — — — — — 
Mr José Antonio Álvarez Álvarez4,370 589 864 1,054 6,877 8,270 — — — — — — 
Mr Bruce Carnegie-Brown595 — — — 595 700 — — — — — — 
Ms Homaira Akbari202 — — — 202 226 184 — — — 184 — 
Mr Francisco Javier Botín-Sanz de Sautuola y O’Shea122 — — — 122 137 — — — — — — 
Mr Álvaro Antonio Cardoso de Souza243 — — — 243 276 335 — — — 335 325 
Mr Ramón Martín Chávez Márquez37 — — — 37 — 17 — — — 17 — 
Ms Sol Daurella Comadrán214 — — — 214 240 — — — — — — 
Mr Henrique Manuel Drummond Borges Cirne de Castro217 — — — 217 86 17 — — — 17 — 
Ms Gina Díez Barroso4 — — — 4 — 14 — — — 14 — 
Mr Luis Isasi Fernández de Bobadilla943 — — — 943 — — — — — — — 
Mr Ramiro Mato García-Ansorena430 — — — 430 500 — — — — — — 
Mr Sergio Rial63 — — — 63 — 4,020 1,664 693 181 6,558 — 
Ms Belén Romana García417 — — — 417 525 — — — — — — 
Mrs Pamela Ann Walkden214 — — — 214 34 — — — — — — 
Mr Rodrigo Echenique Gordillo2,369 222 — 4 2,595 4,874 — — — — — — 
Mr Ignacio Benjumea Cabeza de Vaca275 — — — 275 524 — — 
Mr Guillermo de la Dehesa Romero108 — — — 108 399 — — 
Ms Esther Giménez-Salinas i Colomer191 — — — 191 228 — — 
Mr Carlos Fernández González— — — — — 214 — — — — — — 
Total 16,366 1,788 2,019 1,664 21,837 27,187 4,587 1,664 693 181 7,125 325 
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.
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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Economic
and financial
review
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314
316
316
319
332
336
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356
358
360
388
390
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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
Period-end
2020201920202019
US dollar1.140 1.119 1.227 1.123 
Pound sterling0.889 0.877 0.898 0.851 
Brazilian real5.814 4.410 6.373 4.516 
Mexican peso24.364 21.549 24.438 21.220 
Chilean peso902.072 785.558 871.819 845.673 
Argentine peso79.555 52.572 103.159 67.258 
Polish zloty4.441 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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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.
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.
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2. Group selected data
BALANCE SHEET (EUR million)20202019% 2020 vs 20192018
Total assets1,508,250 1,522,695 (0.9)1,459,271 
Loans and advances to customers916,199 942,218 (2.8)882,921 
Customer deposits849,310 824,365 3.0 780,496 
Total funds A
1,056,127 1,050,765 0.5 980,562 
Total equity91,322 110,659 (17.5)107,361 

INCOME STATEMENT (EUR million)20202019
% 2020 vs 2019 B
2018
Net interest income31,994 35,283 (9.3)34,341 
Total income44,279 49,229 (10.1)48,424 
Net operating income23,149 25,949 (10.8)25,645 
Profit before tax(2,076)12,543 — 14,201 
Attributable profit to the parent(8,771)6,515 — 7,810 

EPS, PROFITABILITY AND EFFICIENCY (%)20202019% 2020 vs 20192018
EPS (euro) C
(0.538)0.347 — 0.430 
RoE(9.80)6.62 8.21 
RoTE1.95 11.44 11.63 
RoA(0.50)0.54 0.64 
RoRWA(1.33)1.33 1.55 
Efficiency ratio D
47.0 47.0 47.0 

UNDERLYING INCOME STATEMENT D (EUR million)
20202019
% 2020 vs 2019 E
2018
Net interest income31,994 35,283 (9.3)34,341 
Total income44,600 49,494 (9.9)48,424 
Net operating income23,633 26,214 (9.8)25,645 
Profit before tax9,674 14,929 (35.2)14,776 
Attributable profit to the parent5,081 8,252 (38.4)8,064 

UNDERLYING EPS AND PROFITABILITY D (%)
20202019% 2020 vs 20192018
Underlying EPS (euro) C
0.262 0.449 (41.7)0.446 
Underlying RoE 5.68 8.38 8.48 
Underlying RoTE 7.44 11.79 12.08 
Underlying RoA 0.40 0.65 0.66 
Underlying RoRWA 1.06 1.61 1.59 

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SOLVENCY AND NPLs (%)
202020192018
Phased-in CET1 F
12.34 11.65 11.47 
Phased-in total capital ratio F
16.18 15.05 14.98 
NPL ratio3.21 3.32 3.73 
Coverage ratio76 68 67 
THE SHARE, MARKET CAPITALIZATION AND DIVIDEND
20202019% 2020 vs 20192018
Number of shareholders4,018,817 3,986,093 0.8 4,131,489 
Shares (millions) 17,341 16,618 4.3 16,237 
Share price (euros) C
2.538 3.575 (29.0)3.807 
Market capitalization (EUR million)44,011 61,986 (29.0)64,508 
Dividend per share (euros) C G
0.0275 0.1917 (85.7)0.2204 
Tangible book value per share (euros) C
3.79 4.18 4.01 
Price / Tangible book value per share (X)0.67 0.86 0.95 
CUSTOMERS (thousands)20202019% 2020 vs 20192018
Total customers148,256 144,795 2.4 139,450 
Loyal customers H
22,838 21,556 5.9 19,832 
     Loyal retail customers20,901 19,762 5.8 18,095 
     Loyal SME & corporate customers1,938 1,794 8.0 1,736 
Digital customers I
42,362 36,817 15.1 32,014 
OPERATING DATA20202019% 2020 vs 20192018
Number of employees191,189 196,419 (2.7)202,713 
Number of branches11,236 11,952 (6.0)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.
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•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).
Additionally, we have contact centres which have won several awards for their service quality.
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.

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.
This transformation should deliver faster and more profitable growth, as well as higher productivity.
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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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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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
Change
20202019Absolute%
% excl. FX
2018
Net interest income31,994 35,283 (3,289)(9.3)1.3 34,341 
Net fee income (commission income minus commission expense)10,015 11,779 (1,764)(15.0)(4.5)11,485 
Gains or losses on financial assets and liabilities and exchange differences (net)2,187 1,531 656 42.8 55.9 1,797 
Dividend income391 533 (142)(26.6)(26.1)370 
Share of results of entities accounted for using the equity method(96)324 (420)— — 737 
Other operating income / expenses(212)(221)9 (4.1)125.1 (306)
Total income44,279 49,229 (4,950)(10.1)0.2 48,424 
Operating expenses(21,130)(23,280)2,150 (9.2)(1.2)(22,779)
   Administrative expenses(18,320)(20,279)1,959 (9.7)(1.6)(20,354)
       Staff costs (10,783)(12,141)1,358 (11.2)(4.1)(11,865)
       Other general administrative expenses (7,537)(8,138)601 (7.4)2.2 (8,489)
   Depreciation and amortization(2,810)(3,001)191 (6.4)1.6 (2,425)
Provisions or reversal of provisions(2,378)(3,490)1,112 (31.9)(26.5)(2,223)
Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss (net)(12,382)(9,352)(3,030)32.4 49.2 (8,986)
Impairment on other assets (net)(10,416)(1,623)(8,793)— — (207)
Gain or losses on non-financial assets and investments (net)114 1,291 (1,177)(91.2)(91.2)28 
Negative goodwill recognized in results8 — 8 — — 67 
Gains or losses on non-current assets held for sale not classified as discontinued operations(171)(232)61 (26.3)(28.6)(123)
Profit or loss before tax from continuing operations(2,076)12,543 (14,619)— — 14,201 
Tax expense or income from continuing operations(5,632)(4,427)(1,205)27.2 45.6 (4,886)
Profit from the period from continuing operations(7,708)8,116 (15,824)— — 9,315 
Profit or loss after tax from discontinued operations— — — — — — 
Profit for the period(7,708)8,116 (15,824)— — 9,315 
Attributable profit to non-controlling interests(1,063)(1,601)538 (33.6)(25.5)(1,505)
Attributable profit to the parent(8,771)6,515 (15,286)— — 7,810 
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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.
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.
Average balance sheet - assets and interest income
EUR million
20202019
Assets
Average balance
Interest
Average rate
Average balance
Interest
Average rate
Cash and deposits on demand and loans and advances to central banks and credit institutions A
223,096 2,232 1.00 %203,809 3,920 1.92 %
   Domestic97,511 650 0.67 %84,412 598 0.71 %
   International - Mature markets79,703 512 0.64 %66,093 910 1.38 %
   International - Developing markets45,882 1,070 2.33 %53,304 2,412 4.52 %
Loans and advances to customers930,563 38,788 4.17 %910,327 46,180 5.07 %
   Domestic251,536 4,913 1.95 %236,132 5,420 2.30 %
   International - Mature markets509,016 17,136 3.37 %491,479 18,426 3.75 %
   International - Developing markets170,011 16,739 9.85 %182,716 22,334 12.22 %
Debt securities172,940 5,022 2.90 %190,128 6,378 3.35 %
   Domestic46,390 341 0.74 %61,498 599 0.97 %
   International - Mature markets49,667 619 1.25 %56,935 829 1.46 %
   International - Developing markets76,883 4,062 5.28 %71,695 4,950 6.90 %
Hedging income(343)232 
   Domestic21 59 
   International - Mature markets(116)161 
   International - Developing markets(248)12 
Other interest42 75 
   Domestic10 23 
   International - Mature markets21 31 
   International - Developing markets11 21 
Total interest-earning assets1,326,599 45,741 3.45 %1,304,264 56,785 4.35 %
   Domestic395,437 5,935 1.50 %382,042 6,699 1.75 %
   International - Mature markets638,386 18,172 2.85 %614,507 20,357 3.31 %
   International - Developing markets292,776 21,634 7.39 %307,715 29,729 9.66 %
Other assets210,953 203,903 
Assets from discontinued operations— — 
Average total assets1,537,552 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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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
20202019
Liabilities and stockholders’ equity
Average
balance
Interest
Average
rate
Average
 balance
Interest
Average
rate
Deposits from central banks and credit institutions A
187,128 2,147 1.15 %181,651 3,248 1.79 %
   Domestic90,747 394 0.43 %86,635 496 0.57 %
   International - Mature markets61,877 445 0.72 %59,155 884 1.49 %
   International - Developing markets34,504 1,308 3.79 %35,861 1,868 5.21 %
Customer deposits837,397 5,599 0.67 %811,151 10,137 1.25 %
   Domestic269,979 332 0.12 %263,016 665 0.25 %
   International - Mature markets385,956 1,662 0.43 %366,003 2,659 0.73 %
   International - Developing markets181,462 3,605 1.99 %182,132 6,813 3.74 %
Marketable debt securities B
247,284 5,119 2.07 %246,133 6,679 2.71 %
   Domestic99,466 1,539 1.55 %84,217 1,580 1.88 %
   International - Mature markets116,411 2,395 2.06 %125,022 3,011 2.41 %
   International - Developing markets31,407 1,185 3.77 %36,894 2,088 5.66 %
Other interest-bearing liabilities10,650 281 2.64 %13,293 418 3.14 %
   Domestic6,331 117 1.85 %8,774 213 2.43 %
   International - Mature markets2,245 28 1.25 %2,131 25 1.17 %
   International - Developing markets2,074 136 6.56 %2,388 180 7.54 %
Hedging expenses(294)0 
   Domestic(37)(21)
   International - Mature markets(205)25 
   International - Developing markets(52)(4)
Other interest895 1,020 
   Domestic313 222 
   International - Mature markets95 150 
   International - Developing markets487 648 
Total interest-bearing liabilities1,282,459 13,747 1.07 %1,252,228 21,502 1.72 %
   Domestic466,523 2,658 0.57 %442,642 3,155 0.71 %
   International - Mature markets566,489 4,420 0.78 %552,311 6,754 1.22 %
   International - Developing markets249,447 6,669 2.67 %257,275 11,593 4.51 %
Other liabilities155,714 146,386 
Non-controlling interests9,920 11,096 
Shareholders´ equity89,459 98,457 
Liabilities from discontinued operations— — 
Average total liabilities and equity1,537,552 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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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
2020 vs. 2019
Increase (decrease) due to changes in
Interest incomeVolumeRateNet change
Cash and deposits on demand and loans and advances to central banks and credit institutions253 (1,941)(1,688)
   Domestic89 (37)52 
   International - Mature markets464 (862)(398)
   International - Developing markets(300)(1,042)(1,342)
Loans and advances to customers628 (8,020)(7,392)
   Domestic338 (845)(507)
   International - Mature markets1,763 (3,053)(1,290)
   International - Developing markets(1,473)(4,122)(5,595)
Debt securities(221)(1,135)(1,356)
   Domestic(170)(88)(258)
   International - Mature markets(149)(61)(210)
   International - Developing markets98 (986)(888)
Hedging income(575)— (575)
   Domestic(38)— (38)
   International - Mature markets(277)— (277)
   International - Developing markets(260)— (260)
Other interest(33)— (33)
   Domestic(13)— (13)
   International - Mature markets(10)— (10)
   International - Developing markets(10)— (10)
Total interest-earning assets52(11,096)(11,044)
   Domestic206 (970)(764)
   International - Mature markets1,791 (3,976)(2,185)
   International - Developing markets(1,945)(6,150)(8,095)
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Volume and cost analysis
EUR million
2020 vs. 2019
Increase (decrease) due to changes in
Interest expenseVolumeRateNet change
Deposits from central banks and credit institutions62 (1,163)(1,101)
   Domestic23 (125)(102)
   International - Mature markets107 (546)(439)
   International - Developing markets(68)(492)(560)
Customer deposits339 (4,877)(4,538)
   Domestic17 (350)(333)
   International - Mature markets347 (1,344)(997)
   International - Developing markets(25)(3,183)(3,208)
Marketable debt securities(155)(1,405)(1,560)
   Domestic261 (302)(41)
   International - Mature markets(137)(479)(616)
   International - Developing markets(279)(624)(903)
Other interest-bearing liabilities(61)(76)(137)
   Domestic(52)(44)(96)
   International - Mature markets13 (10)3 
   International - Developing markets(22)(22)(44)
Hedging expenses(294)— (294)
   Domestic(16)— (16)
   International - Mature markets(230)— (230)
   International - Developing markets(48)— (48)
Other interest(125)— (125)
   Domestic91 — 91 
   International - Mature markets(55)— (55)
   International - Developing markets(161)— (161)
Total interest-bearing liabilities(234)(7,521)(7,755)
   Domestic324 (821)(497)
   International - Mature markets45 (2,379)(2,334)
   International - Developing markets(603)(4,321)(4,924)

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Net interest income. Summary of volume, profitability and cost analysis
EUR million
2020 vs 2019
Increase (decrease) due to changes in
VolumeRateNet change
Interest income52 (11,096)(11,044)
   Domestic206 (970)(764)
   International - Mature markets1,791 (3,976)(2,185)
   International - Developing markets(1,945)(6,150)(8,095)
Interest expense(234)(7,521)(7,755)
   Domestic324 (821)(497)
   International - Mature markets45 (2,379)(2,334)
   International - Developing markets(603)(4,321)(4,924)
Net interest income286 (3,575)(3,289)
   Domestic(118)(149)(267)
   International - Mature markets1,746 (1,597)149 
   International - Developing markets(1,342)(1,829)(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.




Net interest income
EUR million
san-20201231_g266.jpg
-9 %
A
2020 vs 2019

A. Excluding exchange rate impact: +1%.


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 fee income
EUR million
san-20201231_g267.jpg
-15 %
A
2020 vs 2019

A. Excluding exchange rate impact: -5%.

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Net fee income
EUR million
Change
20202019Absolute%
% excl. FX
2018
Asset management business, funds and insurance3,416 3,815 (399)(10.4)(1.3)3,654 
Credit and debit cards1,737 2,242 (505)(22.5)(8.8)2,156 
Securities and custody services951 931 19 2.1 12.1 794 
Account management and availability fees1,649 1,675 (26)(1.5)11.7 1,662 
Cheques and payment orders594 633 (39)(6.1)9.7 613 
Foreign exchange500 612 (112)(18.3)(4.0)546 
Charges for past-due/unpaid balances and guarantees295 522 (226)(43.4)(36.3)672 
Bill discounting 253 316 (63)(20.0)0.6 323 
Other620 1,033 (413)(40.0)(41.1)1,066 
Net fee income10,015 11,779 (1,764)(15.0)(4.5)11,485 
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.

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.



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Operating expenses
EUR million
Change
20202019Absolute%
% excl. FX
2018
Staff costs10,783 12,141 (1,358)(11.2)(4.1)11,865 
Other administrative expenses7,537 8,138 (601)(7.4)2.2 8,489 
   Information technology2,075 2,161 (86)(4.0)3.1 1,550 
   Communications473 518 (45)(8.7)2.4 527 
   Advertising517 685 (168)(24.5)(16.7)646 
   Buildings and premises725 859 (134)(15.6)(8.1)1,846 
   Printed and office material100 116 (16)(13.8)(3.3)122 
   Taxes (other than tax on profits)534 522 12 2.3 13.4 557 
   Other expenses2,980 3,277 (297)(9.1)0.3 3,240 
Administrative expenses18,320 20,279 (1,959)(9.7)(1.6)20,354 
Depreciation and amortization2,810 3,001 (191)(6.4)1.6 2,425 
Operating expenses21,130 23,280 (2,150)(9.2)(1.2)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.
Grupo Santander still aims to improve its operational capacity with efficient cost management and a strategy tailored to each region.

Efficiency ratio (cost to income)
EUR million
san-20201231_g268.jpg
0.0 pp
2020 vs 2019
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.
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%.
•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).
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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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
202020192018
Financial assets at fair value through other comprehensive income19 12 1 
Financial assets at amortised cost12,363 9,340 8,985 
Impairment or reversal of impairment of financial assets not measured at fair value through profit or loss and net gains and losses from changes12,382 9,352 8,986 

Impairment on other assets (net)
EUR million
202020192018
Impairment of investments in subsidiaries, joint ventures and associates, net— — 17 
Impairment on non-financial assets, net10,416 1,623 190 
   Tangible assets174 45 83 
   Intangible assets10,242 1,564 117 
   Others— 14 (10)
Impairment on other assets (net)10,416 1,623 207 


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and financial review
 
Risk management
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Attributable profit to the parent
EUR million
san-20201231_g269.jpg
+/-
2020 vs 2019


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.
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.
RoTE
%
san-20201231_g270.jpg

Earnings per share A
EUR
san-20201231_g271.jpg
+/-
2020 vs 2019
A.2018 and 2019 data adjusted for the capital increase in December 2020.

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.
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.



RoRWA
%
san-20201231_g272.jpg


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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
Change
2020 2019 Absolute%
% excl. FX
2018 
Net interest income31,994 35,283 (3,289)(9.3)1.334,341 
Net fee income10,015 11,779 (1,764)(15.0)(4.5)11,485 
Gains (losses) on financial transactions and exchange differences 2,187 1,531 656 42.855.91,797 
Other operating income404 901 (497)(55.2)(58.4)801 
Total income44,600 49,494 (4,894)(9.9)0.348,424 
Administrative expenses and amortizations(20,967)(23,280)2,313 (9.9)(2.0)(22,779)
Net operating income23,633 26,214 (2,581)(9.8)2.525,645 
Net loan-loss provisions(12,173)(9,321)(2,852)30.647.3(8,873)
Other gains (losses) and provisions(1,786)(1,964)178 (9.1)1.8(1,996)
Profit before tax9,674 14,929 (5,255)(35.2)(25.8)14,776 
Tax on profit(3,516)(5,103)1,587 (31.1)(20.6)(5,230)
Profit from continuing operations6,158 9,826 (3,668)(37.3)(28.6)9,546 
Net profit from discontinued operations— — — — — — 
Consolidated profit6,158 9,826 (3,668)(37.3)(28.6)9,546 
Non-controlling interests(1,077)(1,574)497 (31.6)(23.8)(1,482)
Management adjustments(13,852)(1,737)(12,115)697.5608.2(254)
Attributable profit to the parent(8,771)6,515 (15,286)——7,810 
Underlying attributable profit to the parent A
5,081 8,252 (3,171)(38.4)(29.5)8,064 

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.



•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).

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Underlying attributable profit to the parentA
EUR million
san-20201231_g273.jpg
-38 %
B
2020 vs 2019
A. Excluding management adjustments.
B. Excluding exchange rate impact: -29%.



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



Net loan-loss provisions
EUR million
san-20201231_g274.jpg
+31 %
A
2020 vs 2019
A. Excluding exchange rate impact: +47%.


Underlying earnings per shareA B
EUR
san-20201231_g275.jpg
-42%
2020 vs 2019
A. Excluding net capital gains and provisions.
B. 2018 and 2019 data adjusted for the capital increase in December 2020.

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.



Cost of credit
%
san-20201231_g276.jpg
+0.28 pp
2020 vs 2019


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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.

Underying RoTEA
%
san-20201231_g277.jpg
A. Excluding net capital gains and provisions.
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).

Underlying RoRWAA
%
san-20201231_g278.jpg
A. Excluding net capital gains and provisions.


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3.3 Balance sheet
Balance sheet
EUR million
Change
Assets
20202019Absolute%2018
Cash, cash balances at central banks and other deposits on demand153,839 101,067 52,772 52.2 113,663 
Financial assets held for trading114,945 108,230 6,715 6.2 92,879 
Non-trading financial assets mandatorily at fair value through profit or loss4,486 4,911 (425)(8.7)10,730 
Financial assets designated at fair value through profit or loss48,717 62,069 (13,352)(21.5)57,460 
Financial assets at fair value through other comprehensive income120,953 125,708 (4,755)(3.8)121,091 
Financial assets at amortized cost958,378 995,482 (37,104)(3.7)946,099 
Hedging derivatives8,325 7,216 1,109 15.4 8,607 
Changes in the fair value of hedged items in portfolio hedges of interest risk1,980 1,702 278 16.3 1,088 
Investments7,622 8,772 (1,150)(13.1)7,588 
Assets under insurance or reinsurance contracts261 292 (31)(10.6)324 
Tangible assets32,735 35,235 (2,500)(7.1)26,157 
Intangible assets15,908 27,687 (11,779)(42.5)28,560 
Tax assets24,586 29,585 (4,999)(16.9)30,251 
Other assets11,070 10,138 932 9.2 9,348 
Non-current assets held for sale4,445 4,601 (156)(3.4)5,426 
Total assets1,508,250 1,522,695 (14,445)(0.9)1,459,271 
Liabilities and equity
Financial liabilities held for trading81,167 77,139 4,028 5.2 70,343 
Financial liabilities designated at fair value through profit or loss48,038 60,995 (12,957)(21.2)68,058 
Financial liabilities at amortized cost1,248,188 1,230,745 17,443 1.4 1,171,630 
Hedging derivatives6,869 6,048 821 13.6 6,363 
Changes in the fair value of hedged items in portfolio hedges of interest rate risk286 269 17 6.3 303 
Liabilities under insurance or reinsurance contracts910 739 171 23.1 765 
Provisions10,852 13,987 (3,135)(22.4)13,225 
Tax liabilities8,282 9,322 (1,040)(11.2)8,135 
Other liabilities12,336 12,792 (456)(3.6)13,088 
Liabilities associated with non-current assets held for sale— — — — — 
Total liabilities1,416,928 1,412,036 4,892 0.3 1,351,910 
Shareholders' equity114,620 124,239 (9,619)(7.7)120,597 
Other comprehensive income(33,144)(24,168)(8,976)37.1 (24,125)
Non-controlling interests9,846 10,588 (742)(7.0)10,889 
Total equity91,322 110,659 (19,337)(17.5)107,361 
Total liabilities and equity1,508,250 1,522,695 (14,445)(0.9)1,459,271 

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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
Change
20202019Absolute%2018
Commercial bills37,459 37,753 (294)(0.8)33,301 
Secured loans503,014 513,929 (10,915)(2.1)478,068 
Other term loans269,143 267,154 1,989 0.7 265,696 
Finance leases36,251 35,788 463 1.3 30,758 
Receivable on demand7,903 7,714 189 2.5 8,794 
Credit cards receivable19,507 23,876 (4,369)(18.3)23,083 
Impaired assets30,815 32,543 (1,728)(5.3)34,218 
Gross loans and advances to customers (excl. reverse repos)904,092 918,757 (14,665)(1.6)873,918 
Reverse repos35,702 45,703 (10,001)(21.9)32,310 
Gross loans and advances to customers939,794 964,460 (24,666)(2.6)906,228 
Loan-loss allowances23,595 22,242 1,353 6.1 23,307 
Net loans and advances to customers916,199 942,218 (26,019)(2.8)882,921 
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Gross loans and advances to customers
(excluding reverse repos)
EUR billion
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-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.
•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.
Gross loans and advances to customers
(excluding reverse repos)
% of operating areas. December 2020
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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'.








Loans and advances to customers facilities with maturities exceeding one year at year-end of 2020
EUR million
DomesticInternationalTOTAL
AmountWeight over the totalAmountWeight over the totalAmountWeight over the total
Fixed70,480 42 %311,467 59 %381,947 55 %
Variable99,023 58 %217,048 41 %316,071 45 %
TOTAL169,503 100 %528,515 100 %698,018 100 %
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Total customer funds
EUR million
Change
EUR million
20202019Absolute%2018
Demand deposits642,897 588,533 54,364 9.2548,711 
Time deposits171,939 196,921 (24,982)(12.7)199,025 
Mutual funds A
164,802 180,405 (15,603)(8.6)157,888 
Customer funds979,638 965,859 13,779 1.4905,624 
Pension funds A
15,577 15,878 (301)(1.9)15,393 
Managed portfolios A
26,438 30,117 (3,679)(12.2)26,785 
Repos34,474 38,911 (4,437)(11.4)32,760 
Total funds1,056,127 1,050,765 5,362 0.5980,562 
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%;
Customer funds (excluding repos)
EUR billion
san-20201231_g281.jpg
+1 %
A
-9 %
+4 %
•Total
•Mutual funds B
•Deposits excl. repos
2019 vs 2018
A. Excluding exchange rate impact: +9%.
B. Including managed and marketed funds.


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)
% of operating areas. December 2020

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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.
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.
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
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.
•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.
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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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
san-20201231_g283.jpg
■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 A
EUR million
202020192018
Preferred8,925 9,411 11,508 
Subordinated13,831 12,640 13,218 
Senior debt95,208 107,166 98,827 
Covered bonds49,388 50,847 46,272 
Total167,351 180,064 169,825 
A.    Placed in markets. Excluding securitizations, agribusiness notes and real estate credit notes.

Distribution by contractual maturity. December 2020. Grupo Santander A
EUR million
0-1
month
1-3
months
3-6
months
6-9
months
9-12
months
12-24
months
2-5
years
more than
5 years
Total
Preferred— — — — — — — 8,925 8,925 
Subordinated— — — — — 129 4,066 9,636 13,831 
Senior debt2,003 2,061 4,252 2,758 3,453 15,250 42,017 23,414 95,208 
Covered bonds— — 4,903 2,766 397 6,899 14,455 19,967 49,388 
Total2,003 2,061 9,155 5,524 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
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M/LT wholesale funding
%. December 2020
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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
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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.
•Increased use of ECB facilities via the TLTRO programme and Bank of England funding via its TFSME programme.
•The strengthening of the USD liquidity position in Mexico and South America.
•The optimization of resources and capacity to use central bank programmes.
•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.

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.
The table shows Grupo Santander’s basic liquidity monitoring metrics over the last few years:
Group’s liquidity monitoring metrics
%
202020192018
Loans A / Total assets
76 %77 %76 %
Loans A to deposit ratio (LTD)
108 %114 %113 %
Customer deposits and medium and long term funding / Loans A
116 %113 %114 %
Short term wholesale funding / Net liabilities2 %3 %2 %
Structural liquidity surplus (% of net liabilities)15 %13 %13 %
A.    Loans and advances to customers.


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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
LTD ratio
Deposits + M/LT funding / Loans A
Parent bank77 %170 %
Santander Consumer Finance256 %70 %
United Kingdom112 %107 %
Portugal95 %111 %
Poland80 %130 %
United States135 %107 %
Mexico83 %132 %
Brazil91 %122 %
Chile139 %94 %
Argentina58 %173 %
Group108 %116 %
A.    Loans and advances to customers.
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
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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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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)
%
December 2020December 2019
Parent bank175 %143 %
Santander Consumer Finance314 %248 %
United Kingdom152 %145 %
Portugal122 %134 %
Poland187 %149 %
United States129 %133 %
Mexico207 %133 %
Brazil167 %122 %
Chile155 %143 %
Argentina222 %196 %
Group168 %147 %


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
%
December 2020December 2019
Parent bank116 %103 %
Santander Consumer Finance114 %106 %
United Kingdom129 %124 %
Portugal123 %104 %
Poland150 %130 %
United States120 %111 %
Mexico132 %121 %
Brazil119 %112 %
Chile120 %108 %
Argentina174 %154 %
Group120 %112 %
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

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:

Group. Disclosure on asset encumbrance as at December 2020
EUR billion
Carrying amount of encumbered assetsFair value of encumbered assetsCarrying amount of unencumbered assetsFair value of unencumbered assets
Assets350.4— 1,157.9 — 
   Loans and advances249.5— 884.7 — 
   Equity instruments5.85.8 9.9 9.9 
   Debt instruments61.960.7 114.6 115.4 
   Other assets33.2— 148.7 — 
Group. Collateral received as at December 2020
EUR billion
Fair value of encumbered collateral received or own debt securities issuedFair value of collateral received or own debt securities issued available for encumbrance
Collateral received84.7 43.0 
   Loans and advances— — 
   Equity instruments3.5 5.9 
   Debt instruments80.2 37.1 
   Other collateral received0.9 — 
Own debt securities issued other than own covered bonds or ABSs— 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:
Rating agencies
Long termShort termOutlook
DBRSA (High)R-1 (Middle)Stable
Fitch RatingsA-(SeniorA)F2 (Senior F1)Negative
Moody'sA2P-1Stable
Standard & Poor'sAA-1Negative
ScopeAA-S-1+Stable
JCR JapanA+— 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.
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.
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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.
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.
•Eligible capital: the amount of own funds considered eligible by the regulator to meet capital requirements, principally accounting capital and reserves.
→
Economic capital
→
Return on risk-weighted assets (RoRWA)
•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).
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.
•Available capital: the volume of own funds Grupo Santander deems eligible under management criteria to meet its capital needs.
→
Cost of capital
→
Economic value added (EVA)
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 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.
•monitoring and controlling budgetary implementation in the group and country units and drawing up action plans to correct budget deviations.
•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.
•planning and managing other loss-absorbing instruments (MREL and TLAC).
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.
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.
The continuous improvement in the capital ratios attests to our profitable growth strategy and active capital management culture across the organization.
In particular:
•We reinforced our dedicated capital management teams and improved coordination between the Corporate Centre and local teams.
•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.




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Regulatory CET1 ratio (phased in A)
%
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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%.
Main regulatory capital and solvency ratios (phased-in A)
EUR million
20202019
Common equity (CET1)
69,39970,497
Tier178,50179,536
Eligible capital91,01591,067
Risk-weighted assets562,580605,244
CET1 capital ratio12.34 %11.65 %
T1 capital ratio13.95 %13.14 %
Total capital ratio16.18 %15.05 %
Leverage ratio5.33 %5.15 %
Regulatory capital (phased-in). Flow statement
EUR million
2020
Core Tier 1 Capital
Starting amount (31/12/2019)70,497 
Shares issued in the year and share premium (72)
Treasury shares and own shares financed(63)
Reserves4,306 
Attributable profit net of dividends(9,249)
Other retained earnings(12,004)
Minority interests228 
Decrease/(increase) in goodwill and other intangible assets12,767 
Other2,988 
Ending amount (31/12/2020)69,399 
Additional Tier 1 Capital
Starting amount (31/12/2019)9,039 
AT1 eligible instruments(355)
T1 excesses - subsidiaries418 
Residual value of intangible assets— 
Deductions— 
Ending amount (31/12/2020)9,102 
Tier 2 Capital
Starting amount (31/12/2019)11,531 
T2 eligible instruments990 
Generic funds and surplus loan-loss provisions-IRB— 
T2 excesses - subsidiaries(7)
Deductions— 
Ending amount (31/12/2020)12,514 
Deductions from total capital— 
Total capital ending amount (31/12/2020)91,015 



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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Regulatory CET1 ratio (phased-in ) performance in 2020
%
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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
RWAsMinimum capital requirements
202020192020
Credit risk (excluding CCR)447,927 483,341 35,834 
   Of which standardized approach (SA)246,284 283,385 19,703 
   Of which the foundation IRB (FIRB) approach A
30,797 35,583 2,464 
   Of which the advanced IRB (AIRB) approach168,096 161,548 13,448 
   Of which Equity IRB under the Simple risk-weight or the IMA2,750 2,825 220 
Counterparty Risk (CCR)10,239 11,070 819 
   Of which IRB approach7,083 7,549 567 
   Of which standardized approach2,195 2,274 176 
   Of which risk exposure from contributions to default fund or central counterparties (CCP)241 259 19 
   Of which credit valuation adjustment (CVA)720 988 58 
Settlement risk0 2 — 
Securitization exposure in banking book (after cap)8,159 6,629 653 
   Of which IRB approach0 2,374 0 
   Of which SEC-IRBA approach4,731 2,030 378 
   Of which SEC-SA approach1,821 1,014 146 
   Of which SEC-ERBA approach1,607 866 129 
   Of which standardized approach (SA)0 346 0 
Market risk18,008 21,807 1,441 
   Of which standardized approach5,071 7,596 406 
   Of which internal model approach (IMA)12,936 14,211 1,035 
Operational risk55,865 59,661 4,469 
   Of which standardized approach55,865 59,661 4,469 
Amounts below the thresholds for deduction (subject to 250% risk weight)22,382 22,734 1,791 
Floor adjustment— — — 
Total562,580 605,244 45,006 
A. Includes equity under the PD/LGD approach.
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Capital requirements by geographical distribution
EUR million
TOTALEUROPEo/w: Spaino/w: United KingdomNORTH AMERICAo/w: USSOUTH AMERICAo/w: BrazilRest of the world
Credit risk36,401 22,492 9,977 5,047 6,342 4,863 6,860 4,340 706 
Of which internal rating-based (IRB) approach A
15,884 12,574 5,891 3,663 1,168 481 1,536 1,271 605 
Central governments and central banks31 1 1 — 1 — 15 3 15 
Institutions509 286 72 73 110 52 35 4 78 
Corporates – SME9,760 6,876 3,946 1,242 1,052 425 1,484 1,262 348 
Of which Corporates - Specialized Lending1,283 999 350 381 167 33 67 — 50 
Of which Corporates – Other1,813 1,700 1,424 87 75 1 38 36 1 
Retail - Secured by real estate SME65 64 64 — 1 1 — — — 
Retail - Secured by real estate non-SME3,238 3,226 939 2,050 2 1 1 — 8 
Retail - Qualifying revolving321 321 112 148 — — — — — 
Retail - Other SME329 328 201 1 — — — — — 
Retail - Other non-SME1,631 1,472 556 149 2 — 1 — 155 
Other non-credit-obligation assets— — — — — — — — — 
Of which standardized approach (SA)19,703 9,104 3,271 1,384 5,174 4,382 5,324 3,069 101 
Central governments and central banks1,197 758 741 — 83 — 353 317 2 
Regional governments or local authorities17 9 6 — — — 8 8 — 
Public sector entities31 4 — — 14 14 13 — — 
Multilateral Development Banks— — — — — — — — — 
International Organizations— — — — — — — — — 
Institutions350 118 70 9 119 109 107 87 6 
Corporates3,623 1,922 358 471 695 648 994 362 11 
Retail7,584 2,886 296 508 2,507 2,206 2,111 1,589 81 
Secured by mortgages on immovable property2,570 872 190 37 802 615 895 256 — 
Exposures in default524 262 127 16 77 51 185 84 — 
Items associated with particular high risk156 28 — 13 16 16 112 13 — 
Covered bonds13 13 — 13 — — — — — 
Claims on institutions and corporates with a short-term credit assessment6 2 2 — 3 — 2 — — 
Collective investments undertakings (CIU)21 22 7 — — — — — — 
Equity exposures23 18 — — — — 5 — — 
Other items3,588 2,191 1,475 317 859 722 537 353 1 
Of which Equity IRB814 814 814 — — — — — — 
Under the PD/LGD method594 594 594 — — — — — — 
Under simple method220 220 220 — — — — — — 
Counterparty credit risk253 153 79 37 58 48 41 24 — 
Of which mark to market method (Standardized)176 94 25 32 53 47 29 20 — 
Of which Risk exposure amount for contributions to the default fund of a CCP19 19 16 2 — — — — — 
Of which CVA58 41 37 2 5 1 12 4 — 
Settlement risk— — — — — — — — — 
Securitization exposures in banking book (after cap)653 450 174 141 188 157 13 13 2 
Market risk1,441 1,002 973 14 207 7 232 116 — 
Of which standardized approach (SA)406 274 245 14 8 7 123 116 — 
Of which internal model approaches (IMA)1,035 728 728 — 199 — 108 — — 
Operational risk4,469 2,349 854 566 1,078 830 1,042 565 — 
Of which standardized approach4,469 2,349 854 566 1,078 830 1,042 565 — 
Amounts below the thresholds for deduction and other non-deducted investments (subject to 250% risk weight)1,791 1,242 1,128 20 77 — 470 399 2 
Floor adjustment— — — — — — — — — 
Total45,006 27,688 13,184 5,825 7,950 5,904 8,657 5,455 711 

A. Including counterparty credit risk.
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The following table presents the main changes to the capital requirements by credit risk:
Credit risk capital movements A
EUR million
RWAs
Capital 
requirements
Starting amount (31/12/2019)522,527 41,802 
Asset size12,298 984 
Model updates2,790 223 
Regulatory(4,057)(325)
Acquisitions and disposals(721)(58)
Foreign exchange movements(38,002)(3,040)
Other(7,089)(567)
Ending amount (31/12/2020)487,745 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.

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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.
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.

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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.
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
20202019
Net capital and issuance premiums60,557 60,692 
Reserves and retained profits52,902 59,016 
Valuation adjustments(35,345)(23,249)
Minority interests6,669 6,441 
Prudential filters(592)(639)
Other A
2,126 (2,136)
Base economic capital available86,316 100,124 
Deductions(16,337)(31,398)
   Goodwill(13,621)(25,068)
   Other intangible assets(2,090)(3,410)
   DTAs(627)(2,920)
   Other(580)1,772 
Base regulatory (CET1) capital available B
69,399 70,497 
Base economic capital available86,316 100,124 
   Economic capital required C
60,386 72,879 
   Capital surplus25,931 27,245 
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.
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
%
san-20201231_g291.jpgThe 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 A
EuropeNorth AmericaSouth America
16,51425,19010,3158,367
All risks:All risks:All risks:All risks:
Goodwill53 %Credit54 %Credit63 %Credit63 %
Market30 %Market10 %Fixed Assets12 %ALM7 %
DTAs14 %Pensions9 %Business8 %Operational7 %
Other4 %ALM8 %Operational4 %Business6 %
Others19 %Others13 %Others17 %
A. Including Santander Global Platform
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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.
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.
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 A and RoRAC
EUR million
20202019
Main segmentsRoRACEVARoRACEVA
Europe10.5 %(429)17.7 %2,682 
North America15.0 %187 20.2 %1,019 
South America26.1 %883 36.0 %2,641 
Total Group8.5 %(2,529)12.9 %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.


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This chart describes the structure in place:



1
Macroeconomic
scenario
•Central and recession
•Idiosyncratic: based on specific risks facing the entity
•Multi-year horizon
•Reverse stress tests
2
Balance sheet
and income statement forecasts
•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
3
Capital requirements
forecasts
•Consistent with projected balance sheet
•Regulatiry and economic risk parameters (PD, LGD and EAD)
4
Solvency analysis
•Available capital base. Profits and dividends
•Regulatory and legislative impacts
•Capital and solvency ratios
•Compliance with capital objectives
•Regulatory and economic view
5
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.
•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.
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.
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 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.

In November 2020, the Single Resolution Board (SRB) announced its preferred resolution strategy and work priorities to improve our resolvability.
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.
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.
Contingency plans are classified as mitigation tools within the Comprehensive Special Situations Framework (CSSF), in line with their more global nature.
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.
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.
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.
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.

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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.
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 business unit (breakdown in the primary segment definition), as well as 50% of the results generated by these services in the commercial network.
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).

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4.2 Summary income statement of the Group’s main business areas
2020
Main items of the underlying income statement
EUR million
Primary segments
Net interest income
Net fee
income
Total
income
Net operating income
Profit before tax
Underlying attributable profit to the parent
EUROPE14,046 4,737 19,693 9,379 4,167 2,656 
     Spain3,957 2,314 6,782 3,175 715 517 
     Santander Consumer Finance3,832 750 4,685 2,703 1,869 1,085 
     United Kingdom3,808 506 4,339 1,697 697 530 
     Portugal787 388 1,296 706 483 338 
     Poland1,037 452 1,524 895 370 162 
     Other626 328 1,067 203 32 24 
NORTH AMERICA8,469 1,661 11,011 6,379 2,332 1,492 
     US5,645 889 7,360 4,281 1,250 731 
     Mexico2,825 772 3,651 2,098 1,082 762 
SOUTH AMERICA10,723 3,566 14,845 9,533 5,291 2,927 
     Brazil7,625 2,824 10,866 7,325 4,045 2,113 
     Chile1,787 335 2,263 1,363 785 432 
     Argentina912 273 1,128 496 200 179 
     Other398 134 588 349 262 203 
SANTANDER GLOBAL PLATFORM129 81 192 (190)(204)(150)
CORPORATE CENTRE(1,374)(29)(1,141)(1,470)(1,912)(1,844)
TOTAL GROUP31,994 10,015 44,600 23,633 9,674 5,081 
Secondary segments
RETAIL BANKING29,544 6,850 37,215 20,368 7,531 4,196 
CORPORATE & INVESTMENT BANKING2,953 1,550 5,397 3,328 2,726 1,823 
WEALTH MANAGEMENT & INSURANCE454 1,194 2,135 1,229 1,199 868 
SANTANDER GLOBAL PLATFORM416 449 994 178 130 39 
CORPORATE CENTRE(1,374)(29)(1,141)(1,470)(1,912)(1,844)
TOTAL GROUP31,994 10,015 44,600 23,633 9,674 5,081 

Underlying attributable profit to the parent by primary segment distribution A
Underlying attributable profit to the parent 2020.
Core markets
2020EUR million. % change YoY in constant euros
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A. As a % of operating areas. Excluding Corporate Centre and Santander Global Platform.
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2019
Main items of the underlying income statement
EUR million
Primary segmentsNet interest
income		Net fee
income		Total
income		Net operating
income		Profit before taxUnderlying attributable profit to the parent
EUROPE14,201 5,260 21,001 9,957 7,350 4,878 
     Spain3,919 2,481 7,506 3,485 2,174 1,585 
     Santander Consumer Finance3,848 823 4,710 2,672 2,215 1,314 
     United Kingdom3,788 866 4,727 1,892 1,455 1,077 
     Portugal856 390 1,375 751 750 525 
     Poland1,171 467 1,717 1,024 681 349 
     Other620 234 966 133 76 28 
NORTH AMERICA8,926 1,776 11,604 6,636 2,776 1,667 
     US5,769 947 7,605 4,309 1,317 717 
     Mexico3,157 829 3,998 2,327 1,459 950 
SOUTH AMERICA13,316 4,787 18,425 11,769 7,232 3,924 
     Brazil10,072 3,798 13,951 9,345 5,606 2,939 
     Chile1,867 404 2,539 1,508 1,129 630 
     Argentina940 446 1,316 554 217 144 
     Other437 138 619 362 280 212 
SANTANDER GLOBAL PLATFORM92 6 81 (159)(166)(120)
CORPORATE CENTRE(1,252)(50)(1,617)(1,990)(2,262)(2,097)
TOTAL GROUP35,283 11,779 49,494 26,214 14,929 8,252 
Secondary segments
RETAIL BANKING32,862 8,561 42,599 23,672 12,953 7,580 
CORPORATE & INVESTMENT BANKING2,728 1,520 5,227 2,945 2,699 1,713 
WEALTH MANAGEMENT & INSURANCE570 1,199 2,226 1,271 1,281 929 
SANTANDER GLOBAL PLATFORM375 549 1,061 315 258 127 
CORPORATE CENTRE(1,252)(50)(1,617)(1,990)(2,262)(2,097)
TOTAL GROUP35,283 11,779 49,494 26,214 14,929 8,252 


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4.3 Primary segments
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EUROPEUnderlying attributable profit
EUR 2,656 Mn
2020 Highlights
→ 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%).
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 customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
10,021
san-20201231_g296.jpg
15,187
36 %/active customers+10 %YoY

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.







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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 statement20202019%% excl. FX
Net interest income14,046 14,201 (1.1)0.0 
Net fee income4,737 5,260 (9.9)(9.4)
Gains (losses) on financial transactions A
884 1,035 (14.6)(14.2)
Other operating income26 505 (94.9)(94.9)
Total income19,693 21,001 (6.2)(5.4)
Administrative expenses and amortizations(10,314)(11,044)(6.6)(5.8)
Net operating income9,379 9,957 (5.8)(4.8)
Net loan-loss provisions(4,299)(1,839)133.8 136.3 
Other gains (losses) and provisions(914)(768)18.9 20.1 
Profit before tax4,167 7,350 (43.3)(42.7)
Tax on profit(1,132)(1,979)(42.8)(42.3)
Profit from continuing operations3,035 5,371 (43.5)(42.9)
Net profit from discontinued operations— — — — 
Consolidated profit3,035 5,371 (43.5)(42.9)
Non-controlling interests(379)(493)(23.2)(22.1)
Underlying attributable profit to the parent2,656 4,878 (45.6)(45.0)
Balance sheet
Loans and advances to customers675,895 676,904 (0.1)2.6 
Cash, central banks and credit institutions224,793 180,389 24.6 26.2 
Debt instruments86,925 104,382 (16.7)(15.2)
Other financial assets48,266 53,893 (10.4)(10.2)
Other asset accounts41,658 41,471 0.5 2.2 
Total assets1,077,537 1,057,038 1.9 4.2 
Customer deposits622,826 600,380 3.7 6.4 
Central banks and credit institutions208,408 189,792 9.8 11.2 
Marketable debt securities120,166 133,544 (10.0)(7.4)
Other financial liabilities55,919 60,807 (8.0)(7.7)
Other liabilities accounts15,635 16,383 (4.6)(2.6)
Total liabilities1,022,954 1,000,906 2.2 4.5 
Total equity54,583 56,133 (2.8)(0.1)
Pro memoria:
Gross loans and advances to customers B
658,471 650,552 1.2 3.9 
Customer funds696,427 671,032 3.8 6.1 
Customer deposits C
603,450 581,395 3.8 6.4 
     Mutual funds92,977 89,637 3.7 4.6 
Ratios (%) and operating data
Underlying RoTE5.48 10.00 (4.51)
Efficiency ratio52.4 52.6 (0.2)
NPL ratio3.15 3.25 (0.10)
NPL coverage57.3 49.8 7.5 
Number of employees83,976 86,574 (3.0)
Number of branches4,846 5,336 (9.2)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
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SpainUnderlying attributable profit
EUR 517 Mn
2020 Highlights
→ 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.

Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
2,643
san-20201231_g296.jpg

5,234
34 %/active customers+11 %YoY
•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.


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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.
Spain
EUR million
Underlying income statement20202019%
Net interest income3,957 3,919 1.0 
Net fee income2,314 2,481 (6.7)
Gains (losses) on financial transactions A
781 1,046 (25.4)
Other operating income(269)61 0.0 
Total income6,782 7,506 (9.6)
Administrative expenses and amortizations(3,607)(4,021)(10.3)
Net operating income3,175 3,485 (8.9)
Net loan-loss provisions(2,001)(856)133.7 
Other gains (losses) and provisions(459)(455)0.9 
Profit before tax715 2,174 (67.1)
Tax on profit(199)(589)(66.2)
Profit from continuing operations516 1,585 (67.4)
Net profit from discontinued operations— — — 
Consolidated profit516 1,585 (67.4)
Non-controlling interests0 0 0.0 
Underlying attributable profit to the parent517 1,585 (67.4)
Balance sheet
Loans and advances to customers194,239 185,179 4.9 
Cash, central banks and credit institutions113,518 78,334 44.9 
Debt instruments21,654 34,288 (36.8)
Other financial assets2,671 1,393 91.8 
Other asset accounts22,438 23,908 (6.1)
Total assets354,521 323,102 9.7 
Customer deposits251,375 240,427 4.6 
Central banks and credit institutions48,305 25,231 91.4 
Marketable debt securities26,068 26,855 (2.9)
Other financial liabilities9,344 8,971 4.2 
Other liabilities accounts4,112 5,222 (21.3)
Total liabilities339,203 306,706 10.6 
Total equity15,318 16,396 (6.6)
Pro memoria:
Gross loans and advances to customers B
200,735 191,280 4.9 
Customer funds320,879 308,747 3.9 
    Customer deposits C
251,375 240,126 4.7 
    Mutual funds69,503 68,621 1.3 
Ratios (%) and operating data
Underlying RoTE3.30 10.48 (7.18)
Efficiency ratio53.2 53.6 (0.4)
NPL ratio6.23 6.94 (0.71)
NPL coverage47.1 41.1 6.0 
Number of employees26,961 27,630 (2.4)
Number of branches2,939 3,235 (9.1)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.


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Santander Consumer FinanceUnderlying 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.
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
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Germany
Nordic countries
Spain
France
Italy
Poland
Other

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.



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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).
Santander Consumer Finance
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income3,832 3,848 (0.4)1.2 
Net fee income750 823 (8.8)(8.4)
Gains (losses) on financial transactions A
21 (8)— — 
Other operating income82 47 74.4 77.2 
Total income4,685 4,710 (0.5)0.9 
Administrative expenses and amortizations(1,981)(2,038)(2.8)(1.5)
Net operating income2,703 2,672 1.2 2.8 
Net loan-loss provisions(899)(477)88.6 92.3 
Other gains (losses) and provisions65 20 217.7 199.4 
Profit before tax1,869 2,215 (15.6)(14.4)
Tax on profit(505)(598)(15.6)(14.6)
Profit from continuing operations1,364 1,618 (15.6)(14.3)
Net profit from discontinued operations— — — — 
Consolidated profit1,364 1,618 (15.6)(14.3)
Non-controlling interests(280)(303)(7.8)(7.6)
Underlying attributable profit to the parent1,085 1,314 (17.4)(15.9)
Balance sheet
Loans and advances to customers101,043 102,262 (1.2)(0.2)
Cash, central banks and credit institutions11,297 8,258 36.8 38.4 
Debt instruments5,658 3,197 77.0 82.3 
Other financial assets29 33 (12.5)(11.6)
Other asset accounts4,961 4,001 24.0 25.2 
Total assets122,987 117,750 4.4 5.6 
Customer deposits39,488 39,602 (0.3)1.1 
Central banks and credit institutions32,729 25,159 30.1 31.2 
Marketable debt securities34,554 36,776 (6.0)(5.3)
Other financial liabilities1,175 1,413 (16.9)(16.1)
Other liabilities accounts3,763 3,865 (2.7)(1.9)
Total liabilities111,709 106,815 4.6 5.7 
Total equity11,279 10,935 3.1 4.8 
Pro memoria:
Gross loans and advances to customers B
103,734 104,783 (1.0)0.0 
Customer funds39,488 39,602 (0.3)1.1 
Customer deposits C
39,488 39,602 (0.3)1.1 
    Mutual funds— — — — 
Ratios (%) and operating data
Underlying RoTE12.52 15.26 (2.74)
Efficiency ratio42.3 43.3 (1.0)
NPL ratio2.36 2.30 0.06 
NPL coverage111.0 106.1 4.9 
Number of employees14,376 14,448 (0.5)
Number of branches352 416 (15.4)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

365
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and financial review
 
Risk management
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United KingdomUnderlying attributable profit
EUR 530 Mn
2020 Highlights
→ 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.

Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
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4,450
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6,267
31 %/active customers+8 %YoY

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.



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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.
United Kingdom
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income3,808 3,788 0.5 1.9 
Net fee income506 866 (41.6)(40.8)
Gains (losses) on financial transactions A
(26)12 0.0 0.0 
Other operating income51 62 (17.1)(16.0)
Total income4,339 4,727 (8.2)(7.0)
Administrative expenses and amortizations(2,642)(2,835)(6.8)(5.6)
Net operating income1,697 1,892 (10.3)(9.1)
Net loan-loss provisions(733)(253)190.0 194.0 
Other gains (losses) and provisions(267)(184)44.9 46.8 
Profit before tax697 1,455 (52.1)(51.4)
Tax on profit(146)(355)(58.9)(58.4)
Profit from continuing operations551 1,100 (49.9)(49.2)
Net profit from discontinued operations— — — — 
Consolidated profit551 1,100 (49.9)(49.2)
Non-controlling interests(21)(22)(4.9)(3.7)
Underlying attributable profit to the parent530 1,077 (50.8)(50.2)
Balance sheet
Loans and advances to customers261,062 273,528 (4.6)0.7 
Cash, central banks and credit institutions54,576 39,314 38.8 46.5 
Debt instruments11,527 20,187 (42.9)(39.7)
Other financial assets712 943 (24.4)(20.3)
Other asset accounts9,173 8,498 7.9 13.9 
Total assets337,050 342,470 (1.6)3.9 
Customer deposits232,923 229,361 1.6 7.2 
Central banks and credit institutions29,302 25,075 16.9 23.3 
Marketable debt securities52,562 64,340 (18.3)(13.8)
Other financial liabilities2,448 2,671 (8.3)(3.2)
Other liabilities accounts4,624 4,409 4.9 10.7 
Total liabilities321,860 325,856 (1.2)4.3 
Total equity15,189 16,614 (8.6)(3.5)
Pro memoria:
Gross loans and advances to customers B
242,090 249,214 (2.9)2.5 
Customer funds223,270 218,944 2.0 7.6 
Customer deposits C
215,332 210,727 2.2 7.9 
    Mutual funds7,938 8,218 (3.4)2.0 
Ratios (%) and operating data
Underlying RoTE3.85 7.28 (3.43)
Efficiency ratio60.9 60.0 0.9 
NPL ratio1.21 1.01 0.20 
NPL coverage47.9 36.5 11.4 
Number of employees22,931 24,490 (6.4)
Number of branches564 616 (8.4)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

367
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Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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PortugalUnderlying attributable profit
EUR 338 Mn
2020 Highlights
→ 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:
•Continued support through the commercial network, 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 customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
812
san-20201231_g296.jpg

930
48 %/active customers+20 %YoY

•Commercial simplification and the proactive approach of our commercial network, enabled us to achieve the best NPS in Portugal for our service quality.
•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.





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Annual report 2020

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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.

Portugal
EUR million
Underlying income statement
2020 2019 %
Net interest income787 856 (8.1)
Net fee income388 390 (0.6)
Gains (losses) on financial transactions A
111 111 0.2 
Other operating income10 17 (41.8)
Total income1,296 1,375 (5.7)
Administrative expenses and amortizations(590)(623)(5.3)
Net operating income706 751 (6.1)
Net loan-loss provisions(193)8 — 
Other gains (losses) and provisions(29)(9)213.4 
Profit before tax483 750 (35.5)
Tax on profit(145)(223)(35.2)
Profit from continuing operations339 527 (35.7)
Net profit from discontinued operations— — — 
Consolidated profit339 527 (35.7)
Non-controlling interests0 (2)(76.4)
Underlying attributable profit to the parent338 525 (35.5)
Balance sheet
Loans and advances to customers38,058 35,406 7.5 
Cash, central banks and credit institutions5,819 4,675 24.5 
Debt instruments11,569 12,580 (8.0)
Other financial assets1,487 1,695 (12.3)
Other asset accounts1,475 1,769 (16.6)
Total assets58,408 56,125 4.1 
Customer deposits39,881 39,258 1.6 
Central banks and credit institutions9,974 8,003 24.6 
Marketable debt securities2,520 3,384 (25.5)
Other financial liabilities249 276 (9.8)
Other liabilities accounts1,643 1,516 8.4 
Total liabilities54,267 52,438 3.5 
Total equity4,141 3,688 12.3 
Pro memoria:
Gross loans and advances to customers B
39,054 36,321 7.5 
Customer funds43,133 42,324 1.9 
    Customer deposits C
39,881 39,258 1.6 
    Mutual funds3,252 3,066 6.1 
Ratios (%) and operating data
Underlying RoTE8.73 12.80 (4.07)
Efficiency ratio45.5 45.3 0.2 
NPL ratio3.89 4.83 (0.94)
NPL coverage66.5 52.8 13.7 
Number of employees6,336 6,582 (3.7)
Number of branches477 542 (12.0)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

369
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banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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PolandUnderlying attributable profit
EUR 162 Mn
2020 Highlights
→ 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.


Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
2,115
san-20201231_g296.jpg

2,756
55 %/active customers+10 %YoY

•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.


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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.





Poland
EUR million
Underlying income statement
2020 2019 %% excl. FX
Net interest income1,037 1,171 (11.4)(8.5)
Net fee income452 467 (3.1)0.2 
Gains (losses) on financial transactions A
90 93 (3.3)0.0 
Other operating income(55)(13)327.6 341.9 
Total income1,524 1,717 (11.3)(8.3)
Administrative expenses and amortizations(629)(693)(9.3)(6.2)
Net operating income895 1,024 (12.6)(9.7)
Net loan-loss provisions(330)(217)52.2 57.3 
Other gains (losses) and provisions(195)(127)54.4 59.5 
Profit before tax370 681 (45.7)(43.9)
Tax on profit(130)(170)(23.5)(21.0)
Profit from continuing operations240 511 (53.1)(51.5)
Net profit from discontinued operations— — — — 
Consolidated profit240 511 (53.1)(51.5)
Non-controlling interests(78)(162)(52.0)(50.4)
Underlying attributable profit to the parent162 349 (53.5)(52.0)
Balance sheet
Loans and advances to customers28,025 30,034 (6.7)(0.1)
Cash, central banks and credit institutions2,539 3,398 (25.3)(20.0)
Debt instruments14,006 9,285 50.8 61.6 
Other financial assets980 630 55.7 66.7 
Other asset accounts1,341 1,341 0.0 7.1 
Total assets46,890 44,688 4.9 12.4 
Customer deposits34,868 33,485 4.1 11.5 
Central banks and credit institutions2,613 2,319 12.7 20.7 
Marketable debt securities2,110 2,171 (2.8)4.1 
Other financial liabilities993 762 30.3 39.6 
Other liabilities accounts1,232 923 33.5 43.0 
Total liabilities41,816 39,659 5.4 12.9 
Total equity5,074 5,029 0.9 8.1 
Pro memoria:
Gross loans and advances to customers B
29,055 30,925 (6.0)0.6 
Customer funds38,889 37,929 2.5 9.8 
    Customer deposits C
34,865 33,485 4.1 11.5 
    Mutual funds4,023 4,444 (9.5)(3.0)
Ratios (%) and operating data
Underlying RoTE5.05 11.23 (6.17)
Efficiency ratio41.3 40.4 0.9 
NPL ratio4.74 4.31 0.43 
NPL coverage70.7 66.8 3.9 
Number of employees10,582 11,049 (4.2)
Number of branches502 515 (2.5)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

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Economic
and financial review
 
Risk management
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NORTH AMERICAUnderlying attributable profit
EUR 1,492 Mn
2020 Highlights
→ 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.



Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
3,942
san-20201231_g296.jpg

6,011
36 %/active customers+16 %YoY


•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.

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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.
NORTH AMERICA
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income8,469 8,926 (5.1)0.2 
Net fee income1,661 1,776 (6.5)(0.1)
Gains (losses) on financial transactions A
251 230 9.2 16.2 
Other operating income630 672 (6.3)(5.7)
Total income11,011 11,604 (5.1)0.1 
Administrative expenses and amortizations(4,631)(4,968)(6.8)(1.7)
Net operating income6,379 6,636 (3.9)1.5 
Net loan-loss provisions(3,916)(3,656)7.1 11.8 
Other gains (losses) and provisions(131)(205)(36.0)(34.7)
Profit before tax2,332 2,776 (16.0)(9.7)
Tax on profit(578)(683)(15.4)(9.7)
Profit from continuing operations1,754 2,092 (16.2)(9.7)
Net profit from discontinued operations— — — — 
Consolidated profit1,754 2,092 (16.2)(9.7)
Non-controlling interests(262)(426)(38.4)(34.2)
Underlying attributable profit to the parent1,492 1,667 (10.5)(3.3)
Balance sheet
Loans and advances to customers120,557 133,726 (9.8)(0.2)
Cash, central banks and credit institutions28,469 22,885 24.4 39.0 
Debt instruments38,399 33,746 13.8 27.6 
Other financial assets15,363 10,759 42.8 60.9 
Other asset accounts20,526 22,741 (9.7)(0.5)
Total assets223,313 223,856 (0.2)10.8 
Customer deposits102,907 98,915 4.0 15.8 
Central banks and credit institutions37,966 38,942 (2.5)8.5 
Marketable debt securities36,583 44,097 (17.0)(8.6)
Other financial liabilities16,159 11,763 37.4 55.2 
Other liabilities accounts5,997 6,237 (3.8)6.9 
Total liabilities199,613 199,954 (0.2)10.9 
Total equity23,700 23,902 (0.8)9.8 
Pro memoria:
Gross loans and advances to customers B
120,650 130,592 (7.6)2.3 
Customer funds117,530 113,407 3.6 15.3 
    Customer deposits C
96,298 92,231 4.4 16.0 
    Mutual funds21,233 21,175 0.3 12.6 
Ratios (%) and operating data
Underlying RoTE7.12 8.52 (1.41)
Efficiency ratio42.1 42.8 (0.8)
NPL ratio2.23 2.20 0.03 
NPL coverage182.5 153.0 29.5 
Number of employees38,371 37,866 1.3 
Number of branches1,958 2,043 (4.2)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

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governance
 
Economic
and financial review
 
Risk management
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United StatesUnderlying attributable profit
EUR 731 Mn
2020 Highlights
→ 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.

Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
347
san-20201231_g296.jpg
1,011
22 %/active customers+6 %YoY
Excluding Puerto Rico disposal impact

•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%.


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Annual report 2020

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Contents
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.
United States
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income5,645 5,769 (2.2)(0.3)
Net fee income889 947 (6.1)(4.3)
Gains (losses) on financial transactions A
118 131 (10.0)(8.3)
Other operating income709 759 (6.5)(4.8)
Total income7,360 7,605 (3.2)(1.4)
Administrative expenses and amortizations(3,079)(3,297)(6.6)(4.8)
Net operating income4,281 4,309 (0.6)1.2 
Net loan-loss provisions(2,937)(2,792)5.2 7.2 
Other gains (losses) and provisions(93)(200)(53.2)(52.3)
Profit before tax1,250 1,317 (5.0)(3.2)
Tax on profit(318)(370)(13.8)(12.2)
Profit from continuing operations932 947 (1.6)0.3 
Net profit from discontinued operations— — — — 
Consolidated profit932 947 (1.6)0.3 
Non-controlling interests(201)(230)(12.4)(10.7)
Underlying attributable profit to the parent731 717 1.9 3.8 
Balance sheet
Loans and advances to customers90,992 98,707 (7.8)0.7 
Cash, central banks and credit institutions16,614 12,829 29.5 41.5 
Debt instruments14,084 16,677 (15.5)(7.8)
Other financial assets4,381 4,320 1.4 10.8 
Other asset accounts17,003 18,882 (10.0)(1.6)
Total assets143,074 151,415 (5.5)3.2 
Customer deposits67,450 63,371 6.4 16.3 
Central banks and credit institutions20,989 25,126 (16.5)(8.8)
Marketable debt securities29,737 37,132 (19.9)(12.5)
Other financial liabilities4,329 4,146 4.4 14.0 
Other liabilities accounts3,369 4,093 (17.7)(10.1)
Total liabilities125,874 133,868 (6.0)2.7 
Total equity17,200 17,547 (2.0)7.1 
Pro memoria:
Gross loans and advances to customers B
90,459 95,742 (5.5)3.2 
Customer funds76,972 72,604 6.0 15.8 
    Customer deposits C
66,385 62,608 6.0 15.8 
    Mutual funds10,586 9,996 5.9 15.7 
Ratios (%) and operating data
Underlying RoTE4.66 4.78 (0.13)
Efficiency ratio41.8 43.3 (1.5)
NPL ratio2.04 2.20 (0.16)
NPL coverage210.4 161.8 48.6 
Number of employees16,125 17,372 (7.2)
Number of branches585 621 (5.8)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

375
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banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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MexicoUnderlying attributable profit
EUR 762 Mn
2020 Highlights
→ 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:
•New features for SuperMóvil, including Mis Metas, a tool to help customers meet their savings goals.
•The consolidation of Hipoteca Online platform.


Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
3,595
san-20201231_g296.jpg

5,000
39 %/active customers+20 %YoY

•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.
•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.


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•We rolled out e-SPUG, an innovative system to help stores and private sellers practice simple, agile and secure distance selling.
•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.
Mexico
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income2,825 3,157 (10.5)1.2 
Net fee income772 829 (7.0)5.2 
Gains (losses) on financial transactions A
134 99 34.4 52.0 
Other operating income(79)(87)(8.6)3.3 
Total income3,651 3,998 (8.7)3.2 
Administrative expenses and amortizations(1,552)(1,671)(7.1)5.0 
Net operating income2,098 2,327 (9.8)2.0 
Net loan-loss provisions(979)(863)13.4 28.3 
Other gains (losses) and provisions(37)(5)637.1 733.4 
Profit before tax1,082 1,459 (25.8)(16.2)
Tax on profit(259)(314)(17.3)(6.5)
Profit from continuing operations823 1,145 (28.2)(18.8)
Net profit from discontinued operations— — — — 
Consolidated profit823 1,145 (28.2)(18.8)
Non-controlling interests(61)(196)(68.9)(64.9)
Underlying attributable profit to the parent762 950 (19.8)(9.3)
Balance sheet
Loans and advances to customers29,565 35,019 (15.6)(2.8)
Cash, central banks and credit institutions11,854 10,056 17.9 35.8 
Debt instruments24,315 17,069 42.5 64.1 
Other financial assets10,982 6,439 70.6 96.4 
Other asset accounts3,523 3,859 (8.7)5.1 
Total assets80,239 72,441 10.8 27.6 
Customer deposits35,457 35,544 (0.2)14.9 
Central banks and credit institutions16,977 13,816 22.9 41.5 
Marketable debt securities6,847 6,965 (1.7)13.2 
Other financial liabilities11,830 7,617 55.3 78.9 
Other liabilities accounts2,628 2,144 22.5 41.1 
Total liabilities73,739 66,086 11.6 28.5 
Total equity6,500 6,355 2.3 17.8 
Pro memoria:
Gross loans and advances to customers B
30,191 34,850 (13.4)(0.2)
Customer funds40,558 40,803 (0.6)14.5 
    Customer deposits C
29,912 29,624 1.0 16.3 
    Mutual funds10,646 11,179 (4.8)9.7 
Ratios (%) and operating data
Underlying RoTE14.38 20.61 (6.23)
Efficiency ratio42.5 41.8 0.7 
NPL ratio2.81 2.19 0.62 
NPL coverage120.8 128.3 (7.5)
Number of employees22,246 20,494 8.5 
Number of branches1,373 1,422 (3.4)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

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Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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SOUTH AMERICAUnderlying attributable profit
EUR 2,927 Mn
2020 Highlights
→ 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.




Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
8,614
san-20201231_g296.jpg

20,200
27 %/active customers+17 %YoY
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%).

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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.
SOUTH AMERICA
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income10,723 13,316 (19.5)4.6 
Net fee income3,566 4,787 (25.5)(2.1)
Gains (losses) on financial transactions A
766 565 35.6 68.1 
Other operating income(209)(243)(13.9)24.0 
Total income14,845 18,425 (19.4)4.7 
Administrative expenses and amortizations(5,312)(6,656)(20.2)4.0 
Net operating income9,533 11,769 (19.0)5.1 
Net loan-loss provisions(3,923)(3,789)3.5 35.1 
Other gains (losses) and provisions(319)(748)(57.4)(42.0)
Profit before tax5,291 7,232 (26.8)(5.8)
Tax on profit(1,927)(2,644)(27.1)(5.0)
Profit from continuing operations3,364 4,588 (26.7)(6.2)
Net profit from discontinued operations— — — — 
Consolidated profit3,364 4,588 (26.7)(6.2)
Non-controlling interests(437)(664)(34.2)(18.5)
Underlying attributable profit to the parent2,927 3,924 (25.4)(4.1)
Balance sheet
Loans and advances to customers113,731 125,122 (9.1)14.6 
Cash, central banks and credit institutions42,957 51,360 (16.4)11.8 
Debt instruments49,300 45,619 8.1 46.3 
Other financial assets17,266 14,802 16.6 37.5 
Other asset accounts15,009 16,901 (11.2)17.0 
Total assets238,263 253,804 (6.1)21.1 
Customer deposits111,791 114,817 (2.6)26.0 
Central banks and credit institutions41,990 41,989 0.0 30.3 
Marketable debt securities21,280 29,840 (28.7)(11.2)
Other financial liabilities35,433 34,062 4.0 33.1 
Other liabilities accounts8,302 10,613 (21.8)5.5 
Total liabilities218,796 231,321 (5.4)21.9 
Total equity19,466 22,483 (13.4)12.6 
Pro memoria:
Gross loans and advances to customers B
118,769 131,048 (9.4)14.5 
Customer funds153,224 170,707 (10.2)17.6 
    Customer deposits C
103,302 101,575 1.7 30.3 
    Mutual funds49,922 69,131 (27.8)(2.2)
Ratios (%) and operating data
Underlying RoTE18.07 20.58 (2.51)
Efficiency ratio35.8 36.1 (0.3)
NPL ratio4.39 4.86 (0.47)
NPL coverage97.4 88.4 9.0 
Number of employees65,252 69,508 (6.1)
Number of branches4,431 4,572 (3.1)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.
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banking
 
Corporate
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and financial review
 
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BrazilUnderlying attributable profit
EUR 2,113 Mn
2020 Highlights
→ 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 customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
6,382
san-20201231_g296.jpg

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.
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1. Combined business. Pending regulatory approvals.

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•Santander Auto, a digital insurance company which continues to be boosted by Santander Financiamentos.
•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.
Brazil
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income7,625 10,072 (24.3)(0.2)
Net fee income2,824 3,798 (25.6)(2.0)
Gains (losses) on financial transactions A
467 167 180.6 270.0 
Other operating income(51)(86)(41.1)(22.4)
Total income10,866 13,951 (22.1)2.7 
Administrative expenses and amortizations(3,541)(4,606)(23.1)1.4 
Net operating income7,325 9,345 (21.6)3.3 
Net loan-loss provisions(3,018)(3,036)(0.6)31.1 
Other gains (losses) and provisions(263)(704)(62.7)(50.8)
Profit before tax4,045 5,606 (27.8)(4.9)
Tax on profit(1,693)(2,295)(26.2)(2.7)
Profit from continuing operations2,352 3,311 (29.0)(6.4)
Net profit from discontinued operations— — — — 
Consolidated profit2,352 3,311 (29.0)(6.4)
Non-controlling interests(238)(373)(36.0)(15.7)
Underlying attributable profit to the parent2,113 2,939 (28.1)(5.2)
Balance sheet
Loans and advances to customers63,974 75,618 (15.4)19.4 
Cash, central banks and credit institutions31,466 37,470 (16.0)18.5 
Debt instruments37,655 39,611 (4.9)34.2 
Other financial assets6,877 6,790 1.3 42.9 
Other asset accounts10,600 12,545 (15.5)19.3 
Total assets150,573 172,033 (12.5)23.5 
Customer deposits70,083 74,745 (6.2)32.3 
Central banks and credit institutions26,350 30,334 (13.1)22.6 
Marketable debt securities11,901 18,952 (37.2)(11.4)
Other financial liabilities23,536 23,589 (0.2)40.8 
Other liabilities accounts6,157 8,631 (28.7)0.7 
Total liabilities138,026 156,251 (11.7)24.7 
Total equity12,547 15,782 (20.5)12.2 
Pro memoria:
Gross loans and advances to customers B
67,424 80,150 (15.9)18.7 
Customer funds100,351 121,752 (17.6)16.3 
    Customer deposits C
61,627 61,789 (0.3)40.8 
    Mutual funds38,725 59,964 (35.4)(8.9)
Ratios (%) and operating data
Underlying RoTE19.16 21.16 (2.00)
Efficiency ratio32.6 33.0 (0.4)
NPL ratio4.59 5.32 (0.73)
NPL coverage113.2 99.8 13.4 
Number of employees43,258 46,682 (7.3)
Number of branches3,571 3,656 (2.3)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

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ChileUnderlying attributable profit
EUR 432 Mn
2020 Highlights
→ 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.
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 customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
764
san-20201231_g296.jpg

1,547
44 %/active customers+24 %YoY
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.


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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).
Chile
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income1,787 1,867 (4.3)9.9 
Net fee income335 404 (17.2)(5.0)
Gains (losses) on financial transactions A
174 266 (34.7)(25.0)
Other operating income(32)2 0.0 0.0 
Total income2,263 2,539 (10.9)2.4 
Administrative expenses and amortizations(900)(1,031)(12.7)0.3 
Net operating income1,363 1,508 (9.6)3.8 
Net loan-loss provisions(594)(443)34.1 54.0 
Other gains (losses) and provisions16 63 (75.2)(71.5)
Profit before tax785 1,129 (30.5)(20.2)
Tax on profit(155)(210)(25.9)(15.0)
Profit from continuing operations629 919 (31.5)(21.4)
Net profit from discontinued operations— — — — 
Consolidated profit629 919 (31.5)(21.4)
Non-controlling interests(197)(289)(31.8)(21.7)
Underlying attributable profit to the parent432 630 (31.4)(21.2)
Balance sheet
Loans and advances to customers39,381 38,584 2.1 5.2 
Cash, central banks and credit institutions5,836 7,557 (22.8)(20.4)
Debt instruments8,365 5,062 65.2 70.3 
Other financial assets10,221 7,856 30.1 34.1 
Other asset accounts3,076 3,091 (0.5)2.6 
Total assets66,880 62,151 7.6 10.9 
Customer deposits28,362 27,344 3.7 6.9 
Central banks and credit institutions11,611 8,224 41.2 45.6 
Marketable debt securities9,247 10,722 (13.8)(11.1)
Other financial liabilities11,162 9,662 15.5 19.1 
Other liabilities accounts1,519 1,294 17.4 21.1 
Total liabilities61,902 57,246 8.1 11.5 
Total equity4,978 4,905 1.5 4.6 
Pro memoria:
Gross loans and advances to customers B
40,593 39,640 2.4 5.6 
Customer funds37,873 35,095 7.9 11.3 
    Customer deposits C
28,330 27,060 4.7 7.9 
    Mutual funds9,543 8,035 18.8 22.4 
Ratios (%) and operating data
Underlying RoTE13.19 18.08 (4.89)
Efficiency ratio39.8 40.6 (0.8)
NPL ratio4.79 4.64 0.15 
NPL coverage61.4 56.0 5.4 
Number of employees10,835 11,580 (6.4)
Number of branches346 375 (7.7)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

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ArgentinaUnderlying attributable profit
EUR 179 Mn
2020 Highlights
→ 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.




Loyal customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
1,356
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2,650
44 %/active customers+21 %YoY

•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.





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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.
Argentina
EUR million
Underlying income statement2020 2019 %% excl. FX
Net interest income912 940 (3.0)48.8 
Net fee income273 446 (38.8)(6.1)
Gains (losses) on financial transactions A
62 80 (22.9)18.2 
Other operating income(119)(150)(20.8)21.5 
Total income1,128 1,316 (14.3)31.5 
Administrative expenses and amortizations(632)(762)(17.0)27.2 
Net operating income496 554 (10.5)37.3 
Net loan-loss provisions(226)(235)(3.9)47.3 
Other gains (losses) and provisions(70)(101)(30.5)6.5 
Profit before tax200 217 (8.2)40.8 
Tax on profit(19)(72)(73.3)(59.1)
Profit from continuing operations180 145 24.2 90.5 
Net profit from discontinued operations— — — — 
Consolidated profit180 145 24.2 90.5 
Non-controlling interests(1)(2)(12.2)34.7 
Underlying attributable profit to the parent179 144 24.6 91.1 
Balance sheet
Loans and advances to customers4,151 4,792 (13.4)32.9 
Cash, central banks and credit institutions3,048 3,911 (22.1)19.5 
Debt instruments1,897 429 342.5 578.7 
Other financial assets59 87 (31.8)4.5 
Other asset accounts832 836 (0.5)52.7 
Total assets9,988 10,054 (0.7)52.4 
Customer deposits7,179 7,002 2.5 57.2 
Central banks and credit institutions840 1,033 (18.6)24.8 
Marketable debt securities20 71 (71.5)(56.3)
Other financial liabilities657 747 (11.9)35.1 
Other liabilities accounts359 392 (8.4)40.5 
Total liabilities9,056 9,244 (2.0)50.3 
Total equity931 810 15.0 76.3 
Pro memoria:
Gross loans and advances to customers B
4,395 4,993 (12.0)35.0 
Customer funds8,795 8,099 8.6 66.6 
    Customer deposits C
7,179 7,002 2.5 57.2 
    Mutual funds1,616 1,097 47.3 126.0 
Ratios (%) and operating data
Underlying RoTE26.24 22.20 4.04 
Efficiency ratio56.0 57.9 (1.9)
NPL ratio2.11 3.39 (1.28)
NPL coverage275.1 124.0 151.1 
Number of employees9,159 9,178 (0.2)
Number of branches408 438 (6.8)
A. Includes exchange differences.
B. Excluding reverse repos.
C. Excluding repos.

385
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banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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UruguayUnderlying attributable profit
EUR 134 Mn
2020 Highlights
→ 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
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 customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
san-20201231_g295.jpg
111
san-20201231_g296.jpg

448
23 %/active customers+14 %YoY

Results
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 statement2020 2019 %% excl. FX
Net interest income267 333 (19.8)(2.8)
Total income380 447 (14.8)3.3 
Administrative expenses and amortizations(157)(188)(16.1)1.8 
Net operating income223 259 (13.9)4.4 
Net loan-loss provisions(61)(63)(3.8)16.6 
Profit before tax161 189 (14.8)3.3 
Underlying attributable profit to the parent134 150 (10.6)8.4 
Balance sheet
Total assets5,102 5,051 1.0 24.6 
Gross loans and advances to customers A
2,552 2,804 (9.0)12.3 
Customer funds4,356 4,197 3.8 28.1 
Customer deposits B
4,318 4,162 3.8 28.0 
    Mutual funds38 36 7.1 32.1 
A. Excluding reverse repos.
B. Excluding repos.

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PeruUnderlying attributable profit
EUR 53 Mn
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.
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%).

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ColombiaUnderlying attributable profit
EUR 19 Mn
2020 Highlights
→ 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
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%.
387
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
4.4 CORPORATE CENTRE
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Corporate CentreUnderlying attributable profit
EUR -1,844 Mn
2020 Highlights
→ 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.


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Global Headquarters. Boadilla del Monte

–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.
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Global Headquarters. Boadilla del Monte

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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.

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Pereda building. Global Headquarters in Boadilla del Monte (Madrid)
CORPORATE CENTRE
EUR million
Underlying income statement2020 2019 %
Net interest income(1,374)(1,252)9.7 
Net fee income(29)(50)(41.6)
Gains (losses) on financial transactions A
287 (297)— 
Other operating income(25)(18)34.3 
Total income(1,141)(1,617)(29.4)
Administrative expenses and amortizations(329)(373)(11.8)
Net operating income(1,470)(1,990)(26.1)
Net loan-loss provisions(31)(36)(13.8)
Other gains (losses) and provisions(412)(237)74.0 
Profit before tax(1,912)(2,262)(15.5)
Tax on profit69 157 (56.2)
Profit from continuing operations(1,844)(2,105)(12.4)
Net profit from discontinued operations— — — 
Consolidated profit(1,844)(2,105)(12.4)
Non-controlling interests0 9 — 
Underlying attributable profit to the parent(1,844)(2,097)(12.0)
Balance sheet
Loans and advances to customers5,044 5,764 (12.5)
Cash, central banks and credit institutions61,173 32,803 86.5 
Debt instruments1,918 840 128.4 
Other financial assets1,645 2,406 (31.6)
Other asset accounts112,807 126,539 (10.9)
Total assets182,587 168,352 8.5 
Customer deposits825 793 4.0 
Central banks and credit institutions38,555 12,254 214.6 
Marketable debt securities57,240 54,495 5.0 
Other financial liabilities493 636 (22.5)
Other liabilities accounts9,443 9,810 (3.7)
Total liabilities106,556 77,989 36.6 
Total equity76,031 90,362 (15.9)
Operating data
Number of employees1,692 1,651 2.5 
A. Includes exchange differences.

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4.5 Secondary segments

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Retail bankingUnderlying attributable profit
EUR 4,196 Mn
2020 Highlights
→ 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 customersDigital customers
December 2020. ThousandsDecember 2020. Thousands
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22,838
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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.


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•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.

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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%).
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 statement2020 2019 %% excl. FX
Net interest income29,544 32,862 (10.1)0.1 
Net fee income6,850 8,561 (20.0)(9.6)
Gains (losses) on financial transactions A
961 871 10.3 8.0 
Other operating income(141)304 0.0 0.0 
Total income37,215 42,599 (12.6)(3.1)
Administrative expenses and amortizations(16,847)(18,926)(11.0)(2.6)
Net operating income20,368 23,672 (14.0)(3.5)
Net loan-loss provisions(11,608)(9,101)27.5 44.1 
Other gains (losses) and provisions(1,229)(1,619)(24.1)(13.2)
Profit before tax7,531 12,953 (41.9)(35.2)
Tax on profit(2,452)(4,048)(39.4)(30.7)
Profit from continuing operations5,078 8,905 (43.0)(37.2)
Net profit from discontinued operations— — — — 
Consolidated profit5,078 8,905 (43.0)(37.2)
Non-controlling interests(883)(1,325)(33.4)(26.7)
Underlying attributable profit to the parent4,196 7,580 (44.6)(39.0)
A. Includes exchange differences.

391
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
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Santander Corporate & Investment BankingUnderlying 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.

Total income breakdown
Constant EUR million
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TOTAL*+15 %
Capital & Other+2 %
Global Markets+27 %
Global Debt Financing+12 %
Global Transaction Banking+11 %
      (*) In euros: +3%
–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.


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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
Source
Area
Best Supply Chain Finance Provider for Western EuropeGlobal Trade Finance MagazineGTB / T&WC
Best Trade Finance Bank in Latin America (Regional)Global Trade Finance MagazineGTB / T&WC
World´s Best Payment Hub Solution for 2020 (Globally)Global Trade Finance MagazineGTB / Cash Management
Global Advisor of the yearPFIGDF
Offshore Wind Deal of the YearPFIGDF
Deal of the YearPFIGDF
Bonds; Corporates: Enel $1.5bn SDG-linked bond and E2.5bn SDG-linked bond issuanceThe BankerGDF (DCM)
Loans: Carrefour E3.9bn sustainability-linked loansThe BankerGDF (DCM)
South American ECA - backed Finance Deal of the Year AwardTXFGTB (E&AF)
European ECA - backed Finance Deal of the Year Award (ESG)TXFGTB (E&AF)
Asia - Pacific ECA - backed Finance Deal of the Year Award (ESG)TXFGTB (E&AF)
Best Project & Infrastructure Financing Bank: BrazilLatin FinanceGDF (PF)
Best Trade Finance Bank in Latin AmericaGTRGTB (T&WC)
Most Impressive Bank for Latin America BondsGlobal CapitalGDF (DCM)
Best Transaction of the year (Project Meno)SCI Capital Relief Trades Awards 2020GDF (PDM)
Issuer of the yearSCI Capital Relief Trades Awards 2020GDF (PDM)
Best Bank for Latin American CurrenciesFXMarkets


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 statement2020 2019 %% excl. FX
Net interest income2,953 2,728 8.3 20.4 
Net fee income1,550 1,520 2.0 12.5 
Gains (losses) on financial transactions A
690 689 0.1 22.9 
Other operating income203 289 (29.8)(31.0)
Total income5,397 5,227 3.3 15.1 
Administrative expenses and amortizations(2,069)(2,281)(9.3)(2.7)
Net operating income3,328 2,945 13.0 29.8 
Net loan-loss provisions(467)(155)200.4 209.9 
Other gains (losses) and provisions(135)(91)48.7 60.2 
Profit before tax2,726 2,699 1.0 17.1 
Tax on profit(783)(815)(3.9)12.0 
Profit from continuing operations1,944 1,884 3.1 19.3 
Net profit from discontinued operations— — — — 
Consolidated profit1,944 1,884 3.1 19.3 
Non-controlling interests(121)(171)(29.5)(15.9)
Underlying attributable profit to the parent1,823 1,713 6.4 22.7 
A. Includes exchange differences.

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Wealth Management & InsuranceUnderlying 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.
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.
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.

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Business performance
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.
Business performance: SAM and Private Banking
December 2020. EUR billion and % change in constant euros
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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.

Results
Underlying attributable profit was EUR 868 million in 2020, down 7%. Excluding the exchange rate effect, it was 2% higher:
•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
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WEALTH MANAGEMENT & INSURANCE
EUR million
Underlying income statement20202019%% excl. FX
Net interest income454 570 (20.4)(15.3)
Net fee income1,194 1,199 (0.4)6.5 
Gains (losses) on financial transactions A
103 117 (12.0)(4.5)
Other operating income383 339 13.0 26.9 
Total income2,135 2,226 (4.1)3.3 
Administrative expenses and amortizations(906)(955)(5.1)(0.4)
Net operating income1,229 1,271 (3.3)6.2 
Net loan-loss provisions(28)23 — — 
Other gains (losses) and provisions(1)(12)(92.8)(92.3)
Profit before tax1,199 1,281 (6.4)2.6 
Tax on profit(291)(302)(3.7)4.2 
Profit from continuing operations909 979 (7.2)2.1 
Net profit from discontinued operations— — — — 
Consolidated profit909 979 (7.2)2.1 
Non-controlling interests(41)(50)(18.3)(0.6)
Underlying attributable profit to the parent868 929 (6.6)2.3 
A. Includes exchange differences.

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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.
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.
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.


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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, 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.
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.

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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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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.
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As previously mentioned in other sections of this report, Openbank and SCF will be combined into the new Digital Consumer Bank.
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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.


SANTANDER GLOBAL PLATFORM
EUR million
Underlying income statement20202019%% sin TC
Net interest income416 375 11.0 25.7 
Net fee income449 549 (18.2)(1.7)
Gains (losses) on financial transactions A
146 149 (2.4)4.8 
Other operating income(17)(13)28.2 34.3 
Total income994 1,061 (6.2)8.7 
Administrative expenses and amortizations(816)(745)9.5 20.6 
Net operating income178 315 (43.5)(25.0)
Net loan-loss provisions(39)(52)(24.2)(17.1)
Other gains (losses) and provisions(9)(5)76.8 68.9 
Profit before tax130 258 (49.7)(29.8)
Tax on profit(59)(95)(38.4)(12.4)
Profit from continuing operations71 163 (56.3)(39.7)
Net profit from discontinued operations0 0 — — 
Consolidated profit71 163 (56.3)(39.7)
Non-controlling interests(32)(36)(11.1)1.7 
Underlying attributable profit to the parent39 127 (69.3)(54.9)
A. Includes exchange differences.

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5. Research, development and innovation (R&D&I)
Research, development and innovation activities
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.
Technological strategy
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.



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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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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
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.

àFinancial markets
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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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.

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.















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The management priorities of the principal geographic areas for 2021 are set out below:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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In Argentina, the strategy will focus on:
•Increasing our customer base, and loyalty and ensuring the best customer service.
•Further developing new businesses.
•Continuing our process of efficiency and simplification through digital transformation.
•Boosting profitable growth, focusing on the transactional business and optimizing the use of capital.
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In Uruguay, the priorities for 2021 are to:
•Continue to invest in technology and process automation to further improve efficiency.
•Accelerate digitalization.
•Continue to increase our presence and market share.
•Combine and coordinate the implementation of local and regional projects.
In the Andean region, strategy will focus on:
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•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.
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•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
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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
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In 2021, we will continue to focus on:
•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.

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In 2021, the key management drivers will be:
•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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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.
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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 Attributable profit to the parentThis 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.
(Return on Equity)
   Average stockholders’ equity A (excl. minority interests)
Underlying RoEUnderlying attributable profit to the parentThis 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.
   Average stockholders’ equity A (excl. minority interests)
RoTE
Attributable profit to the parent B
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.
(Return on Tangible Equity)
   Average stockholders’ equity A (excl. minority interests)
Underlying RoTEUnderlying attributable profit to the parentThis 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.
 Average stockholders’ equity A (excl. minority interests) - intangible assets
RoA Consolidated profitThis 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.
(Return on Assets) Average total assets
Underlying RoAUnderlying consolidated profitThis 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.
Average total assets
RoRWAConsolidated profitThe 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.
(Return on Risk Weighted Assets)Average risk weighted assets
Underlying RoRWAUnderlying consolidated profitThis relates the underlying consolidated profit (excluding results from operations outside the ordinary course of our business) to the Group’s risk weighted assets.
Average risk weighted assets
RoRACUnderlying consolidated profitThis is the return on economic capital required internally (necessary to support all risks inherent in our activity).
(Return on Risk-Adjusted Capital)Average economic capital
Economic Value AddedUnderlying consolidated profit – (average economic capital x cost of capital) 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.
Efficiency
Operating expenses C
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.
(Cost-to-income)Total 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 A B (EUR million and %)
202020192018
RoE-9.80 %6.62 %8.21 %
   Attributable profit to the parent-8,7716,5157,810
   Average stockholders' equity (excluding minority interests)89,45998,45795,071
Underlying RoE5.68 %8.38 %8.48 %
   Attributable profit to the parent-8,7716,5157,810
   (-) Net capital gains and provisions-13,852-1,737-254
   Underlying attributable profit to the parent5,0818,2528,064
   Average stockholders' equity (excluding minority interests)89,45998,45795,071
RoTE1.95 %11.44 %11.63 %
   Attributable profit to the parent-8,7716,5157,810
   (-) Goodwill impairment-10,100-1,49146
   Attributable profit to the parent (excluding goodwill impairment)1,3298,0067,764
   Average stockholders' equity (excluding minority interests)89,45998,45795,071
   (-) Average intangible assets21,15328,48428,331
   Average stockholders' equity (excl. minority interests) - intangible assets68,30669,97366,740
Underlying RoTE7.44 %11.79 %12.08 %
   Attributable profit to the parent-8,7716,5157,810
   (-) Net capital gains and provisions-13,852-1,737-254
   Underlying attributable profit to the parent5,0818,2528,064
   Average stockholders' equity (excl. minority interests) - intangible assets68,30669,97366,740
RoA-0.50 %0.54 %0.64 %
   Consolidated profit-7,7088,1169,315
   Average total assets1,537,5521,508,1671,442,861
Underlying RoA0.40 %0.65 %0.66 %
   Consolidated profit-7,7088,1169,315
   (-) Net capital gains and provisions-13,866-1,710-231
   Underlying consolidated profit6,1589,8269,546
   Average total assets1,537,5521,508,1671,442,861
RoRWA-1.33 %1.33 %1.55 %
   Consolidated profit-7,7088,1169,315
   Average risk weighted assets578,517609,170598,741
Underlying RoRWA1.06 %1.61 %1.59 %
   Consolidated profit-7,7088,1169,315
   (-) Net capital gains and provisions-13,866-1,710-231
   Underlying consolidated profit6,1589,8269,546
   Average risk weighted assets578,517609,170598,741
RoRAC8.51 %12.91 %12.60 %
   Consolidated profit-7,7088,1169,315
   (-) Net capital gains and provisions-13,866-1,710-231
   Underlying consolidated profit6,1589,8269,546
   Average economic capital72,38976,10575,755
Economic value added-2,5293,5092,835
   Underlying consolidated profit6,1589,8269,546
   (-) Average economic capital x cost of capital-8,687-6,317-6,711
       Average economic capital72,38976,10575,755
       Cost of capital12.00 %8.30 %8.86 %
Efficiency ratio47.0 %47.0 %47.0 %
   Underlying operating expenses20,96723,28022,779
      Operating expenses21,13023,28022,779
      Net capital gains and provisions impact in operating expenses C
-163——
   Underlying total income44,60049,49448,424
      Total income44,27949,22948,424
      Net capital gains and provisions impact in total income C
321265—
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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Efficiency ratio by business area (EUR million and %)
20202019
%   Total
income		   Operating expenses%   Total
income		   Operating expenses
EUROPE52.4 19,693 10,314 52.6 21,001 11,044 
   Spain53.2 6,782 3,607 53.6 7,506 4,021 
   Santander Consumer Finance42.3 4,685 1,981 43.3 4,710 2,038 
   United Kingdom60.9 4,339 2,642 60.0 4,727 2,835 
   Portugal45.5 1,296 590 45.3 1,375 623 
   Poland41.3 1,524 629 40.4 1,717 693 
NORTH AMERICA42.1 11,011 4,631 42.8 11,604 4,968 
   US41.8 7,360 3,079 43.3 7,605 3,297 
   Mexico42.5 3,651 1,552 41.8 3,998 1,671 
SOUTH AMERICA35.8 14,845 5,312 36.1 18,425 6,656 
   Brazil32.6 10,866 3,541 33.0 13,951 4,606 
   Chile39.8 2,263 900 40.6 2,539 1,031 
   Argentina56.0 1,128 632 57.9 1,316 762 


Underlying RoTE by business area (EUR million and %)
20202019
%   Underlying attributable profit to the parent   Average stockholders' equity (excl. minority interests) - intangible assets%   Underlying attributable profit to the parent   Average stockholders' equity (excl. minority interests) - intangible assets
EUROPE5.48 2,656 48,424 10.00 4,878 48,794 
   Spain3.30 517 15,674 10.48 1,585 15,124 
   Santander Consumer Finance12.52 1,085 8,663 15.26 1,314 8,611 
   United Kingdom3.85 530 13,755 7.28 1,077 14,795 
   Portugal8.73 338 3,875 12.80 525 4,101 
   Poland5.05 162 3,204 11.23 349 3,104 
NORTH AMERICA7.12 1,492 20,971 8.52 1,667 19,556 
   US4.66 731 15,690 4.78 717 14,997 
   Mexico14.38 762 5,298 20.61 950 4,607 
SOUTH AMERICA18.07 2,927 16,198 20.58 3,924 19,065 
   Brazil19.16 2,113 11,027 21.16 2,939 13,888 
   Chile13.19 432 3,278 18.08 630 3,485 
   Argentina26.24 179 681 22.20 144 647 
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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 grantedThe 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.
Total Risk A
Coverage ratio
Provisions to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments grantedThe 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.
 Non-performing loans and advances to customers, customer guarantees and customer commitments granted
Cost of Credit   Allowances for loan-loss provisions over the last 12 monthsThis 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.
Average loans and advances to customers over the last 12 months
A.    Total risk = Total loans & advances and guarantees to customers (performing and non-performing) + non-performing contingent liabilities.


Credit risk (EUR million and %)
202020192018
NPL ratio3.21 %3.32 %3.73 %
Non-performing loans and advances to customers, customer guarantees and customer commitments granted31,76733,79935,692
Total risk989,4561,016,507958,153
Coverage ratio76 %68 %67 %
Provisions to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted24,27222,96524,061
Non-performing loans and advances to customers customer guarantees and customer commitments granted31,76733,79935,692
Cost of credit1.28 %1.00 %1.00 %
Underlying allowances for loan-loss provisions over the last 12 months12,1739,3218,873
Allowances for loan-loss provisions over the last 12 months12,4319,3218,873
Net capital gains and provisions impact in allowances for loan-loss provisions-258——
Average loans and advances to customers over the last 12 months952,358935,488887,028
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NPL ratio by business areas (EUR million and %)
20202019
%   Non-performing loans and advances to customers customer guarantees and customer commitments granted   Total risk%   Non-performing loans and advances to customers customer guarantees and customer commitments granted   Total risk
EUROPE3.15 22,792 722,429 3.25 23,519 722,661 
   Spain6.23 13,796 221,341 6.94 14,824 213,668 
   Santander Consumer Finance2.36 2,455 104,032 2.30 2,416 105,048 
   United Kingdom1.21 3,202 263,671 1.01 2,786 275,941 
   Portugal3.89 1,584 40,693 4.83 1,834 37,978 
   Poland4.74 1,496 31,578 4.31 1,447 33,566 
NORTH AMERICA2.23 2,938 131,611 2.20 3,165 143,839 
   US2.04 2,025 99,135 2.20 2,331 105,792 
   Mexico2.81 913 32,476 2.19 834 38,047 
SOUTH AMERICA4.39 5,688 129,575 4.86 6,972 143,428 
   Brazil4.59 3,429 74,712 5.32 4,727 88,893 
   Chile4.79 2,051 42,826 4.64 1,947 42,000 
   Argentina2.11 93 4,418 3.39 171 5,044 


Coverage ratio by business areas (EUR million and %)






20202019
%   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%   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
EUROPE57.3 13,056 22,792 49.8 11,714 23,519 
   Spain47.1 6,495 13,796 41.1 6,098 14,824 
   Santander Consumer Finance111.0 2,726 2,455 106.1 2,563 2,416 
   United Kingdom47.9 1,535 3,202 36.5 1,018 2,786 
   Portugal66.5 1,053 1,584 52.8 969 1,834 
   Poland70.7 1,058 1,496 66.8 967 1,447 
NORTH AMERICA182.5 5,363 2,938 153.0 4,842 3,165 
   US210.4 4,261 2,025 161.8 3,773 2,331 
   Mexico120.8 1,103 913 128.3 1,069 834 
SOUTH AMERICA97.4 5,540 5,688 88.4 6,164 6,972 
   Brazil113.2 3,880 3,429 99.8 4,717 4,727 
   Chile61.4 1,260 2,051 56.0 1,090 1,947 
   Argentina275.1 257 93 124.0 212 171 


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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 A
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.
 Number of shares excluding treasury stock
Price / tangible book
value per share (X)
 Share priceIs 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.
TNAV per share
LtD
(Loan-to-deposit)
Net loans and advances to customersThis is an indicator of the Bank’s liquidity. It measures the total (net) loans and advances to customers as a percentage of customer funds.
Customer deposits
Loans and advances (excl. reverse repos)Gross loans and advances to customers excluding reverse reposIn order to aid analysis of the commercial banking activity, reverse repos are excluded as they are highly volatile treasury products.
Deposits (excl. repos)Customer deposits excluding reposIn 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 customersMetric 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 %)
202020192018
TNAV (tangible book value) per share B
3.794.184.01
   Tangible book value65,56872,38467,912
   Number of shares excl. treasury stock (million) B
17,31217,33216,930
Price / tangible book value per share (X)0.670.860.95
   Share price (euros) B2.5383.5753.807
   TNAV (tangible book value) per share B
3.794.184.01
Loan-to-deposit ratio108 %114 %113 %
   Net loans and advances to customers916,199942,218882,921
   Customer deposits849,310824,365780,496
PAT + After tax fees paid to SAN (in WM&I) (Constant EUR million)2,1452,179
   Profit after taxes909889
   Net fee income net of tax1,2361,289
B. 2018 and 2019 data adjusted for the capital increase in December 2020.


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Impact of exchange rate movements on profit and loss accounts
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.

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 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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Risk management
and compliance
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1. Risk management and compliance overview
421
421
424
425
2. Risk management and control model
427
427
427
428
430
433
433
436
436
436
438
442
448
3.6 Other credit risk details
453
4. Market, structural and liquidity risk
460
460
461
463
4.4 Structural balance sheet risk management
469
4.5 Structural balance sheet risk key metrics
470
473
474
474
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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
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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.
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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.
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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.
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Total risk by region6
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                             Europe N. America S. America
73% 13% 13%
Total risk by segment
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                                Individuals Companies SCIB
                                55% 29% 16%

In a complex environment, impact on credit quality indicators was limited, owing to good performance of customer relief programmes and collections and recoveries planning.
Non-performing Loans
Loan growth in constant euros and customer support programmes drove the rate down.
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3.32%
2019
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▼ 3.21%
2020
Cost of credit7
Cost of credit improved on estimates made at the beginning of the pandemic.
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1.00%
2019
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▲ 1.28%
2020
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.
▲168%
Ample short-term Group liquidity ratio (LCR) +21 pp in 2020
2020 Avg. Value at Risk (VaR)
EUR million
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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.
VaR was stable despite market volatility in Q1’20 caused by the covid-19 pandemic.
Capital risk
Section 5
RWA by risk type8RWA by region9
Credit risk, which is our core business, stands out among RWA.Diversified and balanced distribution.
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Operational
10%
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EUR 605bn
2019 57% 19% 22%
Market
3%		                   Europe N.America S. America
Credit 87%10
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EUR 563bn
2020 59% 18% 20%
CET1 phased-in 202011
▲12.34%
san-20201231_g362.gif 11.65
The CET1 ratio increased due to strong organic capital generation based on underlying profits and efficient RWA management.
2019
▲69 bps in 2020, placing CET1 above our 11-12% target
san-20201231_g363.gif 12.34
The strength of our diversified retail banking business model is demonstrated by our positive performance in all 7 regulatory stress tests performed since 2008.
2020
RoRAC12
Europe
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11%
▼8.5%
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.
N. America
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15%
▼4 pp in 2020
S. America
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26%
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.
11 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").
12 The Group’s total RoRAC includes the operative units, the Corporate Centre and SGP, reflecting the Group's economic capital and its return.
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Operational risk
Section 6
Our operational risk profile remained stable despite the current backdrop.
To reinforce controls, we focused on:
Effective operational risk managementSuccessful deployment of business continuity plans.
Customer service
Availability and performance, especially in online banking and at call centres.
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New operating guidelines in all our subsidiaries.
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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
Reinforced fraud control (data protection, patching, browsing control).
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Stronger detection, response and protection mechanisms.
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Monitoring as a fundamental preventive measure.
Operational losses by Basel category
2020
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Customers
65%		Damage to physical assetsExternal fraudProcesses & systemsEmployees
1%		Internal fraud
1%21%11%1%
Compliance and conduct risk
Section 7
Initiatives in 2020:
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•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.
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•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, made further progress. We accomplished two objectives: better internal model management and compliance with supervisory expectations.

•Further digitalization enhanced real-time decision-making.

Strategic risk
Section 9
•In 2020, our focus was the uncertain economic outlook brought on by covid-19, which acted as a catalyst for previously identified risks.
•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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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.
The notes to the consolidated financial statements contain additional information on Grupo Santander’s provisions, legal proceedings, taxes and other risks.
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For additional information on segments, please see '4.1 Description of segments' of the Economic and financial review chapter.
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
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Unprecedented response: EUR 112bn in customer support measures
Continuous adapted reporting to the board and committees

Clearer segmentation to identify vulnerable industries/customers

Preparedness for collections and recoveries
Impact estimation under various scenarios to determine provision needs

Operational excellence
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Our target operating model prepared us for a turn in the cycle with pre-approvals and early warnings
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Digitalisation reduced time to yes and time to cash in core mortgage markets


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
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Capital accuracy strengthened key models according to ECB Model Simplification Plan

Capabilities improved to handle climate risk, one of our top risks

Our strategic One FCC and Conduct Risk transformation projects set common standards

New ways of working
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One Santander: global models & data hub and SCIB hub

New regional CRO and leads: Europe, N. America and S. America

More efficient, integrated risk compliance processes
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.
Our top management monitors and takes mitigating actions against major strategic risks such as:
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.
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 key mitigating actions were:
•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.
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More details available in the 'Risk pro: our risk culture' section of the Responsible Banking chapter.
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:
1
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.
2
Market risk results from changes in interest rates, exchange rates, equities, commodities and other market factors, and from their effect on profits or capital.
3
Liquidity risk occurs if liquid financial resources are not enough to meet due obligations or can only be obtained at a high cost.
4
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.
5
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.
6
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.

7
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.
8
Reputational risk consists of potential losses from damage to its reputation amongst employees, customers, shareholders/investors and the wider community.
9
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.
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 lineSecond lineThird 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.
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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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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:CEOGroup CROGroup 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.
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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.
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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.
4
Concentration
•Concentration in single names, sectors and portfolios.
•Concentration in non-investment grade counterparties.
•Concentration in large exposures.
5
Non-financial risks
•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.
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.
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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.
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.
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For more details, see 'Climate change and risk management' in this section located in 2.6 ‘Environmental and social risk’ of this report
•Recurrent risk management in:
◦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.
◦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.
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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.
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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.
•covering all risk factors in our 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 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
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.
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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.
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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.
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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:
EUR billion13% of total Loans14
Conventional Power15232 %
Renewables Project Finance91 %
Oil & Gas182 %
Mining & Metals81 %
Transportation273 %
Total most concerning sectors768 %
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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 Gross Loans and advances to customers.
15 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.
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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).
2
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.
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.
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.
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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:
•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.
•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
202020192018
Performing14,16415,19920,877
Non-performing14,99517,27620,357
Total forborne29,15932,47541,234
% CoverageA
28%28%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)% lending portfolio
o/w government programmeso/w government programmes
Mortgages0.77022%
0.557
Consumer3.9209%
14
SME & Corporates0.2227%
0.19
Total4.811212%
1.670
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 booko/w: expired
(EUR bn)		Expired as
% of Total		Expired
% Stage 1% Stage 2% Stage 3
Total Group11212%8979%82%15%3%
Mortgages7022%5579%87%11%2%
Consumer209%1888%77%17%7%
SMEs & Corporates227%1672%74%24%3%
Europe7311%5373%84%14%2%
North America2118%2091%75%20%5%
South America1815%1690%87%9%4%
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)
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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)
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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 Exposure
(EUR bn)		% Stage 1% Stage 2% Stage 3
Automotive34.692.7 %5.9 %1.4 %
Hotels, leisure, cruises & restaurantsA
17.774.4 %18.3 %7.3 %
Transport18.388.5 %7.3 %4.2 %
Oil & Gas20.997.7 %1.6 %0.7 %
Retail Non Food21.588.2 %6.6 %5.2 %
ConstructionB
12.582.1 %10.7 %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.
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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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.
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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.
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: Europe16 (73%, including SCF), South America (13%) and North America (13%).
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.
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
Credit risk with customersA
(EUR million)
Non-performing loans
(EUR million)
NPL ratio
(%)
202020192018202020192018202020192018
Europe722,429 722,661688,81022,792 23,51925,2873.15 3.253.67
Spain221,341 213,668227,40113,796 14,82416,6516.23 6.947.32
S. Consumer Finance104,032 105,04897,9222,455 2,4162,2442.36 2.302.29
UK263,671 275,941252,9193,202 2,7862,7391.21 1.011.08
Portugal40,693 37,97838,3401,584 1,8342,2793.89 4.835.94
Poland31,578 33,56630,7831,496 1,4471,3174.74 4.314.28
North America131,611 143,839125,9162,938 3,1653,5102.23 2.202.79
US99,135 105,79292,1522,025 2,3312,6882.04 2.202.92
SBNA49,862 56,64051,049405 3894500.81 0.690.88
SC USA29,050 29,02126,4241,529 1,7872,0435.26 6.167.73
Mexico32,476 38,04733,764913 8348222.81 2.192.43
South America129,575 143,428138,1345,688 6,9726,6394.39 4.864.81
Brazil74,712 88,89384,2123,429 4,7274,4184.59 5.325.25
Chile42,826 42,00041,2682,051 1,9471,9254.79 4.644.66
Argentina4,418 5,0445,63193 1711792.11 3.393.17
Santander Global Platform979 7063405 440.51 0.631.21
Corporate Centre4,862 5,8724,953 344 138252 7.08 2.345.09 
Total Group989,456 1,016,507 958,153 31,767 33,799 35,692 3.213.323.73
Coverage ratio
(%)
Net ASRB provisions
(EUR million)
Cost of credit
(%/risk)c
202020192018202020192018202020192018
Europe57.3 49.850.14,299 1,839 1,572 0.62 0.280.24
Spain47.1 41.143.72,001 856 789 1.01 0.430.38
S. Consumer Finance111.0 106.1106.4899 477 360 0.88 0.480.38
UK47.9 36.532.9733 253 171 0.28 0.100.07
Portugal66.5 52.850.5193 (8)32 0.51 (0.02)0.09
Poland70.7 66.867.1330 217 161 1.10 0.720.65
North America182.5 153.0137.43,916 3,656 3,449 2.92 2.763.12
US210.4 161.8142.82,937 2,792 2,618 2.86 2.853.27
SBNA174.0 140.6122.1443 186 108 0.85 0.350.24
SC USA230.2 175.0154.62,413 2,614 2,501 8.09 9.4210.01
Mexico120.8 128.3119.7979 863 830 3.03 2.492.75
South America97.4 88.494.63,923 3,789 3,736 3.32 2.922.99
Brazil113.2 99.8106.93,018 3,036 2,963 4.35 3.934.06
Chile61.4 56.060.6594 443 473 1.50 1.081.19
Argentina275.1 124.0135.0226 235 231 5.93 5.093.45
Santander Global Platform116.8 85.378.93 1 — 0.41 0.220.14
Corporate Centre89.0 174.5— 31 36 115 0.54 0.571.65
Total Group76.4 67.967.412,173 9,321 8,873 1.28 1.001.00
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:
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A. Includes gross loans and advances to customers, guarantees and documentary credits.
B. Before loan-loss allowances.
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).
Santander's credit risk (including gross loans and advances to customers, guarantees and documentary credits) is distributed as follows:
Credit risk distribution
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Our credit risk portfolios’ geographical distribution and performance (i.e., performing and non-performing loans) are as follows:
Total
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Individuals
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SME, Commercial Banking and Institutions
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SCIB
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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).
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For more details, see section
Amounts past due (performing loans)
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
Less than 1 month1 to 2 months2 to 3 months
Loans and advances to credit institutions5 — — 
Loans and advances to customers1,232 337 311 
Public administrations1 — — 
Other private sector1,231 337 311 
Debt instruments— — — 
Total1,238 337 311 
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
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
Stage 1
Stage 2
Stage 3
TotalA
Europe639,872 42,252 22,786 704,911 
Spain186,557 13,325 13,796 213,677 
SCF241,376 18,451 3,202 263,029 
UK34,778 4,331 1,584 40,693 
Portugal28,338 1,597 1,496 31,432 
Poland96,999 4,548 2,454 104,001 
North America107,628 15,686 2,938 126,252 
US79,410 12,767 2,025 94,202 
SBNA44,277 4,955 405 49,637 
SC USA19,723 7,795 1,529 29,046 
Mexico28,218 2,919 913 32,050 
South America113,799 10,073 5,688 129,559 
Brazil65,122 6,152 3,429 74,702 
Chile37,555 3,218 2,051 42,825 
Argentina3,966 360 93 4,418 
Santander Global Platform973 1 5 979 
Corporate Centre1,883 564 341 2,787 
Total Group864,155 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
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2018 - 2020 NPL evolution
EUR million
2018 2019 2020 
NPL (start of period)37,596 35,692 33,799 
Stage 337,571 35,670 33,783 
NPL not subject to impairment accounting25 22 16 
Net entries10,910 10,544 10,277 
Perimeter177 — (44)
FX and others(318)156 (3,335)
Write-off(12,673)(12,593)(8,930)
NPL (End of period)35,692 33,799 31,767 
Stage 335,670 33,783 31,758 
NPL not subject to impairment accounting22 16 9 
Allowances evolution according to constituent item
EUR million
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2018 - 2020 allowances
EUR million
2018 2019 2020
Allowances (start of period)24,529 24,061 22,965 
For impairment assets16,459 
For other assets8,070 
Stage 1 and 28,913 8,872 
Stage 315,148 14,093 
Gross provision for impaired assets and write-downs10,300 10,905 13,263 
Provision for other assets121 6 139 
FX and other 1,784 586 (3,166)
Write-off(12,673)(12,593)(8,930)
Allowances (end of period)24,061 22,965 24,272 
Stage 1 and 28,913 8,872 10,492 
Stage 315,148 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.
san-20201231_g389.jpgThe Santander UK portfolio is divided into these segments:
Portfolio segmentationA
Dec.20 data
san-20201231_g390.jpg
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.
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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
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London
Midlands and East Anglia
North
Northern Ireland
Scotland
South East (excl. London)
South West, Wales and Other
The distribution of the portfolio by type of borrower is shown in the chart below:
Mortgage portfolio loan type
EUR million
san-20201231_g392.jpg
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
(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:
Loan to value
Dec.20 data
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<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.
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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.
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*Includes Santander España and Banco Popular.
Santander España's portfolio is divided into these segments:
Portfolio segmentation
Dec.20 data
san-20201231_g395.jpg
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
2020 2019 2018 
Gross Amount 58,079 60,557 61,453 
   Without mortgage guarantee 387 306 545 
   With mortgage guarantee57,692 60,251 60,908 
of which non-performing loans 1,784 2,581 2,425 
   Without mortgage guarantee75 14 54 
   With mortgage guarantee1,709 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.
san-20201231_g396.jpg
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.
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DI < 30%
LTV < 40%
30% < DI < 40%
40% - 60%
DI > 40%
60% - 80%
Average 27%
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:
Business units segmentation
Dec.20 data
san-20201231_g399.jpg
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%.
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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.
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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.
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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.
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Santander Brasil's loan book is distributed as follows:
Portfolio segmentation
Dec.20 data
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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.
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
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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.
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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 effectA
EUR million
202020192018
Market value, netting effectB
37,20437,36529,626
Collateral receivedC
31,97030,10019,885
Market value with netting effect and collateralD
5,2357,2659,741
Netting effectE
30,13932,55233,289
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 valueA
EUR million
202020192018
Nominal
Market value
Nominal
Market value
Nominal
Market value
Positive
Negative
Positive
Negative
Positive
Negative
Credit derivativesB
14,530 145 (215)29,805 312 (1,357)24,994 130 (875)
Equity derivatives53,821 2,973 (1,848)71,401 2,481 (1,836)63,042 2,951 (1,840)
Fixed income derivatives11,370 47 (386)23,136 119 (177)9,927 121 (59)
Exchange rate derivatives863,001 25,341 (27,071)897,886 21,053 (23,260)781,641 21,743 (20,098)
Interest rate derivatives4,917,944 143,679 (139,261)5,089,817 112,128 (108,651)5,000,406 86,079 (86,411)
Commodity derivatives3,732 83 (15)735 56 (27)2 — — 
Total OTC derivatives5,695,339 170,911 (167,650)5,944,977 135,194 (134,392)5,770,317 111,025 (109,282)
Derivatives organised marketsC
169,059 1,357 (1,147)167,803 955 (917)109,695 902 (1,129)
Repos146,984 3,978 (7,311)143,163 4,334 (2,722)149,006 2,352 (2,466)
Securities lending46,418 12,500 (26,072)48,786 17,490 (23,652)43,675 12,425 (22,272)
Total counterparty riskD
6,057,800 188,746 (202,180)6,304,729 157,973 (161,682)6,072,693 126,704 (135,150)
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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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 maturityA
EUR million. Dec.20 data
Up to 1 yearUp to 5 yearsUp to 10 yearsMore than 10 yearsTOTAL
Credit derivativesB
26 %66 %3 %6 %14,530 
Equity derivatives59 %39 %2 %0 %53,821 
Fixed income derivatives80 %20 %0 %0 %11,370 
Exchange rate derivatives50 %29 %15 %6 %863,001 
Interest rate derivatives34 %39 %18 %10 %4,917,944 
Commodity derivatives67 %29 %2 %1 %3,732 
Total OTC derivatives35 %38 %18 %9 %5,695,339 
Derivatives organised marketsC
65 %34 %1 %0 %169,059 
Repos93 %7 %0 %0 %146,984 
Securities lending99 %1 %0 %0 %46,418 
Total counterparty risk38 %36 %17 %9 %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
%
AAA0.20%
AA3.48%
A82.73%
BBB11.94%
BB1.57%
B0.05%
Other0.02%
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
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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.
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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.
Received collateral is geographically distributed as follows:
Collateral received. Geographic distribution
Dec.20 data
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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
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'.
Counterparty risk, organised markets and clearing houses
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.
The tables below show the weighting of trades settled through clearing houses as a portion of total counterparty risk at December 2020:
Distribution of counterparty risk by settlement channel and product typeA
Nominal in EUR million
Bilateral
CCPB
Organised marketsC
Total
Nominal
%
Nominal
%
Nominal
%
Credit derivatives8,285 59.8%6,245 40.2%— 0.0%14,530 
Equity derivatives15,545 29.8%62 0.1%38,214 71.0%53,821 
Fixed income derivatives11,370 100%— 0.0%— 0.0%11,370 
Exchange rate derivatives827,299 95.9%31,043 3.6%4,660 0.5%863,001 
Interest rate derivatives770,923 15.7%4,020,927 81.8%126,094 2.6%4,917,944 
Commodity derivatives3,641 97.6%— 0.0%91 2.4%3,732 
Repos107,587 73.2%39,397 26.8%— 0.0%146,984 
Securities lending46,418 100%— 0.0%— 0.0%46,418 
Total1,791,067 4,097,674 169,059 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.
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Distribution of risk settled by CCP and organised markets, by productA
Nominal in EUR million
202020192018
Credit derivatives6,245 11,556 4,231 
Equity derivatives62 370 32,229 
Fixed income derivatives— — — 
Exchange rate derivatives31,043 43,358 36,928 
Interest rate derivatives4,020,927 4,087,255 4,025,674 
Commodity derivatives— 0 2 
Repos39,397 23,933 41,492 
Securities lending— — — 
Total4,097,674 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 sectorA
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n
n
n
n
n
n
n
n
Agriculture, livestock, forestry and fishing
Extractive industries
Manufacturing industry
Electricity, gas and water production and distribution
Construction
Trade and repairs
Transport and storage
Hotels and restaurants
n
n
n
n
n
n
n
n
Information and communications
Financial and insurance activities
Real estate activities
Professional, scientific and technical activities
Administrative activities
Public administration
Other social services
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.
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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-border17 risk is even less significant (EUR 7,168 million, 1.8% of total sovereign risk).
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:
202020192018
AAA18%20%11%
AA25%24%20%
A25%18%31%
BBB14%15%13%
Lower than BBB18%23%25%
17 Countries that are not considered low risk by Banco de España
18 Internal ratings are applied
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Sovereign exposure at the end of December 2020 is shown in the table below (data in million euros):
20202019
Portfolio


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
Spain4,100 7,048 13,097 — 24,245 35,366 
Portugal(380)4,148 4,962 — 8,730 8,689 
Italy249 2,468 1,298 — 4,015 2,735 
Greece— — — — — — 
Ireland— — — — — — 
Rest Eurozone(29)1,687 2,396 — 4,054 1,809 
UK(1,672)612 963 — (97)10,363 
Poland16 10,263 668 — 10,947 8,366 
Rest of Europe7 121 942 — 1,070 777 
US589 9,501 5,458 — 15,548 16,299 
Brazil5,127 17,281 5,309 — 27,717 28,998 
Mexico8,005 10,256 2,768 — 21,029 13,673 
Chile148 6,732 75 — 6,955 3,460 
Rest of America19 397 542 — 958 1,029 
Rest of the World— 3,776 976 — 4,752 4,813 
Total16,179 74,290 39,454 — 129,923 136,377 

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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.
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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.
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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and, therefore, not reflected in VaR. We also use it to count regulatory overshootings.
•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 market risk regulatory capital, we obtain the regulatory K19 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 (vega20) and time (theta). Secondly, we systematically review such measurements as sensitivity to the spread, jump-to-default and concentrations of positions by rating.
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%)
over a one-year horizon. We follow the Montecarlo methodology, applying one million simulations.
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 K: Parameter used for calculating the consumption of regulatory capital due to market risk.
20 Vega, a Greek term, is the sensitivity of the value of a portfolio to changes in the price of market volatility
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risk operations, Market Risk, IT, Front Office, Finance and Regulatory Affairs and other important stakeholders.
In 2020, it significantly enhanced our functional and IT architecture and operating models and generated synergies between initiatives and resources.
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,
stressed VaR and IRC (incremental risk charge) as fundamental metrics, in keeping with new requirements under the Basel Accords, particularly the CRR.
VaR analysis
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.
VaR 2018-2020
EUR million. VaR at 99% over a one day horizon
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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

202020192018

VaR (99%)
ES (97.5%)
VaR
VaR

Min
Average
Max
Latest
Latest
Average
Latest
Average
Latest
Total Trading
6.512.554.88.38.112.110.39.711.3
Diversification effect
(6.0)(13.1)(15.8)(11.8)(12.6)(8.2)(9.9)(9.3)(11.5)
Interest rate
4.7 9.2 29.2 5.4 5.9 10.0 9.2 9.4 9.7 
Equities
2.1 4.4 14.7 3.1 3.7 2.9 4.8 2.4 2.8 
Exchange rate
2.6 5.9 12.9 6.0 5.5 3.9 2.6 3.9 6.2 
Credit spread
3.1 5.5 11.4 4.5 4.5 3.4 3.5 3.4 4.1 
Commodities
— 0.5 2.5 1.1 1.0 — — — — 
Total Europe
5.010.539.18.09.36.310.15.05.5
Diversification effect
(4.6)(10.6)(21.9)(8.9)(8.8)(6.9)(8.3)(6.7)(8.2)
Interest rate
3.2 7.9 24.0 6.5 7.2 6.0 8.2 5.0 5.8 
Equities
2.1 4.3 15.0 3.0 3.6 1.9 4.9 1.1 1.2 
Exchange rate
1.3 3.5 10.7 2.9 2.7 1.9 1.9 1.7 2.1 
Credit spread
3.1 5.5 11.4 4.5 4.5 3.4 3.5 3.9 4.6 
Commodities
— — — — — — — — — 
Total North America
2.86.613.72.92.73.53.87.28.3
Diversification effect
0.7 (2.2)(5.3)(1.1)(0.9)(1.3)(21.0)(4.8)(2.7)
Interest rate
1.6 3.4 7.1 3.3 3.0 2.6 3.4 6.2 7.7 
Equities
0.0 0.3 1.2 0.1 0.1 0.2 0.1 0.1 0.0 
Exchange rate
0.5 5.1 10.7 0.5 0.5 2.0 2.4 5.5 3.3 
Total South America
2.45.626.44.55.09.56.07.210.0
Diversification effect
(0.8)(3.4)(13.8)(4.3)(3.7)(2.9)(3.8)(3.5)(2.3)
Interest rate
2.3 5.2 26.3 4.1 4.2 7.8 5.9 6.4 6.6 
Equities
0.2 1.0 6.3 0.5 0.5 2.0 1.7 2.5 2.9 
Exchange rate
0.8 2.7 7.6 4.2 4.2 2.6 2.1 1.9 2.9 
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
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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.
The following chart shows the VaR Vega21 of structured 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.

Change in risk over time (VaR) of structure derivatives
EUR million. VaR Vega at a 99% over a one day horizon
san-20201231_g410.gif
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
202020192018
Minimum
Average
Maximum
Latest
Average
Latest
Average
Latest
Total VaR Vega
1.1 1.9 5.9 2.3 1.5 2.6 1.8 1.1 
Diversification effect
(0.5)(1.3)(7.4)(1.7)(1.1)(1.3)(1.4)(1.4)
VaR interest rate
0.6 1.0 2.5 1.8 1.1 2.7 0.9 0.9 
VaR equities
0.7 1.3 5.0 1.4 0.8 0.8 1.2 1.0 
VaR exchange rate
0.3 0.9 5.8 0.8 0.6 0.4 1.1 0.6 
VaR commodities
— — — — — — — — 
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.
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
Interest rate
Equities
Exchange rate
Credit spread
Commodities
Total
Total trading
(40.6)(25.1)(7.3)(4.9)— (77.9)
Europe
(21.0)(24.5)(3.0)(4.6)— (53.1)
North America
(1.6)(0.1)(1.0)— — (2.7)
South America
(18.0)(0.5)(3.3)(0.3)— (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









Main market
risk metrics

Assets subject to market risk
Balance
sheet amount
VaR
Other
Main risk factors for 'Other' balance
Cash, cash balances at central banks and other deposits on demand
153,839 

153,839 Interest rate
Financial assets held for trading
114,945 114,945 Interest rate, spread
Non-trading financial assets mandatorily at fair value through profit or loss
4,486 3,234 1,252 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
120,953 

118,170 Interest rate, spread
Financial assets measured at amortised cost
958,378 

958,378 Interest rate
Hedging derivatives
8,325 8,325 Interest rate, exchange
Changes in the fair value of hedged items in portfolio hedges of interest risk
1,980 

1,980 Interest rate
Other assets
96,627 


Total assets
1,508,250 






Liabilities subject to market risk




Financial liabilities held for trading
81,167 81,167 Interest rate, spread
Financial liabilities designated at fair value through profit or loss
48,038 14,641 33,397 Interest rate
Financial liabilities at amortised cost
1,248,188 

1,248,188 Interest rate, spread
Hedging derivatives
6,869 6,869 Interest rate, exchange
Changes in the fair value hedged items in portfolio hedges of interest rate risk
286 

286 Interest rate
Other liabilities
32,380 



Total liabilities
1,416,928 

Total equity
91,322 


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 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 sensitivity
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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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
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* 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
san-20201231_g412.jpg* 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).
Net interest income (NII) sensitivity
% of total
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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
san-20201231_g414.jpgSouth 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
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* 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).
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Economic value of equity sensitivity
% of total
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* 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 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
EUR million. VaR at a 99% over a one day horizon
202020192018
Minimum
Average
Maximum
Latest
Average
Latest
Average
Latest
Structural VaR
611.4 911.0 1,192.1 903.1 511.4 729.1 568.5 556.8 
Diversification effect
(227.2)(349.8)(261.0)(263.4)(304.2)(402.0)(325.0)(267.7)
VaR Interest RateA
345.5 465.1 581.9 345.5 345.6 629.7 337.1 319.5 
VaR Exchange Rate
317.8 499.9 547.0 502.6 308.1 331.7 338.9 324.9 
VaR Equities
175.3 295.9 324.2 318.5 161.9 169.8 217.6 180.1 
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.
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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.
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).
It brings together capital planning, budget execution and monitoring, the ongoing measurement of capital and the reporting and disclosure of capital data (described below).
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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.
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:
•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 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.
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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:
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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:
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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:
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•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.
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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, legal22 and conduct risk.
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.
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.
22 Legal processes with an operational risk root cause.
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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
Our main initiatives in 2020 to improve the operational risk management model were:
•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.
•Fostering technology risk control by defining Reference 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
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;
•helping stabilize the financial system.
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.
•Expand the scope of the processes included in the 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:
•We effectively deployed business continuity plans to support our employees, customers and businesses.
•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
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.
Relevant mitigation actions
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
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.
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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.
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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.
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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 Policies23.
Net losses (including incurred loss and net provisions) distributed under Basel24 risk categories for the last three years were as follows:


Net losses by operational risk categoryA
(% o/total)
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A. Excluding employee litigation from Brazil
23 Guidelines updated on December 2020.
24 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:
Net losses by countryA
(% o/total)
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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;
•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.
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Employees compliance functions - Making ethics real
Canal AbiertoTraining and awareness
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•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.
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•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 proceedingPolicies and procedures
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•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.

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•Ensure compliance with the General Code of Conduct and apply its guidelines through specific policies or procedures.
•Report regularly to governance bodies.
AppointmentsEthical queries
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•Assess the suitability of nominated directors and senior managers*.

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•Manage queries from employees and governance bodies on ethical issues and internal regulations
•Give ethics advice on controversies.
Competition
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•Manage the competition compliance programme
* This activity is carried out by the compliance function at Headquarters
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.
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For more details on Canal Abierto and its management during covid-19, see section Employee experience' of the Responsible Banking chapter.
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 IIDodd-Frank Title VIIVolcker Rule
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. 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.
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:
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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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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.
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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
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Culture and customers1LoD awareness and accountabilityManagement and control environment
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
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
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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•the use of a simulation environment to test proposed 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.
•Thematic reputational risk training sessions with first and 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.
•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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Planning
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.
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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.
Approval
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.
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
1LoDFirst Line of Defence
2019 AGMAnnual general meeting held on 12 April 2019
2020 AGMsApril 2020 AGM and October 2020 AGM
2021 AGMAnnual general meeting called for 25 or 26 March 2021, at first or second call respectively
2Dii2 Degree Investing Initiative
2LoDSecond Line of Defence
Active customerThose customers who comply with balance, income and/or transactionality demanded minimums defined according to the business area
ADSAmerican Depositary Shares
AEATAgencia Estatal de Administración Tributaria
AIArtificial Intelligence
ALCOAsset-Liability Committee
ALMAsset and Liability Management
AMLAnti-money laundering
APMAlternative Performance Measure
April 2020 AGMAnnual general meeting held on 3 April 2020
ASFAvailable Stable Funding
ASRRecovered write-off assets (Activos en suspenso recuperados)
AT1Additional Tier 1
ATMAutomated teller machine
ATOMICAdvanced Target Operating Models in Collaboration
B2B2CBusiness to business to customer
B2CBusiness to customer
Banco Popular/PopularBanco 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
Basel or Basel CommitteeThe Basel Committee on Banking Supervision
BAUBusiness as usual
BBLSBounce Back Loans
BCMSBusiness Continuity Management System
BCPBusiness continuity plans
BISBank for International Settlements
BnBillion (1,000,000,000)
bpsbasis points
BRRDDirective 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended from time to time
BSIBanco Santander Internacional
CAEChief audit executive
CAFDevelopment Bank of Latin America
CAOChief accounting officer
CARFConselho Administrativo de Recursos Fiscais
CCOChief compliance officer
CCPCentral Counterparties
CCPSContingent convertible preferred securities
CDICrest Depositary Interests
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CDSCredit Default Swaps
CEBCouncil of Europe Development Bank
CEOChief executive officer
CERCredit equivalent risk
CET1Common equity tier 1
CFOChief financial officer
CIOChief information officer
CNMV
Spanish stock market authority (Comisión Nacional del Mercado de Valores)
COFINSContribuiçao para Financiamento da Seguridade Social
Corporate CentreOur headquarters in Boadilla and business segment as described in section 4.1 ‘Description of segments’ in the Economic and financial review chapter.
CorporationAll 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.
COSOCommittee of Sponsoring Organisations of the Tradeway Commission
CPGFCorporate Products Governance Forum
CRD IVThe prudential framework established by the CRD and CRR currently in force
CRD VAmendment to the CRD IV package
CRECredit Risk Equivalent
CROChief risk officer
CRRRegulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms, as amended from time to time
CRSThe Common Reporting Standard approved by the OECD Council on 15 July 2014
CSACredit Support Annex
CSLLSocial Contribution on Net Income
CTOChief technology officer
CVACredit Valuation Adjustment
D&IDiversity & inclusion
DIDebt to Income
Digital customersEvery 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.
DLPData Leakage Protection
Dodd-Frank ActThe US Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DTADeferred Tax Asset
DVADebt Valuation Adjustment
E&SEnvironmental and social
EADExposure at Default
EBAEuropean Banking Authority
EBRDEuropean Bank for Reconstruction and Development
ECBEuropean Central Bank
ECB Recommendation IThe 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 IIThe recommendation issued by the ECB on 27 July 2020 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
ECLExpected credit loss
EIBEuropean Investment Bank
EMIRRegulation (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories, as amended from time to time
EONIAEuro Overnight Index Average
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EPSEarnings Per Share
ERCExecutive risk committee
ESExpected Shortfall
ESGEnvironmental, Social and Governance
ESMAEuropean Securities and Markets Authority
ESRMEnvironmental and social risk management
ETFExchange Traded Funds
EUEuropean Union
EVEEconomic Value of Equity
EWIsEarly Warning Indicators
FATCAForeign Account Tax Compliance Act
FCAFinancial Conduct Authority
FCA GroupFiat Chrysler Automobiles
FCCFinancial Crime Compliance
FEBEFFundación Española de Banca para Estudios Financieros
FEDFederal Reserve
Final Cash DividendThe final cash dividend of 0.10 euros per share put to a vote by the board in February 2020 at the April 2020 AGM
FROBFondo de Reestructuración Ordenada Bancaria
FRTBFundamental Review of the Trading Book
FSBFinancial Stability Board
FXForeign Exchange
G-SIBGlobal Systematically Important Bank
GBPPound sterling
GCCGeneral Code of Conduct
GDPGross Domestic Product
GDPRGeneral Data Protection Regulation
GMRAGlobal master repurchase agreement
GMSGlobal Merchant Services
GPPCGlobal Public Policy Committee
GPTWGreat Place to Work
GRCGovernance, risk and compliance
GRIGlobal Reporting Initiative
GSGMGroup-Subsidiary Governance Model
GTSGlobal Trade Services
HRHuman Resources
IASInternational Accounting Standards
IBORsInterbank offered rates
ICAAPInternal Capital Adequacy Assessment Process
ICAC
Accounting and Audit Institute (Instituto de Contabilidad y Auditoría de Cuentas)
ICFRInternal control over financial reporting
ICMInternal control model
ICOInstituto de Crédito Oficial
ICTInformation and Communication Technology
Identified StaffOther executives whose activities may have a significant impact on the Group's risk profile
IFCInternational Finance Corporation
IFIInstituciones financieras internacionales
IFRSInternational 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
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ILAAPInternal Liquidity Adequacy Assessment Process
IMFInternational Monetary Fund
IRBInternal Rating Based
IRCIncremental Risk Charge
IRPJImposto de Renda Pessoa Jurídica
IRRInternal rate of return
IRSInternal Revenue Service
ISMAInternational Securities Market Association
ITInformation technology
IT
Information Technology (tecnología de la información)
KPIKey performance indicator
KRIKey Risk Indicators
LCRLiquidity Coverage Ratio
LDALoss Distribution Approach
LGDLoss Given Default
LIBORLondon Interbank Offer Rate
Loyal customersActive 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.
LTDLoan to Deposit ratio
LTVLoan to Value
M/LTMedium and long-term
MiFID IIMarkets in Financial Instruments Directive.
MnMillion
MRAPMarket Risk Advanced Platform
MRELMinimum requirement for own funds and eligible liabilities which is required to be met under the BRRD
MRMModel Risk Management
MtMMark-to-Market
MXNMexican peso
NCAsNational competent authority
NGFSNetwork for Greening the Financial System
NGONon-governmental organisation
NIINet Interest Income
Nominal capMaximum nominal amount of a risk operation, excluding market transactions
NPLsNon-performing loans
NPSNet promoter score
NSFRNet stable funding ratio
NYSENew York Stock Exchange
o/wOf which
October 2020 AGMAnnual meeting held on 27 October 2020
OECDOrganisation for Economic Co-operation and Development
OMOrganised Markets
ONPOrdinary net profit
OROperational risk
OSLAOverseas Securities Lender’s Agreement
OTCOver the counter
P&LProfit and Loss
PACTAParis Agreement Capital Transition Assessment
PCAOBPublic Company Accounting Oversight Board
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PDProbability of Default
People supported in our communitiesThe 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.
PFE
Potential Future Exposure (posible exposición futura)
PISPrograma de Integraçao Social
PITPoint in time
PITPoint-in-time
PLNPolish Zloty
POCIPurchased or Originated Credit Impaired
POSPoint of sale
pppercentage point
PPIPayment protection insurance
PRAUK Prudential Regulatory Authority
PRIPrinciples for responsible Investment
PSD2Payment Services Directive II
PwCPricewaterhouseCoopers Auditores, S.L.
R&D&iResearch, development and innovation
RAFRisk appetite framework
RASRisk appetite statement
RCCRisk control committee
RCSARisk control self-assessment
RDARisk Data Aggregation
RIARisk Identification and Assessment
RoAReturn on assets
RoEReturn on equity
RoRACReturn on risk adjusted capital
RoRWAReturn on risk weighted assets
RoTEReturn on tangible equity
RPARisk profile assessment
RRSRisk Reporting Structure
RSFRequired Stable Funding
Rules and regulations of the boardRules and regulations of the board of directors of Banco Santander, S.A.
Rules and regulations of the general meetingRules and regulations of the general meeting of Banco Santander, S.A.
RWAsRisk weighted assets
S&P 500The S&P 500 index maintained by S&P Dow Jones Indices LLC
SAMSantander Asset Management
Santander Consumer USSantander Consumer USA Holdings Inc.
SBNASantander Bank N.A.
SC USASantander Consumer US
SCANSantander Customer Assessment Note
SCFSantander Consumer Finance
SCIBSantander Corporate & Investment Banking
SCPsStrategic commercial plans
SDESantander Dividendo Elección
SDGSustainable Development Goals
499
Responsible
banking
 
Corporate
governance
 
Economic
and financial review
 
Risk management
and compliance
 
SEASecurities Exchange Act
SECSecurities and Exchange Commission
SHUSASantander Holdings USA, Inc.
SICRAumento significativo del riesgo crediticio
SISSantander Investment Securities
SLAService Level Agreement
SMEsSmall and medium enterprises
SOXSarbanes-Oxley Act of 2002
Spanish Companies ActConsolidated text of the Spanish Companies Act approved by Royal Legislative Decree 1/2010, of 2 July
Spanish Corporate Governance CodeCNMV's Good Governance Code for Listed Companies
Spanish Securities Markets ActConsolidated text of the Spanish Securities Markets Act approved by Royal Legislative Decree 4/2015, of 23 October
SPFSimple, Personal and Fair
SRBEuropean Single Resolution Board
SREPSupervisory Review and Evaluation Process
SRFSingle Resolution Fund
SRISocially Responsible Investment
SRTSignificant Risk Transfer
SSMSingle Supervisory Mechanism, the system of banking supervision in Europe. It comprises the ECB and the national supervisory authorities of the participating countries.
STShort-term
STEMScience, Technology, Engineering and Mathematics
STFSupreme Federal Court of Brazil
SVaRStressed value at risk
T&OTechnology and operations
T2Tier 2
TCFDTask Force on Climate-related Financial Disclosures
TLACThe total loss-absorbing capacity requirement which is required to be met under the CRD V package
TLTROTargeted longer-term refinancing operations
TOMTarget Operational Model
TRIMTargeted Review of Internal Models
TSRTotal Shareholder Return
UKUnited Kingdom
UN SDGUnited Nations Sustainable Development Goals
UNEP FIUnited Nations Environmental Program Financial Initiative
USUnited States of America
USDUnited States dollar
VaEValue at Earnings
VaRValue at Risk
VATValue Added Tax
Volcker RuleSection 619 of the Dodd-Frank Act
VPNVirtual Private Network
WBCSDWorld Business Council for Sustainable Development
WFHWorking From Home
WM&IWealth Management and Insurance
Wolfsberg groupAssociation of thirteen global banks which aims to develop frameworks and guidance for the management of financial crime risks
YoYYear over year
500
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Part 2.
Auditor's report and Consolidated financial Statements
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517
Consolidated balance sheets as of 31 December 2020, 2019 and 2018
517
Consolidated income statements for the years ended 31 December 2020, 2019 and 2018
521
Consolidated statements of recognised income and expense for the years ended 31 December 2020, 2019 and 2018
523
Consolidated statements of changes in total equity for the years ended 31 December 2020, 2019 and 2018
525
Consolidated statements of cash flows for the years ended 31 December 2020, 2019 and 2018
531
533
1. Introduction, basis of presentation of the consolidated financial statements (consolidated annual accounts) and other information
534
2. Accounting policies
541
3. Santander Group
582
4. Distribution of the Bank’s profit, shareholder remuneration scheme and earnings per share
585
5. Remuneration and other benefits paid to the Bank’s directors and senior managers
588
6. Loans and advances to central banks and credit institutions
603
7. Debt instruments
604
8. Equity instruments
606
9. Trading Derivatives (assets and liabilities) and short positions
607
10. Loans and advances to customers
607
11. Trading derivatives
615
12. Non-current assets
615
13. Investments
616
14. Insurance contracts linked to pensions
618
15. Liabilities and assets under insurance contracts and reinsurance assets
618
16. Tangible assets
619
17. Intangible assets – Goodwill
622
18. Intangible assets - Other intangible assets
625
19. Other assets
626
20. Deposits from central banks and credit institutions
627
21. Customer deposits
627
22. Marketable debt securities
628
23. Subordinated liabilities
633
24. Other financial liabilities
635
25. Provisions
636
26. Other liabilities
651
27. Tax matters
651
28. Non-controlling interests
657
29. Other comprehensive income
658
30. Shareholders’ equity
663
31. Issued capital
663
32. Share premium
663
33. Accumulated retained earnings
664
34. Other equity instruments and own shares
665
35. Memorandum items
665
36. Hedging derivatives
666
37. Discontinued operations
706
38. Interest income
706
39. Interest expense
706
40. Dividend income
707
41. Commission income
707
42. Commission expense
708
43. Gains or losses on financial assets and liabilities
708
44. Exchange differences, net
709
45. Other operating income and expenses
709
46. Staff costs
710
47. Other general administrative expenses
716
48. Gains or losses on non financial assets, net
717
49. Gains or losses on non-current assets held for sale not classified as discontinued operations
717
50. Other disclosures
718
51. Main and secondary segments reporting
734
52. Related parties
748
53. Risk management
783
54. Additional disclosures
795
801
Appendix I. Subsidiaries of Banco Santander, S.A.
802
Appendix II. Societies of which the Group owns more than 5%, entities associated with Grupo Santander and jointly controlled entities
824
Appendix III. Issuing subsidiaries of shares and preference shares
831
Appendix IV. Notifications of acquisitions and disposals of investments in 2019
832
Appendix V. Other information on the Group’s banks
833
Appendix VI. Annual banking report
840
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Banco Santander, S.A.:
Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Banco Santander, S.A. and its subsidiaries (the “Company”) as of December 31, 2020, 2019 and 2018, and the related consolidated income statements, statements of recognised income and expense, statements of changes in total equity and statements of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1. d. to the consolidated financial statements, the Company changed the manner in which it accounts for financial instruments in 2018.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.


Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements, and (ii) involved our especially challenging, subjective, or complex judgments. The
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communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimation of impairment of financial assets at amortised cost– loans and advances to customers

As described in Notes 2, 10 and 53 to the consolidated financial statements, the Company’s financial assets at amortised cost – loans and advances to customers - were EUR 881,963 million and its estimation of impairment of financial assets at amortised cost – loans and advances to customers – was EUR 12,363 million for the year ended December 31, 2020. The Company assesses impairment by estimating the expected credit losses. Management’s models to determine the expected credit loss consider instruments with similar credit risk characteristics that are indicative of debtors’ capacity to pay. The methodology required to estimate the expected credit losses due to credit events is based on an unbiased and weighted consideration by the probability of occurrence of a series of scenarios. The estimation of expected credit losses requires expert judgment and the support of historical, current and future information, including considering post-model adjustments to recognize expected credit losses on assets deemed subject to a significant increase in credit risk. The probability of loss is measured considering past events, the present situation and future trends of macroeconomic factors.

The principal considerations for our determination that performing procedures relating to the estimation of the impairment of financial assets at amortised cost – loans and advances to customers is a critical audit matter are, (i) there was significant judgment by management to assess impairment by estimating the expected credit losses which in turn led to significant auditor judgment and effort in performing procedures to evaluate the audit evidence related to the models and assumptions used to determine the expected credit losses and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s expected credit loss estimation process, which included controls over the data, models and assumptions used in the estimation process, including post-model adjustments. These procedures also included, among others, (i) evaluating, on a test basis, models with respect to the calculation and segmentation criteria, the models utilized for the estimation of the expected loss parameters, the methodology used for the generation of the macroeconomic scenarios, the completeness and accuracy of data provided by management, and the reasonableness of management’s criteria for significant increase in credit risk and loan classification by stages; (ii) evaluating, on a test basis, payment moratoriums or government guarantees granted as a consequence of the covid-19 crisis; (iii) testing the mathematical accuracy of the impairment calculation for the credit portfolios; (iv) evaluating the reasonableness of overlay adjustments made by management; and (v)
evaluating individual credit files to determine the reasonableness of management’s classification, discounted cash flows and, where appropriate, corresponding impairment. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the models used by management and evaluating the reasonableness of assumptions used in the impairment estimation for the credit portfolios.

Goodwill Impairment Assessment of Certain Cash Generating Units (CGUs)

As described in Notes 2 and 17 to the consolidated financial statements, the Company’s consolidated goodwill balance was EUR 12,471 million at December 31, 2020, which includes EUR 3,410 million of the following CGU’s: Santander Bank Polska, Santander Consumer USA, Santander Bank, National Association, Santander UK and Santander Consumer Nordics. Management assesses goodwill for impairment at the end of each annual reporting period or whenever there is any indication of impairment. Potential impairment is identified by management by comparing the value in use of a CGU to its carrying value. Value in use is estimated by management using discounted cash flow projections.
Management’s cash flow projections for the aforementioned CGU’s includes assumptions relating to earnings projections, discount rates determined as the cost of capital taking into account the risk-free rate of return plus a risk premium and constant growth rates used in order to extrapolate earnings in perpetuity. The Company recognised EUR 10,100 million of goodwill impairment on the aforementioned CGUs during the year considering the worsening of the macroeconomic environment caused by covid-19.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the aforementioned CGUs is a critical audit matter are, (i) there was significant judgment by management to develop the key assumptions in the value in use measurement of the CGUs which led to significant auditor judgment and effort in performing procedures to evaluate management’s earnings projections, discount rates and constant growth rates and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the aforementioned CGUs. These procedures also included, among others, (i) testing management’s process for developing the value in use estimate; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) evaluating the reasonableness of the earnings projections, the discount rate and the constant growth rates assumptions used by management; and (iv) testing the mathematical accuracy of the impairment calculations and discounted cash flow projections. Evaluating the reasonableness of management’s key assumptions involved (i) performing a retrospective comparison of forecasted earnings to actual past performance and previous forecasts; and (ii) evaluating the consistency of the discount rate and constant growth rate. Professionals with specialized skill and knowledge were used
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to assist in the evaluation of the appropriateness of management’s discounted cash flow model and reasonableness of the earnings projections, discount rate and constant growth rates assumptions.

Recoverability of deferred tax assets – Spain and Brazil

As described in Notes 2 and 27 to the consolidated financial statements, the Company’s consolidated deferred tax assets as of December 31, 2020 were EUR 19,246 million, and the deferred tax assets associated with Spain and Brazil were EUR 10,026 and EUR 5,310 million, respectively. The Company recognises deferred tax assets for 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, 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. Deferred tax assets are only recognized 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. The deferred tax assets are reassessed by management at each reporting date in order to ascertain whether any adjustments need to be made on the basis of the findings of the analyses performed.
Management’s analyses take into account, among other things (i) the results generated by the different entities in previous years, (ii) the projections of results of each entity or tax 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. The Company recognised a write-down of EUR 2,500 million of deferred tax assets mainly related to Spain during the year considering the changes in the key assumptions on which the projected results of its tax group are based, arising from the impact of covid-19.

The principal considerations for our determination that performing procedures relating to the recoverability of deferred tax assets in Spain and Brazil is a critical audit matter are, (i) the high degree of management judgement in determining the recoverability of deferred tax assets which led to significant auditor judgement and effort in performing procedures to estimate the recoverability of deferred tax assets in Spain and Brazil and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the assessment of the recoverability of deferred tax assets, including controls over the appropriateness and the reasonableness of the assumptions used in the recoverability assessment, including the projections of results used in the analysis, projected macroeconomic variables and the estimation of the reversal of the different temporary differences. These procedures also included, among others, (i) the evaluation of the completeness and accuracy of the assumptions used by management in their calculation of the deductible temporary differences and (ii) testing key data used by management in their estimation and monitoring of the recoverability of
deferred tax assets. Evaluating management’s relevant assumptions involved testing the income projections carried out by management (considering economic forecasts and indicators used in the analysis) and evaluating the estimated reversal of the various temporary differences and the period and limits established by local legislation for the recoverability of the deferred tax assets. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the assumptions used by management to calculate and estimate the deferred tax assets.

Provisions for contingent liabilities

As described in Notes 2 and 25 to the consolidated financial statements, the Company’s consolidated provisions for contingent liabilities balance as of December 31, 2020 were EUR 4,425 million. The Company records provisions for tax and legal proceedings in which management assesses the chances of loss to be probable. Management determines the amounts to be provided for as the 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 principal considerations for our determination that performing procedures relating to provisions for contingent liabilities is a critical audit matter are, the high degree of management judgement to assess the intrinsic uncertainty of the obligations for which management recognizes a provision for these proceedings based on estimates. This in turn led to significant auditor judgement and effort in procedures to test the measurement of provisions for contingent liabilities.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the assessment of provisions for contingent liabilities. These procedures also included, among others, obtaining and evaluating letters of audit inquiry with internal and external legal counsel, evaluating the recognition and reasonableness of management’s assessment in the identification of potentially omitted liabilities, evaluating management’s assessment of possible contingencies relating to compliance with the tax obligations for all the years open to inspection and evaluating the sufficiency of the Company’s contingency disclosures.



/s/ PricewaterhouseCoopers Auditores, S.L.



Madrid, Spain
February 26, 2021

We have served as the Company’s auditor since 2016

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Grupo Santander
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
ASSETSNote202020192018
CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEPOSITS ON DEMAND153,839 101,067 113,663 
FINANCIAL ASSETS HELD FOR TRADING114,945 108,230 92,879 
Derivatives9 and 1167,137 63,397 55,939 
Equity instruments8 9,615 12,437 8,938 
Debt instruments7 37,894 32,041 27,800 
Loans and advances299 355 202 
Central banks6 — — — 
Credit institutions6 3 — — 
Customers10 296 355 202 
NON-TRADING FINANCIAL ASSETS MANDATORILY AT
FAIR VALUE THROUGH PROFIT OR LOSS		4,486 4,911 10,730 
Equity instruments83,234 3,350 3,260 
Debt instruments7700 1,175 5,587 
Loans and advances552 386 1,883 
Central banks6— — — 
Credit institutions6— — 2 
Customers10552 386 1,881 
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS48,717 62,069 57,460 
Debt instruments7 2,979 3,186 3,222 
Loans and advances45,738 58,883 54,238 
Central banks6 9,481 6,473 9,226 
Credit institutions6 12,136 21,649 23,097 
Customers10 24,121 30,761 21,915 
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME120,953 125,708 121,091 
Equity instruments82,783 2,863 2,671 
Debt instruments7108,903 118,405 116,819 
Loans and advances9,267 4,440 1,601 
Central banks6— — — 
Credit institutions6— — — 
Customers109,267 4,440 1,601 
FINANCIAL ASSETS AT AMORTIZED COST958,378 995,482 946,099 
Debt instruments726,078 29,789 37,696 
Loans and advances932,300 965,693 908,403 
Central banks612,499 18,474 15,601 
Credit institutions637,838 40,943 35,480 
Customers10881,963 906,276 857,322 
HEDGING DERIVATIVES368,325 7,216 8,607 
CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN
PORTFOLIO HEDGES OF INTEREST RATE RISK		361,980 1,702 1,088 
INVESTMENTS137,622 8,772 7,588 
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CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
ASSETSNote202020192018
Joint venture entities1,492 1,325 979 
Associated entities6,130 7,447 6,609 
ASSETS UNDER INSURANCE OR REINSURANCE CONTRACTS15261 292 324 
TANGIBLE ASSETS32,735 35,235 26,157 
Property, plant and equipment1631,772 34,262 24,594 
For own-use13,213 15,041 8,150 
Leased out under an operating lease18,559 19,221 16,444 
Investment properties16963 973 1,563 
Of which leased out under an operating lease793 823 1,195 
INTANGIBLE ASSETS15,908 27,687 28,560 
Goodwill1712,471 24,246 25,466 
Other intangible assets183,437 3,441 3,094 
TAX ASSETS24,586 29,585 30,251 
Current tax assets5,340 6,827 6,993 
Deferred tax assets2719,246 22,758 23,258 
OTHER ASSETS11,070 10,138 9,348 
Insurance contracts linked to pensions14174 192 210 
Inventories5 5 147 
Other1910,891 9,941 8,991 
NON-CURRENT ASSETS HELD FOR SALE124,445 4,601 5,426 
TOTAL ASSETS1,508,250 1,522,695 1,459,271 

The accompanying notes 1 to 54 and appendices are an integral part of the consolidated balance sheet as of 31 December 2020.


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CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
LIABILITIESNote202020192018
FINANCIAL LIABILITIES HELD FOR TRADING81,167 77,139 70,343 
Derivatives9 64,469 63,016 55,341 
Short positions9 16,698 14,123 15,002 
Deposits— — — 
Central banks20 — — — 
Credit institutions20 — — — 
Customers21 — — — 
Marketable debt securities22 — — — 
Other financial liabilities24 — — — 
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS48,038 60,995 68,058 
Deposits43,598 57,111 65,304 
Central banks20 2,490 12,854 14,816 
Credit institutions20 6,765 9,340 10,891 
Customers21 34,343 34,917 39,597 
Marketable debt securities22 4,440 3,758 2,305 
Other financial liabilities24 — 126 449 
Memorandum items: subordinated liabilities23 — — — 
FINANCIAL LIABILITIES AT AMORTIZED COST1,248,188 1,230,745 1,171,630 
Deposits990,391 942,417 903,101 
Central banks20 112,804 62,468 72,523 
Credit institutions20 62,620 90,501 89,679 
Customers21 814,967 789,448 740,899 
Marketable debt securities22 230,829 258,219 244,314 
Other financial liabilities24 26,968 30,109 24,215 
Memorandum items: subordinated liabilities23 21,880 21,062 23,820 
HEDGING DERIVATIVES366,869 6,048 6,363 
CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN
PORTFOLIO HEDGES OF INTEREST RATE RISK		36286 269 303 
LIABILITIES UNDER INSURANCE OR REINSURANCE CONTRACTS15910 739 765 
PROVISIONS2510,852 13,987 13,225 
Pensions and other post-retirement obligations3,976 6,358 5,558 
Other long term employee benefits1,751 1,382 1,239 
Taxes and other legal contingencies2,200 3,057 3,174 
Contingent liabilities and commitments700 739 779 
Other provisions2,225 2,451 2,475 
TAX LIABILITIES8,282 9,322 8,135 
Current tax liabilities2,349 2,800 2,567 
Deferred tax liabilities27 5,933 6,522 5,568 
OTHER LIABILITIES2612,336 12,792 13,088 
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE— — — 
TOTAL LIABILITIES1,416,928 1,412,036 1,351,910 




519
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report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 2020, 2019 AND 2018
EUR million
EQUITYNote202020192018
SHAREHOLDERS´ EQUITY30 114,620 124,239 120,597 
CAPITAL31 8,670 8,309 8,118 
Called up paid capital8,670 8,309 8,118 
Unpaid capital which has been called up— — — 
SHARE PREMIUM32 52,013 52,446 50,993 
EQUITY INSTRUMENTS ISSUED OTHER THAN CAPITAL627 598 565 
Equity component of the compound financial instrument— — — 
Other equity instruments issued627 598 565 
OTHER EQUITY34 163 146 234 
ACCUMULATED RETAINED EARNINGS33 65,583 61,028 56,756 
REVALUATION RESERVES33 — — — 
OTHER RESERVES33 (3,596)(3,110)(1,583)
Reserves or accumulated losses in joint venture investments1,504 1,210 972 
Others(5,100)(4,320)(2,555)
(-) OWN SHARES34 (69)(31)(59)
PROFIT OR LOSS ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT(8,771)6,515 7,810 
(-) INTERIM DIVIDENDS4 — (1,662)(2,237)
OTHER COMPREHENSIVE INCOME OR LOSS(33,144)(24,168)(24,125)
   ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS
29 (5,328)(4,288)(2,936)
   ITEMS THAT MAY BE RECLASSIFIED TO PROFIT OR LOSS29 (27,816)(19,880)(21,189)
NON-CONTROLLING INTEREST28 9,846 10,588 10,889 
Other comprehensive income or loss(1,800)(982)(1,292)
Other items11,646 11,570 12,181 
TOTAL EQUITY91,322 110,659 107,361 
TOTAL LIABILITIES AND EQUITY1,508,250 1,522,695 1,459,271 
MEMORANDUM ITEMS: OFF BALANCE SHEET AMOUNTS35 
Loan commitments granted241,230 241,179 218,083 
Financial guarantees granted12,377 13,650 11,723 
Other commitments granted64,538 68,895 74,389 

The accompanying notes 1 to 54 and appendices are an integral part of the consolidated balance sheet as of 31 December 2020.

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CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
(Debit) Credit
Note202020192018
Interest income 38 45,741 56,785 54,325 
Financial assets at fair value through other comprehensive income2,840 3,571 4,481 
Financial assets at amortized cost40,365 48,552 47,560 
Other interest income2,536 4,662 2,284 
Interest expense39 (13,747)(21,502)(19,984)
Interest income/(charges)31,994 35,283 34,341 
Dividend income40 391 533 370 
Income from companies accounted for using the equity method13 (96)324 737 
Commission income41 13,024 15,349 14,664 
Commission expense42 (3,009)(3,570)(3,179)
Gain or losses on financial assets and liabilities not measured
at fair value through profit or loss, net		43 1,107 1,136 604 
Financial assets at amortized cost(31)308 39 
Other financial assets and liabilities1,138 828 565 
Gain or losses on financial assets and liabilities held for trading, net43 3,211 1,349 1,515 
Reclassification of financial assets at fair value through other comprehensive income— — — 
Reclassification of financial assets at amortized cost— — — 
Other gains (losses)3,211 1,349 1,515 
Gains or losses on non-trading financial assets and liabilities mandatorily
at fair value through profit or loss		43 82 292 331 
Reclassification of financial assets at fair value through other comprehensive income— — — 
Reclassification of financial assets at amortized cost— — — 
Other gains (losses)82 292 331 
Gain or losses on financial assets and liabilities measured
at fair value through profit or loss, net		43 (171)(286)(57)
Gain or losses from hedge accounting, net43 51 (28)83 
Exchange differences, net44 (2,093)(932)(679)
Other operating income45 1,920 1,797 1,643 
Other operating expenses45 (2,342)(2,138)(2,000)
Income from assets under insurance and reinsurance contracts45 1,452 2,534 3,175 
Expenses from liabilities under insurance and reinsurance contracts45 (1,242)(2,414)(3,124)
Total income44,279 49,229 48,424 
Administrative expenses(18,320)(20,279)(20,354)
Staff costs46 (10,783)(12,141)(11,865)
521
Auditor's
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
(Debit) Credit
Note202020192018
Other general administrative expenses47 (7,537)(8,138)(8,489)
Depreciation and amortisation cost16 and 18(2,810)(3,001)(2,425)
Provisions or reversal of provisions, net25 (2,378)(3,490)(2,223)
Impairment or reversal of impairment at financial assets not measured
at fair value through profit or loss and net gains and losses from changes		(12,382)(9,352)(8,986)
Financial assets at fair value through other comprehensive income(19)(12)(1)
Financial assets at amortized cost10 (12,363)(9,340)(8,985)
Impairment or reversal of impairment of investments in
subsidiaries, joint ventures and associates, net		17 and 18— — (17)
Impairment or reversal of impairment on non-financial assets, net(10,416)(1,623)(190)
Tangible assets16 (174)(45)(83)
Intangible assets17 and 18(10,242)(1,564)(117)
Others— (14)10 
Gain or losses on non-financial assets and investments, net48 114 1,291 28 
Negative goodwill recognized in results8 — 67 
Gains or losses on non-current assets held for sale
not classified as discontinued operations		49 (171)(232)(123)
Operating profit/(loss) before tax(2,076)12,543 14,201 
Tax expense or income from continuing operations27 (5,632)(4,427)(4,886)
Profit/(loss) from continuing operations(7,708)8,116 9,315 
Profit/(loss) after tax from discontinued operations37 — — — 
Profit/(loss) for the year(7,708)8,116 9,315 
Profit/(loss) attributable to non-controlling interests28 1,063 1,601 1,505 
Profit/(loss) attributable to the parent(8,771)6,515 7,810 
Earnings/(losses) per share
Basic4 (0.538)0.347 0.430 
Diluted4 (0.538)0.346 0.429 

The accompanying notes 1 to 54 and appendices are an integral part of the consolidated income statement for the year ended 31 December 2020.

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CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE
FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
Note202020192018
CONSOLIDATED PROFIT/(LOSS) FOR THE YEAR(7,708)8,116 9,315 
OTHER RECOGNISED INCOME AND EXPENSE(9,794)267 (2,298)
Items that will not be reclassified to profit or loss29(1,018)(1,351)332 
Actuarial gains and losses on defined benefit pension plans(25)(1,677)618 
Non-current assets held for sale— — — 
Other recognised income and expense of investments in
subsidiaries, joint ventures and associates		(4)1 1 
Changes in the fair value of equity instruments measured at fair value through other comprehensive income36 (917)(29)(174)
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)4 44 — 
Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedging instrument)(4)(44)— 
Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk31 (156)109 
Income tax relating to items that will not be reclassified(103)510 (222)
Items that may be reclassified to profit or loss29 (8,776)1,618 (2,630)
Hedges of net investments in foreign operations (effective portion)36 2,340 (1,151)(2)
Revaluation gains (losses)2,340 (1,151)(2)
Amounts transferred to income statement— — — 
Other reclassifications— — — 
Exchanges differences(11,040)1,232 (2,253)
Revaluation gains (losses)(11,040)1,232 (2,253)
Amounts transferred to income statement— — — 
Other reclassifications— — — 
Cash flow hedges (effective portion)36 (53)8 174 
Revaluation gains (losses)799 (1,104)491 
Amounts transferred to income statement(852)1,112 (317)
Transferred to initial carrying amount of hedged items— — — 
Other reclassifications— — — 
Hedging instruments (items not designated)36 — — — 
Revaluation gains (losses)— — — 
523
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
Amounts transferred to income statement— — — 
Other reclassifications— — — 
Debt instruments at fair value with changes in other comprehensive income(100)2,414 (591)
Revaluation gains (losses)29 692 2,588 (29)
Amounts transferred to income statement(1,165)(792)(562)
Other reclassifications373 618 — 
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(151)(15)(97)
Income tax relating to items that may be reclassified to profit or loss228 (870)139 
Total recognised income and expenses for the year(17,502)8,383 7,017 
Attributable to non-controlling interests245 1,911 1,396 
Attributable to the parent(17,747)6,472 5,621 

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.
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CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
CapitalShare premiumEquity instruments issued (not capital)Other equity instrumentsAccumulated retained earnings
Balance at 31 December 20198,309 52,446 598 146 61,028 
Adjustments due to errors— — — — — 
Adjustments due to changes in accounting policies— — — — — 
Opening balance at 1 January 2020*8,309 52,446 598 146 61,028 
Total recognised income and expense— — — — — 
Other changes in equity361 (433)29 17 4,555 
Issuance of ordinary shares361 (72)— — — 
Issuance of preferred shares— — — — — 
Issuance of other financial instruments— — — — — 
Maturity of other financial instruments— — — — — 
Conversion of financial liabilities into equity— — — — — 
Capital reduction— — — — — 
Dividends— (361)— — — 
Purchase of equity instruments— — — — — 
Disposal of equity instruments— — — — — 
Transfer from equity to liabilities— — — — — 
Transfer from liabilities to equity— — — — — 
Transfers between equity items— — — — 4,555 
Increases (decreases) due to business combinations— — — — — 
Share-based payment— — — (53)— 
Others increases or (-) decreases of the equity— — 29 70 — 
Balance at 31 December 20208,670 52,013 627 163 65,583 
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
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Non-controlling interest
Revaluation reservesOther reserves(-) Own sharesProfit attributable to shareholders of the parent(-) Interim dividendsOther comprehensive incomeOther comprehensive incomeOthers itemsTotal
— (3,110)(31)6,515 (1,662)(24,168)(982)11,570 110,659 
— — — — — — — — — 
— — — — — — — — — 
— (3,110)(31)6,515 (1,662)(24,168)(982)11,570 110,659 
— — — (8,771)— (8,976)(818)1,063 (17,502)
— (486)(38)(6,515)1,662 — — (987)(1,835)
— 70 — — — — — 5 364 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — (465)(826)
— — (758)— — — — — (758)
— 1 720 — — — — — 721 
— — — — — — — — — 
— — — — — — — — — 
— 298 — (6,515)1,662 — — — — 
— — — — — — — (54)(54)
— — — — — — — — (53)
— (855)— — — — — (473)(1,229)
— (3,596)(69)(8,771)— (33,144)(1,800)11,646 91,322 
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CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
CapitalShare premiumEquity instruments issued (not capital)Other equity instrumentsAccumulated retained earnings
Balance at 31 December 20188,118 50,993 565 234 56,756 
Adjustments due to errors— — — — — 
Adjustments due to changes in accounting policies— — — — — 
Opening balance at 1 January 2019*8,118 50,993 565 234 56,756 
Total recognised income and expense— — — — — 
Other changes in equity191 1,453 33 (88)4,272 
Issuance of ordinary shares191 1,453 — — — 
Issuance of preferred shares— — — — — 
Issuance of other financial instruments— — — — — 
Maturity of other financial instruments— — — — — 
Conversion of financial liabilities into equity— — — — — 
Capital reduction— — — — — 
Dividends— — — — (1,055)
Purchase of equity instruments— — — — — 
Disposal of equity instruments— — — — — 
Transfer from equity to liabilities— — — — — 
Transfer from liabilities to equity— — — — — 
Transfers between equity items— — — — 5,327 
Increases (decreases) due to business combinations— — — — — 
Share-based payment— — — (88)— 
Others increases or (-) decreases of the equity— — 33 — — 
Balance at 31 December 20198,309 52,446 598 146 61,028 

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
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Non-controlling interest
Revaluation reserves
Other reserves
(-) Own shares
Profit attributable to shareholders of the parent
(-) Interim dividends
Other comprehensive income
Other comprehensive income
Others items
Total
— (1,583)(59)7,810 (2,237)(24,125)(1,292)12,181 107,361 
— — — — — — — — — 
— (391)— — — — — — (391)
— (1,974)(59)7,810 (2,237)(24,125)(1,292)12,181 106,970 
— — — 6,515 — (43)310 1,601 8,383 
— (1,136)28 (7,810)575 — — (2,212)(4,694)
— 28 — — — — — 1 1,673 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — (2)(2)
— — — — (1,662)— — (895)(3,612)
— — (928)— — — — — (928)
— (6)956 — — — — — 950 
— — — — — — — — — 
— — — — — — — — — 
— 246 — (7,810)2,237 — — — — 
— — — — — — — 110 110 
— — — — — — — — (88)
— (1,404)— — — — — (1,426)(2,797)
— (3,110)(31)6,515 (1,662)(24,168)(982)11,570 110,659 
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CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018
EUR million
CapitalShare premiumEquity instruments issued (not capital)Other equity instrumentsAccumulated retained earnings
Balance at 31 December 20178,068 51,053 525 216 53,437 
Adjustments due to errors— — — — — 
Adjustments due to changes in accounting policies— — — — — 
Opening balance at 1 January 2018*8,068 51,053 525 216 53,437 
Total recognised income and expense— — — — — 
Other changes in equity50 (60)40 18 3,319 
Issuance of ordinary shares50 (60)— — — 
Issuance of preferred shares— — — — — 
Issuance of other financial instruments— — — — — 
Maturity of other financial instruments— — — — — 
Conversion of financial liabilities into equity— — — — — 
Capital reduction— — — — — 
Dividends— — — — (968)
Purchase of equity instruments— — — — — 
Disposal of equity instruments— — — — — 
Transfer from equity to liabilities— — — — — 
Transfer from liabilities to equity— — — — — 
Transfers between equity items— — — — 4,287 
Increases (decreases) due to business combinations— — — — — 
Share-based payment— — — (74)— 
Others increases or (-) decreases of the equity— — 40 92 — 
Balance at 31 December 20188,118 50,993 565 234 56,756 

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
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Non-Controlling interest
Revaluation reserves
Other reserves
(-) Own shares
Profit attributable to shareholders of the parent
(-) Interim dividends
Other comprehensive income
Other comprehensive income
Others items
Total
— (1,602)(22)6,619 (2,029)(21,776)(1,436)13,780 106,833 
— — — — — — — — — 
— 112 — — — (160)253 (1,545)(1,340)
— (1,490)(22)6,619 (2,029)(21,936)(1,183)12,235 105,493 
— — — 7,810 — (2,189)(109)1,505 7,017 
— (93)(37)(6,619)(208)— — (1,559)(5,149)
— 10 — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — — — — — — 
— — — — (2,237)— — (687)(3,892)
— — (1,026)— — — — — (1,026)
— — 989 — — — — — 989 
— — — — — — — — — 
— — — — — — — — — 
— 303 — (6,619)2,029 — — — — 
— 59 — — — — — (660)(601)
— — — — — — — 17 (57)
— (465)— — — — — (229)(562)
— (1,583)(59)7,810 (2,237)(24,125)(1,292)12,181 107,361 

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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 2020, 2019 Y 2018
EUR million
Note202020192018
A. CASH FLOWS FROM OPERATING ACTIVITIES66,153 3,389 3,416 
Profit or loss for the year(7,708)8,116 9,315 
Adjustments made to obtain the cash flows from operating activities37,836 23,990 21,714 
Depreciation and amortisation cost2,810 3,001 2,425 
Other adjustments35,026 20,989 19,289 
Net increase/(decrease) in operating assets51,385 64,593 51,550 
Financial assets held-for-trading12,390 15,450 (31,656)
Non-trading financial assets mandatorily at fair value through profit or loss(275)(6,098)5,795 
Financial assets at fair value through profit or loss(10,314)4,464 16,275 
Financial assets at fair value through other comprehensive income6,549 1,693 (2,091)
Financial assets at amortized cost43,541 49,541 61,345 
Other operating assets(506)(457)1,882 
Net increase/(decrease) in operating liabilities90,356 38,469 27,279 
Financial liabilities held-for-trading7,880 6,968 (36,315)
Financial liabilities designated at fair value through profit or loss(10,907)(8,858)8,312 
Financial liabilities at amortized cost96,561 47,622 60,730 
Other operating liabilities(3,178)(7,263)(5,448)
Income tax recovered/(paid)(2,946)(2,593)(3,342)
B. CASH FLOWS FROM INVESTING ACTIVITIES(7,220)(7,229)3,148 
Payments11,976 14,289 12,936 
Tangible assets16 7,386 12,766 10,726 
Intangible assets18 1,134 1,377 1,469 
Investments13 525 63 11 
Subsidiaries and other business units2,931 83 730 
Non-current assets held for sale and associated liabilities— — — 
Other payments related to investing activities— — — 
Proceeds4,756 7,060 16,084 
Tangible assets16 2,014 4,091 3,670 
Intangible assets18 — — — 
Investments13 182 686 2,327 
Subsidiaries and other business units1,775 218 431 
Non-current assets held for sale and associated liabilities12 785 2,065 9,656 
Other proceeds related to investing activities— — — 
C. CASH FLOW FROM FINANCING ACTIVITIES(1,909)(10,122)(3,301)
Payments6,978 12,159 7,573 
Dividends4 — 3,773 3,118 
Subordinated liabilities23 3,780 5,123 2,504 
Redemption of own equity instruments— — — 
Acquisition of own equity instruments758 928 1,026 
Other payments related to financing activities2,440 2,335 925 
Proceeds5,069 2,037 4,272 
Subordinated liabilities23 4,095 1,090 3,283 
Issuance of own equity instruments— — — 
Disposal of own equity instruments721 947 989 
Other proceeds related to financing activities253 — — 
531
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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
Note202020192018
D. EFFECT OF FOREIGN EXCHANGE RATE DIFFERENCES(4,252)1,366 (595)
E. NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS52,772 (12,596)2,668 
F. CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR101,067 113,663 110,995 
G. CASH AND CASH EQUIVALENTS AT END OF THE YEAR153,839 101,067 113,663 
COMPONENTS OF CASH AND CASH EQUIVALENTS AT END OF THE YEAR
Cash7,817 8,764 10,370 
Cash equivalents at central banks137,047 75,353 89,005 
Other financial assets8,975 16,950 14,288 
Less, bank overdrafts refundable on demand— — — 
TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR153,839 101,067 113,663 
In which, restricted cash— — — 

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.

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Notes to the
consolidated
annual accounts
533
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Banco Santander, S.A., and Companies composing Santander Group
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.

b) Basis of presentation of the consolidated financial statements
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 consolidated financial statements are also in compliance with IFRS as issued by the International Accounting Standards Board (“IFRS - IASB” and together with IFRS adopted by the European Union, “IFRS”).
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
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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 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 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.

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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 amountLoans and advancesDebt securities acquired (Assets)DepositsDebt securities issued (Liabilities)Derivatives (Assets)Derivatives (Liabilities)Loan Commitments
Referenced to EONIA102682,5102842134192
of which maturing after 2021—687284213406—
Referenced to LIBOR64,6042,64810,99410,80624,07022,45238,385
of which USD39,5177118,8437,73413,9679,43724,907
of which GBP20,6111,9341,6382,7569,78611,31413,308
TOTAL64,706 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.
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:
•Amendment to IFRS 3 Business Combinations: to update 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.
•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.
•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.
•IFRS 1, in relation to the first-time adoption of 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.
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•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:
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- Fixed payments (including inflation-linked payments), less any lease incentive receivable
- Variable lease payments that depend on an index or rate.
- The amounts expected to be paid by the lessee under 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.
- Any lease payment made at or before the commencement date less any lease incentive received.
- Any initial direct costs.
- Restoration costs.
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:
EUR million
Operating lease commitments at 31 December 20188,699
Amount of operating lease commitments discounted by the Group rate6,550 
(+) Liabilities under finance leases at 31 December 201896 
(-) Short-term leases recognised as expenses on a straight-line basis(20)
(-) Low-value leases recognised as expenses on a straight-line basis(2)
(-) Contracts revalued as service contracts— 
(+)/(-) Adjustments resulting from different treatment of extension and termination options556 
(+)/(-) Adjustments related to changes in the index or rate affecting variable payments— 
Lease liability at 1 January 20197,180 
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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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.
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 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
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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.
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).
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:
–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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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
Effect on 
consolidated equity		Effect on 
consolidated profit
Currency202020192018202020192018
US dollar(123.6)(161.3)(162.3)(4.1)(3.5)(4.1)
Chilean peso(20.4)(21.8)(22.9)(4.4)(2.3)(5.1)
Pound sterling(107.9)(189.2)(171.2)(1.2)(3.9)(4.5)
Mexican peso(21.7)(22.6)(18.3)(2.0)(3.3)(1.7)
Brazilian real(75.0)(71.6)(85.6)(12.6)(10.4)(5.6)
Polish zloty(26.7)(38.3)(36.2)(2.2)(1.2)(4.2)
Argentine peso(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
Effect on 
consolidated equity		Effect on 
consolidated profit
Currency202020192018202020192018
US dollar126.1 164.6 165.6 4.2 3.5 4.2 
Chilean peso20.8 22.2 23.4 4.5 2.4 5.2 
Pound sterling110.1 193.0 174.7 1.2 4.0 4.6 
Mexican peso22.1 23.1 18.6 2.0 3.4 1.8 
Brazilian real76.5 73.1 87.4 12.8 10.6 5.7 
Polish zloty
27.2 39.0 36.9 2.2 1.2 4.2 
Argentine peso8.0 7.0 8.0 1.8 1.3 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.
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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▪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
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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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
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:
EUR million
202020192018
Published
price
quotations
in active
markets
(level 1)		Internal
Models
(level 2
and 3)		TotalPublished
price
quotations
in active
markets
(level 1)		Internal
Models
(level 2
and 3)		TotalPublished
price
quotations
in active
markets
(level 1)		Internal
Models
(level 2
and 3)		Total
Financial assets held for trading46,379 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 loss1,756 2,730 4,486 1,530 3,381 4,911 1,835 8,895 10,730 
Financial assets designated at fair value through profit or loss2,509 46,208 48,717 2,572 59,497 62,069 3,102 54,358 57,460 
Financial assets at fair value through other comprehensive income91,771 29,182 120,953 103,089 22,619 125,708 103,590 17,501 121,091 
Hedging derivatives (assets)— 8,325 8,325 — 7,216 7,216 — 8,607 8,607 
Financial liabilities held for trading9,863 71,304 81,167 9,781 67,358 77,139 16,104 54,239 70,343 
Financial liabilities designated at fair value through profit or loss2,118 45,920 48,038 1,484 59,511 60,995 987 67,071 68,058 
Hedging derivatives (liabilities)— 6,869 6,869 — 6,048 6,048 5 6,358 6,363 
Liabilities under insurance or reinsurance contracts— 910 910 — 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.
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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.
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.
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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 2Level 3Valuation techniquesMain assumptions
ASSETS146,468 8,543 
Financial assets held for trading67,826 740 
Credit institutions3 — Present value methodYield curves, FX market prices
Customers**296 — Present value methodYield curves, FX market prices
Debt and equity instruments1,453 10 Present value methodYield curves, FX market prices
Derivatives66,074 730 
Swaps54,488 272 Present value method, Gaussian Copula***Yield curves, FX market prices, HPI, Basis, Liquidity
Exchange rate options696 22 Black-Scholes ModelYield curves, Volatility surfaces, FX market prices, Liquidity
Interest rate options3,129 241 Black's Model, multifactorial advanced models interest rateYield curves, Volatility surfaces, FX market prices, Liquidity
Interest rate futures1,069 — Present value methodYield curves, FX market prices
Index and securities options554 94 Black's Model, multifactorial advanced models interest rateYield curves, Volatility surfaces, FX & EQ market prices, Dividends, Liquidity
Other6,138 101 Present value method, Advanced stochastic volatility models and otherYield curves, Volatility surfaces, FX and EQ market prices, Dividends, Correlation, HPI, Credit, Others
Hedging derivatives8,325 — 
Swaps6,998 — Present value methodYield curves, FX market prices, Basis
Interest rate options25 — Black's ModelYield curves, FX market prices, Volatility surfaces
Other1,302 — Present value method, Advanced stochastic volatility models and otherYield curves, Volatility surfaces, FX market prices, Credit, Liquidity, Others
Non-trading financial assets mandatorily at fair value through profit or loss1,796 934 
Equity instruments984 505 Present value methodMarket price, Interest rates curves, Dividends and Others
Debt instruments555 134 Present value methodYield curves
Loans and receivables**257 295 Present value method, swap asset model & CDSYield curves and Credit curves
Financial assets designated at fair value through profit or loss45,559 649 
Central banks9,481 — Present value methodYield curves, FX market prices
Credit institutions11,973 163 Present value methodYield curves, FX market prices
Customers****24,102 19 Present value methodYield curves, FX market prices, HPI
Debt instruments3 467 Present value methodYield curves, FX market prices
Equity instruments— — 
Financial assets at fair value through other comprehensive income22,962 6,220 
Equity instruments75 1,223 Present value methodMarket price, Yield curves, Dividends and Others
Debt instruments18,410 206 Present value methodYield curves, FX market prices
Loans and receivables4,477 4,791 Present value methodYield curves, FX market prices and Credit curves
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EUR million
Fair values calculated
using internal models at
2020*
Level 2Level 3Valuation techniquesMain assumptions
LIABILITIES124,098 905 
Financial liabilities held for trading71,009 295 
Derivatives63,920 295 
Swaps51,584 81 Present value method, Gaussian Copula***Yield curves, FX market prices, Basis, Liquidity, HPI
Exchange rate options724 1 Black-Scholes ModelYield curves, Volatility surfaces, FX market prices, Liquidity
Interest rate options4,226 49 Black's Model, multifactorial advanced models interest rateYield curves, Volatility surfaces, FX market prices, Liquidity
Index and securities options456 97 Black-Scholes ModelYield curves, FX market prices
Interest rate and equity futures1,054 2 Present value methodYield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI, Credit, Others
Other5,876 65 Present value method, Advanced stochastic volatility modelsYield curves, Volatility surfaces, FX & EQ market prices, Dividends, Correlation, Liquidity, HPI, Credit, Others
Short positions7,089 — Present value methodYield curves ,FX & EQ market prices, Equity
Hedging derivatives6,869 — 
Swaps5,821 — Present value methodYield curves ,FX & EQ market prices, Basis
Interest rate options13 — Black's ModelYield curves , Volatility surfaces, FX market prices, Liquidity
Other1,035 — Present value method, Advanced stochastic volatility models and otherYield curves , Volatility surfaces, FX market prices, Credit, Liquidity, Other
Financial liabilities designated at fair value through profit or loss45,310 610 Present value methodYield curves, FX market prices
Liabilities under insurance contracts910 — Present Value Method with actuarial techniquesMortality tables and interest rate curves
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EUR million
Fair values calculated
using internal models at		Fair values calculated
using internal models at
2019*2018*
Level 2Level 3Level 2Level 3Valuation techniques
ASSETS149,711 6,651 140,659 4,473 
Financial assets held for trading63,051 598 55,033 738 
Credit institutions— —— —Present Value method
Customers**355 —205 —Present Value method
Debt and equity instruments760 65314 153Present Value method
Derivatives61,936 53354,514 585
Swaps51,594 18244,423 185Present Value method, Gaussian Copula***
Exchange rate options469 8617 2Black-Scholes Model
Interest rate options3,073 1773,778 149Black's Model, Heath-Jarrow- Morton Model
Interest rate futures190 —— —Present Value method
Index and securities options1,164 951,118 198Black-Scholes Model
Other5,446 714,578 51Present Value method, Monte Carlo simulation and others
Hedging derivatives7,216 — 8,586 21 
Swaps6,485 — 7,704 21 Present Value method
Interest rate options25 — 20 — Black’s Model
Other706 — 862 — N/A
Non-trading financial assets mandatorily at fair value through profit or loss1,780 1,601 7,492 1,403 
Equity instruments1,272 550 985 462 Present Value method
Debt securities issued498 675 5,085 481 Present Value method
Loans and receivables**10 376 1,422 460 Present Value method, swap asset model & CDS
Financial assets designated at fair value through profit or loss58,833 664 53,482 876 
Central banks6,474 — 9,226 — Present Value method
Credit institutions21,598 50 22,897 201 Present Value method
Customers****30,729 32 21,355 560 Present Value method
Debt instruments32 582 4 115 Present Value method
Financial assets at fair value through other comprehensive income
18,831 3,788 16,066 1,435 
Equity instruments98 407 455 581 Present Value method
Debt instruments 17,486 188 14,699 165 Present Value method
Loans and receivables1,247 3,193 912 689 Present Value method
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EUR million
Fair values calculated
using internal models at		Fair values calculated
using internal models at
2019*2018*
Level 2Level 3Level 2Level 3Valuation techniques
LIABILITIES132,582 1,074 127,991 442 
Financial liabilities held for trading67,068 290 53,950 289 
Central banks— —0 — Present Value method
Credit institutions— —0 — Present Value method
Customers— —0 — Present Value method
Derivatives61,789 29053,950 289 
Swaps49,927 11543,489 111 Present Value method, Gaussian Copula***
Exchange rate options658 1610 7 Black-Scholes Model
Interest rate options4,291 344,411 26 Black's Model, Heath-Jarrow- Morton Model
Index and securities options1,309 881,233 143 Black-Scholes Model
Interest rate and equity futures20 27 — Present Value method
Other5,584 504,200 2 Present Value method, Monte Carlo simulation and others
Short positions5,279 —0 — Present Value method
Hedging derivatives6,048 — 6,352 6 
Swaps4,737 —5,868 6 Present Value method
Interest rate options10 —158 — Black’s Model
Other1,301 —326 — Present Value method, Advanced stochastic volatility models and other
Financial liabilities designated at fair value through profit or loss58,727 78466,924 147 Present Value method
Liabilities under insurance contracts739 —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.

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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:
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2020
Portfolio/
Instrument		Impacts (EUR million)
(Level 3)
Valuation technique
Main unobservable inputs
Range
Weighted
average
Unfavourable
scenario
Favourable
scenario
Financial assets held for trading
Derivatives
Cap&FloorVolatility option modelVolatility10% - 90%31.55%(0.07)0.05 
CCSDiscounted Cash FlowsInterest rate(0.30)% - 0.66%0.66%— 0.20 
Convertibility curve - NDFs OffshoreForward stimationPrice0% - 2%0.61%(0.72)0.31 
EQ OptionsEQ option pricing modelVolatility7.86% - 93.67%48.37%(1.46)1.81 
FRAsAsset Swap modelInterest rate0% - 5%2.22%(0.78)0.63 
FX ForwardDiscounted Cash FlowsSwap Rate(0.02)% - 0.30%0.11%— — 
FX OptionsFX option pricing modelVolatility0% - 50%32.14%(0.39)0.70 
Inflation DerivativesAsset Swap modelInflation Swap Rate(100)% - 50%83.33%(0.63)0.31 
Inflation DerivativesVolatility option modelVolatility0% - 50%16.67%(0.47)0.23 
IR FuturesAsset Swap modelInterest rate0% - 15%0.94%(0.94)0.06 
IR OptionsIR option pricing modelVolatility0% - 100%19.05%(0.27)0.06 
IRSAsset Swap modelInterest rate(6)% - 12.50%10%(0.08)0.13 
IRSDiscounted Cash FlowsSwap Rate5.90% - 6.31%2.26%(0.01)0.02 
IRSDiscounted Cash FlowsCredit spread78.97bps - 202.37bps 9.82bps (2.81)1.29 
IRSPrepayment modellingPrepayment rate2.47% - 6.22%0.06%(0.12)0.05 
Property derivativesOption pricing modelHPI Forward growth rate and HPI Spot rate0% - 5%2.50%(17.82)17.82 
SwaptionsIR option pricing modelVolatility0% - 50%33.33%(0.16)0.31 
Financial assets designated at fair value through profit or loss
Loans and advances to customers
Repos / Reverse reposAsset Swap Repo ModelLong-term repo spreadn/a n/a (0.18)0.23 
Mortgage portfolioBlack Scholes modelHPI Forward growth rate0% - 5%2.50%(2.23)2.23 
Other loansPresent value methodCredit spreads0.07% - 1.55%0.74%(0.35)0.35 
Debt securities
Government debtDiscounted Cash FlowsInterest rate0% - 10%8.33%(0.78)3.91 
Other debt securitiesPrice basedMarket Price90% - 110%10%(0.15)0.15 
Property securitiesProbability weightingHPI Forward growth rate and HPI Spot rate0% - 5%2.50%(7.24)7.24 
Non-trading financial assets mandatorily at fair value through profit or loss
Equity instruments
EquitiesPrice BasedPrice90% - 110%10%(50.47)50.47 
Financial assets at fair value through other comprehensive income
Loans and advances to customers
LoansDiscounted Cash FlowsCredit spreadn/a n/a (6.72)— 
LoansDiscounted Cash FlowsInterest rate curve(0.15)% - 0.15%0.15%(0.09)0.09 
Other loansPresent value methodCredit spreads0.15% - 0.53%0.19%(0.04)0.04 
Debt securities
Government debtDiscounted Cash FlowsInterest rate1.10% - 1.30%0.10%— — 
Equity instruments
EquitiesPrice BasedPrice90% - 110%10%(122.14)122.14 
Financial liabilities held for trading
Derivatives
Cap&FloorVolatility option modelVolatility10% - 90%34.61%(0.02)0.01 
EQ OptionsOption pricing modelHPI Forward growth rate and HPI Spot rate0% - 5%2.50%(6.35)6.35 
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Lastly, the changes in the financial instruments classified as Level 3 in 2020, 2019 and 2018 were as follows:
01/01/2020Changes31/12/2020
EUR million
Fair value calculated using internal models (Level 3)
Purchases/
Issuances
Sales/Settlements
Changes in
fair value
recognised
in profit or
loss
Changes in
fair value
recognised
in equity
Level
reclassifications		OtherFair value
calculated
using
internal
models
(level 3)
Financial assets held for trading598 52 (98)330 — (45)(97)740 
Debt instruments65 7 (27)1 — — (39)7 
Equity instruments— 3 — — — — — 3 
Trading derivatives533 42 (71)329 — (45)(58)730 
Swaps182 — (8)116 — (8)(10)272 
Exchange rate options8 — — 15 — — (1)22 
Interest rate options177 15 (12)61 — — — 241 
Index and securities options95 25 (43)85 — (38)(30)94 
Other71 2 (8)52 — 1 (17)101 
Financial assets at fair value through profit or loss664 280 (45)17 — (91)(176)649 
Credit entities50 164 — (1)— (50)— 163 
Loans and advances to customers32 — (15)3 — — (1)19 
Debt instruments582 116 (30)15 — (41)(175)467 
Non-trading financial assets mandatorily at fair value through profit or loss1,601 120 (292)(36)— (119)(340)934 
Loans and advances to customers376 104 (136)12 — (30)(31)295 
Debt instruments675 — (144)(63)— 2 (336)134 
Equity instruments550 16 (12)15 — (91)27 505 
Financial assets at fair value through other comprehensive income3,788 8,795 (7,616)— (390)571 1,072 6,220 
TOTAL ASSETS6,651 9,247 (8,051)311 (390)316 459 8,543 
Financial liabilities held for trading290 40 (14)130 — (96)(55)295 
Trading derivatives290 40 (14)130 — (96)(55)295 
Swaps115 8 — (7)— (26)(9)81 
Exchange rate options1 — — 2 — — (2)1 
Interest rate options34 11 (2)6 — — — 49 
Index and securities options88 21 (8)95 — (70)(29)97 
Securities and interest rate futures2 — — — — — — 2 
Others50 — (4)34 — — (15)65 
Financial liabilities designated at fair value through profit or loss784 4 (3)(12)— (32)(131)610 
TOTAL LIABILITIES1,074 44 (17)118 — (128)(186)905 
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01/01/2019Changes31/12/2019
EUR millionFair value
calculated
using
internal
models
(level 3)		Purchases
/Issuances		Sales/SettlementsChanges in
fair value
recognized
in profit or
loss		Changes in
fair value
recognized
in equity		Level
reclassifications		OtherFair value
calculated
using
internal
models
(level 3)
Financial assets held for trading738 142 (80)115 — (317)— 598 
Debt instruments and equity instruments153 34 (38)4 — (88)— 65 
Trading derivatives585 108 (42)111 — (229)— 533 
Swaps185 10 (14)22 — (20)(1)182 
Exchange rate options2 — — 6 — — — 8 
Interest rate options149 — (5)33 — — — 177 
Index and securities options198 48 (18)50 — (182)(1)95 
Other51 50 (5)— — (27)2 71 
Hedging derivatives (Assets)21 — — — — (21)— — 
Swaps21 — — — — (21)— — 
Financial assets at fair value through profit or loss876 55 (16)65 — (261)(55)664 
Credit entities201 — — — — (151)— 50 
Loans and advances to customers560 20 (9)(1)— (496)(42)32 
Debt instruments115 35 (7)66 — 386 (13)582 
Non-trading financial assets mandatorily at fair value through profit or loss1,403 426 (325)81 — — 16 1,601 
Loans and advances to customers460 126 (252)21 — — 21 376 
Debt instruments481 199 (7)(10)— — 12 675 
Equity instruments462 101 (66)70 — — (17)550 
Financial assets at fair value through other comprehensive income1,435 4,424 (1,698)— (190)(252)69 3,788 
TOTAL ASSETS4,473 5,047 (2,119)261 (190)(851)30 6,651 
Financial liabilities held for trading289 136 (12)45 — (164)(4)290 
Trading derivatives289 136 (12)45 — (164)(4)290 
Swaps111 6 (5)(17)— 20 — 115 
Exchange rate options7 1 — — — (7)— 1 
Interest rate options26 — — 8 — — — 34 
Index and securities options143 79 (7)51 — (177)(1)88 
Securities and interest rate futures— 3 — — — — (1)2 
Others2 47 — 3 — — (2)50 
Hedging derivatives (Liabilities)6 — — — — (6)— — 
Swaps6 — — — — (6)— — 
Financial liabilities designated at fair value through profit or loss147 298 (5)31 — 313 — 784 
TOTAL LIABILITIES442 434 (17)76 — 143 (4)1,074 
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01/01/201831/12/2018
EUR millionFair value
calculated
using
internal
models
(level 3)
Purchases/
Issuances
Sales/Settlements
Changes in
fair value
recognised
in profit or
loss
Changes in
fair value
recognised
in equity
Level
reclassifications		OtherFair value
calculated
using
internal
models
(level 3)
Financial assets held for trading437 85 (60)(16)— 312 (20)738 
Debt instruments and equity instruments32 22 (40)2 — 141 (4)153 
Trading derivatives405 63 (20)(18)— 171 (16)585 
Swaps189 — (8)4 — 4 (4)185 
Exchange rate options5 — — (2)— — (1)2 
Interest rate options162 — (3)(16)— 8 (2)149 
Index and securities options5 41 (1)(35)— 195 (7)198 
Other44 22 (8)31 — (36)(2)51 
Hedging derivatives (Assets)18 — — 3 — — — 21 
Swaps18 — — 3 — — — 21 
Financial assets designated at fair value through profit or loss— 105 — 19 — 699 53 876 
Credit entities— — (1)— 202 — 201 
Loans and advances to customers— — — 6 — 497 57 560 
Debt instruments— 105 — 14 — — (4)115 
Non-trading financial assets mandatorily at fair value through profit or loss1,365 66 (35)12 — 31 (36)1,403 
Loans and advances to customers465 56 (22)20 — — (59)460 
Debt instruments518 — (7)(29)— 1 (2)481 
Equity instruments382 10 (6)21 — 30 25 462 
Financial assets at fair value through other comprehensive income1,726 162 (238)— (269)147 (93)1,435 
TOTAL ASSETS3,546 418 (333)18 (269)1,189 (96)4,473 
Financial liabilities held for trading182 41 (95)9 — 161 (9)289 
Trading derivatives182 41 (95)9 — 161 (9)289 
Swaps100 — (7)(7)— 28 (3)111 
Exchange rate options9 — — (2)— — — 7 
Interest rate options19 — (1)(1)— 10 (1)26 
Index and securities options41 41 (87)25 — 128 (5)143 
Other13 — — (6)— (5)— 2 
Hedging derivatives (Liabilities)7 — — (1)— — — 6 
Swaps7 — (1)— — — 6 
Financial liabilities designated at fair value through profit or loss7 140 — — — — — 147 
TOTAL LIABILITIES196 181 (95)8 — 161 (9)442 

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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.
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b.    In cash flow hedges, the effective portion of the change 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:
1.    If the Group transfers substantially all the risks and 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.
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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.

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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
AssetsGross amount
of
financial
assets		Gross amount
of financial
assets
offset in the
balance sheet		Net amount
of financial
assets
presented in
the balance
sheet
Derivatives136,437 (60,975)75,462 
Reverse repurchase agreements82,865 (16,078)66,787 
Total219,302 (77,053)142,249 
31 December 2019
EUR million
AssetsGross amount
of
financial
assets		Gross amount
of financial
assets
offset in the
balance sheet		Net amount
of financial
assets
presented in
the balance
sheet
Derivatives126,389 (55,776)70,613 
Reverse repurchase agreements89,465 (5,168)84,297 
Total215,854 (60,944)154,910 
31 December 2018
EUR million
AssetsGross amount
of
financial
assets		Gross amount
of financial
assets
offset in the
balance sheet		Net amount
of financial
assets
presented in
the balance
sheet
Derivatives107,055 (42,509)64,546 
Reverse repurchase agreements79,114 (4,031)75,083 
Total186,169 (46,540)139,629 



31 December 2020
EUR million
LiabilitiesGross amount
of
financial
liabilities		Gross amount
of financial
liabilities
offset in the
balance sheet		Net amount
of financial
liabilities
presented in
the balance
sheet
Derivatives132,313 (60,975)71,338 
Reverse repurchase agreements77,925 (16,078)61,847 
Total210,238 (77,053)133,185 
31 December 2019
EUR million
LiabilitiesGross amount
of
financial
liabilities		Gross amount
of financial
liabilities
offset in the
balance sheet		Net amount
of financial
liabilities
presented in
the balance
sheet
Derivatives124,840 (55,776)69,064 
Reverse repurchase agreements81,087 (5,168)75,919 
Total205,927 (60,944)144,983 
31 December 2018
EUR million
LiabilitiesGross amount
of
financial
liabilities		Gross amount
of financial
liabilities
offset in the
balance sheet		Net amount
of financial
liabilities
presented in
the balance
sheet
Derivatives104,213 (42,509)61,704 
Reverse repurchase agreements82,201 (4,031)78,170 
Total186,414 (46,540)139,874 







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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'.
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.
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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:
Quantitative criteriaChanges 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.
Qualitative criteria
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.
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.
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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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.
•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.
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:
•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:
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.
•The existence of limitations imposed by each local unit´s 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.
•The rest of the guarantees are valued based of current 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 management information.
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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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
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 and (iii) land1.
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).

1. The assets in a situation of "stopped development" are included under "land".
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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 properties, filtering by type2, 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.
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.
–Level II: It shall include land classified as undeveloped 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:
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'
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.
The Group controls its insurance risk as follows:
•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):
Average
annual rate
Buildings for own use2.4 %
Furniture8.3 %
Fixtures8.3 %
Office and IT equipment23.0 %
Lease use rightsLess 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.
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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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
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).
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r) Own equity instruments
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.
t) Recognition of income and expenses
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.
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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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').
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
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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 jurisdictionsSpanish legislationOECDEuropean Commission Blacklist
Sub.BranchSub.BranchSub.Branch
Jersey11
Isle of Man11
Guernsey*
Bermuda*
Cayman Islands1
202023————
2019**34——12
*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
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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.

•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%
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.
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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:
202020192018
Profit (Loss) attributable to the Parent (EUR million)(8,771)6,5157,810 
Remuneration of contingently convertible preference shares (CCP) (EUR million) (Note 23)(552)(595)(560)
(9,323)5,920 7,250 
Of which:
Profit (Loss) from discontinued operations (non controlling interest net) (EUR million)— — — 
Profit (Loss) from continuing operations (PPC net)
(EUR million)		(9,323)5,920 7,250 
Weighted average number of shares outstanding17,316,288,908 16,348,415,883 16,150,090,739 
Impact factor correction*Not applicable710,800,691 702,177,858 
Adjusted number of shares17,316,288,908 17,059,216,574 16,852,268,597 
Basic earnings (Loss) per share (euros)(0.538)0.347 0.430 
Of which, from discounted operations (euros)— — — 
Basic earnings (Loss) per share from continuing operations (euros)(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:
202020192018
Profit (Loss) attributable to the Parent (EUR million)(8,771)6,515 7,810 
Remuneration of contingently convertible preference shares (CCP) (EUR million) (Note 23)(552)(595)(560)
Dilutive effect of changes in profit for the period arising from potential conversion of ordinary shares— — — 
(9,323)5,920 7,250 
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)(9,323)5,920 7,250 
Weighted average number of shares outstanding17,316,288,908 16,348,415,883 16,150,090,739 
Dilutive effect of options/rights on sharesNot applicable35,891,644 42,873,078 
Impact factor correction*Not applicable712,361,197 704,041,905 
Adjusted number of shares17,316,288,908 17,096,668,724 16,897,005,722 
Diluted earnings (Loss) per share (euros)(0.538)0.346 0.429 
Of which, from discounted operations (euros)— — — 
Diluted earnings (Loss) per share from continuing operations (euros)(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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Notes to the consolidated annual accounts
 
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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:
20202019
Amount per director in euros1 Apr to 31 Dec1 Jan to 31 Mar
Members of the board of directors49,500 22,500 90,000 
Members of the executive committee93,500 42,500 170,000 
Members of the audit committee22,000 10,000 40,000 
Members of the appointments committee13,750 6,250 25,000 
Members of the remuneration committee13,750 6,250 25,000 
Members of the risk supervision, regulation and compliance committee22,000 10,000 40,000 
Members of the responsible banking, sustainability and culture committee 8,250 3,750 15,000 
Chairman of the audit committee38,500 17,500 70,000 
Chairman of the appointments committee27,500 12,500 50,000 
Chairman of the remuneration committee27,500 12,500 50,000 
Chairman of the risk supervision, regulation and compliance committee38,500 17,500 70,000 
Chairman of the responsible banking, sustainability and culture committee27,500 12,500 50,000 
Lead director60,500 27,500 110,000 
Non-executive vice chairmen16,500 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.
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The fees for 2019 and 2020 are as follows:
20202019
Attendance fees per director per meeting in euros 1 Apr to 31 Dec1 Jan to 31 Mar
Board of directors2,080 2,600 2,600 
Audit committee and risk supervision, regulation and compliance committee1,360 1,700 1,700 
Other committees (excluding executive committee) 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:
20192020% Var. 2020 vs 2019
SalaryBonusTotalSalaryBonusTotal
Chairman3,176 6,512 9,688 3,176 1,668 4,844 (50)%
CEO2,541 4,352 6,893 2,541 906 3,447 (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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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 emolumentAttendance fees and commissions
BoardN
Executive committeeAudit committeeAppointments committeeRemuneration committeeRisk supervision, regulation and compliance oversight committeeResponsible banking, sustainability and culture committee
Ms Ana Botín-Sanz de Sautuola y O’Shea77 145 — — — — 13 55 
Mr José Antonio Álvarez Álvarez77 145 — — — — — 49 
Mr Bruce Carnegie-Brown326 145 — 21 21 — — 82 
Ms Homaira Akbari77 — 34 — — — 13 79 
Mr Francisco Javier Botín-Sanz de Sautuola y O’SheaA
77 — — — — — — 45 
Mr Álvaro Antonio Cardoso de SouzaB
136 — — — — 34 13 60 
Mr Ramón Martín Chávez MárquezC
8 — — 1 5 8 — 15 
Ms Sol Daurella Comadrán77 — — 21 21 — 13 82 
Mr Henrique Manuel Drummond Borges Cirne de CastroD
77 — 34 — 21 — — 85 
Ms Gina Díez BarrosoE
2 — — — — — — 2 
Mr Luis Isasi Fernández de BobadillaF
44 84 — — 12 20 — 43 
Mr Ramiro Mato García-Ansorena119 145 34 — — 34 13 86 
Mr Sergio RialG
42 — — — — — — 21 
Ms Belén Romana García98 145 34 — — 34 13 94 
Mrs Pamela Ann WalkdenH
114 — 34 — — — — 66 
Mr Rodrigo Echenique GordilloI
75 — — 21 — — — 60 
Mr Ignacio Benjumea Cabeza de VacaJ
35 65 — — 10 15 6 43 
Mr Guillermo de la Dehesa RomeroK
23 44 — 6 6 — — 28 
Ms Esther Giménez-Salinas i ColomerL
64 — — 18 — 28 11 71 
Mr Carlos Fernández GonzálezM
— — — — — — — — 
Total 20201,548 918 170 88 96 173 95 1,066 
Total 20191,794 1,247 168 117 125 200 120 1,094 
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.

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20202019
Short-term and deferred (not subject to long-term goals) salaries of executive directors
FixedVariable - immediate paymentDeferred variable
In cashIn sharesIn cashIn sharesTotalPension contribution
Other remuneration7
TotalTotal
3,176 333 334 200 200 4,243 1,155 1,131 6,819 9,954 
2,541 181 181 108 109 3,120 864 1,764 6,019 8,270 
— — — — — — — — 595 700 
— — — — — — — — 203 226 
— — — — — — — — 122 137 
— — — — — — — — 243 276 
— — — — — — — — 37 — 
— — — — — — — — 214 240 
— — — — — — — — 217 86 
— — — — — — — — 4 — 
— — — — — — — 740 943 — 
— — — — — — — — 431 500 
— — — — — — — — 63 — 
— — — — — — — — 418 525 
— — — — — — — — 214 34 
— — — — — — — 1,800 1,956 4,874 
— — — — — — — 102 276 524 
— — — — — — — — 107 399 
— — — — — — — — 192 228 
— — — — — — — — — 214 
5,717 514 515 308 309 7,363 2,019 5,537 19,073 — 
6,317 2,572 2,572 1,543 1,543 14,547 2,003 5,772 — 27,187 
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Notes to the consolidated annual accounts
 
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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
20202019
Variable subject to Long-term
objectives1
In cashIn sharesTotalTotal
Ms Ana Botín-Sanz de Sautuola y O’Shea210 210 420 1,642 
Mr José Antonio Álvarez Álvarez 114 114 228 1,096 
Mr Rodrigo Echenique Gordillo — — — 504 
Total324 324 648 3,242 
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:
2020BRL thousandEUR thousand
Base salary12,645 2,175 
Other fixed benefits39 7 
Pensions5,041 867 
Variable remuneration30,240 5,201 
Total47,965 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).
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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
20202019
Ms Ana Botín-Sanz de Sautuola y O’Shea1,155 1,145 
Mr José Antonio Álvarez Álvarez864 858 
Total2,019 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
20202019
Ms Ana Botín-Sanz de Sautuola y O’Shea49,444 48,104 
Mr José Antonio Álvarez Álvarez18,082 17,404 
Mr Rodrigo Echenique Gordillo1
— 13,268 
Total67,526 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
20202019
Ms Ana Botín-Sanz de Sautuola y O’Shea21,984 22,475 
Mr José Antonio Álvarez Álvarez18,703 19,373 
Mr Rodrigo Echenique Gordillo— 5,400 
Total40,687 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
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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.
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;
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–compliance with the fully loaded ordinary level 1 capital 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.
(iv)Irregular conduct, whether individual or collective. In this 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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Share-based variable remuneration
Maximum number of shares to be delivered at January 1,2019Shares 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)
2015 variable remuneration4
Ms Ana Botín-Sanz de Sautuola y O’Shea193,213 — — — (64,404)— 
Mr José Antonio Álvarez Álvarez128,431 — — — (42,811)— 
Mr Rodrigo Echenique Gordillo3
95,134 — — — (31,712)— 
416,778 (138,927)
2016 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea288,410 — — (72,102)— — 
Mr José Antonio Álvarez Álvarez194,665 — — (48,667)— — 
Mr Rodrigo Echenique Gordillo3
144,180 — — (36,046)— — 
627,255 (156,815)
2017 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea344,625 — (68,925)— — — 
Mr José Antonio Álvarez Álvarez230,471 — (46,094)— — — 
Mr Rodrigo Echenique Gordillo3
179,608 — (35,922)— — — 
754,704 (150,941)
2018 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea860,865 (344,346)— — — — 
Mr José Antonio Álvarez Álvarez575,268 (230,107)— — — — 
Mr Rodrigo Echenique Gordillo3
456,840 (182,736)— — — — 
1,892,973 (757,189)
2019 variable remuneration
Ms Ana Botín-Sanz de Sautuola y O’Shea— — — — — 887,193 
Mr José Antonio Álvarez Álvarez— — — — — 592,915 
Mr Rodrigo Echenique Gordillo3
— — — — — 272,480 
1,752,588 
2020 variable remuneration1
Ms Ana Botín-Sanz de Sautuola y O’Shea— — — — — — 
Mr José Antonio Álvarez Álvarez— — — — — — 
Mr Sergio Rial2
— — — — — — 
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.

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Maximum number of shares to be delivered at December 31, 2019Instruments matured but not consolidated at January 1, 2020Shares 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 — — — — — (64,404)— 64,405 
85,620 — — — — — (42,811)— 42,809 
63,422 — — — — — (31,712)— 31,710 
277,851 (138,927)138,924 
216,308 (51,265)— — — (55,014)— — 110,029 
145,998 (34,602)— — — (37,133)— — 74,263 
108,134 (25,628)— — — (27,503)— — 55,003 
470,440 (111,495)(119,650)239,295 
275,700 — — — (68,925)— — — 206,775 
184,377 — — — (46,094)— — — 138,283 
143,686 — — — (35,922)— — — 107,764 
603,763 (150,941)452,822 
516,519 — — (103,304)— — — — 413,215 
345,161 — — (69,032)— — — — 276,129 
274,104 — — (54,821)— — — — 219,283 
1,135,784 (227,157)908,627 
887,193 — (354,877)— — — — — 532,316 
592,915 — (237,166)— — — — — 355,749 
272,480 — (108,992)— — — — — 163,488 
1,752,588 (701,035)1,051,553 
— — — — — — — 310,615 310,615 
— — — — — — — 168,715 168,715 
— — — — — — — 355,263 355,263 
834,593 834,593 
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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
20202019
Cash paid (immediate payment 2019 variable remuneration)Cash paid (deferred payments from 2018, 2017, 2016 and 2015 variable remuneration)Cash paid (immediate payment 2018 variable remuneration)Cash paid (deferred payments from 2017, 2016 and 2015 variable remuneration)
Ms. Ana Botín-Sanz de Sautuola y O’Shea1,3021,3831,4801,025
Mr. José Antonio Álvarez Álvarez870925989686
Mr. Rodrigo Echenique Gordillo400712785519
2,5723,0203,2542,230
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
20202019
Deferred conditional variable remuneration plan (2015)60,847 121,694 
Deferred conditional variable remuneration plan and linked to objectives (2016)65,502 98,253 
Deferred conditional variable remuneration plan and linked to objectives (2017)47,956 140,531 
Number of shares delivered
20202019
Deferred conditional variable remuneration plan (2015)60,847 60,847 
Performance shares plan ILP (2015)0 129,612 
Deferred conditional variable remuneration plan and linked to objectives (2016)32,751 42,924 
Deferred conditional variable remuneration plan and linked to objectives (2017)35,132 35,132 
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.
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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
20202019
Loans and creditsGuaranteesTotalLoans and creditsGuaranteesTotal
Mrs. Ana Patricia Botín14 — 14 18 — 18 
Mr. José Antonio Álvarez Álvarez5 — 5 27 — 27 
Mr. Bruce Carnegie-Brown— — — — — — 
Mr. Rodrigo Echenique Gordillo**— — — 33 — 33 
Mr. Javier Botín-Sáenz de Sautuola2 — 2 21 — 21 
Mrs. Sol Daurella Comadrán22 — 22 55 — 55 
Mrs. Esther Gimenéz-Salinas i Colomer****— — — 1 — 1 
Mr. Ignacio Benjumea Cabeza de Vaca*— — — 1 — 1 
Mrs. Belén Romana García— — — 21 — 21 
Mr. Guillermo de la Dehesa Romero***— — — 56 — 56 
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 Arcárraga6 — 6 — — — 
49 — 49 233 — 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.

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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 paymentDeferred variable remuneration
YearNumber of
persons		FixedIn cash
In shares2
In cashIn sharesPensions
Other
remuneration1
Total 3
20201821,6425,7395,7402,4702,4716,0396,31250,413
20191822,9047,6687,6693,3363,3376,28215,33766,532
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).
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



(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 objectives1
YearNumber of 
people		Cash 
payment		Share
payment		Total
2020182,594 2,594 5,188 
2019183,503 3,504 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).
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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
20202019
Deferred conditional variable remuneration plan (2015)179,617 391,074 
Deferred conditional variable remuneration plan (2017)2,786 — 
Deferred conditional variable remuneration plan (2018)6,949 — 
Deferred conditional variable remuneration plan and linked to objectives (2016)417,818 660,205 
Deferred conditional variable remuneration plan and linked to objectives (2017)791,360 1,115,570 
Deferred conditional variable remuneration plan and linked to objectives (2018)1,512,992 1,986,754 
Deferred conditional variable remuneration plan and linked to objectives (2019)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
20202019
Deferred conditional variable remuneration plan (2015)179,614 257,187
Performance shares plan ILP (2015)— 515,456 
Deferred conditional variable remuneration plan (2017)2,786 — 
Deferred conditional variable remuneration plan (2018)3,474 — 
Deferred conditional variable remuneration plan and linked to objectives (2016)170,185 215,868 
Deferred conditional variable remuneration plan and linked to objectives (2017)219,363 245,575 
Deferred conditional variable remuneration plan and linked to objectives (2018)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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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.
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.
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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
202020192018
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 loss9,4816,4739,226
Financial assets designated at fair value
through other comprehensive income		———
Financial assets at amortised cost12,49918,47415,601
21,98024,94724,827
Type
Time deposits11,75717,53315,601
Reverse repurchase agreements10,2237,4149,226
Impaired assets———
Valuation adjustments for impairment———
21,98024,94724,827
CREDIT INSTITUTIONS
Classification
Financial assets held for trading3——
Non-trading financial assets mandatorily at
fair value through profit or loss		——2
Financial assets designated at fair value through profit or loss12,13621,64923,097
Financial assets designated at fair value
through other comprehensive income		———
Financial assets at amortised cost37,83840,94335,480
49,97762,59258,579
Type
Time deposits7,3389,69910,759
Reverse repurchase agreements20,86231,18033,547
Non- loans advances21,78421,72614,283
Impaired assets112
Valuation adjustments for impairment(8)(14)(12)
49,97762,59258,579
CURRENCY
Euro22,26032,24824,801
Pound sterling4,1273,6594,073
US dollar13,20914,44219,238
Brazilian real26,43730,91928,310
Other currencies5,9246,2716,984
TOTAL71,95787,53983,406
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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.
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.
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
202020192018
Classification
Financial assets held for trading37,894 32,041 27,800 
Non-trading financial assets mandatorily at fair value through profit or loss700 1,175 5,587 
Financial assets designated at fair value through profit or loss2,979 3,186 3,222 
Financial assets designated at fair value through other comprehensive income108,903 118,405 116,819 
Financial assets at amortised cost26,078 29,789 37,696 
176,554 184,596 191,124 
Type
Spanish government debt securities30,397 42,054 50,488 
Foreign government debt securities110,570 107,434 99,959 
Issued by financial institutions10,133 9,670 10,574 
Other fixed-income securities25,337 25,265 29,868 
Impaired financial assets401 647 870 
Impairment losses(284)(474)(635)
176,554 184,596 191,124 
Currency
Euro58,850 70,357 76,513 
Pound sterling7,372 15,713 19,153 
US dollar29,009 29,846 22,864 
Brazilian real35,139 38,316 40,871 
Other currencies46,468 30,838 32,358 
Total gross176,838 185,070 191,759 
Impairment losses(284)(474)(635)
176,554 184,596 191,124 
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.
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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
202020192018
Private fixed-incomePublic fixed-incomeTotal%Private fixed-incomePublic fixed-incomeTotal%Private fixed-incomePublic fixed-incomeTotal%
Spain1,588 30,397 31,985 18.12 %3,634 42,054 45,688 24.75 %4,748 50,488 55,236 28.90 %
United Kingdom3,099 2,795 5,894 3.34 %3,806 11,479 15,285 8.28 %5,615 9,512 15,127 7.91 %
Portugal3,095 6,462 9,557 5.41 %2,979 7,563 10,542 5.71 %3,663 6,943 10,606 5.55 %
Italy1,047 4,688 5,735 3.25 %1,384 3,620 5,004 2.71 %857 3,134 3,991 2.09 %
Ireland2,924 2 2,926 1.66 %2,387 2 2,389 1.29 %4,543 2 4,545 2.38 %
Poland3,126 11,400 14,526 8.23 %460 9,361 9,821 5.32 %683 10,489 11,172 5.85 %
Other European countries8,211 2,891 11,102 6.29 %7,186 1,784 8,970 4.86 %6,101 1,518 7,619 3.99 %
United States6,386 14,645 21,031 11.91 %5,915 15,609 21,524 11.66 %6,833 10,362 17,195 9.00 %
Brazil5,179 33,316 38,495 21.80 %5,808 35,036 40,844 22.13 %5,285 36,583 41,868 21.91 %
Mexico435 19,053 19,488 11.04 %708 13,234 13,942 7.55 %520 11,325 11,845 6.20 %
Chile41 8,082 8,123 4.60 %50 4,819 4,869 2.64 %79 2,729 2,808 1.47 %
Other American countries274 3,098 3,372 1.91 %605 1,095 1,700 0.92 %1,111 1,375 2,486 1.30 %
Rest of the world182 4,138 4,320 2.44 %186 3,832 4,018 2.18 %639 5,987 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
202020192018
Private fixed-incomePublic fixed-incomeTotal%Private fixed-incomePublic fixed-incomeTotal%Private fixed-incomePublic fixed-incomeTotal%
AAA14,088 2,099 16,187 9.17 %14,737 1,085 15,822 8.57 %18,901 834 19,735 10.33 %
AA1,714 18,784 20,498 11.61 %5,133 28,325 33,458 18.13 %2,715 20,966 23,681 12.39 %
A6,228 53,655 59,883 33.92 %3,238 59,744 62,982 34.12 %3,464 69,392 72,856 38.12 %
BBB6,515 31,204 37,719 21.36 %4,889 24,766 29,655 16.06 %5,093 21,837 26,930 14.09 %
Below BBB3,431 35,164 38,595 21.86 %1,244 35,466 36,710 19.89 %668 37,412 38,080 19.92 %
Unrated3,611 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 %
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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.
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
202020192018
Securitised mortgage bonds5,926 5,494 7,803 
Other asset-backed bonds5,479 6,388 9,805 
Floating rate debt7,829 10,348 13,721 
Fixed rate debt16,353 12,878 9,348 
Total35,587 35,108 40,677 
c) Impairment losses
The changes in the impairment losses on debt instruments are summarised below:
EUR million
202020192018
Balance at beginning of year474 635 704 
Net impairment losses for the year*79 (170)43 
Of which:
Impairment losses charged to income 91 77 138 
Impairment losses reversed with a credit to income(12)(247)(95)
Exchange differences and other items(269)9 (112)
Balance at end of year284 474 635 
Of which:
By geographical location of risk:
European Union21 14 22 
Latin America263 460 613 
*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.





8. Equity instruments
a) Breakdown
The detail, by classification and type, of Equity instruments in the consolidated balance sheets is as follows:
EUR million
202020192018
Classification
Financial assets held for trading9,615 12,437 8,938 
Non-trading financial assets mandatorily at fair value through profit or loss3,234 3,350 3,260 
Financial assets designated at fair value through other comprehensive income2,783 2,863 2,671 
15,632 18,650 14,869 
Type
Shares of Spanish companies3,364 3,711 3,448 
Shares of foreign companies10,437 12,682 9,107 
Shares of investment funds1,831 2,257 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
202020192018
Balance at beginning of the year2,863 2,671 3,169 
Net additions (disposals)837 221 (324)
Valuation adjustment and other items(917)(29)(174)
Balance at end of year2,783 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.
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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
202020192018
Debit balanceCredit balanceDebit balanceCredit balanceDebit balanceCredit balance
Interest rate risk43,832 41,085 42,614 40,956 36,087 36,487 
Currency risk21,162 22,028 18,085 19,870 16,912 17,025 
Price risk1,931 944 2,329 1,772 2,828 1,673 
Other risks212 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):
EUR million
202020192018
Borrowed securities
Debt instruments625 390 1,213 
Of which:
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México625 390 1,213 
Equity instruments289 393 1,087 
Of which:
Banco Santander, S.A.289 308 987 
Short sales
Debt instruments15,784 13,340 12,702 
Of which:
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 

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
202020192018
Financial assets held for trading296 355 202 
Non-trading financial assets mandatorily at fair value through profit or loss552 386 1,881 
Financial assets designated at fair value through profit or loss24,121 30,761 21,915 
Financial assets at fair value through other comprehensive income9,267 4,440 1,601 
Financial assets at amortized cost881,963 906,276 857,322 
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 
Note 50 contains a detail of the residual maturity periods of 'Financial assets at amortised cost' and of the related average interest rates.
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.
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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
202020192018
Loan type and status
Commercial credit37,459 37,753 33,301 
Secured loans503,014 513,929 478,068 
Reverse repurchase agreements35,702 45,703 32,310 
Other term loans269,143 267,154 265,696 
Finance leases36,251 35,788 30,758 
Receivable on demand7,903 7,714 8,794 
Credit cards receivables19,507 23,876 23,083 
Impaired assets30,815 32,543 34,218 
939,794 964,460 906,228 
Geographical area
Spain215,330 204,810 215,764 
European Union (excluding Spain)*192,988 460,338 411,550 
United States and Puerto Rico93,405 100,152 89,325 
Other OECD countries*338,362 86,327 82,607 
South America (non - OECD)79,629 92,145 87,406 
Rest of the world20,080 20,688 19,576 
939,794 964,460 906,228 
Interest rate formula
Fixed rate550,883 546,619 497,365 
Floating rate388,911 417,841 408,863 
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.
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Following is a detail, by activity, of the loans to customers at 31 December 2020, net of impairment losses:

EUR million
Secured loans
Net exposureLoan-to-value ratio***
TotalWithout
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%
Public sector21,227 20,510 216 501 95 78 41 483 20 
Other financial institutions (financial business activity)62,827 20,795 1,291 40,741 845 842 427 39,371 547 
Non-financial corporations and individual entrepreneurs (non-financial business activity) (broken down by purpose)319,853 182,861 63,463 73,529 25,175 24,194 21,678 45,270 20,675 
Of which:
Construction and property development16,804 2,620 9,375 4,809 5,340 4,713 1,538 1,180 1,413 
Civil engineering construction3,300 1,963 280 1,057 113 230 162 731 101 
Large companies167,390 110,387 20,994 36,009 8,775 7,358 9,025 23,111 8,734 
SMEs and individual entrepreneurs132,359 67,891 32,814 31,654 10,947 11,893 10,953 20,248 10,427 
Households – other (broken down by purpose) 497,987 92,157 331,210 74,620 84,449 104,187 116,586 61,532 39,076 
Of which:
Residential324,152 1,563 322,100 489 77,764 98,134 108,699 33,426 4,566 
Consumer loans157,118 88,232 1,621 67,265 3,401 3,529 4,837 23,897 33,222 
Other purposes16,717 2,362 7,489 6,866 3,284 2,524 3,050 4,209 1,288 
Total*901,894 316,323 396,180 189,391 110,564 129,301 138,732 146,656 60,318 
Memorandum item
Refinanced and restructured transactions**20,997 5,278 12,327 3,392 2,965 2,640 2,430 2,560 5,124 
*    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.

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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:
2020
EUR million
Stage 1Stage 2Stage 3Total
Balance at the beginning of year849,939 50,476 31,837 932,252 
Movements
Transfers
Transfer to stage 2 from stage 1(43,170)43,170 — 
Transfer to stage 3 from stage 1(5,120)5,120 — 
Transfer to stage 3 from stage 2(8,734)8,734 — 
Transfer to stage 1 from stage 213,459 (13,459)— 
Transfer to stage 2 from stage 31,831 (1,831)— 
Transfer to stage 1 from stage 3578 (578)— 
Net changes on financial assets53,555 (2,951)(659)49,945 
Write-offs— — (8,930)(8,930)
Exchange differences and others(51,335)(4,229)(3,375)(58,939)
Balance at the end of the year817,906 66,104 30,318 914,328 
2019
EUR million
Stage 1Stage 2Stage 3Total
Balance at the beginning of year795,829 52,183 33,461 881,473 
Movements
Transfers
Transfer to stage 2 from stage 1(28,369)28,369 — 
Transfer to stage 3 from stage 1(4,101)4,101 — 
Transfer to stage 3 from stage 2(13,240)13,240 — 
Transfer to stage 1 from stage 212,436 (12,436)— 
Transfer to stage 2 from stage 32,439 (2,439)— 
Transfer to stage 1 from stage 3488 (488)— 
Net changes on financial assets 61,581 (8,092)(3,608)49,881 
Write-offs— — (12,593)(12,593)
Exchange differences and others12,075 1,253 163 13,491 
Balance at the end of the year849,939 50,476 31,837 932,252 
2018
EUR million
Stage 1Stage 2Stage 3Total
Balance at the beginning of year746,654 60,304 35,477 842,435 
Movements
Transfers
Transfer to stage 2 from stage 1(31,234)31,234 — 
Transfer to stage 3 from stage 1(3,980)3,980 — 
Transfer to stage 3 from stage 2(13,998)13,998 — 
Transfer to stage 1 from stage 221,795 (21,795)— 
Transfer to stage 2 from stage 34,103 (4,103)— 
Transfer to stage 1 from stage 3835 (835)— 
Net changes on financial assets79,727 (5,265)(1,997)72,465 
Write-offs— — (12,673)(12,673)
Exchange differences and others(17,968)(2,400)(386)(20,754)
Balance at the end of the year795,829 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.
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c) Impairment losses on loans and advances to customers at amortised cost and at fair value through other comprehensive income
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
202020192018
Amount at beginning of the year22,242 23,307 25,936 
Impairment losses charged to income for the year13,385 11,108 10,501 
Of which:
Impairment losses charged to profit or loss20,909 19,192 17,850 
Impairment losses reversed with a credit to profit or loss(7,524)(8,084)(7,349)
Change of perimeter(82)— — 
Write-off of impaired balances against recorded impairment allowance(8,930)(12,593)(12,673)
Exchange differences and other changes(3,020)420 (457)
Amount at end of the year23,595 22,242 23,307 
Which correspond to:
Impaired assets13,658 13,933 14,906 
Other assets9,937 8,309 8,401 
Of which:
Individually calculated2,679 3,555 4,905 
Collective calculated20,916 18,687 18,402 
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:
2020
EUR million
Stage 1Stage 2Stage 3Total
Loss allowance at the beginning of the year3,835 4,474 13,933 22,242 
Transfers
Transfer to stage 2 from stage 1(1,040)2,880 1,840 
Transfer to stage 3 from stage 1(255)2,386 2,131 
Transfer to stage 3 from stage 2(971)2,066 1,095 
Transfer to stage 1 from stage 2294 (976)(682)
Transfer to stage 2 from stage 3303 (727)(424)
Transfer to stage 1 from stage 353 (138)(85)
Net changes of the exposure and modifications in the credit risk1,966 535 7,009 9,510 
Write-offs— — (8,930)(8,930)
FX and other movements(588)(573)(1,941)(3,102)
Loss allowance at the end of the year4,265 5,672 13,658 23,595 
2019
EUR million
Stage 1Stage 2Stage 3Total
Loss allowance at the beginning of the year3,658 4,743 14,906 23,307 
Transfers
Transfer to stage 2 from stage 1(964)3,235 2,271 
Transfer to stage 3 from stage 1(214)1,296 1,082 
Transfer to stage 3 from stage 2(3,065)5,612 2,547 
Transfer to stage 1 from stage 2301 (1,048)(747)
Transfer to stage 2 from stage 3381 (817)(436)
Transfer to stage 1 from stage 329 (123)(94)
Net changes of the exposure and modifications in the credit risk1,119 (182)5,548 6,485 
Write-offs— — (12,593)(12,593)
FX and other movements(94)410 104 420 
Loss allowance at the end of the year3,835 4,474 13,933 22,242 
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Notes to the consolidated annual accounts
 
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2018
EUR million
Stage 1Stage 2Stage 3Total
Loss allowance at the beginning of the year4,349 5,079 16,507 25,935 
Transfers
Transfer to stage 2 from stage 1(1,173)3,854 2,681 
Transfer to stage 3 from stage 1(279)1,264 985 
Transfer to stage 3 from stage 2(1,971)4,528 2,557 
Transfer to stage 1 from stage 2438 (1,656)(1,218)
Transfer to stage 2 from stage 3435 (1,264)(829)
Transfer to stage 1 from stage 384 (173)(89)
Net changes of the exposure and modifications in the credit risk304 (961)7,070 6,413 
Write-offs— — (12,673)(12,673)
FX and other movements(65)(37)(353)(455)
Loss allowance at the end of the year3,658 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
202020192018
Balance at beginning of year32,543 34,218 36,280 
Net additions10,577 10,755 10,821 
Written-off assets(8,930)(12,593)(12,673)
Changes in the scope of consolidation(39)— 177 
Exchange differences and other(3,336)163 (387)
Balance at end of year30,815 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).
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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 dueWith balances past due by
90 to 180
days		180 to 270 days270 days to 1 yearMore than 1 yearTotal
Spain4,520 719 542 679 8,145 14,605 
European Union (excluding Spain)*1,766 353 202 317 2,136 4,774 
United States and Puerto Rico1,306 524 18 31 144 2,023 
Other OECD countries*3,084 1,038 554 140 1,097 5,913 
Latin America (non-OECD)1,766 701 444 314 275 3,500 
12,442 3,335 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
With no past-due balances or less than 90 days past dueWith balances past due by
90 to 180
days		180 to 270 days270 days to 1 yearMore than 1 yearTotal
Spain4,018 914 686 668 8,608 14,894 
European Union (excluding Spain)2,659 1,169 723 622 2,567 7,740 
United States and Puerto Rico1,725 403 34 21 125 2,308 
Other OECD countries1,426 574 172 124 494 2,790 
Latin America (non-OECD)1,948 932 724 592 615 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 dueWith balances past due by
90 to 180
days		180 to 270 days270 days to 1 yearMore than 1 yearTotal
Spain5,671 780 551 656 8,724 16,382 
European Union (excluding Spain)2,940 1,213 577 519 2,662 7,911 
United States and Puerto Rico1,906 531 30 31 178 2,676 
Other OECD countries1,414 498 143 162 520 2,737 
Latin America (non-OECD)1,221 1,145 782 561 803 4,512 
13,152 4,167 2,083 1,929 12,887 34,218 
.

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Notes to the consolidated annual accounts
 
Appendix
 
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
Gross
amount		Allowance recognisedEstimated collateral
value*
Without associated real collateral11,611 7,852 — 
With real estate collateral14,659 3,687 10,348 
With other collateral4,545 2,119 1,759 
Total30,815 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
Less
than 1
month		1 to 2
months		2 to 3
months
Loans and advances to customers1,232 337 311 
Of which public sector1 — — 
Total1,232 337 311 
e) Transferred credits
'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.
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
202020192018
Retained on the balance sheet88,662 93,553 88,767 
Of which
Securitised mortgage assets30,145 31,868 33,900 
Of which: UK assets9,034 13,002 13,519 
Other securitised assets58,517 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).
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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
202020192018
Notional amountMarket
value		Notional amountMarket
value		Notional amountMarket
value
Trading derivatives            
Interest rate risk            
Forward rate agreements515,889 — 218,252 (8)308,340 (1)
Interest rate swaps3,789,169 3,638 4,322,199 2,573 4,197,246 115 
Options, futures and other derivatives698,500 (891)794,140 (907)543,138 (514)
Credit risk
Credit default swaps12,378 (133)23,701 (71)18,889 33 
Foreign currency risk
Foreign currency purchases and sales304,280 (45)325,720 (441)275,449 301 
Foreign currency options45,074 (7)44,763 (182)54,215 2 
Currency swaps394,178 (814)379,176 (1,162)334,524 (416)
Securities and commodities derivatives and other70,861 920 61,966 579 59,932 1,078 
Total5,830,329 2,668 6,169,917 381 5,791,733 598 
12. Non-current assets
The detail of Non-current assets held for sale in the consolidated balance sheets is as follows:
EUR million
202020192018
Tangible assets4,445 4,588 5,424 
Of which:
Foreclosed assets4,081 4,485 5,334 
Of which property assets in Spain*3,485 3,667 4,488 
Other tangible assets held for sale364 103 90 
Other assets— 13 2 
Total4,445 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.
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13. Investments
a) Breakdown
The detail, by company, of Investments is as follows:
EUR million
202020192018
Associated entities
Merlin Properties, SOCIMI, S.A.1,581 1,511 1,358 
Metrovacesa, S.A.1,157 1,226 1,255 
Caceis (note 3)1,077 1,010 — 
Zurich Santander Insurance
America, S.L. - Consolidated		955 1,009 961 
Companies Santander Insurance - Consolidated439 402 392 
Ebury Partners Limited (note 3)388 — — 
Popular Spain Holding de Inversiones, S.L.U. (former Allianz Popular, S.L.) (note 3)— 409 431 
Project Quasar Investment 2017 S.L.*— 1,351 1,701 
Other companies533 529 511 
6,130 7,447 6,609 
Joint Ventures entities
Santander Vida Seguros y Reaseguros (note 3)381 170 163 
Santander CACEIS Latam Holding 1, S.L. - Consolidated (former Santander Securities Services Latam Holding, S.L.)326 349 — 
U.C.I., S.A. - Consolidated168 206 202 
Other companies617 600 614 
1,492 1,325 979 
*    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.
b) Changes
The changes in the investments were as followed:
EUR million
202020192018
Balance at beginning of year8,772 7,588 6,150 
Acquisitions (disposals) of companies and capital increases (reductions)676 (123)(1,761)
Of which:
Ebury Partners Limited (note 3)409 — — 
Santander Vida Seguros y Reaseguros (note 3)219 — — 
WiZink Bank, S.A.— — (1,033)
Changes in the consolidation method (note 3)(1,359)1,368 2,967 
Of which:
Project Quasar Investments 2017, S.L.(956)— 1,701 
Popular Spain Holding de Inversiones, S.L.U. (former Allianz Popular, S.L.)(409)— — 
Caceis— 1,010 — 
Metrovacesa, S.A.— — 1,255 
Santander CACEIS Latam Holding 1, S.L. - Consolidado (former Santander Securities Services Latam Holding, S.L.)— 349 — 
Effect of equity accounting(96)324 737 
Dividends paid and reimbursements of share premium(186)(407)(404)
Exchange differences and other changes(185)22 (101)
Balance at end of year7,622 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.
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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
202020192018
Total assets183,735 164,215 74,765 
Total liabilities(167,209)(144,602)(58,153)
Net assets16,526 19,613 16,612 
Investments in Group joint ventures and associates in the net assets of associates5,760 6,729 6,157 
Goodwill1,862 2,043 1,431 
Of which:
Zurich Santander Insurance America, S.L. - Consolidated526 526 526 
Caceis337 466 — 
Santander Vida Seguros y Reaseguros, S.A. - Consolidated255 73 — 
Sociedades Santander Insurance - Consolidated205 205 205 
Popular Spain Holding de Inversiones, S.L.U. (former Allianz Popular, S.L.)— 347 347 
Total Group share7,622 8,772 7,588 
Total income12,758 14,172 12,174 
Total profit703 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
Total
assets		Total
 liabilities		Total
 income		Total 
profit
Joint ventures entities25,179 23,045 4,127 231 
Of which:
U.C.I., S.A. - Consolidated12,032 11,696 248 (33)
Santander Vida Seguros y Reaseguros, S.A. - Consolidated3,901 3,645 1,998 81 
Santander Caceis Latam Holding, S.L. - Consolidated517 128 81 10 
Associated entities158,556 144,164 8,631 472 
Of which:
Caceis119,533 117,109 1,990 189 
Zurich Santander Insurance América, S.L. - Consolidated13,021 12,144 4,566 315 
Sociedades Santander Insurance - Consolidated2,408 1,933 722 80 
Total183,735 167,209 12,758 703 

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Notes to the consolidated annual accounts
 
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14. Insurance contracts linked to pensions
The detail of Insurance contracts linked to pensions in the consolidated balance sheets is as follows:
EUR million
202020192018
Assets relating to insurance contracts covering post-employment benefit plan obligations:
Banco Santander, S.A.174 192 210 
174 192 210 
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
202020192018
Technical provisions for:Direct insurance and reinsurance assumedReinsurance
ceded		Total
(balance
payable)		Direct
insurance
and
reinsurance
assumed		Reinsurance 
ceded		Total
(balance
payable)		Direct
insurance
and
reinsurance
assumed		Reinsurance
ceded		Total
(balance
payable)
Unearned premiums and unexpired risks51 (45)6 59 (52)7 52 (47)5 
Life insurance189 (137)52 206 (151)55 227 (163)64 
Unearned premiums and risks126 (122)4 139 (132)7 140 (127)13 
Mathematical provisions63 (15)48 67 (19)48 87 (36)51 
Claims outstanding561 (59)502 399 (55)344 397 (86)311 
Bonuses and rebates23 (11)12 22 (10)12 20 (9)11 
Other technical provisions86 (9)77 53 (24)29 69 (19)50 
910 (261)649 739 (292)447 765 (324)441 
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16. Tangible assets
a) Changes
The changes in Tangible assets in the consolidated balance sheets were as follows:
EUR million
Tangible assets
Of which:
Right-of-use for operating lease
For own use
Leased out under
an operating
lease		Investment
property		TotalFor own useLeased out under
an operating
lease		Investment
property		Total
Cost:
Balances at 1 January 201819,276 18,673 3,142 41,091 
Additions / disposals (net) due to change in the scope of consolidation34 44 (630)(552)
Additions / disposals (net)589 5,545 (182)5,952 
Transfers, exchange differences and other items(1,164)825 48 (291)
Balance at 31 December 201818,735 25,087 2,378 46,200 
IFRS 16 Adoption impact6,693 — — 6,693 6,693 — — 6,693 
Balances at 1 January 201925,428 25,087 2,378 52,893 6,693 — — 6,693 
Additions / disposals (net) due to change in the scope of consolidation(5)— (15)(20)— — — — 
Additions / disposals (net)1,863 3,148 (310)4,701 (997)*— — (997)
Transfers, exchange differences and other items (178)(3,781)(603)(4,562)(10)— — (10)
Balance at 31 December 201927,108 24,454 1,450 53,012 5,686 — — 5,686 
Additions / disposals (net) due to change in the scope of consolidation(16)1,082 7 1,073 (37)— — (37)
Additions / disposals (net)827 512 (29)1,310 (1,339)*— — (1,339)
Transfers, exchange differences and other items(3,023)(1,844)32 (4,835)(362)— — (362)
Balance at 31 December 202024,896 24,204 1,460 50,560 3,948 — — 3,948 
Accumulated depreciation:
Balances at 1 January 2018(10,920)(6,104)(189)(17,213)
Disposals due to change in the scope of consolidation(12)(34)— (46)
Disposals629 413 17 1,059 
Charge for the year(1,159)— (13)(1,172)
Transfers, exchange differences and other items938 (2,679)(14)(1,755)
Balance at 31 December 2018(10,524)(8,404)(199)(19,127)
IFRS 16 Adoption impact— — — — — — — — 
Balances at 1 January 2019(10,524)(8,404)(199)(19,127)— — — — 
Disposals due to change in the scope of consolidation3 — 6 9 — — — — 
Disposals356 2,149 32 2,537 37 — — 37 
Charge for the year(2,021)— (14)(2,035)(807)— — (807)
Transfers, exchange differences and other items212 1,045 31 1,288 5 — — 5 
Balance at 31 December 2019(11,974)(5,210)(144)(17,328)(765)— — (765)
Disposals due to change in the scope of consolidation(40)— — (40)(3)— — (3)
Disposals527 2,387 11 2,925 167 — — 167 
Charge for the year(1,906)— (8)(1,914)(706)— — (706)
Transfers, exchange differences and other items1,850 (2,762)8 (904)90 — — 90 
Balance at 31 December 2020(11,543)(5,585)(133)(17,261)(1,217)— — (1,217)
* Includes contract extensions on operating leases and repurchases.
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Notes to the consolidated annual accounts
 
Appendix
 
EIR million
Tangible assetsOf which:
Right-of-use for operating lease
For own useLeased out under
an operating
lease		Investment
property		TotalFor own useLeased out under
an operating
lease		Investment
property		Total
Impairment losses:
Balances at 1 January 2018(77)(198)(629)(904)
Impairment charge for the year(30)(56)(8)(94)
Releases6 — 5 11 
Disposals due to change in the scope of consolidation— —— — 
Exchange differences and other40 15 16 71 
Balances at 31 December 2018(61)(239)(616)(916)
IFRS 16 Adoption impact— — — — — — — — 
Balances at 1 January 2019(61)(239)(616)(916)— — — — 
Impairment charge for the year(14)(12)(36)(62)— — — — 
Releases8 6 3 17 — — — — 
Disposals due to change in the scope of consolidation— — — — — — — — 
Exchange differences and other(26)222 316 512 — — — — 
Balances at 31 December 2019(93)(23)(333)(449)— — — — 
Impairment charge for the year(104)(70)(11)(185)(4)— — (4)
Releases4 2 5 11 1 — — 1 
Disposals due to change in the scope of consolidation— — — — — — — — 
Disposals20 — 3 23 — — — — 
Exchange differences and other33 31 (28)36 (6)— — (6)
Balances at 31 December 2020(140)(60)(364)(564)(9)— — (9)
Tangible assets, net:
Balances at 31 December 20188,150 16,444 1,563 26,157 
IFRS 16 Adoption impact6,693 — — 6,693 6,693 — — 6,693 
Balances at 1 January 201914,843 16,444 1,563 32,850 6,693 — — 6,693 
Balances at 31 December 201915,041 19,221 973 35,235 4,921 — — 4,921 
Balances at 31 December 202013,213 18,559 963 32,735 2,722 — — 2,722 
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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
Tangible assets for own use
Of which:
Right-of-use for operating lease
CostAccumulated
depreciation		Impairment
losses		Carrying
amount
Land and buildings6,127 (2,056)(61)4,010 
IT equipment and fixtures5,605 (4,455)— 1,150 
Furniture and vehicles6,686 (3,946)— 2,740 
Construction in progress and other items317 (67)— 250 
Balances at 31 December 201818,735 (10,524)(61)8,150 
Land and buildings13,972 (2,889)(93)10,990 4,908 
IT equipment and fixtures5,995 (4,808)— 1,187 2 
Furniture and vehicles6,952 (4,216)— 2,736 11 
Construction in progress and other items189 (61)— 128 — 
Balances at 31 December 201927,108 (11,974)(93)15,041 4,921 
Land and buildings13,081 (3,215)(133)9,733 2,716 
IT equipment and fixtures5,562 (4,416)— 1,146 1 
Furniture and vehicles6,085 (3,854)— 2,231 5 
Construction in progress and other items168 (58)(7)103 — 
Balances at 31 December 202024,896 (11,543)(140)13,213 2,722 
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
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
2020
Maturity Analysis
20213,841 
20224,288 
20234,344 
20241,593 
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d) Tangible assets - Investment property
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.
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.
17. Intangible assets – Goodwill
The detail of goodwill, based on the cash-generating units giving rise thereto, is as follows:
EUR million
202020192018
Banco Santander (Brasil) 3,109 4,388 4,459 
SAM Investment Holdings Limited1,444 1,173 1,173 
Santander Consumer Germany1,314 1,236 1,217 
Santander Bank Polska 1,104 2,427 2,402 
Santander Portugal1,040 1,040 1,040 
Santander España1,027 1,027 1,023 
Santander Consumer USA 904 2,143 2,102 
Santander Bank, National Association594 1,828 1,793 
Santander UK592 7,147 8,307 
Banco Santander - Chile 571 589 627 
Grupo Financiero Santander (México)399 460 434 
Santander Consumer Nordics216 496 502 
Other companies157 292 387 
Total Goodwill12,471 24,246 25,466 

The changes in goodwill were as follows:
EUR million
202020192018
Balance at beginning of year24,246 25,466 25,769 
Additions (note 3)429 41 383 
Of which:
SAM Investment Holdings Limited271 — — 
Santander España— 4 375 
Impairment losses(10,100)(1,491)— 
Of which:
Santander UK(6,101)(1,491)— 
Santander Bank Polska(1,192)— — 
Santander Bank, National Association(1,177)— — 
Santander Consumer USA(1,153)— — 
Santander Consumer Nordics(277)— — 
Disposals or changes in scope of consolidation— — (130)
Exchange differences and other items(2,104)230 (556)
Balance at end of year12,471 24,246 25,466 
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.
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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.
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.
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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:


2020
Projected periodDiscount rate*Nominal
perpetual
growth rate
Santander UK5 years9.5 %2.3 %
Santander Bank Polska5 years10.0 %3.5 %
Santander Consumer USA3 years10.7 %1.5 %
Santander Bank, National Association**5 years11.6 %2.5 %
Santander Consumer Germany5 years9.0 %1.8 %
SAM Investment Holdings Limited5 years10.1 %2.5 %
Santander Portugal5 years9.8 %1.8 %
Santander Consumer Nordics5 years10.1 %2.0 %
*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:
Discount rate*Nominal
perpetual
growth rate
2019201820192018
Santander UK8.5 %8.4 %2.5 %2.5 %
Santander Bank Polska**9.2 %  n.a.3.5 %  n.a.
Santander Consumer USA9.5 %11.1 %1.5 %1.5 %
Santander Bank, National Association***9.6 %10.6 %3.6 %3.8 %
Santander Consumer Germany8.2 %8.5 %2.5 %2.5 %
SAM Investment Holdings Limited10.0 %9.6 %2.5 %2.5 %
Santander Portugal8.9 %9.6 %2.0 %2.0 %
Santander Consumer Nordics8.6 %9.2 %2.5 %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.
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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
Estimated
useful life		31 December 2019Net 
additions
and
disposals		Change in
scope of
consolidation		Amortization
and
impairment		Application of
amortization
and
impairment		Exchange
differences
and other		31 December 2020
With indefinite useful life:
Brand names42 — — — (5)37 
With finite useful life:
IT developments3 -7 years7,945 1,123 (34)(224)(910)7,900 
Other1,276 328 1 (17)(149)1,439 
Accumulated amortisation(5,686)35 49 (896)105 584 (5,809)
Development(5,139)— 49 (792)88 487 (5,307)
Other(547)35 — (104)17 97 (502)
Impairment losses(136)— — (142)136 12 (130)
Of which addition— — — (142)— — — 
Liberation— — — — — — — 
3,441 1,486 16 (1,038)— (468)3,437 
EUR million
Estimated
useful life		31 December 2018Net 
additions
and
disposals		Change in
scope of
consolidation		Amortization
and
impairment		Application of
amortization
and
impairment		Exchange
differences
and other		31 December 2019
With indefinite useful life:
Brand names36 2 2 — 2 42 
With finite useful life:
IT developments3-7 years7,134 1,374 (19)(639)95 7,945 
Other1,510 1 (24)(248)37 1,276 
Accumulated amortisation(5,432)— 8 (966)806 (102)(5,686)
Development(4,743)— 4 (874)570 (96)(5,139)
Other(689)— 4 (92)236 (6)(547)
Impairment losses(154)— — (73)81 10 (136)
Of which addition— — — (75)— — — 
liberation— — — 2 — — — 
3,094 1,377 (33)(1,039)— 42 3,441 

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EUR million
Estimated
useful life		31 December 2017Net 
additions
and
disposals		Change in
scope of
consolidation		Amortization
and
impairment		Application of
amortization
and
impairment		Exchange
differences
and other		31 December 2018
With indefinite useful life:
Brand names35 — — — 1 36 
With finite useful life:
IT developments3-7 years6,945 1,468 1 (1,102)(178)7,134 
Other1,560 1 12 (50)(13)1,510 
Accumulated amortisation(5,386)— (1)(1,253)1,035 173 (5,432)
Development(4,721)— (1)(1,153)985 147 (4,743)
Other(665)— — (100)50 26 (689)
Impairment losses(240)— — (117)117 86 (154)
Of which addition— — — (118)— — — 
Liberation— — — 1 — — — 
2,914 1,469 12 (1,370)— 69 3,094 
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
202020192018
Transactions in transit88 157 143 
Net pension plan assets (Note 25)635 903 1,015 
Prepayments and accrued income2,806 3,129 3,089 
Other (Note 2.n)7,362 5,752 4,744 
10,891 9,941 8,991 
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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:
EUR million
202020192018
CENTRAL BANKS
Classification
Financial liabilities held for trading— — — 
Financial liabilities designated at fair value through profit or loss2,490 12,854 14,816 
Financial liabilities at amortized cost112,804 62,468 72,523 
115,294 75,322 87,339 
Type
Deposits on demand10 5 5 
Time deposits108,090 67,424 82,797 
Reverse repurchase agreements7,194 7,893 4,537 
115,294 75,322 87,339 
CREDIT INSTITUTIONS
Classification
Financial liabilities held for trading— — — 
Financial liabilities designated at fair value through profit or loss6,765 9,340 10,891 
Financial liabilities at amortized cost62,620 90,501 89,679 
69,385 99,841 100,570 
Type
Deposits on demand5,727 9,136 6,154 
Time deposits43,308 61,406 53,422 
Reverse repurchase agreements20,179 29,115 40,873 
Subordinated deposits171 184 121 
69,385 99,841 100,570 
Currency:
Euro104,499 79,008 97,323 
Pound sterling23,339 18,129 19,301 
US dollar26,581 53,403 45,848 
Brazilian real12,356 13,022 18,657 
Other currencies17,904 11,601 6,780 
TOTAL184,679 175,163 187,909 
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.
21. Customer deposits
The detail, by classification, geographical area and type, of Customer deposits is as follows:
EUR million
202020192018
Classification
Financial liabilities held for trading— — — 
Financial liabilities designated at fair value through profit or loss34,343 34,917 39,597 
Financial liabilities
at amortized cost		814,967 789,448 740,899 
849,310 824,365 780,496 
Geographical area
Spain294,516 271,103 267,210 
European Union (excluding Spain)*106,013 334,542 309,615 
United States and Puerto Rico59,057 60,011 53,843 
Other OECD countries*306,243 71,235 67,462 
South America83,481 87,474 82,343 
Rest of the world— — 23 
849,310 824,365 780,496 
Type
Demand deposits-642,897 588,533 548,711 
Current accounts418,752 373,146 346,345 
Savings accounts216,500 208,701 196,493 
Other demand deposits7,645 6,686 5,873 
Time deposits-171,939 196,921 199,025 
Fixed-term deposits and other term deposits170,127 194,163 195,540 
Home-purchase savings accounts43 44 40 
Discount deposits3 3 3 
Hybrid financial liabilities1,743 2,711 3,419 
Subordinated liabilities23 — 23 
Repurchase agreements34,474 38,911 32,760 
849,310 824,365 780,496 
*    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).


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22. Marketable debt securities
a) Breakdown
The detail, by classification and type, of Marketable debt securities is as follows:
EUR million
202020192018
Classification
Financial liabilities
held for trading		— — — 
Financial liabilities designated
at fair value through profit or loss		4,440 3,758 2,305 
Financial liabilities
at amortized cost		230,829 258,219 244,314 
235,269 261,977 246,619 
Type
Bonds and debentures outstanding191,577 208,455 195,498 
Subordinated21,686 20,878 23,676 
Notes and other securities22,006 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
On
demand		Within 1
month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than 5
years		Total
Subordinated debt— ———7413,50517,44021,686
Senior unsecured debt— 2,2591,98514,47634,81429,03722,959105,530
Senior secured debt— 9,0686,6689,02525,11615,50820,66286,047
Promissory notes and other securities— 3,9429,9758,089———22,006
Debt securities issued— 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
On
demand		Within 1
month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than 5
years		Total
Subordinated debt— ———7323,46317,23321,428
Senior unsecured debt— 2,1681,90513,89533,41527,87122,039101,293
Senior secured debt— 8,9826,6058,93924,87815,36120,46685,231
Promissory notes and other securities— 4,15810,5218,531———23,210
Debt securities issued— 15,308 19,031 31,365 59,025 46,695 59,738 231,162 
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b) Bonds and debentures outstanding
The detail, by currency of issue, of 'Bonds and debentures outstanding' is as follows:
2020
EUR million
Currency of issue202020192018Outstanding issue amount in foreign currency (Million)Annual
interest rate (%)
Euro89,03189,00885,47989,0311.08%
US dollar61,17464,95262,02175,0642.92%
Pound sterling16,56920,17816,61614,8802.16%
Brazilian real8,39815,29215,77853,5222.99%
Chilean peso5,6246,8486,4604,903,1104.67%
Other currencies10,78112,1779,144
Balance at end of year191,577 208,455 195,498 

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The changes in 'Bonds and debentures outstanding' were as follows:
EUR million
202020192018
Balance at beginning of year208,455 195,498 176,719 
Net inclusion of entities in the Group785 — — 
Issues54,905 64,184 68,306 
Of which:
Santander Consumer USA Holdings Inc.12,246 15,631 15,627 
Banco Santander (Brasil) S.A.11,036 13,227 16,422 
Banco Santander, S.A.10,220 12,066 7,683 
Santander UK Group Holdings plc group6,320 4,547 14,984 
Santander Consumer Finance, S.A.2,394 5,150 3,605 
SC Germany S.A., Compartment Consumer 2020-11,800 — — 
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México1,770 577 560 
Santander International Products, Plc.1,588 848 249 
Santander Holdings USA, Inc.1,269 2,778 1,210 
Santander Consumer Bank AS773 1,572 1,342 
Banco Santander - Chile766 1,644 1,483 
SCF Rahoituspalvelut IX DAC650 — — 
PSA Financial Services Spain, E.F.C., S.A.605 — — 
Santander Consumer Bank AG500 750 — 
PSA Banque France385 1,132 716 
PSA Bank Deutschland GmbH— 1,104 600 
SCF Rahoituspalvelut VIII DAC— 799 — 
Redemptions and repurchases(62,699)(52,462)(48,319)
Of which:
Banco Santander (Brasil) S.A.(14,211)(12,817)(14,802)
Santander UK Group Holdings plc group(14,102)(9,115)(6,800)
Santander Consumer USA Holdings Inc.(13,959)(14,517)(11,939)
Banco Santander, S.A.(5,991)(3,303)(4,752)
Santander Consumer Finance, S.A.(4,371)(2,550)(2,366)
Banco Santander - Chile(1,974)(848)(204)
Santander Holdings USA, Inc.(1,201)(1,990)(903)
Santander Consumer Bank AS(936)(1,551)(1,268)
Banco Santander Totta, S.A.(784)(739)(41)
PSA Banque France(684)— — 
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México(415)(159)(579)
Santander International Products, Plc.(324)(722)(491)
PSA Bank Deutschland GmbH— (902)(488)
Banca PSA Italia S.p.A.— — (600)
Exchange differences and other movements(9,869)1,235 (1,208)
Balance at year-end191,577 208,455 195,498 
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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.
d) Guarantees
Set forth below is information on the liabilities secured by assets:
EUR million
202020192018
Asset-backed securities35,753 38,616 38,140 
Of which, mortgage-backed securities2,274 3,819 5,197 
Other mortgage securities49,425 50,269 46,026 
Of which: mortgage-backed bonds24,736 24,736 22,023 
Territorial covered bond869 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
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.
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
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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
202020192018
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)76,554 84,720 85,610 
Of which:
Loans eligible to cover issues of mortgage-backed securities57,382 59,517 60,195 
Transfers of assets retained on balance sheet: mortgage-backed certificates and other securitised mortgage assets17,610 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
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.

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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:

2020
EUR millionOutstanding issue amount in foreign currency (million)Annual interest rate (%)
Currency of issue202020192018
Euro13,57012,54214,00113,5703.86%
US dollar5,9916,5067,8137,3515.16%
Pound sterling5656556285078.89%
Brazilian real—————
Other currencies1,7541,3591,378
Balance at end of year21,880 21,062 23,820 
Of which preference shares 196321345
Of which preference participations 7,4257,7099,717
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.
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b) Changes
The changes in Subordinated marketable debt securities in the last three years were as follows:
EUR million
202020192018
Balance at beginning of year20,878 23,676 21,382 
Net inclusion of entities in the Group (Note 3)— — — 
Placements4,075 1,056 3,266 
Of which:
Banco Santander, S.A.3,722 1,056 2,750 
Banco Santander - Chile353 — — 
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México— — 281 
Santander Bank Polska S.A.— — 235 
Net redemptions and repurchases*(2,838)(4,009)(1,259)
Of which:
Banco Santander, S.A.(1,671)(3,782)(401)
Santander UK plc(740)(16)(313)
Santander UK Group Holdings plc(316)— — 
Santander Bank, National Association(111)(19)(163)
Banco Santander (Brasil) S.A.— (124)(61)
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México— (69)(125)
Santander Holdings USA, Inc.— — (195)
Exchange differences and other movements(429)155 287 
Balance at end of year21,686 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
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).
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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).
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.
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.
Issues by Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México
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
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).
Interests from the PPCC during 2020 amounted to EUR 552 million (EUR 595 million and EUR 560 million in 2019 and 2018, respectively).
24. Other financial liabilities
The detail of Other financial liabilities in the consolidated balance sheets is as follows:
EUR million
202020192018
Trade payables1,177 1,279 1,323 
Clearing houses599 165 434 
Tax collection accounts:
Public Institutions4,122 4,122 3,968 
Factoring accounts payable222 409 263 
Unsettled financial transactions5,080 3,693 3,373 
Lease liabilities (note 2.l)3,049 5,108 190 
Other financial liabilities12,719 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
20202019
Maturity Analysis - Discounted payments
Within 1 year594 766 
Between 1 and 3 years981 1,254 
Between 3 and 5 years637 875 
Later than 5 years837 2,213 
Total discounted payments at the end of the year3,049 5,108 
During 2020 and 2019, there were no significant variable lease payments not included in the valuation of lease liabilities.
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25. Provisions
a) Breakdown
The detail of Provisions in the consolidated balance sheets is as follows:
EUR million
202020192018
Provision for pensions and other obligations post-employments3,976 6,358 5,558 
Other long term employee benefits1,751 1,382 1,239 
Provisions for taxes and other legal contingencies2,200 3,057 3,174 
Provisions for contingent liabilities and commitments (note 2)700 739 779 
Other provisions2,225 2,451 2,475 
Provisions10,852 13,987 13,225 
b) Changes
The changes in 'Provisions' in the last three years were as follows:
EUR million
2020
Post employment plansLong term employee benefitsContingent liabilities and commitmentsOther provisionsTotal
Balances at beginning of year6,358 1,382 739 5,508 13,987 
Incorporation of Group companies, net(5)— (1)(2)(8)
Additions charged to income(217)782 50 1,934 2,549 
Interest expense (note 39)84 11 — — 95 
Staff costs (note 47)
69 7 — — 76 
Provisions or reversion of provisions(370)764 50 1,934 2,378 
Addition6 787 490 2,258 3,541 
Release(376)(23)(440)(324)(1,163)
Other additions arising from insurance contracts linked to pensions2 — — — 2 
Changes in value recognised in equity547 — — — 547 
Payments to pensioners and pre-retirees with a charge to internal provisions(303)(408)— — (711)
Benefits paid due to settlements(1,551)— — — (1,551)
Insurance premiums paid(1)— — — (1)
Payments to external funds(333)— — — (333)
Amounts used— — — (2,485)(2,485)
Transfer, exchange differences and other changes(521)(5)(88)(530)(1,144)
Balances at end of year3,976 1,751 700 4,425 10,852 
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EUR million
20192018
Post employment plansLong term employee benefitsContingent liabilities and commitmentsOther provisionsTotalPost employment plansLong term employee benefitsContingent liabilities and commitmentsOther provisionsTotal
Balances at beginning of year5,558 1,239 779 5,649 13,225 6,345 1,686 814 5,841 14,686 
Incorporation of Group companies, net— (1)— — (1)— — — (30)(30)
Additions charged to income173 729 (31)2,836 3,707 38 251 (49)2,253 2,493 
Interest expense (note 39)128 17 — — 145 165 21 — — 186 
Staff costs (note 47)
65 7 — — 72 78 6 — — 84 
Provisions or reversion of provisions(20)705 (31)2,836 3,490 (205)224 (49)2,253 2,223 
Addition10 713 422 4,276 5,421 7 227 455 4,612 5,301 
Release(30)(8)(453)(1,440)(1,931)(212)(3)(504)(2,359)(3,078)
Other additions arising from insurance contracts linked to pensions4 — — — 4 (7)— — — (7)
Changes in value recognised in equity1,520 — — — 1,520 (482)— — — (482)
Payments to pensioners and pre-retirees with a charge to internal provisions(331)(612)— — (943)(332)(625)— — (957)
Benefits paid due to settlements— — — — — — — — — — 
Insurance premiums paid(1)— — — (1)(2)— — — (2)
Payments to external funds(455)— — — (455)(368)— — — (368)
Amounts used— — — (2,907)(2,907)— — (3)(2,548)(2,551)
Transfer, exchange differences and other changes(110)27 (9)(70)(162)366 (73)17 133 443 
Balances at end of year6,358 1,382 739 5,508 13,987 5,558 1,239 779 5,649 13,225 
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
202020192018
Provisions for post-employment plans - Spanish entities1,8813,9513,930
Provisions for other similar obligations - Spanish entities1,6951,3211,189
Of which pre-retirements1,6761,3031,172
Provisions for post-employment plans - United Kingdom449329130
Provisions for post-employment plans - Other subsidiaries1,6462,0781,498
Provisions for other similar obligations - Other subsidiaries566150
Provision for pensions and other obligations post -employments and Other long term employee benefits5,7277,7406,797
Of which defined benefits5,7197,7316,791
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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:
Post-employment plansOther similar obligations
202020192018202020192018
Annual discount rate0.60 %0.80 %1.55 %0.60 %0.80 %1.55 %
Mortality tablesPE2020 M/F Col. Order 1PERM/F-2000PERM/F-2000PE2020 M/F Col. Order 1PERM/F-2000PERM/F-2000
Cumulative annual CPI growth1.00 %1.00 %1.00 %1.00 %1.00 %1.00 %
Annual salary increase rate1,25%*1.25%*2.00%*N/AN/AN/A
Annual social security pension increase rate1.00 %1.00 %1.00 %N/AN/AN/A
Annual benefit increase rateN/AN/AN/A0 %0 %From 0% to 1.50%
*    Corresponds to the group’s defined-benefit obligations.

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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.
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 plansOther similar obligations
202020192018202020192018
Expected rate of return on plan assets0.60 %0.80 %1.55 %0.60 %0.80 %1.55 %
Expected rate of return on reimbursement rights0.60 %0.80 %1.55 %N/AN/AN/A
The funding status of the defined benefit obligations in 2020 and the two preceding years is as follows:
EUR million
Post-employment plansOther similar obligations
202020192018202020192018
Present value of the obligations
To current employees60 59 60 — — — 
Vested obligations to retired employees3,318 5,393 5,332 — — — 
To pre-retirees employees— — — 1,688 1,317 1,187 
Long-service bonuses and other benefits— — — 18 18 17 
Other41 42 35 1 — — 
3,419 5,494 5,427 1,707 1,335 1,204 
Less - Fair value of plan assets1,542 1,547 1,500 12 14 15 
Provisions - Provisions for pensions1,877 3,947 3,927 1,695 1,321 1,189 
Of which:
Internal provisions for pensions1,707 3,759 3,720 1,695 1,321 1,189 
Insurance contracts linked to pensions (note 14)174 192 210 — — — 
Unrecognised net assets for pensions(4)(4)(3)— — — 
The amounts recognised in the consolidated income statements in relation to the aforementioned defined benefit obligations are as follows:
EUR million
Post-employment plansOther similar obligations
202020192018202020192018
Current service cost10 12 18 1 1 1 
Interest cost (net)26 53 73 9 15 18 
Expected return on insurance contracts linked to pensions(1)(2)(4)— — — 
Provisions or reversion of provisions
Actuarial (gains)/losses recognised in the year— — — (3)7 7 
Past service cost2 3 3 — 1 5 
Pre-retirement cost— 1 1 772 687 208 
Other*(372)(29)(4)(15)(2)— 
(335)38 87 764 709 239 
*Including reduction/settlement effect
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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
Post-employment plansOther similar obligations
202020192018202020192018
Present value of the obligations at beginning of year5,494 5,427 5,912 1,335 1,204 1,660 
Incorporation of Group companies, net— — (36)— (1)— 
Current service cost10 12 18 1 1 1 
Interest cost39 72 99 9 15 18 
Pre-retirement cost— 1 1 772 687 208 
Effect of curtailment/settlement(372)(29)(4)(15)(2)— 
Benefits paid(359)(400)(423)(392)(599)(617)
Benefits paid due to settlements(1,551)— — — — — 
Past service cost2 3 3 — 1 5 
Actuarial (gains)/losses163 407 (145)(3)7 6 
Demographic actuarial (gains)/losses91 15 (21)(8)(9)(3)
Financial actuarial (gains)/losses72 392 (124)5 16 9 
Exchange differences and other items(7)1 2 — 22 (77)
Present value of the obligations at end of year3,419 5,494 5,427 1,707 1,335 1,204 
The changes in the fair value of plan assets and of insurance contracts linked to pensions were as follows:
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Plan Assets
EUR million
Post-employment plansOther similar obligations
202020192018202020192018
Fair value of plan assets at beginning of year1,547 1,500 1,640 14 15 17 
Incorporation of Group companies, net— — — — — — 
Expected return on plan assets13 19 26 — — — 
Benefits paid(94)(108)(115)(2)(2)(2)
Contributions/(surrenders)5 8 21 — — — 
Actuarial gains/(losses)76 128 (73)— — (1)
Exchange differences and other items(5)— 1 — 1 1 
Fair value of plan assets at end of year1,542 1,547 1,500 12 14 15 
Insurance Contracts linked to pensions
EUR million
Post-employment plansOther similar obligations
202020192018202020192018
Fair value of insurance contracts linked to pensions at beginning of year192 210 238 — — 1 
Incorporation of Group companies, net— — — — — — 
Expected return on insurance contracts linked to pensions1 2 4 — — — 
Benefits paid(21)(24)(27)— — (1)
Paid premiums— — 2 — — — 
Actuarial gains/(losses)2 4 (7)— — — 
Fair value of insurance contracts linked to pensions at end of year174 192 210 — — — 
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.
The following table shows the estimated benefits payable at 31 December 2020 for the next ten years:
EUR million
20211,038
2022771
2023660
2024548
2025464
2026 to 20301,619
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 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.
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2.    Actuarial assumptions used: unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in the calculations were as follows:
202020192018
Annual discount rate1.28%2.11%2.90%
Mortality tablesThe S3 Middle tables weighted at 84% of the CMI_2018 projection with an initial addition of 0.15%, smoothing parameter 7 and improving 1.25%.The S3 Middle tables weighted at 84% of the CMI_2018 projection with an initial addition of 0.15%, smoothing parameter 7 and improving 1.25%.108/86
S2 Light
Cumulative annual CPI growth2.95%3.01%3.22%
Annual salary increase rate1.00%1.00%1.00%
Annual pension increase rate2.85%2.91%2.94%
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
202020192018
Present value of the obligations15,472 14,297 12,079 
Less-
Fair value of plan assets15,575 14,755 12,887 
Provisions - Provisions for pensions(103)(458)(808)
Of which:
Internal provisions for pensions449 329 130 
Net assets for pensions(552)(787)(938)
The amounts recognised in the consolidated income statements in relation to the aforementioned defined benefit obligations are as follows:
EUR million
202020192018
Current service cost30 27 31 
Interest cost (net)(12)(24)(6)
Provisions or reversal of provisions, net(1)— — 
Cost of services provided— — — 
Others(1)— — 
17 3 25 
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).
The changes in the present value of the accrued defined benefit obligations were as follows:
EUR million
202020192018
Present value of the obligations at beginning of year14,297 12,079 13,056 
Current service cost30 27 31 
Interest cost284 352 320 
Benefits paid(445)(441)(489)
Contributions made by employees17 18 24 
Past service cost— — — 
Actuarial (gains)/losses2,060 1,594 (766)
Demographic actuarial (gains)/losses34 48 (21)
Financial actuarial (gains)/losses2,026 1,546 (745)
Exchange differences and other items(771)668 (97)
Present value of the obligations at end of year15,472 14,297 12,079 
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The changes in the fair value of the plan assets were as follows:
EUR million
202020192018
Fair value of plan assets at beginning of year14,755 12,887 13,239 
Expected return on plan assets296 376 326 
Benefits paid(443)(441)(489)
Contributions274 244 209 
Actuarial gains/(losses)1,492 993 (285)
Exchange differences and other items(799)696 (113)
Fair value of plan assets at end of year15,575 14,755 12,887 
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:
202020192018
Equity instruments9 %12 %17 %
Debt instruments55 %46 %50 %
Properties10 %11 %10 %
Other26 %31 %23 %
The following table shows the estimated benefits payable at 31 December 2020 for the next ten years:
EUR million
2021400 
2022343 
2023368 
2024382 
2025405 
2026 to 20302,320 
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
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.
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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
2020Of which business in Brazil20192018
Present value of the obligations8,434 5,541 10,717 9,116 
Less-
Of which: with a charge to the participants112 112 176 167 
Fair value of plan assets7,182 5,340 8,826 7,743 
Provisions - Provisions for pensions1,140 89 1,715 1,206 
Of which:
Internal provisions for pensions1,694 617 2,129 1,541 
Net assets for pensions(83)(57)(116)(77)
Unrecognised net assets for pensions(471)(471)(298)(258)
The amounts recognised in the consolidated income statements in relation to these obligations are as follows:
EUR million
202020192018
Current service cost35 32 34 
Interest cost (net)72 101 101 
Provisions or reversion of provisions
(Actuarial gains)/losses recognised in the year11 12 5 
Past service cost5 6 3 
Pre-retirement cost— — (6)
Other(5)(1)(203)
118 150 (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'.
The changes in the present value of the accrued obligations were as follows:
EUR million
202020192018
Present value of the obligations at beginning of year10,717 9,116 9,534 
Incorporation of Group companies, net(84)— 36 
Current service cost35 32 34 
Interest cost465 651 646 
Pre-retirement cost— — (6)
Effect of curtailment/settlement(5)(1)(199)
Benefits paid(544)(666)(634)
Benefits paid due to settlements— — — 
Contributions made by employees3 5 5 
Past service cost5 6 3 
Actuarial (gains)/losses176 1,652 390 
Demographic actuarial (gains)/losses23 3 (59)
Financial actuarial (gains)/losses153 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 
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The changes in the fair value of the plan assets were as follows:
EUR million
202020192018
Fair value of plan assets at beginning of year8,826 7,743 7,927 
Incorporation of Group companies, net(86)— — 
Expected return on plan assets410 573 573 
Benefits paid(488)(613)(602)
Benefits paid due to settlements— — — 
Contributions63 214 199 
Actuarial gains/(losses)536 1,021 308 
Exchange differences and other items(2,079)(112)(662)
Fair value of plan assets at end of year7,182 8,826 7,743 
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:
202020192018
Equity instruments11 %8%7%
Debt instruments84 %84%83%
Properties1 %1%1%
Other4 %7%9%
The following table shows the estimated benefits payable at 31 December 2020 for the next ten years:
EUR million
2021482 
2022488 
2023494 
2024502 
2025509 
2026 to 20302,639 
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.
The detail, by geographical area, of Provisions for taxes and other legal contingencies and Other provisions is as follows:
EUR million
202020192018
Recognised by Spanish companies1,647 1,381 1,647 
Recognised by other EU companies539 1,100 1,044 
Recognised by other companies2,239 3,027 2,958 
Of which:
Brazil1,475 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
202020192018
Provisions for taxes600 759 864 
Provisions for employment-related proceedings (Brazil)437 776 859 
Provisions for other legal proceedings1,163 1,522 1,451 
Provision for customer remediation395 725 652 
Regulatory framework-related provisions69 67 105 
Provision for restructuring810 641 492 
Other951 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.
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.
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•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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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
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.,
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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
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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.
•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.
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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
202020192018
Transactions in transit498 663 803 
Accrued expenses and deferred income6,309 6,909 6,621 
Other5,529 5,220 5,664 
12,336 12,792 13,088 

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.
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.
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c) Reconciliation
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:
EUR million
202020192018
Consolidated profit (loss) before tax:
From continuing operations(2,076)12,543 14,201 
From discontinued operations—— — 
(2,076)12,543 14,201 
Income tax at tax rate applicable in Spain (30%)(623)3,763 4,260 
By the effect of application of the various tax rates applicable in each country*362243 509 
Of which:
Brazil560502 719 
United Kingdom(43)(80)(99)
United States(71)(71)(57)
Chile(24)(35)(35)
Effect of profit or loss of associates and joint ventures29(97)(221)
Effect of reassessment of deferred taxes2,500(612)— 
Permanent differences
and other **		3,3641,130 338 
Current income tax5,6324,427 4,886 
Effective tax rate—35.29 %34.40 %
Of which:
Continuing operations5,6324,427 4,886 
Discontinued operations
(note 37)		—— — 
Of which:
Current taxes4,2143,962 4,763 
Deferred taxes1,418465 123 
Income tax (receipts)/payments2,9462,593 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.
d) Tax recognised in equity
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
202020192018
Other comprehensive income
Items not reclassified to profit or loss(82)500 (225)
Actuarial gains or (-) losses on defined benefit pension plans(165)499 (199)
Changes in the fair value of equity instruments measured at fair value through other comprehensive income92 (42)— 
Financial liabilities at fair value with changes in results attributable to changes in credit risk(9)43 (26)
Items that may be reclassified to profit or loss208 (832)124 
Cash flow hedges5 (17)(50)
Changes in the fair value of debt instruments through other comprehensive income195 (811)167 
Other recognised income and expense of investments in subsidiaries, joint ventures and associates8 (4)7 
Total126 (332)(101)
e) Deferred taxes
'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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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.
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:
EUR million
202020192018
Monetizable* **OtherMonetizable* **OtherMonetizable* **Other
Tax assets:10,721 8,525 11,233 11,525 10,866 12,392 
Tax losses and tax credits— 1,093 — 3,428 — 4,276 
Temporary differences10,721 7,432 11,233 8,097 10,866 8,116 
Of which:
Non-deductible provisions— 2,139 — 2,751 — 2,613 
Valuation of financial instruments— 483 — 400 — 609 
Loan losses7,134 1,007 7,645 1,086 7,279 1,308 
Pensions3,587 875 3,587 1,009 3,587 632 
Valuation of tangible and intangible assets— 1,373 — 1,317 — 1,215 
Tax liabilities:— 5,933 — 6,522 — 5,568 
Temporary differences— 5,933 — 6,522 — 5,568 
Of which:
Valuation of financial instruments— 1,791 — 2,073 — 1,168 
Valuation of tangible and intangible assets— 2,311 — 1,962 — 1,503 
Investments in Group companies— 440 — 831 — 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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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
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.
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The changes in Tax assets - Deferred and Tax liabilities - Deferred in the last three years were as follows:
EUR million
Balances at 31 December 2019(Charge)/Credit to incomeForeign currency balance translation differences and other items(Charge)/Credit to asset and liability valuation adjustmentsAcquisition for the year (net)Balances at 31 December 2020
Deferred tax assets22,758 (1,016)(2,465)38 (69)19,246 
Tax losses and tax credits3,427 (2,065)(266)— (3)1,093 
Temporary differences19,331 1,049 (2,199)38 (66)18,153 
Of which monetizable11,233 613 (1,125)— — 10,721 
Deferred tax liabilities(6,522)(402)851 156 (16)(5,933)
Temporary differences(6,522)(402)851 156 (16)(5,933)
16,236 (1,418)(1,614)194 (85)13,313 
EUR million
Balance at 31 December 2018(Charge)/Credit to incomeForeign currency balance translation differences and other items(Charge)/Credit to asset and liability valuation adjustmentsAcquisition for the year (net)Balance at 31 December 2019
Deferred tax assets23,258 215 (610)(92)(13)22,758 
Tax losses and tax credits4,276 (301)(548)— — 3,427 
Temporary differences18,982 516 (62)(92)(13)19,331 
Of which monetizable10,866 427 (60)— — 11,233 
Deferred tax liabilities(5,568)(680)92 (366)— (6,522)
Temporary differences(5,568)(680)92 (366)— (6,522)
17,690 (465)(518)(458)(13)16,236 
EUR million
Balances at 31 December 2017IFRS 9 Adoption impact (Balance at 1 January 2018)(Charge)/Credit to incomeForeign currency balance translation differences and other items(Charge)/Credit to asset and liability valuation adjustmentsAcquisition for the year (net)Balance at 31 December 2018
Deferred tax assets23,210 680 241 (807)149 (215)23,258 
Tax losses and tax credits4,457 — (128)1 — (54)4,276 
Temporary differences18,753 680 369 (808)149 (161)18,982 
Of which monetizable11,046 273 391 (844)— — 10,866 
Deferred tax liabilities(4,837)— (364)(114)(315)62 (5,568)
Temporary differences(4,837)— (364)(114)(315)62 (5,568)
18,373 680 (123)(921)(166)(153)17,690 
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.
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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.
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.









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28. Non-controlling interests
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
 202020192018
Santander Bank Polska S.A.1,676 1,597 1,538 
Grupo PSA1,622 1,569 1,409 
Banco Santander - Chile1,218 1,101 1,085 
Banco Santander (Brasil) S.A.1,014 1,167 1,114 
Santander Consumer USA Holdings Inc.986 1,565 1,652 
Banco Santander México, S.A. Institución de Banca Múltiple, Grupo Financiero Santander México461 333 1,093 
Other companies*1,806 1,655 1,493 
8,783 8,987 9,384 
Profit/(Loss) for the year attributable to non-controlling interests1,063 1,601 1,505 
Of which:
Grupo PSA255 266 232 
Banco Santander (Brasil) S.A.233 373 292 
Santander Consumer USA Holdings Inc.201 230 218 
Banco Santander - Chile198 283 279 
Santander Bank Polska S.A.81 162 173 
Banco Santander México, S.A. Institución de Banca Múltiple, Grupo Financiero Santander México61 195 216 
Other companies34 92 95 
TOTAL9,846 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).
b) Changes
The changes in Non-controlling interests are summarised as follows:
EUR million
202020192018
Balance at the end of the previous year10,588 10,889 12,344 
Effect of changes in accounting policies*— — (1,292)
Balance at beginning of year10,588 10,889 11,052 
Other comprehensive income**(818)310 (109)
Other76 (611)(54)
Profit attributable to non-controlling interests1,063 1,601 1,505 
Modification of participation rates(632)(1,623)(65)
Change of perimeter(54)110 (660)
Dividends paid to minority shareholders(465)(895)(687)
Changes in capital and others concepts164 196 (147)
Balance at end of year9,846 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*
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
Total assets150,573 66,880 80,239 46,890 43,706 
Total liabilities138,026 61,902 73,739 41,816 37,097 
Net assets12,547 4,978 6,500 5,074 6,609 
Total income10,866 2,263 3,651 1,524 4,575 
Total profit2,352 629 823 240 806 
*    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.
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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.
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a) Breakdown of Other comprehensive income - Items that will not be reclassified in results and Items that can be classified in results

EUR million
2020 2019 2018 
Other comprehensive income
(33,144)(24,168)(24,125)
Items that will not be reclassified to profit or loss
(5,328)(4,288)(2,936)
Actuarial gains and losses on defined benefit pension plans(5,002)(4,764)(3,609)
Non-current assets held for sale— — — 
Share in other income and expenses recognised in investments, joint ventures and associates(2)1 1 
Other valuation adjustments— — — 
Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income(308)514 597 
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)159 44 — 
Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income (hedging instrument)(159)(44)— 
Changes in the fair value of financial liabilities measured at fair value through profit or loss attributable to changes in credit risk(16)(39)75 
Items that may be reclassified to profit or loss
(27,816)(19,880)(21,189)
Hedges of net investments in foreign operations (Effective portion)(3,124)(5,464)(4,312)
Exchange differences(26,911)(16,701)(17,661)
Hedging derivatives. Cash flow hedges (Effective portion)295 300 277 
Changes in the fair value of debt instruments measured at fair value with changes in other comprehensive income2,411 2,321 828 
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(487)(336)(321)
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%.
•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).
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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:








EUR million
2020
Capital gains by valuationCapital losses by valuationNet gains/losses by valuationFair Value
Equity instruments
Domestic
Spain28 (849)(821)1,032 
International
Rest of Europe65 (76)(11)314 
United States7 (4)3 25 
Latin America and rest525 (4)521 1,412 
625 (933)(308)2,783 
Of which:
Publicly listed525 (31)494 1,424 
Non publicly listed100 (902)(802)1,359 
EUR million
2019
Capital gains by valuationCapital losses by valuationNet gains/losses by valuationFair Value
Equity instruments
Domestic
Spain21 (445)(424)184 
International
Rest of Europe68 (72)(4)379 
United States15 (3)12 44 
Latin America and rest934 (4)930 2,256 
1,038 (524)514 2,863 
Of which:
Publicly listed936 (14)922 2,283 
Non publicly listed102 (510)(408)580 
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EUR million
2018
Capital gains by valuationCapital losses by valuationNet gains/losses by valuationFair Value
Equity instruments
Domestic
Spain20 (216)(196)417 
International
Rest of Europe160 (76)84 652 
United States9 9 42 
Latin America and rest708 (8)700 1,560 
897 (300)597 2,671 
Of which:
Publicly listed818 (18)800 1943 
Non publicly listed79 (282)(203)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:
202020192018
Net balance at end of year*(30,035)(22,165)(21,973)
Of which:
Brazilian real(17,417)(13,579)(12,950)
Pound sterling(4,205)(3,135)(3,924)
Mexican peso(3,091)(2,439)(2,312)
Argentine peso*(2,288)(2,094)(1,930)
Chilean peso(1,776)(1,560)(1,238)
US dollar387 1,654 1,330 
Polish zloty(788)(501)(491)
Other(857)(511)(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).
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).

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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
31 December 2020
Revaluation gainsRevaluation lossesNet revaluation gains/ (losses)Fair value
Debt instruments
Government debt securities and debt Instruments issued by central banks
Spain (note 7)693 — 693 19,314 
Rest of Europe915 (69)846 23,116 
Latin America and rest of the world785 (73)712 51,026 
Private-sector debt securities181 (21)160 24,714 
2,574 (163)2,411 118,170 
EUR million
31 December 2019
Revaluation gainsRevaluation lossesNet revaluation gains/ (losses)Fair value
Debt instruments
Government debt securities and debt Instruments issued by central banks
Spain (note 7)947 (2)945 32,413 
Rest of Europe664 (38)626 19,052 
Latin America and rest of the world839 (121)718 51,284 
Private-sector debt securities81 (49)32 20,096 
2,531 (210)2,321 122,845 
EUR million
31 December 2018
Revaluation gainsRevaluation lossesNet revaluation gains/ (losses)Fair value
Debt instruments
Government debt securities and debt Instruments issued by central banks
Spain (note 7)326 (3)323 38,550 
Rest of Europe373 (55)318 17,494 
Latin America and rest of the world448 (117)331 42,599 
Private-sector debt securities37 (178)(141)19,777 
1,184 (353)831 118,420 
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.
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
202020192018
Balance at beginning of year(335)(320)(222)
Revaluation gains/(losses)(170)(22)(118)
Net amounts transferred to profit or loss16 7 20
Balance at end of year(489)(335)(320)
Of which:
Zurich Santander Insurance América, S.L.(298)(171)(183)
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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).
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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
202020192018
Restricted reserves2,460 2,595 2,580 
Legal reserve1,734 1,662 1,624 
Own shares672 879 902 
Revaluation reserve Royal Decree-Law 7/199643 43 43 
Reserve for retired capital11 11 11 
Unrestricted reserves10,422 10,664 12,099 
Voluntary reserves*6,128 4,603 5,737 
Consolidation reserves attributable to the Bank4,294 6,061 6,362 
Reserves of subsidiaries47,601 43,449 39,522 
Reserves of entities accounted for using the equity method1,504 1,210 972 
61,987 57,918 55,173 
*    In accordance with the commercial regulations in force in Spain.
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.
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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:
EUR million
202020192018
Banco Santander (Brasil) S.A. (Consolidated Group)14,067 12,400 10,755 
Santander UK Group8,447 8,079 8,207 
Group Santander Holdings USA4,793 4,528 4,260 
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México4,230 3,810 3,436 
Santander Consumer Finance Group4,186 4,012 2,841 
Banco Santander - Chile3,404 3,116 2,963 
Banco Santander Totta, S.A. (Consolidated Group)2,960 2,823 2,729 
Banco Santander Río S.A.2,161 1,895 1,847 
Santander Bank Polska S.A. 1,748 1,738 1,387 
Santander Investment, S.A.1,335 146 208 
Santander Seguros y Reaseguros, Compañía Aseguradora, S.A.695 823 714 
Banco Santander Internacional SA (former Banco Santander (Suisse) SA)247 348 369 
Other companies and consolidation adjustments*(672)(269)(194)
47,601 43,449 39,522 
Of which, restricted3,155 3,193 2,964 
*    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
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.
a) Guarantees and contingent commitments granted
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:
202020192018
Loans commitment granted241,230 241,179 218,083 
Of which doubtful274 352 298 
Financial guarantees granted12,377 13,650 11,723 
Of which doubtful124 154 181 
Financial guarantees12,358 13,619 11,557 
Credit derivatives sold19 31 166 
Other commitments granted64,538 68,895 74,389 
Of which doubtful548 747 983 
Technical guarantees33,526 33,890 35,154 
Other31,012 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
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in the related contract to the nominal amount of the guarantee.
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
202020192018
Investment funds131,965 142,988 127,564 
Pension funds15,577 11,843 11,160 
Assets under management20,712 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).
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:

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EUR million
2020
GBP LIBORUSD LIBORCHF LIBOROthers*Total
Total hedging instruments affected
Fair value hedges38,304 16,163 1,315 1,899 57,681 
Interest rate risk37,450 14,600 464 1,899 54,413 
Interest rate and foreign exchange risk854 1,563 851 — 3,268 
Cash flow hedges18,768 18,508 1,462 395 39,133 
Interest rate risk1,741 12,772 — — 14,513 
Interest rate and foreign exchange risk16,528 4,484 378 395 21,785 
Exchange rate risk499 1,252 1,084 — 2,835 
57,072 34,671 2,777 2,294 96,814 
Post-transition date agreement
Fair value hedges16,036 14,381 1,267 1,834 33,518 
Interest rate risk15,608 13,563 416 1,834 31,421 
Interest rate and foreign exchange risk428 818 851 — 2,097 
Cash flow hedges13,883 10,912 1,371 395 26,561 
Interest rate risk980 8,023 — — 9,003 
Interest rate and foreign exchange risk12,405 2,853 308 395 15,961 
Exchange rate risk498 36 1,063 — 1,597 
29,919 25,293 2,638 2,229 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
2020
GBP LIBORUSD LIBORCHF LIBOROthers*Total
Total hedge items directly affected
Fair value hedges33,544 411 — 1,717 35,672 
Interest rate risk33,266 384 — 1,109 34,759 
Interest rate and foreign exchange risk278 — — 608 886 
Exchange rate risk— 27 — — 27 
Cash flow hedges5,633 12,614 1,347 — 19,594 
Interest rate risk1,741 12,578 — — 14,319 
Interest rate and foreign exchange risk3,892 — 169 — 4,061 
Exchange rate risk— 36 1,178 — 1,214 
39,177 13,025 1,347 1,717 55,266 
Post-transition date agreement
Fair value hedges27,508 384 — 1,717 29,609 
Interest rate risk27,508 384 — 1,109 29,001 
Interest rate and foreign exchange risk— — — 608 608 
Cash flow hedges362479471191012762
Interest rate risk980 7,911 — — 8,891 
Interest rate and foreign exchange risk2,644 — 100 — 2,744 
Exchange rate risk— 36 1,091 — 1,127 
31,132 8,331 1,191 1,717 42,371 
*    Includes mainly JPY Libor and EONIA.
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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
Nominal valueAssetsLiabilitiesChanges in fair value used for calculating hedge ineffectivenessBalance sheet line items
Fair value hedges199,260 4,199 4,671 (451)
Interest rate risk181,582 3,528 3,850 (456)
Equity swap47 — — 1 Hedging derivatives
Future interest rate9,282 — — (48)Hedging derivatives
Interest rate swap94,713 2,985 2,747 (27)Hedging derivatives
Call money swap69,740 184 886 (486)Hedging derivatives
Currency swap7,404 338 205 104 Hedging derivatives
Swaption51 11 11 — Hedging derivatives
Collar15 1 — — Hedging derivatives
Floor330 9 1 — Hedging derivatives
Exchange rate risk9,037 293 47 11 
Fx forward8,422 210 47 11 Hedging derivatives
Interest rate futures615 83 — — Hedging derivatives
Interest rate and exchange rate risk8,434 378 771 (11)
Interest rate swap426 8 1 1 Hedging derivatives
Call money swap304 — 13 (8)Hedging derivatives
Currency swap7,704 370 757 (4)Hedging derivatives
Credit risk207 — 3 5 
CDS207 — 3 5 Hedging derivatives
Cash flow hedges139,156 3,436 1,739 232 
Interest rate risk74,731 478 522 75 
Futures7,492 — 322 (208)Hedging derivatives
Fx forward3,640 — — (10)Hedging derivatives
Future interest rate46,547 237 108 135 Hedging derivatives
Interest rate swap12,123 204 7 145 Hedging derivatives
Currency swap2,057 15 85 — Hedging derivatives
Floor2,872 22 — 13 Hedging derivatives
Exchange rate risk23,483 555 802 (401)
FX forward9,151 265 195 (155)Hedging derivatives
Future interest rate499 — — (143)Hedging derivatives
Interest rate swap408 7 7 — Hedging derivatives
Currency swap13,425 283 600 (103)Hedging derivatives
Interest rate and exchange rate risk27,021 2,362 275 679 
Interest rate swap5,218 262 — 129 Hedging derivatives
Currency swap19,682 2,100 264 550 Hedging derivatives
Call money swap2,121 — 11 — Hedging derivatives
Inflation risk13,907 36 140 (129)
FX forward3,701 10 4 (1)Hedging derivatives
Currency swap10,206 26 136 (132)Hedging derivatives
Call money swap— — — 4 Hedging derivatives
Equity risk14 5 — 8 
Option14 5 — 8 Hedging derivatives
Hedges of net investments in foreign operations22,210 690 459 3 
Exchange rate risk22,210 690 459 3 
FX forward22,210 690 459 — Hedging derivatives
Deposits taken— — — 3 Deposits
360,626 8,325 6,869 (216)
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EUR million
2019
Carrying amount
Nominal valueAssetsLiabilitiesChanges in fair value used for calculating hedge ineffectivenessBalance sheet line items
Fair value hedges202,548 3,570 3,649 (1,522)
Interest rate risk183,586 3,032 3,160 (1,346)
Equity swap78 — 1 1 Hedging derivatives
Future interest rate12,325 — 32 (476)Hedging derivatives
Interest rate swap117,439 2,651 2,297 (429)Hedging derivatives
Call money swap44,791 91 472 (295)Hedging derivatives
Currency swap8,728 272 349 (126)Hedging derivatives
Swaption50 9 9 — Hedging derivatives
Collar15 1 — — Hedging derivatives
Floor160 8 — (21)Hedging derivatives
Exchange rate risk10,006 73 55 (60)
Curency swap284 24 1 — Hedging derivatives
Fx forward9,722 49 54 (60)Hedging derivatives
Interest rate and exchange rate risk8,698 465 428 (116)
Interest rate swap869 16 1 (45)Hedging derivatives
Call money swap277 — 4 (4)Hedging derivatives
Currency swap7,552 449 423 (67)Hedging derivatives
Inflation risk— — — 5 
Call money swap— — — 5 Hedging derivatives
Credit risk258 — 6 (5)
CDS258 — 6 (5)Hedging derivatives
Cash flow hedges135,439 3,398 1,618 (1,540)
Interest rate risk55,810 277 261 (267)
Futures21,655 33 147 (93)Hedging derivatives
Future interest rate771 — — (64)Hedging derivatives
Interest rate swap21,492 99 97 (105)Hedging derivatives
Call money swap6,164 30 12 8 Hedging derivatives
Currency swap2,345 98 5 (17)Hedging derivatives
Floor3,383 17 — 4 Hedging derivatives
Exchange rate risk31,803 463 660 (405)
FX forward10,595 237 216 (145)Hedging derivatives
Future interest rate9,290 — — 113 Hedging derivatives
Interest rate swap888 12 11 (6)Hedging derivatives
Currency swap11,030 214 433 (365)Hedging derivatives
Deposits borrowed— — — (2)Deposits
Interest rate and exchange rate risk38,938 2,625 640 (826)
Interest rate swap7,347 133 5 201 Hedging derivatives
Currency swap27,044 2,492 622 (1,020)Hedging derivatives
Call money swap4,547 — 13 (7)Hedging derivatives
Inflation risk8,830 33 53 (44)
FX forward2,230 5 4 4 Hedging derivatives
Currency swap6,511 28 42 (44)Hedging derivatives
Call money swap89 — 7 (4)Hedging derivatives
Equity risk58 — 4 2 
Option58 — 4 2 Hedging derivatives
Hedges of net investments in foreign operations24,477 248 781 — 
Exchange rate risk24,477 248 781 — 
FX forward24,477 248 781 — Hedging derivatives
362,464 7,216 6,048 (3,062)
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EUR million
2018
Carrying amount
Nominal valueAssetsLiabilitiesChanges in fair value used for calculating hedge ineffectivenessBalance sheet line items
Fair value hedges178,719 3,451 5,114 96 
Interest rate risk163,069 2,642 4,620 16 
Equity swap109 — 2 — Hedging derivatives
Future interest rate7,702 — — (126)Hedging derivatives
Interest rate swap129,045 2,339 4,172 281 Hedging derivatives
Call money swap19,579 170 250 (32)Hedging derivatives
Currency swap4,957 121 45 (17)Hedging derivatives
Inflation swap— — — 9 Hedging derivatives
Swaption51 6 6 — Hedging derivatives
Collar15 1 — — Hedging derivatives
Floor1,611 5 145 (99)Hedging derivatives
Exchange rate risk3,191 17 (3)43 
Fx forward3,191 17 (3)43 Hedging derivatives
Interest rate and exchange rate risk12,237 792 493 42 
Interest rate swap3,022 143 20 (15)Hedging derivatives
Call money swap20 — — — Hedging derivatives
Currency swap9,195 649 473 57 Hedging derivatives
Inflation risk168 — 4 (5)
Call money swap64 — 3 (3)Hedging derivatives
Currency swap104 — 1 (2)Hedging derivatives
Credit risk54 — — — 
CDS54 — — — Hedging derivatives
Cash flow hedges118,400 4,865 976 (28)
Interest rate risk39,165 307 250 182 
Fx forward985 — 22 (22)Hedging derivatives
Future interest rate127 — — 29 Hedging derivatives
Interest rate swap33,956 240 202 159 Hedging derivatives
Currency swap2,350 57 26 11 Hedging derivatives
Floor1,747 10 — 5 Hedging derivatives
Exchange rate risk38,457 971 568 (878)
Future FX and c/v term FV4,955 — — (697)Hedging derivatives
FX forward3,283 186 15 (36)Hedging derivatives
Future interest rate4,946 — — (12)Hedging derivatives
Interest rate swap1,055 10 5 8 Hedging derivatives
Currency swap23,904 775 548 (142)Hedging derivatives
Floor314 — — — Hedging derivatives
Deposits borrowed— — — 1 Deposits
Interest rate and exchange rate risk34,383 3,542 124 665 
Interest rate swap12,572 20 97 (7)Hedging derivatives
Currency swap21,811 3,522 27 672 Hedging derivatives
Inflation risk6,318 45 30 11 
FX forward414 — 9 (1)Hedging derivatives
Currency swap5,904 45 21 12 Hedging derivatives
Equity risk77 — 4 (8)
Option77 — 4 (8)Hedging derivatives
Other risk— — — — 
Future FX and c/v term RF— — — — Hedging derivatives
Hedges of net investments in foreign operations21,688 291 273 (1)
Exchange rate risk21,688 291 273 (1)
FX forward21,688 291 273 (1)Hedging derivatives
318,807 8,607 6,363 67 
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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
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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.
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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
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
 
31 December 2020
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges7,132 14,221 44,897 95,343 37,667 199,260 
Interest rate risk5,616 9,667 39,921 90,913 35,465 181,582 
Equity swap— 11 20 16 — 47 
Future interest rate430 — 3,128 4,255 1,469 9,282 
Interest rate swap3,943 4,804 24,807 33,333 27,826 94,713 
Call money swap1,021 4,662 11,241 49,624 3,192 69,740 
Currency swap157 190 674 3,619 2,764 7,404 
Swaption— — 51 — — 51 
Collar— — — 15 — 15 
Floor65 — — 51 214 330 
Exchange rate risk1,516 4,264 3,257 — — 9,037 
Fx forward901 4,264 3,257 — — 8,422 
Future interest rate615 — — — — 615 
Interest rate and exchange rate risk— 282 1,711 4,239 2,202 8,434 
Interest rate swap— — — 370 56 426 
Call money swap— — — 262 42 304 
Currency swap— 282 1,711 3,607 2,104 7,704 
Credit risk— 8 8 191 — 207 
CDS— 8 8 191 — 207 
Cash flow hedges10,489 11,629 44,127 61,186 11,725 139,156 
Interest rate risk6,019 6,707 33,070 26,959 1,976 74,731 
Futuros FX y c/v plazo FX5,213 — — 2,279 — 7,492 
Future interest rate— — — 3,640 — 3,640 
Interest rate swap806 4,626 29,511 11,219 385 46,547 
Call money swap— 1,502 1,550 7,890 1,181 12,123 
Currency swap— 253 338 1,056 410 2,057 
Floor— 326 1,671 875 — 2,872 
Exchange rate risk1,746 2,336 4,616 13,071 1,714 23,483 
FX forward1,532 2,243 3,040 2,336 — 9,151 
Future interest rate— — — 499 — 499 
Interest rate swap— — — 408 — 408 
Currency swap214 93 1,576 9,828 1,714 13,425 
Interest rate and exchange rate risk1,691 972 5,634 15,687 3,037 27,021 
Interest rate swap816 — 981 2,402 1,019 5,218 
Currency swap875 972 4,653 11,164 2,018 19,682 
Call money swap— — — 2,121 — 2,121 
Inflation risk1,033 1,614 807 5,456 4,997 13,907 
FX forward1,000 1,433 578 690 — 3,701 
Currency swap33 181 229 4,766 4,997 10,206 
Equity risk— — — 13 1 14 
Option— — — 13 1 14 
Hedges of net investments in foreign operations:2,435 5,086 12,831 1,858 — 22,210 
Exchange rate risk2,435 5,086 12,831 1,858 — 22,210 
FX forward2,435 5,086 12,831 1,858 — 22,210 
20,056 30,936 101,855 158,387 49,392 360,626 
EUR million
 
31 December 2019
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges5,816 14,591 43,236 90,707 48,198 202,548 
Interest rate risk5,468 9,055 37,627 86,119 45,317 183,586 
Equity swap— 11 25 42 — 78 
Future interest rate16 — 606 6,066 5,637 12,325 
Interest rate swap734 3,532 24,382 62,474 26,317 117,439 
Call money swap4,674 5,318 12,085 14,653 8,061 44,791 
Currency swap44 194 529 2,819 5,142 8,728 
Swaption— — — 50 — 50 
Collar— — — 15 — 15 
Floor— — — — 160 160 
Exchange rate risk333 4,090 5,172 411 — 10,006 
Currency swap4 — 90 190 — 284 
Fx forward329 4,090 5,082 221 — 9,722 
Interest rate and exchange rate risk15 1,432 437 3,933 2,881 8,698 
Interest rate swap— — — 869 — 869 
Call money swap— — — 21 256 277 
Currency swap15 1,432 437 3,043 2,625 7,552 
Credit risk— 14 — 244 — 258 
CDS— 14 — 244 — 258 
Cash flow hedges16,506 5,912 38,678 62,119 12,224 135,439 
Interest rate risk13,023 2,179 13,011 26,332 1,265 55,810 
Futures12,304 385 3,196 5,770 — 21,655 
Future interest rate— — — 771 — 771 
Interest rate swap460 864 7,441 12,585 142 21,492 
Call money swap— 398 1,253 3,925 588 6,164 
Currency swap259 354 231 966 535 2,345 
Floor— 178 890 2,315 — 3,383 
Exchange rate risk2,300 2,572 14,324 11,753 854 31,803 
FX forward2,173 1,746 3,404 3,272 — 10,595 
Future interest rate— — 9,290 — — 9,290 
Interest rate swap— — — 888 — 888 
Currency swap127 826 1,630 7,593 854 11,030 
Interest rate and exchange rate risk1,086 308 9,221 20,782 7,541 38,938 
Interest rate swap— — 1,917 2,880 2,550 7,347 
Currency swap1,086 308 5,553 15,106 4,991 27,044 
Call money swap— — 1,751 2,796 — 4,547 
Inflation risk97 853 2,114 3,204 2,562 8,830 
FX forward— 117 1,205 908 — 2,230 
Currency swap97 736 909 2,207 2,562 6,511 
Call money swap— — 89 — 89 
Equity risk— — 8 48 2 58 
Option— — 8 48 2 58 
Hedges of net investments in foreign operations2,735 4,191 14,192 3,359 — 24,477 
Exchange rate risk2,735 4,191 14,192 3,359 — 24,477 
FX forward2,735 4,191 14,192 3,359 — 24,477 
25,057 24,694 96,106 156,185 60,422 362,464 

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EUR million
31 December 2018
Up to one monthOne to three monthsThree months
to one year		One year
to five years		More than five
years		Total
Fair value hedges9,377 17,989 23,773 78,541 49,039 178,719 
Interest rate risk8,436 12,519 21,987 73,817 46,310 163,069 
Equity swap— 27 46 36 — 109 
Future interest rate668 2,012 981 2,650 1,391 7,702 
Interest rate swap7,672 10,213 18,423 60,330 32,407 129,045 
Call money swap96 267 1,823 6,967 10,426 19,579 
Currency swap— — 714 2,368 1,875 4,957 
Swaption— — — 51 — 51 
Collar— — — — 15 15 
Floor— — — 1,415 196 1,611 
Exchange rate risk17 1,855 1,147 172 — 3,191 
Fx forward17 1,855 1,147 172 — 3,191 
Interest rate and exchange rate risk924 3,615 639 4,503 2,556 12,237 
Interest rate swap445 1,462 35 710 370 3,022 
Call money swap— — — — 20 20 
Currency swap479 2,153 604 3,793 2,166 9,195 
Inflation risk— — — — 168 168 
Call money swap— — — — 64 64 
Currency swap— — — — 104 104 
Credit risk— — — 49 5 54 
CDS— — — 49 5 54 
Cash flow hedges18,684 6,994 16,954 62,947 12,821 118,400 
Interest rate risk2,079 2,984 7,530 26,020 552 39,165 
Fx forward49 377 559 — — 985 
Future interest rate2 — — 125 — 127 
Interest rate swap2,028 2,161 5,957 23,593 217 33,956 
Currency swap— 446 839 730 335 2,350 
Floor— — 175 1,572 — 1,747 
Exchange rate risk16,166 3,478 5,896 11,984 933 38,457 
Future FX and c/v term FV4,955 — — — — 4,955 
FX forward1,423 — 47 1,813 — 3,283 
Future interest rate4,946 — — — — 4,946 
Interest rate swap— — — 1,055 — 1,055 
Currency swap4,842 3,478 5,535 9,116 933 23,904 
Floor— — 314 — — 314 
Interest rate and exchange rate risk— 8 2,921 21,930 9,524 34,383 
Interest rate swap— 8 898 8,456 3,210 12,572 
Currency swap— — 2,023 13,474 6,314 21,811 
Inflation risk439 524 566 2,977 1,812 6,318 
FX forward— 121 156 137 — 414 
Currency swap439 403 410 2,840 1,812 5,904 
Equity risk— — 41 36 — 77 
Option— — 41 36 — 77 
Hedges of net investments in foreign operations555 777 11,067 9,289 — 21,688 
Exchange rate risk555 777 11,067 9,289 — 21,688 
FX forward555 777 11,067 9,289 — 21,688 
28,616 25,760 51,794 150,777 61,860 318,807 

675
Auditor's
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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

31 December 2020
EUR million
Up to one monthOne to three monthsThree months
to one year		One year
to five years		More than five
years		Total
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal2,704 8,481 30,946 53,170 9,050 104,351 
Average fixed interest rate (%) GBP0.690 0.650 0.820 0.730 3.720 
Average fixed interest rate (%) EUR1.180 0.230 3.020 0.980 2.340 
Average fixed interest rate (%) USD1.870 1.720 2.890 2.490 4.160 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal147 776 260 1,183 
Average GBP/EUR exchange rate— — 1.141 1.170 1.167 
Average fixed interest rate (%) EUR— — 4.640 1.780 3.560 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal— 999 2,815 8,869 1,180 13,863 
Average fixed interest rate (%) GBP— 0.460 0.570 1.450 1.330 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal1,602 2,244 4,317 8,328 1,246 17,737 
Average GBP/JPY exchange rate— 137.977 135.607 132.271 — 
Average GBP/EUR exchange rate— — — 1.163 1.179 
Average GBP/USD exchange rate1.293 1.316 1.323 1.304 — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal1,630 — 3,858 11,816 2,792 20,096 
Average GBP/EUR exchange rate— — 1.354 1.253 1.197 
Average GBP/USD exchange rate1.465 — — 1.609 1.381 
Average fixed interest rate (%) GBP2.010 — 3.180 2.480 3.390 
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31 December 2019
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five
years		Total
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal5,118 6,822 32,210 51,307 15,397 110,854 
Average fixed interest rate (%) GBP0.770 0.900 0.880 1.330 3.000 
Average fixed interest rate (%) EUR(0.410)0.290 2.210 1.360 2.360 
Average fixed interest rate (%) USD— 1.540 1.990 2.690 4.560 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal— 887 — 394 738 2,019 
Average GBP/EUR exchange rate— — — 1.178 1.160 
Average GBP/USD exchange rate— 1.511 — — — 
Average fixed interest rate (%) EUR— — — 3.520 2.120 
Average fixed interest rate (%) USD— 2.380 — — — 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal— 398 1,253 5,490 588 7,729 
Average fixed interest rate (%) GBP— 0.760 0.820 1.460 0.400 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal1,395 2,491 4,417 7,019 — 15,322 
Average GBP/JPY exchange rate— 145.928 143.086 140.815 — 
Average GBP/EUR exchange rate— 1.144 1.117 1.153 — 
Average GBP/USD exchange rate1.286 1.252 1.293 1.299 — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal954 — 7,626 15,089 7,291 30,960 
Average GBP/EUR exchange rate1.274 — 1.169 1.311 1.209 
Average GBP/USD exchange rate— — 1.536 1.581 1.450 
Average fixed interest rate (%) GBP2.490 — 2.160 2.870 2.960 

677
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
31 December 2018
EUR million
Up to one monthOne to three monthsThree months
to one year		One year
to five years		More than five
years		Total
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal6,888 9,403 16,333 44,166 17,498 94,288 
Average fixed interest rate (%) GBP0.633 0.788 1.057 1.586 2.849 
Average fixed interest rate (%) USD(0.223)0.670 0.911 1.085 1.261 
Average fixed interest rate (%) EUR1.513 1.314 1.337 2.684 2.179 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal877 2,894 — 1,331 585 5,687 
Average GBP/EUR exchange rate— — — 1.183 1.168 
Average GBP/USD exchange rate1.580 1.332 — 1.511 — 
Average fixed interest rate (%) USD— — — 3.888 3.923 
Average fixed interest rate (%) EUR3.615 2.500 — 2.375 7.950 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal— 1,917 2,225 3,466 — 7,608 
Average fixed interest rate (%) GBP— 0.726 0.733 1.334 — 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal4,378 2,853 3,310 7,132 — 17,673 
Average GBP/JPY exchange rate— 147.215 146.372 145.319 — 
Average GBP/EUR exchange rate— — 1.280 1.135 — 
Average GBP/USD exchange rate1.304 1.307 1.310 1.305 — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal— — 2,859 21,288 9,495 33,642 
Average GBP/EUR exchange rate— — 1.252 1.271 1.217 
Average GBP/USD exchange rate— — 1.633 1.545 1.511 
Average fixed interest rate (%) GBP— — 2.340 2.660 2.900 


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Banco Santander, S.A.
31 December 2020
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five
years		Total
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal2,073 409 2,165 17,430 14,294 36,371 
Average fixed interest rate (%) GBP— — — 1.375 4.072 
Average fixed interest rate (%) EUR0.647 0.551 0.388 0.820 1.927 
Average fixed interest rate (%) CHF— — — 0.800 0.403 
Average fixed interest rate (%) JPY— — — 0.465 — 
Average fixed interest rate (%) USD0.698 0.570 2.031 3.004 3.562 
Average fixed interest rate (%) RON— — — 3.610 — 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal833 4,149 3,008 — — 7,990 
Average fixed interest rate (%) GBP/EUR— 0.901 0.916 — — 
Average fixed interest rate (%) USD/EUR1.165 1.171 1.178 — — 
Average COP/USD exchange rate3,628.140 3,603.595 — — — 
Average CNY/EUR exchange rate8.108 8.102 7.997 — — 
Average SAR/EUR exchange rate4.484 4.514 — — — 
Average PEN/USD exchange rate— 3.609 — — — 
Average AUD/EUR exchange rate— 1.609 — — — 
Average JPY/EUR exchange rate— 124.612 — — — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal— 282 818 2,621 1,083 4,804 
Average fixed interest rate (%) AUD/EUR— — — 4.000 4.660 
Average fixed interest rate (%) CZK/EUR— — — 0.860 — 
Average fixed interest rate (%) EUR/COP— — 4.380 — — 
Average fixed interest rate (%) RON/EUR— — — 4.849 — 
Average fixed interest rate (%) HKD/EUR— — — 2.580 — 
Average fixed interest rate (%) JPY/EUR— — 2.195 0.568 1.281 
Average fixed interest rate (%) NOK/EUR— — — — 3.605 
Average fixed interest rate (%) CHF/EUR— — — — 1.243 
Average fixed interest rate (%) USD/COP— — 8.030 6.659 7.231 
Average fixed interest rate (%) COP/USD— — 6.000 — — 
Average fixed interest rate (%) USD/CLP— — 0.930 — — 
Average AUD/EUR exchange rate— — — 1.499 1.508 
Average COP/USD exchange rate— — 3,437.200 — — 
Average CZK/EUR exchange rate— — — 25.539 — 
Average EUR/GBP exchange rate— 1.113 — — — 
Average EUR/COP exchange rate— — 0.0002 — — 
Average EUR/USD exchange rate— — — 0.891 — 
Average HKD/EUR exchange rate— — — 8.782 — 
Average JPY/EUR exchange rate— — 113.370 133.840 125.883 
Average MXN/EUR exchange rate— — — 14.696 — 
Average NOK/EUR exchange rate— — — — 9.606 
Average RON/EUR exchange rate— — — 4.727 — 
Average CHF/EUR exchange rate— — — 1.092 1.105 
Average USD/COP exchange rate— — 0.0003 0.0003 0.0003 
Average USD/CLP exchange rate— — 0.001 — — 
Average USD/MXN exchange rate— — 0.050 — — 
679
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
31 December 2020
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five
years		Total
Credit risk
 Credit risk instruments
  Nominal— 8 8 191 — 207 
Cash flow hedges
Interest rate and foreign exchange rate risk
 Interest rate and foreign exchange rate instruments
  Nominal— — 1,247 3,242 208 4,697 
Average EUR/GBP exchange rate— — 1.080 1.102 — 
Average EUR/USD exchange rate— — — 0.882 — 
Average AUD/EUR exchange rate— — — 1.625 — 
Average RON/EUR exchange rate— — — 4.810 — 
Average JPY/EUR exchange rate— — — 120.568 — 
Average CHF/EUR exchange rate— — — — 1.102 
Interest rate risk
 Bond Forward instruments
  Nominal3,164 5,000 23,000 4,279 — 35,443 
Average fixed interest rate (%) EUR— (0.2580)(0.2498)(0.2359)— 
Hedges of net investments in foreign operations
Exchange rate risk
 Exchange and interest rate instruments
  Nominal2,229 4,554 11,570 1,858 — 20,211 
Average BRL/EUR exchange rate5.270 5.308 6.332 — — 
Average CLP/EUR exchange rate869.633 861.546 864.339 932.215 — 
Average COP/EUR exchange rate— — 4,471.305 — — 
Average GBP/EUR exchange rate0.909 0.916 0.907 — — 
Average MXN/EUR exchange rate23.121 25.456 26.788 — — 
Average PLN/EUR exchange rate4.427 4.420 4.516 — — 
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Contents
31 December 2019
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five
years		Total
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal8 106 1,406 16,707 10,219 28,446 
Average fixed interest rate (%) GBP— — — 1.43 6.82 
Average fixed interest rate (%) EUR5.30 2.41 3.20 0.79 2.58 
Average fixed interest rate (%) CHF— — — 0.80 0.40 
Average fixed interest rate (%) JPY— — — 0.46 — 
Average fixed interest rate (%) USD— — 2.05 3.12 3.93 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal211 3,903 4,777 — — 8,891 
Average fixed interest rate (%) GBP/EUR— 0.86 0.87 — — 
Average fixed interest rate (%) USD/EUR— 1.12 1.12 — — 
Average fixed interest rate (%) USD/CLP747.72 747.90 746.70 — — 
Average CNY/EUR exchange rate— 7.91 8.01 — — 
Average SAR/EUR exchange rate4.16 4.18 — — — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal14 289 346 2,599 949 4,197 
Average fixed interest rate (%) AUD/EUR— — — 4.00 4.66 
Average fixed interest rate (%) CZK/EUR— — — 0.86 — 
Average fixed interest rate (%) EUR/COP— — 6.16 — — 
Average fixed interest rate (%) RON/EUR— — — 4.85 — 
Average fixed interest rate (%) HKD/EUR— — 2.52 2.58 — 
Average fixed interest rate (%) JPY/EUR— — 0.54 0.66 1.28 
Average fixed interest rate (%) NOK/EUR— — — — 3.61 
Average fixed interest rate (%) CHF/EUR— — — — 1.24 
Average fixed interest rate (%) USD/COP7.54 — 5.67 7.62 7.22 
Average AUD/EUR exchange rate— — — 1.4989 1.508 
Average CZK/EUR exchange rate— — — 25.407 26.030 
Average EUR/GBP exchange rate— 1.1711 — — — 
Average EUR/COP exchange rate— — 0.0003 — — 
Average HKD/EUR exchange rate— — 8.7185 8.7820 — 
Average JPY/EUR exchange rate— — 130.4700 132.4608 125.8830 
Average MXN/EUR exchange rate— — — 14.6960 — 
Average NOK/EUR exchange rate— — — — 9.6060 
Average RON/EUR exchange rate— — — 4.7271 — 
Average CHF/EUR exchange rate— — — 1.0924 
Average USD/COP exchange rate0.0003 — 0.0003 0.0003 0.0003 
Average USD/MXN exchange rate— — — 0.0520 — 
Credit Risk
 Credit risk instruments
  Nominal— 13 — 244 — 257 
Cash flow hedges
Interest rate and foreign exchange rate risk
 Interest rate and foreign exchange rate instruments
  Nominal— — 353 4,410 207 4,970 
Interest rate risk
 Bond Forward instruments
  Nominal11,626 — 1,792 5,443 — 18,861 
681
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
31 December 2019
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five
years		Total
Hedges of net investments in foreign operations
Exchange rate risk
 Exchange and interest rate instruments
  Nominal2,592 3,838 13,595 3,359 — 23,384 
Average BRL/EUR exchange rate4.59 4.74 4.74 4.88 — 
Average CLP/EUR exchange rate822.13 822.32 811.64 824.36 — 
Average COP/EUR exchange rate— — 3,828.61 — — 
Average GBP/EUR exchange rate0.89 0.91 0.94 — — 
Average MAD/EUR exchange rate— 10.77 10.87 — — 
Average MXN/EUR exchange rate23.49 23.10 23.27 — — 
Average PLN/EUR exchange rate4.37 4.38 4.39 — — 
682
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Contents
31 December 2018
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five
years		Total
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal500 665 425 12,987 22,025 36,602 
Average fixed interest rate (%) GBP— — — — 7.08 
Average fixed interest rate (%) EUR3.75 0.63 2.06 1.81 3.20 
Average fixed interest rate (%) CHF— — 0.76 1.04 
Average fixed interest rate (%) USD— — 1.38 3.43 4.11 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal— 1,825 771 — — 2,596 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal41 461 120 2,083 951 3,656 
Average fixed interest rate (%) AUD/EUR— — — 4.00 4.80 
Average fixed interest rate (%) CZK/EUR— — — 0.86 — 
Average fixed interest rate (%) EUR/COP— — 7.54 — — 
Average fixed interest rate (%) HKD/EUR— — — 2.52 — 
Average fixed interest rate (%) JPY/EUR— — — 0.64 1.28 
Average fixed interest rate (%) NOK/EUR— — — — 3.61 
Average fixed interest rate (%) USD/COP6.13 6.71 — 9.47 — 
Average AUD/EUR exchange rate— — — 1.50 1.50 
Average CZK/EUR exchange rate— — — 25.407 26.030 
Average EUR/GBP exchange rate— 1.15 — — — 
Average EUR/COP exchange rate— — 0.0003 — — 
Average EUR/MXN exchange rate— — — — — 
Average HKD/EUR exchange rate— — — 8.718 — 
Average JPY/EUR exchange rate— — — 132.014 125.883 
Average MXN/EUR exchange rate— — — 14.696 — 
Average NOK/EUR exchange rate— — — — 9.606 
Average USD/BRL exchange rate— — 0.269 — — 
Average USD/COP exchange rate— 0.0003 0.0003 — 0.0003 
Credit Risk
 Credit risk instruments
  Nominal— — — 49 5 54 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal1,942 — — 6,130 20 8,092 
Average fixed interest rate (%) EUR— — — 0.0051 0.0055 
Hedges of net investments in foreign operations
Exchange rate risk
 Exchange and interest rate instruments
  Nominal373 497 10,587 9,289 — 20,746 
Average BRL/EUR exchange rate4.46 — 4.46 4.73 — 
Average CLP/EUR exchange rate— 766.01 768.25 795.1 — 
Average CNY/EUR exchange rate— — 8.14 — — 
Average COP/EUR exchange rate— 3728.01 3685.8 — — 
Average GBP/EUR exchange rate— 0.91 0.89 — — 
Average MXN/EUR exchange rate22.98 — 24.51 24.5 — 
Average PLN/EUR exchange rate— — 4.38 4.26 — 


683
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Santander Consumer Finance Group
31 December 2020
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal241 501 2,052 4,744 519 8,057 
Average fixed interest rate (%) EUR— 0.004 (0.009)(0.045)(0.005)
Average fixed interest rate (%) CHF(0.590)(0.547)(0.570)(0.553)— 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal68 88 249 — — 405 
Average DKK/EUR exchange rate— — 10.075 — — 
Average PLN/EUR exchange rate— — 1.582 — — 
Average CHF/EUR exchange rate1.075 1.072 1.075 — — 
Average SEK/EUR exchange rate10.341 10.426 — — — 
Interest rate and foreign exchange rate risk
 Interest rate and exchange rate instruments
  Nominal— — — 652 — 652 
Average fixed interest rate (%) DKK— — — 7.454 — 
Average DKK/EUR exchange rate— — — 0.006 — 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal71 125 612 1,481 — 2,289 
Average fixed interest rate (%) EUR0.135 0.172 0.175 0.181 — 
Foreign exchange risk
 Nominal exchange rate instruments
  Nominal11 92 112 815 48 1,078 
Average NOK/EUR exchange rate— — — — 10.590 
Average CHF/EUR exchange rate— 1.084 1.116 1.123 — 
Average CAD/EUR exchange rate151.400 — 1.501 1.525 — 
Average JPY/EUR exchange rate— — 116.990 125.071 — 
Interest rate and foreign exchange rate risk
 Interest rate and exchange rate instruments
  Nominal60 510 700 426 — 1,696 
Average SEK/EUR exchange rate10.302 10.556 10.381 10.446 — 
Average NOK/EUR exchange rate— — — 9.281 — 
Average CHF/EUR exchange rate— 1.088 — 1.089 — 
Average CAD/EUR exchange rate— — — — 
Average DKK/EUR exchange rate— 7.456 7.473 — — 
Average JPY/EUR exchange rate— — — 4.287 — 
Average fixed interest rate (%) EUR— — — 0.890 — 
Average fixed interest rate (%) CHF— — — 0.150 — 
Hedges of net investments in foreign operations
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal206 501 1,260 — — 1,967 
Average NOK/EUR exchange rate10.141 10.962 10.861 — — 
Average CNY/EUR exchange rate— 7.639 — — — 
31 December 2019
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal159 1,394 2,154 5,669 18 9,394 
Average fixed interest rate (%) EUR(0.164)(0.027)(0.119)(0.110)(0.123)
Average fixed interest rate (%) CHF(0.700)(0.700)(0.630)(0.560)— 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal118 187 304 — — 609 
Average DKK/EUR exchange rate7.458 7.465 7.458 — — 
Average PLN/EUR exchange rate4.382 4.302 4.347 — — 
Average CHF/EUR exchange rate1.093 1.096 — — — 
Average SEK/EUR exchange rate— 10.687 — — — 
Interest rate and foreign exchange rate risk
 Interest rate and exchange rate instruments
  Nominal— 249 — 499 — 748 
Average fixed interest rate (%) DKK— 7.462 — 7.443 — 
Average DKK/EUR exchange rate— 0.004 — 0.006 — 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal54 152 379 562 — 1,147 
Average fixed interest rate (%) EUR0.212 0.212 0.212 0.212 — 
Foreign exchange risk
 Nominal exchange rate instruments
  Nominal14 25 254 953 72 1,318 
Average SEK/EUR exchange rate— — 10.461 10.529 10.456 
Average CHF/EUR exchange rate— — 1.094 1.121 — 
Average CAD/EUR exchange rate1.539 1.500 1.528 1.491 — 
Average DKK/EUR exchange rate— — 7.474 — — 
Average JPY/EUR exchange rate— — 131.960 123.116 — 
Interest rate and foreign exchange rate risk
 Interest rate and exchange rate instruments
  Nominal130 175 1,025 452 — 1,782 
Average SEK/EUR exchange rate10.415 10.362 10.448 10.318 — 
Average NOK/EUR exchange rate— 9.241 9.082 9.281 — 
Average CHF/EUR exchange rate— 1.085 1.090 1.089 — 
Average CAD/EUR exchange rate— — — — — 
Average DKK/EUR exchange rate7.468 7.466 7.460 7.457 — 
Average JPY/EUR exchange rate— — — 4.287 — 
Average fixed interest rate (%) EUR— — — 0.410 — 
Average fixed interest rate (%) CHF— — — 0.330 — 
Hedges of net investments in foreign operations
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal143 352 597 — — 1,092 
Average NOK/EUR exchange rate9.920 9.878 10.186 — — 
Average CNY/EUR exchange rate— 7.968 — — — 

684
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Contents
31 December 2018
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal253 672 3,488 6,883 63 11,359 
Average fixed interest rate (%) EUR(0.197)(0.125)(0.036)(0.065)(0.113)
Average fixed interest rate (%) CHF(0.659)(0.696)(0.679)(0.561)— 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal17 30 376 — — 423 
Average DKK/EUR exchange rate7.455 — 7.456 — — 
Average NOK/EUR exchange rate— — 9.687 — — 
Average CHF/EUR exchange rate— 1.138 1.127 — — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal— 240 339 448 — 1,027 
Average SEK/EUR exchange rate— — 0.104 — — 
Average DKK/EUR exchange rate— 0.134 0.134 0.134 — 
Average fixed interest rate (%) SEK— — 0.008 — — 
Average fixed interest rate (%) DKK— 0.002 0.003 0.004 — 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal85 99 313 423 — 920 
Average fixed interest rate (%) EUR0.183 0.183 0.183 0.183 — 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal339 557 2,368 1,061 — 4,325 
Average SEK/EUR exchange rate0.101 0.098 0.099 0.099 — 
Average NOK/EUR exchange rate0.108 0.108 0.108 0.108 — 
Average CHF/EUR exchange rate0.896 0.859 0.870 0.900 — 
Average CAD/EUR exchange rate0.654 0.658 0.652 0.656 — 
Average DKK/EUR exchange rate0.134 0.134 0.134 — — 
Average PLN/EUR exchange rate— — 0.234 0.233 — 
Average USD/EUR exchange rate— — 0.897 — — 
Average JPY/EUR exchange rate— — 0.008 0.008 — 
Hedges of net investments in foreign operations
Foreign exchange risk
 Exchange rate instruments
  Nominal181 282 480 — — 943 
Average NOK/EUR exchange rate103.751 103.538 102.963 — — 
Average CNY/EUR exchange rate— — 121.796 — — 

685
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México
31 December 2020
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal9 2 49 48 1,954 2,062 
Average fixed interest rate (%) MXN— — — — — 
Interest rate and foreign exchange rate
 Exchange and interest rate instruments
  Nominal— — 11 559 859 1,429 
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— — 164 299 — 463 
Average fixed interest rate (%) MXN— — 0.073 0.072 — 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal132 — 100 2,513 — 2,745 
Average BRL/USD exchange rate— — 0.117 0.126 — 
Average EUR/MXN exchange rate0.250 — — 0.167 — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal— — — 104 37 141 
Average EUR/MXN exchange rate— — — 0.192 — 
Average GBP/MXN exchange rate— — — 0.260 — 
Average USD/MXN exchange rate— — — — 0.182 
Average fixed interest rate (%) USD— — — — 0.041 
Average fixed interest rate (%) EUR— — — 0.026 — 
Average fixed interest rate (%) GBP— — — 0.068 — 
31 December 2019
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal6 140 174 121 2,262 2,703 
Average fixed interest rate (%) MXN5.005 8.475 8.420 7.126 6.584 
Interest rate and foreign exchange rate
  Exchange and interest rate instruments
  Nominal1 5 66 423 1,195 1,690 
Average EUR/MXN exchange rate21.230 — — 20.992 21.755 
Average GBP/MXN exchange rate— — — 25.196 — 
Average USD/MXN exchange rate— 13.300 — 13.300 19.278 
Average MXV/MXN exchange rate— — 4.680 — 4.680 
Average fixed interest rate (%) USD— 3.930 — 2.460 7.077 
Average fixed interest rate (%) EUR0.500 — — 2.076 3.012 
Average fixed interest rate (%) GBP— — — 6.750 — 
Average fixed interest rate (%) MXN— — 2.500 — 4.500 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal— — — 533 — 533 
Average fixed interest rate (%) MXN— — — 7.182 — 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal890 — 103 2,793 — 3,786 
Average BRL/MXN exchange rate3.550 — 4.320 5.210 — 
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal2 133 163 208 43 549 
Average EUR/MXN exchange rate— — — — — 
Average GBP/MXN exchange rate— — 23.130 25.196 — 
Average USD/MXN exchange rate— — 16.220 12.725 18.227 
Average MXV/MXN exchange rate— — — — — 
Average fixed interest rate (%) USD— 7.930 2.628 3.441 4.125 
Average fixed interest rate (%) EUR1.510 — — 2.600 0.151 
Average fixed interest rate (%) GBP— — 1.083 6.750 — 

686
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Contents
31 December 2018
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal— 1 346 80 — 427 
Average fixed interest rate (%) MXN— 5.180 6.907 5.593 — 
Average fixed interest rate (%) USD— — 1.465 1.465 — 
Interest rate and foreign exchange rate
 Exchange and interest rate instruments
  Nominal— — 41 282 1,009 1,332 
Average EUR/MXN exchange rate— — — 20.470 21.890 
Average GBP/MXN exchange rate— — — 24.870 25.310 
Average USD/MXN exchange rate— — 13.920 13.920 18.390 
Average MXV/MXN exchange rate— — 5.059 5.059 5.059 
Average fixed interest rate (%) USD— — 8.000 3.980 4.125 
Average fixed interest rate (%) EUR— — — 2.420 2.750 
Average fixed interest rate (%) GBP— — — — 6.750 
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal— — — 178 — 178 
Average fixed interest rate (%) MXN— — — 7.258 — 
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal1,415 44 56 2,719 103 4,337 
Average EUR/MXN exchange rate— — 16.679 18.932 18.688 
Average GBP/MXN exchange rate— — — 23.127 25.947 
Average USD/MXN exchange rate18.729 20.289 17.918 16.443 18.508 
Average BRL/MXN exchange rate5.863 — 5.732 5.736 — 

687
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Banco Santander (Brasil) S.A.
31 December 2020
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal430—3,1294,2541,4699,282
Average fixed interest rate (%) BRL2.000—2.0002.0002.000
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal614————614
Average USD/BRL exchange rate6.260————
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal———367—367
Average USD/BRL exchange rate———6.260—
Average fixed interest rate (%) BRL—————
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal———3,640—3,640
Average fixed interest rate (%) BRL———2.000—
Foreign exchange risk and others
 Exchange rate instruments
  Nominal———499—499
Average USD/BRL exchange rate———6.260—
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal——231——231
Average USD/BRL exchange rate——6.260——
Average fixed interest rate (%) BRL—————
31 December 2019
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal16—6066,0655,63812,325
Average fixed interest rate (%) BRL7.920—9.2506.8800.040
Foreign exchange risk
 Exchange and interest rate instruments
  Nominal—190193—284
Average USD/BRL exchange rate—3.7303.7503.830—
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal——7——7
Average EUR/MXN exchange rate—————
Average fixed interest rate (%) BRL——4.570——
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal———772—772
Average fixed interest rate (%) BRL———4.500—
Foreign exchange risk and others
 Exchange rate instruments
  Nominal——9,290——9,290
Average USD/BRL exchange rate——4.570——
Interest rate and foreign exchange rate risk
 Exchange and interest rate instruments
  Nominal———389—389
Average EUR/MXN exchange rate———4.570—
Average fixed interest rate (%) BRL—————
688
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Annual report 2020

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Contents
31 December 2018
EUR million
Up to one monthOne to three monthsThree months to one yearOne year to five yearsMore than five yearsTotal
Fair value hedges
Interest rate risk
 Interest rate instruments
  Nominal6682,045—3,5291,3787,620
Average fixed interest rate (%) BRL9.5006.9676.93710.05510.030
Foreign exchange rate risk and other
 Exchange and interest rate instruments
  Nominal6153631638411
Average USD/BRL exchange rate3.2473.3033.5513.6423.265
Cash flow hedges
Interest rate risk
 Interest rate instruments
  Nominal3,8772,9973,030119—10,023
Average fixed interest rate (%) BRL6.5006.5006.5006.500—
Foreign exchange risk and other
 Exchange and interest rate instruments
  Nominal—826—238272
Average USD/BRL exchange rate—3.7163.648—3.135

689
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
The following table contains details of the hedged exposures covered by the Group's hedging strategies at 31 December 2020, 2019 and 2018:
EUR million
31 December 2020
Carrying amount of hedged itemsAccumulated amount of fair value adjustments on the hedged itemBalance sheet line itemChange in fair value of hedged item for ineffectiveness assessmentCash flow reserves or conversion reserves
AssetsLiabilitiesAssetsLiabilitiesContinuing hedgesDiscontinued hedges
Fair value hedges141,608 52,055 3,369 2,914 553 — — 
Interest rate risk128,279 48,137 3,183 2,727 469 — — 
Deposits19,000 4,406 656 15 Loans and advances/ Deposits132 — — 
Bond25,430 24,317 975 1,638 Debt instruments/ Debt instruments issued(20)— — 
Securities loans61,898 62 1,153 — Loans and advances372 — — 
Repo15,723 574 19 16 Loans and advances/ Deposits(1)— — 
Liquidity facilities6,228 4,450 380 (16)Loans and advances/ Deposits174 — — 
Issuances assurance— 3,190 — 25 Debt instruments/ Debt instruments issued(21)— — 
Securitization— 11,138 — 1,049 Debt instruments/ Debt instruments issued(167)— — 
Exchange rate risk8,718 — 40 — (13)— — 
Liquidity facilities118 — 5 — Loans and advances/ Deposits1 — — 
Deposits1,889 — 22 — Loans and advances/ Deposits(13)— — 
Bonds6,711 — 13 — Loans and advances/ Deposits(1)— — 
Interest and Exchange rate risk4,391 3,918 143 187 100 — — 
Borrowed deposits1,229 — 13 — Loans and advances/ Deposits86 — — 
Bonds2,333 3,130 130 84 Debt instruments57 — — 
Securitization— 689 — 101 Debt instruments(40)— — 
Repos829 99 — 2 Loans and advances/ Deposits(3)— — 
Credit risk220 — 3 — (3)— — 
Bonds220 — 3 — Debt instruments(3)— — 
690
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EUR million
31 December 2020
Carrying amount of hedged itemsAccumulated amount of fair value adjustments on the hedged itemBalance sheet line itemChange in fair value of hedged item for ineffectiveness assessmentCash flow reserves or conversion reserves
AssetsLiabilitiesAssetsLiabilitiesContinuing hedgesDiscontinued hedges
Cash flow hedges532 420 (43)
Interest rate risk314 (87)(11)
Firm commitmentOther assets/liabilities6 139 — 
DepositsDeposits and loans and advances(28)21 4 
Government bondsDebt instruments382 (377)(4)
Liquidity facilitiesLoans and advances(47)126 (11)
Secondary market loansLoans and advances(1)— — 
Equity portfolioEquity portfolio2 — — 
Highly likely scheduled transactionsOther assets/liabilities— 4 — 
Exchange rate risk204 (68)0 
DepositsDeposits and loans and advances72 (57)— 
BondsDebt instruments(228)46 — 
Issuances assurance14 (3)— 
Secondary market loansLoans and advances298 (4)— 
Senior securitizationDebt instruments48 (50)— 
Highly likely scheduled transactionsOther assets/liabilities— — — 
Interest and Exchange rate risk(87)680 — 
DepositsDeposits and loans and advances52 (4)— 
BondsDebt instruments30 108 — 
SecuritizationDebt instruments(169)576 — 
Inflation risk105 (111)(32)
DepositsDeposits and loans and advances64 (86)(32)
BondsDebt instruments41 (25)— 
Equity risk(4)6 0 
Highly likely scheduled transactionsHighly likely scheduled transactions(4)6 — 
Net foreign investments hedges22,150 — — — — (11)14 
Exchange rate risk22,150 — — — — (11)14 
Equity instruments22,150 — — — Equity instruments— (11)14 
163,758 52,055 3,369 2,914 1,085 409 (29)
691
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
31 December 2019
Carrying amount of hedged itemsAccumulated amount of fair value adjustments on the hedged itemBalance sheet line itemChange in fair value of hedged item for ineffectiveness assessmentCash flow reserves or conversion reserves
AssetsLiabilitiesAssetsLiabilitiesContinuing hedgesDiscontinued hedges
Fair value hedges134,958 60,487 2,768 2,298 1,583 — — 
Interest rate risk122,560 55,538 2,764 2,099 1,370 — — 
Deposits66,087 8,814 1,584 (5)Loans and advances/ Deposits578 — — 
Bond33,202 24,145 1,150 1,302 Debt instruments/ Debt instruments issued825 — — 
Repo22,057 589 27 18 Loans and advances/ Deposits— — — 
Liquidity facilities1,214 4,531 3 (219)Loans and advances/ Deposits177 — — 
Issuances assurance— 3,171 — 12 Debt instruments/ Debt instruments issued(4)— — 
Securitization— 14,288 — 991 Debt instruments/ Debt instruments issued(206)— — 
Exchange rate risk8,613 — 19 — 58 — — 
Liquidity facilities57 — 3 — Loans and advances/ Deposits3 — — 
Deposits2,912 — 1 — Loans and advances/ Deposits37 — — 
Bonds5,644 — 15 — Debt instruments18 — — 
Interest and Exchange rate risk3,532 4,949 (21)199 154 — — 
Borrowed deposits460 — — — Loans and advances/ Deposits— — — 
Bonds2,262 3,366 (16)51 Loans and advances/ Deposits4 — — 
Securitization— 1,483 — 150 Debt instruments152 — — 
Repos810 100 (5)(2)Loans and advances/ Deposits(2)— — 
Inflation risk— — — — (4)— — 
Deposits— — — — Loans and advances/ Deposits(1)— — 
Bonds— — — — Debt instruments(3)— — 
Credit risk253 — 6 — 5 — — 
Bonds253 — 6 — Debt instruments5 — — 
692
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EUR million
31 December 2019
Carrying amount of hedged itemsAccumulated amount of fair value adjustments on the hedged itemBalance sheet line itemChange in fair value of hedged item for ineffectiveness assessmentCash flow reserves or conversion reserves
AssetsLiabilitiesAssetsLiabilitiesContinuing hedgesDiscontinued hedges
Cash flow hedges        (204)522 (79)
Interest rate risk        (128)4 (74)
Firm commitment        Other assets/liabilities18 (11)— 
Deposits        Deposits and loans and advances1 (5)14 
Government bonds        Debt instruments(24)(22)(63)
Liquidity facilities        Loans and advances(121)27 (25)
Secondary market loans        Loans and advances(2)3 — 
Highly likely scheduled transactions        Other assets/liabilities— 12 — 
Exchange rate risk        (32)130 (4)
Deposits        Deposits and loans and advances(3)140 — 
Bonds        Deposits and loans and advances(237)4 (4)
Issuances assurance        — (3)— 
Secondary market loans        Loans and advances194 (9)— 
Senior securitization        Debt instruments15 (4)— 
Highly likely scheduled transactions        Other assets/liabilities(1)2 — 
Interest and Exchange rate risk        (169)510 — 
Deposits        Deposits and loans and advances54 (6)— 
Bonds        Debt instruments29 (25)— 
Securitization        Debt instruments(252)541 — 
Inflation risk        20 (22)0 
Deposits        Deposits and loans and advances23 (24)— 
Bonds        Debt instruments(3)2 — 
Liquidity facilities        Loans and advances— — — 
Equity risk        7 (2)(1)
Highly likely scheduled transactions        Other assets/liabilities7 (2)(1)
Other risks        98 (98)— 
BondsOther assets/liabilities98 (98)— 
Net foreign investments hedges1,070 — — — — — — 
Exchange rate risk1,070 — — — — — — 
Equity instruments1,070 — — — Equity instruments— — — 
136,028 60,487 2,768 2,298 1,379 522 (79)

693
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
31 December 2018
Carrying amount of hedged itemsAccumulated amount of fair value adjustments on the hedged itemBalance sheet line itemChange in fair value of hedged item for ineffectiveness assessmentCash flow reserves or conversion reserves
AssetsLiabilitiesAssetsLiabilitiesContinuing hedgesDiscontinued hedges
Fair value hedges110,669 46,830 1,915 1,765 (20)— — 
Interest rate risk104,393 39,251 1,886 1,478 (74)— — 
Deposits59,319 1,370 1,021 (1)Deposits and loans and advances(265)— — 
Bond27,235 21,759 792 791 Debt instruments(35)— — 
Repo13,874 561 25 16 Other assets18 — — 
Loans of securities— — — — Loans and advances— — — 
Liquidity facilities3,965 232 48 2 Loans and advances35 — — 
Issuances assurance— 2,013 — 12 Other assets/liabilities3 — — 
Securitization— 13,316 — 658 Debt instruments170 — — 
Equity instruments— — — — Equity instruments— — — 
Exchange rate risk3,378 — 5 — (3)— — 
Deposits1,614 — 9 — Debt instruments8 — — 
Bonds1,764 — (4)— Debt instruments(11)— — 
Interest and Exchange rate risk2,776 7,474 21 287 53 — — 
Borrowed deposits751 — 19 — Deposits and loans and advances16 — — 
Bonds1,591 3,571 2 26 Debt instruments(31)— — 
Securitization— 3,358 — 262 Debt instruments67 — — 
Repos434 99 — (1)Other assets/liabilities1 — — 
CLO— 446 — — Other assets/liabilities— — — 
Inflation risk68 105 3 0 4 — — 
Deposits— 105 — — Deposits and loans and advances1 — — 
Bonds68 — 3 — Debt instruments3 — — 
Credit risk54 — — — — — — 
Bonds54 — — — Debt instruments— — — 
Cash flow hedges(432)447 (10)
Interest rate risk(52)111 (12)
Firm commitmentOther assets/liabilities(24)(75)— 
DepositsDeposits and loans and advances(26)47 — 
Government bondsDebt instruments(13)72 — 
Liquidity facilitiesLoans and advances8 65 (12)
Secondary market loansOther assets/liabilities4 2 — 
Senior securitizationDebt instruments(1)— — 
694
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Exchange rate risk(416)(23)2 
DepositsOther assets/liabilities83 (8)— 
BondsDeposits and loans and advances(309)(16)2 
Secondary market loansLoans and advances(179)(21)— 
Senior securitizationDebt instruments(11)21 — 
CLOOther assets/liabilities— 1 — 
Interest and Exchange rate risk4 341 — 
DepositsDeposits and loans and advances7 2 — 
BondsDebt instruments(13)(9)— 
SecuritizationDebt instruments10 348 — 
Inflation risk15 22 — 
DepositsDeposits and loans and advances25 25 — 
BondsDebt instruments(3)(3)— 
Liquidity facilitiesLoans and advances(7)— — 
Equity risk17 (4)— 
Highly likely scheduled transactionsOther assets/liabilities17 (4)— 
Other risks— — — 
BondsOther assets/liabilities— — — 
Net foreign investments hedges792 — 10 — — — — 
Exchange rate risk792 — 10 — — — — 
Firm commitment13 — — — Other assets/liabilities— — — 
Equity instruments779 — 10 — Equity instruments— — — 
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).

695
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
The net impact of the coverages are shown in the following table:

EUR million
31 December 2020
Earnings/(losses) recognised in another cumulative overall resultIneffective recognised in the income statementReclassified amount of reserves to the income statement due to:
Line of the income statement that includes the ineffectiveness of cash flowsCover transaction affecting the income statementLine of the income statement that includes reclassified items
Fair value hedges104 
Interest rate risk9 
Deposits(7)Gains or losses of financial assets/liabilities
Bonds(27)Gains or losses of financial assets/liabilities
Repo(3)Gains or losses of financial assets/liabilities
Fixed-income securities loans24 Gains or losses of financial assets/liabilities
Liquidity lines5 Gains or losses of financial assets/liabilities
Securitizations16 Gains or losses of financial assets/liabilities
Equity instruments1 Gains or losses of financial assets/liabilities
Exchange rate risk1 
Fixed-income securities loans1 Gains or losses of financial assets/liabilities
Interest rate and exchange rate risk92 
Deposits72 Gains or losses of financial assets/liabilities
Bonds(25)Gains or losses of financial assets/liabilities
Securitizations41 Gains or losses of financial assets/liabilities
Repo4 Gains or losses of financial assets/liabilities
Credit risk2 
Bonds2 Gains or losses of financial assets/liabilities
Cash flow hedges(67)(53)851 
Interest rate risk69 7 118 
Firm Commitment149 — Gains or losses of financial assets/liabilities81 Interest income/(charges)
Deposits15 — Gains or losses of financial assets/liabilities— 
Bonds(197)— Gains or losses of financial assets/liabilities(15)Interest income/(charges)
Liquidity lines111 7 Gains or losses of financial assets/liabilities51 Interest income/(charges)
Loans secondary markets— — Gains or losses of financial assets/liabilities1 Interest income/(charges)
Highly likely scheduled transactions(9)— Gains or losses of financial assets/liabilities— 
696
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EUR million
31 December 2020
Earnings/(losses) recognised in another cumulative overall resultIneffective recognised in the income statementReclassified amount of reserves to the income statement due to:
Line of the income statement that includes the ineffectiveness of cash flowsCover transaction affecting the income statementLine of the income statement that includes reclassified items
Exchange rate risk(194)9 (132)
Deposits(197)11 7 Interest income/(charges) / Gains or losses of financial assets/liabilities
Bonds47 — Gains or losses of financial assets/liabilities(39)Interest income/(charges) / Gains or losses of financial assets/liabilities
Repo— — Gains or losses of financial assets/liabilities17 Interest income/(charges) / Gains or losses of financial assets/liabilities
Loans secondary markets43Gains or losses of financial assets/liabilities(129)Interest income/(charges) / Gains or losses of financial assets/liabilities
Securitizations(48)— Gains or losses of financial assets/liabilities48 Interest income/(charges) / Gains or losses of financial assets/liabilities
CLO— — Gains or losses of financial assets/liabilities14 Interest income/(charges) / Gains or losses of financial assets/liabilities
Highly likely scheduled transactions— (5)Gains or losses of financial assets/liabilities(50)Interest income/(charges) / Gains or losses of financial assets/liabilities
Interest rate and exchange rate risk170 (62)844 
Deposits3 — Gains or losses of financial assets/liabilities(39)Interest income/(charges)
Bonds133 (8)125 Interest income/(charges) / Gains or losses of financial assets/liabilities
Securitizations34 (54)Gains or losses of financial assets/liabilities758 Interest income/(charges) / Gains or losses of financial assets/liabilities
Inflation risk(121)(7)21 
Deposits(94)(6)Gains or losses of financial assets/liabilities23 Interest income/(charges)
Asset bonds(27)(1)Gains or losses of financial assets/liabilities(2)Interest income/(charges)
Equity risk9 — — 
Highly probable planned transactions9 — Gains or losses of financial assets/liabilities— 
Net foreign investments
hedges		3 — — 
Exchange rate risk3 — — 
Equity instruments3 — Gains or losses of financial assets/liabilities— 
(64)51 851 
697
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
31 December 2019
Earnings/(losses) recognised in another cumulative overall resultIneffective coverage recognised in the income statementReclassified amount of reserves to the income statement due to:
Line of the income statement that includes the ineffectiveness of cash flowsCover transaction affecting the income statementLine of the income statement that includes reclassified items
Fair value hedges58   
Interest rate risk5   
Deposits7 Gains or losses of financial assets/liabilities  
Bonds5 Gains or losses of financial assets/liabilities  
Securitizationss(7)Gains or losses of financial assets/liabilities  
Equity instruments— Gains or losses of financial assets/liabilities  
Risk of Exchange rate(3)  
Deposits(1)Gains or losses of financial assets/liabilities  
Bonds(2)Gains or losses of financial assets/liabilities  
Risk of interest rate and exchange rate56   
Deposits1 Gains or losses of financial assets/liabilities  
Securitizations55 Gains or losses of financial assets/liabilities  
Inflation risks—   
Deposits(1)Gains or losses of financial assets/liabilities  
Bonds1 Gains or losses of financial assets/liabilities  
Cash flow hedges8 (86)(1,112)
Interest rate risk(263)1 8 
Firm Commitment65 — Gains or losses of financial assets/liabilities(37)Interest income/(charges)
Deposits(37)— Gains or losses of financial assets/liabilities7 Interest income/(charges)
Bonds(254)— Gains or losses of financial assets/liabilities(26)Interest income/(charges)
Liquidity lines(48)1 Gains or losses of financial assets/liabilities61 Interest income/(charges)
Loans secondary markets(1)— Gains or losses of financial assets/liabilities3 Interest income/(charges)
Highly likely scheduled transactions12 — Gains or losses of financial assets/liabilities— Interest income/(charges)
698
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EUR million
31 December 2019
Earnings/(losses) recognised in another cumulative overall resultIneffective coverage recognised in the income statementReclassified amount of reserves to the income statement due to:
Line of the income statement that includes the ineffectiveness of cash flowsCover transaction affecting the income statementLine of the income statement that includes reclassified items
Exchange rate risk145 (34)(364)
Deposits148 (31)Gains or losses of financial assets/liabilities(39)Interest income/(charges) / Gains or losses of financial assets/liabilities
Bonds11 — Gains or losses of financial assets/liabilities154 Interest income/(charges) / Gains or losses of financial assets/liabilities
Repo— — Gains or losses of financial assets/liabilities(4)Interest income/(charges) / Gains or losses of financial assets/liabilities
Loans secondary markets122Gains or losses of financial assets/liabilities8Interest income/(charges) / Gains or losses of financial assets/liabilities
Securitizations(27)(4)Gains or losses of financial assets/liabilities(166)Interest income/(charges) / Gains or losses of financial assets/liabilities
CLO(1)— Gains or losses of financial assets/liabilities(13)Interest income/(charges) / Gains or losses of financial assets/liabilities
Highly likely scheduled transactions2 (1)Gains or losses of financial assets/liabilities(304)Interest income/(charges) / Gains or losses of financial assets/liabilities
Interest rate and exchange rate risk168 (53)(769)
Deposits(8)—Gains or losses of financial assets/liabilities(10)Interest income/(charges)
Bonds(16)(4)Gains or losses of financial assets/liabilities57 Interest income/(charges)
Securitizations192 (49)Gains or losses of financial assets/liabilities(816)Interest income/(charges) / Gains or losses of financial assets/liabilities
Inflation risk(44)—13 
Deposits(49)—Gains or losses of financial assets/liabilities9 Interest income/(charges)
Asset bonds5 —Gains or losses of financial assets/liabilities4 Interest income/(charges)
Equity risk2 —— 
Highly probable planned transactions2 —Gains or losses of financial assets/liabilities— 
Other risks— —— 
Bonds— —Gains or losses of financial assets/liabilities— 
Net foreign investments
hedges		—— — 
Exchange rate risk—— — 
Equity instruments—— Gains or losses of financial assets/liabilities— 
8 (28)(1,112)

699
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
31 December 2018
Earnings/(losses) recognised in another cumulative overall resultIneffective coverage recognised in the income statementReclassified amount of reserves to the income statement due to:
Line of the income statement that includes the ineffectiveness of cash flowsCover transaction affecting the income statementLine of the income statement that includes reclassified items
Fair value hedges75 
Interest rate risk(18)
Deposits(24)Gains or losses of financial assets/liabilities
Bonds(61)Gains or losses of financial assets/liabilities
Repo1 Gains or losses of financial assets/liabilities
Loans of fixed-income securities46 Gains or losses of financial assets/liabilities
Liquidity lines12 Gains or losses of financial assets/liabilities
Securitizations8 Gains or losses of financial assets/liabilities
Interest rate and exchange rate risk95 
Deposits39 Gains or losses of financial assets/liabilities
Bonds8 Gains or losses of financial assets/liabilities
Securitizations49 Gains or losses of financial assets/liabilities
CLO(1)Gains or losses of financial assets/liabilities
Other risks(2)
Securitizations(2)Gains or losses of financial assets/liabilities
Cash flow hedges200 8 317 
Interest rate risk193 (4)57 
Firm Commitment(2)— Gains or losses of financial assets/liabilities(24)Interest income/(charges)
Deposits50 (21)Gains or losses of financial assets/liabilities16 Interest income/(charges)
Bonds104 2 Gains or losses of financial assets/liabilities15 Interest income/(charges)/ Gains or losses of financial assets/liabilities
Loans secondary markets85 16 Gains or losses of financial assets/liabilities47 Interest income/(charges)/ Gains or losses of financial assets/liabilities
Liquidity lines2 — Gains or losses of financial assets/liabilities3 Interest income/(charges)
Repo(46)— Gains or losses of financial assets/liabilities— Interest income/(charges)
Securitizations— (1)Gains or losses of financial assets/liabilities— 
700
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EUR million
31 December 2018
Earnings/(losses) recognised in another cumulative overall resultIneffective coverage recognised in the income statementReclassified amount of reserves to the income statement due to:
Line of the income statement that includes the ineffectiveness of cash flowsCover transaction affecting the income statementLine of the income statement that includes reclassified items
Exchange rate risk(20)(688)(631)
Deposits(25)(698)Gains or losses of financial assets/liabilities(563)Interest income/(charges)/ Gains or losses of financial assets/liabilities
Asset bonds(25)43 Gains or losses of financial assets/liabilities(168)Interest income/(charges)/ Gains or losses of financial assets/liabilities
Repo— — Gains or losses of financial assets/liabilities— Gains or losses of financial assets/liabilities
Loans secondary markets54Gains or losses of financial assets/liabilities(75)Interest income/(charges)/ Gains or losses of financial assets/liabilities
Securitizations24 (37)Gains or losses of financial assets/liabilities150 Interest income/(charges) / Gains or losses of financial assets/liabilities
CLO1 — Gains or losses of financial assets/liabilities25 Interest income/(charges) / Gains or losses of financial assets/liabilities
Interest rate and exchange rate risk45 700 887 
Deposits1 743 Gains or losses of financial assets/liabilities35 Interest income/(charges)
Bonds(4)447 Gains or losses of financial assets/liabilities581 Interest income/(charges)/ Gains or losses of financial assets/liabilities
Securitizations48 (490)Gains or losses of financial assets/liabilities271 Interest income/(charges)/ Gains or losses of financial assets/liabilities
Inflation risk11 — 4 
Deposits14 — Gains or losses of financial assets/liabilities3 Interest income/(charges)
Asset bonds(3)— Gains or losses of financial assets/liabilities1 Interest income/(charges)
Equity risk(8)— — 
Highly probable planned transactions(8)— Gains or losses of financial assets/liabilities— 
Other risks(21)— — 
Bonds(21)— Gains or losses of financial assets/liabilities— 
Net foreign investments
hedges		— — — 
Exchange rate risk— — — 
Equity instruments— — Gains or losses of financial assets/liabilities— 
200 83 317 

701
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
The following table shows the movement in the impact of equity for the year:
EUR million
202020192018
Balance at beginning of year300 277 152 
Cash flow hedges
Interest rate risk67 (264)172 
Amounts transferred to income statements(118)(8)(57)
Gain or loss in value CFE - recognized in equity185 (256)229 
Exchange rate risk(194)146 (20)
Amounts transferred to income statements132 364 631 
Gain or loss in value CFE - recognized in equity(326)(218)(651)
Interest rate and exchange rate risk170 168 45 
Amounts transferred to income statements(844)769 (887)
Gain or loss in value CFE - recognized in equity1,014 (601)932 
Inflation risk(121)(44)11 
Amounts transferred to income statements(21)(13)(4)
Gain or loss in value CFE - recognized in equity(100)(31)15 
Equity risk9 2 (8)
Amounts transferred to income statements— — — 
Gain or loss in value CFE - recognized in equity9 2 (8)
Net foreign investments hedges
Exchange rate risk3 — — 
Amounts transferred to income statements— — — 
Gain or loss in value CFE - recognized in equity3 — — 
Non-controlling interest56 32 (25)
Taxes5 (17)(50)
Balance at end of year295 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.
The detail of the main interest and similar income items earned in 2020, 2019 and 2018 is as follows:
EUR million
202020192018
Loans and advances, central banks431 1,314 1,320 
Loans and advances, credit institutions894 1,785 1,555 
Debt instruments5,022 6,378 6,429 
Loans and advances, customers38,788 46,180 43,489 
Other interest606 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.
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
202020192018
Central banks deposits366 468 421 
Credit institution deposits1,652 2,576 2,588 
Customer deposits5,599 10,137 9,062 
Debt securities issued and subordinated liabilities5,119 6,679 6,073 
Marketable debt securities4,548 6,034 5,303 
Subordinated liabilities (note 23)571 645 770 
Provisions for pensions (note 25)95 145 186 
Lease Liabilities186 273 9 
Other interest expense730 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.





702
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40. Dividend 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:
EUR million
202020192018
Dividend income classified as
Financial assets held for trading272 388 241 
Non-trading financial assets mandatorily at fair value through profit or loss31 34 23 
Financial assets at fair value through other comprehensive income88 111 106 
391 533 370 
41. Commission income
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
202020192018
Coming from collection and payment services
Bills265 328 334 
Demand accounts1,284 1,382 1,371 
Cards2,986 3,858 3,514 
Orders484 478 475 
Cheques and other110 155 138 
5,129 6,201 5,832 
Coming from non-banking financial products
Investment funds888 943 1,024 
Pension funds170 180 124 
Insurance2,289 2,631 2,433 
3,347 3,754 3,581 
Coming from Securities services
Securities underwriting and placement394 364 283 
Securities trading316 281 251 
Administration and custody336 485 458 
Asset management316 293 305 
1,362 1,423 1,297 
Other
Foreign exchange500 612 546 
Financial guarantees409 521 549 
Commitment fees366 293 291 
Other fees and commissions1,911 2,545 2,568 
3,186 3,971 3,954 
13,024 15,349 14,664 

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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
202020192018
Commissions assigned to third parties1,856 2,350 1,972 
Cards1,249 1,616 1,358 
By collection and return of effects12 12 11 
Other fees assigned 595 722 603 
Other commissions paid1,153 1,220 1,207 
Brokerage fees on lending and deposit transactions26 27 42 
Sales of insurance and pension funds248 232 232 
Other fees and commissions879 961 933 
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
202020192018
Gains or losses on financial assets and liabilities not measured at fair value through profit or loss, net1,107 1,136 604 
Financial assets at amortized cost(31)308 39 
Other financial assets and liabilities1,138 828 565 
Of which debt instruments1,179 804 563 
Gains or losses on financial assets and liabilities held for trading, net*3,211 1,349 1,515 
Gains or losses on non-trading financial assets and liabilities mandatory at fair value through profit or loss82 292 331 
Gains or losses on financial assets and liabilities measured at fair value through profit or loss, net*(171)(286)(57)
Gains or losses from hedge accounting, net51 (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.
As explained in note 44, the above breakdown should be analysed in conjunction with the 'Exchange differences, net':
EUR million
202020192018
Exchange differences, net(2,093)(932)(679)
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
202020192018
Loans and receivables:46,589 59,624 56,323 
Central banks9,481 6,473 9,226 
Credit institutions12,139 21,649 23,099 
Customers24,969 31,502 23,998 
Debt instruments41,573 36,402 36,609 
Equity instruments12,849 15,787 12,198 
Derivatives67,137 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.
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The detail of the amount of the liability balances is as follows:
EUR million
202020192018
Deposits43,598 57,111 65,304 
Central banks2,490 12,854 14,816 
Credit institutions6,765 9,340 10,891 
Customer34,343 34,917 39,597 
Marketable debt securities4,440 3,758 2,305 
Short positions16,698 14,123 15,002 
Derivatives64,469 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).
45. Other operating income and expenses
Other operating income and Other operating expenses in the consolidated income statements include:
EUR million
202020192018
Insurance activity210 120 51 
Income from insurance and reinsurance contracts issued1,452 2,534 3,175 
Of which:
Insurance and reinsurance premium income1,349 2,404 3,011 
Reinsurance income (note 15)103 130 164 
Expenses of insurance and reinsurance contracts(1,242)(2,414)(3,124)
Of which:
Claims paid, other insurance-related expenses and net provisions for insurance contract liabilities (1,063)(2,183)(2,883)
Reinsurance premiums paid(179)(231)(241)
Other operating income1,920 1,797 1,643 
Non- financial services362 379 367 
Other operating income1,558 1,418 1,276 
Other operating expense(2,342)(2,138)(2,000)
Non-financial services(350)(351)(270)
Other operating expense:(1,992)(1,787)(1,730)
Of which, credit institutions deposit guarantee fund and single resolution fund(1,005)(911)(895)
(212)(221)(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
202020192018
Wages and salaries8,095 9,020 8,824 
Social Security costs1,277 1,426 1,412 
Additions to provisions for defined benefit pension plans (note 25)76 72 84 
Contributions to defined contribution pension funds283 292 287 
Other Staff costs1,052 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
202020192018
Banco Santander, S.A.:
Senior management21 20 22 
Other line personnel26,527 29,147 30,399 
26,548 29,167 30,421 
Rest of Spain8,878 8,269 7,944 
Santander UK plc16,790 17,961 18,757 
Santander Brasil44,554 47,253 46,645 
Other companies*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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The functional breakdown (final employment), by gender, at 31 December, 2020 is as follows:
Functional breakdown by gender
Senior executivesOther executivesOther personnel
MenWomenMenWomenMenWomen
Europe1,115 365 7,350 4,290 32,937 41,998 
North America228 50 956 453 15,816 20,875 
South America320 101 3,246 2,257 26,614 32,218 
1,663 516 11,552 7,000 75,367 95,091 
The same information, expressed in percentage terms at 31 December, 2020 is as follows:
Functional breakdown by gender
Senior executivesOther executivesOther personnel
MenWomenMenWomenMenWomen
Europe75 %25 %63 %37 %44 %56 %
North America82 %18 %68 %32 %43 %57 %
South America76 %24 %59 %41 %45 %55 %
76 %24 %62 %38 %44 %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:
Number of employees*
2020
Senior management7 
Management110 
Collaborators3,460 
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).
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
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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Deferred variable remuneration systems
Description and plan beneficiaries
Conditions
Calculation Base
(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.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.
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.
vi.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.
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.
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.
(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

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.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.
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.
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.
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Deferred variable remuneration systems
Description and plan beneficiaries
Conditions
Calculation Base
(iii)Deferred Multiyear Objectives Variable Remuneration Plan (2016, 2017, 2018, 2019 and 2020)
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.Poor performance of the Group.
ii.breach by the beneficiary of the internal regulations, including in particular that relating to risks.
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.
vi.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.
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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Deferred variable remuneration systems
Description and plan beneficiaries
Conditions
Calculation Base
(iv) Digital Transformation Award (2019 y 2020)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.
2.Launch of a Global Merchant Services (GMS) platform.
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

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.
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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:
Number of shares (in thousand)Exercise price in pounds sterling*Year grantedEmployee groupNumber of persons**Date of commencement of exercise periodDate of expiry of exercise period
Plans outstanding at 01/01/201827.201 
Options granted (sharesave)6,210 3.46 2018Employees4,880 01/11/1801/11/21
01/11/1801/11/23
Options exercised(3,340)3.16 
Options cancelled (net) or not exercised(3,233)3.76 
Plans outstanding at 31/12/201826,838 
Options granted (sharesave)9,594 2.83 2019Employees5,606 01/11/1901/11/22
01/11/1901/11/24
Options exercised(7,978)2.83 
Options cancelled (net) or not exercised(5,081)3.42 
Plans outstanding at 31/12/201923,373 
Options granted (sharesave)11,642 1.65 2020Employees5,012 11/01/2011/01/23
11/01/2011/01/25
Options exercised(860)2.75 
Options cancelled (net) or not exercised(12,993)2.96 
Plans outstanding at 31/12/202021,162 
*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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47. Other general administrative expenses
a) Breakdown
The detail of Other general administrative expenses is as follows:
EUR million
202020192018
Property, fixtures and supplies
(note 2.k)		827 975 1,968 
Technology and systems2,119 2,161 1,550 
Technical reports672 677 707 
Advertising523 685 646 
Taxes other than income tax537 522 557 
Communications473 518 527 
Surveillance and cash courier services325 416 405 
Per diems and travel expenses73 226 225 
Insurance premiums88 86 76 
Other administrative expenses1,900 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.
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:
EUR million
202020192018
Audit fees95.8 102.4 93.9 
Audit-related fees6.0 7.8 6.8 
Tax fees0.8 0.7 0.9 
All other fees1.2 2.3 3.4 
Total103.8 113.2 105.0 
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.
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
202020192018
Spain2,989 3,286 4,427 
Group8,247 8,666 8,790 
11,236 11,952 13,217 
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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
202020192018
Gains:
Tangible and intangible assets89 131 124 
Investments60 1,219 2 
Of which:
Custody Business (note 3)— 989 — 
Prisma— 194 — 
149 1,350 126 
Losses:
Tangible and intangible assets(34)(55)(92)
Investments(1)(4)(6)
(35)(59)(98)
114 1,291 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 balance202020192018
Tangible assets(171)(232)(123)
Impairment(215)(146)(259)
Gain (loss) on sale44 (86)136 
Other gains and other losses— — — 
(171)(232)(123)
713
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
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
years		More than
5 years		TotalInterest rate
Assets
Cash, cash balances at Central Banks and other deposits on demand153,839 — — — — — — 153,839 (0.06)%
Financial assets at fair value through other comprehensive income— 6,664 4,420 7,738 19,923 21,302 58,123 118,170 
Debt instruments— 6,664 4,244 7,019 18,365 19,969 52,642 108,903 2.96 %
Loans and advances— — 176 719 1,558 1,333 5,481 9,267 
Customers— — 176 719 1,558 1,333 5,481 9,267 2.05 %
Financial assets
at amortized cost		51,513 57,047 60,288 109,561 150,399 120,376 409,194 958,378 
Debt instruments— 2,857 1,327 5,760 3,059 5,257 7,818 26,078 2.53 %
Loans and advances51,513 54,190 58,961 103,801 147,340 115,119 401,376 932,300 
Central banks— 10,762 — — 673 — 1,064 12,499 2.32 %
Credits institutions21,337 4,405 4,545 3,910 3,207 34 400 37,838 2.14 %
Customers30,176 39,023 54,416 99,891 143,460 115,085 399,912 881,963 3.67 %
205,352 63,711 64,708 117,299 170,322 141,678 467,317 1,230,387 3.04 %
Liabilities
Financial liabilities
at amortized cost		640,613 84,875 90,394 93,296 175,238 80,041 83,731 1,248,188 
Deposits632,305 64,630 67,707 61,142 109,856 32,464 22,287 990,391 
Central banks150 5,204 5,295 3,216 83,112 15,827 — 112,804 (0.44)%
Credit institutions14,370 7,158 15,227 9,940 5,618 5,934 4,373 62,620 1.62 %
Customer deposits617,785 52,268 47,185 47,986 21,126 10,703 17,914 814,967 0.64 %
Marketable debt
securities* **		— 14,981 18,276 30,994 59,526 47,143 59,909 230,829 1.94 %
Other financial liabilities8,308 5,264 4,411 1,160 5,856 434 1,535 26,968 
640,613 84,875 90,394 93,296 175,238 80,041 83,731 1,248,188 0.82 %
Difference (assets less liabilities)(435,261)(21,164)(25,686)24,003 (4,916)61,637 383,586 (17,801)
*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.
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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
years		More than
5 years		TotalInterest rate
Assets                                
Cash, cash balances at Central Banks and other deposits on demand101,067 — — — — — — 101,067 0.37 %
Financial assets at fair value through other comprehensive income— 6,933 2,704 7,689 19,101 17,989 68,429 122,845 
Debt instruments— 6,879 2,699 7,554 17,489 17,063 66,721 118,405 3.07 %
Loans and advances— 54 5 135 1,612 926 1,708 4,440 
Customers— 54 5 135 1,612 926 1,708 4,440 1.84 %
Financial assets
at amortized cost		51,702 73,890 76,229 116,511 150,365 103,584 423,201 995,482 
Debt instruments— 1,563 1,847 3,073 2,549 3,642 17,115 29,789 3.23 %
Loans and advances51,702 72,327 74,382 113,438 147,816 99,942 406,086 965,693 
Central banks— 17,086 — — — — 1,388 18,474 4.78 %
Credits institutions17,665 6,223 4,602 7,435 3,963 428 627 40,943 1.04 %
Customers34,037 49,018 69,780 106,003 143,853 99,514 404,071 906,276 4.85 %
152,769 80,823 78,933 124,200 169,466 121,573 491,630 1,219,394 4.12 %
Liabilities
Financial liabilities
at amortized cost		619,003 99,203 88,546 159,120 134,799 61,282 68,792 1,230,745 
Deposits607,051 76,101 61,627 111,190 64,781 14,224 7,443 942,417 
Central banks99 462 64 33,229 28,424 190 — 62,468 (0.12)%
Credit institutions23,526 14,494 18,922 14,245 9,327 5,668 4,319 90,501 2.97 %
Customer deposits583,426 61,145 42,641 63,716 27,030 8,366 3,124 789,448 0.91 %
Marketable debt
securities*		— 16,008 22,569 47,808 65,545 46,577 59,712 258,219 2.38 %
Other financial liabilities11,952 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.
715
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
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
years		More than
5 years		TotalAverage interest rate
Assets                                    
Cash, cash balances at Central Banks and other deposits on demand113,663 — — — — — — 113,663 0.11 %
Financial assets at fair value through other comprehensive income1,886 6,023 3,329 12,873 19,432 10,705 64,172 118,420 
Debt instruments487 6,022 3,328 12,830 19,415 10,661 64,076 116,819 3.11 %
Loans and advances1,399 1 1 43 17 44 96 1,601 
Customers1,399 1 1 43 17 44 96 1,601 1.41 %
Financial assets
at amortized cost		46,247 56,818 71,627 102,036 134,697 107,921 426,753 946,099 
Debt instruments16 1,534 1,319 6,646 2,474 1,783 23,924 37,696 3.30 %
Loans and advances46,231 55,284 70,308 95,390 132,223 106,138 402,829 908,403 
Central banks— 23 — 4 — — 15,574 15,601 6.07 %
Credit institutions10,092 5,389 6,711 6,003 5,314 947 1,024 35,480 1.66 %
Customers36,139 49,872 63,597 89,383 126,909 105,191 386,231 857,322 4.96 %
161,796 62,841 74,956 114,909 154,129 118,626 490,925 1,178,182 4.17 %
Liabilities
Financial liabilities
at amortized cost		545,284 87,782 93,293 127,522 182,670 56,927 78,152 1,171,630 
Deposits536,134 74,440 67,406 91,958 107,459 18,833 6,871 903,101 
Central banks304 2,130 2,629 507 64,433 2,520 — 72,523 (0.22)%
Credit institutions15,341 13,413 24,724 16,384 8,759 6,412 4,646 89,679 2.19 %
Customer deposits520,489 58,897 40,053 75,067 34,267 9,901 2,225 740,899 0.90 %
Marketable debt
securities*		237 11,347 18,817 33,536 71,805 37,919 70,653 244,314 2.59 %
Other financial liabilities8,913 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.
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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
On
demand		Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
Financial liabilities at amortized cost
Deposits629,043 62,872 67,567 60,465 108,326 32,260 22,228 982,761 
Central banks150 5,204 5,293 3,217 82,803 15,827 — 112,494 
Credit institutions14,334 7,158 15,209 9,606 5,031 5,903 4,333 61,574 
Customer614,559 50,510 47,065 47,642 20,492 10,530 17,895 808,693 
Marketable debt securities— 15,298 19,009 31,103 58,645 46,118 56,730 226,903 
Other financial liabilities8,308 5,264 4,411 1,160 5,856 434 1,535 26,968 
637,351 83,434 90,987 92,728 172,827 78,812 80,493 1,236,632 
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
years		More than
5 years		Total
Financial liabilities at amortized cost                                
Deposits603,126 75,899 61,107 109,747 63,013 14,027 7,228 934,147 
Central banks99 454 41 32,805 28,255 190 — 61,844 
Credit institutions23,348 14,491 18,810 14,134 8,519 5,478 4,113 88,893 
Customer579,679 60,954 42,256 62,808 26,239 8,359 3,115 783,410 
Marketable debt securities— 16,252 22,912 48,030 64,650 45,830 58,215 255,889 
Other financial liabilities11,952 7,094 4,350 122 4,473 481 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
On
demand		Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
Financial liabilities at amortized cost                                
Deposits532,915 74,320 67,169 91,766 106,935 18,439 6,540 898,084 
Central banks304 2,126 2,624 896 64,424 2,520 — 72,894 
Credit institutions15,257 13,413 24,698 16,288 8,552 6,085 4,427 88,720 
Customer517,354 58,781 39,847 74,582 33,959 9,834 2,113 736,470 
Marketable debt securities296 11,243 17,359 33,443 71,431 37,409 69,352 240,533 
Other financial liabilities8,913 1,995 7,070 2,028 3,406 175 628 24,215 
542,124 87,558 91,598 127,237 181,772 56,023 76,520 1,162,832 
717
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
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 months1 to 3 months3 to 12 months1 to 3
years		3 to 5
years		More than 5 yearsTotal
FINANCIAL ASSETS    
Financial assets held for trading5,760 6,734 27,753 22,473 18,014 34,211 114,945 
Derivatives4,288 5,268 10,044 15,526 13,681 18,330 67,137 
Equity instruments— — — — — 9,615 9,615 
Debt instruments1,472 1,466 17,709 6,947 4,310 5,990 37,894 
Loans and advances— — — — 23 276 299 
Credits institutions— — — — 3 — 3 
Customers— — — — 20 276 296 
Financial assets designated at fair value through profit or loss12,500 14,834 7,205 3,680 3,933 6,565 48,717 
Debt instruments181 78 162 407 719 1,432 2,979 
Loans and advances12,319 14,756 7,043 3,273 3,214 5,133 45,738 
Central banks343 9,138 — — — — 9,481 
Credit institutions6,935 1,514 2,728 590 12 357 12,136 
Customers5,041 4,104 4,315 2,683 3,202 4,776 24,121 
Non-trading financial assets mandatorily at fair value through profit or loss275 — — — 69 4,142 4,486 
Equity instruments— — — — — 3,234 3,234 
Debt instruments85 — — — — 615 700 
Loans and advances190 — — — 69 293 552 
Central banks— — — — — — — 
Credits institutions— — — — — — — 
Customers190 — — — 69 293 552 
Financial assets at fair value through other comprehensive income— — — — — 2,783 2,783 
Equity instruments— — — — — 2,783 2,783 
Hedging derivatives1,534 469 1,293 1,107 1,083 2,839 8,325 
Changes in the fair value of hedged items in portfolio hedges of interest rate risk173 8 132 205 381 1,081 1,980 
TOTAL FINANCIAL ASSETS20,242 22,045 36,383 27,465 23,480 51,621 181,236 


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31 December 2020
EUR million
Within 1 months1 to 3 months3 to 12 months1 to 3
years		3 to 5
years		More than 5 yearsTotal
FINANCIAL LIABILITIES    
Financial liabilities held for trading16,754 3,727 6,286 17,635 16,036 20,729 81,167 
Derivatives1,132 3,206 5,800 17,566 16,036 20,729 64,469 
Shorts positions15,622 521 486 69 — — 16,698 
Deposits— — — — — — — 
Central banks— — — — — — — 
Credits institutions— — — — — — — 
Customers— — — — — — — 
Marketable debt securities— — — — — — — 
Other financial liabilities— — — — — — — 
Financial liabilities designated at fair value through profit or loss13,468 1,732 2,228 2,893 1,121 26,596 48,038 
Deposits13,459 1,709 1,954 2,497 518 23,461 43,598 
Central banks841 866 783 — — — 2,490 
Credits institutions3,673 112 935 1,493 171 381 6,765 
Customers8,945 731 236 1,004 347 23,080 34,343 
Marketable debt securities*9 23 274 396 603 3,135 4,440 
Other financial liabilities— — — — — — — 
Hedging derivatives2,619 200 588 748 641 2,073 6,869 
Changes in the fair value of hedged items in portfolio hedges of interest rate risk3 6 40 74 64 99 286 
TOTAL FINANCIAL LIABILITIES32,844 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).
31 December 2020
EUR million
Within 1 months1 to 3 months3 to 12 months1 to 3
years		3 to 5
years		More than 5 yearsTotal
Memorandum items
Loans commitment granted104,725 9,496 28,207 47,876 40,458 10,468 241,230 
Financial guarantees granted1,809 852 3,732 4,134 1,169 681 12,377 
Other commitments granted39,205 4,529 10,497 5,101 3,207 1,999 64,538 
MEMORANDUM ITEMS145,739 14,877 42,436 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.
719
Auditor's
report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
31 December 2019
EUR million
Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
FINANCIAL ASSETS
Financial assets held for trading4,864 3,522 19,740 21,603 18,083 40,418 108,230 
Derivatives3,329 2,233 6,552 15,855 14,925 20,503 63,397 
Equity instruments— — — — — 12,437 12,437 
Debt instruments1,531 1,289 13,188 5,748 3,141 7,144 32,041 
Loans and advances4 — — — 17 334 355 
Credits institutions— — — — — — — 
Customers4 — — — 17 334 355 
Financial assets designated at fair value through profit or loss24,110 13,167 7,602 5,175 3,878 8,137 62,069 
Debt instruments457 10 81 652 381 1,605 3,186 
Loans and advances23,653 13,157 7,521 4,523 3,497 6,532 58,883 
Central banks1,744 4,729 — — — — 6,473 
Credit institutions13,186 4,946 1,534 1,015 9 959 21,649 
Customers8,723 3,482 5,987 3,508 3,488 5,573 30,761 
Non-trading financial assets mandatorily at fair value through profit or loss272 — 4 11 117 4,507 4,911 
Equity instruments— — — — — 3,350 3,350 
Debt instruments— — — 11 117 1,047 1,175 
Loans and advances272 — 4 — — 110 386 
Central banks— — — — — — — 
Credits institutions— — — — — — — 
Customers272 — 4 — — 110 386 
Financial assets at fair value through other comprehensive income— — — — — 2,863 2,863 
Equity instruments— — — — — 2,863 2,863 
Hedging derivatives807 86 601 1,646 904 3,172 7,216 
Changes in the fair value of hedged items in portfolio hedges of interest rate risk267 1 24 112 265 1,033 1,702 
TOTAL FINANCIAL ASSETS30,320 16,776 27,971 28,547 23,247 60,130 186,991 
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31 December 2019
EUR million
Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
FINANCIAL LIABILITIES
Financial liabilities held for trading10,851 3,427 7,130 17,244 16,905 21,582 77,139 
Derivatives2,672 1,973 6,591 16,965 16,023 18,792 63,016 
Shorts positions8,179 1,454 539 279 882 2,790 14,123 
Deposits— — — — — — — 
Central banks— — — — — — — 
Credits institutions— — — — — — — 
Customers— — — — — — — 
Marketable debt securities— — — — — — — 
Other financial liabilities— — — — — — — 
Financial liabilities designated at fair value through profit or loss21,929 2,259 5,307 3,565 1,450 26,485 60,995 
Deposits21,904 2,225 4,909 2,429 780 24,864 57,111 
Central banks8,831 1,228 2,795 — — — 12,854 
Credits institutions4,133 521 1,857 2,132 11 686 9,340 
Customers8,940 476 257 297 769 24,178 34,917 
Marketable debt securities14 34 398 1,021 670 1,621 3,758 
Other financial liabilities11 — — 115 — — 126 
Hedging derivatives1,997 337 848 678 528 1,660 6,048 
Changes in the fair value of hedged items in portfolio hedges of interest rate risk3 6 26 53 59 122 269 
TOTAL FINANCIAL LIABILITIES34,780 6,029 13,311 21,540 18,942 49,849 144,451 
31 December 2019
EUR million
Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
Memorandum items
Loans commitment granted98,630 16,529 30,370 37,097 48,072 10,481 241,179 
Financial guarantees granted2,176 1,791 5,626 1,933 1,364 760 13,650 
Other commitments granted44,950 3,052 9,957 4,606 4,132 2,198 68,895 
MEMORANDUM ITEMS145,756 21,372 45,953 43,636 53,568 13,439 323,724 
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Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
31 December 2018
EUR million
Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
FINANCIAL ASSETS
Financial assets held for trading4,512 3,564 6,793 22,084 19,350 36,576 92,879 
Derivatives2,691 3,165 899 15,189 14,098 19,897 55,939 
Equity instruments— — — — — 8,938 8,938 
Debt instruments1,821 399 5,894 6,895 5,252 7,539 27,800 
Loans and advances— — — — — 202 202 
Credits institutions— — — — — — — 
Customers— — — — — 202 202 
Financial assets designated at fair value through profit or loss21,598 13,045 5,625 5,215 4,065 7,912 57,460 
Debt instruments604 7 304 727 348 1,232 3,222 
Loans and advances20,994 13,038 5,321 4,488 3,717 6,680 54,238 
Central banks1,211 5,433 2,582 — — — 9,226 
Credit institutions14,587 4,131 778 1,327 579 1,695 23,097 
Customers5,196 3,474 1,961 3,161 3,138 4,985 21,915 
Non-trading financial assets mandatorily at fair value through profit or loss3,215 346 17 125 2 7,025 10,730 
Equity instruments— — — — — 3,260 3,260 
Debt instruments1,876 20 — — 2 3,689 5,587 
Loans and advances1,339 326 17 125 — 76 1,883 
Central banks— — — — — — — 
Credits institutions2 — — — — — 2 
Customers1,337 326 17 125 — 76 1,881 
Financial assets at fair value through other comprehensive income— — — — — 2,671 2,671 
Equity instruments— — — — — 2,671 2,671 
Hedging derivatives609 166 474 2,167 957 4,234 8,607 
Changes in the fair value of hedged items in portfolio hedges of interest rate risk106 7 20 28 59 868 1,088 
TOTAL FINANCIAL ASSETS30,040 17,128 12,929 29,619 24,433 59,286 173,435 

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31 December 2018
EUR million
Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
FINANCIAL LIABILITIES
Financial liabilities held for trading10,473 3,351 1,104 16,123 16,457 22,835 70,343 
Derivatives2,897 2,874 822 14,323 14,956 19,469 55,341 
Shorts positions7,576 477 282 1,800 1,501 3,366 15,002 
Deposits— — — — — — — 
Central banks— — — — — — — 
Credits institutions— — — — — — — 
Customers— — — — — — — 
Marketable debt securities— — — — — — — 
Other financial liabilities— — — — — — — 
Financial liabilities designated at fair value through profit or loss29,574 7,017 864 1,497 999 28,107 68,058 
Deposits29,522 6,947 627 531 455 27,222 65,304 
Central banks9,804 4,940 72 — — — 14,816 
Credits institutions8,809 949 271 188 229 445 10,891 
Customers10,909 1,058 284 343 226 26,777 39,597 
Marketable debt securities13 70 237 556 544 885 2,305 
Other financial liabilities39 — — 410 — — 449 
Hedging derivatives485 144 321 362 651 4,400 6,363 
Changes in the fair value of hedged items in portfolio hedges of interest rate risk3 5 23 64 60 148 303 
TOTAL FINANCIAL LIABILITIES40,535 10,517 2,312 18,046 18,167 55,490 145,067 
31 December 2018
EUR million
Within
1 month		1 to 3
months		3 to 12
months		1 to 3
years		3 to 5
years		More than
5 years		Total
Memorandum items
Loans commitment granted71,860 12,436 22,749 35,632 43,205 32,201 218,083 
Financial guarantees granted2,100 1,737 4,437 1,728 1,029 692 11,723 
Other commitments granted58,431 1,486 6,174 2,650 3,503 2,145 74,389 
MEMORANDUM ITEMS132,391 15,659 33,360 40,010 47,737 35,038 304,195 


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Consolidated
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Notes to the consolidated annual accounts
 
Appendix
 
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
202020192018
AssetsLiabilitiesAssetsLiabilitiesAssetsLiabilities
Cash, cash balances at central banks and other deposits on demand76,882 — 65,205 — 61,372 — 
Financial assets/liabilities held for trading66,448 50,494 60,526 45,262 56,217 40,989 
Non-trading financial assets mandatorily at fair value through profit or loss2,248 — 2,611 — 8,231 — 
Other financial assets/liabilities at fair value through profit or loss24,015 18,347 25,938 29,593 32,244 35,997 
Financial assets at fair value through other comprehensive income79,688 — 76,402 — 67,926 — 
Financial assets at amortized cost610,152 — 656,564 — 598,629 — 
Investments1,671 — 1,355 — 1,189 — 
Tangible assets21,617 — 24,662 — 19,903 — 
Intangible assets9,609 — 21,942 — 23,016 — 
Financial liabilities at amortized cost— 726,516 — 752,188 — 694,362 
Liabilities under insurance contracts— 13 — 13 — 29 
Other26,433 22,801 25,410 23,428 24,506 20,567 
918,763 818,171 960,615 850,484 893,233 791,944 
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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
202020192018
AssetsCarrying amountFair valueLevel 1Level 2Level 3Carrying amountFair valueLevel 1Level 2Level 3Carrying amountFair valueLevel 1Level 2Level 3
Loans and advances932,300 940,258 — 65,755 874,503 965,693 975,523 — 82,045 893,478 908,403 914,013 — 88,091 825,922 
Debt instruments26,078 26,532 6,753 11,899 7,880 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
202020192018
Liabilities*Carrying amountFair valueLevel 1Level 2Level 3Carrying amountFair valueLevel 1Level 2Level 3Carrying amountFair valueLevel 1Level 2Level 3
Deposits990,391 990,807 — 263,517 727,290 942,417 942,397 — 245,143 697,254 903,101 902,680 — 302,414 600,266 
Debt instruments230,829 241,174 91,771 125,031 24,372 258,219 266,784 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.
725
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report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
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 instrumentsMtM Derivatives***
Financial assets held for trading and financial assets designated at fair value through profit or lossShort positionsFinancial assets at fair value through other comprehensive incomeNon-trading financial assets mandatorily at fair value through profit or lossFinancial assets at amortized costLoans and advances to customers**Total net direct exposureDirect riskIndirect risk (CDS)s
Spain9,765 (5,665)7,048 — 993 12,104 24,245 546 — 
Portugal202 (582)4,148 — 631 4,331 8,730 — — 
Italy556 (307)2,468 — 1,277 21 4,015 1 (1)
Ireland— — — — — — — — — 
*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 instrumentsMtM Derivatives***
Financial assets held for trading and financial assets designated at fair value through profit or lossShort positionsFinancial assets at fair value through other comprehensive incomeNon-trading financial assets mandatorily at fair value through profit or lossFinancial assets at amortized costLoans and advances to customers**Total net direct exposureDirect riskIndirect risk (CDS)
Spain9,090 (3,886)19,961 — 208 9,993 35,366 474 — 
Portugal31 (777)5,450 — 577 3,408 8,689 — — 
Italy1,095 (452)1,631 — 442 19 2,735 5 (5)
Ireland— — — — — — — — — 
*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.
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Sovereign risk by country of issuer/borrower at 31 December 2018*
EUR million
Debt instrumentsMtM Derivatives***
Financial assets held for trading and financial assets designated at fair value through profit or lossShort positionsFinancial assets at fair value through other comprehensive incomeNon-trading financial assets mandatorily at fair value through profit or lossFinancial assets at amortized costLoans and advances to customers**Total net direct exposureDirect riskIndirect risk (CDS)
Spain3,601 (2,458)27,078 — 7,804 13,615 49,640 407 — 
Portugal72 (115)4,794 — 277 3,725 8,753 — — 
Italy477 (681)— — 385 80 261 87 — 
Ireland— — — — — — — 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 instrumentsMtM Derivatives**
Balances with 
central banks		Reverse repurchase agreementsFinancial 
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		Loans and
advances
 to
customers*		Total net
direct
exposure		Other 
than
CDS		CDS
Spain62,023 3,837 619 943 2 24 203,226 270,674 2,581 (4)
Portugal3,937 — 140 22 — 2,933 34,935 41,967 685 — 
Italy10 7,098 425 493 — 129 13,437 21,592 1,001 (4)
Greece— — — — — — 14 14 — — 
Ireland— — 22 2,337 556 9 10,523 13,447 153 — 
*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.
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Notes to the consolidated annual accounts
 
Appendix
 
Exposure to other counterparties by country of issuer/borrower at 31 December 2019***
EUR million
Debt instrumentsMtM Derivatives**
Balances with 
central banks		Reverse repurchase agreementsFinancial 
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		Loans and
advances
 to
customers*		Total net
direct
exposure		Other 
than
CDS		CDS
Spain21,696 7,627 656 1,195 321 1,501 194,817 227,813 2,417 2 
Portugal2,814 409 190 32 — 2,956 33,403 39,804 931 — 
Italy182 6,243 625 606 — 153 12,284 20,093 512 — 
Greece— — — — — — 12 12 — — 
Ireland— — 55 1,718 592 22 11,875 14,262 232 — 
*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 instrumentsDerivatives***
Balances with 
central banks		Reverse repurchase agreementsFinancial 
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		Loans and
advances
 to
customers		Total net
direct
exposure****		Other 
than
CDS		CDS
Spain42,655 8,117 412 1,760 320 2,662 202,149 258,075 3,880 (6)
Portugal1,369 — 11 90 — 3,821 33,596 38,887 1,132 — 
Italy51 6,296 84 635 — — 10,830 17,896 253 — 
Greece— — — — — — 80 80 28 — 
Ireland— — 21 1,093 16 25 10,633 11,788 127 — 
*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.

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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
Notional amountFair value
BoughtSoldNetBoughtSoldNet
SpainSovereign— — — — — — 
Other546 273 273 (13)9 (4)
PortugalSovereign— — — — — — 
Other52 — 52 — — — 
ItalySovereign326 206 120 (3)2 (1)
Other220 11 209 (4)— (4)
2019
EUR million
Notional amountFair value
BoughtSoldNetBoughtSoldNet
SpainSovereign— — — — — — 
Other127 340 (213)(2)4 2 
PortugalSovereign27 27 — — — — 
Other— — — — — — 
ItalySovereign314 9 305 (5)— (5)
Other60 60 — (2)2 — 
2018
EUR million
Notional amountFair value
BoughtSoldNetBoughtSoldNet
SpainSovereign— — — — — — 
Other151 382 (231)(2)(4)(6)
PortugalSovereign26 26 — — — — 
Other— — — — — — 
ItalySovereign— 265 (265)— — — 
Other205 75 130 (5)5 — 
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Notes to the consolidated annual accounts
 
Appendix
 
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.
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:
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.
There are no customers located in any of the areas that generate income exceeding 10% of Total income.

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The condensed balance sheets and income statements of the various main segments are as follows:
EUR million
2020
Balance sheet (condensed)EuropeNorth AmericaSouth AmericaSantander Global PlatformCorporate CentreIntra-Group eliminationsTotal
Total assets1,077,537 223,313 238,263 12,901 182,587 (226,351)1,508,250 
Loans and advances to customers675,894 120,557 113,731 973 5,044 — 916,199 
Cash, balances at central banks and credit institutions and other deposits on demand224,793 28,469 42,957 10,917 61,173 (142,513)225,796 
Debt instruments86,925 38,398 49,300 13 1,918 — 176,554 
Other financial assets48,266 15,363 17,266 230 1,644 — 82,769 
Other asset accounts41,659 20,526 15,009 768 112,808 (83,838)106,932 
Total liabilities1,022,954 199,611 218,797 11,521 106,558 (142,513)1,416,928 
Customer deposits622,826 102,906 111,791 10,961 826 — 849,310 
Central banks and credit institutions208,408 37,966 41,989 274 38,555 (142,513)184,679 
Marketable debt securities120,166 36,583 21,280 — 57,240 — 235,269 
Other financial liabilities***55,919 16,159 35,434 130 493 — 108,135 
Other liabilities accounts****15,635 5,997 8,303 156 9,444 — 39,535 
Total equity54,583 23,702 19,466 1,380 76,029 (83,838)91,322 
Other customer funds under management86,899 16,505 49,851 — 12 — 153,267 
Investment funds71,238 10,864 49,851 — 12 — 131,965 
Pension funds15,487 90 — — — — 15,577 
Assets under management174 5,551 — — — — 5,725 
Other non-managed marketed customer funds 34,789 11,915 6,187 658 — — 53,549 
*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.
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annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
2019
Balance sheet (condensed)
Europe
North AmericaSouth America
Santander Global Platform
Corporate Centre
Intra-Group eliminationsTotal
Total assets 1,057,038 223,857 253,804 10,234 168,352 (190,590)1,522,695 
Loans and advances to customers676,904 133,726 125,122 702 5,764 — 942,218 
Cash, balances at central banks and credit institutions and other deposits on demand180,389 22,885 51,360 9,063 32,803 (107,894)188,606 
Debt instruments104,381 33,746 45,619 10 840 — 184,596 
Other financial assets*53,893 10,759 14,802 187 2,406 — 82,047 
Other asset accounts**41,471 22,741 16,901 272 126,539 (82,696)125,228 
Total liabilities1,000,905 199,955 231,321 9,760 77,989 (107,894)1,412,036 
Customer deposits600,380 98,915 114,817 9,460 793 — 824,365 
Central banks and credit institutions189,791 38,942 41,989 82 12,253 (107,894)175,163 
Marketable debt securities133,544 44,098 29,840 — 54,495 — 261,977 
Other financial liabilities***60,807 11,763 34,062 106 636 — 107,374 
Other liabilities accounts****16,383 6,237 10,613 112 9,812 — 43,157 
Total equity56,133 23,902 22,483 474 90,363 (82,696)110,659 
Other customer funds under management86,558 14,319 76,023 — 11 — 176,911 
Investment funds62,203 11,703 69,071 — 11 — 142,988 
Pension funds11,746 98 — — — — 11,844 
Assets under management12,609 2,518 6,952 — — — 22,079 
Other non-managed marketed customer funds 33,107 15,872 60 450 — — 49,489 
*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.
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EUR million
2018
Balance sheet (condensed)
Europe
North AmericaSouth America
Santander Global Platform
Corporate Centre
Intra-Group eliminationsTotal
Total assets 1,020,737 200,919 237,480 8,781 170,614 (179,260)1,459,271 
Loans and advances to customers639,966 116,196 119,912 337 6,509 1 882,921 
Cash, balances at central banks and credit institutions and other deposits on demand172,298 28,845 48,318 8,168 39,840 (100,400)197,069 
Debt instruments118,221 27,302 45,224 — 377 — 191,124 
Other financial assets*49,263 9,974 9,311 146 2,113 1 70,808 
Other asset accounts**40,989 18,602 14,715 130 121,775 (78,862)117,349 
Total liabilities966,727 179,046 215,605 8,492 82,439 (100,399)1,351,910 
Customer deposits571,834 91,895 108,248 8,284 235 — 780,496 
Central banks and credit institutions192,685 26,048 38,584 111 30,879 (100,398)187,909 
Marketable debt securities129,574 43,758 31,504 — 41,783 — 246,619 
Other financial liabilities***53,687 11,379 28,570 38 1,334 (1)95,007 
Other liabilities accounts****18,947 5,966 8,699 59 8,208 — 41,879 
Total equity54,010 21,873 21,875 289 88,175 (78,861)107,361 
Other customer funds under management76,524 12,785 68,172 367 7 — 157,855 
Investment funds55,239 10,436 61,515 367 7 — 127,564 
Pension funds11,062 98 — — — — 11,160 
Assets under management10,223 2,251 6,657 — — — 19,131 
Other non-managed marketed customer funds28,555 13,528 128 — — — 42,211 
*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.

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Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
The condensed income statements for the main segments are as follows:
EUR million
2020
Underlying income statement (condesed)
EuropeNorth AmericaSouth AmericaSantander Global PlatformCorporate centreTotal
Net interest income14,047 8,469 10,723 129 (1,374)31,994 
Net fee income4,736 1,661 3,566 81 (29)10,015 
Gains (losses) on financial transactions*885 251 765 (1)287 2,187 
Other operating income**25 630 (209)(17)(25)404 
Total income19,693 11,011 14,845 192 (1,141)44,600 
Administrative expenses, depreciation and amortisation(10,314)(4,631)(5,312)(381)(329)(20,967)
Net operating income***9,379 6,380 9,533 (189)(1,470)23,633 
Net loan-loss provisions****(4,300)(3,917)(3,923)(3)(31)(12,174)
Other gains (losses) and provisions*****(913)(130)(319)(11)(412)(1,785)
Operating profit/(loss) before tax4,166 2,333 5,291 (203)(1,913)9,674 
Tax on profit(1,131)(579)(1,927)52 69 (3,516)
Profit from continuing operations3,035 1,754 3,364 (151)(1,844)6,158 
Net profit from discontinued operations— — — — — — 
Consolidated profit3,035 1,754 3,364 (151)(1,844)6,158 
Non-controlling interests379 262 437 (1)— 1,077 
Attributable profit to the parent2,656 1,492 2,927 (150)(1,844)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.
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EUR million
2019
Underlying income statement (condesed)
Europe
North AmericaSouth America
Santander Global Platform
Corporate Centre
Total
Net interest income14,201 8,926 13,316 92 (1,252)35,283 
Net fee income5,260 1,776 4,787 6 (50)11,779 
Gains (losses) on financial transactions*1,036 230 565 (3)(297)1,531 
Other operating income**504 672 (243)(14)(18)901 
Total income21,001 11,604 18,425 81 (1,617)49,494 
Administrative expenses, depreciation and amortisation(11,044)(4,967)(6,656)(240)(373)(23,280)
Net operating income***9,957 6,637 11,769 (159)(1,990)26,214 
Net loan-loss provisions****(1,839)(3,656)(3,789)(1)(36)(9,321)
Other gains (losses) and provisions*****(768)(205)(748)(6)(237)(1,964)
Operating profit/(loss) before tax7,350 2,776 7,232 (166)(2,263)14,929 
Tax on profit(1,979)(683)(2,644)46 157 (5,103)
Profit from continuing operations5,371 2,093 4,588 (120)(2,106)9,826 
Net profit from discontinued operations— — — — — — 
Consolidated profit5,371 2,093 4,588 (120)(2,106)9,826 
Non-controlling interests493 426 664 — (9)1,574 
Attributable profit to the parent4,878 1,667 3,924 (120)(2,097)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.
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report
 
Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
2018
Underlying income statement (condesed)
Europe
North AmericaSouth America
Santander Global Platform
Corporate Centre
Total
Net interest income14,204 8,154 12,891 79 (987)34,341 
Net fee income5,434 1,615 4,497 7 (68)11,485 
Gains (losses) on financial transactions*1,114 173 498 — 12 1,797 
Other operating income**505 534 (212)(12)(14)801 
Total income21,257 10,476 17,674 74 (1,057)48,424 
Administrative expenses, depreciation and amortisation(11,166)(4,488)(6,557)(142)(426)(22,779)
Net operating income***10,091 5,988 11,117 (68)(1,483)25,645 
Net loan-loss provisions****(1,572)(3,449)(3,737)— (115)(8,873)
Other gains (losses) and provisions*****(1,027)(202)(663)(2)(101)(1,995)
Operating profit/(loss) before tax7,492 2,337 6,717 (70)(1,699)14,777 
Tax on profit(2,020)(599)(2,642)17 14 (5,230)
Profit from continuing operations5,472 1,738 4,075 (53)(1,685)9,547 
Net profit from discontinued operations— — — — — — 
Consolidated profit5,472 1,738 4,075 (53)(1,685)9,547 
Non-controlling interests424 434 624 1 — 1,483 
Attributable profit to the parent5,048 1,304 3,451 (54)(1,685)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.
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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:
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Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
EUR million
2020
 Underlying income statement (condensed)
Retail Banking
Santander Corporate & Investment Banking
Wealth Management & Insurance
Santander Global Platform
Corporate centre
Total
Net interest income29,544 2,953 455 416 (1,374)31,994 
Net fee income6,850 1,551 1,194 449 (29)10,015 
Gains (losses) on financial transactions*962 690 103 145 287 2,187 
Other operating income**(141)204 383 (17)(25)404 
Total income37,215 5,398 2,135 993 (1,141)44,600 
Administrative expenses, depreciation and amortisation(16,846)(2,069)(907)(816)(329)(20,967)
Net operating income***20,369 3,329 1,228 177 (1,470)23,633 
Net loan-loss provisions****(11,609)(467)(28)(39)(31)(12,174)
Other gains (losses) and provisions*****(1,228)(135)(1)(9)(412)(1,785)
Operating profit/(loss) before tax7,532 2,727 1,199 129 (1,913)9,674 
Tax on profit(2,453)(783)(291)(58)69 (3,516)
Profit/(loss) from continuing operations5,079 1,944 908 71 (1,844)6,158 
Net profit/(loss) from discontinued operations— — — — — — 
Consolidated profit/(loss)5,079 1,944 908 71 (1,844)6,158 
Non-controlling interests883 121 41 32 — 1,077 
Attributable profit/(loss) to the parent4,196 1,823 867 39 (1,844)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.
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EUR million
2019
Underlying income statement (condensed)
Retail Banking
Santander Corporate & Investment Banking (SCIB)
Wealth Management & Insurance
Santander Global Platform
Corporate CentreTotal
Net interest income32,862 2,728 570 375 (1,252)35,283 
Net fee income8,561 1,520 1,199 549 (50)11,779 
Gains (losses) on financial transactions*872 689 117 149 (296)1,531 
Other operating income**303 289 340 (13)(18)901 
Total income42,598 5,226 2,226 1,060 (1,616)49,494 
Administrative expenses, depreciation and amortisation(18,926)(2,281)(955)(745)(373)(23,280)
Net operating income***23,672 2,945 1,271 315 (1,989)26,214 
Net loan-loss provisions****(9,101)(155)23 (52)(36)(9,321)
Other gains (losses) and provisions*****(1,619)(91)(12)(5)(237)(1,964)
Operating profit/(loss) before tax12,952 2,699 1,282 258 (2,262)14,929 
Tax on profit(4,047)(815)(302)(95)156 (5,103)
Profit/(loss) from continuing operations8,905 1,884 980 163 (2,106)9,826 
Net profit/(loss) from discontinued operations— — — — — — 
Consolidated profit/(loss)8,905 1,884 980 163 (2,106)9,826 
Non-controlling interests1,325 171 51 36 (9)1,574 
Attributable profit/(loss) to the parent7,580 1,713 929 127 (2,097)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.
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Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 

EUR million
2018
Underlying income statement (condensed)
Retail Banking
Santander Corporate & Investment Banking (SCIB)
Wealth Management & Insurance
Santander Global Platform
Corporate Centre
Total
Net interest income31,976 2,461 527 364 (987)34,341 
Net fee income8,331 1,534 1,142 546 (68)11,485 
Gains (losses) on financial transactions*609 898 131 147 12 1,797 
Other operating income**343 184 299 (11)(14)801 
Total income41,259 5,077 2,099 1,046 (1,057)48,424 
Administrative expenses, depreciation and amortisation(18,756)(2,101)(873)(623)(426)(22,779)
Net operating income***22,503 2,976 1,226 423 (1,483)25,645 
Net loan-loss provisions****(8,528)(199)(10)(21)(115)(8,873)
Other gains (losses) and provisions*****(1,789)(97)(4)(4)(101)(1,995)
Operating profit/(loss) before tax12,186 2,680 1,212 398 (1,699)14,777 
Tax on profit(4,002)(832)(285)(125)14 (5,230)
Profit/(loss) from continuing operations8,184 1,848 927 273 (1,685)9,547 
Net profit/(loss) from discontinued operations— — — — — — 
Consolidated profit/(loss)8,184 1,848 927 273 (1,685)9,547 
Non-controlling interests1,230 157 52 43 1 1,483 
Attributable profit/(loss) to the parent6,954 1,691 875 230 (1,686)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.
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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 resultsUnderlying resultsAdjustmentsStatutory results
Net interest income31,994 — 31,994 
Net fee income10,015 — 10,015 
Gains (losses) on financial transactions*2,187 — 2,187 
Other operating income**404 (321)83 
Total income44,600 (321)44,279 
Administrative expenses, depreciation and amortisation(20,967)(163)(21,130)
Net operating income***23,633 (484)23,149 
Net loan-loss provisions****(12,174)(258)(12,432)
Other gains (losses) and provisions*****(1,785)(11,008)(12,793)
Operating profit/(loss) before tax9,674 (11,750)(2,076)
Tax on profit(3,516)(2,116)(5,632)
Adjusted profit for the year from continuing operations6,158 (13,866)(7,708)
Profit from discontinued operations (net)— — — 
Consolidated profit/(loss)6,158 (13,866)(7,708)
Non-controlling interests1,077 (14)1,063 
Attributable profit/(loss) to the parent5,081 (13,852)(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'.
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EUR million
2019
Reconciliation of underlying results to statutory resultsUnderlying resultsAdjustmentsStatutory results
Net interest income35,283 — 35,283 
Net fee income 11,779 — 11,779 
Gains (losses) on financial transactions*1,531 — 1,531 
Other operating income**901 (265)636 
Total income 49,494 (265)49,229 
Administrative expenses, depreciation and amortisation (23,280)— (23,280)
Net operating income***26,214 (265)25,949 
Net loan-loss provisions****(9,321)— (9,321)
Other gains (losses) and provisions*****(1,964)(2,121)(4,085)
Operating profit/(loss) before tax 14,929 (2,386)12,543 
Tax on profit (5,103)676 (4,427)
Consolidated profit/(loss)9,826 (1,710)8,116 
Non-controlling interests1,574 27 1,601 
Attributable profit/(loss) to the parent8,252 (1,737)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 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'.
•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.

•Provisions related to intangible assets and others, amounting to EUR -174 million, which are included for their gross amount in the line 'Other gains (losses) and provisions'.
•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'.
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EUR million
2018
Reconciliation of underlying results to statutory resultsUnderlying resultsAdjustmentsStatutory results
Net interest income34,341 — 34,341 
Net fee income 11,485 — 11,485 
Gains (losses) on financial transactions*1,797 — 1,797 
Other operating income**801 — 801 
Total income 48,424 — 48,424 
Administrative expenses, depreciation and amortisation (22,779)— (22,779)
Net operating income***25,645 — 25,645 
Net loan-loss provisions****(8,873)— (8,873)
Other gains (losses) and provisions*****(1,995)(576)(2,571)
Operating profit/(loss) before tax 14,777 (576)14,201 
Tax on profit (5,230)344 (4,886)
Consolidated profit/(loss)9,547 (232)9,315 
Non-controlling interests1,483 22 1,505 
Attributable profit/(loss) to the parent8,064 (254)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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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
2020
Associates and joint venturesMembers of the board of directorsExecutive vicepresidentOther related parties
Assets8,473 — 24 95 
Cash, cash balances at central banks and other deposits on demand151 — — — 
Loans and advances: credit institutions562 — — — 
Loans and advances: customers6,934 — 24 95 
Debt instruments423 — — — 
Others403 — — — 
Liabilities3,593 4 16 159 
Financial liabilities: credit institutions944 — — — 
Financial liabilities: customers2,557 4 16 159 
Marketable debt securities12 — — — 
Others80 — — — 
Income statement1,269 — — 3 
Interest income106 — — 2 
Interest expense(8)— — — 
Gains/losses on financial assets and liabilities and others49 — — — 
Commission income1,154 — — 1 
Commission expense(32)— — — 
Other4,097 1 1 52 
Financial guarantees granted and Others14 — — 3 
Loan commitments and Other commitments granted253 1 1 13 
Derivative financial instruments3,830 — — 36 
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EUR million
2019
Associates and joint venturesMembers of the board of directorsExecutive vicepresidentOther related parties
Assets9,659 — 26 104 
Cash, cash balances at central banks and other deposits on demand740 — — — 
Loans and advances: credit institutions961 — — — 
Loans and advances: customers6,950 — 26 104 
Debt instruments848 — — — 
Others160 — — — 
Liabilities2,689 41 12 57 
Financial liabilities: credit institutions563 — — — 
Financial liabilities: customers2,064 41 12 57 
Marketable debt securities— — — — 
Others62 — — — 
Income statement1,386 — — 2 
Interest income111 — — 1 
Interest expense(15)— — — 
Gains/losses on financial assets and liabilities and others47 — — — 
Commission income1,269 — — 1 
Commission expense(26)— — — 
Other4,219 7 3 49 
Financial guarantees granted and Others17 5 2 38 
Loan commitments and Other commitments granted197 1 1 6 
Derivative financial instruments4,005 1 — 5 
EUR million
2018
Associates and joint venturesMembers of the board of directorsExecutive vicepresidentOther related parties
Assets7,202 — 30 256 
Cash, cash balances at central banks and other deposits on demand— — — — 
Loans and advances: credit institutions704 — — — 
Loans and advances: customers6,142 — 30 256 
Debt instruments295 — — — 
Others61 — — — 
Liabilities1,650 19 12 363 
Financial liabilities: credit institutions8 — — — 
Financial liabilities: customers1,596 19 12 363 
Marketable debt securities8 — — — 
Others38 — — — 
Income statement993 — — 31 
Interest income73 — — 14 
Interest expense(3)— — (1)
Gains/losses on financial assets and liabilities and others82 — — — 
Commission income853 — — 18 
Commission expense(12)— — — 
Other4,707 9 3 782 
Financial guarantees granted and Others21 7 1 508 
Loan commitments and Other commitments granted393 1 2 64 
Derivative financial instruments4,293 1 — 210 
The remaining required information is detailed in notes 5, 14 and 46.c.
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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.
•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.
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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
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.
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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•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.
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.
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•Common standards aligning each subsidiary with Grupo 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.
4
Concentration
•Concentration in single names, sectors and portfolios.
•Concentration in non-investment grade counterparties.
•Concentration in large exposures.
5
Non-financial risks
•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.
3.2. Risk profile assessment (RPA)
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.
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•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.
Applications of scenario analysis
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.
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.
•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.
•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.
- 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.
3.4. Risk Reporting Structure (RRS)
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.
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.
•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.
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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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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
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.
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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
Credit risk with customers *
(EUR million)		Non-performing loans
(EUR million)		NPL ratio (%)
202020192018202020192018202020192018
Europe722,429 722,661 688,810 22,792 23,519 25,287 3.15 3.25 3.67 
Spain221,341 213,668 227,401 13,796 14,824 16,651 6.23 6.94 7.32 
SCF104,032 105,048 97,922 2,455 2,416 2,244 2.36 2.30 2.29 
UK263,671 275,941 252,919 3,202 2,786 2,739 1.21 1.01 1.08 
Portugal40,693 37,978 38,340 1,584 1,834 2,279 3.89 4.83 5.94 
Poland31,578 33,566 30,783 1,496 1,447 1,317 4.74 4.31 4.28 
North America131,611 143,839 125,916 2,938 3,165 3,510 2.23 2.20 2.79 
US99,135 105,792 92,152 2,025 2,331 2,688 2.04 2.20 2.92 
SBNA49,862 56,640 51,049 405 389 450 0.81 0.69 0.88 
SC USA29,050 29,021 26,424 1,529 1,787 2,043 5.26 6.16 7.73 
Mexico32,476 38,047 33,764 913 834 822 2.81 2.19 2.43 
South America129,575 143,428 138,134 5,688 6,972 6,639 4.39 4.86 4.81 
Brazil74,712 88,893 84,212 3,429 4,727 4,418 4.59 5.32 5.25 
Chile42,826 42,000 41,268 2,051 1,947 1,925 4.79 4.64 4.66 
Argentina4,418 5,044 5,631 93 171 179 2.11 3.39 3.17 
Santander Global Platform979 706 340 5 4 4 0.51 0.63 1.21 
Corporte Centre4,862 5,872 4,953 344 138 252 7.08 2.34 5.09 
Total Group989,456 1,016,507 958,153 31,767 33,799 35,692 3.21 3.32 3.73 
* 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).
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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.
–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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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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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.
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 1Stage 2Stage 3Total
From AAA to BB489,518 9,124 — 498,642 
From BB- to CCC276,516 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 1Stage 2Stage 3Total
From AAA to BB552,763 5,532 — 558,295 
From BB- to CCC306,880 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 1Stage 2Stage 3Total
From AAA to BB685,507 7,176 — 692,683 
From BB- to CCC222,495 47,439 — 269,935 
Default— — 30,795 30,795 
Total exposure **908,002 54,616 30,795 993,412 
Impairment losses3,823 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.
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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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• 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)Total amount
(EUR million)		% Lending portfolio
Of which government programmesOf which government programmes
Mortgages0.7 69,93822 %
0.5 56,936
Consumer3.9 19,9519%
1.0 4,060
SME & Corporates0.2 21,9487%
0.1 9,182
Total4.8 111,83712 %
1.6 70,178
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
Total moratoriaTotal portfolioOf which expired
Individuals89,889543,321 72,662 
Mortgages69,938312,949 55,020 
Consumer19,951230,372 17,642 
SME & corporates21,948336,489 15,847 
Total*111,837879,810 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.
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).
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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
2020
Credit quality *Stage 1Stage 2Stage 3Total
From AAA to BB184,065 2,227 — 186,292 
From BB- to CCC34,965 16,814 — 51,779 
Default— — 3,229 3,229 
Total exposure **219,030 19,041 3,229 241,300 
Impairment losses***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
2019
Credit quality *Stage 1Stage 2Stage 3Total
From AAA to BB238,985 2,032 — 241,017 
From BB- to CCC40,281 12,543 — 52,824 
Default— — 2,821 2,821 
Total exposure **279,266 14,575 2,821 296,662 
Impairment losses***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 1Stage 2Stage 3Total
From AAA to BB225,929 1,900 — 227,829 
From BB- to CCC34,655 11,514 — 46,169 
Default— — 2,795 2,795 
Total exposure **260,584 13,415 2,795 276,793 
Impairment losses224 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
Total moratoriaTotal portfolioOf which expired
Individuals41,626 194,783 38,850 
Mortgages41,274 188,255 38,544 
Consumer352 6,528 306 
SME & corporates2,318 28,918 2,253 
Total*43,944 223,701 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:



2021 - 2025
VariablesPessimistic scenario 3Pessimistic scenario 2Pessimistic scenario 1Base scenarioOptimistic scenario 1
Interest rate-0.10 %2.10 %0.26 %0.26 %1.20 %
Unemployment rate8.42 %7.20 %5.98 %6.04 %4.79 %
Housing price change0.86 %0.89 %1.00 %1.14 %1.08 %
GDP growth0.28 %1.79 %1.71 %3.62 %3.07 %
The five-year projected development generated in 2019 to estimate the expected loss is shown below:
2020 - 2024
VariablesPessimistic scenario 2Pessimistic scenario 1Base scenarioOptimistic scenario 1Optimistic scenario 2
Interest rate2.60 %1.80 %0.85 %1.75 %1.90 %
Unemployment rate7.29 %5.08 %4.03 %3.14 %2.57 %
Housing price change-0.07 %-0.01 %0.02 %0.04 %0.06 %
GDP growth0.01 %0.01 %0.02 %0.02 %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:
202020192018
Pessimistic scenario 310 %0 %0 %
Pessimistic scenario 225 %15 %10 %
Pessimistic scenario 115 %30 %30 %
Base scenario45 %40 %40 %
Optimistic scenario 15 %10 %15 %
Optimistic scenario 2— %5 %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:
Change in provision
MortgagesCorporates
GDP Growth
-100 bp15.31 %7.48 %
100 bp-2.06 %-9.59 %
Housing price change
-100 bp15.84 %10.16 %
100 bp-2.72 %-9.88 %
Unemployment rate
-100 bp-5.79 %-9.64 %
100 bp28.93 %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 1Stage 2Stage 3Total
From AAA to BB146,992 1,517 — 148,509 
From BB- to CCC40,630 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 1Stage 2Stage 3Total
From AAA to BB139,673 1,315 — 140,988 
From BB- to CCC42,603 9,115 — 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 1Stage 2Stage 3Total
From AAA to BB171,266 289 — 171,555 
From BB- to CCC25,108 12,603 — 37,711 
Default— — 14,941 14,941 
Total exposure **196,374 12,892 14,941 224,207 
Impairment losses366 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.
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:
EUR million
Total moratoriaTotal portfolioOf which expired
Individuals9,267 71,577 2,476 
Mortgages7,828 43,919 1,346 
Consumer1,439 17,658 1,130 
SME & corporates171 126,568 12 
Total*9,438 198,145 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).

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:
2020 - 2024
VariablesPessimistic scenarioBase scenarioOptimistic scenario
Interest rate-0.12 %-0.12 %0.80 %
Unemployment rate13.71 %11.65 %9.59 %
Housing price change-0.26 %1.62 %3.22 %
GDP growth0.77 %1.61 %2.34 %
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.
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:
202020192018
Pessimistic scenario30 %30 %30 %
Base scenario40 %40 %40 %
Optimistic scenario30 %30 %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:
VariablesLong-run scenario
Interest rate-0.29 %
Unemployment rate14.35 %
Housing price change1.20 %
GDP growth0.79 %
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:
Change in provision
MortgagesCorporateRest
GDP Growth
-100 bp6.24 %8.17 %8.63 %
100 bp-2.63 %-4.50 %-5.48 %
Housing price change
-100 bp1.42 %8.14 %7.73 %
100 bp-1.12 %-3.12 %-3.74 %
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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).
2020
EUR millionGross amountOf which, non - performing
Home purchase loans to families59,605 1,850 
Without mortgage guarantee387 75 
With mortgage guarantee59,218 1,775 
2019
EUR millionGross amountOf which, non - performing
Home purchase loans to families62,236 2,649 
Without mortgage guarantee306 14 
With mortgage guarantee61,930 2,635 
2018
EUR millionGross amountOf which, non - performing
Home purchase loans to families63,290 2,493 
Without mortgage guarantee545 54 
With mortgage guarantee62,745 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 millionLess than or equal to 40%More than 40% and less than 60%More than 60% and less than 80%More than 80% and less than or equal to 100%More than 100%Total
Gross amount15,570 18,028 17,585 5,205 2,830 59,218 
Of which, watchlist /non-performing 170 222 318 305 760 1,775 
Businesses portfolio
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 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
202020192018
Balance at beginning of year2,939 4,812 6,472 
Foreclosed assets(6)(29)(100)
Reductions*(24)(1,685)(1,267)
Written-off assets(38)(159)(293)
Balance at end of year2,871 2,939 4,812 
*    Includes portfolio sales, cash recoveries and third-party subrogations and new production.
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
EUR millionGross amountExcess of gross exposure over maximum recoverable amount of effective collateralSpecific allowance
Financing for construction and property development recognised by the Group's credit institutions (including land) (business in Spain)2,871 397 70 
Of which, watchlist/ non-performing176 20 58 
Memorandum items written-off assets924 
Memorandum items: Data from the public consolidated balance sheet
EUR million2020
Carrying amount
Total loans and advances to customers excluding the Public sector (business in Spain) (Book value)237,165 
Total consolidated assets (Total business) (Book value)1,508,250 
Impairment losses and credit risk allowances. Coverage for unimpaired assets (business in Spain)1,591 
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At year-end, the concentration of this portfolio was as follows:
Loans: gross amount
EUR million2020
1. Without mortgage guarantee164 
2. With mortgage guarantee2,707 
2.1 Completed buildings1,454 
2.1.1 Residential844 
2.1.2 Other610 
2.2 Buildings and other constructions under construction1,185 
2.2.1 Residential1,124 
2.2.2 Other61 
2.3 Land68 
2.3.1 Developed consolidated land44 
2.3.2 Other land24 
Total2,871 
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.
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.
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.
•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.
•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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The following table shows the detail of the assets foreclosed by the businesses in Spain at the end of 2020:
2020
EUR millionGross carrying amountValuation adjustmentsOf which impairment losses on assets since time of foreclosureCarrying amount
Property assets arising from financing provided to construction and property development companies6,810 3,568 2,563 3,242 
Of which:
Completed buildings2,140 846 644 1,294 
Residential527 171 130 356 
Other1,613 675 514 938 
Buildings under construction178 70 36 108 
Residential178 70 36 108 
Other— — — — 
Land4,492 2,652 1,883 1,840 
Developed land1,656 888 559 768 
Other land2,836 1,764 1,324 1,072 
Property assets from home purchase mortgage loans to households892 305 200 587 
Other foreclosed property assets235 102 71 133 
Total property assets7,937 3,975 2,834 3,962 
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.
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The gross movement in foreclosed properties were as follows (EUR billion):
EUR billion
202020192018
Gross additions0.5 0.7 0.8 
Disposals(0.9)(2.7)(1.8)
Difference(0.4)(2.0)(1.0)
3.3. United States
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 1Stage 2Stage 3Total
From AAA to BB18,105 1,778 — 19,883 
From BB- to CCC24,380 2,977 — 27,357 
Default— — 403 403 
Total exposure**42,485 4,755 403 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).
Exposure and impairment losses by stage
EUR million
2019
Credit quality *Stage 1Stage 2Stage 3Total
From AAA to BB27,078 763 — 27,841 
From BB- to CCC32,273 3,964 — 36,237 
Default— — 419 419 
Total exposure**59,351 4,727 419 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 1Stage 2Stage 3Total
From AAA to BB5,149 — — 5,149 
From BB- to CCC60,391 3,784 — 64,175 
Default— — 448 448 
Total exposure**65,540 3,784 448 69,772 
Impairment losses233 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
Total moratoriaTotal portfolioOf which expired
Individuals1,618 16,332 1,369 
Mortgages850 7,466 677 
Consumer768 8,866 692 
SME & corporates3,715 29,411 3,428 
Total*5,333 45,743 4,797 
* Total portfolio includes segmented exposure and excludes off-balance.
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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:

2021 - 2025
VariablesUnfavourable scenario 2Unfavourable scenario 1Base scenarioFavourable scenario
Interest rate (annual averaged)0.78 %0.27 %0.63 %0.99 %
Unemployment rate5.83 %7.34 %5.21 %4.36 %
House price change2.67 %2.17 %3.40 %3.79 %
GDP growth3.05 %2.76 %2.60 %3.40 %
The five-year projected development generated in 2019 to estimate the expected loss is shown below:
2020 - 2024
VariablesUnfavourable scenario 2Unfavourable scenario 1Base scenarioFavourable scenario
Interest rate (annual averaged)1.06 %2.22 %2.29 %2.70 %
Unemployment rate7.71 %2.68 %-0.87 %-2.10 %
House price change2.60 %3.68 %4.53 %4.69 %
GDP growth1.60 %2.05 %2.07 %2.75 %
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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:
202020192018
Pessimistic scenario 217.5 %17.5 %20 %
Pessimistic scenario 1*20 %20 %n.a.
Base scenario32.5 %32.5 %60 %
Optimistic scenario30 %30 %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 1Stage 2Stage 3Total
From AAA to BB1,689 12 — 1,701 
From BB- to CCC21,491 4,831 — 26,322 
Default— — 1,019 1,019 
Total exposure **23,180 4,843 1,019 29,042 
Impairment losses***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 1Stage 2Stage 3Total
From AAA to BB1,029 14 — 1,043 
From BB- to CCC20,083 6,277 — 26,360 
Default— — 1,600 1,600 
Total exposure **21,112 6,291 1,600 29,003 
Impairment losses***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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Exposure and impairment losses by stage
EUR million
2018
Credit quality *Stage 1Stage 2Stage 3Total
From AAA to BB224 — — 224 
From BB- to CCC20,313 6,600 — 26,913 
Default— — 2,218 2,218 
Total exposure **20,537 6,600 2,218 29,355 
Impairment losses824 1,720 667 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
Total moratoriaTotal portfolioOf which expired
Individuals8,912 29,050 8,005 
Mortgages— — — 
Consumer8,912 29,050 8,005 
SME & corporates— — — 
Total8,912 29,050 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).
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.
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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:

2021 - 2025
VariablesUnfavourable scenario 1Unfavourable scenario 2Base scenarioFavourable scenario
Interest rate (year averaged)0.78 %0.27 %0.63 %0.99 %
Unemployment rate5.83 %7.34 %5.21 %4.36 %
Housing price growth2.67 %2.17 %3.40 %3.79 %
GDP Growth3.05 %2.76 %2.60 %3.40 %
ManheimA index
1.60 %1.57 %1.61 %1.64 %
A. US used vehicle price car index.
The five-year projected development generated in 2019 to estimate the expected loss is shown below:
2020 - 2024
VariablesUnfavourable scenario 1Unfavourable scenario 2Base scenarioFavourable scenario
Interest rate (year averaged)1.06 %2.22 %2.29 %2.70 %
Unemployment rate7.71 %2.68 %-0.87 %-2.10 %
Housing price growth2.60 %3.68 %4.53 %4.69 %
GDP Growth1.60 %2.05 %2.07 %2.75 %
ManheimA index
-1.20 %0.50 %1.60 %3.10 %
A. US used vehicle price car index
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:
202020192018
Pessimistic scenario 217.5 %17.5 %20.0 %
Pessimistic scenario 1*20.0 %20.0 %n.a.
Base scenario32.5 %32.5 %60.0 %
Optimistic scenario30.0 %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.

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
Manheim index
-0.011.91 %
0.01-1.21 %
Unemployment Rate
-0.01-4.29 %
0.016.48 %
House Price Change
-0.013.22 %
0.01-2.06 %
GDP growth
-0.013.11 %
0.01-1.94 %
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.
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 million2020
Credit quality *Stage 1Stage 2Stage 3Total
From AAA to BB38,686 210 — 38,896 
From BB- to CCC26,166 5,942 — 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 million2019
Credit quality *Stage 1Stage 2Stage 3Total
From AAA to BB45,765 308 — 46,072 
From BB- to CCC32,698 5,393 — 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 million2018
Credit quality *Stage 1Stage 2Stage 3Total
From AAA to BB51,150 472 — 51,622 
From BB- to CCC56,884 5,334 — 62,218 
Default— — 4,223 4,223 
Total exposure **108,034 5,806 4,223 118,063 
Impairment losses997 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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•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
Total moratoriaTotal portfolioof which: Expired
Individuals4,518 35,182 4,451 
Mortgages2,177 7,196 2,129 
Consumer2,341 27,987 2,321 
SME & Corporates1,851 29,874 1,437 
Total*6,369 65,056 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:
2020 - 2024
VariablesPessimistic scenarioBase scenarioOptimistic scenario
Interest rate8.70 %5.60 %4.45 %
Unemployment rate16.48 %9.58 %8.04 %
Housing price change-1.24 %2.69 %6.39 %
GDP Growth-1.40 %2.38 %4.41 %
Burden income21.70 %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:
202020192018
Pessimistic scenario10 %10 %10 %
Base scenario80 %80 %80 %
Optimistic scenario10 %10 %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:
2020-2024
VariablesPessimistic scenarioBase scenarioOptimistic scenario
Interest rate5.97 %4.25 %4.25 %
Unemployment rate18.00 %12.34 %12.34 %
Housing price change-0.88 %1.84 %1.84 %
GDP Growth-1.62 %1.40 %1.40 %
Burden income22.30 %20.80 %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
ConsumerCorporateRest
GDP Growth
-100 bp0.89 %1.66 %0.75 %
100 bp-0.91 %-1.49 %-0.41 %
Burden income
-100 bp-0.82 %1.56 %-0.43 %
100 bp1.61 %0.69 %1.49 %
Interest rate (Selic)
-100 bp-1.43 %0.55 %-0.29 %
100 bp2.11 %8.42 %1.54 %
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.
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.

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:
2021 - 2025
VariablePessimistic scenarioBase scenarioOptimistic scenario
Global GDP growth3.03 %3.39 %3.56 %
The five-year projected development generated in 2019 to estimate the expected loss is shown below:
2020 - 2024
VariablePessimistic scenarioBase scenarioOptimistic scenario
Global GDP growth3.04 %3.55 %3.83 %
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:
VariableLong-run scenario
Global GDP growth1.54 %
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.
202020192018
Pessimistic scenario30 %30 %20 %
Base scenario40 %40 %60 %
Optimistic scenario30 %30 %20 %
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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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
31 December 2020
TotalSpainOther EU countriesAmericaRest of the world
Central banks and Credit institutions278,343 69,467 49,359 75,831 83,686 
Public sector166,114 43,121 30,571 83,960 8,462 
Of which:
Central government143,003 32,070 28,988 74,032 7,913 
Other central government23,111 11,051 1,583 9,928 549 
Other financial institutions (financial business activity)113,569 14,882 37,661 27,883 33,143 
Non-financial companies and individual entrepeneurs (non-financial business activity) (broken down by purpose)400,329 125,608 85,897 131,578 57,246 
Of which:
Construction and property development19,105 3,921 3,531 5,631 6,022 
Civil engineering construction5,723 2,924 1,864 798 137 
Large companies232,469 59,037 48,120 86,515 38,797 
SMEs and individual entrepreneurs143,032 59,726 32,382 38,634 12,290 
Households – other (broken down by purpose)501,901 86,076 93,301 112,954 209,570 
Of which:
Residential324,193 60,556 34,102 38,762 190,773 
Consumer loans160,037 17,881 57,033 69,263 15,860 
Other purposes17,671 7,639 2,166 4,929 2,937 
Total 1,460,256 339,154 296,789 432,206 392,107 
* 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 risk25 is even less significant (EUR 7,168 million, 1.8% of total sovereign risk).
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.
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:
202020192018
AAA18%20%11%
AA25%24%20%
A25%18%31%
BBB14%15%13%
Less than BBB18%23%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:
202020192018
Portfolio
CountryFinancial assets designated at fair value through profit or lossFinancial assets at fair value through other comprehensive incomeFinancial assets at amortized costNon-trading financial assets mandatorily at fair value through profit or lossTotal net direct exposure
Total net direct
exposure
Spain4,100 7,048 13,097 — 24,245 35,366 49,640 
Portugal(380)4,148 4,962 — 8,730 8,689 8,753 
Italy249 2,468 1,298 — 4,015 2,735 261 
Greece— — — — — — — 
Ireland— — — — — — — 
Rest Eurozone(29)1,687 2,396 — 4,054 1,809 2,778 
UK(1,672)612 963 — (97)10,363 10,869 
Poland16 10,263 668 — 10,947 8,366 11,229 
Rest of Europe7 121 942 — 1,070 777 329 
US589 9,501 5,458 — 15,548 16,299 8,682 
Brazil5,127 17,281 5,309 — 27,717 28,998 27,054 
Mexico8,005 10,256 2,768 — 21,029 13,673 10,415 
Chile148 6,732 75 — 6,955 3,460 1,776 
Rest of America19 397 542 — 958 1,029 893 
Rest of the world— 3,776 976 — 4,752 4,813 6,222 
Total16,179 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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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
Total
Without real guaranteeWith real guarantee
Maximum amount of the actual collateral that can be consideredImpairment of accumulated value or accumulated losses in fair value due to credit risk
Number of transactionsGross amountNumber of transactionsGross amountReal estate guaranteeRest of real guarantees
Credit entities— — — — — — — 
Public sector40 21 17 9 7 — 1 
Other financial institutions and: individual shareholder615 22 565 123 38 55 29 
Non-financial institutions and individual shareholder176,310 4,936 45,872 9,872 6,444 828 4,475 
Of which financing for constructions and property development6,395 131 1,557 802 599 38 246 
Other warehouses2,569,758 4,059 427,282 10,117 6,239 1,561 3,657 
Total2,746,723 9,038 473,736 20,121 12,728 2,444 8,162 
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
2020
Beginning balance23,430 
Refinancing and restructuring of the period8,351 
Memorandum item: impact recorded in the income statement for the period2,249 
Debt repayment(5,449)
Foreclosure(293)
Derecognised from the consolidated balance sheet(1,314)
Others variations (3,728)
Balance at end of year20,997 
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2020
Of which, non-performing/Doubtful
Without real guarantee
With real guarantee
Maximum amount of the actual collateral that can be consideredImpairment of accumulated value or accumulated losses in fair value due to credit risk
Number of transactionsGross amountNumber of transactionsReal estate guaranteeRest of real guarantees
— — — — — — — 
19 1 9 3 3 — 1 
323 12 358 79 26 49 27 
103,692 3,160 31,861 6,147 3,944 355 4,091 
3,838 50 1,023 509 255 14 225 
1,299,317 1,762 148,862 3,831 2,703 241 2,272 
1,403,351 4,935 181,090 10,060 6,676 645 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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•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.
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.

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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 amountVaROtherMain risk factor for 'Other' balance
Assets subject to market risk
Cash, cash balances at central banks and other deposits on demand153,839 153,839 Interest rate
Financial assets held for trading114,945 114,945 Interest rate, spread
Non-trading financial assets mandatorily at fair value through profit or loss4,486 3,234 1,252 Interest rate, Equity market
Financial assets designated at fair value through profit or loss48,717 35,337 13,380 Interest rate
Financial assets designated at fair value through other comprehensive income120,953 2,783 118,170 Interest rate, spread
Financial assets at amortized cost958,378 958,378 Interest rate
Hedging derivatives8,325 8,325 Interest rate, exchange
Changes in the fair value of hedged items in portfolio hedges of interest risk1,980 1,980 Interest rate
Other assets96,627 
Total assets1,508,250 
Liabilities subject to market risk
Financial liabilities held for trading81,167 81,167 Interest rate, spread
Financial liabilities designated at fair value through profit or loss48,038 14,641 33,397 Interest rate
Financial liabilities at amortized cost1,248,188 1,248,188 Interest rate, spread
Hedging derivatives6,869 6,869 Interest rate, exchange
Changes in the fair value of hedged items in portfolio hedges of interest rate risk286 286 Interest rate
Other liabilities32,380 
Total liabilities1,416,928 
Equity91,322 
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:

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VaR statistics and expected shortfall by risk factorA
EUR million. VaR at 99% and ES at 97.5% with one day time horizon

202020192018

VaR (99%)
ES (97.5%)
VaR
VaR

Min
Average
Max
Latest
Latest
Average
Latest
Average
Latest
Total Trading
6.5 12.5 54.8 8.3 8.1 12.1 10.3 9.711.3
Diversification effect
(6.0)(13.1)(15.8)(11.8)(12.6)(8.2)(9.9)(9.3)(11.5)
Interest rate
4.7 9.2 29.2 5.4 5.9 10.0 9.2 9.4 9.7 
Equities
2.1 4.4 14.7 3.1 3.7 2.9 4.8 2.4 2.8 
Exchange rate
2.6 5.9 12.9 6.0 5.5 3.9 2.6 3.9 6.2 
Credit spread
3.1 5.5 11.4 4.5 4.5 3.4 3.5 3.4 4.1 
Commodities
0.0 0.5 2.5 1.1 1.0 0.0 0.0 — — 
Total Europe
5.0 10.5 39.1 8.0 9.3 6.3 10.1 5.05.5
Diversification effect
(4.6)(10.6)(21.9)(8.9)(8.8)(6.9)(8.3)(6.7)(8.2)
Interest rate
3.2 7.9 24.0 6.5 7.2 6.0 8.2 5.0 5.8 
Equities
2.1 4.3 15.0 3.0 3.6 1.9 4.9 1.1 1.2 
Exchange rate
1.3 3.5 10.7 2.9 2.7 1.9 1.9 1.7 2.1 
Credit spread
3.1 5.5 11.4 4.5 4.5 3.4 3.5 3.9 4.6 
Commodities
0.0 0.0 0.0 0.0 0.0 0.0 0.0 — — 
Total North America2.8 6.6 13.7 2.9 2.7 3.5 3.8 7.28.3
Diversification effect
0.7 (2.2)(5.3)(1.1)(0.9)(1.3)(2.1)(4.8)(2.7)
Interest rate
1.6 3.4 7.1 3.3 3.0 2.6 3.4 6.4 7.7 
Equities
0.0 0.3 1.2 0.1 0.1 0.2 0.1 0.1 — 
Exchange rate
0.5 5.1 10.7 0.5 0.5 2.0 2.4 5.5 3.3 
Total South America
2.4 5.6 26.4 4.5 5.0 9.5 6.0 7.210.0
Diversification effect
(0.8)(3.4)(13.8)(4.3)(3.7)(2.9)(3.8)(3.5)(2.3)
Interest rate
2.3 5.2 26.3 4.1 4.2 7.8 5.9 6.4 6.6 
Equities
0.2 1.0 6.3 0.5 0.5 2.0 1.7 2.5 2.9 
Exchange rate
0.8 2.7 7.6 4.2 4.2 2.6 2.1 1.9 2.9 
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.
202020192018
MinAverageMaxLatestAverageLatestAverageLatest
Structural VaR611.4 911.0 1,192.1 903.1 511.4 729.1 568.5 556.8 
Diversification effect(227.2)(349.8)(261.0)(263.4)(304.2)(402.0)(325.0)(267.7)
VaR interest rate*345.5 465.1 581.9 345.5 345.6 629.7 337.1 319.5 
VaR exchange rate317.8 499.9 547.0 502.6 308.1 331.7 338.9 324.9 
VaR equities175.3 295.9 324.2 318.5 161.9 169.8 217.6 180.1 
* Includes credit spread VaR on ALCO portfolios.
Structural interest rate risk
•Europe
The EVE and NII sensitivities of our main balance sheets (Santander Spain and Santander UK) are usually positive.
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 most significant risk to the economic value of equity was also in the US (EUR 1,035 million).
•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).
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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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.
Structural equity risk
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.
•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.
•Diversification of wholesale funding sources by instruments/ investors, markets/currencies and maturities.
•Limited recourse to short-term funding.
•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.
Over the course of the year, all dimensions of the plan are monitored.
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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 maturities of the liabilitiesUnmatured<=1month>1 month
<=3 months		>3 months
<=12 months		>1 year
<=2 years		>2 years
<=3 years		3 years
<=5 years		5 years
<=10 years		>10 yearsTotal
Committed assets35.7 40.2 10.2 35.5 32.4 106.4 50.5 23.9 15.6 350.4 
 Guarantees received29.7 30.6 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
Carrying amount of encumbered assetsFair value of encumbered assetsFair value of non-encumbered assetsCarrying amount of non-encumbered assets
Loans and advances249.5 884.7 
Equity instruments5.8 5.8 9.9 9.9 
Debt securities61.9 60.7 114.6 115.4 
Other assets33.2 148.7 
Total assets350.4 1,157.9
Encumbrance of collateral received
EUR billion
Fair value of encumbered collateral received or own debt securities issuedFair value of collateral received or own debt securities issued available for encumbrance
Collateral received84.7 43.0 
Loans and advances— — 
Equity instruments3.5 5.9 
Debt securities80.3 37.1 
Other collateral received0.9 — 
Own debt securities issued other than own covered bonds or ABSs— 0.9 
Encumbered assets and collateral received and matching liabilities
EUR billion
Matching liabilities, contingent liabilities or securities lentAssets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered
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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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).
Grupo Santander must also maintain a minimum capital ratio of 10.63% of tier 1 and a minimum total ratio of 13.01%.
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
202020192018
Subscribed capital8,670 8,309 8,118 
Share premium account52,013 52,446 50,993 
Reserves62,777 56,526 53,988 
Treasury shares(69)(31)(59)
Attributable profit(8,771)6,515 7,810 
Approved dividend— (1,662)(2,237)
Shareholders’ equity on public balance sheet114,620 122,103 118,613 
Valuation adjustments(33,144)(22,032)(22,141)
Non-controlling interests9,846 10,588 10,889 
Total Equity on public balance sheet91,322 110,659 107,361 
Goodwill and intangible assets(15,711)(28,478)(28,644)
Eligible preference shares and participating securities9,102 9,039 9,754 
Accrued dividend(478)(1,761)(1,055)
Other adjustments*(5,734)(9,923)(9,700)
Tier 1* **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.
The following table shows the capital coefficients and a detail of the eligible internal resources of the Group:
202020192018
Capital coefficients
Level 1 ordinary eligible capital (EUR million)69,39970,49767,962
Level 1 additional eligible capital (EUR million)9,1029,0399,754
Level 2 eligible capital (EUR million)12,51411,53111,009
Risk-weighted assets (EUR million)562,580605,244592,319
Level 1 ordinary capital coefficient (CET 1)12.34 %11.65 %11.47 %
Level 1 additional capital coefficient (AT1)1.61 %1.49 %1.65 %
Level 1 capital coefficient (TIER1)13.95 %13.14 %13.12 %
Level 2 capital coefficient (TIER 2)2.23 %1.91 %1.86 %
Total capital coefficient16.18 %15.05 %14.98 %
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Eligible capital
EUR million
202020192018 
Eligible capital
Common Equity Tier I69,399 70,497 67,962 
Capital8,670 8,309 8,118 
(-) Treasure shares and own shares financed(126)(63)(64)
Share Premium52,013 52,446 50,993 
Reserves64,766 57,368 55,036 
Other retained earnings(34,937)(22,933)(23,022)
Minority interests6,669 6,441 6,981 
Profit net of dividends(9,249)3,092 4,518 
Deductions(18,407)(34,163)(34,598)
Goodwill and intangible assets(15,711)(28,478)(28,644)
Others(2,696)(5,685)(5,954)
Additional Tier I9,102 9,039 9,754 
Eligible instruments AT18,854 9,209 9,666 
T1-excesses-subsidiaries248 (170)88 
Residual value of dividends— — — 
Others— — — 
Tier II12,514 11,531 11,009 
Eligible instruments T213,351 12,360 11,306 
Gen. funds and surplus loans loss prov. IRB— — — 
T2-excesses -  subsidiaries(837)(829)(297)
Others— — — 
Total eligible capital91,015 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.
•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 swaps (CDS).
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
202020192017
Leverage
Level 1 Capital78,501 79,536 77,716 
Exposure1,471,480 1,544,614 1,489,094
Leverage Ratio5.33 %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.




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54. Additional disclosures
This note includes relevant information about additional disclosure requirements.
54.1 Parent company financial statements
Following are the summarised balance sheets of Banco Santander, S.A. as of December 31, 2020, 2019 and 2018
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CONDENSED BALANCE SHEETS (Parent company only)31 December 202031 December 201931 December 2018
(Millions of Euros)
Assets
Cash and due from banks112,114 85,922 105,660 
Of which:
To bank subsidiaries14,519 13,875 16,339 
Trading account assets81,433 86,583 70,825 
Investment securities29,477 44,020 61,064 
Of which:
To bank subsidiaries13,603 9,504 11,084 
To non-bank subsidiaries3,399 3,450 4,581 
Net Loans and leases295,739 276,330 263,142 
Of which:
To non-bank subsidiaries27,555 28,690 26,505 
Investment in affiliated companies84,890 87,330 81,734 
Of which:
To bank subsidiaries60,186 59,364 69,118 
To non-bank subsidiaries24,703 27,966 12,616 
Premises and equipment, net6,680 7,131 2,410 
Other assets19,036 22,600 23,541 
Total assets629,369 609,916 608,376 
Liabilities
Deposits383,135 345,975 350,786 
Of which:
To bank subsidiaries17,045 14,705 18,526 
To non-bank subsidiaries19,949 15,518 13,655 
Short-term debt14,513 20,547 30,883 
Long-term debt83,981 83,906 75,600 
Total debt98,494 104,453 106,483 
Of which:
To bank subsidiaries617 — 2,874 
To non-bank subsidiaries661 1,667 998 
Other liabilities82,803 89,265 82,340 
Total liabilities564,432 539,693 539,609 
Stockholders' equity
Capital stock8,670 8,309 8,118 
Retained earnings and other reserves56,267 61,914 60,649 
Total stockholders' equity64,937 70,223 68,767 
Total liabilities and Stockholders’ Equity629,369 609,916 608,376 
In the financial statements of the Parent Company, investments in subsidiaries, jointly controlled entities and associates are recorded at cost.
Following are the condensed statements of income of Banco Santander, S.A. for the years ended December 31, 2020, 2019 and 2018.
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Year ended
CONDENSED STATEMENTS OF INCOME (Parent company only)31 December 202031 December 201931 December 2018
(Millions of Euros)
Interest income
Interest from earning assets6,853 8,009 7,660 
Dividends from affiliated companies5,316 5,959 3,872 
Of which:
From bank subsidiaries1,810 3,019 2,874 
From non-bank subsidiaries3,506 2,940 998 
12,169 13,968 11,532 
Interest expense(3,160)(4,108)(3,861)
Interest income / (Charges)9,009 9,860 7,671 
Provision for credit losses(2,558)(1,246)(686)
Interest income / (Charges) after provision for credit losses6,451 8,614 6,985 
Non-interest income:5,322 4,132 3,972 
Non-interest expense:(14,020)(9,168)(7,573)
Income before income taxes(2,247)3,578 3,384 
Income tax expense(1,310)(48)(83)
Net income(3,557)3,530 3,301 

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Notes to the consolidated annual accounts
 
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Following are the condensed statement of comprehensive income of Banco Santander, S.A. for the years ended December 31, 2020, 2019 and 2018:
Year ended
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Parent company only)31 December 202031 December 201931 December 2018
(Millions of Euros)
NET INCOME(3,557)3,530 3,301 
OTHER COMPREHENSIVE INCOME (1,221)119 (410)
Items that may be reclassified subsequently to profit or loss(363)421 (348)
Hedging instruments (items not designated)— — — 
Revaluation gains (losses)— — — 
Amounts transferred to income statement— — — 
Other reclassifications— — — 
Debt instruments at fair value with changes in other comprehensive income(316)723 (634)
Revaluation gains (losses)244 697 (135)
Amounts transferred to income statement(560)(592)(499)
Other reclassifications— 618 — 
Cash flow hedges:(206)(117)137 
Revaluation gains/(losses)(239)(205)153 
Amounts transferred to income statement33 88 (16)
Amounts transferred to initial carrying amount of hedged items— — — 
Other reclassifications— — — 
Hedges of net investments in foreign operations:— — — 
Exchange differences— — — 
Non-current assets held for sale— — — 
Income tax159 (185)149 
Items that will not be reclassified to profit or loss:(858)(302)(62)
Actuarial gains/(losses) on pension plans(77)(327)43 
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(796)(135)(78)
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)4 44 — 
Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedging instrument)(4)(44)— 
Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk4 2 — 
Income tax relating to items that will not be reclassified11 158 (27)
TOTAL COMPREHENSIVE INCOME(4,778)3,649 2,891 

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Following are the condensed cash flow statements of Banco Santander, S.A. for the years ended December 31, 2020, 2019 and 2018.
Year ended
CONDENSED CASH FLOW STATEMENTS (Parent company only)31 December 202031 December 201931 December 2018
(Millions of Euros)
1. Cash flows from operating activities
Consolidated profit(3,557)3,530 3,301 
Adjustments to profit12,938 2,206 11,576 
Net increase/decrease in operating assets7,513 (13,370)(17,566)
Net increase/decrease in operating liabilities21,199 45 13,411 
Reimbursements/payments of income tax(251)743 (279)
Total net cash flows from operating activities (1)37,842 (6,846)10,443 
2. Cash flows from investing activities
Investments (-)(8,001)(7,094)(1,472)
Divestments (+)4,738 1,952 10,197 
Total net cash flows from investment activities (2)(3,263)(5,142)8,725 
3. Cash flows from financing activities
Issuance of own equity instruments— — — 
Disposal of own equity instruments615 829 805 
Acquisition of own equity instruments(615)(829)(816)
Issuance of debt securities3,722 1,056 2,750 
Redemption of debt securities(2,348)(4,578)(827)
Dividends paid— (3,773)(3,118)
Issuance/Redemption of equity instruments— — — 
Other collections/payments related to financing activities(287)(382)(2)
Total net cash flows from financing activities (3)1,087 (7,677)(1,208)
4. Effect of exchange rate changes on cash and cash equivalents (4)(576)205 237 
5. Net increase/decrease in cash and cash equivalents (1+2+3+4)35,090 (19,460)18,197 
Cash and cash equivalents at beginning of period32,471 51,931 33,734 
Cash and cash equivalents at end of period67,561 32,471 51,931 
54.2 Preference Shares and Preferred Securities
The following table shows the balance of the preference shares and preferred securities as of December 31, 2020 2019 and 2018
202020192018
(Millions of Euros)
Preference shares196 321 345 
Preferred securities7,425 7,709 9,717 
Total at period-end7,621 8,030 10,063 
Both Preference Shares and Preferred Securities are recorded under the “Financial liabilities at amortized cost - Subordinated Liabilities” caption in the consolidated balance sheet as of December 31, 2020, 2019 and 2018.
Preference Shares include the financial instruments issued by the consolidated companies which, although equity for legal purposes, do not meet the requirements for
classification as equity in the financial statements. These shares do not carry any voting rights and are non-cumulative.
Preference shares include non-cumulative preferred non-voting shares issued by Santander UK plc.
Preferred securities include non-cumulative preferred non-voting securities issued by Banco Santander, S.A.
For the purposes of payment priority, preferred securities are junior to all general creditors and to subordinated deposits. The payment of dividends on these securities, which have no voting rights, is conditional upon the obtainment of sufficient distributable profit and upon the limits imposed by Spanish banking regulations on equity.
Preference shares and preferred securities are perpetual securities and there is no obligation that requires the Group to redeem them. All securities have been fully subscribed
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by third parties outside the Group. In the consolidated balance sheets, these securities are shown net of any temporary transactions relating to liquidity guarantees.

Santander Finance Preferred, S.A. (Unipersonal)- issuer of registered securities guaranteed by Banco Santander, S.A. until November 2017, merged in that date with Banco Santander, S.A.
For further information, see note 23.c.

Outstanding at 31 December 2020
Preference Shares Issuer/Date of issueCurrencyAmount in currency (million)Interest rateRedemption
Option (A)
Santander UK plc, October 1995Pounds Sterling80.3 10.375%No option
Santander UK plc, February 1996Pounds Sterling80.3 10.375%No option
Outstanding at 31 December 2020
Preferred Securities Issuer/Date of issueCurrencyAmount in
currency
(million)		Interest rateMaturity date
Banco Santander, S.A.
Banco Santander, S.A., September 2014Euro1,500.0 6.250%(B)Perpetuity
Banco Santander, S.A., April 2017Euro750.0 6.750%(C)Perpetuity
Banco Santander, S.A., September 2017Euro1,000.0 5.250%(D)Perpetuity
Banco Santander, S.A., March 2018Euro1,500.0 4.750%(E)Perpetuity
Banco Santander, S.A., February 2019US Dollar1,200.0 7.500%(F)Perpetuity
Banco Santander, S.A., January 2020Euro1,500.0 4.375%(G)Perpetuity
Santander Finance Preferred, S.A. (Unipersonal), September 2004Euro144.0 €CMS 10 +0.05% subject to a maximum distribution of 8% per annumPerpetuity
Santander Finance Preferred, S.A. (Unipersonal), July 2007Pounds Sterling4.9 7.010%Perpetuity

A. From these dates the issuer can redeem the shares, subject to prior authorization by the national supervisor.
B. Payment is subject to certain conditions and to the discretion of the Bank. The 6.25% interest rate is set for the first seven years . After that, it will be reviewed by applying a margin of 564 basis points on the 5-year Mid-Swap Rate.
C. Payment is subject to certain conditions and to the discretion of the Bank. The 6.75% interest rate is set for the first five years. After that, it will be reviewed by applying a margin of 680.3 basis points on the 5-year Mid-Swap Rate.
D. Payment is subject to certain conditions and to the discretion of the Bank. The 5.25% interest rate is set for the first six years. After that, it will be reviewed by applying a margin of 499.9 basis points on the 5-year Mid-Swap Rate.
E. Payment is subject to certain conditions and to the discretion of the Bank. The 4.75% interest rate is set for the first seven years. After that, it will be reviewed by applying a margin of 409.7 basis points on the Mid-Swap Rate.
F. Payment is subject to certain conditions and to the discretion of the Bank. The 7.50% interest rate is set for the first seven years. After that, it will be reviewed every 5 years by applying a margin of 489.9 basis point on the Mid-Swap Rate.
    G. Payment is subject to certain conditions and to the discretion of the Bank. The 4.375% interest rate is set for the first six years. After that, it will be reviewed every 5 years by applying a margin of 453.4 basis point on the 5-year Mid-Swap Rate.




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Notes to the consolidated annual accounts
 
Appendix
 
Appendix I
Subsidiaries of Banco Santander, S.A. 1


% of ownership held by
Banco Santander
% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
2 & 3 Triton LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Real estate
A & L CF (Guernsey) Limited (f)Guernsey0.00 %100.00 %100.00 %100.00 %Leasing
A & L CF June (2) Limited United Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
A & L CF June (3) Limited United Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
A & L CF March (5) Limited United Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
A & L CF September (4) Limited United Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
Abbey Business Services (India) Private Limited India0.00 %100.00 %100.00 %100.00 %Holding company
Abbey Covered Bonds (Holdings) LimitedUnited Kingdom-(a)--Securitization
Abbey Covered Bonds (LM) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Abbey Covered Bonds LLPUnited Kingdom-(a)--Securitization
Abbey National Beta Investments LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Abbey National Business Office Equipment Leasing LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
Abbey National International LimitedJersey0.00 %100.00 %100.00 %100.00 %Financial services
Abbey National Nominees LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securities company
Abbey National PLP (UK) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Abbey National Property InvestmentsUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Abbey National Treasury Services Investments LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Abbey National Treasury Services Overseas HoldingsUnited Kingdom0.00 %100.00 %100.00 %100.00 %Holding company
Abbey National UK InvestmentsUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Abbey Stockbrokers (Nominees) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securities company
Abbey Stockbrokers LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securities company
Ablasa Participaciones, S.L.Spain18.94 %81.06 %100.00 %100.00 %Holding company
Administración de Bancos Latinoamericanos Santander, S.L.Spain24.11 %75.89 %100.00 %100.00 %Holding company
Aduro S.A.Uruguay0.00 %100.00 %100.00 %-Payments and collections services
Aevis Europa, S.L.Spain96.34 %0.00 %96.34 %96.34 %Cards
AFB SAM Holdings, S.L.Spain1.00 %99.00 %100.00 %100.00 %Holding company
Afisa S.A.Chile0.00 %100.00 %100.00 %100.00 %Fund management company
ALIL Services Limited (b)Isle of Man0.00 %100.00 %100.00 %100.00 %Services
Aljardi SGPS, Lda.Portugal0.00 %100.00 %100.00 %100.00 %Holding company
Alliance & Leicester Cash Solutions LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company

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Subsidiaries of Banco Santander, S.A. 1


% of ownership held by
Banco Santander
% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Alliance & Leicester Commercial Bank LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Alliance & Leicester Investments (Derivatives) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Alliance & Leicester Investments (No.2) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Alliance & Leicester Investments LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Alliance & Leicester LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Alliance & Leicester Personal Finance LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Altamira Santander Real Estate, S.A.Spain100.00 %0.00 %100.00 %100.00 %Real estate
Alternative Leasing, FILSpain99.99 %0.00 %99.99 %-Investment fund
Amazonia Trade LimitedUnited Kingdom100.00 %0.00 %100.00 %100.00 %Holding company
AN (123) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Holding company
Andaluza de Inversiones, S.A.Spain0.00 %100.00 %100.00 %100.00 %Holding company
ANITCO LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Holding company
Aquanima Brasil Ltda.Brazil0.00 %100.00 %100.00 %100.00 %E-commerce
Aquanima Chile S.A.Chile0.00 %100.00 %100.00 %100.00 %Services
Aquanima México S. de R.L. de C.V.Mexico0.00 %100.00 %100.00 %100.00 %E-commerce
Aquanima S.A.Argentina0.00 %100.00 %100.00 %100.00 %Services
Arcaz - Sociedade Imobiliária Portuguesa, Lda. Portugal0.00 %99.91 %100.00 %100.00 %Inactive
Argenline S.A. (b) Uruguay0.00 %100.00 %100.00 %100.00 %Finance company
Asto Digital LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Athena Corporation LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Financial services
Atlantes Azor No. 1Portugal-(a)--Securitization
Atlantes Azor No. 2Portugal-(a)--Securitization
Atlantes Mortgage No. 2Portugal-(a)--Securitization
Atlantes Mortgage No. 3Portugal-(a)--Securitization
Atlantes Mortgage No. 4Portugal-(a)--Securitization
Atlantes Mortgage No. 5Portugal-(a)--Securitization
Atlantes Mortgage No. 7Portugal-(a)--Securitization
Atual - Fundo de Invest Multimercado Crédito Privado Investimento no ExteriorBrazil0.00 %89.99 %100.00 %-Investment fund
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.Brazil0.00 %89.99 %100.00 %100.00 %Financial services
Auto ABS Belgium Loans 2019, SA/NVBelgium-(a)--Securitization
Auto ABS DFP Master Compartment France 2013France-(a)--Securitization
Auto ABS French Lease Master Compartiment 2016France-(a)--Securitization
Auto ABS French Leases 2018France-(a)--Securitization
Auto ABS French Loans MasterFrance-(a)--Securitization
Auto ABS French LT Leases MasterFrance-(a)--Securitization
Auto ABS Italian Balloon 2019-1 S.R.L.Italy-(a)--Securitization
Auto ABS Italian Loans 2018-1 S.R.L.Italy-(a)--Securitization
Auto ABS Italian Rainbow Loans 2020-1 S.R.L.Italy-(a)--Securitization
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Notes to the consolidated annual accounts
 
Appendix
 
Subsidiaries of Banco Santander, S.A. 1


% of ownership held by
Banco Santander
% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Auto ABS Spanish Loans 2016, Fondo de TitulizaciónSpain-(a)--Securitization
Auto ABS Spanish Loans 2018-1, Fondo de TitulizaciónSpain-(a)--Securitization
Auto ABS Spanish Loans 2020-1, Fondo de TitulizaciónSpain-(a)--Securitization
Auto ABS Swiss Leases 2013 GmbHSwitzerland-(a)--Securitization
Auto ABS UK Loans 2017 Holdings LimitedUnited Kingdom-(a)--Securitization
Auto ABS UK Loans 2017 PlcUnited Kingdom-(a)--Securitization
Auto ABS UK Loans 2019 Holdings Limited United Kingdom-(a)--Securitization
Auto ABS UK Loans 2019 PlcUnited Kingdom-(a)--Securitization
Auto ABS UK Loans Holdings Limited United Kingdom-(a)--Securitization
Auto ABS UK Loans PLCUnited Kingdom-(a)--Securitization
Autodescuento, S.L.Spain0.00 %93.89 %93.89 %93.89 %Vehicles purchase
Autohaus24 GmbHGermany0.00 %46.95 %100.00 %-Renting
Auttar HUT Processamento de Dados Ltda.Brazil0.00 %89.99 %100.00 %100.00 %IT services
Aviación Antares, A.I.E.Spain99.99 %0.01 %100.00 %100.00 %Renting
Aviación Británica, A.I.E.Spain99.99 %0.01 %100.00 %100.00 %Renting
Aviación Centaurus, A.I.E.Spain99.99 %0.01 %100.00 %100.00 %Renting
Aviación Comillas, S.L. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Renting
Aviación Intercontinental, A.I.E.Spain99.97 %0.03 %100.00 %100.00 %Renting
Aviación Laredo, S.L.Spain99.00 %1.00 %100.00 %100.00 %Air transport
Aviación Oyambre, S.L. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Renting
Aviación Real, A.I.E.Spain99.99 %0.01 %100.00 %100.00 %Renting
Aviación Santillana, S.L. Spain99.00 %1.00 %100.00 %100.00 %Renting
Aviación Suances, S.L.Spain99.00 %1.00 %100.00 %100.00 %Air transport
Aviación Tritón, A.I.E.Spain99.99 %0.01 %100.00 %100.00 %Renting
Aymoré Crédito, Financiamento e Investimento S.A.Brazil0.00 %89.99 %100.00 %100.00 %Finance company
Azor Mortgages PLCIreland-(a)--Securitization
Banca PSA Italia S.p.A.Italy0.00 %50.00 %50.00 %50.00 %Banking
Banco Bandepe S.A.Brazil0.00 %89.99 %100.00 %100.00 %Banking
Banco de Albacete, S.A.Spain100.00 %0.00 %100.00 %100.00 %Banking
Banco Hyundai Capital Brasil S.A.Brazil0.00 %44.99 %50.00 %50.00 %Banking
Banco Madesant - Sociedade Unipessoal, S.A.Portugal0.00 %100.00 %100.00 %100.00 %Banking
Banco PSA Finance Brasil S.A.Brazil0.00 %44.99 %50.00 %50.00 %Banking
Banco Santander - ChileChile0.00 %67.12 %67.18 %67.18 %Banking
Banco Santander (Brasil) S.A.Brazil0.04 %89.95 %90.58 %90.52 %Banking
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 100740Mexico0.00 %91.79 %100.00 %100.00 %Finance company
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 2002114Mexico0.00 %92.47 %100.00 %100.00 %Holding company
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso GFSSLPTMexico0.00 %92.68 %100.00 %100.00 %Finance company

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Subsidiaries of Banco Santander, S.A. 1


% of ownership held by
Banco Santander
% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Banco Santander Consumer Portugal, S.A.Portugal0.00 %100.00 %100.00 %100.00 %Banking
Banco Santander de Negocios Colombia S.A.Colombia0.00 %100.00 %100.00 %100.00 %Banking
Banco Santander InternationalUnited States0.00 %100.00 %100.00 %100.00 %Banking
Banco Santander International SASwitzerland0.00 %100.00 %100.00 %100.00 %Banking
Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander MéxicoMexico16.68 %75.11 %91.80 %91.77 %Banking
Banco Santander Perú S.A.Peru99.00 %1.00 %100.00 %100.00 %Banking
Banco Santander Río S.A.Argentina0.00 %99.31 %99.26 %99.25 %Banking
Banco Santander S.A.Uruguay97.75 %2.25 %100.00 %100.00 %Banking
Banco Santander Totta, S.A.Portugal0.00 %99.86 %99.96 %99.96 %Banking
Bansa Santander S.A.Chile0.00 %100.00 %100.00 %100.00 %Real estate
BEN Benefícios e Serviços S.A.Brazil0.00 %89.99 %100.00 %100.00 %Payment services
Bilkreditt 6 Designated Activity Company (b)Ireland-(a)--Securitization
Bilkreditt 7 Designated Activity CompanyIreland-(a)--Securitization
BRS Investments S.A.Argentina0.00 %100.00 %100.00 %100.00 %Finance company
Cántabra de Inversiones, S.A.Spain100.00 %0.00 %100.00 %100.00 %Holding company
Cántabro Catalana de Inversiones, S.A.Spain100.00 %0.00 %100.00 %100.00 %Holding company
Canyon Multifamily Impact Fund IV LLC United States0.00 %98.00 %98.00 %98.00 %Real estate
Capital Street Delaware LPUnited States0.00 %100.00 %100.00 %100.00 %Holding company
Capital Street Holdings, LLCUnited States0.00 %100.00 %100.00 %100.00 %Holding company
Capital Street REIT Holdings, LLCUnited States0.00 %100.00 %100.00 %100.00 %Holding company
Capital Street S.A.Luxembourg0.00 %100.00 %100.00 %100.00 %Finance company
Carfax (Guernsey) Limited (f)Guernsey0.00 %100.00 %100.00 %100.00 %Insurance brokerage
Carfinco Financial Group Inc.Canada96.42 %0.00 %96.42 %96.42 %Holding company
Carfinco Inc.Canada0.00 %96.42 %100.00 %100.00 %Finance company
Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander MéxicoMexico0.00 %99.97 %99.97 %99.97 %Securities company
Cater Allen Holdings LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Holding company
Cater Allen International LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securities company
Cater Allen LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Banking
Cater Allen Lloyd's Holdings LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Holding company
Cater Allen Syndicate Management LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Advisory services
CCAP Auto Lease Ltd.United States0.00 %80.24 %100.00 %100.00 %Leasing
Centro de Capacitación Santander, A.C.Mexico0.00 %91.79 %100.00 %100.00 %Non-profit institute
Certidesa, S.L.Spain0.00 %100.00 %100.00 %100.00 %Aircraft rental
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Appendix
 
Subsidiaries of Banco Santander, S.A. 1


% of ownership held by
Banco Santander
% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Chrysler Capital Auto Funding I LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Chrysler Capital Auto Funding II LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Chrysler Capital Auto Receivables LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Chrysler Capital Master Auto Receivables Funding 2 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Chrysler Capital Master Auto Receivables Funding 4 LLC United States0.00 %80.24 %100.00 %100.00 %Finance company
Chrysler Capital Master Auto Receivables Funding LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Cobranza Amigable, S.A.P.I. de C.V.Mexico0.00 %85.00 %100.00 %100.00 %Collection services
Community Development and Affordable Housing Fund LLC (g)United States0.00 %96.00 %96.00 %-Asset management
Compagnie Generale de Credit Aux Particuliers - Credipar S.A.France0.00 %50.00 %100.00 %100.00 %Banking
Compagnie Pour la Location de Vehicules - CLVFrance0.00 %50.00 %100.00 %100.00 %Banking
Comunidad Laboral Trabajando Argentina S.A.Argentina0.00 %100.00 %100.00 %100.00 %Services
Comunidad Laboral Trabajando Iberica, S.L. Unipersonal, en liquidación (b)Spain0.00 %100.00 %100.00 %100.00 %Services
Consulteam Consultores de Gestão, Lda.Portugal100.00 %0.00 %100.00 %100.00 %Real estate
Consumer Lending Receivables LLCUnited States0.00 %80.24 %100.00 %100.00 %Securitization
Crawfall S.A. (b)Uruguay100.00 %0.00 %100.00 %100.00 %Services
Darep Designated Activity CompanyIreland100.00 %0.00 %100.00 %100.00 %Reinsurances
Decarome, S.A.P.I. de C.V.Mexico0.00 %100.00 %100.00 %100.00 %Finance company
Deva Capital Advisory Company, S.L.Spain0.00 %100.00 %100.00 %100.00 %Advisory services
Deva Capital Holding Company, S.L.Spain100.00 %0.00 %100.00 %100.00 %Holding company
Deva Capital Investment Company, S.L.Spain0.00 %100.00 %100.00 %100.00 %Holding company
Deva Capital Management Company, S.L.Spain0.00 %100.00 %100.00 %100.00 %Advisory services
Deva Capital Servicer Company, S.L.Spain0.00 %100.00 %100.00 %100.00 %Holding company
Digital Procurement Holdings N.V.Netherlands0.00 %100.00 %100.00 %100.00 %Holding company
Diners Club Spain, S.A.Spain75.00 %0.00 %75.00 %75.00 %Cards
Dirección Estratega, S.C.Mexico0.00 %100.00 %100.00 %100.00 %Services
Dirgenfin, S.L., en liquidación (b)Spain0.00 %100.00 %100.00 %100.00 %Real estate development
Drive Auto Receivables Trust 2016-CUnited States-(a)--Securitization
Drive Auto Receivables Trust 2017-1United States-(a)--Securitization
Drive Auto Receivables Trust 2017-2United States-(a)--Securitization
Drive Auto Receivables Trust 2017-3United States-(a)--Securitization
Drive Auto Receivables Trust 2017-AUnited States-(a)--Securitization
Drive Auto Receivables Trust 2017-BUnited States-(a)--Securitization
Drive Auto Receivables Trust 2018-1United States-(a)--Securitization

802

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Contents
Subsidiaries of Banco Santander, S.A. 1


% of ownership held by
Banco Santander
% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Drive Auto Receivables Trust 2018-2United States-(a)--Securitization
Drive Auto Receivables Trust 2018-3United States-(a)--Securitization
Drive Auto Receivables Trust 2018-4United States-(a)--Securitization
Drive Auto Receivables Trust 2018-5 United States-(a)--Securitization
Drive Auto Receivables Trust 2019-1 United States-(a)--Securitization
Drive Auto Receivables Trust 2019-2United States-(a)--Securitization
Drive Auto Receivables Trust 2019-3United States-(a)--Securitization
Drive Auto Receivables Trust 2019-4United States-(a)--Securitization
Drive Auto Receivables Trust 2020-1United States-(a)--Securitization
Drive Auto Receivables Trust 2020-2United States-(a)--Securitization
EDT FTPYME Pastor 3 Fondo de Titulización de ActivosSpain-(a)--Securitization
Electrolyser, S.A. de C.V.Mexico0.00 %91.79 %100.00 %100.00 %Services
Entidad de Desarrollo a la Pequeña y Micro Empresa Santander Consumo Perú S.A.Peru100.00 %0.00 %100.00 %100.00 %Finance company
Erestone S.A.S.France0.00 %90.00 %90.00 %90.00 %Inactive
Esfera Fidelidade S.A.Brazil0.00 %89.99 %100.00 %100.00 %Services
Evidence Previdência S.A.Brazil0.00 %89.99 %100.00 %100.00 %Insurance
Financeira El Corte Inglés, Portugal, S.F.C., S.A.Portugal0.00 %51.00 %100.00 %100.00 %Finance company
Financiera El Corte Inglés, E.F.C., S.A.Spain0.00 %51.00 %51.00 %51.00 %Finance company
Finsantusa, S.L. UnipersonalSpain0.00 %100.00 %100.00 %100.00 %Holding company
First National Motor Business LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
First National Motor Contracts LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
First National Motor Facilities LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
First National Motor Finance LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Advisory services
First National Motor Leasing LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
First National Motor plcUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
First National Tricity Finance LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Fondation Holding Auto ABS Belgium LoansBelgium-(a)--Securitization
Fondo de Titulización de Activos RMBS Santander 1Spain-(a)--Securitization
Fondo de Titulización de Activos RMBS Santander 2Spain-(a)--Securitization
Fondo de Titulización de Activos RMBS Santander 3Spain-(a)--Securitization
Fondo de Titulización de Activos Santander Consumer Spain Auto 2014-1Spain-(a)--Securitization
Fondo de Titulización de Activos Santander Hipotecario 7Spain-(a)--Securitization
803


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 (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Fondo de Titulización de Activos Santander Hipotecario 8Spain-(a)--Securitization
Fondo de Titulización de Activos Santander Hipotecario 9Spain-(a)--Securitization
Fondo de Titulización PYMES Santander 13Spain-(a)--Securitization
Fondo de Titulización PYMES Santander 14Spain-(a)--Securitization
Fondo de Titulización PYMES Santander 15Spain-(a)--Securitization
Fondo de Titulización RMBS Santander 4Spain-(a)--Securitization
Fondo de Titulización RMBS Santander 5Spain-(a)--Securitization
Fondo de Titulización Santander Consumer Spain Auto 2016-1Spain-(a)--Securitization
Fondo de Titulización Santander Consumer Spain Auto 2016-2Spain-(a)--Securitization
Fondo de Titulización Santander Financiación 1Spain-(a)--Securitization
Fondos Santander, S.A. Administradora de Fondos de Inversión (en liquidación) (b)Uruguay0.00 %100.00 %100.00 %100.00 %Fund management company
Fortensky Trading, Ltd.Ireland0.00 %100.00 %100.00 %100.00 %Finance company
Fosse (Master Issuer) Holdings LimitedUnited Kingdom-(a)--Securitization
Fosse Funding (No.1) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Fosse Master Issuer PLCUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Fosse PECOH LimitedUnited Kingdom-(a)--Securitization
Fosse Trustee (UK) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
FTPYME Banesto 2, Fondo de Titulización de ActivosSpain-(a)--Securitization
Fundo de Investimento em Direitos Creditórios Atacado- Não PadronizadoBrazil-(a)--Investment fund
Fundo de Investimentos em Direitos Creditórios Multisegmentos NPL Ipanema V – Não padronizado Brazil-(a)--Investment fund
Fundo de Investimentos em Direitos Creditórios Multisegmentos NPL Ipanema VI – Não padronizadoBrazil-(a)--Investment fund
Gamma, Sociedade Financeira de Titularização de Créditos, S.A.Portugal0.00 %99.86 %100.00 %100.00 %Securitization
GC FTPYME Pastor 4 Fondo de Titulización de ActivosSpain-(a)--Securitization
Gesban México Servicios Administrativos Globales, S.A. de C.V.Mexico0.00 %100.00 %100.00 %100.00 %Services
Gesban Santander Servicios Profesionales Contables LimitadaChile0.00 %100.00 %100.00 %100.00 %Accounting services
Gesban Servicios Administrativos Globales, S.L.Spain99.99 %0.01 %100.00 %100.00 %Services
Gesban UK LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Payments and collections services
Gestión de Instalaciones Fotovoltaicas, S.L. UnipersonalSpain0.00 %100.00 %100.00 %100.00 %Electricity production
Gestión de Inversiones JILT, S.A.Spain100.00 %0.00 %100.00 %100.00 %Services
Gestora de Procesos S.A. en liquidación (b)Peru0.00 %100.00 %100.00 %100.00 %Holding company

804

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Contents
Subsidiaries of Banco Santander, S.A. 1


% of ownership held by
Banco Santander
% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Getnet Adquirência e Serviços para Meios de Pagamento S.A.Brazil0.00 %89.99 %100.00 %100.00 %Payment services
Global Vosgos, S.L. UnipersonalSpain100.00 %0.00 %100.00 %-Holding company
Golden Bar (Securitisation) S.R.L.Italy-(a)--Securitization
Golden Bar Stand Alone 2016-1Italy-(a)--Securitization
Golden Bar Stand Alone 2018-1Italy-(a)--Securitization
Golden Bar Stand Alone 2019-1Italy-(a)--Securitization
Golden Bar Stand Alone 2020-1Italy-(a)--Securitization
Golden Bar Stand Alone 2020-2Italy-(a)--Securitization
Grupo Empresarial Santander, S.L.Spain99.11 %0.89 %100.00 %100.00 %Holding company
Grupo Financiero Santander México, S.A. de C.V.Mexico100.00 %0.00 %100.00 %100.00 %Holding company
GTS El Centro Equity Holdings, LLC United States0.00 %58.40 %58.40 %57.40 %Holding company
GTS El Centro Project Holdings, LLC United States0.00 %58.40 %100.00 %100.00 %Holding company
Guaranty Car, S.A. UnipersonalSpain0.00 %100.00 %100.00 %100.00 %Automotive
Hipototta No. 13Portugal-(a)--Securitization
Hipototta No. 4 FTCPortugal-(a)--Securitization
Hipototta No. 4 plcIreland-(a)--Securitization
Hipototta No. 5 FTCPortugal-(a)--Securitization
Hipototta No. 5 plcIreland-(a)--Securitization
Hispamer Renting, S.A. UnipersonalSpain0.00 %100.00 %100.00 %100.00 %Renting
Holbah II LimitedBahamas0.00 %100.00 %100.00 %100.00 %Holding company
Holbah Santander, S.L. UnipersonalSpain0.00 %100.00 %100.00 %100.00 %Holding company
Holmes Funding LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Holmes Holdings LimitedUnited Kingdom-(a)--Securitization
Holmes Master Issuer plcUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Holmes Trustees LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
HQ Mobile LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Internet technology
Hyundai Capital Bank Europe GmbHGermany0.00 %51.00 %51.00 %51.00 %Banking
Ibérica de Compras Corporativas, S.L.Spain97.17 %2.83 %100.00 %100.00 %E-commerce
Independence Community Bank Corp.United States0.00 %100.00 %100.00 %100.00 %Holding company
Insurance Funding Solutions LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Interfinance Holanda B.V.Netherlands100.00 %0.00 %100.00 %100.00 %Holding company
Inversiones Capital Global, S.A. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Holding company
Inversiones Marítimas del Mediterráneo, S.A.Spain0.00 %100.00 %100.00 %100.00 %Inactive
Isar Valley S.A.Luxembourg-(a)--Securitization
805


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 (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Isla de los Buques, S.A.Spain99.98 %0.02 %100.00 %100.00 %Finance company
Klare Corredora de Seguros S.A.Chile0.00 %33.63 %50.10 %50.10 %Insurance brokerage
Landcompany 2020, S.L.Spain17.22 %82.78 %100.00 %100.00 %Real estate management
Langton Funding (No.1) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Langton Mortgages Trustee (UK) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Langton PECOH LimitedUnited Kingdom-(a)--Securitization
Langton Securities (2008-1) plcUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Langton Securities (2010-1) PLCUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Langton Securities (2010-2) PLCUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Langton Securities Holdings LimitedUnited Kingdom-(a)--Securitization
Laparanza, S.A.Spain61.59 %0.00 %61.59 %61.59 %Agricultural holding
Liquidity LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Factoring
Luri 1, S.A., en liquidación (b) (e)Spain46.00 %0.00 %46.00 %46.00 %Real estate
Luri 6, S.A. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Real estate investment
MAC No. 1 LimitedUnited Kingdom-(a)--Mortgage credit company
Master Red Europa, S.L.Spain96.34 %0.00 %96.34 %96.34 %Cards
Mata Alta, S.L.Spain0.00 %61.59 %100.00 %100.00 %Real estate
Merciver, S.L.Spain99.90 %0.10 %100.00 %100.00 %Financial advisory
Mercury Trade Finance Solutions, S.A. de C.V.Mexico0.00 %50.10 %100.00 %-IT services
Mercury Trade Finance Solutions, S.L.Spain0.00 %50.10 %50.10 %-IT services
Mercury Trade Finance Solutions, S.p.A.Chile0.00 %50.10 %100.00 %-IT services
Merlion Aviation One Designated Activity CompanyIreland-(a)--Renting
Moneybit, S.L.Spain0.00 %100.00 %100.00 %100.00 %Services
Mortgage Engine Limited United Kingdom0.00 %100.00 %100.00 %100.00 %Financial services
Motor 2015-1 Holdings LimitedUnited Kingdom-(a)--Securitization
Motor 2016-1 Holdings LimitedUnited Kingdom-(a)--Securitization
Motor 2016-1 PLCUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Motor 2017-1 Holdings LimitedUnited Kingdom-(a)--Securitization
Motor 2017-1 PLCUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Motor Securities 2018-1 Designated Activity CompanyIreland-(a)--Securitization
Mouro Capital I LPUnited Kingdom0.00 %100.00 %100.00 %-Investment fund
Multiplica SpAChile0.00 %100.00 %100.00 %100.00 %Payment services
Naviera Mirambel, S.L.Spain0.00 %100.00 %100.00 %100.00 %Finance company

806

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Contents
Subsidiaries of Banco Santander, S.A. 1

% of ownership held by
Banco Santander		% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Naviera Trans Gas, A.I.E.Spain99.99 %0.01 %100.00 %100.00 %Renting
Naviera Trans Iron, S.L.Spain100.00 %0.00 %100.00 %100.00 %Leasing
Naviera Trans Ore, A.I.E.Spain99.99 %0.01 %100.00 %100.00 %Renting
Naviera Trans Wind, S.L. (b)Spain99.99 %0.01 %100.00 %100.00 %Renting
Naviera Transcantábrica, S.L.Spain100.00 %0.00 %100.00 %100.00 %Leasing
Naviera Transchem, S.L. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Leasing
NeoAuto S.A.C.Peru0.00 %55.00 %55.00 %-Vehicles purchase by internet
Newcomar, S.L., en liquidación (b)Spain40.00 %40.00 %80.00 %80.00 %Real estate
Norbest ASNorway7.94 %92.06 %100.00 %100.00 %Securities investment
Novimovest – Fundo de Investimento ImobiliárioPortugal0.00 %78.63 %78.74 %78.74 %Investment fund
NW Services CO.United States0.00 %100.00 %100.00 %100.00 %E-commerce
Open Bank Argentina S.A.Argentina0.00 %99.66 %100.00 %-Banking
Open Bank, S.A.Spain100.00 %0.00 %100.00 %100.00 %Banking
Open Digital Market, S.L.Spain0.00 %100.00 %100.00 %100.00 %Services
Open Digital Services, S.L.Spain99.97 %0.03 %100.00 %100.00 %Services
Operadora de Carteras Gamma, S.A.P.I. de C.V.Mexico100.00 %0.00 %100.00 %100.00 %Holding company
Optimal Investment Services SASwitzerland100.00 %0.00 %100.00 %100.00 %Fund management company
Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland Euro Fund Ireland0.00 %57.20 %54.10 %54.10 %Fund management company
Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland US Dollar Fund Ireland0.00 %44.49 %51.93 %51.57 %Fund management company
PagoFX Europe S.A.Belgium0.00 %100.00 %100.00 %100.00 %Payment services
PagoFX HoldCo, S.L.Spain0.00 %100.00 %100.00 %100.00 %Payment services
PagoFX UK LtdUnited Kingdom0.00 %100.00 %100.00 %100.00 %Payment services
PagoNxt Merchant Solutions, S.L.Spain0.00 %100.00 %100.00 %100.00 %Holding company
PagoNxt, S.L.Spain99.99 %0.01 %100.00 %100.00 %Holding company
Parasant SASwitzerland100.00 %0.00 %100.00 %100.00 %Holding company
PBD Germany Auto 2018 UG (Haftungsbeschränkt)Germany-(a)--Securitization
PBD Germany Auto Lease Master 2019Luxembourg-(a)--Securitization
PBE Companies, LLCUnited States0.00 %100.00 %100.00 %100.00 %Real estate
PECOH LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Securitization
Pereda Gestión, S.A.Spain99.99 %0.01 %100.00 %100.00 %Holding company
Phoenix C1 Aviation Designated Activity CompanyIreland-(a)--Renting
PI Distribuidora de Títulos e Valores Mobiliários S.A.Brazil0.00 %89.99 %100.00 %100.00 %Leasing
Pingham International, S.A.Uruguay0.00 %100.00 %100.00 %100.00 %Services
Popular Spain Holding de Inversiones, S.L.U.Spain100.00 %0.00 %100.00 %40.00 %Insurance
Portal Universia Argentina S.A.Argentina0.00 %75.75 %75.75 %75.75 %Internet
807


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 (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Portal Universia Portugal, Prestação de Serviços de Informática, S.A.Portugal0.00 %100.00 %100.00 %100.00 %Internet
Prime 16 – Fundo de Investimentos ImobiliárioBrazil0.00 %89.99 %100.00 %100.00 %Investment fund
PSA Bank Deutschland GmbHGermany0.00 %50.00 %50.00 %50.00 %Banking
PSA Banque FranceFrance0.00 %50.00 %50.00 %50.00 %Banking
PSA Consumer Finance Polska Sp. z o.o.Poland0.00 %40.22 %100.00 %100.00 %Finance company
PSA Finance Belux S.A.Belgium0.00 %50.00 %50.00 %50.00 %Finance company
PSA Finance Polska Sp. z o.o.Poland0.00 %40.22 %50.00 %50.00 %Finance company
PSA Finance UK LimitedUnited Kingdom0.00 %50.00 %50.00 %50.00 %Finance company
PSA Financial Services Nederland B.V.Netherlands0.00 %50.00 %50.00 %50.00 %Finance company
PSA Financial Services Spain, E.F.C., S.A.Spain0.00 %50.00 %50.00 %50.00 %Finance company
PSA Renting Italia S.p.A.Italy0.00 %50.00 %100.00 %100.00 %Renting
PSRT 2018-AUnited States-(a)--Securitization
PSRT 2019-AUnited States-(a)--Securitization
Punta Lima Wind Farm, LLC United States0.00 %100.00 %100.00 %100.00 %Electricity production
Punta Lima, LLCUnited States0.00 %100.00 %100.00 %100.00 %Leasing
Retop S.A. Uruguay100.00 %0.00 %100.00 %100.00 %Finance company
Return Capital Serviços de Recuperação de Créditos S.A.Brazil0.00 %89.99 %100.00 %100.00 %Collection services
Return Gestão de Recursos S.A.Brazil0.00 %89.99 %100.00 %100.00 %Fund management company
Riobank International (Uruguay) SAIFE (b)Uruguay0.00 %100.00 %100.00 %100.00 %Inactive
Roc Aviation One Designated Activity CompanyIreland-(a)--Renting
Roc Shipping One Designated Activity CompanyIreland-(a)--Renting
Rojo Entretenimento S.A.Brazil0.00 %85.13 %94.60 %94.60 %Services
SAM Asset Management, S.A. de C.V., Sociedad Operadora de Fondos de InversiónMexico0.00 %100.00 %100.00 %100.00 %Fund management company
SAM Investment Holdings, S.L.Spain92.37 %7.62 %100.00 %100.00 %Fund management
SAM UK Investment Holdings Limited (b)United Kingdom92.37 %7.63 %100.00 %100.00 %Holding company
SANB Promotora de Vendas e Cobrança Ltda.Brazil0.00 %89.99 %100.00 %100.00 %Finance company
Sancap Investimentos e Participações S.A.Brazil0.00 %89.99 %100.00 %100.00 %Holding company
Santander (CF Trustee Property Nominee) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Services
Santander (CF Trustee) Limited United Kingdom-(a)--Asset management
Santander (UK) Group Pension Schemes Trustees Limited United Kingdom0.00 %100.00 %100.00 %100.00 %Asset management
Santander Ahorro Inmobiliario 1, S.A.Spain98.53 %0.00 %98.53 %98.53 %Real estate rental
Santander Ahorro Inmobiliario 2, S.A.Spain99.91 %0.00 %99.91 %99.91 %Real estate rental

808

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Contents
Subsidiaries of Banco Santander, S.A. 1

% of ownership held by
Banco Santander		% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Alternatives SICAV RAIF Luxembourg0.00 %100.00 %100.00 %-Investment company
Santander Asesorías Financieras LimitadaChile0.00 %67.44 %100.00 %100.00 %Securities company
Santander Asset Finance (December) LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
Santander Asset Finance plcUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
Santander Asset Management - S.G.O.I.C., S.A.Portugal0.00 %100.00 %100.00 %100.00 %Fund management company
Santander Asset Management Chile S.A.Chile0.01 %99.94 %100.00 %100.00 %Securities investment
Santander Asset Management Luxembourg, S.A.Luxembourg0.00 %100.00 %100.00 %100.00 %Fund management company
Santander Asset Management S.A. Administradora General de FondosChile0.00 %100.00 %100.00 %100.00 %Fund management company
Santander Asset Management UK Holdings LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Holding company
Santander Asset Management UK LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Management of funds and portfolios
Santander Asset Management, LLCPuerto Rico0.00 %100.00 %100.00 %100.00 %Management
Santander Asset Management, S.A., S.G.I.I.C.Spain0.00 %100.00 %100.00 %100.00 %Fund management company
Santander Back-Offices Globales Mayoristas, S.A.Spain100.00 %0.00 %100.00 %100.00 %Services
Santander Banca de Inversión Colombia, S.A.S.Colombia0.00 %100.00 %100.00 %100.00 %Advisory
Santander Bank & Trust Ltd.Bahamas0.00 %100.00 %100.00 %100.00 %Banking
Santander Bank Polska S.A.Poland67.41 %0.00 %67.41 %67.47 %Banking
Santander Bank, National AssociationUnited States0.00 %100.00 %100.00 %100.00 %Banking
Santander Brasil Administradora de Consórcio Ltda.Brazil0.00 %89.99 %100.00 %100.00 %Services
Santander Brasil Gestão de Recursos Ltda.Brazil0.00 %100.00 %100.00 %100.00 %Securities investment
Santander Brasil Tecnologia S.A.Brazil0.00 %89.99 %100.00 %100.00 %IT services
Santander Capital Desarrollo, SGEIC, S.A. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Venture capital
Santander Capital Structuring, S.A. de C.V.Mexico0.00 %100.00 %100.00 %100.00 %Investment company
Santander Capitalização S.A.Brazil0.00 %89.99 %100.00 %100.00 %Insurance
Santander Cards Ireland LimitedIreland0.00 %100.00 %100.00 %100.00 %Cards
Santander Cards LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Cards
Santander Cards UK LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Santander Chile Holding S.A.Chile22.11 %77.73 %99.84 %99.84 %Holding company
Santander Consulting (Beijing) Co., Ltd.China0.00 %100.00 %100.00 %100.00 %Advisory
Santander Consumer (UK) plcUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2013-B2 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2013-B3 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2018-L1 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
809


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 (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Consumer Auto Receivables Funding 2018-L3 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2018-L4 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2018-L5 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2019-B1 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2019-L2 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2019-L3 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Auto Receivables Funding 2020-B1 LLC United States0.00 %80.24 %100.00 %-Finance company
Santander Consumer Auto Receivables Funding 2020-L1 LLCUnited States0.00 %80.24 %100.00 %-Finance company
Santander Consumer Auto Receivables Funding 2020-L2 LLC  United States0.00 %80.24 %100.00 %-Finance company
Santander Consumer Auto Receivables Grantor Trust 2021-AUnited States-(a)--Inactive
Santander Consumer Auto Receivables Grantor Trust 2021-BUnited States-(a)--Inactive
Santander Consumer Auto Receivables Trust 2021-AUnited States-(a)--Inactive
Santander Consumer Auto Receivables Trust 2021-BUnited States-(a)--Inactive
Santander Consumer Bank AGGermany0.00 %100.00 %100.00 %100.00 %Banking
Santander Consumer Bank ASNorway0.00 %100.00 %100.00 %100.00 %Banking
Santander Consumer Bank GmbHAustria0.00 %100.00 %100.00 %100.00 %Banking
Santander Consumer Bank S.A.Poland0.00 %80.44 %100.00 %100.00 %Banking
Santander Consumer Bank S.A.Belgium0.00 %100.00 %100.00 %100.00 %Banking
Santander Consumer Bank S.p.A.Italy0.00 %100.00 %100.00 %100.00 %Banking
Santander Consumer Banque S.A.France0.00 %100.00 %100.00 %100.00 %Banking
Santander Consumer Credit Services LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Santander Consumer Finance Benelux B.V.Netherlands0.00 %100.00 %100.00 %100.00 %Finance company
Santander Consumer Finance Global Services, S.L.Spain0.00 %100.00 %100.00 %100.00 %IT
Santander Consumer Finance LimitadaChile49.00 %34.23 %100.00 %100.00 %Finance company
Santander Consumer Finance OyFinland0.00 %100.00 %100.00 %100.00 %Finance company
Santander Consumer Finance Schweiz AGSwitzerland0.00 %100.00 %100.00 %100.00 %Leasing
Santander Consumer Finance, S.A.Spain100.00 %0.00 %100.00 %100.00 %Banking
Santander Consumer Financial Solutions Sp. z o.o.Poland0.00 %80.44 %100.00 %-Leasing
Santander Consumer Finanse Sp. z o.o. (b)Poland0.00 %80.44 %100.00 %100.00 %Services
Santander Consumer Holding Austria GmbHAustria0.00 %100.00 %100.00 %100.00 %Holding company
Santander Consumer Holding GmbHGermany0.00 %100.00 %100.00 %100.00 %Holding company
Santander Consumer International Puerto Rico LLCPuerto Rico0.00 %80.24 %100.00 %100.00 %Services
Santander Consumer Leasing GmbHGermany0.00 %100.00 %100.00 %100.00 %Leasing
Santander Consumer Mediación Operador de Banca-Seguros Vinculado, S.L.Spain0.00 %94.61 %100.00 %100.00 %Insurance intermediary

810

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Annual report 2020

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Contents
Subsidiaries of Banco Santander, S.A. 1

% of ownership held by
Banco Santander		% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Consumer Multirent Sp. z o.o.Poland0.00 %80.44 %100.00 %100.00 %Leasing
Santander Consumer Operations Services GmbH Germany0.00 %100.00 %100.00 %100.00 %Services
Santander Consumer Receivables 10 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Receivables 11 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Receivables 3 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Receivables 7 LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Receivables Funding LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumer Renting, S.L.Spain0.00 %100.00 %100.00 %100.00 %Leasing
Santander Consumer S.A.Argentina0.00 %99.32 %100.00 %100.00 %Finance company
Santander Consumer S.A.S.Colombia0.00 %100.00 %100.00 %100.00 %Financial advisory
Santander Consumer Services GmbHAustria0.00 %100.00 %100.00 %100.00 %Services
Santander Consumer Services, S.A.Portugal0.00 %100.00 %100.00 %100.00 %Finance company
Santander Consumer Spain Auto 2019-1, Fondo de TitulizaciónSpain-(a)--Securitization
Santander Consumer Spain Auto 2020-1, Fondo de TitulizaciónSpain-(a)--Securitization
Santander Consumer Technology Services GmbH Germany0.00 %100.00 %100.00 %100.00 %IT services
Santander Consumer USA Holdings Inc.United States0.00 %80.24 %80.24 %72.40 %Holding company
Santander Consumer USA Inc.United States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Consumo 3, F.T.Spain-(a)--Securitization
Santander Consumo, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander MéxicoMexico0.00 %91.79 %100.00 %100.00 %Cards
Santander Corredora de Seguros LimitadaChile0.00 %67.20 %100.00 %100.00 %Insurance brokerage
Santander Corredores de Bolsa LimitadaChile0.00 %83.23 %100.00 %100.00 %Securities company
Santander Corretora de Câmbio e Valores Mobiliários S.A.Brazil0.00 %89.99 %100.00 %100.00 %Securities company
Santander Corretora de Seguros, Investimentos e Serviços S.A.Brazil0.00 %89.99 %100.00 %100.00 %Holding company
Santander Customer Voice, S.A.Spain99.50 %0.50 %100.00 %100.00 %Services
Santander de Titulización, S.G.F.T., S.A.Spain81.00 %19.00 %100.00 %100.00 %Fund management company
Santander Digital Assets, S.L.Spain100.00 %0.00 %100.00 %100.00 %IT services
Santander Drive Auto Receivables LLCUnited States0.00 %80.24 %100.00 %100.00 %Finance company
Santander Drive Auto Receivables Trust 2016-3United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2017-1United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2017-2United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2017-3United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2018-1United States-(a)--Securitization
811


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 (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Drive Auto Receivables Trust 2018-2United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2018-3United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2018-4United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2018-5United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2019-1United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2019-2United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2019-3United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2020-1United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2020-2United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2020-3United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2020-4United States-(a)--Securitization
Santander Drive Auto Receivables Trust 2021-1United States-(a)--Inactive
Santander Drive Auto Receivables Trust 2021-2United States-(a)--Inactive
Santander Drive Auto Receivables Trust 2021-3United States-(a)--Inactive
Santander Drive Auto Receivables Trust 2021-4United States-(a)--Inactive
Santander Energías Renovables I, S.C.R., S.A.Spain49.48 %10.19 %59.66 %59.66 %Venture capital
Santander Equity Investments LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Santander España Merchant Services, Entidad de Pago, S.L. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Payment services
Santander España Servicios Legales y de Cumplimiento, S.L.Spain99.97 %0.03 %100.00 %100.00 %Services
Santander Estates LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Real estate
Santander F24 S.A.Poland0.00 %67.41 %100.00 %100.00 %Finance company
Santander Facility Management España, S.L.Spain100.00 %0.00 %100.00 %100.00 %Real estate
Santander Factoring S.A.Chile0.00 %99.84 %100.00 %100.00 %Factoring
Santander Factoring Sp. z o.o.Poland0.00 %67.41 %100.00 %100.00 %Financial services
Santander Factoring y Confirming, S.A., E.F.C.Spain100.00 %0.00 %100.00 %100.00 %Factoring
Santander Finance 2012-1 LLCUnited States0.00 %100.00 %100.00 %100.00 %Financial services
Santander Financial Exchanges LimitedUnited Kingdom100.00 %0.00 %100.00 %100.00 %Finance company
Santander Financial Services plcUnited Kingdom0.00 %100.00 %100.00 %100.00 %Banking
Santander Financial Services, Inc.Puerto Rico0.00 %100.00 %100.00 %100.00 %Finance company
Santander Finanse Sp. z o.o.Poland0.00 %67.41 %100.00 %100.00 %Financial services
Santander Fintech Holdings, S.L.Spain99.97 %0.03 %100.00 %100.00 %Holding company

812

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Annual report 2020

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Contents
Subsidiaries of Banco Santander, S.A. 1

% of ownership held by
Banco Santander		% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Fintech LimitedUnited Kingdom100.00 %0.00 %100.00 %100.00 %Finance company
Santander Fundo de Investimento Santillana Multimercado Crédito Privado Investimento No Exterior Brazil-(a)--Investment fund
Santander Fundo de Investimento SBAC Referenciado di Crédito Privado Brazil0.00 %89.10 %100.00 %100.00 %Investment fund
Santander Gestión de Recaudación y Cobranzas Ltda.Chile0.00 %99.84 %100.00 %100.00 %Financial services
Santander Global Consumer Finance LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Finance company
Santander Global Facilities, S.A. de C.V.Mexico100.00 %0.00 %100.00 %100.00 %Real estate management
Santander Global Facilities, S.L.Spain100.00 %0.00 %100.00 %100.00 %Real estate
Santander Global Operations, S.A.Spain100.00 %0.00 %100.00 %100.00 %Services
Santander Global Services S.A. (b)Uruguay0.00 %100.00 %100.00 %100.00 %Services
Santander Global Sport, S.A.Spain100.00 %0.00 %100.00 %100.00 %Sports activity
Santander Global Technology Brasil Ltda. Brazil0.00 %100.00 %100.00 %100.00 %IT services
Santander Global Technology Chile LimitadaChile0.00 %100.00 %100.00 %100.00 %IT services
Santander Global Technology, S.L.Spain100.00 %0.00 %100.00 %100.00 %IT services
Santander Global Trade Platform Solutions, S.L.Spain0.00 %100.00 %100.00 %100.00 %IT services
Santander Guarantee CompanyUnited Kingdom0.00 %100.00 %100.00 %100.00 %Leasing
Santander Hipotecario 1 Fondo de Titulización de ActivosSpain-(a)--Securitization
Santander Hipotecario 2 Fondo de Titulización de ActivosSpain-(a)--Securitization
Santander Hipotecario 3 Fondo de Titulización de ActivosSpain-(a)--Securitization
Santander Holding Imobiliária S.A.Brazil0.00 %89.99 %100.00 %100.00 %Real estate
Santander Holding Internacional, S.A.Spain99.95 %0.05 %100.00 %100.00 %Holding company
Santander Holdings USA, Inc.United States100.00 %0.00 %100.00 %100.00 %Holding company
Santander Inclusión Financiera, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander MéxicoMexico0.00 %91.79 %100.00 %100.00 %Finance company
Santander Insurance Agency, U.S., LLCUnited States0.00 %100.00 %100.00 %100.00 %Insurance
Santander Insurance Services UK LimitedUnited Kingdom100.00 %0.00 %100.00 %100.00 %Asset management
Santander Intermediación Correduría de Seguros, S.A.Spain100.00 %0.00 %100.00 %100.00 %Insurance brokerage
Santander International Products, Plc. (d)Ireland99.99 %0.01 %100.00 %100.00 %Finance company
Santander Inversiones S.A.Chile0.00 %100.00 %100.00 %100.00 %Holding company
Santander Investment Bank LimitedBahamas0.00 %100.00 %100.00 %100.00 %Banking
Santander Investment Chile LimitadaChile0.00 %100.00 %100.00 %100.00 %Finance company
Santander Investment I, S.A.Spain100.00 %0.00 %100.00 %100.00 %Holding company
Santander Investment Securities Inc.United States0.00 %100.00 %100.00 %100.00 %Securities company
Santander Investment, S.A.Spain100.00 %0.00 %100.00 %100.00 %Banking
Santander Investments GP 1 S.à.r.l.Luxembourg0.00 %100.00 %100.00 %-Fund management
813


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 (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Inwestycje Sp. z o.o.Poland0.00 %67.41 %100.00 %100.00 %Securities company
Santander ISA Managers LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Management of funds and portfolios
Santander Lease, S.A., E.F.C.Spain100.00 %0.00 %100.00 %100.00 %Leasing
Santander Leasing Poland Securitization 01 Designated Activity CompanyIreland-(a)--Securitization
Santander Leasing S.A.Poland0.00 %67.41 %100.00 %100.00 %Leasing
Santander Leasing S.A. Arrendamento MercantilBrazil0.00 %89.99 %100.00 %99.99 %Leasing
Santander Leasing, LLCUnited States0.00 %100.00 %100.00 %100.00 %Leasing
Santander Lending LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Mortgage credit company
Santander Mediación Operador de Banca-Seguros Vinculado, S.A.Spain100.00 %0.00 %100.00 %100.00 %Insurance intermediary
Santander Merchant Platform Operations, S.A. de C.V.Mexico0.00 %95.98 %100.00 %-Financial services
Santander Merchant Platform Services, S.A. de C.V.Mexico0.00 %95.98 %100.00 %-Financial services
Santander Merchant Platform SoluçõesTecnológicas Brasil Ltda.Brazil0.00 %100.00 %100.00 %100.00 %IT services
Santander Merchant Platform Solutions México, S.A. de C.V.Mexico0.00 %95.98 %100.00 %-Holding company
Santander Merchant Platform Solutions S.A.Argentina0.00 %99.66 %100.00 %-Payment methods
Santander Merchant Platform Solutions Uruguay S.A.Uruguay0.00 %100.00 %100.00 %-Payment methods
Santander Merchant S.A.Argentina0.00 %100.00 %100.00 %100.00 %Finance company
Santander Mortgage Holdings LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Financial services
Santander Paraty Qif PLCIreland0.00 %89.99 %100.00 %100.00 %Investment company
Santander Pensiones, S.A., E.G.F.P.Spain0.00 %100.00 %100.00 %100.00 %Pension fund management company
Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A.Portugal100.00 %0.00 %100.00 %100.00 %Pension fund management company
Santander Prime Auto Issuance Notes 2018-A Designated Activity CompanyIreland-(a)--Securitization
Santander Prime Auto Issuance Notes 2018-B Designated Activity CompanyIreland-(a)--Securitization
Santander Prime Auto Issuance Notes 2018-C Designated Activity CompanyIreland-(a)--Securitization
Santander Prime Auto Issuance Notes 2018-D Designated Activity CompanyIreland-(a)--Securitization
Santander Prime Auto Issuance Notes 2018-E Designated Activity CompanyIreland-(a)--Securitization
Santander Private Banking Gestión, S.A., S.G.I.I.C.Spain100.00 %0.00 %100.00 %100.00 %Fund management company
Santander Private Banking s.p.a. in Liquidazione (b)Italy100.00 %0.00 %100.00 %100.00 %Finance company
Santander Private Banking UK LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Real estate

814

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Annual report 2020

san-20201231_g4.jpg
Contents
Subsidiaries of Banco Santander, S.A. 1

% of ownership held by
Banco Santander		% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Private Real Estate Advisory & Management, S.A.Spain99.99 %0.01 %100.00 %100.00 %Real estate
Santander Private Real Estate Advisory, S.A.Spain100.00 %0.00 %100.00 %100.00 %Real estate
Santander Real Estate, S.A.Spain100.00 %0.00 %100.00 %100.00 %Inactive
Santander Retail Auto Lease Funding LLCUnited States0.00 %80.24 %100.00 %100.00 %Securitization
Santander Retail Auto Lease Trust 2018-AUnited States-(a)--Securitization
Santander Retail Auto Lease Trust 2019-AUnited States-(a)--Securitization
Santander Retail Auto Lease Trust 2019-BUnited States-(a)--Securitization
Santander Retail Auto Lease Trust 2019-CUnited States-(a)--Securitization
Santander Retail Auto Lease Trust 2020-AUnited States-(a)--Securitization
Santander Retail Auto Lease Trust 2020-BUnited States-(a)--Securitization
Santander Retail Auto Lease Trust 2021-AUnited States-(a)--Inactive
Santander Retail Auto Lease Trust 2021-BUnited States-(a)--Inactive
Santander Revolving Auto Loan Trust 2019-A United States-(a)--Securitization
Santander Revolving Auto Loan Trust 2021-AUnited States-(a)--Inactive
Santander Río Asset Management Gerente de Fondos Comunes de Inversión S.A.Argentina0.00 %100.00 %100.00 %100.00 %Fund management company
Santander Río Trust S.A.Argentina0.00 %99.97 %100.00 %100.00 %Services
Santander Río Valores S.A.Argentina0.00 %99.35 %100.00 %100.00 %Securities company
Santander RMBS 6, Fondo de TitulizaciónSpain-(a)--Securitization
Santander S.A. Sociedad SecuritizadoraChile0.00 %67.24 %100.00 %100.00 %Fund management company
Santander Secretariat Services LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Holding company
Santander Securities LLCUnited States0.00 %100.00 %100.00 %100.00 %Securities company
Santander Seguros y Reaseguros, Compañía Aseguradora, S.A.Spain100.00 %0.00 %100.00 %100.00 %Insurance
Santander Servicios Corporativos, S.A. de C.V.Mexico0.00 %91.79 %100.00 %100.00 %Services
Santander Servicios Especializados, S.A. de C.V.Mexico0.00 %91.79 %100.00 %100.00 %Financial services
Santander Technology USA, LLC United States0.00 %100.00 %100.00 %100.00 %IT services
Santander Tecnología Argentina S.A.Argentina0.00 %99.35 %100.00 %100.00 %IT services
Santander Tecnologia e Inovação Ltda. Brazil0.00 %89.99 %100.00 %100.00 %IT services
Santander Tecnología España, S.L.U.Spain100.00 %0.00 %100.00 %100.00 %IT services
Santander Tecnología México, S.A. de C.V.Mexico0.00 %91.79 %100.00 %100.00 %IT services
Santander Totta Seguros, Companhia de Seguros de Vida, S.A.Portugal0.00 %99.91 %100.00 %100.00 %Insurance
Santander Totta, SGPS, S.A.Portugal99.85 %0.06 %99.91 %99.91 %Holding company
815


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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 (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
Santander Towarzystwo Funduszy Inwestycyjnych S.A.Poland50.00 %33.70 %100.00 %100.00 %Fund management company
Santander Trade Services LimitedHong-Kong0.00 %100.00 %100.00 %100.00 %Inactive
Santander UK Group Holdings plcUnited Kingdom77.67 %22.33 %100.00 %100.00 %Finance company
Santander UK InvestmentsUnited Kingdom100.00 %0.00 %100.00 %100.00 %Finance company
Santander UK Operations LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Services
Santander UK plcUnited Kingdom0.00 %100.00 %100.00 %100.00 %Banking
Santander UK Technology LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %IT services
Santander Vivienda, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México como Fiduciaria del Fideicomiso BursaMexico-(a)--Securitization
Santander Wealth Management International SASwitzerland0.00 %100.00 %100.00 %100.00 %Asset management
Santusa Holding, S.L.Spain69.76 %30.24 %100.00 %100.00 %Holding company
SC Austria Finance 2013-1 S.A.Luxembourg-(a)--Securitization
SC Austria Finance 2020-1 Designated Activity CompanyIreland-(a)--Securitization
SC Germany Auto 2014-2 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Auto 2016-2 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Auto 2017-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Auto 2018-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Auto 2019-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Consumer 2014-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Consumer 2016-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Consumer 2018-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Mobility 2019-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany S.A.Luxembourg-(a)--Securitization
SC Germany S.A., Compartment Consumer 2020-1Luxembourg-(a)--Securitization
SC Germany S.A., Compartment Mobility 2020-1Luxembourg-(a)--Securitization
SC Germany Vehicles 2013-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Germany Vehicles 2015-1 UG (haftungsbeschränkt)Germany-(a)--Securitization
SC Poland Consumer 15-1 Sp. z.o.o.Poland-(a)--Securitization
SC Poland Consumer 16-1 Sp. z o.o.Poland-(a)--Securitization
SCF Ajoneuvohallinto I Limited (b)Ireland-(a)--Securitization
SCF Ajoneuvohallinto II LimitedIreland-(a)--Securitization
SCF Ajoneuvohallinto IX LimitedIreland-(a)--Securitization
SCF Ajoneuvohallinto KIMI VI LimitedIreland-(a)--Securitization
SCF Ajoneuvohallinto VII LimitedIreland-(a)--Securitization
SCF Ajoneuvohallinto VIII LimitedIreland-(a)--Securitization

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Subsidiaries of Banco Santander, S.A. 1

% of ownership held by
Banco Santander		% of voting power (c)

Company
Location
DirectIndirectYear 2020Year 2019
Activity
SCF Eastside Locks GP LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Real estate management
SCF Rahoituspalvelut I Designated Activity Company (b)Ireland-(a)--Securitization
SCF Rahoituspalvelut II Designated Activity CompanyIreland-(a)--Securitization
SCF Rahoituspalvelut IX DACIreland-(a)--Securitization
SCF Rahoituspalvelut KIMI VI Designated Activity CompanyIreland-(a)--Securitization
SCF Rahoituspalvelut VII Designated Activity CompanyIreland-(a)--Securitization
SCF Rahoituspalvelut VIII Designated Activity CompanyIreland-(a)--Securitization
SCM Poland Auto 2019-1 DACIreland-(a)--Securitization
SDMX Superdigital, S.A. de C.V.Mexico0.00 %100.00 %100.00 %-Payment platform
Secucor Finance 2013-I Designated Activity Company Ireland-(a)--Securitization
Services and Promotions Delaware Corp.United States0.00 %100.00 %100.00 %100.00 %Holding company
Services and Promotions Miami LLCUnited States0.00 %100.00 %100.00 %100.00 %Real estate
Servicio de Alarmas Controladas por Ordenador, S.A.Spain99.99 %0.01 %100.00 %100.00 %Security
Servicios de Cobranza, Recuperación y Seguimiento, S.A. de C.V.Mexico0.00 %85.00 %85.00 %85.00 %Finance company
Sheppards Moneybrokers LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Advisory services
Shiloh III Wind Project, LLCUnited States0.00 %100.00 %100.00 %100.00 %Electricity production
Silk Finance No. 5Portugal-(a)--Securitization
Sixt Leasing (Schweiz) AGSwitzerland0.00 %46.95 %100.00 %-Renting
Sixt Leasing GmbHAustria0.00 %46.95 %100.00 %-Renting
Sixt Leasing SEGermany0.00 %46.95 %92.07 %-Leasing
Sixt Location Longue Durée S.à.R.L.France0.00 %46.95 %100.00 %-Renting
Sixt Mobility Consulting AGSwitzerland0.00 %46.95 %100.00 %-Consulting services
Sixt Mobility Consulting B.V.Netherlands0.00 %46.95 %100.00 %-Consulting services
Sixt Mobility Consulting GmbHGermany0.00 %46.95 %100.00 %-Consulting services
Sixt Mobility Consulting Österreich GmbHAustria0.00 %46.95 %100.00 %-Consulting services
Sixt Mobility Consulting S.à.R.L.France0.00 %46.95 %100.00 %-Consulting services
SMPS Merchant Platform Solutions México, S.A de C.VMexico0.00 %95.98 %100.00 %-Collection and payment services
Sociedad Integral de Valoraciones Automatizadas, S.A.Spain100.00 %0.00 %100.00 %100.00 %Appraisals
Sociedad Operadora de Tarjetas de Pago Santander Getnet Chile S.A.Chile0.00 %67.12 %100.00 %-Collection and payment services
Socur S.A. Uruguay100.00 %0.00 %100.00 %100.00 %Finance company


817


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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 (c)
Company
Location
DirectIndirectYear 2020Year 2019
Activity
Sol Orchard Imperial 1 LLC United States0.00 %58.40 %100.00 %100.00 %Electricity production
Solarlaser LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Real estate
Sovereign Community Development CompanyUnited States0.00 %100.00 %100.00 %100.00 %Holding company
Sovereign Delaware Investment CorporationUnited States0.00 %100.00 %100.00 %100.00 %Holding company
Sovereign Lease Holdings, LLCUnited States0.00 %100.00 %100.00 %100.00 %Financial services
Sovereign REIT Holdings, Inc.United States0.00 %100.00 %100.00 %100.00 %Holding company
Sovereign Spirit Limited (f)Bermudas0.00 %100.00 %100.00 %100.00 %Leasing
Sterrebeeck B.V.Netherlands100.00 %0.00 %100.00 %100.00 %Holding company
Suleyado 2003, S.L. UnipersonalSpain0.00 %100.00 %100.00 %100.00 %Securities investment
Summer Empreendimentos Ltda.Brazil0.00 %89.99 %100.00 %-Real estate management
Super Pagamentos e Administração de Meios Eletrônicos S.A.Brazil0.00 %100.00 %100.00 %100.00 %Payment services
Superdigital Argentina S.A.U.Argentina0.00 %100.00 %100.00 %-IT services
Superdigital Colombia S.A.S.Colombia0.00 %99.97 %99.97 %-IT services
Superdigital Holding Company, S.L.Spain0.00 %100.00 %100.00 %100.00 %Holding company
Superdigital Perú S.A.C.Peru0.00 %100.00 %100.00 %-Financial services
Suzuki Servicios Financieros, S.L.Spain0.00 %51.00 %51.00 %51.00 %Intermediation
Svensk Autofinans WH 1 Designated Activity CompanyIreland-(a)--Securitization
Swesant SASwitzerland0.00 %100.00 %100.00 %100.00 %Holding company
SXT Dienstleistungen GmbH & Co. KGGermany0.00 %46.95 %100.00 %-Services
SXT Leasing Verwaltungs GmbHGermany0.00 %46.95 %100.00 %-Portfolio management
Taxagest Sociedade Gestora de Participações Sociais, S.A.Portugal0.00 %99.86 %100.00 %100.00 %Holding company
Teatinos Siglo XXI Inversiones S.A.Chile50.00 %50.00 %100.00 %100.00 %Holding company
The Alliance & Leicester Corporation LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Real estate
The Best Specialty Coffee, S.L. UnipersonalSpain100.00 %0.00 %100.00 %100.00 %Restaurant services
Tikgi Aviation One Designated Activity CompanyIreland-(a)--Renting
Time Retail Finance Limited (b)United Kingdom0.00 %100.00 %100.00 %100.00 %Services
TIMFin S.p.A.Italy0.00 %51.00 %51.00 %-Finance company
Tonopah Solar I, LLCUnited States0.00 %100.00 %100.00 %100.00 %Holding company
TOPSAM, S.A de C.V.Mexico0.00 %100.00 %100.00 %100.00 %Fund management company
Toque Fale Serviços de Telemarketing Ltda.Brazil0.00 %89.99 %100.00 %100.00 %Telemarketing
Tornquist Asesores de Seguros S.A. (b)Argentina0.00 %99.99 %99.99 %99.99 %Advisory services
Totta (Ireland), PLC Ireland0.00 %99.86 %100.00 %100.00 %Finance company

818

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Subsidiaries of Banco Santander, S.A. 1
% of ownership held by Banco Santander% of voting power (c)
Company
Location
DirectIndirectYear 2020Year 2019
Activity
Totta Urbe - Empresa de Administração e Construções, S.A.Portugal0.00 %99.86 %100.00 %100.00 %Real estate
Trabajando.com Mexico, S.A. de C.V. en liquidación (b)Mexico0.00 %100.00 %100.00 %99.87 %Services
Trabajando.com Perú S.A.C.Peru0.00 %100.00 %100.00 %100.00 %Services
Trade Maps 3 Hong Kong LimitedHong Kong-(a)--Securitization
Trade Maps 3 Ireland Limited (b)Ireland-(a)--Securitization
Trans Rotor Limited (b)United Kingdom100.00 %0.00 %100.00 %100.00 %Renting
Transolver Finance EFC, S.A.Spain0.00 %51.00 %51.00 %51.00 %Leasing
Tresmares Growth Fund Santander, SCR, S.A.Spain100.00 %0.00 %100.00 %-Holding company
Tresmares Santander Direct Lending, SICC, S.A.Spain99.60 %0.00 %99.60 %-Fund management
Tuttle and Son LimitedUnited Kingdom0.00 %100.00 %100.00 %100.00 %Payments and collections services
Universia Brasil S.A.Brazil0.00 %100.00 %100.00 %100.00 %Internet
Universia Chile S.A.Chile0.00 %86.84 %86.84 %86.84 %Internet
Universia Colombia S.A.S.Colombia0.00 %100.00 %100.00 %100.00 %Internet
Universia España Red de Universidades, S.A.Spain0.00 %89.45 %89.45 %89.45 %Internet
Universia Holding, S.L.Spain100.00 %0.00 %100.00 %100.00 %Holding company
Universia México, S.A. de C.V.Mexico0.00 %100.00 %100.00 %100.00 %Internet
Universia Perú, S.A.Peru0.00 %100.00 %100.00 %99.73 %Internet
Universia Uruguay, S.A.Uruguay0.00 %100.00 %100.00 %100.00 %Internet
Uro Property Holdings, SOCIMI, S.A.Spain99.99 %0.00 %99.99 %22.77 %Real estate
Wallcesa, S.A.Spain100.00 %0.00 %100.00 %100.00 %Financial services
Wave Holdco, S.L.Spain0.00 %100.00 %100.00 %100.00 %Holding company
Waypoint Insurance Group, Inc.United States0.00 %100.00 %100.00 %100.00 %Holding company
WIM Servicios Corporativos, S.A. de C.V.Mexico0.00 %100.00 %100.00 %100.00 %Advisory
WTW Shipping Designated Activity CompanyIreland100.00 %0.00 %100.00 %100.00 %Leasing
a.Companies over which effective control is exercised.
b.Company in liquidation as at 31 December 2020.
c.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.
d.Company with Tax Residence in Spain.
e.See note 2.b.i.
f.Company with Tax Residence in the United Kingdom.
g.Company recently incorporated to the Group, with no available accounts.
1.The companies issuing preference shares and participating interests are listed in Annex III, together with other relevant information.
819


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Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Appendix II
Societies of which Grupo Santander owns more than 5% (d) , entities associated with Grupo Santander and jointly controlled entities
% of ownership held by Banco Santander% of voting power (c)
CompanyLocationDirectIndirectYear 2020Year 2019ActivityType of company
Abra 1 Limited (f)Caymand Island-(e)--LeasingJoint venture
Achmea Tussenholding, B.V. Netherlands8.89 %0.00 %8.89 %-Holding company—
Administrador Financiero de Transantiago S.A.Chile0.00 %13.42 %20.00 %20.00 %Payment and collection servicesAssociated
Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A.Portugal0.00 %48.95 %49.00 %49.00 %InsuranceJoint venture
Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A.Portugal0.00 %48.95 %49.00 %49.00 %InsuranceJoint venture
Aeroplan - Sociedade Construtora de Aeroportos, Lda. (b)Portugal0.00 %19.97 %20.00 %20.00 %Inactive—
Aguas de Fuensanta, S.A. (f)Spain36.78 %0.00 %36.78 %36.78 %Food—
Alcuter 2, S.L. (f)Spain37.23 %0.00 %37.23 %37.23 %Technical services—
Altamira Asset Management, S.A. Spain0.00 %15.00 %15.00 %15.00 %Real estate—
Apolo Fundo de Investimento em Direitos CreditóriosBrazil0.00 %30.00 %33.33 %33.33 %Investment fundJoint venture
Arena Communications Network, S.L. (consolidado) Spain20.00 %0.00 %20.00 %20.00 %AdvertisingAssociated
Attijariwafa Bank Société Anonyme (consolidado) Morocco0.00 %5.11 %5.11 %5.11 %Banking—
Autopistas del Sol S.A. Argentina0.00 %14.17 %14.17 %14.17 %Motorway concession—
Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A. Poland0.00 %6.74 %10.00 %10.00 %Pension fund management—
Aviva Towarzystwo Ubezpieczeń na Życie S.A. Poland0.00 %6.74 %10.00 %10.00 %Insurance—
Banco RCI Brasil S.A.Brazil0.00 %35.90 %39.89 %39.89 %BankingJoint venture
Banco S3 Caceis México, S.A., Institución de Banca MúltipleMexico0.00 %50.00 %50.00 %50.00 %BankingJoint venture
Bank of Beijing Consumer Finance CompanyChina0.00 %20.00 %20.00 %20.00 %Finance companyAssociated
Bank of Shanghai Co., Ltd. (consolidado) China6.54 %0.00 %6.54 %6.54 %Banking—
CACEIS (consolidado)France0.00 %30.50 %30.50 %30.50 %Custody servicesAssociated
Câmara Interbancária de Pagamentos - CIPBrazil0.00 %15.88 %17.65 %17.61 %Payment and collection services—
Cantabria Capital, SGEIC, S.A.Spain50.00 %0.00 %50.00 %50.00 %Venture capitalAssociated
CCPT - ComprarCasa, Rede Serviços Imobiliários, S.A.Portugal0.00 %49.98 %49.98 %49.98 %Real estate servicesJoint venture
Centro de Compensación Automatizado S.A.Chile0.00 %22.37 %33.33 %33.33 %Payment and collection servicesAssociated

820

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Societies of which Grupo Santander owns more than 5% (d) , entities associated with Grupo Santander and jointly controlled entities
% of ownership held by Banco Santander% of voting power (c)
CompanyLocationDirectIndirectYear 2020Year 2019ActivityType of company
Centro para el Desarrollo, Investigación y Aplicación de Nuevas Tecnologías, S.A. Spain0.00 %49.00 %49.00 %49.00 %TechnologyAssociated
CNP Santander Insurance Europe Designated Activity CompanyIreland49.00 %0.00 %49.00 %49.00 %Insurance brokerageAssociated
CNP Santander Insurance Life Designated Activity CompanyIreland49.00 %0.00 %49.00 %49.00 %Insurance brokerageAssociated
CNP Santander Insurance Services Ireland LimitedIreland49.00 %0.00 %49.00 %49.00 %ServicesAssociated
Comder Contraparte Central S.AChile0.00 %8.37 %12.47 %12.45 %Financial servicesAssociated
Companhia Promotora UCIBrazil0.00 %25.00 %25.00 %25.00 %Financial servicesJoint venture
Compañía Española de Financiación de Desarrollo, Cofides, S.A., SME Spain20.18 %0.00 %20.18 %20.18 %Finance company—
Compañía Española de Seguros de Crédito a la Exportación, S.A., Compañía de Seguros y Reaseguros (consolidado) Spain23.33 %0.55 %23.88 %23.88 %Credit insurance—
Compañía Española de Viviendas en Alquiler, S.A.Spain24.07 %0.00 %24.07 %24.07 %Real estateAssociated
Compañía para los Desarrollos Inmobiliarios de la Ciudad de Hispalis, S.L., en liquidación (b)Spain21.98 %0.00 %21.98 %21.98 %Real estate development—
Condesa Tubos, S.L. Spain32.21 %0.00 %36.21 %36.21 %Services—
Connecting Visions Ecosystems, S.L.Spain19.90 %0.00 %19.90 %-Consulting servicesJoint venture
Corkfoc Cortiças, S.A. Portugal0.00 %27.54 %27.58 %27.58 %Cork industry—
Corridor Texas Holdings LLC (consolidado) United States0.00 %36.30 %36.30 %33.60 %Holding company—
Ebury Partners Limited (consolidado) (a)United Kingdom0.00 %45.45 %45.45 %6.39 %Payment servicesAssociated
Eko Energy Sp. z o.o (b)Poland0.00 %13.13 %22.00 %21.99 %Electricity production—
Euro Automatic Cash Entidad de Pago, S.L.Spain50.00 %0.00 %50.00 %50.00 %Payment servicesAssociated
FAFER- Empreendimentos Urbanísticos e de Construção, S.A. (b)Portugal0.00 %36.57 %36.62 %36.62 %Real estate—
Federal Reserve Bank of Boston United States0.00 %25.73 %25.73 %23.56 %Banking—
Fondo de Titulización de Activos UCI 11Spain-(e)--SecuritizationsJoint venture
Fondo de Titulización de Activos UCI 14Spain-(e)--SecuritizationsJoint venture
Fondo de Titulización de Activos UCI 15Spain-(e)--SecuritizationsJoint venture
Fondo de Titulización de Activos UCI 16Spain-(e)--SecuritizationsJoint venture
Fondo de Titulización de Activos UCI 17Spain-(e)--SecuritizationsJoint venture
Fondo de Titulización Hipotecaria UCI 10Spain-(e)--SecuritizationsJoint venture
Fondo de Titulización Hipotecaria UCI 12Spain-(e)--SecuritizationsJoint venture
Fondo de Titulización, RMBS Prado IISpain-(e)--SecuritizationsJoint venture
821


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Consolidated
annual accounts
 
Notes to the consolidated annual accounts
 
Appendix
 
Societies of which Grupo Santander owns more than 5% (d) , entities associated with Grupo Santander and jointly controlled entities
% of ownership held by Banco Santander% of voting power (c)
CompanyLocationDirectIndirectYear 2020Year 2019ActivityType of company
Fondo de Titulización, RMBS Prado IIISpain-(e)--SecuritizationsJoint venture
Fondo de Titulización, RMBS Prado IVSpain-(e)--SecuritizationsJoint venture
Fondo de Titulización, RMBS Prado VSpain-(e)--SecuritizationsJoint venture
Fondo de Titulización, RMBS Prado VISpain-(e)--SecuritizationsJoint venture
Fondo de Titulización, RMBS Prado VIISpain-(e)--SecuritizationsJoint venture
Fortune Auto Finance Co., LtdChina0.00 %50.00 %50.00 %50.00 %Finance companyJoint venture
Fremman limitedUnited Kingdom33.00 %0.00 %4.99 %-Finance companyAssociated
Gestora de Inteligência de Crédito S.A.Brazil0.00 %18.00 %20.00 %20.00 %Collection servicesJoint venture
Gire S.A.Argentina0.00 %57.93 %58.33 %58.33 %Payment and collection servicesAssociated
HCUK Auto Funding 2017-2 LtdUnited Kingdom-(e)--SecuritizationsJoint venture
Healthy Neighborhoods Equity Fund I LP United States0.00 %22.37 %22.37 %22.37 %Real estate—
Hyundai Capital UK LimitedUnited Kingdom0.00 %50.01 %50.01 %50.01 %Finance companyJoint venture
Hyundai Corretora de Seguros Ltda.Brazil0.00 %44.99 %50.00 %50.00 %Insurance brokerageJoint venture
Imperial Holding S.C.A. (b) Luxemborg0.00 %36.36 %36.36 %36.36 %Securities investment—
Imperial Management S.à r.l. (b)Luxemborg0.00 %40.20 %40.20 %40.20 %Holding company—
Índice Iberoamericano de Investigación y Conocimiento, A.I.E.Spain0.00 %51.00 %51.00 %51.00 %Information systemJoint venture
Inmoalemania Gestión de Activos Inmobiliarios, S.A.Spain0.00 %20.00 %20.00 %20.00 %Holding company—
Innohub S.A.P.I. de C.V.Mexico0.00 %20.00 %20.00 %20.00 %IT servicesAssociated
Inverlur Aguilas I, S.L.Spain0.00 %50.00 %50.00 %50.00 %Real estateJoint venture
Inverlur Aguilas II, S.L.Spain0.00 %50.00 %50.00 %50.00 %Real estateJoint venture
Inversiones en Resorts Mediterraneos, S.L., en liquidación (b)Spain0.00 %43.28 %43.28 %43.28 %Real estateAssociated
Inversiones Ibersuizas, S.A. Spain25.42 %0.00 %25.42 %25.42 %Venture capital—
Inversiones ZS América Dos LtdaChile0.00 %49.00 %49.00 %49.00 %Real estate and securities investmentAssociated
Inversiones ZS América SpAChile0.00 %49.00 %49.00 %49.00 %Real estate and securities investmentAssociated
J.C. Flowers I L.P. United States0.00 %10.60 %0.00 %0.00 %Holding company—
JCF AIV P L.P. Canada0.00 %7.67 %4.99 %4.99 %Holding company—
LB Oprent, S.A.Spain38.33 %0.00 %38.33 %-Industrial machinery rentAssociated
Loop Gestão de Pátios S.A.Brazil0.00 %32.12 %35.70 %35.70 %Business servicesJoint venture
Lusimovest Fundo de Investimento ImobiliárioPortugal0.00 %25.73 %25.77 %25.77 %Investment fundAssociated

822

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Societies of which Grupo Santander owns more than 5% (d) , entities associated with Grupo Santander and jointly controlled entities
% of ownership held by Banco Santander% of voting power (c)
CompanyLocationDirectIndirectYear 2020Year 2019ActivityType of company
Mapfre Santander Portugal - Companhia de Seguros, S.A.Portugal0.00 %49.94 %49.99 %100.00 %InsuranceAssociated
Massachusetts Business Development Corp. (consolidado) United States0.00 %21.61 %21.61 %21.60 %Finance company—
MB Capital Fund IV, LLC United States0.00 %21.51 %21.51 %21.51 %Finance company—
Merlin Properties, SOCIMI, S.A. (consolidado) Spain19.00 %5.81 %24.81 %22.78 %Real estate investmentAssociated
Metrovacesa, S.A. (consolidado) Spain31.94 %17.52 %49.45 %49.46 %Real estate developmentAssociated
New PEL S.à r.l. (b)Luxemborg0.00 %7.67 %0.00 %0.00 %Holding company—
NIB Special Investors IV-A LP Canada0.00 %99.49 %4.99 %4.99 %Holding company—
NIB Special Investors IV-B LP Canada0.00 %91.89 %4.99 %4.99 %Holding company—
Niuco 15, S.L. (f)Spain37.23 %0.00 %37.23 %37.23 %Technical services—
Nowotna Farma Wiatrowa Sp. z o.o Poland0.00 %12.97 %21.73 %21.73 %Electricity production—
Odc Ambievo Tecnologia e Inovacao Ambiental, Industria e Comercio de Insumos Naturais S.A.Brazil0.00 %18.17 %20.19 %20.19 %Technology—
Operadora de Activos Beta, S.A. de C.V.Mexico0.00 %49.99 %49.99 %49.99 %Finance companyAssociated
Parque Solar Páramo, S.L.Spain92.00 %0.00 %25.00 %25.00 %Electricity productionJoint venture
Payever GmbHGermany0.00 %10.00 %10.00 %10.00 %SoftwareAssociated
POLFUND - Fundusz Poręczeń Kredytowych S.A.Poland0.00 %33.70 %50.00 %50.00 %ManagementAssociated
Popular Vida 2020, Compañía de Seguros y Reaseguros, S.A.U.Spain0.00 %49.00 %49.00 %-InsuranceJoint venture
Procapital - Investimentos Imobiliários, S.A. (b)Portugal0.00 %39.96 %40.00 %40.00 %Real estate—
Project Quasar Investments 2017, S.L. (consolidado) Spain49.00 %0.00 %49.00 %49.00 %Holding company—
Promontoria Manzana, S.A. (consolidado) Spain20.00 %0.00 %20.00 %20.00 %Holding companyAssociated
PSA Corretora de Seguros e Serviços Ltda.Brazil0.00 %44.99 %50.00 %50.00 %InsuranceJoint venture
PSA Insurance Europe LimitedMalta0.00 %50.00 %50.00 %50.00 %InsuranceJoint venture
PSA Life Insurance Europe LimitedMalta0.00 %50.00 %50.00 %50.00 %InsuranceJoint venture
PSA UK Number 1 plc (b)United Kingdom0.00 %50.00 %50.00 %50.00 %LeasingAssociated
Redbanc S.A.Chile0.00 %22.44 %33.43 %33.43 %ServicesAssociated
Redsys Servicios de Procesamiento, S.L. (consolidado)Spain20.00 %0.06 %20.06 %20.08 %CardsAssociated
Retama Real Estate, S.A.Spain0.00 %50.00 %50.00 %50.00 %ServicesJoint venture
Rías Redbanc S.A.Uruguay0.00 %25.00 %25.00 %25.00 %Services—
RMBS Green Belem IPortugal-(e)--SecuritizationsJoint venture
Santander Assurance Solutions, S.A.Spain0.00 %73.99 %73.99 %-Insurance intermediaryJoint venture
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Societies of which Grupo Santander owns more than 5% (d) , entities associated with Grupo Santander and jointly controlled entities
% of ownership held by Banco Santander% of voting power (c)
CompanyLocationDirectIndirectYear 2020Year 2019ActivityType of company
Santander Auto S.A.Brazil0.00 %44.99 %50.00 %50.00 %InsuranceAssociated
Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A.Poland0.00 %33.03 %49.00 %49.00 %InsuranceAssociated
Santander Aviva Towarzystwo Ubezpieczeń S.A.Poland0.00 %33.03 %49.00 %49.00 %InsuranceAssociated
Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A.Brazil0.00 %50.00 %50.00 %50.00 %Securities investmentJoint venture
Santander Caceis Brasil Participações S.A.Brazil0.00 %50.00 %50.00 %50.00 %Holding companyJoint venture
Santander Caceis Colombia S.A. Sociedad FiduciariaColombia0.00 %50.00 %50.00 %50.00 %Finance companyJoint venture
Santander Caceis Latam Holding 1, S.L.Spain0.00 %50.00 %50.00 %50.00 %Holding companyJoint venture
Santander Caceis Latam Holding 2, S.L.Spain0.00 %50.00 %50.00 %50.00 %Holding companyJoint venture
Santander Generales Seguros y Reaseguros, S.A.Spain0.00 %49.00 %49.00 %49.00 %InsuranceJoint venture
Santander Mapfre Seguros y Reaseguros, S.A.Spain0.00 %49.99 %49.99 %49.99 %InsuranceAssociated
Santander Vida Seguros y Reaseguros, S.A.Spain0.00 %49.00 %49.00 %49.00 %InsuranceJoint venture
Sepacon 31, S.L. (f)Spain37.23 %0.00 %37.23 %37.23 %Technical services—
Servicios de Infraestructura de Mercado OTC S.AChile0.00 %8.37 %12.48 %12.48 %ServicesAssociated
SIBS-SGPS, S.A. Portugal0.00 %16.52 %16.55 %16.56 %Portfolio management—
Siguler Guff SBIC Fund LP United States0.00 %20.00 %20.00 %20.00 %Investment fund—
Sistema de Tarjetas y Medios de Pago, S.A.Spain18.11 %0.00 %18.11 %18.11 %Payment methodsAssociated
Sistemas Técnicos de Encofrados, S.A. (consolidado) Spain27.15 %0.00 %27.15 %27.15 %Building materials—
Sociedad Conjunta para la Emisión y Gestión de Medios de Pago, E.F.C., S.A. Spain45.70 %0.00 %45.70 %42.50 %Payment servicesJoint venture
Sociedad de Garantía Recíproca de Santander, S.G.R. Spain25.50 %0.23 %25.73 %25.73 %Financial services—
Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, S.A. Spain22.21 %0.00 %22.21 %22.21 %Financial services—
Sociedad Española de Sistemas de Pago, S.A. Spain21.32 %0.00 %21.32 %21.32 %Payment services—
Sociedad Interbancaria de Depósitos de Valores S.A. Chile0.00 %19.66 %29.29 %29.29 %Securities depositAssociated
Solar Maritime Designated Activity Company Ireland-(e)--LeasingJoint venture
Stephens Ranch Wind Energy Holdco LLC (consolidado) United States0.00 %19.20 %19.20 %21.30 %Electricity production—
Syntheo Limited (b)United Kingdom0.00 %50.00 %50.00 %50.00 %Payment services—

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Societies of which Grupo Santander owns more than 5% (d) , entities associated with Grupo Santander and jointly controlled entities
% of ownership held by Banco Santander% of voting power (c)
CompanyLocationDirectIndirectYear 2020Year 2019ActivityType of company
Tbforte Segurança e Transporte de Valores Ltda. Brazil0.00 %17.83 %19.81 %19.81 %SecurityAssociated
Tbnet Comércio, Locação e Administração Ltda.Brazil0.00 %17.83 %19.81 %19.81 %TelecommunicationsAssociated
Tecnologia Bancária S.A.Brazil0.00 %17.83 %19.81 %19.81 %ATMAssociated
Teka Industrial, S.A. (consolidado) Spain0.00 %9.42 %9.42 %9.42 %Household appliances—
Tonopah Solar Energy Holdings I, LLC (consolidado) United States0.00 %26.80 %26.80 %26.80 %Holding companyJoint venture
Trabajando.com Chile S.A.Chile0.00 %33.33 %33.33 %33.33 %ServicesAssociated
Transbank S.A.Chile0.00 %16.78 %25.00 %25.00 %CardsAssociated
Tresmares Growth Fund II, SCR, S.A.Spain40.00 %0.00 %40.00 %-Holding company—
Tresmares Growth Fund III, SCR, S.A.Spain40.00 %0.00 %40.00 %-Holding company—
U.C.I., S.A.Spain50.00 %0.00 %50.00 %50.00 %Holding companyJoint venture
UCI Hellas Credit and Loan Receivables Servicing Company S.A.Greece0.00 %50.00 %50.00 %50.00 %Financial servicesJoint venture
UCI Holding Brasil LtdaBrazil0.00 %50.00 %50.00 %50.00 %Holding companyJoint venture
UCI Mediação de Seguros Unipessoal, Lda.Portugal0.00 %50.00 %50.00 %50.00 %Insurance brokerageJoint venture
UCI Servicios para Profesionales Inmobiliarios, S.A.Spain0.00 %50.00 %50.00 %50.00 %Real estate servicesJoint venture
Unicre-Instituição Financeira de Crédito, S.A.Portugal0.00 %21.83 %21.86 %21.86 %Finance companyAssociated
Unión de Créditos Inmobiliarios, S.A., EFCSpain0.00 %50.00 %50.00 %50.00 %Mortgage credit companyJoint venture
VCFS Germany GmbHGermany0.00 %50.00 %50.00 %50.00 %MarketingJoint venture
Venda de Veículos Fundo de Investimento em Direitos CreditóriosBrazil-(e)--SecuritizationsJoint venture
Volvo Car Financial Services UK LimitedUnited Kingdom0.00 %50.00 %50.00 %-LeasingJoint venture
Webmotors S.A.Brazil0.00 %62.99 %70.00 %70.00 %ServicesJoint venture
Zurich Santander Brasil Seguros e Previdência S.A.Brazil0.00 %48.79 %48.79 %48.79 %InsuranceAssociated
Zurich Santander Brasil Seguros S.A.Brazil0.00 %48.79 %48.79 %48.79 %InsuranceAssociated
Zurich Santander Holding (Spain), S.L.Spain0.00 %49.00 %49.00 %49.00 %Holding companyAssociated
Zurich Santander Holding Dos (Spain), S.L.Spain0.00 %49.00 %49.00 %49.00 %Holding companyAssociated
Zurich Santander Insurance América, S.L.Spain49.00 %0.00 %49.00 %49.00 %Holding companyAssociated
Zurich Santander Seguros Argentina S.A. Argentina0.00 %49.00 %49.00 %49.00 %InsuranceAssociated
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Societies of which Grupo Santander owns more than 5% (d) , entities associated with Grupo Santander and jointly controlled entities
% of ownership held by Banco Santander% of voting power (c)
CompanyLocationDirectIndirectYear 2020Year 2019ActivityType of company
Zurich Santander Seguros de Vida Chile S.A.Chile0.00 %49.00 %49.00 %49.00 %InsuranceAssociated
Zurich Santander Seguros Generales Chile S.A.Chile0.00 %49.00 %49.00 %49.00 %InsuranceAssociated
Zurich Santander Seguros México, S.A.Mexico0.00 %49.00 %49.00 %49.00 %InsuranceAssociated
Zurich Santander Seguros Uruguay S.A.Uruguay0.00 %49.00 %49.00 %49.00 %InsuranceAssociated
a.Grupo Santander has the right to receive 50.38% of the dividends distributed by the company.
b.Company in liquidation as at 31 December 2020.
c.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.
d.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).
e.Companies over which joint control is maintained.
f.Company with no financial information available.


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Appendix III
Issuing subsidiaries of shares and preference shares
% of ownership held by Banco Santander
CompanyLocationDirectIndirectActivity
Emisora Santander España, S.A. UnipersonalSpain100.00 %0.00 %Finance company
Santander UK (Structured Solutions) LimitedUnited Kingdom0.00 %100.00 %Finance company
Sovereign Real Estate Investment TrustUnited States0.00 %100.00 %Finance company

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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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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
(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
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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)In the event of transformation, merger, consolidation or spin-off of the company.
b)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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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.
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
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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.
The approved debt issuance of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México is currently composed as follows:
InstrumentTypeTermAmountAvailable
Issuance Program of unsecured bonds and unsecured certificates of depositRevolving19-Feb-2155,000 million Mexican pesos, or its equivalent in UDIs, dollars or any other foreign currency$25,621 million Mexican pesos
Con t.c. fix according to Banxico 31/Dec/ 2019
Private banking structured bonds ActNot Revolving*16-Ago-3420,000 million Mexican pesos$4,379 million Mexican pesos
Structured bonds without public offering16-Feb-3210,000 million Mexican pesos$10,000 million Mexican pesos
Senior BondsNot Revolving09-Nov-221,000 million American dollarsN/A
Capital Notes AT1Not Revolvingperpetual500 million American dollarsN/A
Capital NotesNot Revolving1-Oct-20281,300 millon American dollarsN/A
Notas Senior 144.ª/RegSNot Revolving17-Apr-20251,750 millon American dollarsN/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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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
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.
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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

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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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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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The breakdown of information is as follows :
2020
Jurisdiction
Turnover (million of euros)Employees
Gross profit or loss before tax (EUR million)1
Tax on profit or loss (EUR million)
Germany1,522 4,519 520 161 
Argentina 1,095 8,938 176 104 
Austria173 344 71 16 
Bahamas7 32 — 2 
Belgium88 177 40 6 
Brazil2
10,519 42,947 3,842 764 
Canada53 189 12 1 
Chile 2,226 11,105 815 365 
China21 66 3 — 
Colombia41 240 5 4 
Spain3
6,675 35,109 (10,158)342 
United States7,321 15,657 (1,068)(14)
Denmark189 238 50 11 
Finland114 172 37 6 
France697 952 355 40 
Hong Kong70 158 2 3 
Ireland(10)3 (25)1 
Isle of Man13 58 8 1 
Italy459 872 207 91 
Jersey26 70 10 1 
Luxembourg188 16 181 30 
Mexico3,700 21,177 1,052 189 
Norway258 528 115 49 
Netherlands86 280 32 53 
Peru103 212 51 16 
Poland1,859 13,632 446 267 
Portugal 1,342 6,769 412 175 
Puerto Rico8 610 (28)— 
United Kingdom4,750 22,987 496 204 
Singapore7 13 2 — 
Sweden165 277 53 21 
Switzerland137 251 50 7 
Uruguay377 1,532 160 30 
Consolidated Group Total44,279 190,130 (2,076)2,946 
1.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).
2.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.
3.Includes the Corporate Centre.

At 31 December 2020, the group’s return on assets (ROA) was 0.50%.


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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.

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Shareholder and investor relations
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
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


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Part 3.
Supplemental information


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Table of contents:
1.    Presentation of financial and other information
2.    Cautionary statement regarding forward-looking statements
3.    Selected financial data
4.    Risk factors
5.    Information on the company
Average balance sheets and interest rates
Other industry Guide 3 disclosures
6.    Supplement to the operating and financial review disclosure in the directors’ report
7.    Tabular disclosure of contractual obligations
8.    Employees
9.    Competition
10.    Supervision and regulation
11.    Shareholders remuneration
12.    The offer and listing
13.    Additional information
Memorandum and articles of association
Material contracts
Exchange controls
Taxation
Documents on display and other
14.    Controls and procedures
15.    Corporate governance
16.    Exhibits
17.    Signature


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1. Presentation of financial and other information
Accounting principles
Under Regulation (EC) No. 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 (a “Member State”) and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements in conformity with the International Financial Reporting Standards as previously adopted by the European Union (“EU-IFRS”). The Bank of Spain Circular 4/2004 of 22 December 2004 on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) requires Spanish credit institutions to adapt their accounting systems to the principles derived from the adoption by the European Union of International Financial Reporting Standards. This Circular was repealed on 1 January 2018 by Bank of Spain Circular 4/2017, of 27 November 2017 on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2017”). Therefore, Grupo Santander (the “Group” or “Santander”) is required to prepare its consolidated financial statements for the years ended 31 December 2020 and 31 December 2019 in conformity with EU-IFRS and Bank of Spain’s Circular 4/2017, while previous periods had to be prepared under EU-IFRS and Bank of Spain’s Circular 4/2004. Differences between EU-IFRS, Bank of Spain’s Circulars and International Financial Reporting Standards as issued by the International Accounting Standard Board (“IFRS-IASB”) are not material. Therefore, we assert that the financial information contained in this annual report on Form 20-F complies with IFRS-IASB.
In July 2014, the IASB published IFRS9 Financial Instruments - Classification and measurement, hedging and impairment that we adopted with the subsequent amendments on 1 January 2018. As permitted by the regulation, we chose not to re-classify the comparative financial statements. Therefore, periods previous to 1 January 2018 are not comparable. The adoption of Bank of Spain’s Circular 4/2017 modified the breakdown and presentation of certain headings in the 31 December 2018 financial statements, to adapt them to the aforementioned IFRS9. Previous periods have not been restated under this Circular.
Our auditors, PricewaterhouseCoopers Auditores, S.L., an independent registered public accounting firm, have audited our consolidated financial statements in respect of the years ended 31 December 2020, 2019 and 2018 in accordance with IFRS-IASB. See pages 476, 477 and 478 in Part 2 of this annual report on Form 20-F for the audit report issued by PricewaterhouseCoopers Auditores, S.L.
We have presented our financial information according to the classification format for banks used in Spain. We have not reclassified the line items to comply with Article 9 of Regulation S-X. Article 9 is a regulation of the U.S. Securities and Exchange Commission that contains presentation requirements for bank holding company financial statements.
General information
Our consolidated financial statements included in Part 2 of this annual report on Form 20-F are in Euros, which are denoted “euro”, “euros”, “EUR” or “€” throughout this annual report. Also, throughout this annual report, when we refer to:
•“we”, “us”, “our”, the “Group”, “Grupo Santander” or “Santander”, we mean Banco Santander, S.A. and its subsidiaries, unless the context otherwise requires;
•“dollars”, “USD”, “US$” or “$”, we mean United States dollars; and
•“pounds”, “GBP” or “£”, we mean United Kingdom pounds.
When we refer to “net interest income” we mean “interest income/(charges)”.
When we refer to “staff costs” we mean “personnel expenses”.
When we refer to “profit before tax” we mean “operating profit/(loss) before tax”.
When we refer to “average balances” for a particular period, we mean the average of the month-end balances for that period, unless otherwise noted. We do not believe that monthly averages present trends that are materially different from trends that daily averages would show. In calculating our interest income, we include any interest payments we received on non-accruing loans if they were received in the period when due.
When we refer to “loans”, we mean loans, leases, discounted bills and accounts receivable, unless otherwise noted. The loan to value “LTV” ratios disclosed in this report refer to LTV ratios calculated as the ratio of the outstanding amount of the loan to the most recent available appraisal value of the mortgaged asset. Additionally, if a loan is approaching a doubtful status, we update the appraisals which are then used to estimate allowances for loan losses.
When we refer to “non-performing balances”, we mean non-performing loans and contingent liabilities (“NPL”), securities and other assets to collect.
When we refer to “allowances for credit losses” or “allowances for non-performing balances”, we mean the allowances for impaired assets, and unless otherwise noted, the allowance for inherent losses and any allowances for country-risk. From 1 January 2018, after the adoption of IFRS9, the allowances reflect expected credit losses whereas the previous model (IAS 39) was based on incurred losses.
When we refer to “perimeter effect”, we mean growth or reduction derived from changes in the companies that we consolidate resulting from acquisitions, dispositions or other reasons.
Where a translation of foreign exchange is given for any financial data, we use the exchange rates of the relevant period (as of the end of such period for balance sheet data and the average exchange rate of such period for income

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statement data) as published by the European Central Bank (ECB), unless otherwise noted.
Management makes use of certain financial measures in local currency to help in the assessment of ongoing operating performance. These non-GAAP financial measures include the results of operations of our subsidiary banks located outside the eurozone, excluding the impact of foreign exchange. We analyse these banks’ performance on a local currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on the results of operations, we believe that evaluating their performance on a local currency basis provides an additional and meaningful assessment of performance to both management and the company’s
investors. Variances in financial metrics, excluding the exchange rate impact, are calculated by translating the components of the financial metrics to our euro presentation currency using the same foreign currency exchange rate for both periods presented. 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 included in Part 2 of this annual report on Form 20-F. See more information on alternative performance measures in Section 8. Alternative Performance Measures (APMs)”, “Consolidated Directors’ Report -Economic and Financial Review” in Part 1 of this annual report on Form 20-F.

2. Cautionary statement regarding forward-looking statements
This annual report contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, information regarding:
•exposure to various types of market risks;
•management strategy;
•capital expenditures;
•earnings and other targets; and
•asset portfolios.
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. We include forward-looking statements in the “Operating and Financial Review and Prospects,” “Information on the Company,” and “Quantitative and Qualitative Disclosures About Risks” sections. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements.
You should understand that the following important factors, in addition to those discussed in “Section 4. Risk Factors”, “Section 5. Information on the Company”, “Consolidated Directors’ Report -Economic and Financial Review” in Part 1 of this annual report on Form 20-F, “Section 6. Supplement to the Operating and Financial Review Disclosure in the Directors’ Report-Consolidated Income Statement” and elsewhere in this annual report, could affect our future results and could cause those results or other outcomes to differ materially from those anticipated in any forward-looking statement:

Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Economic and Industry Conditions
•general economic or industry conditions in Spain, the UK, the U.S., other European countries, Brazil, other Latin American countries and the other areas where we have significant operations or investments;
•effects of the covid-19 pandemic in the global economy;
•exposure to various market risks, principally including interest rate risk, foreign exchange rate risk, equity price risk and risks associated with the replacement of benchmark indices;
•a worsening of the economic environment in Spain, the UK, the U.S., other European countries, Brazil, other Latin American countries and the other areas where we have significant operations or investments, and increase of the volatility in the capital markets;
•the effects of a decline in real estate prices, particularly in Spain and the UK;
•the effects of results of UK political developments, including the UK’s exit from the European Union;
•monetary and interest rate policies of the ECB and various central banks;
•inflation or deflation;
•the effects of non-linear market behaviour that cannot be captured by linear statistical models, such as the VaR model we use;
•changes in competition and pricing environments;
•the inability to hedge some risks economically;
•changes in demographics, consumer spending, investment or saving habits;
•potential losses from early repayments on our loan and investment portfolio, declines in value of collateral securing our loan portfolio, and counterparty risk; and
•changes in competition and pricing environments as a result of the progressive adoption of the internet for conducting financial services and/or other factors.

Political and Governmental Factors
•political stability in Spain, the UK, the U.S., other European countries, Brazil, other Latin American countries and the other areas where we have significant operations or investments;
•changes in Spanish, UK, EU, U.S., Latin American, or other jurisdictions’ legislation, regulations or taxes, including changes in regulatory capital and liquidity requirements, especially in view of the UK exit of the EU; and
•increased regulation in response to financial crises.
Transaction and Commercial Factors
•damage to our reputation;
•acquisitions or restructurings of businesses that may not perform in accordance with our expectations and 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
•the outcome of our negotiations with business partners and governments.
Operating Factors
•the adequacy of loss reserves;
•potential losses associated with an increase in the level of non‑performance by counterparties to other types of financial instruments;
•technical difficulties and/or failure to improve or upgrade our information technology;
•changes in our access to liquidity and funding on acceptable terms, including as a result of credit spread shifts or downgrades in our credit ratings or those of our more significant subsidiaries;
•our exposure to operational losses (e.g., failed internal or external processes, people and systems);
•changes in our ability to recruit, retain and develop appropriate senior management and skilled personnel;
•the occurrence of force majeure, such as natural disasters, epidemics and pandemics, including the covid-19 pandemic, that impact our operations or impair the asset quality of our loan portfolio;
•the impact of changes in the composition of our balance sheet on future interest income / (charges); and
•potential losses associated with cyber-attacks.


The forward-looking statements contained in this report speak only as of the date of this report. We do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

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Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

3. Selected financial data
Selected consolidated financial information
We have selected the following financial information from our consolidated financial statements. You should read this information in connection with, and it is qualified in its entirety by reference to, our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
In July 2014, the IASB published IFRS9 which covers classification and measurement, hedging and impairment. We adopted IFRS 9, along with the subsequent amendments on 1 January 2018. As permitted by the regulation, we chose not to reclassify the comparative financial statements. Therefore, periods previous to 1 January 2018 are not comparable.
Similarly, to adapt the accounting system of Spanish credit institutions to the changes related to IFRS15 and IFRS9, on 6 December 2017, the Bank of Spain published Circular 4/2017 which repeals Circular 4/2004 for the years beginning on 1 January 2018. The adoption of this Circular
modified the breakdown and presentation of certain headings from the 31 December 2018 financial statements, to adapt them to the aforementioned IFRS9. Previous periods have not been restated under this Circular.
During 2020 the Group changed its accounting policy in relation to the presentation of exchange differences and the effects of hyperinflation of operations generated in Argentina. The Argentine economy was considered hyperinflationary in 2019 and 2018. The reclassification to adjust those years affected “Other reserves” and “Other comprehensive income” but had no impact on the Group's total equity. See note 2.a.iv to the consolidated financial statements included in Part 2 of this annual report on Form 20-F.
In the consolidated financial statements included in Part 2 of this annual report on Form 20-F we present our audited financial statements for the years 2020, 2019 and 2018. The consolidated financial statements for 2017 and 2016 are not included in this document, but they can be found in our previous annual reports on Form 20-F.
Year ended 31 December,
BALANCE SHEET (EUR million)20202019201820172016
Total assets1,508,250 1,522,695 1,459,271 1,444,305 1,339,125 
Loans and advances to customers916,199 942,218 882,921 848,915 790,470 
Customer deposits849,310 824,365 780,496 777,730 691,111 
Total customer funds (A)1,056,127 1,050,765 980,562 985,703 873,618 
Total equity91,322 110,659 107,361 106,832 102,699 
CAPITALIZATION (EUR million)
Shareholders' equity114,620 124,239 120,597 116,265 105,977 
Other comprehensive income(33,144)(24,168)(24,124)(21,776)(15,039)
Stockholders' equity (B)81,476 100,071 96,472 94,489 90,938 
Non-controlling interest (including net income of the period)9,846 10,588 10,889 12,344 11,761 
Total equity91,322 110,659 107,361 106,832 102,699 
Subordinated debt issued by Banco Santander, S.A. or issued by subsidiaries and guaranteed by Banco Santander, S.A., excluding preferred securities and preferred shares (C)9,722 7,663 8,368 7,116 6,448 
Other Subordinated debt (D)4,537 5,369 5,390 5,621 6,124 
Preferred securities (E)7,425 7,709 9,717 8,369 6,916 
Preferred shares (E)196 321 345 404 413 
Total subordinated debt21,880 21,062 23,820 21,510 19,902 
Total capitalization and Indebtedness113,202 131,721 131,181 128,343 122,602 
Stockholders’ Equity per average share (B) (M)4.71 5.87 5.72 5.88 5.95 
Stockholders’ Equity per share at period end (B) (M)4.71 5.77 5.70 5.61 5.88 
INCOME STATEMENT (EUR million)
Interest income / (charges)31,994 35,283 34,341 34,296 31,089 
Total income44,279 49,229 48,424 48,355 44,232 
Net operating income (F)23,149 25,949 25,646 25,362 23,131 
Operating profit/(loss) before tax(2,076)12,543 14,201 12,091 10,768 
Profit from continuing operations(7,708)8,116 9,315 8,207 7,486 
Profit attributable to the Parent(8,771)6,515 7,810 6,619 6,204 
PERFORMANCE
ROE (G)(9.80)%6.62 %8.21 %7.14 %6.99 %
san-20201231_g437.jpg
849
RoTE (H)1.95 %11.44 %11.63 %11.82 %10.43 %
ROA(0.50)%0.54 %0.64 %0.58 %0.56 %
SOLVENCY RATIOS
Fully loaded CET1 (I)12.34 %11.65 %11.30 %10.84 %10.55 %
Phased-in CET1 (I)12.34 %11.65 %11.47 %12.26 %12.53 %
CREDIT QUALITY DATA
Loans and advances to customers
Allowances for total balances including country risk and excluding contingent liabilities as a percentage of total gross loans2.51 %2.31 %2.57 %2.74 %2.99 %
Non-performing balances as a percentage of total gross loans (J)3.28 %3.38 %3.78 %4.16 %4.00 %
Allowances for total balances as a percentage of non-performing balances (J)77 %68 %68 %66 %75 %
Net loan charge-offs as a percentage of total gross loans0.82 %1.14 %1.23 %1.36 %1.37 %
Ratios adding contingent liabilities to loans and advances to customers and excluding country risk (K)
Allowances for total balances as a percentage of total loans and contingent liabilities2.45 %2.26 %2.51 %2.66 %2.90 %
Non-performing balances as a percentage of total loans and contingent liabilities (L) (J)3.21 %3.32 %3.73 %4.08 %3.93 %
Allowances for total balances as a percentage of non-performing balances (L) (J)76 %68 %67 %65 %74 %
Net loan and contingent liabilities charge-offs as a percentage of total loans and contingent liabilities0.78 %1.08 %1.16 %1.29 %1.31 %
MARKET CAPITALIZATION AND SHARES
Number of shareholders4,018,817 3,986,093 4,131,489 4,029,630 3,928,950 
Shares (millions)17,341 16,618 16,237 16,136 14,582 
Share price (euros) (M)2.538 3.575 3.807 5.251 4.674 
Market capitalization (EUR million)44,011 61,986 64,508 88,410 72,314 
Payout ratio (N)— %25.51 %42.15 %45.29 %39.79 %
PER SHARE INFORMATION
Average number of shares (EUR thousands) (M) (O)17,316,289 17,059,217 16,852,269 16,063,783 15,294,405 
Basic earnings per share (euros) (M)(0.538)0.347 0.430 0.387 0.384 
Basic earnings per share continuing operation (euros) (M)(0.538)0.347 0.430 0.387 0.384 
Diluted earnings per share (euros) (M)(0.538)0.346 0.429 0.386 0.382 
Diluted earnings per share continuing operation (euros) (M)(0.538)0.346 0.429 0.386 0.382 
Remuneration (euros) (P) (M)0.0275 0.19 0.22 0.21 0.20 
Remuneration (US$) (P) (M)0.0337 0.22 0.25 0.25 0.21 
OPERATING DATA
Number of employees191,189 196,419 202,713 202,251 188,492 
Number of branches11,236 11,952 13,217 13,697 12,235 
(A) Total customer funds includes customer deposits, mutual funds, pension funds and managed portfolios. See notes 21 and 35 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
(B) Equals the sum of the amounts included at the end of each year as “Shareholders’ Equity” and “Other comprehensive income” as stated in our consolidated financial statements included in Part 2 of this annual report on Form 20-F. We have deducted the book value of treasury stock from stockholders’ equity.
(C) In December 2017 the subordinated debt issuer entities merged with Banco Santander, S.A.
(D) Other Subordinated debt amounts are at the subsidiary level.
(E) In our consolidated financial statements included in Part 2 of this annual report on Form 20-F, preferred securities and preferred shares are included under “Subordinated liabilities”.
(F) 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 operating income equals the sum of "Total income", "Administrative expenses" and "Depreciation and amortization" as stated in our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
(G) The Return on average stockholders’ equity ratio is calculated as profit attributable to the Parent divided by average stockholders’ equity.
(H) The Return on average tangible equity ratio (ROTE) is calculated as profit attributable to the Parent excluding goodwill impairment divided by the monthly average of: capital + reserves + retained earnings + other comprehensive income (excluding non-controlling interests) - goodwill - other intangible assets. We provide this non-GAAP financial measure as an additional measure to return on equity to provide a way to look at our performance which is closely aligned to our capital position.
850
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

(million euros, except percentages)
20202019201820172016
Profit attributable to the parent(8,771)6,515 7,810 6,619 6,204 
Profit attributable to the parent excluding goodwill impairment1,329 8,006 7,765 7,518 6,232 
Average equity89,459 98,457 95,071 92,637 88,741 
Effect of goodwill and other intangible assets(21,153)(28,484)(28,331)(29,043)(28,972)
Average tangible equity68,306 69,973 66,740 63,594 59,769 
Return on equity (ROE)(9.80)%6.62 %8.21 %7.14 %6.99 %
Return on tangible equity (ROTE)1.95 %11.44 %11.63 %11.82 %10.43 %
(I) 2020, 2019 and 2018 data applying 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.
(J) Reflect Bank of Spain classifications. These classifications differ from the classifications applied by U.S. banks in reporting loans as non-accrual, past due, restructured and potential problem loans. See note 2 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F
(K) We disclose these ratios because our credit risk exposure comprises loans and advances to customers as well as contingent liabilities, all of which are subject to impairment and, therefore, allowances are taken in respect thereof.
(L) Includes non-performing loans and contingent liabilities, securities and other assets to collect.
(M) 2016 data adjusted to the capital increase of July 2017. 2019, 2018, 2017 and 2016 data adjusted to reflect the capital increase of December 2020.
(N) The pay-out ratio is calculated as cash dividends paid on account of the net attributable income of the period divided by profit attributable to the Parent. Therefore it does not include in the numerator the amounts paid as scrip dividends. Such amounts equivalent to dividends are EUR 0 million, EUR 1,700 million, EUR 432 million and EUR 543 million, for 2020, 2019, 2018 and 2017, respectively . See note 4 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F. The 40%-50% underlying pay-out mid-term goal indicated by the Group is calculated as total dividends charged to the net attributable income of the period divided by underlying attributable profit.
(O) Average number of shares is calculated on a monthly basis as the weighted average number of shares outstanding in the relevant year, net of treasury stock.
(P) On 8 January 2015, an extraordinary meeting of the board of directors took place to reformulate the dividend policy of the Bank to take effect with the first dividend to be paid with respect to our 2015 results, in order to distribute three cash dividends and a scrip dividend relating to such 2015 results. Each of these dividends amounted EUR 0.05 per share. The Bank paid the dividends on account of the earnings for the 2015 financial year in August 2015, November 2015, February 2016 and May 2016 for a gross amount per share of EUR 0.05.
The Bank paid the four dividends on account of the earnings for the 2016 financial year in August 2016 (cash dividend of EUR 0.055 per share), November 2016 (scrip dividend of EUR 0.045 per share), February 2017 (cash dividend of 0.055 per share) and May 2017 (cash dividend of 0.055 per share).
The Bank paid the four dividends on account of the earnings for the 2017 financial year in August 2017 (cash dividend of EUR 0.06 per share), November 2017 (scrip dividend of EUR 0.04 per share), February 2018 (cash dividend of 0.06 per share) and May 2018 (cash dividend EUR 0.06 per share).
The Bank paid the four dividends on account of the earnings for the 2018 financial year in August 2018 (cash dividend of EUR 0.065 per share), November 2018 (scrip dividend of EUR 0.035 per share), February 2019 (cash dividend of 0.065 per share) and May 2019 (cash dividend EUR 0.065 per share).
In September 2019 the board of directors of the Bank approved its first dividend against 2019 earnings of EUR 0.10 per share, which was entirely paid in cash on 1 November 2019. Banco Santander, upon the recommendation of the European Central Bank (ECB) to preserve capital by cancelling dividends charged to the financial years 2020 and 2019, decided during the first half of 2020 to cancel the payment of the supplementary dividend for 2019. In the third quarter of 2020, given the greater visibility, the strength of the Bank and the evolution of the underlying results, the board of directors proposed to the shareholders' meeting held on 27 October 2020, the approval of (i) a scrip dividend (in the form of 722,526,720 newly issued shares which started trading on 11 December 2020) equivalent to approximately 0.10 euros per share as supplementary remuneration against 2019; and (ii) a dividend of up to 0.10 euros per share to be charged to the share premium reserve in 2021 subject to the European Central Bank guidance and approval. On 3 February 2021, we made public the board's intention to pay a cash dividend of €2.75 cents per share as shareholder remuneration for 2020. For more information see Part 1. Consolidated Directors´ Report-Corporate Governance. Section 3.3.
The remuneration per share disclosed for each financial year includes all dividends paid or to be paid on account of, or stated to be against, that financial year.

Set forth below is a table showing our allowances for non-performing balances broken down by various categories as disclosed and discussed throughout this annual report on Form 20-F:
20202019201820172016
Allowances refers to:
Allowances for total balances (A) (excluding country risk)24,272 22,965 24,061 24,529 24,835 
Allowances for contingent liabilities and commitments (excluding country risk)695 736 773 614 457 
Allowances for total balances (excluding contingent liabilities and commitments and excluding country risk):23,577 22,229 23,288 23,915 24,378 
Allowances referred to country risk and other310 501 666 767 528 
Allowances for total balances (excluding contingent liabilities and commitments)23,887 22,730 23,954 24,682 24,906 
Of which:
Allowances for customers23,595 22,242 23,307 23,934 24,393 
Allowances for credit institutions and other financial assets8 14 12 18 15 
Allowances for Debt instruments284 474 635 730 498 
Allowances for Financial assets at amortised cost23,851 22,713 23,947 24,682 24,906 
Allowances for Financial assets at fair value through other comprehensive income36 17 7 — — 
(A) Non-performing loans and contingent liabilities and other assets to collect.
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4. Risk factors
Risk factor summary
1. Macro-economic and political risks
1.1 The current global covid-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.
1.2 Our growth, asset quality and profitability, among others, may be adversely affected by a slowdown in one or more of the economies in which we operate, as well as by volatile macroeconomic and political conditions.
1.3 The UK’s withdrawal from the European Union could have a material adverse effect on our operations, financial condition and prospects.
2. Risks relating to our business
2.1 Legal, Regulatory and Compliance Risks to our business model
2.1.1 We are exposed to risk of loss from legal and regulatory proceedings.
2.1.2 We are subject to extensive regulation and regulatory and governmental oversight which could adversely affect our business, operations and financial condition.
2.1.3 The acquisition of Banco Popular has given rise to a wide range of litigation or other claims being filed that could have a material adverse effect on us.
2.1.4 We are subject to potential action by any of our regulators or supervisors, particularly in response to customer complaints.
2.1.5 We are subject to review by tax authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.
2.1.6 We may not be able to detect or prevent money laundering and other financial crime activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on us.
2.1.7 Changes in taxes and other assessments may adversely affect us.
2.2 Liquidity and Funding Risks
2.2.1 Liquidity and funding risks are inherent in our business and could have a material adverse effect on us.
2.2.2 Credit, market and liquidity risk may have an adverse effect on our credit ratings and our cost of funds. Any downgrade in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative and other contracts and adversely affect our interest margins and results of operations.
2.3 Credit Risks
2.3.1 The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us.
2.3.2 The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
2.3.3 We are subject to counterparty risk in our banking business.
2.4 Market Risks
2.4.1 Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us and our profitability.
2.4.2 We are subject to market, operational and other related risks associated with our derivative transactions that could have a material adverse effect on us.
2.4.3 Market conditions have resulted and could result in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.
2.5 Risks related to our industry
2.5.1 Goodwill impairments may be required in relation to acquired businesses.
2.5.2 Changes in our pension liabilities and obligations could have a material adverse effect on us.
2.5.3 We depend in part upon dividends and other funds from subsidiaries.
2.5.4 Increased competition, including from non-traditional providers of banking services such as financial technology providers, and industry consolidation may adversely affect our results of operations.
2.5.5 If we are unable to manage the growth of our operations, this could have an adverse impact on our profitability.
2.5.6 We may not effectively manage risks associated with the replacement or reform of benchmark indices.
2.6 Risk Management
2.6.1 Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.
2.7 Technology Risks
2.7.1 Any failure to effectively improve or upgrade our information technology infrastructure and management information systems in a timely manner or any failure to
852
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

successfully implement new cybersecurity and data privacy regulations could have a material adverse effect on us.
2.7.2 Risks relating to data collection, processing and storage systems and security are inherent in our business.
3. General risks
3.1 Risks related to our industry
3.1.1 Climate change can create transition risks, physical risks, and other risks that could adversely affect us.
3.1.2 The financial problems faced by our customers could adversely affect us.
3.1.3 Our ability to maintain our competitive position depends, in part, on the success of new products and services we offer our clients and our ability to offer products and services that meet the customers’ needs during the whole life cycle of the products or services, and we may not be able to manage various risks we face as we expand our range of products and services that could have a material adverse effect on us.
3.1.4 We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.
3.1.5 We rely on third parties and affiliates for important products and services.
3.1.6 Damage to our reputation could cause harm to our business prospects.
3.1.7 We engage in transactions with our subsidiaries or affiliates that others may not consider to be on an arm’s-length basis.
3.2 Financial reporting and control risks
3.2.1 Changes in accounting standards could impact reported earnings.
3.2.2 Our financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of our operations and financial position.
3.2.3 Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.
3.3 Foreign private issuer and other risks
3.3.1 Our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the United States.
3.3.2 Investors may find it difficult to enforce civil liabilities against us or our directors and officers.
3.3.3 As a holder of ADSs you will have different shareholders’ rights than do shareholders of companies incorporated in the United States and certain other jurisdictions.
3.3.4 ADS holders may be subject to additional risks related to holding ADSs rather than shares.
1. Macro-economic and political risks
1.1 The current global covid-19 pandemic has materially impacted our business, and the continuance of this pandemic or any future outbreak of any other highly contagious diseases or other public health emergency, could materially and adversely impact our business, financial condition, liquidity and results of operations.
Since December 2019, a new strain of coronavirus, or covid-19, spread in the People's Republic of China and progressively to the rest of the world, mainly to Europe (including Spain and the UK), Latin America and the United States, among others. The outbreak was declared a public health emergency of international concern and a global pandemic by the World Health Organization.
Countries around the world have responded to the covid-19 pandemic by adopting a variety of measures in an attempt to contain the spread and impact of covid-19, including imposing mass quarantines or other containment measures, shelter-in-place orders and medical screenings, restricting travel, limiting public gatherings and suspending most economic activities. These measures have resulted in a severe decrease of global economic activity and falls in production and demand, which has led to sharp declines in the gross domestic product (GDP) of those countries which are most affected by the pandemic and is expected to continue to have an overall negative impact on global GDP in 2021. Other consequences include increased unemployment levels, sharp decreases and high volatility in the stock markets, disruption of global supply chains, exchange rate volatility, steady customer draws on lines of credit, decline in real estate prices, and uncertainty in relation to the future impact in regional and global economies in the medium and long term. These measures have also negatively impacted, and could continue to negatively impact, businesses, market participants, our counterparties and clients, and the global economy for a prolonged period of time. Furthermore, it is unclear how the macroeconomic business environment or societal norms may be impacted after the pandemic. The post-covid-19 environment may undergo unexpected developments or changes in the financial markets, fiscal, tax and regulatory environments as well as customer and corporate client behaviour which could have an adverse impact on our business.
Many governments and regulatory authorities, including central banks, have acted, and may further act, to provide relief from the economic and market disruptions resulting from the covid-19 pandemic, including providing fiscal and monetary stimuli to support the global economy, lowering federal funds rates and interest rates, and granting partial or total deferral (grace period) of principal and/or interest payments due on loans. It is difficult to predict how effective these and other measures taken to mitigate the economic effects of the pandemic will be.
Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued material adverse effect on our business and results of operations, which could include, but is not limited to (i) a continued decreased demand for our products and services; (ii) protracted periods of lower interest rates and resulting pressure on
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our margins; (iii) further material impairment of our loans and other assets including goodwill; (iv) decline in value of collateral; (v) constraints on our liquidity due to market conditions, exchange rates and customer withdrawal of deposits and continued draws on lines of credit; and (vi) downgrades to our credit ratings. See risk factor 2.2.2 entitled 'Credit, market and liquidity risk may have an adverse effect on our credit ratings and our cost of funds. Any downgrade in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative and other contracts and adversely affect our interest margins and results of operations'.
Additionally, unprecedented movement in economic and market drivers related to the covid-19 pandemic impact the performance of financial models including credit loss models, capital models, traded risk models and models used in the asset/liability management process. This has required additional monitoring and adjustments to comply with the guidance and recommendations of standard setters, regulators and supervisors, particularly for credit loss models. It also has resulted in the use of mitigants for model limitations, such as adjustments to model outputs to reflect consideration of management judgment. The performance and usage of models has been and may continue to be impacted by the consequences of the covid-19 pandemic. While it is too early to be entirely certain of the magnitude of change required for our models, it is likely that capital, credit risk and other models will need to be adjusted. The effectiveness of our models will depend in large part on the depth and length of the economic downturn.

Moreover, our operations will continue to be impacted by risks from remote working arrangements or bans on non-essential activities. For example, some of our branches in affected countries have been closed and others have been functioning with reduced hours for a significant period of time. During 2020, we had more than half of our total workforce working remotely, which has increased cybersecurity risks given greater use of computer networks outside the corporate environment. If we become unable to successfully operate our business from remote locations including, for example, due to failures of our technology infrastructure, increased cybersecurity risks, or governmental restrictions that affect our operations, this could result in business disruptions that could have a material and adverse effect on our business.
If the covid-19 pandemic continues to adversely affect the global economy and/or adversely affect our business, financial condition, liquidity or results of operations, it may also increase the likelihood and/or magnitude of other risks described in this Risk Factors section.
Main impacts in the income statement:
In light of the impact that the pandemic has had on the economic situation and forecasts in the markets where we are present, in 2020 a review was carried out of both valuation of goodwill and the recoverability of deferred tax assets. As a result of this review, to reflect the expected fall in GDP in the year in all countries, with a recovery expected to take two or three years, the expectation that central bank reference interest rates will remain low for longer and
that the discount rate will increase to reflect volatility and the higher risk premium, we adjusted the valuation of our goodwill and DTAs, resulting in a non-recurring impairment of EUR 12,600 million. Of which EUR 10,100 million relates to goodwill and EUR 2,500 million to deferred tax assets. This adjustment did not affect our liquidity, credit risk or market positions, and is neutral in CET1 capital; nor did it affect the strategic importance of the affected markets. We remain confident in the potential for the long-term value creation in each of our regions and markets.

1.2 Our growth, asset quality and profitability, among others, may be adversely affected by a slowdown in one or more of the economies in which we operate, as well as volatile macroeconomic and political conditions.
During 2020, most world economies faced severe recession as a result of covid-19 which could lead major financial institutions, including some of the world’s largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies to experience significant difficulties, including runs on deposits, the need for government assistance or the need to reduce or cease providing funding to borrowers (including to other financial institutions).
Volatile conditions in the global financial markets could also have a material adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers and become unable to maintain certain liability maturities. Any such increase in capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.
In particular, we face, among others, the following risks related to the economic downturn and volatile conditions:
•Reduced demand for our products and services.
•Increased regulation of our industry. Compliance with such regulation will continue to increase our costs and may affect the pricing for our products and services, increase our conduct and regulatory risks related to non-compliance and limit our ability to pursue business opportunities.
•Inability of our borrowers to timely or fully comply with their existing obligations. Macroeconomic shocks may negatively impact the income of our customers, both retail and corporate, and may adversely affect the recoverability of our loans, resulting in increased loan losses. 
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

•The process we use to estimate losses inherent in our credit exposure requires complex judgements, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the sufficiency of our loan loss allowances.
•The value and liquidity of the portfolio of investment securities that we hold may be adversely affected.
The recoverability of our loan portfolios and our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, are dependent to a significant extent on the level of economic activity in Europe (in particular, Spain and the UK), North America and South America. See risk factor 2.3.1 entitled 'The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be insufficient to cover our loan losses, which could have a material adverse effect on us'.
In addition, we are exposed to sovereign debt in these regions (for more information on our exposure to sovereign debt, see notes 50.d) and 53.b) 4.3 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F). Recessionary conditions in the economies of Europe (in particular, Spain and the UK), North America or some of the South American countries in which we operate, would likely have a significant adverse impact on our loan portfolio and sovereign debt holdings and, as a result, on our financial condition, cash flows and results of operations.
Our revenues are also subject to risk of deterioration from unfavourable political and diplomatic developments, social instability, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps, tax and monetary policies.
For the year ending 31 December 2020, 37% of the underlying profit attributable to the Parent came from Europe (of which 7% was from Spain, 15% from Santander Consumer and 8% from the United Kingdom), 42% from South America (30% from Brazil) and 21% from North America (11% from Mexico and 10% from the United States)26. As of that date, our total assets stood at 71% in Europe (24% in Spain and 22% in the United Kingdom), 16% in South America (10% in Brazil) and 15% in North America (5% in Mexico and 9% in the United States).
In particular, the European Union and South America, which are the two main regions where the Group operates, are subject to the following macroeconomic and political conditions, which could have a material adverse effect on our business, results of operations, financial condition and prospects:
European Union
In the EU, the tax and financial integration, although not completed, has limited an individual country’s ability to
address potential economic crises with its own fiscal and monetary policies.
In the past, the European Central Bank (ECB) and the European Council have taken actions with the aim of reducing the risk of contagion in the eurozone and beyond and improving economic and financial stability. Notwithstanding these measures, a significant number of financial institutions throughout Europe have substantial exposures to sovereign debt issued by eurozone (and other) nations, which may be under financial stress. Should any of those nations default on their debt, or experience a significant widening of credit spreads, major financial institutions and banking systems throughout Europe could be adversely affected, with wider possible adverse consequences for global financial market conditions. Our net exposure to sovereign debt at 31 December 2020 amounted to EUR 129,923 million (9% of our total assets at that date) of which the main exposures in the eurozone relate to Spain and Portugal with net exposure of EUR 24,245 million (of which EUR 7,048 million were financial assets at fair value through other comprehensive income) and EUR 8,730 million, respectively. See notes 50.d) and 53.b) 4.3 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F for more information.
In June 2020 the ECB put in place a set of monetary policy and banking supervision measures to mitigate the impact of the covid-19 pandemic on the euro area economy and to support all European citizens. In particular, the EUR 1,350 billion pandemic emergency purchase programme (PEPP) aims to lower borrowing costs and increase lending in the euro area. The ECB will terminate net asset purchases under the PEPP once it judges that the covid-19 crisis phase is over, but in any case not before the end of June 2021. This programme complements the asset purchase programmes that have been in place since 2014.
On 21 July 2020, the EU agreed on a EUR 750 billion recovery effort to help the EU tackle the crisis caused by the pandemic. Alongside the recovery package, the EU agreed on a EUR 1,074.3 billion long-term EU budget for 2021-2027. Among others, the budget will support investment in the digital and green transitions.
The risk of returning to a fragile and volatile environment and to political tensions exists if current ECB policies in place are quickly reversed, the reforms aimed at improving productivity and competition do not progress, the closing of the banking union and other measures of integration are not deepened or anti-European groups succeed.
In addition, on 31 January 2020 the United Kingdom ceased to be a member of the EU which could have a material adverse effect on us. See risk factor 1.3 entitled 'The UK’s withdrawal from the European Union could have a material adverse effect on our operations, financial condition and prospects'.
South America
26 Percentages calculated using as denominator the underlying profit of total operating areas (i.e. without considering the (1,844) million euros accounted for in the Corporate Center resulting from centralized management of the areas.
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The economies of some of the countries where we operate, particularly in South America, have experienced significant volatility in recent decades. This volatility resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the economies to which we lend. In addition, some of the countries where we operate are particularly affected by commodities price fluctuations, which in turn may affect financial market conditions through exchange rate fluctuations, interest rate volatility and deposits volatility. Negative and fluctuating economic conditions, such as slowing or negative growth and a changing interest rate environment, could impact our profitability by causing lending margins to decrease and credit quality to decline and leading to decreased demand for higher margin products and services. In particular, In particular, the recent political and social instability in Chile and the financial volatility in Argentina could have a negative impact on the economy of these countries and may have a material adverse effect on us.
1.3 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.
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 counterparties.
There are also other potential longer term impacts resulting from Brexit which could impact the UK economy and Santander UK’s business 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 materialize 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 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.

856
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information


2. Risks relating to our business
2.1 Legal, Regulatory and Compliance Risks to our business model
2.1.1 We are exposed to risk of loss from legal and regulatory proceedings.
We face risk of loss from legal and regulatory proceedings, including tax proceedings, that could subject us to monetary judgements, regulatory enforcement actions, fines and penalties. The current regulatory and tax enforcement environment in the jurisdictions in which we operate reflects an increased supervisory focus on enforcement, combined with uncertainty about the evolution of the regulatory regime, and may lead to material operational and compliance costs.
We are from time to time subject to regulatory investigations and civil and tax claims, and party to certain legal proceedings incidental to the normal course of our business, including in connection with conflicts of interest, lending securities and derivatives activities, relationships with our employees and other commercial or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in the early stages of investigation or discovery, we cannot state with certainty what the eventual outcome of these pending matters will be or what the eventual loss, fines or penalties related to each pending matter may be.
The amount of our reserves in respect of these matters is substantially less than the total amount of the claims asserted against us, and, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by us. As a result, the outcome of a particular matter may be material to our operating results for a particular period. As of 31 December 2020, we had provisions for taxes, other legal contingencies and other provisions for EUR 4,425 million. See more information in note 25.d) to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
2.1.2 We are subject to extensive regulation and regulatory and governmental oversight which could adversely affect our business, operations and financial condition.
As a financial institution, we are subject to extensive regulation, which materially affects our businesses. In Spain and the other jurisdictions where we operate, there is continuing political, competitive and regulatory scrutiny of the banking industry. Political involvement in the regulatory process, in the behaviour and governance of the banking sector and in the major financial institutions in which the local governments have a direct financial interest and in their product and services, and the prices and other terms they apply to them, is likely to continue. Therefore, the statutes, regulations and policies to which we are
subject may be therefore changed at any time. In addition, the interpretation and the application by regulators of the laws and regulations to which we are subject may also change from time to time. Extensive legislation and implementing regulation affecting the financial services industry has recently been adopted in regions that directly or indirectly affect our business, including Spain, the United States, the EU, the UK, Latin America and other jurisdictions, and further regulations are in the process of being implemented. The manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. Moreover, to the extent these regulations are implemented inconsistently in the various jurisdictions in which we operate, we may face higher compliance costs. Any legislative or regulatory actions and any required changes to our business operations resulting from such legislation and regulations, as well as any deficiencies in our compliance with such legislation and regulation, could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging and provide certain products and services, affect the value of assets that we hold, require us to increase our prices and therefore reduce demand for our products, impose additional compliance and other costs on us or otherwise adversely affect our businesses. In particular, legislative or regulatory actions resulting in enhanced prudential standards, in particular with respect to capital and liquidity, could impose a significant regulatory burden on us or on our subsidiaries and could limit the bank subsidiaries’ ability to distribute capital and liquidity to us, thereby negatively impacting us. Future liquidity standards could require us to maintain a greater proportion of its assets in highly-liquid but lower-yielding financial instruments, which would negatively affect our net interest margin. Moreover, our regulatory and supervisory authorities, periodically review our allowance for loan losses. Such regulators may recommend us to increase our allowance for loan losses or to recognize further losses. Any such additional provisions for loan losses, as recommended by these regulatory agencies, whose views may differ from those of our management, could have an adverse effect on our earnings and financial condition. Accordingly, there can be no assurance that future changes in regulations or in their interpretation or application will not adversely affect us.
The wide range of regulations, actions and proposals which most significantly affect us, or which could most significantly affect us in the future, relate to capital requirements, funding and liquidity and development of a fiscal and banking union in the EU, which are discussed in further detail below. Moreover, there is uncertainty regarding the future of financial reforms in the United States and the impact that potential financial reform changes to the U.S. banking system may have on ongoing international regulatory proposals. In general, regulatory reforms adopted or proposed in the wake of the financial crisis have increased and may continue to materially increase the Group's operating costs and negatively impact the Group's business model. Furthermore, regulatory authorities have substantial discretion in how to regulate banks, and this discretion, and the means available to the regulators, have been increasing during recent years. Regulation may be imposed on an ad hoc basis by governments and regulators in response to a crisis, and
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these may especially affect financial institutions such as us that are deemed to be a global systemically important institution (G-SII). The main regulations and regulatory and governmental oversight that can adversely impact us include but are not limited to the items below. See more details in 'Item 10. Supervision and Regulation'.
Capital requirements, liquidity, funding and structural reform
Increasingly onerous capital requirements constitute one of our main regulatory challenges. Increasing capital requirements may adversely affect our profitability and create regulatory risk associated with the possibility of failure to maintain required capital levels. As a Spanish financial institution, we are subject to the Capital Requirements Regulation (Regulation (EU) No 575/2013) (CRR) and the Capital Requirements Directive (Directive 2013/36/EU) (CRD IV), through which the EU began implementing the Basel III capital reforms from 1 January 2014. While the CRD IV required national transposition, the CRR was directly applicable in all the EU member states. This regulation is complemented by several binding technical standards and guidelines issued by the European Banking Authority (EBA), directly applicable in all EU member states, without the need for national implementation measures either. The implementation of the CRD IV into Spanish law has taken place through Royal Decree Law 14/2013 and Law 10/2014, Royal Decree 84/2015, Bank of Spain Circular 2/2014 and Bank of Spain Circular 2/2016. Credit institutions, such as the Bank, are required, on a standalone and consolidated basis, to hold a minimum amount of regulatory capital of 8% of risk weighted assets (of which at least 4.5% must be Common Equity Tier 1 (CET1) capital and at least 6% must be Tier 1 capital). In addition to the minimum regulatory capital requirements, the CRD IV also introduced five new capital buffer requirements that must be met with CET1 capital: (1) the capital conservation buffer for unexpected losses, requiring additional CET1 of up to 2.5% of total risk weighted assets; (2) the institution-specific counter-cyclical capital buffer (consisting of the weighted average of the counter-cyclical capital buffer rates that apply in the jurisdictions where the relevant credit exposures are located), which may require as much as additional CET1 capital of 2.5% of total risk weighted assets or higher pursuant to the requirements set by the competent authority; (3) the G-SIIs buffer requiring additional CET1 of between 1% and 3.5% of risk weighted assets; (4) the other systemically important institutions buffer, which may be as much as 2% of risk weighted assets; and (5) the CET1 systemic risk buffer to prevent systemic or macroprudential risks of at least 1% of risk weighted assets (to be set by the competent authority). Entities are required to comply with the 'combined buffer requirement' (broadly, the combination of the capital conservation buffer, the institution-specific counter-cyclical buffer and the higher of (depending on the institution) the systemic risk buffer, the G-SIIs buffer and the other systemically important institutions buffer, in each case as applicable to the institution).
As of the date of this report, we are required to maintain a conservation buffer of additional CET1 capital of 2.5% of risk weighted assets, a G-SII buffer of additional CET1
capital of 1% of risk weighted assets and a counter-cyclical capital buffer of additional CET1 capital of 0.0097% of risk weighted assets.
Article 104 of the CRD IV, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the SSM Regulation), also contemplate that in addition to the minimum Pillar 1 capital requirements and any applicable capital buffer, supervisory authorities may impose further Pillar 2 capital requirements to cover other risks, including those risks incurred by the individual institutions due to their activities not considered to be fully captured by the minimum capital requirements under the CRD IV and CRR. This may result in the imposition of additional capital requirements on us and/or the Group pursuant to this Pillar 2 framework. Any failure by us and/or the Group to maintain its Pillar 1 minimum regulatory capital ratios and any Pillar 2 additional capital requirements could result in administrative actions or sanctions (including restrictions on discretionary payments), which, in turn, may have a material adverse impact on our results of operations. The European Central Bank clarified in its 'Frequently asked questions on the 2016 EU-wide stress test' (July 2016) that the institutions specific Pillar 2 capital will consist of two parts: Pillar 2 requirement and Pillar 2 guidance. Pillar 2 requirements are binding and breaches can have direct legal consequences for banks, while Pillar 2 guidance is not directly binding and a failure to meet Pillar 2 guidance does not automatically trigger legal action, even though the ECB expects banks to meet Pillar 2 guidance. Following this clarification, and the ones contained in the 'EBA Pillar 2 Roadmap' (April 2017), and the EU Banking Reforms (as defined below), the Pillar 2 guidance is not relevant for the purposes of triggering the automatic restriction of the distribution and calculation of the 'Maximum Distributable Amount' but, in addition to certain other measures, competent authorities will be entitled to impose further Pillar 2 capital requirements where an institution repeatedly fails to follow the Pillar 2 capital guidance previously imposed.
The ECB is required to carry out, at least on an annual basis, assessments under the CRD IV of the additional Pillar 2 capital requirements that may be imposed for each of the European banking institutions subject to the Single Supervisory Mechanism (the SSM) and accordingly requirements may change from year to year. Any additional capital requirement that may be imposed on us and/or the Group by the ECB pursuant to these assessments may require us and/or the Group to hold capital levels similar to, or higher than, those required under the full application of the CRD IV. There can be no assurance that the Group will be able to continue to maintain such capital ratios.
In addition to the above, the EBA published on 19 December 2014 its final guidelines for common procedures and methodologies in respect of its supervisory review and evaluation process (SREP). Included in this were the EBA's proposed guidelines for a common approach to determining the amount and composition of additional Pillar 2 capital requirements implemented on 1 January 2016. Under these guidelines (and until CRDV (as defined
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

below) is implemented in Spain), national supervisors must set a composition requirement for the Pillar 2 additional capital requirements to cover certain specified risks of at least 56% CET1 capital and at least 75% Tier 1 capital. The guidelines also contemplate that national supervisors should not set additional capital requirements in respect of risks which are already covered by capital buffer requirements and/or additional macroprudential requirements; and, accordingly, the above 'combined buffer requirement' is in addition to the minimum Pillar 1 capital requirement and to the additional Pillar 2 capital requirement. Therefore capital buffers would be the first layer of capital to be eroded pursuant to the applicable stacking order, as set out in the 'Opinion of the EBA on the interaction of Pillar 1, Pillar 2 and combined buffer requirements and restrictions on distributions' published on 16 December 2015. In this regard, under Article 141 of the CRD IV, Member States of the EU must require that an institution that fails to meet the 'combined buffer requirement' or the Pillar 2 capital requirements described above, will be prohibited from paying any 'discretionary payments' (which are defined broadly by the CRD IV as payments relating to CET1, variable remuneration and payments on Additional Tier 1 capital instruments), until it calculates its applicable restrictions and communicates them to the regulator and, once completed, such institution will be subject to restricted 'discretionary payments'. The restrictions will be scaled according to the extent of the breach of the 'combined buffer requirement' and calculated as a percentage of the profits of the institution since the last distribution of profits or 'discretionary payment'. Such calculation will result in a Maximum Distributable Amount in each relevant period. As an example, the scaling is such that in the bottom quartile of the 'combined buffer requirement', no 'discretionary distributions' will be permitted to be paid. Articles 43 to 49 of Law 10/2014 and Chapter II of Title II of Royal Decree 84/2015 implement the above provisions in Spain. In particular, Article 48 of Law 10/2014 and Articles 73 and 74 of Royal Decree 84/2014 deal with restrictions on distributions. Furthermore, pursuant to the EU Banking Reforms (as defined below), the calculation of the Maximum Distributable Amount, as well as consequences of, and pending, such calculation could also take place as a result of the breach of MREL (as defined below) and a breach of the minimum leverage ratio buffer requirement.
In connection with this, we announced on 11 December 2019 that we had received from the ECB its decision regarding prudential minimum capital requirements as of 1 January 2020, following the results of SREP (the "2019 SREP Decision"). The 2019 SREP decision required us to maintain a CET1 capital ratio of at least 9.7% on a consolidated basis. This 9.7% capital requirement includes: the minimum Pillar 1 requirement (4.5%); the Pillar 2 requirement (1.5%); the capital conservation buffer (2.5%); the requirement deriving from its consideration of us as a G-SII (1.0%) and the counter-cyclical buffer (0.2%). The ECB decision also requires that we maintain a CET1 capital ratio of at least 8.6% on an individual basis. On 24 November 2020, we received from the ECB a letter regarding the SREP for 2020. In line with the EBA statement on additional supervisory measures in the covid-19 pandemic of 22 April 2020, the ECB has adopted a pragmatic approach towards the SREP for the 2020 cycle, which focuses on the ability of
the supervised entities to handle the challenges of the covid-19 crisis and its impact on their current and prospective risk profile. The letter is not a supervisory measure, does not amend or supersede the 2019 SREP Decision, and consequently confirms that the requirements established therein continue to apply, including, in particular, the capital requirements. As of date of this report, the CET1 applicable capital requirement is
of at least 8,85% on a consolidated basis, which includes: the minimum Pillar 1 requirement (4.5%); the Pillar 2 requirement (which is now 0,84 %, due to the capital relief measures adopted by the ECB on March 2020 by which Banks are now allowed to partially use Additional Tier 1 or Tier 2 instruments to meet the Pillar 2 requirements); the capital conservation buffer (2.5%); the requirement deriving from its consideration of us as a G-SII (1.0%) and the counter-cyclical buffer currently applicable (0.01%). As of 31 December 2020, our total capital ratio was 16.18% on a consolidated basis while our CET1 ratio was 12.34% on a consolidated basis (data calculated using the IFRS 9 transitional arrangements; had the IFRS 9 transitional arrangement not been applied, the total impact on the CET1 ratio would have been -45 bps).
In addition to the above, the CRR also includes a requirement for institutions to calculate a leverage ratio (LR), report it to their supervisors and to disclose it publicly from 1 January 2015 onwards. More precisely, Article 429 of the CRR requires institutions to calculate their LR in accordance with the methodology laid down in that article. In January 2014, the Basel Committee finalised a definition of how the LR should be prepared and set an indicative benchmark (namely 3% of Tier 1 capital). Such 3% Tier 1 LR has been tested during a monitoring period until the end of 2017 although the Basel Committee had already proposed the final calibration at 3% Tier 1 LR. Accordingly, the CRR (as amended by the EU Banking Reforms as defined below) contains a binding 3% Tier 1 LR requirement, and which institutions must meet in addition and separately to their risk-based requirements from June 2021 onwards. Moreover, the EU Banking Reforms (as defined below) include a LR buffer for G-SIIs to be met with Tier 1 capital and set at 50% of the applicable risk weighted G-SIIs buffer. Any breach of this LR would also result in a requirement to determine the Maximum Distributable Amount and restrict discretionary payments to such Maximum Distributable Amount, as well as the consequences of such calculation as specified above.
On 9 November 2015, the Financial Stability Board (the FSB) published its final principles and term sheet containing an international standard to enhance the loss absorbing capacity of G-SIIs such as us. The final standard consists of an elaboration of the principles on loss absorbing and recapitalisation capacity of G-SIIs in resolution and a term sheet setting out a proposal for the implementation of these proposals in the form of an internationally agreed standard on total loss absorbing capacity (TLAC) for G-SIIs. Once implemented in the relevant jurisdictions, these principles and terms will form a new minimum TLAC standard for G-SIIs, and in the case of G-SIIs with more than one resolution group, each resolution group within the G-SII. The FSB did a review of the technical implementation of the TLAC principles and term sheet on June 2019. The TLAC principles and term sheet established a minimum TLAC
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requirement to be determined individually for each G-SII at the greater of (a) 16% of risk weighted assets as of 1 January 2019 and 18% as of 1 January 2022, and (b) 6% of the Basel III Tier 1 LR exposure measure as of 1 January 2019, and 6.75% as of 1 January 2022. Under the FSB TLAC standard, capital buffers stack on top of TLAC.
Furthermore, Article 45 of the European Bank Recovery and Resolution Directive (Directive 2014/59/EU) (BRRD) provides that Member States shall ensure that institutions meet, at all times, a minimum requirement for own funds and eligible liabilities (MREL). The MREL shall be calculated as the amount of own funds and eligible liabilities expressed as a percentage of the total liabilities and own funds of the institution. The EBA was in charge of drafting regulatory technical standards on the criteria for determining MREL (the MREL RTS). On 3 July 2015 the EBA published the final draft MREL RTS. In application of Article 45(2) of the BRRD, the current version of the MREL RTS is set out in a Commission Delegated Regulation (EU) No. 2016/1450 that was adopted by the Commission on 23 May 2016 (the MREL Delegated Regulation).
The MREL requirement was scheduled to come into force by January 2016. However, article 8 of the MREL Delegated Regulation gave discretion to resolution authorities to determine appropriate transitional periods to each institution.
The European Commission committed to review the existing MREL rules with a view to provide full consistency with the TLAC standard by considering the findings of a report that the EBA is required to provide to the European Commission under Article 45(19) of the BRRD. On 14 December 2016, the EBA published its final report on the implementation and design of the MREL framework where it stated that, although there was no need to change the key principles underlying the MREL Delegated Regulation, certain changes would be necessary with a view to improve the technical soundness of the MREL framework and implement the TLAC standard as an integral component of the MREL framework. On 20 May 2020, the SRB published its final "Minimum Requirements for Own Funds and Eligible Liabilities (MREL) Policy under the Banking Package", which will serve as a basis for setting binding MREL targets in the following planning cycles.
On 23 November 2016, the European Commission published, among others, a proposal for a European Regulation amending CRR, European Directives amending the CRD IV and the BRRD and a proposal for a European Regulation amending Regulation (EU) No. 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a SRM and a SRF and amending Regulation (EU) No 1093/2010 (the SRM Regulation). On 27 June 2019, Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending CRD IV as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures (CRD V); Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amending BRRD as regards the loss-
absorbing and recapitalisation capacity of credit institutions and investment firms and Directive 98/26/EC (BRRD II); Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending CRR as regards the LR, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) 648/2012 (CRR II); and Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 amending the SRM Regulation as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms (SRMR II, and, together with CRD V, BRRD II and CRR II, the EU Banking Reforms) entered into force. However, most of the provisions of CRR II are not applicable until 28 June 2021. The deadline for transposing into local laws both CRD V and BRRD II is 18 months after their entry into force. Until CRD V and BRRD II are transposed into Spanish law, it is uncertain how they will affect us or investors. In addition, there is also uncertainty as to how CRD V, BRRD II, CRR II and SRMR II will be implemented by the relevant authorities.
The EU Banking Reforms covered multiple areas, including the Pillar 2 framework, the LR, mandatory restrictions on distributions, permission for reducing own funds and eligible liabilities, macroprudential tools, a new category of 'non-preferred' senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities, changes to the definitions of Tier 2 and Additional Tier 1 instruments, the MREL framework and the integration of the TLAC standard into EU legislation as mentioned above.
Additionally, with regard to the European Commission’s proposal to create a new asset class of 'non-preferred' senior debt, on 27 December 2017, Directive 2017/2399 amending Directive 2014/59/EU as regards the ranking of unsecured debt instruments in insolvency hierarchy was published in the Official Journal of the EU, which sets forth a harmonised national insolvency ranking of unsecured debt instruments to facilitate the issuance by credit institutions of senior 'non-preferred' instruments. Before that, Royal Decree-Law 11/2017, of 23 June, approving urgent measures on financial matters (RDL 11/2017) created in Spain the new asset class of senior-non preferred debt.
One of the main objectives of the EU Banking Reforms is to implement the TLAC standard and to integrate the TLAC requirement into the general MREL rules (the TLAC/MREL Requirements) thereby avoiding duplication from the application of two parallel requirements. As mentioned above, although TLAC and MREL pursue the same regulatory objective, there are, nevertheless, some differences between them in the way they are constructed. The EU Banking Reforms integrate the TLAC standard into the existing MREL rules and to ensure that both requirements are met with largely similar instruments, with the exception of the subordination requirement, which will be partially institution-specific and determined by the resolution authority. Under the EU Banking Reforms, institutions such as the Bank would continue to be subject to an institution-specific MREL requirement, which may be
860
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

higher than the Pillar 1 TLAC/MREL Requirements for G-SIIs contained in the EU Banking Reforms.
The EU Banking Reforms have introduced limited adjustments to the existing MREL rules ensuring technical consistency with the structure of any requirements for G-SIIs. Implementation of the TLAC/MREL Requirements will be phased-in from 1 January 2019 (a 16% minimum TLAC requirement) to 1 January 2022 (an 18% minimum TLAC requirement).
According to the EU Banking Reforms, any failure by an institution to meet the 'combined buffer requirement' in excess of the applicable minimum TLAC/MREL Requirements is intended to be treated in a similar manner as a failure to meet the 'combined buffer requirement' on top of its minimum regulatory capital requirements (i.e. the obligation to calculate the Maximum Distributable Amount and the imposition of restrictions or prohibitions on discretionary payments by the Bank, but subject to a potential nine months grace period), where resolution authorities must ensure that they intervene and place an institution into resolution sufficiently early if it is deemed to be failing or likely to fail and there is no reasonable prospect of recovery.
We announced on 28 November 2019 that we had received formal notification from the Bank of Spain of its binding minimum MREL requirement, both total and subordinated, for the resolution group of Banco Santander at a sub-consolidated level, as determined by the SRB. The total MREL requirement has been set at 16.81% of the resolution group’s total liabilities and own funds, which as a reference of the resolution group’s risk weighted assets at 31 December 2017 would be 28.60% and is equivalent to an amount at 31 December 2017 of EUR 108,631.8 million. The subordination requirement has been set at 11.48% of the resolution group’s total liabilities and own funds, which as a reference of this resolution group’s risk weighted assets at 31 December 2017 would be 19.53% and is equivalent to an amount at 31 December 2017 of EUR 74,187.57 million. These requirements apply since 1 January 2020. According to our estimates, the resolution group complies with this total MREL requirement and the subordination requirement. Future requirements are subject to ongoing review by the resolution authority.
Additionally, the Basel Committee is currently in the process of reviewing and issuing recommendations in relation to risk asset weightings which may lead to increased regulatory scrutiny of risk asset weightings in the jurisdictions who are members of the Basel Committee.
On 7 December 2017, the Basel Committee’s oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS) published the finalization of the Basel III post-crisis regulatory reform agenda. This review of the regulatory framework covers credit, operational and credit valuation adjustment (CVA) risks, introduces a floor to the consumption of capital by internal ratings-based methods (IRB) and the revision of the calculation of the LR. The main features of the reform are: (i) a revised standard method for credit risk, which will improve the soundness and sensitivity to risk of the current method; (ii) modifications to the IRB methods for credit risk, including input floors to
ensure a minimum level of conservatism in model parameters and limitations to its use for portfolios with low levels of non-compliance; (iii) regarding the CVA risk, and in connection with the above, the removal of any internally modelled method and the inclusion of a standardised and basic method; (iv) regarding the operations risk, the revision of the standard method, which will replace the current standard methods and the advanced measurement approaches (AMA); (v) the introduction of a LR buffer for G-SIIs; and (vi) regarding capital consumption, it establishes a minimum limit on the aggregate results (output floor), which prevents the risk-weighted assets of the banks generated by internal models from being lower than the 72.5% of the risk-weighted assets that are calculated with the standard methods of the Basel III framework. In August 2019, the EBA advised the European Commission on the introduction of the output floor and concluded that the revised framework should be implemented by using the floored risk weighted assets as a basis for all the capital layers, including the systemic risk buffer and the Pillar 2 capital requirement.
The GHOS have extended the implementation of the revised minimum capital requirements for market risk until January 2022, to coincide with the implementation of the reviews of credit, operational and CVA risks. More recently, on 27 March 2020, the GHOS informed that a set of measures to provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities resulting from the impact of the coronavirus disease (Covid-19) on the global banking system have been endorsed. Among such measures, the implementation date of the revised market risk framework was deferred by one year to 1 January 2023.
In addition to the above, the Group should also comply with the liquidity coverage ratio (LCR) requirements provided in CRR. According to article 460.2 of CRR, the LCR has been progressively introduced since 2015 with the following phasing-in: (a) 60% of the LCR in 2015; (b) 70% as of 1 January 2016; (c) 80% as of 1 January 2017; and (d) 100% as of 1 January 2018. As of 31 December 2020, the Group’s LCR was 168%, above the 100% minimum requirement.
EU fiscal and banking union
The project of achieving a European banking union was launched in the summer of 2012. Its main goal is to resume progress towards the European single market for financial services by restoring confidence in the European banking sector and ensuring the proper functioning of monetary policy in the eurozone.
The banking union is expected to be achieved through new harmonised banking rules (the single rulebook) and a new institutional framework with stronger systems for both banking supervision and resolution that will be managed at the European level. Its two main pillars are the SSM and the Single Resolution Mechanism (SRM).
The SSM (comprised by both the ECB and the national competent authorities) is designed to assist in making the banking sector more transparent, unified and safer. In accordance with the SSM Regulation, the ECB fully assumed its new supervisory responsibilities within the
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SSM, in particular direct supervision of the largest European banks (including us), on 4 November 2014.
The SSM represented a significant change in the approach to bank supervision at a European and global level, and resulted in the direct supervision by the ECB of the 115 largest financial institutions (as of 1 November 2020), including us, and indirect supervision of around 3,500 financial institutions and is now one of the largest in the world in terms of assets under supervision. In the coming years, the SSM is expected to continue working on the establishment of a new supervisory culture importing best practices from the 19 national competent authorities that are part of the SSM and promoting a level playing field across participating Member States. Several steps have already been taken in this regard such as the publication of the Supervisory Guidelines; the approval of the Regulation (EU) No 468/2014 of the ECB of 16 April 2014, establishing the framework for cooperation within the SSM between the ECB and national competent authorities and with national designated authorities (the SSM Framework Regulation); the approval of a Regulation (Regulation (EU) 2016/445 of the European Central Bank of 14 March 2016 on the exercise of options and discretions available in Union law) and a set of guidelines on the application of CRR's national options and discretions, etc. In addition, the SSM represents an extra cost for the financial institutions that funds it through payment of supervisory fees.
The other main pillar of the EU banking union is the SRM, the main purpose of which is to ensure a prompt and coherent resolution of failing banks in Europe at minimum cost for the taxpayers and the real economy. The SRM Regulation establishes uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of the SRM and a Single Resolution Fund (SRF). Under the intergovernmental agreement (IGA) signed by 26 EU member states on 21 May 2014, contributions by banks raised at national level were transferred to the SRF. The new Single Resolution Board (SRB), which is the central decision-making body of the SRM, started operating on 1 January 2015 and fully assumed its resolution powers on 1 January 2016. The SRB is responsible for managing the SRF and its mission is to ensure that credit institutions and other entities under its remit, which face serious difficulties, are resolved effectively with minimal costs to taxpayers and the real economy. From that date onwards, the SRF is also in place, composed of contributions from credit institutions and certain investment firms in the participating Member States within the Banking Union in accordance with the methodology approved by the Council of the EU. The SRF will be gradually built up during the first eight years (2016-2023) and is intended to reach the target level of at least 1% of the amount of covered deposits of all credit institutions within the Banking Union by 31 December 2023. The SRF shall not be used to absorb the losses of an institution or to recapitalise an institution. In exceptional circumstances, where an eligible liability or class of liabilities is excluded or partially excluded from the write-down or conversion powers, a contribution from the SRF may be made to the institution under resolution under two key conditions, namely: 1) Bail-in of at least 8%: losses totalling not less than 8% of the total liabilities including own funds of the institution under resolution have already
been absorbed by shareholders after counting for incurred losses, the holders of relevant capital instruments and other eligible liabilities through write-down, conversion or otherwise; and 2) contribution from the SRF of maximum 5%: the SRF contribution does not exceed 5% of the total liabilities including own funds of the institution under resolution.
A single deposit guarantee scheme is still needed in order to complete such a banking union, which may require a change to the existing European treaties. This is the subject of continued negotiation by European leaders in order to ensure further progress is made in European fiscal, economic and political integration.
Regulations adopted towards achieving a banking and/or fiscal union in the EU and decisions adopted by the ECB in its capacity as our main supervisory authority may have a material impact on our business, financial condition and results of operations.
Moreover, regulations adopted on structural measures to improve the resilience of EU credit institutions may have a material impact on our business, financial condition, results of operations and prospects. These regulations, if adopted, may also cause us to invest significant management attention and resources to make any necessary changes.
General Data Protection Regulation
On 25 May 2018, the Regulation (EU) 2016/279 of the European Parliament and of the Council of 27 April 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the 'General Data Protection Regulation' or GDPR) became directly applicable in all Member States of the EU. To align the Spanish legal regime with the GDPR, Spain has enacted the Organic Law 3/2018, of 5 December, on Data Protection and the safeguarding of digital rights which has repealed the Spanish Organic Law 15/1999, of 13 December, on data protection.
Although a number of basic existing principles have remained the same, the GDPR has introduced extensive new obligations on both data controllers and processors, as well as rights for data subjects. It also includes new fines and penalties for systematic breaches of up to the higher of 4% of annual worldwide turnover or EUR 20 million and fines of up to the higher of 2% of annual worldwide turnover or EUR 10 million (whichever is highest) for other specified infringements.
The implementation of the GDPR has required substantial amendments to our procedures and policies. The changes have impacted, and could further adversely impact, our business by increasing our operational and compliance costs. Furthermore, due to the complexity of the legal provisions and the ever-changing landscape of the digital world, there is an underlying risk that we could eventually face significant sanctions, both administrative and monetary, for non-compliance, as well as reputational damage which could have a material adverse effect on our operations, financial condition and prospects.
862
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Financial Transactions Tax
On 14 February 2013, the European Commission published a proposal for a Directive for a common Financial Transactions Tax (the FTT) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States). However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate and participating Member States may decide not to participate, as Estonia did.
On 15 October 2020, Spain enacted the Law 5/2020 that introduced its own FTT aligned with the Directive proposal. The Spanish FTT imposes a tax on the acquisition of shares and ADSs of Spanish companies with a market capitalization of more than EUR 1 billion, at a tax rate of 0.2%, but it does not affect transactions involving bonds or debt or similar instruments, such as preferred securities or derivatives. The new tax came into force on 16 January 2021.
Digital Service Tax in Spain
On 15 October 2020, Spain enacted the Law 4/2020 that introduced a new tax on certain digital services. This law has entered into force on 16 January 2021. The Digital Services Tax (DST) is an indirect tax applicable to the provision of certain digital services when users are located in Spain (online advertising services targeted at users, online intermediary services and data transmissions) at a rate of 3%. Companies will be subject to the tax if (i) net turnover is over EUR 750 million (globally), and (ii) total revenues from taxable digital services in Spain are over EUR 3 million. The Preamble of the Law states the provisional nature of the DST until an international consensus on the taxation of digital business models is reached.
General State Budget in Spain
On 30 December 2020, Spain enacted the Law 11/2020, of the General State Budget for 2021, which includes, among other measures, a limit of 95% of the current exemption in the Corporate Income Tax allowed for dividends and capital gains derived from shares in resident and non-resident entities in Spain, an increase in Personal Income Tax on taxpayers with high income and a reduction on the deduction for contributions to pension plans to 2,000 euros per year (previously 8,000 euros).
Banking Reform in the UK
In accordance with the provisions of the Financial Services (Banking Reform) Act 2013, UK banking groups that hold significant retail deposits, including Santander UK, were required to separate or ‘ring-fence’ their retail banking activities from their wholesale banking activities by 1 January 2019.
Santander UK completed its ring-fencing plans in advance of the legislative deadline of 1 January 2019. However, given the complexity of the ringfencing regulatory regime and the material impact on the way Santander UK conducts its business operations in the UK, there is a risk that
Santander UK may be found to be in breach of one or more ring-fencing requirements. This might occur, for example, if prohibited business activities are found to be taking place within the ring-fence, mandated retail banking activities are found being carried on in a UK entity outside the ring-fenced part of the group or Santander UK breached a PRA ring-fencing rule. If Santander UK were found to be in breach of any of the ring-fencing requirements placed upon it under the ring-fencing regime, it could be subject to supervisory or enforcement action by the PRA, the consequences of which might include substantial financial penalties, imposition of a suspension or restriction on Santander UK’s UK activities or, in the most serious of cases, forced restructuring of the UK group, entitling the PRA (subject to the consent of the UK Government) to require the sale of a Santander ring-fenced bank or other parts of the UK group.
United States significant regulation
The financial services industry continues to experience significant financial regulatory reform in the United States, including from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and changes thereto, regulation (including capital, leverage, funding, liquidity and tax requirements), policies (including fiscal and monetary policies established by central banks and financial regulators, and changes to global trade policies), and other legal and regulatory actions. Many of these reforms significantly affected and continue to affect our revenues, costs and organizational structure in the United States and the scope of our permitted activities. We continue to monitor the changing political, tax and regulatory environment in the United States. We believe that it is likely that there will be further material changes in the way major financial institutions like us are regulated in the United States, and the results of the 2020 elections make regulatory reforms and changes to the supervisory approach by our regulators more likely. Although it remains difficult to predict the exact impact these changes will have on our business, financial condition, results of operations and cash flows for a particular future period, further reforms could result in loss of revenue, higher compliance costs, additional limits on our activities, constraints on our ability to enter into new businesses and other adverse effects on our businesses.
The full spectrum of risks that result from pending or future U.S. financial services legislation or regulations cannot be fully known; however, such risks could be material and we could be materially and adversely affected by them. See “Item 10. Supervision and Regulation” for a summary of certain significant U.S. financial regulations applicable to our business.
Enhanced prudential standards
As a large foreign banking organization (“FBO”) with significant U.S. operations, we are subject to enhanced prudential standards that required Banco Santander to, among other things, establish or designate a U.S. intermediate holding company (an “IHC”) and to hold its entire ownership interest in substantially all of its U.S. subsidiaries under such IHC. The Bank designated its wholly-owned subsidiary, Santander Holdings USA, as its
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U.S. IHC. As a U.S. IHC, Santander Holdings USA is subject to an enhanced supervision framework that includes enhanced risk-based and leverage capital requirements, liquidity requirements, risk management and governance requirements, stress-testing and capital planning requirements, and resolution planning requirements. Collectively, the enhanced prudential standards impose a significant regulatory burden on Santander Holdings USA, in particular with respect to capital and liquidity, which could limit its ability to distribute capital and liquidity to the Bank, thereby negatively affecting the Bank.
In May 2018 the United States government enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”). Among other things, EGRRCPA revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies.
In October 2019, the federal banking agencies issued final rules (the “Tailoring Rules”) that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Banco Santander and the U.S. IHCs of FBOs such as Santander Holdings USA. The Tailoring Rules establish risk-based categories for FBOs and their U.S. IHCs that determine whether and to what extent enhanced prudential standards and certain capital and liquidity requirements apply to such entities. Banco Santander is classified as a Category IV FBO, and Santander Holdings USA is classified as a Category IV IHC, though this categorization may change depending on the scope and composition of our activities. As a result, both Banco Santander and Santander Holdings USA are now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations, as described in more detail in the relevant sections below.
Resolution planning
We are required to prepare and submit periodically to the Federal Reserve Board and the Federal Deposit Insurance Corporation (“FDIC”) a plan, commonly called a living will (the “165(d) plan”), for the orderly resolution of our subsidiaries and operations that are domiciled in the United States in the event of future material financial distress or failure. We, on behalf of our insured depository institution (“IDI”) subsidiary, Santander Bank, N.A. (“Santander Bank”), must also submit a separate IDI resolution plan (“IDI plan”) to the FDIC. The 165(d) plan and the IDI plan require substantial effort, time and cost to prepare and are subject to review by the Federal Reserve Board and the FDIC, in the case of the 165(d) plan, and by the FDIC only, in the case of the IDI plan. If, after reviewing our 165(d) plan and any related re-submissions, the Federal Reserve Board and the FDIC jointly determine that we failed to cure identified deficiencies, they may jointly impose on our U.S. operations more stringent capital, leverage or liquidity requirements, or restrictions on our growth, activities or operations, or even divestitures, which could have an adverse effect on our business. Banco Santander filed its most recent 165(d) plan on 19 December 2018, and its most recent IDI plan on 28 June 2018. As a result of EGRRCPA and its implementing
regulations, Banco Santander will now be required to file a reduced 165(d) plan once every three years. The FDIC released an Advanced Notice of Proposed Rulemaking in April 2019 seeking comment on ways to tailor and improve the IDI plan rule. No firm will be required to submit another IDI plan until the FDIC’s rulemaking process on a revised IDI plan rule has been completed. While the FDIC stated in May 2020 that it is continuing to work on a proposal for the revised IDI plan rule, we do not know when the FDIC will issue such revised rule.
OTC derivatives regulation
Title VII of the Dodd-Frank Act amended the U.S. Commodity Exchange Act and the Securities Exchange Act of 1934 to establish an extensive framework for the regulation of over-the-counter (“OTC”) derivatives, including mandatory clearing of certain standardized OTC derivatives and the trading of such instruments through regulated trading venues, subject to exceptions, and transaction reporting. In addition, Title VII requires the registration of swap dealers and major swap participants with the Commodity Futures Trading Commission (“CFTC”) and of security-based swap dealers and major security-based swap participants with the SEC, and requires the CFTC and SEC to adopt regulations imposing capital, margin, business conduct, record keeping and other requirements on such entities. The CFTC has completed the majority of its regulations in this area, most of which are in effect. The SEC has taken several steps toward completing its regulatory framework for security-based swap dealers and major security-based swap participants, as required under the Dodd-Frank Act. The SEC adopted final rules providing the registration process for security-based swap dealers and major security-based swap participants, including the forms that registrants will be required to file. Banco Santander is provisionally registered as a swap dealer with the CFTC.
While most of the rules applicable to swap dealers have been fully implemented, others are still being finalized or phased in. For example, the U.S. prudential regulatory agencies adopted final rules establishing initial and variation margin requirements for uncleared swaps and security-based swaps between prudentially-regulated swap dealers and certain counterparties, and the CFTC adopted a final rule establishing initial and variation margin requirements for uncleared swaps between non-prudentially regulated swap dealers and certain counterparties. All swap dealers must currently comply with the variation margin requirements (to the extent applicable to a particular transaction); however, the initial margin requirements are still being phased in through 1 September 2020, based on the level of specified derivatives activity of the swap dealer and the relevant counterparty (and their affiliates). We are in the process of implementing these rules as they become applicable to us. These rules and similar rules being considered by regulators in other jurisdictions that may also apply to us, and the potential conflicts and inconsistencies between them, increase our costs for engaging in swaps and other derivatives activities and present compliance challenges.
Volcker Rule
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Section 13 of Bank Holding Company Act, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring, or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Banco Santander were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Banco Santander has assessed how the Volcker Rule affects its businesses and subsidiaries, and has brought its activities into compliance. Banco Santander has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.
As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. Banking entities must comply with these amended requirements by 1 January 2021, but may elect to comply, in whole or in part, starting on 1 January 2020. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide to the federal agencies. Under the revised rule, firms that do not have significant trading activities, such as Banco Santander, will have simplified and streamlined compliance requirements. Non-U.S. banking organizations like Banco Santander would largely rely on the “solely outside the U.S. exemption” to conduct their trading activities outside of the US.
In June 2020, the five federal agencies finalized additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. These amendments became effective on 1 October 2020. Banco Santander will continue to monitor Volcker Rule-related developments and assess their impact on its operations, as necessary.
United States Capital, Liquidity and Related Requirements and Supervisory Actions
As a U.S. IHC and bank holding company, Santander Holdings USA is subject to the U.S. Basel III capital rules, which implement in the United States the capital components of the Basel Committee’s international capital and liquidity standards known as Basel III. Under the Tailoring Rules, Santander Holdings USA is not subject to
the liquidity coverage ratio (“LCR”) or the net stable funding ratio (“NSFR”) requirements, since it is a Category IV IHC with less than $50 billion in weighted short-term wholesale funding.
Total Loss-Absorbing Capacity and Long-Term Debt requirements
In addition to the above mentioned capital and liquidity requirements, Santander Holdings USA is subject to the Federal Reserve Board’s final rule implementing the FSB’s international TLAC standard, which establishes certain TLAC, long-term debt (“LTD”) and clean holding company requirements for U.S. IHCs of non-U.S. G-SIIs, including Santander Holdings USA. Santander Holdings USA is compliant with all applicable requirements under the final rule as of 31 December 2019. Compliance with the final TLAC rule has resulted in increased funding expenses for Santander Holdings USA and, indirectly, the Bank.
Stress testing and capital planning
Certain of our U.S. subsidiaries, including Santander Holdings USA, are subject to stress testing and capital planning requirements in the United States, including the Federal Reserve Board’s Comprehensive Capital Analysis and Review (“CCAR”). The Federal Reserve Board expects companies subject to CCAR, such as Santander Holdings USA, to have sufficient capital to withstand a highly adverse operating environment and to be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries. In addition, the Federal Reserve Board evaluates the planned capital actions of these bank holding companies, including planned capital distributions such as dividend payments or stock repurchases.
In October 2019, the Federal Reserve Board finalized the Tailoring Rules for stress testing and capital actions a company is required to perform based on the company’s asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, non-bank assets, and off-balance sheet exposure. As a Category IV IHC under the Tailoring Rules, Santander Holding USA is required to submit a capital plan to the Federal Reserve on an annual basis. Santander Holding USA is also subject to supervisory stress testing on a two-year cycle. Santander continues to evaluate planned capital actions in its annual capital plan and on an ongoing basis.
The Federal Reserve Board released the results of its initial 2020 supervisory stress tests and CCAR process in June 2020, which were conducted based on financial information and stress scenarios that pre-dated the worsening macroeconomic environment caused by the COVID-19 pandemic. Although the Federal Reserve Board included a supervisory sensitivity analysis in its June 2020 CCAR and supervisory stress test results that intended to better reflect the then-current macroeconomic environment, the Federal Reserve Board required firms to update and resubmit their capital plans by November 2020 in order to reflect more recent financial information and supervisory and company-run stress scenarios updated to reflect the developing macroeconomic environment. Santander Holdings USA resubmitted its capital plan on 2
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November 2020, and in December 2020 the Federal Reserve Board released the results of the second round of supervisory stress tests. The Federal Reserve Board did not change Santander Holdings USA’s stress capital buffer (discussed below) as a result of this second round of stress tests.
The Federal Reserve Board had the authority to limit the capital distributions of bank holding companies, including Santander Holding USA. In June 2020, the Federal Reserve Board imposed limitations on capital distributions for firms subject to CCAR, which took effect in the third quarter of 2020. On 30 September 2020, the Federal Reserve Board announced that it would extend the limitations for the fourth quarter of 2020. Under the capital distribution limitations that were in effect for the third and fourth quarter of 2020, Santander Holdings USA was not permitted to repurchase shares, and common dividend payments to its shareholder were limited based on the lesser of the amount paid in the second quarter of 2020 and an amount based on recent earnings. In December 2020, the Federal Reserve Board announced that it would extend the distribution limitations to the first quarter of 2021, subject to certain modifications During the first quarter of 2021, CCAR banking organizations that are U.S. bank holding companies are authorized to: (a) pay common stock dividends and make share repurchases that, in the aggregate, do not exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters, provided that the firm does not increase the amount of its common stock dividends to be larger than the level paid in the second quarter of 2020, and provided further that if the average of the firm’s net income for the four preceding calendar quarters does not exceed an amount equal to one cent per share, the firm may pay common stock dividends of one cent per share; (b) make share repurchases that equal the amount of share issuances related to expensed employee compensation; and (c) redeem and make scheduled payments on additional tier 1 and tier 2 capital instruments. As a result of these limitations on capital distributions, Santander Holdings USA’s ability to distribute capital to its parent has been limited since the third quarter of 2020, and may continue to be limited if the Federal Reserve Board further extends the limitations.
In March 2020, the Federal Reserve Board finalized the Stress Capital Buffer (“SCB”) rule. Under the SCB rule, the Federal Reserve uses the results of its supervisory stress test to establish the size of a firm’s SCB requirement, subject to a floor of 2.5 percent. Beginning 1 October 2020, the SCB has replaced the previously effective 2.5 percent capital conservation buffer. Santander Holdings USA must maintain capital ratios above the sum of the minimum capital requirements and any applicable capital buffers, including the SCB, in order to avoid restrictions on the distribution of capital, including in the form of dividends or share repurchases. As of 1 October 2020, the firm-specific SCB applicable to Santander Holdings USA is equal to 2.5 percent, although this amount could increase in future years based on the results of the Federal Reserve Board’s
periodic supervisory stress tests and capital planning requirements applicable to Santander Holdings USA.
Single counterparty credit limits
The U.S. operations of the Bank are subject to single counterparty credit limits, which impose percentage limitations on net credit exposures to individual counterparties (aggregated based on affiliation), generally as a percentage of tier 1 capital. Under the amendments to the U.S. single counterparty credit limits rule made by the Tailoring Rules, Santander Holdings USA will not be subject to the single counterparty credit limits rule at the IHC level. In addition, although the Bank remains subject to the amended rules with respect to its U.S. operations, it may elect to comply by certifying that it complies with its home-country single counterparty credit limits, instead of complying with the Federal Reserve Board's implementation of these requirements.
Other supervisory actions and restrictions on U.S. activities
In addition to the foregoing, U.S. bank regulatory agencies from time to time take supervisory actions under certain circumstances that restrict or limit a financial institution’s activities. In some instances, we are subject to significant legal restrictions on our ability to publicly disclose these actions or the full details of these actions. Furthermore, as part of the regular examination process, U.S. banking regulators may advise our U.S. banking subsidiaries to operate under various restrictions as a prudential matter. Under the U.S. Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), the Federal Reserve Board has the authority to disallow us and our U.S. banking subsidiaries from engaging in certain categories of new activities in the United States or acquiring shares or control of other companies in the United States. Such actions and restrictions currently applicable to us or our U.S. banking subsidiaries could adversely affect our costs and revenues. Moreover, efforts to comply with non-public supervisory actions or restrictions could require material investments in additional resources and systems, as well as a significant commitment of managerial time and attention. As a result, such supervisory actions or restrictions could have a material adverse effect on our business and results of operations; and we may be subject to significant legal restrictions on our ability to publicly disclose these matters or the full details of these actions.
In addition to such confidential actions and restrictions, we have been, and continue to be, subject to public supervisory actions in the United States. In March 2017, Santander Holdings USA and SCUSA entered into a written agreement with the Federal Reserve Bank of Boston (“FRB Boston”) pursuant to which Santander Holdings USA and SCUSA agreed to submit written plans acceptable to the FRB Boston to strengthen board oversight of the management and operations of SCUSA and to strengthen board and senior management oversight of SCUSA’s risk management program, SCUSA agreed to submit a written revised compliance risk management program acceptable to the FRB Boston and Santander Holdings USA agreed to submit written revisions to its firm-wide internal audit program of SCUSA’s compliance risk management program. A response to this written agreement was submitted to the FRB Boston
866
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

in May 2017. The written agreement between Santander Holdings USA and the FRB Boston dated 21 March 2017 was terminated on 4 February 2021.
COVID-19 Supervisory Actions
The U.S. banking regulators have taken a number of supervisory actions to mitigate the economic impacts of the COVID-19 pandemic. The duration of some of these actions will depend on the state of the U.S. economy, the forecast for which is currently very uncertain. Among these actions, the Federal Reserve Board required for the third and fourth quarters of 2020 certain large banking organizations, including Santander Holdings USA, to suspend share repurchases, cap dividend payments to the amount paid in the second quarter of 2020, and further limit dividends according to a formula based on recent income. In December 2020, the Federal Reserve Board extended these limitations for the first quarter of 2021, subject to certain modifications described above. The Federal Reserve Board also required banking organizations to re-evaluate their longer-term capital plans and required banking organizations to resubmit their capital plans in the fourth quarter of 2020 to reflect more recent macroeconomic developments. The Coronavirus Aid, Relief, and Economic Security Act also provides financial institutions with the option to suspend certain GAAP requirements for coronavirus-related loan modifications that would otherwise constitute troubled debt restructurings and further requires the U.S. federal banking agencies to defer to financial institutions’ determinations in making such suspensions.
Anti-Money Laundering and economic sanctions
A major focus of U.S. governmental policy relating to financial institutions is aimed at preventing money laundering and terrorist financing. The Bank Secrecy Act, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 contains provisions intended to detect and prevent the use of the U.S. financial system for, money laundering and terrorist financing activities. Under the Bank Secrecy Act, U.S. financial institutions, including U.S. branches and subsidiaries of non-U.S. banks, are required to, among other things, maintain an anti-money laundering (“AML”) program, verify the identity of clients, monitor for and report suspicious transactions, report on cash transactions exceeding specified thresholds, and respond to requests for information by regulatory authorities and law enforcement agencies. The Financial Crimes Enforcement Network of the U.S. Department of the Treasury and U.S. federal and state bank regulatory agencies, as well as the U.S. Department of Justice, have the authority to impose significant civil money penalties for violations of those requirements.
There is also scrutiny of compliance with applicable U.S. economic sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury against certain foreign countries, governments, individuals and entities to counter threats to the U.S. national security, foreign policy, or economy. OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on U.S. persons’ trade with or
investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks). In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.
Failures to comply with applicable U.S. AML laws or regulations or economic sanctions could have severe legal and reputational consequences, including significant civil and criminal penalties, and certain AML violations could result in a termination of U.S. banking licenses. The lack of certainty on possible requirements arising from any new AML laws or sanctions could pose risks given the possible penalties for financial crime compliance failings. If such penalties are incurred then they could have a material adverse effect on our operations, financial condition and prospects. In addition, U.S. regulators have taken actions against non-U.S. bank holding companies requiring them to improve their oversight of their U.S. subsidiaries’ Bank Secrecy Act programs and compliance. Further, U.S. federal banking agencies are required, when reviewing bank and bank holding company acquisition or merger applications, to take into account the effectiveness of the AML compliance record of the applicant. See also “Item 10. Supervision and Regulation”.
Cybersecurity and data privacy
As cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. The U.S. bank regulatory agencies have proposed enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, including Santander Holdings USA, and would focus on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience and situational awareness. Several states
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have also proposed or adopted cybersecurity and data privacy legislation and regulations, including the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020, which require, among other things, notification to affected individuals when there has been a security breach of their personal data and increase the privacy and security obligations of entities handling certain personal information of individuals.
We receive, process, maintain, transmit and store proprietary information and sensitive or confidential data, including public and non-public personal information of our customers, employees and counterparties, including, but not limited to, personally identifiable information and personal financial information. The collection, sharing, use, retention, disclosure, protection, transfer and other processing of this information is governed by U.S. federal and state law and is increasingly subject to legislation and regulation.
Data protection and privacy law regimes continue to evolve and may result in ever-increasing public scrutiny and escalating levels of enforcement and sanctions. We may become subject to new legislation or regulation concerning cybersecurity or data protection and privacy, which could require us to incur additional costs and expenses in an effort to comply. We could also be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems or require changes to our business practices or privacy policies. If cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted or applied in a manner inconsistent with our current practices, we may be subject to fines, litigation or regulatory enforcement actions or ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.
If we fall victim to successful cyber-attacks, penetrations, compromises, breaches or circumventions of our information technology systems or experience other cybersecurity incidents in the future, we may incur substantial costs and suffer other negative consequences, such as disruption to our operations, misappropriation of our proprietary, confidential or sensitive information, remediation costs (including liabilities for stolen assets or information, repairs of system damage, among others), increased cybersecurity protection costs, lost revenues arising from the unauthorized use of proprietary information or the failure to retain or attract our customers following a cybersecurity incident, litigation and legal risks (including regulatory action, reporting obligations, investigation, fines and penalties), increased insurance premiums, reputational damage affecting our customers’ and the investors’ confidence, as well as damages to our competitiveness, stock price and long-term shareholder value. In addition, our remediation efforts may not be successful and we may not have adequate insurance to cover these losses.
It is also important to highlight that even when a failure of or interruption in our systems or facilities is timely resolved or an attempted cyber-attack or other security breach or incident is successfully avoided or thwarted, substantial
resources and management attention are expend in doing so, and to successfully avoid or resolve any such incidents, we may be required to take actions that could adversely affect customer satisfaction or retention, as well as represent a threat to our reputation.
2.1.3 The acquisition of Banco Popular has given rise to a wide range of litigation or other claims being filed that could have a material adverse effect on us.
The acquisition of Banco Popular, S.A. (Banco Popular) by Banco Santander took place in execution of the resolution of the Steering Committee of the Spanish banking resolution authority (FROB) of 7 June 2017, which adopted the measures required to implement the decision of the European banking resolution authority (the Single Resolution Board or SRB).
Banco Popular’s declaration of resolution, the cancellation and conversion of its capital instruments, and the subsequent transfer to Banco Santander of the shares resulting from that conversion through the resolution tool of selling the entity’s business, all under the rules of the single resolution framework indicated above, have no precedent in Spain nor in any other EU member state. As a result, appeals, claims and actions have been filed against the resolutions of the SRB and the FROB and against Banco Santander (previously, also against Banco Popular and other Group entities) related to the acquisition of Banco Popular.
Additionally, since the acquisition of Banco Popular by Banco Santander, multiple affected parties have filed several claims and may file new claims in the future. It is not possible to predict the total amount of claims that could be presented by the former holders of shares and capital instruments (derived from the acquisition by investors of those shares and capital instruments of Banco Popular before the resolution, including in particular, and without limitation, the shares acquired in the context of the capital increase with pre-emptive subscription rights carried out in 2016), nor their economic implications (especially considering that the resolution decision in application of the new regulations is unprecedented, and that it is possible that future claims may not specify a specific amount, may allege new legal interpretations of the regulations, or involve a large number of parties).
The estimated cost of potential compensation to Banco Popular shareholders and bondholders recorded in the 2017 financial statements amounted to EUR 680 million, of which EUR 535 million were applied to the fidelity action. The provisions recorded are deemed sufficient to cover the risks associated with the legal claims that are taking place today. However, in the event that we are required to make additional payments, either with respect to claims already made with undetermined amounts, or any new claims, there could be a significant adverse effect on our results and financial situation.
Likewise, the Central Court No. 4 is currently conducting preliminary proceedings 42/2017, which are investigating, among other things, (i) the veracity of the prospectus in connection with the capital increase with pre-emptive subscription rights that was carried out by Banco Popular in 2016; and (ii) the alleged manipulation in the share price of
868
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Banco Popular until the entity's resolution in June 2017. In this proceeding, Banco Santander could have possible subsidiary civil liability. See details of the legal proceedings related to Banco Popular in note 25 to our consolidated financial statements included in Part 2 of this Form 20-F.
2.1.4 We are subject to potential action by any of our regulators or supervisors, particularly in response to customer complaints.
As noted above, our business and operations are subject to increasingly significant rules and regulations that are required to conduct banking and financial services business. These apply to business operations, affect financial returns, include reserve and reporting requirements, and prudential and conduct of business regulations. These requirements are set by the relevant central banks and regulatory authorities that authorize, regulate and supervise us in the jurisdictions in which we operate.
In their supervisory roles, the regulators seek to maintain the safety and soundness of financial institutions with the aim of strengthening the protection of customers and the financial system. The supervisors’ continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy. In general, these regulators have a more outcome-focused regulatory approach that involves more proactive enforcement and more punitive penalties for infringement. As a result, we face increased supervisory scrutiny (resulting in increasing internal compliance costs and supervision fees), and in the event of a breach of our regulatory obligations we are likely to face more stringent regulatory fines. Some of the regulators are focusing intently on consumer protection and on conduct risk and will continue to do so. This has included a focus on the design and operation of products, the behaviour of customers and the operation of markets. Such a focus could result, for example, in usury regulation that could restrict our ability to charge certain levels of interest in credit transactions or in regulation that would prevent us from bundling products that we offer to our customers. Some of the laws in the relevant jurisdictions in which we operate, give the regulators the power to make temporary product intervention rules either to improve a firm’s systems and controls in relation to product design, product management and implementation, or to address problems identified with financial products. These problems may potentially cause significant detriment to consumers because of certain product features or governance flaws or distribution strategies. Such rules may prevent institutions from entering into product agreements with customers until such problems have been solved. Some of the regulatory regimes in the relevant jurisdictions in which we operate, require us to be in compliance across all aspects of our business, including the training, authorization and supervision of personnel, systems, processes and documentation. If we fail to comply with the relevant regulations, there would be a risk of an adverse impact on our business from sanctions, fines or other actions imposed by the regulatory authorities. Customers of financial services institutions, including our customers, may seek
redress if they consider that they have suffered loss as a result of the mis-selling of a particular product, or through incorrect application of the terms and conditions of a particular product. Given the inherent unpredictability of litigation and the evolution of judgements by the relevant authorities, it is possible that an adverse outcome in some matters could harm our reputation or have a material adverse effect on our operating results, financial condition and prospects arising from any penalties imposed or compensation awarded, together with the costs of defending such an action, thereby reducing our profitability.
2.1.5 We are subject to review by tax authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.
The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by tax authorities. We are subject to the income tax laws of Spain and the other jurisdictions in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental tax authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgements and interpretations about the application of these inherently complex tax laws. If the judgement, estimates and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material adverse effect on our results of operations. In some jurisdictions, the interpretations of the tax authorities are unpredictable and frequently involve litigation, which introduces further uncertainty and risk as to tax expense.
2.1.6 We may not be able to detect or prevent money laundering and other financial crime activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on us.
We are required to comply with applicable AML, anti-terrorism, anti-bribery and corruption, sanctions and other laws and regulations applicable to us. These laws and regulations require us, among other things, to conduct full customer due diligence (including sanctions and politically-exposed person screening), keep our customer, account and transaction information up to date and have implemented financial crime policies and procedures detailing what is required from those responsible. We are also required to conduct AML training for our employees and to report suspicious transactions and activity to appropriate law enforcement following full investigation by our local AML team.
Financial crime has become the subject of enhanced regulatory scrutiny and supervision by regulators globally. AML, anti-bribery and corruption and sanctions laws and regulations are increasingly complex and detailed. The Basel Committee is now introducing guidelines to strengthen the interaction and cooperation between prudential and AML/CFT supervisors. Compliance with these laws and regulations requires automated systems, sophisticated monitoring and skilled compliance personnel.
We maintain updated policies and procedures aimed at detecting and preventing the use of our banking network
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for money laundering and other financial crime related activities. However, emerging technologies, such as cryptocurrencies and block chain, could limit our ability to track the movement of funds. Our ability to comply with the legal requirements depends on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability. These require implementation and embedding within our business effective controls and monitoring, which in turn requires on-going changes to systems and operational activities. Financial crime is continually evolving and, as noted, is subject to increasingly stringent regulatory oversight and focus. This requires proactive and adaptable responses from us so that we are able to deter threats and criminality effectively. As a global bank, we are particularly exposed to this risk. Even known threats can never be fully eliminated, and there will be instances where we may be used by other parties to engage in money laundering and other illegal or improper activities. In addition, we rely heavily on our employees to assist us by spotting such activities and reporting them, and our employees have varying degrees of experience in recognizing criminal tactics and understanding the level of sophistication of criminal organizations. Where we outsource any of our customer due diligence, customer screening or anti financial crime operations, we remain responsible and accountable for full compliance and any breaches. If we are unable to apply the necessary scrutiny and oversight of third parties to whom we outsource certain tasks and processes, there remains a risk of regulatory breach.
If we are unable to fully comply with applicable laws, regulations and expectations, our regulators and relevant law enforcement agencies have the ability and authority to impose significant fines and other penalties on us, including requiring a complete review of our business systems, day-to-day supervision by external consultants and ultimately the revocation of our banking license.
The reputational damage to our business and global brand would be severe if we were found to have breached AML, anti-bribery and corruption or sanctions requirements. Our reputation could also suffer if we are unable to protect our customers’ bank products and services from being used by criminals for illegal or improper purposes.
The Brazilian Federal Public Prosecutor’s Office, or “MPF,” has charged one of our officers in connection with the alleged bribery of a Brazilian tax auditor to secure favourable decisions in tax cases resulting in a claimed R$83 million (approximately U.S.$25 million) benefit to us. On 23 October 2018, the officer was formally indicted and asked to present his defence. On 5 November 2018 the officer in question presented his defence. The proceedings is currently in course. We are not a party to these proceedings. We have voluntarily provided information to the Brazilian authorities and have relinquished the benefit of certain tax credits to which the allegations relate in order to show good faith.
In addition, while we review our relevant counterparties’ internal policies and procedures with respect to such matters, we, to a large degree, rely upon our relevant counterparties to maintain and properly apply their own appropriate compliance procedures and internal policies.
Such measures, procedures and internal policies may not be completely effective in preventing third parties from using our (and our relevant counterparties’) services as a conduit for illicit purposes (including illegal cash operations) without our (and our relevant counterparties’) knowledge. If we are associated with, or even accused of being associated with, breaches of AML, anti-terrorism, or sanctions requirements our reputation could suffer and/or we could become subject to fines, sanctions and/or legal enforcement (including being added to 'black lists' that would prohibit certain parties from engaging in transactions with us), any one of which could have a material adverse effect on our operating results, financial condition and prospects.
Any such risks could have a material adverse effect on our operating results, financial condition and prospects.
See also risk factor 2.1.2 entitled 'We are subject to extensive regulation and regulatory and governmental oversight which could adversely affect our business, operations and financial condition - United States Significant Regulation - Anti-Money Laundering and economic sanctions'.
2.1.7 Changes in taxes and other assessments may adversely affect us.
The legislatures and tax authorities in the tax jurisdictions in which we operate regularly enact reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes.
The effects of these changes and any other changes that result from enactment of additional tax reforms cannot be quantified and there can be no assurance that any such reforms would not have an adverse effect upon our business.
2.2 Liquidity and Funding Risks
2.2.1 Liquidity and funding risks are inherent in our business and could have a material adverse effect on us.
Liquidity risk is the risk that we either do not have available sufficient financial resources to meet our obligations as they fall due or can secure them only at excessive cost. This risk is inherent in any retail and commercial banking business and can be heightened by a number of enterprise-specific factors, including over-reliance on a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation, including as a result of the covid-19 pandemic. While we have in place liquidity management processes to seek to mitigate and control these risks as well as a model based on autonomous subsidiaries in terms of capital and liquidity which limits the possibility of contagion between our units, unforeseen systemic market factors make it difficult to eliminate completely these risks. Constraints in the supply of liquidity, including in inter-bank lending, could materially and adversely affect the cost of funding of our business, and extreme liquidity constraints may affect our current
870
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

operations and our ability to fulfil regulatory liquidity requirements, as well as limit growth possibilities.
Our cost of obtaining funding is directly related to prevailing interest rates and to our credit spreads. Increases in interest rates and/or in our credit spreads can significantly increase the cost of our funding. Credit spreads variations are market-driven and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile.
We rely, and will continue to rely, primarily on retail deposits to fund lending activities. The ongoing availability of this type of funding is sensitive to a variety of factors beyond our control, such as general economic conditions and the confidence of retail depositors in the economy and in the financial services industry, and the availability and extent of deposit guarantees, as well as competition for deposits between banks or with other products, such as mutual funds. Any of these factors could significantly increase the amount of retail deposit withdrawals in a short period of time, thereby reducing our ability to access retail deposit funding on appropriate terms, or at all, in the future. If these circumstances were to arise, this could have a material adverse effect on our operating results, financial condition and prospects.
Central banks have taken extraordinary measures to increase liquidity in the financial markets as a response to the financial crisis and the covid-19 crisis. If current facilities were rapidly removed or significantly reduced, this could have an adverse effect on our ability to access liquidity and on our funding costs.
Additionally, our activities could be adversely impacted by liquidity tensions arising from generalised drawdowns of committed credit lines to our customers.
We cannot assure that in the event of a sudden or unexpected shortage of funds in the banking system, we will be able to maintain levels of funding without incurring high funding costs, a reduction in the term of funding instruments or the liquidation of certain assets. If this were to happen, we could be materially adversely affected.
Finally, the implementation of internationally accepted liquidity ratios might require changes in business practices that affect our profitability. The LCR is a liquidity standard that measures if banks have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. At 31 December 2020, our LCR ratio was 168%, above the 100% minimum requirement. The NSFR provides a sustainable maturity structure of assets and liabilities such that banks maintain a stable funding profile in relation to their activities. At the end of 2020, this ratio stands at 120% for the Group and over 100% for all our main subsidiaries.
2.2.2 Credit, market and liquidity risk may have an adverse effect on our credit ratings and our cost of funds. Any downgrade in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our
derivative and other contracts and adversely affect our interest margins and results of operations.
Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, and their ratings of our debt are based on a number of factors, including our financial strength and conditions affecting the financial services industry. In addition, due to the methodology of the main rating agencies, our credit rating is affected by the rating of Spanish sovereign debt. If Spain’s sovereign debt is downgraded, our credit rating would also likely be downgraded by an equivalent amount.
Any downgrade in our debt credit ratings would likely increase our borrowing costs and require us to post additional collateral or take other actions under some of our derivative and other contracts, and could limit our access to capital markets and adversely affect our commercial business. For example, a ratings downgrade could adversely affect our ability to sell or market some of our products, engage in certain longer-term and derivatives transactions and retain our customers, particularly customers who need a minimum rating threshold in order to invest. In addition, under the terms of certain of our derivative contracts and other financial commitments, we may be required to maintain a minimum credit rating or terminate such contracts or require the posting of collateral. Any of these results of a ratings downgrade could reduce our liquidity and have an adverse effect on us, including our operating results and financial condition.
We have the following ratings by the major rating agencies:
Banco Santander
Rating agency
Long term
Short term
Last report date
Outlook
Fitch Ratings
A-F2Oct 2020Negative
Moody's
A2P-1Oct 2020Stable
Standard & Poor's
AA-1Dec 2020Negative
DBRS
A (High)R-1 (Middle)Oct 2020Stable
Santander UK, plc
Rating agency
Long term
Short term
Last report date
Outlook
Fitch Ratings
A+F1Sep 2020Negative
Moody's
A1P-1Oct 2020Stable
Standard & Poor's
AA-1Jun 2020Negative
Banco Santander (Brasil)
(Foreign currency)
Rating agency
Long term
Short term
Last report date
Outlook
Moody's
Ba1-Dec 2020Stable
Standard & Poor's
BB-BAug 2020Stable
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We conduct substantially all of our material derivative activities through Banco Santander and Santander UK. We estimate that as of 31 December 2020, if all the rating agencies were to downgrade Banco Santander’s long-term senior debt ratings by one notch we would be required to post up to EUR 85 million in additional collateral pursuant to derivative and other financial contracts. A hypothetical two-notch downgrade would result in a further requirement to post up to EUR 258 million in additional collateral. We estimate that as of 31 December 2020, if all the rating agencies were to downgrade Santander UK’s long-term credit ratings by one notch, and thereby trigger a short-term credit rating downgrade, this could result in contractual outflows from Santander UK’s total liquid assets of £1.5 billion of cash and additional collateral that Santander UK would be required to post under the terms of secured funding and derivatives contracts. A hypothetical two-notch downgrade would result in a further outflow of £1.9 billion of cash and collateral under secured funding and derivatives contracts.
While certain potential impacts of these downgrades are contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain, as they depend upon numerous dynamic, complex and inter-related factors and assumptions, including market conditions at the time of any downgrade, whether any downgrade of our long-term credit rating precipitates downgrades to our short-term credit rating, and assumptions about the potential behaviours of various customers, investors and counterparties. Actual outflows could be higher or lower than the preceding hypothetical examples, depending upon certain factors including which credit rating agency downgrades our credit rating, any management or restructuring actions that could be taken to reduce cash outflows and the potential liquidity impact from loss of unsecured funding (such as from money market funds) or loss of secured funding capacity. Although unsecured and secured funding stresses are included in our stress testing scenarios and a portion of our total liquid assets is held against these risks, a credit rating downgrade could still have a material adverse effect on us.
In addition, if we were required to cancel our derivatives contracts with certain counterparties and were unable to replace such contracts, our market risk profile could be altered.
There can be no assurance that the rating agencies will maintain the current ratings or outlooks. In general, the future evolution of Santander's ratings is linked, to a large extent, to the macroeconomic outlook and to the impact of the covid-19 pandemic (including, for example, a second wave, new lockdowns, etc.) on our asset quality, profitability and capital. Failure to maintain favourable ratings and outlooks could increase our cost of funding and adversely affect interest margins, which could have a material adverse effect on us.
2.3 Credit Risks
2.3.1 The credit quality of our loan portfolio may deteriorate and our loan loss reserves could be
insufficient to cover our loan losses, which could have a material adverse effect on us.
Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent to a wide range of our businesses. Non-performing or low credit quality loans have in the past negatively impacted our results of operations and could do so in the future. In particular, the amount of our reported non-performing loans may increase in the future as a result of growth in our total loan portfolio, including as a result of loan portfolios that we may acquire in the future (the credit quality of which may turn out to be worse than we had anticipated), or factors beyond our control, such as adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in economic conditions in the regions where we operate or in global economic and political conditions, including as a result of the covid-19 pandemic. In response to covid-19, with the purpose of helping our customers from the credit perspective and foster their economic resilience, we have implemented several actions, including (i) providing liquidity and credit facilities to customers facing hardship; (ii) granting payment deferrals in outstanding loans under the EBA Guidelines on moratoria; (iii) focus credit risk management on those economic sectors more affected by the pandemic; (iv) focus on the collections & recoveries readiness across the Group; and (v) quantifying the provisions overlay on the expected credit losses as a result of the macroeconomic shock. If we were unable to control the level of our non-performing or poor credit quality loans, this could have a material adverse effect on us.
Our loan loss reserves are based on our current assessment of and expectations concerning various factors affecting the quality of our loan portfolio. These factors include, among other things, our borrowers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, government macroeconomic policies, interest rates and the legal and regulatory environment. Because many of these factors are beyond our control and there is no infallible method for predicting loan and credit losses, we cannot assure that our current or future loan loss reserves will be sufficient to cover actual losses. If our assessment of and expectations concerning the above mentioned factors differ from actual developments, if the quality of our total loan portfolio deteriorates, for any reason, or if the future actual losses exceed our estimates of expected losses, we may be required to increase our loan loss reserves, which may adversely affect us. Additionally, in calculating our loan loss reserves, we employ qualitative tools and statistical models which may not be reliable in all circumstances and which are dependent upon data that may not be complete. For further details regarding our risk management policies, see risk factor 2.6.1 entitled 'Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks'.
On 31 December 2020, our credit risk (which includes gross loans and advances to customers, guarantees and documentary credits) amounted to EUR 989,456 million
872
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

(compared to EUR 1,016,507 million as of 31 December 2019).
Our loan portfolio is mainly located in Europe (in particular, Spain and the UK), North America (in particular the United States) and South America (in particular Brazil). At 31 December 2020, Europe accounted for 74% of our total loan portfolio (Spain accounted for 21% of our total loan portfolio and the UK, where the loan portfolio consists primarily of residential mortgages, accounted for 28%), North America accounted for 13% (of which the United States represents 10% of our total loan portfolio) and South America accounted for 12% (of which Brazil represents 7% of our total loan portfolio). Accordingly, the recoverability of these loan portfolios in particular, and our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, are dependent to a significant extent on the level of economic activity in Europe (in particular, Spain and the UK), North America and South America.
Mortgage loans are one of our principal assets, comprising 44% of our loan portfolio as of 31 December 2020. Our exposure is concentrated in residential mortgage loans, especially in Spain and the UK. If Spain or the UK returned to situations of economic stagnation, persistent housing oversupply, decreased housing demand, rising unemployment, subdued earnings growth, greater pressure on disposable income, a decline in the availability of mortgage finance or continued global markets volatility, home prices could decline, while mortgage delinquencies and forbearances could increase. At 31 December 2020, the NPL ratio of residential mortgage loans for the Group in Spain and the UK was 2.96% and 0.99%, respectively.
At 31 December 2020 our total Group NPL ratio stood at 3.21% as compared to 3.32% at 31 December 2019. Coverage as of 31 December 2020 was 76.4% as compared to 67.9% a year earlier. We can provide no assurance that our NPL ratio will not increase as a result of the aforementioned and other factors. High unemployment rates, coupled with declining real estate prices, could have a material adverse impact on our mortgage payment delinquency rates, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss (net) in 2020 was EUR 12,382 million, a 32% increase as compared to 2019 mainly due to expected credit losses arising from the covid-19 pandemic.
At 31 December 2020, the gross amount of our refinancing and restructuring operations was EUR 29,159 million (3.1% of total gross loans and credits), of which EUR 12,728 million have real estate collateral. At the same date, the net amount of non-current assets held for sale totalled EUR 4,445 million, of which EUR 4,081 million were foreclosed assets, with a coverage ratio of 48% on the gross amount of these assets.
2.3.2 The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
The value of the collateral securing our loan portfolio may fluctuate or decline due to factors beyond our control, including as a result of the covid-19 pandemic and macroeconomic factors affecting Europe, North American countries and South American countries. The value of the collateral securing our loan portfolio may be adversely affected by force majeure events, such as natural disasters, particularly in locations where a significant portion of our loan portfolio is composed of real estate loans. We may also not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment for impairment losses of our loans secured by such collateral. If any of the above were to occur, we may need to make additional provisions to cover actual impairment losses of our loans, which may materially and adversely affect our results of operations and financial condition.
At 31 December 2020, 44% of our loans and advances to customers have property collateral while 21% have other types of collateral (securities, pledges and others).
In addition, auto industry technology changes, accelerated by environmental rules, could affect our auto consumer business in the EU and the US, particularly residual values of leased vehicles, which could have a material adverse effect on our operating results, financial condition and prospects.
2.3.3 We are subject to counterparty risk in our banking business.
We are exposed to counterparty risk in addition to credit risks associated with lending activities. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to us or executing securities, futures, currency or commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearing houses or other financial intermediaries.
We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual funds, hedge funds and other institutional clients. Defaults by, and even rumours or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.
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2.4 Market Risks
2.4.1 Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us and our profitability.
The covid-19 pandemic has caused high market volatility which may materially and adversely affect us and our trading and banking book.
Market risk refers to the probability of variations in our interest income / (charges) or in the market value of our assets and liabilities due to volatility of interest rate, inflation, exchange rate or equity price. Changes in interest rates affect the following areas, among others, of our business:
•interest income / (charges);
•the volume of loans originated;
•credit spreads;
•the market value of our securities holdings;
•the value of our loans and deposits; and
•the value of our derivatives transactions.
Interest rates are sensitive to many factors beyond our control, including increased regulation of the financial sector, monetary policies and domestic and international economic and political conditions. Variations in interest rates could affect the interest earned on our assets and the interest paid on our borrowings, thereby affecting our interest income / (charges), which comprises the majority of our revenue, reducing our growth rate and potentially resulting in losses. In addition, costs we incur as we implement strategies to reduce interest rate exposure could increase in the future (which, in turn, will impact our results).
Increases in interest rates may reduce the volume of loans we originate. Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. Increases in interest rates may reduce the value of our financial assets and may reduce gains or require us to record losses on sales of our loans or securities.
Due to the historically low interest rate environment in the eurozone, in the UK and in the US in recent years, the rates on many of our interest-bearing deposit products have been priced at or near zero or negative, limiting our ability to further reduce rates and thus negatively impacting our margins. If the current low interest rate environment in the eurozone, in the UK and in the US persists in the long run, it may be difficult to increase our interest income / (charges), which will impact our results.
We are also exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities denominated in different currencies. Fluctuations in the exchange rate between currencies may negatively affect our earnings and value of our assets and securities.
We are also exposed to equity price risk in our investments in equity securities in the banking book and in the trading portfolio. The performance of financial markets may cause changes in the value of our investment and trading portfolios. The volatility of world equity markets due to the continued economic uncertainty and sovereign debt crisis has had a particularly strong impact on the financial sector. Continued volatility may affect the value of our investments in equity securities and, depending on their fair value and future recovery expectations, could become a permanent impairment which would be subject to write-offs against our results.
Variations in our interest income / (charges)
At 31 December 2020, risk on net interest income over a one year period, measured as the sensitivity to parallel changes in the worst-case scenario of ±100 basis points, was concentrated in Europe 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 related to risks of rate cuts. In North America the risk was mainly located in the US (EUR 61 million) while in South America it was mainly found in Chile (EUR 80 million) and Brazil (EUR 68 million).
Variations in the market value of our assets and liabilities
The market risk in relation to the change in the market value of our assets and liabilities refers to the loss of value of assets or increase in the value of liabilities due to fluctuations in their prices in the markets where those assets or liabilities are traded, or even if not traded, in the value that a third party outside the Group would be willing to offer in a hypothetical transaction.
The standard methodology that we apply for risk management is Value at Risk (VaR), which measures the maximum expected loss within a certain confidence level and time frame.
In relation to structural balance sheet risks:
•At 31 December 2020, the maximum expected loss in the value of assets and liabilities due to variations in interest rate was EUR 345.5 million (EUR 629.7 million and EUR 319.5 million at 31 December 2019 and 2018, respectively), measured with a VaR confidence level of 99% and a temporary horizon of one day.
•At 31 December 2020, the maximum expected loss in the value of assets and liabilities due to variations in exchange rate was EUR 502.6 million (EUR 331.7 million and EUR 324.9 million at 31 December 2019 and 2018, respectively), measured with a VaR confidence level of 99% and a temporary horizon of one day.
•At 31 December 2020, the maximum expected loss in the value of assets and liabilities due to variations in equity portfolio was EUR 318.5 million (EUR 169.8 million and EUR 180.1 million at 31 December 2019 and 2018, respectively), measured with a VaR confidence level of 99% and a temporary horizon of one day.
874
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

In relation to the trading portfolio, the Santander Corporate & Investment Banking segment VaR closed December with EUR 8.3 million.
If any of these risks were to materialise, NII or the market value of the Group's assets and liabilities could suffer a material adverse impact.
2.4.2 We are subject to market, operational and other related risks associated with our derivative transactions that could have a material adverse effect on us.
We enter into derivative transactions for trading purposes as well as for hedging purposes. We are subject to market, credit and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder, including providing sufficient collateral).
Market practices and documentation for derivative transactions differ by country. In addition, the execution and performance of these transactions depend on our ability to maintain adequate control and administration systems. Moreover, our ability to adequately monitor, analyse and report derivative transactions continues to depend, largely, on our information technology systems. These factors further increase the risks associated with these transactions and could have a material adverse effect on us.
At 31 December 2020, the notional value of the trading derivatives in our books amounted to EUR 5,830,329 million (with a market value of EUR 67,137 million of debit balance and EUR 64,469 million of credit balance).
At 31 December 2020, the nominal value of the hedging derivatives in our books within our financial risk management strategy and with the aim of reducing asymmetries in the accounting treatment of our operations amounted to EUR 360,626 million (with market value of EUR 8,325 million in assets and EUR 6,869 million in liabilities).
2.4.3 Market conditions have resulted and could result in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.
In the past, financial markets have been subject to significant stress resulting in steep falls in perceived or actual financial asset values, particularly due to volatility in global financial markets and the resulting widening of credit spreads, including as a result of the covid-19 pandemic. We have material exposures to securities, loans and other investments that are recorded at fair value and are therefore exposed to potential negative fair value adjustments. Asset valuations in future periods, reflecting then-prevailing market conditions, may result in negative changes in the fair values of our financial assets and these may also translate into increased impairments. In addition, the value ultimately realized by us on disposal may be lower than the current fair value. Any of these factors could
require us to record negative fair value adjustments, which may have a material adverse effect on our operating results, financial condition or prospects.
In addition, to the extent that fair values are determined using financial valuation models, such values may be inaccurate or subject to change, as the data used by such models may not be available or may become unavailable due to changes in market conditions, particularly for illiquid assets, and particularly in times of economic instability. In such circumstances, our valuation methodologies require us to make assumptions, judgements and estimates in order to establish fair value, and reliable assumptions are difficult to make and are inherently uncertain and valuation models are complex, making them inherently imperfect predictors of actual results. Any consequential impairments or write-downs could have a material adverse effect on our operating results, financial condition and prospects.
2.5 Risks related to our industry
2.5.1 Goodwill impairments may be required in relation to acquired businesses.
We have made business acquisitions in recent years and may make further acquisitions in the future. It is possible that the goodwill which has been attributed, or may be attributed, to these businesses may have to be written-down if our valuation assumptions are required to be reassessed as a result of any deterioration in their underlying profitability, asset quality and other relevant matters. Impairment testing in respect of goodwill is performed annually, or more frequently if there are impairment indicators present, and comprises a comparison of the carrying amount of the cash-generating unit with its recoverable amount. Goodwill impairment does not, however, affect our regulatory capital. In 2019 we recognized an impairment of goodwill of EUR 1,491 million in Santander UK. In 2020, considering the economic and business environment resulting from covid-19, we recognized an impairment of goodwill of EUR 10,100 million (of which EUR 6,101 million correspond to Santander UK, 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). See note 17 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F. There can be no assurances that we will not have to write down the value attributed to goodwill in the future, which would adversely affect our results and net assets.
2.5.2 Changes in our pension liabilities and obligations could have a material adverse effect on us.
We provide retirement benefits for many of our former and current employees through a number of defined benefit pension plans. We calculate the amount of our defined benefit obligations using actuarial techniques and assumptions, including mortality rates, the rate of increase of salaries, discount rates, inflation, the expected rate of return on plan assets, and others. The accounting and disclosures are based on IFRS-IASB and on those other requirements defined by the local supervisors. Given the nature of these obligations, changes in the assumptions that support valuations, including market conditions, can
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result in actuarial losses which would in turn impact the financial condition of our pension funds. Because pension obligations are generally long term obligations, fluctuations in interest rates have a material impact on the projected costs of our defined benefit obligations and therefore on the amount of pension expense that we accrue.
Any increase in the current size of the funding deficit in our defined benefit pension plans could result in our having to make increased contributions to reduce or satisfy the deficits, which would divert resources from use in other areas of our business. Any such increase may be due to certain factors over which we have no or limited control. Increases in our pension liabilities and obligations could have a material adverse effect on our business, financial condition and results of operations.
At 31 December 2020, our provision for pensions and other obligations amounted to EUR 5,727 million. See more information in note 25.c) to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
2.5.3 We depend in part upon dividends and other funds from subsidiaries.
Some of our operations are conducted through our financial services subsidiaries. As a result, our ability to pay dividends, to the extent we decide to do so, depends in part on the ability of our subsidiaries to generate earnings and to pay dividends to us. Payment of dividends, distributions and advances by our subsidiaries will be contingent upon their earnings and business considerations and is or may be limited by legal, regulatory and contractual restrictions. For instance, the repatriation of dividends from our Argentine subsidiaries have been subject to certain restrictions. Currently, distribution of results are suspended until 30 June 2021. Additionally, our right to receive any assets of any of our subsidiaries as an equity holder of such subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of our subsidiaries’ creditors, including trade creditors. We also have to comply with increased capital requirements, which could result in the imposition of restrictions or prohibitions on discretionary payments including the payment of dividends and other distributions to us by our subsidiaries. For instance, the ECB adopted on 27 March 2020 its Recommendation ECB 2020/19, recommending banks not to pay dividends or buy back shares during the covid-19 pandemic until at least 1 October 2020. On 28 July 2020, the ECB extended this recommendation until 1 January 2021. Lastly, on 15 December 2020, the ECB issued its recommendation 2020/35 on dividend distributions during the covid-19 pandemic and repealing its previous recommendation on this matter, by which it recommends 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.
In relation to the UK, on 31 March 2020, the Prudential Regulation Authority (PRA) at the Bank of England sent a letter to Santander UK requesting to suspend the payment of dividends until the end of 2020. On 10 December 2020, the PRA published its statement on capital distributions by large UK banks, on which it stated that there was scope for banks to recommence some distributions should their boards choose to do so, within an appropriately prudent framework. In connection with full-year 2020 results, the PRA considers that distributions should not exceed the highest of 20 basis points of RWAs at the end of 2020 or 25% of cumulative eight-quarter profits covering 2019 and 2020 after deducting prior shareholder distributions over that period. Dividend income from Santander UK Group Holdings Ltd in 2020 amounted to EUR 186 million.
To the extent that these recommendations, or other similar measures that may be taken by supervisors from other geographies, are applied by some of our subsidiaries, it could have a material adverse effect on our business, financial condition and results of operations.
At 31 December 2020, dividend income for Banco Santander, S.A. represented 49% of its total income.
2.5.4 Increased competition, including from non-traditional providers of banking services such as financial technology providers, and industry consolidation may adversely affect our results of operations.
We face substantial competition in all parts of our business, including in payments, in originating loans and in attracting deposits. The competition in originating loans comes principally from other domestic and foreign banks, mortgage banking companies, consumer finance companies, insurance companies and other lenders and purchasers of loans.
In addition, there has been a trend towards consolidation in the banking industry, which has created larger and stronger banks with which we must now compete. There can be no assurance that this increased competition will not adversely affect our growth prospects, and therefore our operations. We also face competition from non-bank competitors, such as brokerage companies, department stores (for some credit products), leasing and factoring companies, mutual fund and pension fund management companies and insurance companies.
Non-traditional providers of banking services, such as Internet based e-commerce providers, mobile telephone companies and Internet search engines may offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to banking regulation. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricing and rates and devote more resources to technology, infrastructure and marketing.
876
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

New competitors may enter the market or existing competitors may adjust their services with unique product or service offerings or approaches to providing banking services. If we are unable to successfully compete with current and new competitors, or if we are unable to anticipate and adapt our offerings to changing banking industry trends, including technological changes, our business may be adversely affected. In addition, our failure to effectively anticipate or adapt to emerging technologies or changes in customer behaviour, including among younger customers, could delay or prevent our access to new digital-based markets, which would in turn have an adverse effect on our competitive position and business. Furthermore, the widespread adoption of new technologies, including distributed ledger, artificial intelligence and/or biometrics, to provide services such as cryptocurrencies and payments, could require substantial expenditures to modify or adapt our existing products and services as we continue to grow our Internet and mobile banking capabilities. Our customers may choose to conduct business or offer products in areas that may be considered speculative or risky. Such new technologies and mobile banking platforms in recent years could negatively impact the value of our investments in bank premises, equipment and personnel for our branch network. The persistence or acceleration of this shift in demand towards Internet and mobile banking may necessitate changes to our retail distribution strategy, which may include closing and/or selling certain branches and restructuring our remaining branches and work force. These actions could lead to losses on these assets and may lead to increased expenditures to renovate, reconfigure or close a number of our remaining branches or to otherwise reform our retail distribution channel. Furthermore, our failure to swiftly and effectively implement such changes to our distribution strategy could have an adverse effect our competitive position.
In particular, we face the challenge to compete in an ecosystem where the relationship with the consumer is based on access to digital data and interactions. This access is increasingly dominated by digital platforms who are already eroding our results in very relevant markets such as payments. This privileged access to data can be used as a leverage to compete with us in other adjacent markets and may reduce our operations and margins in core businesses such as lending or wealth management. The alliances that our competitors are starting to build with Bigtechs can make it more difficult for us to successfully compete with them and could adversely affect us.
Increasing competition could also require that we increase our rates offered on deposits or lower the rates we charge on loans, which could also have a material adverse effect on us, including our profitability. It may also negatively affect our business results and prospects by, among other things, limiting our ability to increase our customer base and expand our operations and increasing competition for investment opportunities.
If our customer service levels were perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new
deposits or retain existing deposits, which could have a material adverse effect on our operating results, financial condition and prospects.
2.5.5 If we are unable to manage the growth of our operations or to integrate successfully our inorganic growth, this could have an adverse impact on our profitability.
We allocate management and planning resources to develop strategic plans for organic growth, and to identify possible acquisitions and disposals and areas for restructuring our businesses. From time to time, we evaluate acquisition and partnership opportunities that we believe offer additional value to our shareholders and are consistent with our business strategy. However, we may not be able to identify suitable acquisition or partnership candidates, and our ability to benefit from any such acquisitions and partnerships will depend in part on our successful integration of those businesses. Any such integration entails significant risks such as unforeseen difficulties in integrating operations and systems, unexpected liabilities or contingencies relating to the acquired businesses, including legal claims and delivery and execution risks. We can give no assurances that our expectations with regards to integration and synergies will materialize. We also cannot provide assurance that we will, in all cases, be able to manage our growth effectively or deliver our strategic growth objectives. Challenges that may result from our strategic growth decisions include our ability to:
•manage efficiently the operations and employees of expanding businesses;
•maintain or grow our existing customer base;
•assess the value, strengths and weaknesses of investment or acquisition candidates, including local regulation that can reduce or eliminate expected synergies;
•finance strategic investments or acquisitions;
•align our current information technology systems adequately with those of an enlarged group;
•apply our risk management policy effectively to an enlarged group; and
•manage a growing number of entities without over-committing management or losing key personnel.
Any failure to manage growth effectively could have a material adverse effect on our operating results, financial condition and prospects.
In addition, any acquisition or venture could result in the loss of key employees and inconsistencies in standards, controls, procedures and policies.
Moreover, the success of the acquisition or venture will at least in part be subject to a number of political, economic and other factors that are beyond our control. Any of these factors, individually or collectively, could have a material adverse effect on us.
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2.5.6 We may not effectively manage risks associated with the replacement or reform of benchmark indices.
Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be 'benchmarks', including those in widespread and long-standing use, have been the subject of ongoing international, national and other regulatory scrutiny and initiatives and proposals for reform. Some of these reforms are already effective while others are still to be implemented or are under consideration. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated.
Any of the benchmark reforms which have been proposed or implemented, or the general increased regulatory scrutiny of benchmarks, could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with regulations or requirements relating to benchmarks. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks.
Any of these developments, and any future initiatives to regulate, reform or change the administration of benchmarks, could result in adverse consequences to the return on, value of and market for loans, mortgages, securities, derivatives and other financial instruments whose returns are linked to any such benchmark, including those issued, funded or held by Banco Santander.
Various regulators, industry bodies and other market participants in the U.S. and other countries have worked to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. A transition away from the widespread use of certain benchmarks to alternative rates has begun and will continue over the course of the next few years. There is no assurance that these new rates will be accepted or widely used by market participants, or that the characteristics of any of these new rates will be similar to, or produce the economic equivalent of, the benchmarks that they seek to replace. If a particular benchmark were to be discontinued and an alternative rate has not been successfully introduced to replace that benchmark, this could result in widespread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on Banco Santander’s results of operations. In addition, the transition of a particular benchmark to a replacement rate could affect hedge accounting relationships between financial instruments linked to that benchmark and any related derivatives, which could adversely affect Banco Santander’s results.
On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the FCA), which regulates the London interbank offered rate (LIBOR), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicated that the continuation of LIBOR on the current basis could not be guaranteed after 2021. On
December 4, 2020, ICE Benchmark Administration Limited, which administers LIBOR, published a consultation on its intention to cease the publication of most LIBOR settings as of the end of December 2021, except for the publication until June 30, 2023 of certain U.S. dollar LIBOR settings. Therefore, after 2021 most LIBOR settings may cease to be calculated. The Bank of England is publishing a reformed Sterling Overnight Index Average, comprised of a broader set of overnight Sterling money market transactions, which has been selected by the Working Group on Sterling Risk-Free Reference Rates as the alternative rate to Sterling LIBOR. In addition, the Federal Reserve Bank of New York now publishes three reference rates based on overnight U.S. Treasury repurchase agreement transactions, including the Secured Overnight Financing Rate (SOFR), which has been recommended as the alternative to U.S. dollar LIBOR. Furthermore, the European Money Market Institute (EMMI) announced the discontinuation of the EONIA after 3 January 2022 and that from 2 October 2019 until its total discontinuation it will be replaced by the €STR plus a spread of 8.5 basis points. Many unresolved issues remain, such as the timing of the successor benchmarks' introduction and the transition of a particular benchmark to a replacement rate, which could result in widespread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities. These and other reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated which introduces a number of risks for the Group. These risks include (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. The replacement benchmarks and their transition path have been defined, but the mechanisms for implementation are under development. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect us. However, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects. We may also be adversely affected if the change restricts our ability to provide products and services or if it necessitates the development of additional information technology systems.
2.6 Risk Management
2.6.1 Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system,
878
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.
The management of risk is an integral part of our activities. We seek to monitor and manage our risk exposure through a variety of separate but complementary financial, credit, market, operational, compliance and legal reporting systems, among others. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, such techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we may fail to identify or anticipate.
Some of our qualitative tools and metrics for managing risk are based upon our use of observed historical market behaviour. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate. In addition, our quantified modelling does not take all risks into account.
Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. We could face adverse consequences as a result of decisions, which may lead to actions by management, based on models that are poorly developed, implemented or used, or as a result of the modelled outcome being misunderstood or the use of such information for purposes for which it was not designed. If existing or potential customers or counterparties believe our risk management is inadequate, they could take their business elsewhere or seek to limit their transactions with us. Any of these factors could have a material adverse effect on our reputation, operating results, financial condition and prospects.
As a retail bank, one of the main types of risks inherent in our business is credit risk. For example, an important feature of our credit risk management system is to employ an internal credit rating system to assess the particular risk profile of a customer. As this process involves detailed analyses of the customer, taking into account both quantitative and qualitative factors, it is subject to human or IT systems errors. In exercising their judgement on current or future credit risk behaviour of our customers, our employees may not always be able to assign an accurate credit rating, which may result in our exposure to higher credit risks than indicated by our risk rating system.
Some of the models and other analytical and judgement-based estimations we use in managing risks are subject to review by, and require the approval of, our regulators. If models do not comply with all their expectations, our regulators may require us to make changes to such models, may approve them with additional capital requirements or we may be precluded from using them. Any of these possible situations could limit our ability to expand our businesses or have a material impact on our financial results
Failure to effectively implement, consistently monitor or continuously refine our credit risk management system may result in an increase in the level of non-performing loans and a higher risk exposure for us, which could have a material adverse effect on us.
Our board of directors is responsible for the approval of the Group’s general policies and strategies, and in particular for the general risk policy. In addition to the executive committee, which maintains a special focus on risk, the board has a specific risk supervision, regulation and compliance committee. See more information in note 54.a)2 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F and in section 4 'Board of directors' in the Corporate governance chapter in Part 1 of this annual report on Form 20-F.
2.7 Technology Risks
2.7.1 Any failure to effectively improve or upgrade our information technology infrastructure and management information systems in a timely manner or any failure to successfully implement new cybersecurity and data privacy regulations could have a material adverse effect on us.
Our ability to remain competitive depends in part on our ability to upgrade our information technology on a timely and cost-effective basis. We must continually make significant investments in, and improvements to, our information technology infrastructure in order to meet the needs of our customers. We cannot assure that in the future we will be able to maintain the level of capital expenditures necessary to support the continuous improvement and upgrading of our information technology infrastructure. To the extent we are dependent on any particular technology or technological solution, we may be harmed if such technology or technological solution becomes non-compliant with existing industry standards, fails to meet or exceed the capabilities of our competitors’ equivalent technologies or technological solutions, becomes increasingly expensive to service, retain and update, becomes subject to third party claims of intellectual property infringement, misappropriation or other violation, or malfunctions or functions in a way we did not anticipate. Additionally, new technologies and technological solutions are continually being released. As such, it is difficult to predict the problems we may encounter in improving our technologies’ functionality. There is no assurance that we will be able to successfully adopt new technology as critical systems and applications become obsolete and better ones become available. Any failure to effectively improve or upgrade our information technology infrastructure and management information systems in a timely and cost-efficient manner could have a material adverse effect on us.
In addition, several new and proposed laws, directives and regulations are defining how to manage cybersecurity and data protection risks, including with respect to the data breach reporting requirements and supervisory processes, among others. These regulations are quite fragmented in terms of definitions, scope and applicability. A failure to successfully implement all or some of these new local, state, national and international regulations, which in some
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cases have severe sanctions regimes, could have a material adverse effect on us.

2.7.2 Risks relating to data collection, processing and storage systems and security are inherent in our business.
Like other financial institutions, we receive, manage, process, hold and transmit proprietary and sensitive or confidential information, including personal information of customers and employees in the conduct of our banking operations, as well as a large number of assets. Accordingly, our business depends on our ability to process a large number of transactions efficiently and accurately, and on our ability to rely on our digital technologies, computer and email services, software and networks, as well as on the secure processing, storage and transmission of confidential or sensitive personal data and other information using our computer systems and networks or those of our third party vendors. The proper and secure functioning of our financial controls, accounting and other data collection and processing systems is critical to our business and to our ability to compete effectively. Cybersecurity incidents and data losses can result from inadequate personnel, inadequate or failed internal control processes and systems, or from external events or actors that interrupt normal business operations. We also face the risk that the design of our cybersecurity controls and procedures prove to be inadequate or are circumvented such that our data and/or client records are incomplete, not recoverable or not securely stored. Any material disruption or slowdown of our systems could cause information, including data related to customer requests, to be lost or to be delivered to our clients with delays or errors, which could reduce demand for our services and products, could produce customer claims and could materially and adversely affect us.
Although we work with our clients, vendors, service providers, counterparties and other third parties to develop secure data and information processing, storage and transmission capabilities to prevent against information security risk, we routinely manage personal, confidential and proprietary information by electronic means, and we may be the target of attempted cyber-attacks or subject to other information security incidents or breaches. This is especially applicable in the current response to the covid-19 pandemic and the shift we have experienced in having a significant part of our employees working from their homes for the time being, as our employees access our secure networks through their home networks. If we cannot maintain effective and secure electronic data and information, management and processing systems or if we fail to maintain complete physical and electronic records, this could result in disruptions to our operations, claims from customers, regulators, employees and other parties, violations of applicable privacy and other laws, regulatory sanctions and serious reputational and financial harm to us.
We take protective measures and continuously monitor and develop our systems to protect our technology infrastructure, data and information from misappropriation or corruption, but our and our third-party vendors’ systems, software and networks nevertheless may be vulnerable to disruptions and failures caused by unauthorized access or misuse, computer viruses, disability devices, phishing
attacks or other malicious code, fire, power loss, telecommunications failures, employee misconduct, human error, computer hackers, and other events that could have a security impact on us. An interception, loss, misuse or mishandling of personal, confidential or proprietary information sent to or received from a client, employee, vendor, service provider, counterparty or other third party could result in legal liability, regulatory action, reputational harm and financial loss. There can be no absolute assurance that we will not suffer material losses from operational risks in the future, including those relating to any security breaches.
We have seen in recent years computer systems of companies and organizations being increasingly targeted, and the techniques used to obtain unauthorized, improper or illegal access to information technology systems have become increasingly complex and sophisticated. Furthermore, such techniques change frequently and are often not recognized or detected until after they have been launched and can originate from a wide variety of sources, including not only cyber criminals, but also activists and rogue states. We have been and continue to be subject to a range of cyber-attacks, such as denial of service, malware and phishing. Cyber-attacks could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash). In addition, cyber-attacks could disrupt our electronic systems used to service our customers. As attempted attacks continue to evolve in scope and sophistication, we may incur significant costs in order to modify or enhance our protective measures against such attacks, or to investigate or remediate any vulnerability or resulting breach, or in communicating cyber-attacks to our customers or other affected individuals. If we fail to effectively manage our cybersecurity risk, including by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects, including through the payment of customer compensation or other damages, litigation expenses, regulatory penalties and fines and/or through the loss of assets. In addition, we may also be impacted by cyber-attacks against national critical infrastructures of the countries where we operate, such as telecommunications networks. Our information technology systems are dependent on such national critical infrastructure and any cyber-attack against such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such national critical infrastructure, we have limited ability to protect our information technology systems from the adverse effects of such a cyber-attack. For further information see 'Risk management' chapter in Part 1 of this annual report on Form 20-F.
Although we have procedures and controls in place to safeguard personal and other confidential or sensitive information in our possession, unauthorized access or disclosures could subject us to legal actions and administrative sanctions, as well as damages and reputational harm that could materially and adversely affect our operating results, financial condition and prospects. Further, our business is exposed to risk from employees’ potential non-compliance with policies, misconduct, negligence or fraud, which could result in
880
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

regulatory sanctions and serious reputational and financial harm. It is not always possible to deter or prevent employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. In addition, we may be required to report events related to information security issues, events where customer information may be compromised, unauthorized access to our systems and other security breaches, to the relevant regulatory authorities.
3. General risks
3.1 Risks related to our industry
3.1.1 Climate change can create transition risks, physical risks, and other risks that could adversely affect us.
Climate change may imply three primary drivers of financial risk that could adversely affect us:
•Transition risks associated with the move to a low-carbon economy, both at idiosyncratic and systemic levels, such as through policy, regulatory and technological changes.
•Physical risks related to extreme weather impacts and longer term trends, which could result in financial losses that could impair asset values and the creditworthiness of our customers.
•Liability risks derived from parties who may suffer losses from the effects of climate change and may seek compensation from those they hold responsible such as state entities, regulators, investors and lenders.
These primary drivers could materialize, among others, in the following financial risks:
•Credit risks: Physical climate change could lead to increased credit exposure and companies with business models not aligned with the transition to a low-carbon economy may face a higher risk of reduced corporate earnings and business disruption due to new regulations or market shifts.
•Market risks: Market changes in the most carbon-intensive sectors could affect energy and commodity prices, corporate bonds, equities and certain derivatives contracts. Increasing frequency of severe weather events could affect macroeconomic conditions, weakening fundamental factors such as economic growth, employment and inflation.
•Operational risks: Severe weather events could directly impact business continuity and operations both of customers and ours.
•Reputational risk could also arise from shifting sentiment among customers and increasing attention and scrutiny from other stakeholders (investors, regulators, etc.) on our response to climate change.
Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.
3.1.2 The financial problems faced by our customers could adversely affect us.
Market turmoil and economic recession could materially and adversely affect the liquidity, credit ratings, businesses and/or financial conditions of our borrowers, which could in turn increase our non-performing loan ratios, impair our loan and other financial assets and result in decreased demand for borrowings in general. In addition, our customers may further significantly decrease their risk tolerance to non-deposit investments such as stocks, bonds and mutual funds, which would adversely affect our fee and commission income. Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.
3.1.3 Our ability to maintain our competitive position depends, in part, on the success of new products and services we offer our clients and our ability to offer products and services that meet the customers’ needs during the whole life cycle of the products or services, and we may not be able to manage various risks we face as we expand our range of products and services that could have a material adverse effect on us.
The success of our operations and our profitability depends, in part, on the success of new products and services we offer our clients and our ability to offer products and services that meet the customers’ needs during all their life cycle. However, our clients’ needs or desires may change over time, and such changes may render our products and services obsolete, outdated or unattractive and we may not be able to develop new products that meet our clients’ changing needs. Our success is also dependent on our ability to anticipate and leverage new and existing technologies that may have an impact on products and services in the banking industry. Technological changes may further intensify and complicate the competitive landscape and influence client behaviour. If we cannot respond in a timely fashion to the changing needs of our clients, we may lose clients, which could in turn materially and adversely affect us. In addition, the cost of developing products is likely to affect our results of operations.
As we expand the range of our products and services, some of which may be at an early stage of development in the markets of certain regions where we operate, we will be exposed to new and potentially increasingly complex risks, such as the conduct risk in the relationship with customers, and development expenses. Our employees and risk management systems, as well as our experience and that of our partners may not be sufficient to enable us to properly manage such risks. Any or all of these factors, individually or collectively, could have a material adverse effect on us.
While we have successfully increased our customer service levels in recent years, should these levels ever be perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on our operating results, financial condition and prospects.
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3.1.4 We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.
Our continued success depends in part on the continued service of key members of our senior executive team and other key employees. The ability to continue to attract, train, motivate and retain highly qualified and talented professionals is a key element of our strategy. The successful implementation of our strategy and culture depends on the availability of skilled and appropriate management, both at our head office and in each of our business units. If we or one of our business units or other functions fails to staff its operations appropriately, or loses one or more of its key senior executives or other key employees and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected.
In addition, the financial industry has and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. If we fail or are unable to attract and appropriately train, motivate and retain qualified professionals, our business may also be adversely affected.
3.1.5 We rely on third parties and affiliates for important products and services.
Third party vendors and certain affiliated companies provide key components of our business infrastructure such as loan and deposit servicing systems, back office and business process support, information technology production and support, Internet connections and network access. Relying on these third parties and affiliated companies can be a source of operational and regulatory risk to us, including with respect to security breaches affecting such parties. We are also subject to risk with respect to security breaches affecting the vendors and other parties that interact with these service providers. As our interconnectivity with these third parties and affiliated companies increases, we increasingly face the risk of operational failure with respect to their systems. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs and potentially decreasing customer satisfaction. In addition, any problems caused by these third parties or affiliated companies, including as a result of them not providing us their services for any reason, or performing their services poorly, could adversely affect our ability to deliver products and services to customers and otherwise conduct our business, which could lead to reputational damage and regulatory investigations and intervention. Replacing these third party vendors could also entail significant delays and expense. Further, the operational and regulatory risk we face as a result of these arrangements may be increased to the extent that we restructure such arrangements. Any restructuring could involve significant expense to us and entail significant delivery and execution risk which could have a material adverse effect on our business, operations and financial condition.
3.1.6 Damage to our reputation could cause harm to our business prospects.
Maintaining a positive reputation is critical to protect our brand, attract and retain customers, investors and employees and conduct business transactions with counterparties. Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, including the possibility of fraud perpetrated by our employees, litigation or regulatory enforcement, failure to deliver minimum standards of service and quality, dealing with sectors that are not well perceived by the public (weapons industries or embargoed countries, for example), dealing with customers in sanctions lists, rating downgrades, significant variations in our share price throughout the year, compliance failures, unethical behaviour, and the activities of customers and counterparties, including activities that negatively affect the environment. Further, negative publicity regarding us may result in harm to our prospects.
Actions by the financial services industry generally or by certain members of, or individuals in, the industry can also affect our reputation. For example, the role played by financial services firms in the financial crisis and the seeming shift toward increasing regulatory supervision and enforcement has caused public perception of us and others in the financial services industry to decline.
We could suffer significant reputational harm if we fail to identify and manage potential conflicts of interest properly. The failure, or perceived failure, to adequately address conflicts of interest could affect the willingness of clients to deal with us, or give rise to litigation or enforcement actions against us. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us.
We may be the subject of misinformation and misrepresentations deliberately propagated to harm our reputation or for other deceitful purposes, or by profiteering short sellers seeking to gain an illegal market advantage by spreading false information about us. There can be no assurance that we will effectively neutralize and contain a false information that may be propagated regarding the Group, which could have an adverse effect on our operating results, financial condition and prospects.
3.1.7 We engage in transactions with our subsidiaries or affiliates that others may not consider to be on an arm’s-length basis.
We and our affiliates have entered into a number of services agreements pursuant to which we render services, such as administrative, accounting, finance, treasury, legal services and others.
Spanish and US law provide for several procedures designed to ensure that the transactions entered into with or among our financial subsidiaries and/or affiliates do not deviate from prevailing market conditions for those types of transactions.
We are likely to continue to engage in transactions with our affiliates. Future conflicts of interests may arise between us
882
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

and any of our affiliates, or among our affiliates, which may not be resolved in our favour.
3.2 Financial reporting and control risks
3.2.1 Changes in accounting standards could impact reported earnings.
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can materially impact how we record and report our financial condition and results of operations, as well as affect the calculation of our capital ratios. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. For further information about developments in financial accounting and reporting standards, see note 1 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
3.2.2 Our financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of our operations and financial position.
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The accounting policies deemed critical to our results and financial position, based upon materiality and significant judgements and estimates, include impairment of loans and advances, goodwill impairment, valuation of financial instruments, deferred tax assets provision and pension obligation for liabilities.
If the judgement, estimates and assumptions we use in preparing our consolidated financial statements are subsequently found to be incorrect, there could be a material effect on our results of operations and a corresponding effect on our funding requirements and capital ratios.
3.2.3 Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.
Disclosure controls and procedures, including internal controls over financial reporting, are designed to provide reasonable assurance that information required to be disclosed by the company in reports filed or submitted under the U.S. Securities Exchange Act of 1934 (the Exchange Act) is accumulated and communicated to management, and recorded, processed, summarised and
reported within the time periods specified in the US Securities and Exchange Commission’s rules and forms.
These disclosure controls and procedures have inherent limitations which include the possibility that judgements in decision-making can be faulty and that breakdowns occur because of errors or mistakes. Additionally, controls can be circumvented by any unauthorized override of the controls. Consequently, our businesses are exposed to risk from potential non-compliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions, civil claims and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of ‘rogue traders’ or other employees. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.
3.3 Foreign private issuer and other risks
3.3.1 Our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the United States.
Issuers of securities in Spain are required to make public disclosures that are different from, and that may be reported under presentations that are not consistent with, disclosures required in other countries, including the United States. In particular, for regulatory purposes, we currently prepare and will continue to prepare and make available to our shareholders statutory financial statements in accordance with IFRS-IASB, which differs from U.S. Generally Accepted Accounting Principles in a number of respects. In addition, as a foreign private issuer, we are not subject to the same disclosure requirements in the United States as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules under Section 16 of the Exchange Act. Accordingly, the information about us available to you will not be the same as the information available to shareholders of a U.S. company and may be reported in a manner that you are not familiar with.
3.3.2 Investors may find it difficult to enforce civil liabilities against us or our directors and officers.
The majority of our directors and officers reside outside of the United States. In addition, all or a substantial portion of our assets and the assets of our directors and officers are located outside of the United States. Although we have appointed an agent for service of process in any action against us in the United States with respect to our ADSs, none of our directors or officers has consented to service of process in the United States or to the jurisdiction of any United States court. As a result, it may be difficult for investors to effect service of process within the United States on such persons.
Additionally, investors may experience difficulty in Spain enforcing foreign judgements obtained against us and our
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executive officers and directors, including in any action based on civil liabilities under the U.S. federal securities laws. Based on the opinion of Spanish counsel, there is doubt as to the enforceability against such persons in Spain, whether in original actions or in actions to enforce judgements of U.S. courts, of liabilities based solely on the U.S. federal securities laws.
3.3.3 As a holder of ADSs you will have different shareholders’ rights than do shareholders of companies incorporated in the United States and certain other jurisdictions.
Our corporate affairs are governed by our Bylaws and by Spanish corporate law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Spain. Under Spanish corporate law, you may have fewer and less well-defined rights to protect your interests than under the laws of other jurisdictions outside Spain.
Although Spanish corporate law imposes restrictions on insider trading and price manipulation, the form of these regulations and the manner of their enforcement may differ from that in the U.S. securities markets or markets in certain other jurisdictions. In addition, in Spain, self-dealing and the preservation of shareholder interests may be regulated differently, which could potentially disadvantage you as a holder of the shares underlying ADSs.
3.3.4 ADS holders may be subject to additional risks related to holding ADSs rather than shares.
Because ADS holders do not hold their shares directly, they are subject to the following additional risks, among others:
•as an ADS holder, you may not be able to exercise the same shareholder rights as a direct holder of ordinary shares;
•we and the depositary may amend or terminate the deposit agreement without the ADS holders’ consent in a manner that could prejudice ADS holders or that could affect the ability of ADS holders to transfer ADSs; and
•the depositary may take or be required to take actions under the Deposit Agreement that may have adverse consequences for some ADS holders in their particular circumstances.

884
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

5. Information on the company
5.1. Average balance sheets and interest rates

The following tables include, by domicile of the Group entity at which the relevant asset or liability is accounted for, our average balances and interest rates for the past three years. Domestic balances are those of Group entities domiciled in Spain, which reflect our domestic activities, and international balances are those of Group entities domiciled outside of Spain, which reflect our foreign activities.
To better understand the behaviour of average balance sheets and interest rates, we have split our foreign activities into ‘International - Mature markets’ which include Europe (except for Spain and Poland), the United States and ‘International - Developing markets’ which include South America, Mexico and Poland.
You should read the following tables and the tables included under “-Changes in Interest Income / (charges) -Volume and Rate Analysis” and “-Assets-Earning Assets-Yield Spread” in conjunction with the following:
•We have included loan arrangement fees in interest income;

•We have not recalculated tax-exempt income on a tax-equivalent basis because the effect of doing so would not be significant;
•We have included income and expenses from interest-rate hedging transactions as a separate line item under interest income and expenses if these transactions qualify for hedge accounting under IFRS-IASB. If these transactions did not qualify for such treatment, we have included income and expenses on these transactions elsewhere in our income statement. See note 2 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F for a discussion of our accounting policies for hedging activities;
•We have stated average balances on a net basis, netting our allowances for credit losses; and
•All average data have been calculated using month-end balances, which is not significantly different from having used daily averages.
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Year ended 31 December,
202020192018
ASSETSAverage BalanceInterestAverage RateAverage BalanceInterestAverage RateAverage BalanceInterestAverage Rate
(in million of euros, except percentages)
Cash and deposits on demand and loans and advances to central banks and credit institutions (A)223,096 2,232 1.00 %203,809 3,920 1.92 %192,669 4,051 2.10 %
Domestic97,511 650 0.67 %84,412 598 0.71 %75,250 784 1.04 %
International - Mature markets79,703 512 0.64 %66,093 910 1.38 %66,326 733 1.11 %
International - Developing markets45,882 1,070 2.33 %53,304 2,412 4.52 %51,093 2,534 4.96 %
Loans and advances to customers930,563 38,788 4.17 %910,327 46,180 5.07 %861,327 43,489 5.05 %
Domestic251,536 4,913 1.95 %236,132 5,420 2.30 %240,845 5,366 2.23 %
International - Mature markets509,016 17,136 3.37 %491,479 18,426 3.75 %451,034 17,287 3.83 %
International - Developing markets170,011 16,739 9.85 %182,716 22,334 12.22 %169,448 20,836 12.30 %
Debt securities172,940 5,022 2.90 %190,128 6,378 3.35 %192,193 6,429 3.35 %
Domestic46,390 341 0.74 %61,498 599 0.97 %70,746 1,007 1.42 %
International - Mature markets49,667 619 1.25 %56,935 829 1.46 %55,173 792 1.44 %
International - Developing markets76,883 4,062 5.28 %71,695 4,950 6.90 %66,274 4,630 6.99 %
Income from hedging operations(343)232 305 
Domestic21 59 (37)
International - Mature markets(116)161 (37)
International - Developing markets(248)12 379 
Other interest42 75 51 
Domestic10 23 21 
International - Mature markets21 31 16 
International - Developing markets11 21 14 
Total Interest earning assets1,326,599 45,741 3.45 %1,304,264 56,785 4.35 %1,246,189 54,325 4.36 %
Domestic395,437 5,935 1.50 %382,042 6,699 1.75 %386,841 7,141 1.85 %
International - Mature markets638,386 18,172 2.85 %614,507 20,357 3.31 %572,533 18,791 3.28 %
International - Developing markets292,776 21,634 7.39 %307,715 29,729 9.66 %286,815 28,393 9.90 %
Other non-interest earning assets210,953 203,903 196,672 
Assets from discontinued operations— — — 
Total Average Assets1,537,552 45,741 1,508,167 56,785 1,442,861 54,325 
Note: As of 31 December 2020, 2019 and 2018, Total average assets attributed to international activities accounted for 68%, 69% and 68%, respectively, of the Group’s Total average assets. (International - Mature markets accounted for 46%, 46% and 45% and International - Developing markets accounted for 22%, 23% and 23%, respectively).

(A) Interest includes income from liabilities reported in "Deposits from central banks and credit institutions" related to funding from the European Central Bank.
886
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Year ended 31 December,
202020192018
LIABILITIES AND STOCKHOLDERS EQUITYAverage BalanceInterestAverage RateAverage BalanceInterestAverage RateAverage BalanceInterestAverage Rate
(in million of euros, except percentages)
Deposits from central banks and credit institutions (B)187,128 2,147 1.15 %181,651 3,248 1.79 %191,073 3,218 1.68 %
Domestic90,747 394 0.43 %86,635 496 0.57 %101,728 691 0.68 %
International - Mature markets61,877 445 0.72 %59,155 884 1.49 %57,768 677 1.17 %
International - Developing markets34,504 1,308 3.79 %35,861 1,868 5.21 %31,577 1,850 5.86 %
Customer deposits837,397 5,599 0.67 %811,151 10,137 1.25 %773,578 9,062 1.17 %
Domestic269,979 332 0.12 %263,016 665 0.25 %250,470 882 0.35 %
International - Mature markets385,956 1,662 0.43 %366,003 2,659 0.73 %351,873 2,085 0.59 %
International - Developing markets181,462 3,605 1.99 %182,132 6,813 3.74 %171,235 6,095 3.56 %
Marketable debt securities (A)247,284 5,119 2.07 %246,133 6,679 2.71 %221,196 6,073 2.75 %
Domestic99,466 1,539 1.55 %84,217 1,580 1.88 %75,752 1,555 2.05 %
International - Mature markets116,411 2,395 2.06 %125,022 3,011 2.41 %111,863 2,550 2.28 %
International - Developing markets31,407 1,185 3.77 %36,894 2,088 5.66 %33,581 1,968 5.86 %
Other interest bearing liabilities10,650 281 2.64 %13,293 418 3.14 %7,261 186 2.56 %
Domestic6,331 117 1.85 %8,774 213 2.43 %5,470 91 1.66 %
International - Mature markets2,245 28 1.25 %2,131 25 1.17 %799 5 0.63 %
International - Developing markets2,074 136 6.56 %2,388 180 7.54 %992 90 9.07 %
Expenses from hedging operations(294)— 24 
Domestic(37)(21)(83)
International - Mature markets(205)25 (108)
International - Developing markets(52)(4)215 
Other interest895 1,020 1,421 
Domestic313 222 304 
International - Mature markets95 150 109 
International - Developing markets487 648 1,008 
Total interest bearing liabilities1,282,459 13,747 1.07 %1,252,228 21,502 1.72 %1,193,108 19,984 1.67 %
Domestic466,523 2,658 0.57 %442,642 3,155 0.71 %433,420 3,440 0.79 %
International - Mature markets566,489 4,420 0.78 %552,311 6,754 1.22 %522,303 5,318 1.02 %
International - Developing markets249,447 6,669 2.67 %257,275 11,593 4.51 %237,385 11,226 4.73 %
Other non-interest bearing liabilities155,714 146,386 143,798 
Non-Controlling interest9,920 11,096 10,884 
Stockholders' Equity89,459 98,457 95,071 
Liabilities from discontinued operations— — — 
Total average liabilities and Stockholders' Equity1,537,552 13,747 1,508,167 21,502 1,442,861 19,984 
Note: As of 31 December 2020, 2019 and 2018, Total average liabilities attributed to international activities accounted for 63%, 64% and 63%, respectively, of the Group’s Total average liabilities. (International - Mature markets accounted for 42%, 42% and 42% and International - Developing markets accounted for 21%, 22% and 21%, respectively).
(A) Does not include contingently convertible preference shares and perpetual subordinated notes because they do not accrue interests. We include them under “Other non-interest bearing liabilities”.
(B) 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.

Changes in Interest Income / (charges)-Volume and Rate Analysis
The following tables include, by domicile of the Group entity at which the relevant asset or liability is accounted for, changes in our net interest income between changes in average volume and changes in average rate for 2020 compared to 2019 and 2019 compared to 2018. We have
calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in the preceding sub-section entitled ‘-Average Balance Sheets and Interest Rates’.
san-20201231_g437.jpg
887
Year ended 31 December,
2020 / 2019
Increase (Decrease) due to changes in
INTEREST INCOME
Volume
Rate
Net Change
(in millions of euros)
Cash and deposits on demand and loans and advances to central banks and credit institutions253 (1,941)(1,688)
Domestic89 (37)52 
International - Mature markets464 (862)(398)
International - Developing markets(300)(1,042)(1,342)
Loans and advances to customers628 (8,020)(7,392)
Domestic338 (845)(507)
International - Mature markets1,763 (3,053)(1,290)
International - Developing markets(1,473)(4,122)(5,595)
Debt securities(221)(1,135)(1,356)
Domestic(170)(88)(258)
International - Mature markets(149)(61)(210)
International - Developing markets98 (986)(888)
Income from hedging operations(575)— (575)
Domestic(38)— (38)
International - Mature markets(277)— (277)
International - Developing markets(260)— (260)
Other interest(33)— (33)
Domestic(13)— (13)
International - Mature markets(10)— (10)
International - Developing markets(10)— (10)
Total Interest earning assets52 (11,096)(11,044)
Domestic206 (970)(764)
International - Mature markets1,791 (3,976)(2,185)
International - Developing markets(1,945)(6,150)(8,095)
Year ended 31 December,
2019 / 2018
Increase (Decrease) due to changes in
INTEREST INCOME
Volume
Rate
Net Change
(in millions of euros)
Cash and deposits on demand and loans and advances to central banks and credit institutions142 (273)(131)
Domestic87 (273)(186)
International - Mature markets(51)228 177 
International - Developing markets106 (228)(122)
Loans and advances to customers3,150 (459)2,691 
Domestic(106)160 54 
International - Mature markets1,634 (495)1,139 
International - Developing markets1,622 (124)1,498 
Debt securities204 (255)(51)
Domestic(119)(289)(408)
International - Mature markets(52)89 37 
International - Developing markets375 (55)320 
Income from hedging operations(73)— (73)
Domestic96 — 96 
International - Mature markets198 — 198 
International - Developing markets(367)— (367)
Other interest24 — 24 
Domestic2 — 2 
International - Mature markets15 — 15 
International - Developing markets7 — 7 
Total Interest earning assets3,447 (987)2,460 
Domestic(40)(402)(442)
International - Mature markets1,744 (178)1,566 
International - Developing markets1,743 (407)1,336 











888
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Year ended 31 December,
2020 / 2019
Increase (Decrease) due to changes in
INTEREST CHARGES
Volume
Rate
Net Change
(in millions of euros)
Deposits from central banks and credit institutions62 (1,163)(1,101)
Domestic23 (125)(102)
International - Mature markets107 (546)(439)
International - Developing markets(68)(492)(560)
Customer Deposits339 (4,877)(4,538)
Domestic17 (350)(333)
International - Mature markets347 (1,344)(997)
International - Developing markets(25)(3,183)(3,208)
Marketable debt securities(155)(1,405)(1,560)
Domestic261 (302)(41)
International - Mature markets(137)(479)(616)
International - Developing markets(279)(624)(903)
Other interest bearing liabilities(61)(76)(137)
Domestic(52)(44)(96)
International - Mature markets13 (10)3 
International - Developing markets(22)(22)(44)
Expenses from hedging operations(294)— (294)
Domestic(16)— (16)
International - Mature markets(230)— (230)
International - Developing markets(48)— (48)
Other interest(125)— (125)
Domestic91 — 91 
International - Mature markets(55)— (55)
International - Developing markets(161)— (161)
Total interest bearing liabilities(234)(7,521)(7,755)
Domestic324 (821)(497)
International - Mature markets45 (2,379)(2,334)
International - Developing markets(603)(4,321)(4,924)
Year ended 31 December,
2019 / 2018
Increase (Decrease) due to changes in
INTEREST CHARGES
Volume
Rate
Net Change
(in millions of euros)
Deposits from central banks and credit institutions68 (38)30 
Domestic(95)(100)(195)
International - Mature markets(73)280 207 
International - Developing markets236 (218)18 
Customer Deposits446 629 1,075 
Domestic42 (259)(217)
International - Mature markets5 569 574 
International - Developing markets399 319 718 
Marketable debt securities683 (77)606 
Domestic165 (140)25 
International - Mature markets329 132 461 
International - Developing markets189 (69)120 
Other interest bearing liabilities195 37 232 
Domestic69 53 122 
International - Mature markets18 2 20 
International - Developing markets108 (18)90 
Expenses from hedging operations(24)— (24)
Domestic62 — 62 
International - Mature markets133 — 133 
International - Developing markets(219)— (219)
Other interest(401)— (401)
Domestic(82)— (82)
International - Mature markets41 — 41 
International - Developing markets(360)— (360)
Total interest bearing liabilities967 551 1,518 
Domestic161 (446)(285)
International - Mature markets453 983 1,436 
International - Developing markets353 14 367 
san-20201231_g437.jpg
889

Earning assets-yield spread
The following table analyses our average earning assets, interest income and dividends on equity securities and net interest income by domicile of the Group entity at which they are accounted for. Furthermore, it shows gross yields, net yields and yield spreads for each of the years indicated. You should read this table and the footnotes thereto in light of our observations noted in the preceding sub-section entitled ‘-Average Balance Sheets and Interest Rates’, and the footnotes thereto.

Year ended 31 December,
202020192018
(in millions of euros, except percentages)
Average interest earning assets1,326,599 1,304,264 1,246,189 
Domestic395,437 382,042 386,841 
International - Mature markets638,386 614,507 572,533 
International - Developing markets292,776 307,715 286,815 
Interest and similar income45,741 56,785 54,325 
Domestic5,935 6,699 7,141 
International - Mature markets18,172 20,357 18,791 
International - Developing markets21,634 29,729 28,393 
Interest income / (charges) (A)31,994 35,283 34,341 
Domestic3,277 3,544 3,701 
International - Mature markets13,752 13,603 13,473 
International - Developing markets14,965 18,136 17,167 
Gross yield (B)3.45 %4.35 %4.36 %
Domestic1.50 %1.75 %1.85 %
International - Mature markets2.85 %3.31 %3.28 %
International - Developing markets7.39 %9.66 %9.90 %
Net yield (C)2.41 %2.71 %2.76 %
Domestic0.83 %0.93 %0.96 %
International - Mature markets2.15 %2.21 %2.35 %
International - Developing markets5.11 %5.89 %5.99 %
Yield spread (D)2.38 %2.64 %2.68 %
Domestic0.93 %1.04 %1.05 %
International - Mature markets2.07 %2.09 %2.26 %
International - Developing markets4.72 %5.16 %5.17 %
890
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

(A)    Interest income / (charges) is the net amount of interest and similar income and interest expense and similar charges. See “Income Statement” in the
consolidated financial statements included in Part 2 of this annual report on Form 20-F.
(B)    Gross yield is the quotient of interest income divided by average earning assets.
(C)    Net yield is the quotient of interest income / (charges) divided by average earning assets.
(D)Yield spread is the difference between gross yield on earning assets and the average cost of interest-bearing liabilities. For a discussion of the changes in yield spread for 2020 and 2019, see “Consolidated Directors’ Report-Economic and Financial Review - Section 3. Group financial performance - 3.2 Results” in Part 1 of this annual report on Form 20-F. For a discussion of the changes in yield spread for 2019 and 2018, see “Consolidated Directors’ Report-Economic and Financial Review - Section 3. Group financial performance - 3.2 Results” in Part 1 of our annual report for the year ended 2019 on Form 20-F.

Interest-earning assets
The following table shows, by domicile of the Group entity at which the relevant asset is accounted for, the percentage mix of our average interest-earning assets for the years indicated. You should read this table in light of our observations noted in the preceding sub-section entitled ‘-Average Balance Sheets and Interest Rates’, and the footnotes thereto.
Year ended 31 December,
202020192018
Cash and deposits on demand and loans and advances to central banks and credit institutions16.82 %15.63 %15.46 %
Domestic7.35 %6.47 %6.04 %
International - Mature markets6.01 %5.07 %5.32 %
International - Developing markets3.46 %4.09 %4.10 %
Loans and advances to customers70.14 %69.80 %69.12 %
Domestic18.96 %18.10 %19.33 %
International - Mature markets38.36 %37.68 %36.19 %
International - Developing markets12.82 %14.01 %13.60 %
Debt securities13.04 %14.58 %15.42 %
Domestic3.50 %4.72 %5.68 %
International - Mature markets3.74 %4.37 %4.43 %
International - Developing markets5.80 %5.50 %5.32 %

san-20201231_g437.jpg
891
5.2. Other industry Guide 3 disclosures
5.2.1. Assets
Investment securities
At 31 December 2020, the book value of our investment securities was EUR 192.19 billion (representing 12.7% of our total assets). These investment securities had a yield of 2.68 % compared with a yield of 3.22% in 2019 and a yield of 3.41% in 2018. At 31 December 2020, EUR 30.4 billion or 15.8% of our investment securities consisted of Spanish Government and government agency securities. For a discussion of how we value our investment securities, see note 2 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
Year Ended 31 December
202020192018
(in millions of euros)
Debt securities
Domestic-
Spanish Government29,959 41,662 48,727 
Other domestic issuer:
Public authorities438 392 1,761 
Other domestic issuer1,588 3,634 4,748 
Total domestic31,985 45,688 55,236 
International-
United States:
U.S. Treasury and other U.S. Government agencies14,372 14,731 9,626 
States and political subdivisions273 878 736 
Other securities6,386 5,915 6,833 
Total United States21,031 21,524 17,195 
Other:
Governments95,925 91,825 89,595 
Other securities27,613 25,559 29,098 
Total Other123,538 117,384 118,693 
Total International144,569 138,908 135,888 
Total Debt Securities176,554 184,596 191,124 
Equity securities
Domestic4,029 4,348 4,225 
International-
United States880 1,281 944 
Other10,723 13,021 9,700 
Total international11,603 14,302 10,644 
Total Equity Securities15,632 18,650 14,869 
Total Investment Securities192,186 203,246 205,993 
The following table sets out the aggregate book value and aggregate market value of the securities of single issuers, other than the Government of the United States, which exceeded 10% of our stockholders’ equity as of 31 December 2020 (and other debt securities with aggregate values near to 10% of our stockholders’ equity).
Aggregate as of 31 December 2020
Book value (A)Market value
(in millions of euros)
Debt securities:
Exceed 10% of stockholders' equity:
Spanish Government30,397 30,401 
Brazilian Government33,316 33,592 
Mexican Government19,053 19,053 
Polish Government 11,400 11,400 
Near 10% of stockholder´s equity:
Chilean Government8,082 8,082 
Portuguese Government 6,462 6,465 
Italian Government4,688 4,691 
UK Government2,795 2,826 
(A) The book value of debt securities measured at fair value with changes in other comprehensive income includes capital gains by valuation and capital losses by valuation not yet materialised.
892
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

The following table shows the maturities of our debt securities as of 31 December 2020.
Year Ended 31 December 2020
Maturing
Within
1 Year		Yield Within 1 YearMaturing Between 1 and 5 YearsYield 1 and 5 YearsMaturing Between 5 and 10 YearsYield 5 and 10 YearsMaturing After 10 YearsYield After 10 YearsTotal
Debt securities(in millions of euros)
Domestic:
Spanish Government9,560 0.03 %2,849 1.16 %9,319 2.02 %8,231 3.27 %29,959 
Other domestic issuer:
Public authorities69 0.68 %244 1.74 %96 1.58 %29 0.43 %438 
Other domestic issuer436 1.35 %576 2.50 %168 2.11 %408 2.21 %1,588 
Total domestic10,065 3,669 9,583 8,668 31,985 
International:
United States:
U.S. Treasury and other U.S. Government agencies4,933 0.32 %999 1.76 %37 2.05 %8,403 2.44 %14,372 
States and political subdivisions82 0.07 %146 2.91 %45 2.41 %— — 273 
Other securities480 0.79 %891 1.84 %663 2.51 %4,352 2.58 %6,386 
Total United States5,495 2,036 745 12,755 21,031 
Other:
Governments27,568 2.24 %42,101 3.60 %20,458 2.34 %5,798 2.12 %95,925 
Other securities6,863 1.56 %11,683 1.83 %4,237 1.52 %4,830 0.95 %27,613 
Total Other34,431 53,784 24,695 10,628 123,538 
Total International39,926 55,820 25,440 23,383 144,569 
Total debt investment securities49,991 59,489 35,023 32,051 176,554 
Loan portfolio
At 31 December 2020, our total loans and advances to customers equalled EUR 939.8 billion (62% of our total assets). Net of allowances for credit losses, loans and advances to customers equalled EUR 916.2 billion at 31 December 2020 (61% of our total assets). In addition to loans, we had outstanding as of 31 December 2020, 2019, 2018, 2017 and 2016 EUR 241,230 million, EUR 241,179 million, EUR 218,083 million, EUR 207.671 million and EUR 202.083 million, respectively, of undrawn balances available to third parties.

Loans by geographic area and type of customer
The following tables illustrate our loans and advances to customers (including securities purchased under agreement to resell), by domicile and type of customer at each of the dates indicated.
san-20201231_g437.jpg
893



20202019201820172016
(in millions of euros)
Loans to borrowers in Spain: (B):
Spanish Government12,104 9,993 13,615 16,470 14,127 
Commercial, financial, agricultural and industrial65,461 55,696 70,312 57,495 39,950 
Real estate and construction (A)15,840 15,235 16,076 17,723 13,506 
Mortgages loans80,559 83,743 84,849 87,872 65,314 
Instalment loans to individuals27,639 26,294 21,589 24,058 17,016 
Lease financing4,546 4,957 5,059 5,328 3,684 
Other9,181 8,892 4,264 18,500 7,775 
Total215,330 204,810 215,764 227,446 161,372 
Loans to borrowers outside Spain: (B):
Non-Spanish Governments10,779 12,218 10,952 18,577 16,843 
Commercial and industrial380,062 395,087 360,158 317,172 286,165 
Mortgage loans298,555 313,977 291,381 276,762 310,533 
Other35,068 38,368 27,973 32,892 39,950 
Total724,464 759,650 690,464 645,403 653,491 
Total loans and advances to customers, gross939,794 964,460 906,228 872,849 814,863 
Allowance for loan losses (C)(23,595)(22,242)(23,307)(23,934)(24,393)
Total loans and advances to customers, net of allowances916,199 942,218 882,921 848,915 790,470 
(A)    As of 31 December 2020, the portfolio of loans to real estate and construction companies included EUR 2,871 million of loans, the proceeds of which were to be used for real estate purposes, defined in accordance with the Bank of Spain’s purpose-based classification guidelines, compared to EUR 2,939 million, EUR 4,812 million, EUR 6,472 million and EUR 5,515 million of such loans in 2019, 2018, 2017 and 2016, respectively. Includes other mortgages to real estate and construction companies.
(B)    Credit of any nature granted to credit institutions is included in the “Loans and advances to credit institutions” caption of our balance sheet.
(C)    Refers to loan losses of “Loans and Advances to customers”. See “Item 3. Selected financial data”.


At 31 December 2020, our loans and advances to associated companies and jointly controlled entities amounted to EUR 6,934 million (see notes 5.f) and 53 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F). Excluding government-related loans and advances, the largest outstanding exposure to a single counterparty at 31 December 2020 was EUR 1.7 billion (0.18% of total loans and advances, including government-related loans), and the five next largest exposures totalled EUR 6.1 billion (0.6% of total loans, including government-related loans).

Maturity
The following table sets forth an analysis by maturity of our loans and advances to customers by domicile and type of customer as of 31 December 2020.

894
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Maturity
Less than
one year		One to five
years		Over five
years		Total
Balance% of TotalBalance% of TotalBalance% of TotalBalance% of Total
(in millions of euros, except percentages)
Loans to borrowers in Spain: (A)
Spanish Government2,448 1.01 %4,910 1.75 %4,746 1.14 %12,104 1.29 %
Commercial, financial, agriculture and industrial18,715 7.74 %38,701 13.77 %8,045 1.93 %65,461 6.97 %
Real estate and construction2,093 0.87 %6,100 2.17 %7,647 1.83 %15,840 1.69 %
Mortgages loans4,052 1.68 %4,388 1.56 %72,119 17.30 %80,559 8.57 %
Instalment loans to individuals11,604 4.80 %7,809 2.78 %8,226 1.97 %27,639 2.94 %
Lease financing842 0.35 %2,542 0.90 %1,162 0.28 %4,546 0.48 %
Other6,073 2.51 %1,588 0.57 %1,520 0.36 %9,181 0.98 %
Total borrowers in Spain45,827 18.95 %66,038 23.50 %103,465 24.81 %215,330 22.91 %
Loans to borrowers outside Spain: (A)
Non-Spanish Governments2,166 0.90 %2,215 0.79 %6,398 1.53 %10,779 1.15 %
Commercial and Industrial157,635 65.20 %167,312 59.53 %55,115 13.22 %380,062 40.44 %
Mortgage loans11,015 4.56 %37,441 13.32 %250,099 59.98 %298,555 31.77 %
Other25,133 10.40 %8,047 2.86 %1,888 0.45 %35,068 3.73 %
Total loans to borrowers outside Spain195,949 81.05 %215,015 76.50 %313,500 75.19 %724,464 77.09 %
Total loans and leases,241,776 100.00 %281,053 100.00 %416,965 100.00 %939,794 100.00 %
    gross
(A)    Credit of any nature granted to credit institutions is included in the “Loans and advances to credit institutions” caption of our balance sheet.

For roll-over not due to clients’ financial difficulties, the analysis is performed under standard acceptance terms and a comprehensive review of the client.



san-20201231_g437.jpg
895
Fixed and Variable Rate Loans
The following table sets forth a breakdown of our fixed and variable rate loans having a maturity of more than one year at 31 December 2020.
Fixed and variable rate loans
having a maturity of more than one year
Domestic    International    Total
(in millions of euros)
Fixed rate70,480 311,467 381,947 
Variable rate99,023 217,048 316,071 
Total169,503 528,515 698,018 

Cross-Border outstandings
Cross-border outstandings consist of gross loans, interest-bearing deposits with other banks, other interest-bearing investments, acceptances and other monetary assets granted to foreign country borrowers denominated in a currency other than the home-country currency of the borrower. We are not including gross loans granted to foreign country borrowers denominated in the home-country currency of the borrower because such loans are funded by local borrowings or hedged. The following table sets forth, as of the end of the years indicated, the aggregate amount of our cross-border outstandings where outstandings in the borrower’s country exceeded 0.75% of our total assets.
Banks and other
Financial
Institutions
Commercial and Industrial
Governments
Total
(Millions of euros)
2020
UK8,1631,568— 9,731
2019
UK13,3042,353— 15,657
2018
UK7,9611,538— 9,499
Exposure to sovereign counterparties by credit rating
Our Debt instruments exposure to sovereign counterparties organized by origin of the issuer and our exposure to private and sovereign debt organized by credit rating is included in note 7 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
Additionally, in note 10 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F we present the disclosure by credit rating of our exposure to sovereign counterparties recorded under the caption “loans and advances to customers”.
The Group’s sovereign risk exposure to Europe’s peripheral countries and of the short positions held with them, by type of financial instrument, taking into consideration the criteria established by the European Banking Authority
(EBA) is detailed in note 51.d to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
Movements in allowances for credit Losses
The following table analyses movements in our allowances for credit losses and movements, by domicile of customer, for the years indicated. See “Item 1-Presentation of Financial and Other Information”. For further discussion of movements in the allowances for credit losses for 2020 as compared to 2019 see “Consolidated Directors’ Report-Economic and Financial Review - Section 3. Group financial performance -3.2 Results” in Part 1 of this annual report on Form 20-F and for 2019 as compared to 2018 see “Consolidated Directors’ Report-Economic and Financial Review-Section 3. Group financial performance -3.2 Results” in Part 1 of our annual report for the year ended 2018 on Form 20-F.
896
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Year Ended 31 December,
20202019201820172016
(in millions of euros)
Allowance for credit losses at the end of 2017
Borrowers in Spainn.a.n.a.8,746 n.a.n.a.
Borrowers outside Spainn.a.n.a.15,937 n.a.n.a.
Totaln.a.n.a.24,682 n.a.n.a.
IFRS9 Impact
Borrowers in Spainn.a.n.a.755 n.a.n.a.
Borrowers outside Spainn.a.n.a.1,219 n.a.n.a.
Totaln.a.n.a.1,974 n.a.n.a.
Allowance for credit losses at beginning of year
Borrowers in Spain6,618 7,683 9,501 7,215 9,554 
Borrowers outside Spain16,095 16,264 17,156 17,686 17,077 
Total22,713 23,947 26,656 24,900 26,631 
Net provisions for credit losses charged to income statement (B)
Borrowers in Spain2,845 1,336 1,295 955 964 
Borrowers outside Spain10,540 9,772 9,206 9,908 10,243 
Total13,385 11,108 10,501 10,863 11,207 
Charge offs against credit loss allowance
Borrowers in Spain(1,258)(2,692)(2,899)(3,160)(2,505)
Borrowers outside Spain(7,672)(9,901)(9,774)(10,362)(10,254)
Total(8,930)(12,593)(12,673)(13,522)(12,758)
Exchange differences and other movements(3,317)251 (538)2,442 (A)(179)
Allowance for credit losses at end of year (C) (D)
Borrowers in Spain7,386 6,618 7,683 8,746 7,215 
Borrowers outside Spain16,465 16,095 16,263 15,936 17,686 
Total23,851 22,713 23,947 24,682 24,900 
Recoveries of loans previously charged off against income statement
Borrowers in Spain96 233 255 247 283 
Borrowers outside Spain1,125 1,353 1,303 1,374 1,299 
Total1,221 1,586 1,558 1,621 1,582 
Average loans outstanding
Borrowers in Spain251,536 236,132 240,845 220,067 175,751 
Borrowers outside Spain679,027 674,195 620,482 604,159 605,758 
Total930,563 910,327 861,327 824,226 781,509 
Net charge-offs against loan loss allowance to average loans ratio (E)
Borrowers in Spain0.46 %1.04 %1.10 %1.32 %1.26 %
Borrowers outside Spain0.96 %1.27 %1.37 %1.49 %1.48 %
Total0.83 %1.21 %1.29 %1.44 %1.43 %
(A)Includes mainly the balances of Banco Popular.
(B)We have not included a separate line item for charge-offs of loans not previously provided for (loans charged-off against income) as these are not permitted.
(C)Allowances for the impairment losses on the assets making up the balances of “Loans and receivables-Loans and advances to customers”, “Loans and receivables- Loans and advances to credit institutions” and “Loans and receivables-Debt securities”. See “Section 3. Selected Financial Data”.
(D)The segregation of the allowance for credit losses between Spain and outside Spain was made by geographical location of the Group’s company that accounts for the risk.
(E)For the purpose of calculating the ratio, net charge-offs consist of charge-offs against credit loss allowance less Recoveries of loans previously charged-off.
san-20201231_g437.jpg
897
In 2018, the net charge-offs against loan loss allowance to average loans ratio decreased 22 basis points in Spain with a decrease in charge-offs and an increase in average loans. In foreign jurisdictions the ratio decreased 12 basis points with a decrease in charge-offs and an increase in net average loans. Both increases in net average loans due to the acquisition of Banco Popular.
In 2019, the net charge-offs against loan loss allowance to average loans ratio decreased 6 basis points in Spain with a slight decrease in both charge-offs and average loans. In foreign jurisdictions the ratio decreased 10 basis points with charge-offs remaining stable and an increase in average loans.
In 2020, the net charge-offs against loan loss allowance to average loans ratio decreased 58 basis points in Spain with a decrease in charge-offs and an increase in average loans. In foreign jurisdictions the ratio decreased 31 basis points with a decrease in charge-offs and average loans remaining stable.
The table below shows a breakdown of recoveries, net provisions and charge-offs against credit loss allowance by type and domicile of borrower for the years indicated.
898
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Year Ended December 31,
20202019201820172016
Recoveries of loans previously charged-off against income statement(in millions of euros)
Domestic:
Commercial, financial, agricultural, industrial28 93 119 66 128 
Real estate and construction31 62 58 87 72 
Mortgages loans6 9 3 14 10 
Instalment loans to individuals19 66 60 71 63 
Lease finance1 2 2 1 6 
Other11 1 13 8 4 
Total Borrowers in Spain96 233 255 247 283 
Borrowers outside Spain
Government and official institutions— 1 — — 9 
Commercial, industrial and Instalment loans to individuals1,084 1,264 1,224 1,299 1,146 
Mortgage loans40 84 75 67 86 
Other1 4 3 8 58 
Borrowers outside Spain1,125 1,353 1,303 1,374 1,299 
Total1,221 1,586 1,558 1,621 1,582 
Net provisions for credit losses charged to income statement
Domestic:
Commercial, financial, agricultural, industrial1,516 798 740 488 418 
Real estate and construction62 80 96 142 (36)
Mortgages loans141 121 27 112 159 
Instalment loans to individuals1,115 342 434 217 484 
Lease finance5 6 (51)22 (22)
Other6 (11)49 (25)(39)
Total Borrowers in Spain2,845 1,336 1,295 954 964 
Borrowers outside Spain
Government and official institutions3 4 18 7 8 
Commercial, industrial and Instalment loans to individuals10,211 9,544 9,034 9,688 8,295 
Mortgage loans319 240 147 138 971 
Other8 (16)7 75 969 
Borrowers outside Spain10,540 9,772 9,206 9,908 10,243 
Total13,385 11,108 10,501 10,862 11,207 
Charge-offs against credit loss allowance
Domestic:
Commercial, financial, agricultural, industrial(425)(687)(784)(1,095)(1,264)
Real estate and construction(123)(390)(942)(1,445)(658)
Mortgages loans(452)(1,011)(570)(308)(154)
Installment loans to individuals(249)(550)(565)(243)(408)
Lease finance(2)(7)(1)(20)(7)
Other(7)(47)(37)(49)(14)
Total Borrowers in Spain(1,258)(2,692)(2,899)(3,160)(2,505)
Borrowers outside Spain
Government and official institutions— — — — — 
Commercial, industrial and Instalment loans to individuals(7,483)(9,663)(9,528)(9,873)(9,451)
Mortgage loans(153)(233)(235)(357)(374)
Other(37)(5)(10)(132)(429)
Borrowers outside Spain(7,672)(9,901)(9,774)(10,362)(10,253)
Total(8,930)(12,593)(12,673)(13,522)(12,758)
san-20201231_g437.jpg
899
The table below shows a breakdown of allowances for credit losses by type and domicile of borrower for the years indicated.


Allowances for Credit Losses
Year Ended 31 December,
2020%2019%2018%2017%2016%
Borrowers in Spain:
Commercial, financial, agricultural, industrial3,352 14.052,299 10.122,562 10.702,011 8.151,344 5.40
Real estate and construction (A)637 2.67672 2.961,325 5.532,956 11.982,430 9.76
Mortgages loans1,899 7.962,706 11.912,504 10.462,460 9.972,636 10.59
Instalment loans to individuals1,295 5.43747 3.291,084 4.531,111 4.50543 2.18
Lease finance151 0.63147 0.6592 0.38134 0.54156 0.63
Other52 0.2247 0.21116 0.4874 0.30105 0.42
Total Borrowers in Spain7,386 30.976,618 29.147,683 32.088,746 35.437,214 28.97
Borrowers outside Spain:
Government and official institutions22 0.0947 0.2143 0.1833 0.1320 0.08
Commercial, industrial and instalment loans to individuals14,139 59.2813,649 60.0913,912 58.0913,675 55.4015,514 62.30
Mortgage loans2,065 8.662,139 9.422,083 8.701,833 7.431,970 7.91
Other239 1.00260 1.14226 0.94395 1.60182 0.73
Total Borrowers outside Spain16,465 69.0316,095 70.8616,264 67.9215,936 64.5717,686 71.03
Total23,851 100.0022,713 100.0023,947 100.0024,682 100.0024,900 100.00
(A)    As of 31 December 2020, the allowances of the portfolio of loans to construction and property development companies with real estate purposes, defined in accordance with the Bank of Spain’s purpose-based classification guidelines, amounted to EUR 69 million. In this table and in the previous one, loans to construction and property development companies are defined as loans granted to companies that belong to that sector, irrespective of the purpose of the loan. The decreases of allowances for credit losses in Real Estate and Construction in 2018 and 2019 result from sales of portfolios and charge-offs.



Non-performing balances
The following tables show our non-performing assets (loans and other assets to collect) and contingent liabilities, excluding country-risk:
(in millions of euros)
202020192018
Impaired loans more than ninety days past due18,616 21,296 21,201 
Other impaired loans (A)13,151 12,503 14,491 
Total impaired loans31,767 33,799 35,692 
(A) See Note 2.g) to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.

The roll-forward of allowances (under IFRS-IASB) is shown in note 10 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
At 31 December,
Non-performing balances20202019201820172016
(in millions of euros)
Past-due and other non-performing balances (A) (B) (C):
Domestic15,048 15,591 17,376 19,138 14,020 
International16,719 18,208 18,316 18,459 19,623 
Total31,767 33,799 35,692 37,596 33,643 
(A)The total amount of our non-performing balances fully provisioned under IFRS was EUR 1,267 million, EUR 983 million, EUR 1,479 million, EUR 4,076 million, and EUR 4,514 million, at 31 December 2020, 2019, 2018, 2017 and 2016, respectively.
(B)Non-performing balances due to country risk were EUR 43 million, EUR 11 million, EUR 12 million, EUR 11 million and EUR 8 million at 31 December 2020, 2019, 2018, 2017 and 2016, respectively.
(C)At 31 December 2020, 2019, 2018, 2017 and 2016 (i) the total amount of our non-performing past-due balances was EUR 18,616 million, EUR 21,296 million, EUR 21,201 million, EUR 24,652 million and EUR 21,189 million, respectively, and (ii) the total amount of our other non-performing was EUR 13,151 million, EUR 12,503 million, EUR 14,491 million, EUR 12,944 million and EUR 12,454 million, respectively.

900
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

We do not believe that there is a material amount of assets not included in the foregoing table where known information about credit risk at 31 December 2020 (not related to transfer risk inherent in cross-border lending activities) gave rise to serious doubts as to the ability of the borrowers to comply with the loan repayment terms at such date.
For information on our financial assets classified as loans and receivables which are considered to be non-performing due to credit risk at 31 December 2020 see note 10.d to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.

Evolution of non-performing balances
The following tables show the movement in our non-performing assets and contingent liabilities (excluding country risk, see “-Country-Risk Outstandings” herein).




(in millions of euros)
Quarter endedYear ended
31 Dec.		Year ended
31 Dec.		Year ended 31 Dec.Year ended 31 Dec.Year ended 31 Dec.
31 March 202030 June 202030 September 202031 December 202020202019201820172016
Opening balance33,799 32,743 32,782 30,894 33,799 35,692 37,596 33,643 37,094 
Entries2,543 2,805 1,595 3,334 10,277 10,544 10,910 8,269 7,362 
Changes in scope of consolidation— — (44)— (44)— 177 10,032 (A)734 
Exchange differences(964)(353)(1,673)(345)(3,335)156 (318)(826)1,211 
Write-offs(2,635)(2,413)(1,766)(2,116)(8,930)(12,593)(12,673)(13,522)(12,758)
Closing balance32,743 32,782 30,894 31,767 31,767 33,799 35,692 37,596 33,643 
(A) Reflects the acquisition of Banco Popular in June 2017 and the agreement to sell 51% of the real estate business to Blackstone in the third quarter of 2017.
san-20201231_g437.jpg
901

Non-performing balances ratios
The following table shows the total amount of our computable credit risk, our non-performing assets and contingent liabilities by category, our allowances for credit losses, the ratio of our non-performing balances to total
computable credit risk and our coverage ratio at the dates indicated.


At 31 December,
20202019201820172016
(in millions of euros, except percentages)
Computable credit risk (A)989,456 1,016,507 958,153 920,968 855,510 
Non-performing balances by category:
Individuals15,320 17,327 16,511 16,538 15,477 
Mortgages7,361 8,530 8,371 9,129 8,278 
Consumer loans6,086 6,558 6,154 5,307 5,486 
Credit cards and others1,873 2,239 1,986 2,102 1,713 
Enterprises15,078 14,769 16,137 18,423 15,247 
Corporate Banking1,340 1,640 2,993 2,497 2,817 
Public sector29 63 51 138 101 
Total non-performing balances31,767 33,799 35,692 37,596 33,643 
Allowances for non-performing balances24,272 22,965 24,061 24,529 24,835 
Ratios
Non-performing balances (B) to computable credit risk3.21 %3.32 %3.73 %4.08 %3.93 %
Coverage ratio (C)76 %68 %67 %65 %74 %
Balances charged-off to total loans and contingent liabilities0.78 %1.08 %1.16 %1.29 %1.31 %
(A)Computable credit risk is the sum of the face amounts of loans and advances (including non-performing assets but excluding country risk loans), guarantees and documentary credits.
(B)Non-performing loans and contingent liabilities, securities and other assets to collect.
(C)Allowances for non-performing balances as a percentage of non-performing balances.

Other non-performing balances

We do not classify our loans and contingent liabilities to borrowers in countries with transitory difficulties (category 3) and countries in serious difficulties (category 4) as impaired balances. However, we treat category 5 (doubtful countries) as impaired balances.



Summary of non-performing balancesYear Ended 31 December,
20202019201820172016
(in millions of euros)
Balances classified as non-performing balances31,767 33,799 35,692 37,596 33,643 
Non-performing balances due to country risk43 11 12 11 8 
Total non-performing balances31,810 33,810 35,704 37,607 33,651 
902
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information




Foreclosed assets
The tables below set forth the movements in our foreclosed non-current assets held for sale for the periods shown.
Quarterly movementsYear Ended 31 December,
31 March 202030 June 202030 September 202031 December 2020202020192018
(in millions of euros, except percentages)
Opening balance8,694 8,660 8,455 8,304 8,694 10,468 27,464 
Foreclosures219 81 135 160 595 980 1,410 
Sales(173)(290)(215)(349)(1,027)(3,422)(18,475)
Perimeter— — — — — — — 
Other movements(80)4 (71)35 (112)668 69 
Gross foreclosed assets and assets acquired in payment of customer debts8,660 8,455 8,304 8,150 8,150 8,694 10,468 
Of which: in Spain7,624 7,535 7,366 7,306 7,306 7,605 9,250 
Allowances established4,135 4,092 3,997 4,069 4,069 4,209 5,135 
Of which: in Spain3,869 3,809 3,740 3,819 3,819 3,932 4,758 
Closing balance (net)4,525 4,363 4,307 4,081 4,081 4,485 5,333 
Of which: in Spain3,755 3,726 3,626 3,487 3,487 3,673 4,492 
Allowance as a percentage of foreclosed assets and assets acquired in payment of customer debts47.7 %48.4 %48.1 %49.9 %49.9 %48.4 %49.1 %
Of which: in Spain50.8 %50.6 %50.8 %52.3 %52.3 %51.7 %51.4 %

For more information about foreclosed assets in Spain see note 53 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F, which includes foreclosed non-current assets held for sale and foreclosed real estate assets for rent for a gross amount of EUR 7,937 million.
5.2.2. Liabilities
Deposits
The principal components of our deposits are customer demand, time and notice deposits, and international and domestic interbank deposits. Our retail customers are the principal source of our demand, time and notice deposits. For an analysis of average domestic and international deposits for 2020, 2019 and 2018, see ‘-Average Balance Sheets and Interest Rates’.
We compete actively with other commercial banks and with savings banks for domestic deposits. Our share of customer deposits in the Spanish banking system was 22% at 30 September 2020 (most recent available data), according to figures published by the Spanish Banking Association (‘AEB’) and the Confederación Española de Cajas de Ahorros (‘CECA’). See ‘Item 9. Competition’.
Deposits (from central banks and credit institutions and customers) by geographic location of the Group entity that accounts for the deposits.
san-20201231_g437.jpg
903
At 31 December,
Deposits from central banks and credit institutions-202020192018
(in millions of euros)
Central banks
Offices in Spain64,075 44,792 60,897 
Offices outside Spain:
Other EU countries19,132 25,267 25,053 
United States and Puerto Rico— — — 
Other OECD countries (A)32,003 5,258 1,378 
Latin America (no OECD)84 5 11 
Other— — — 
Total offices outside Spain51,219 30,530 26,442 
115,294 75,322 87,339 
Due to credit institutions
Offices in Spain31,553 47,175 50,632 
Offices outside Spain:
Other EU countries5,178 11,184 13,260 
United States and Puerto Rico4,577 11,399 8,404 
Other OECD countries (A)8,638 6,974 5,107 
Latin America (no OECD)19,439 23,109 23,167 
Other— — — 
Total offices outside Spain37,832 52,666 49,938 
69,385 99,841 100,570 
Total184,679 175,163 187,909 
Customer deposits
Offices in Spain294,516 271,103 267,210 
Offices outside Spain:
Other EU countries106,013 334,542 309,615 
United States and Puerto Rico59,057 60,011 53,843 
Other OECD countries (A)306,243 71,235 67,462 
Latin America (no OECD)83,481 87,474 82,343 
Other— — 23 
Total offices outside Spain554,794 553,262 513,286 
Total849,310 824,365 780,496 
(A) (i) In this schedule, Mexico and Chile are classified under "Other OECD countries". (ii) 2020 amounts for the United Kingdom have been considered under "Other OECD countries", instead of "Other EU countries" due to the exit of the United Kingdom from the European Union.
904
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information



The following table shows the maturity of time deposits (excluding inter-bank deposits) in denominations of USD 100,000 or more for the year ended 31 December 2020. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.

Year Ended 31 December 2020
DomesticInternationalTotal
(in millions of euros)
Under 3 months4,910 31,660 36,570 
3 to 6 months1,013 12,879 13,892 
6 to 12 months1,646 16,206 17,852 
Over 12 months5,076 19,578 24,654 
Total12,645 80,323 92,968 

The aggregate amount of deposits held by non-resident depositors (banks and customers) in our domestic branch network was EUR 60.6 billion, EUR 70.9 billion and EUR 79.6 billion, at 31 December 2020, 2019 and 2018, respectively.

Short-Term BorrowingsAt 31 December,
202020192018
AmountAverage
Rate		AmountAverage
Rate		AmountAverage
Rate
Securities sold under agreements to repurchase(in millions of euros, except percentages)
(principally Spanish Treasury notes and bills):
At December 3161,847 1.93 %75,919 3.24 %78,169 2.89 %
Average during year74,066 1.61 %79,190 3.11 %98,301 2.30 %
Maximum month-end balance86,569 94,609 134,970 
Other short-term borrowings:
At December 3122,006 1.25 %32,644 1.39 %27,445 0.67 %
Average during year27,272 1.01 %30,411 1.50 %22,440 0.82 %
Maximum month-end balance36,618 35,714 27,032 
Total short-term borrowings at year-end83,853 1.75 %108,563 2.68 %105,614 2.31 %


san-20201231_g437.jpg
905
6. Supplement to the operating and financial review disclosure in the directors’ report
This section supplements the “Consolidated Directors’ Report -Economic and Financial Review” in Part 1 of this annual report on Form 20-F in order to give information on the variations of the results and financial condition for 2019 as compared to 2018. You should read this information in connection with, and it is qualified in its entirety by reference to, our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
Consolidated income statement. Variations 2019 compared to 2018 for the Group and by primary and secondary segments.
See “Part 1. Consolidated Directors´ Report-Economic and Financial review. Section 3.2 and Section 4" in our annual report for the year ended 2019 on Form 20-F filed with the Securities and Exchange Commission on 6 March 2020. Such sections are incorporated herein by reference.
Financial condition. Variations 2019 compared to 2018
See “Part 1. Consolidated Directors´ Report-Economic and Financial review. Section 3" in our annual report for the year ended 2019 on Form 20-F filed with the Securities and Exchange Commission on 6 March 2020. Such sections are incorporated herein by reference.

906
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

7. Tabular disclosure of contractual obligations
The following table summarises our contractual obligations by remaining maturity at 31 December 2020:
Contractual obligations
(in millions of euros)Less than
1 year		More than
1 year but
less than 3 years		More than
3 year but
less than 5 years		More than
5 years 		Total
Deposits from central banks and credit institutions60,560 88,730 21,761 4,373 175,424 
Customer deposits765,224 21,126 10,703 17,914 814,967 
Marketable debt securities64,251 59,526 47,143 59,909 230,829 
Liabilities under insurance contracts (A)1,087 35 37 72 1,231 
Lease obligations594 981 637 837 3,049 
Other long-term liabilities (B)1,920 3,124 2,810 6,578 14,432 
Contractual interest payment (C)3,467 3,386 4,553 13,468 24,874 
Total897,103 176,908 87,644 103,151 1,264,806 
(A)Includes life insurance contracts in which the investment risk is borne by the policy holder and insurance savings contracts.
(B)Other long-term liabilities relate to pensions and similar obligations and include the estimated benefit payable for the next ten years.
(C)Calculated for all Deposits from credit institutions, Customer deposits and Marketable debt securities assuming a constant interest rate based on data as of 31 December 2020 over time for all maturities, and assuming that those obligations with maturities of more than five years have an average life of ten years.

The table above excludes the “fixed payments” of our derivatives since derivative contracts executed by the Group apply close-out netting across all outstanding transactions, that is, these agreements provide for settlements to be made on a maturity or settlement date for the differences that arise, and as such, the obligation to be settled in the future is not fixed at the present date and is not determined by the fixed payments.

For a description of our trading and hedging derivatives, which are not reflected in the above table, see note 36 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
For more information on our marketable debt securities and subordinated debt, see notes 22 and 23 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
san-20201231_g437.jpg
907

8. Employees
As of 31 December 2020, we had 191,189 employees (as compared to 196,419 in 2019 and 202,713 in 2018) of which 35,755 were employed in Spain (as compared to 35,220 in 2019 and 38,284 in 2018) and 155,434 were employed outside Spain (as compared to 161,199 in 2019 and 164,429 in 2018). The terms and conditions of employment in the non-government-owned banks in Spain are negotiated on an industry-wide basis with the trade unions. This process has historically produced collective agreements binding on all the non-government-owned banks and their employees. The 2019-2023 agreement was signed on 29 January 2021. The terms and conditions of employment in many of our subsidiaries outside Spain (including in Argentina, Portugal, Italy, Uruguay, Chile, Mexico, Germany, the UK, Brazil and Poland) are negotiated either directly or indirectly (on an industry-wide basis) with the trade unions.
The table below shows our employees by geographic area:
Number of employees
202020192018
Spain35,755 35,220 38,284 
Latin America87,172 90,353 89,668 
Rest of Europe52,026 54,209 57,442 
US15,770 16,174 16,852 
Canada191 191 197 
Asia248 232 227 
Other27 40 43 
TOTAL191,189 196,419 202,713 


The employee data presented in the table above is prepared according to the criteria of the legal entity where the employee works for. This criteria is not comparable to that of the employee data included below and in “Consolidated Directors’ Report - Economic and financial review- Section 4” in Part 3 of this annual report on Form 20-F which are prepared according to management criteria.
The table below shows our employees by type of business:
Number of employees
202020192018
Retail Banking175,299 180,990 187,758 
Wealth Management & Insurance4,712 4,268 4,034 
Santander Corporate & Investment Banking (SCIB)7,588 8,690 8,734 
Santander Global Platform1,898 820 487 
Corporate Centre1,692 1,651 1,700 
Total191,189 196,419 202,713 

908
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information


9. Competition
Competition in Spain
We face strong competition in all of our principal areas of operation from other banks, savings banks, credit co-operatives, brokerage services, on-line banks, insurance companies and other financial services firms.
Banks
At the end of September 2020 (most recent available information), Banco Bilbao Vizcaya Argentaria, Caixabank, Bankia and Santander accounted for approximately 64.2% of loans and 62.9% of deposits in the Spanish financial system, according to figures published by the AEB and the CECA.
Foreign banks also have a presence in the Spanish banking system as a result of liberalization measures adopted by the Bank of Spain in 1978. At 31 December 2020, there were 78 foreign banks (of which 75 were from European Union countries) with branches in Spain. In addition, there were 15 Spanish subsidiary banks of foreign banks (of which 7 were from European Union countries).
The ECB is responsible for authorizing and revoking the authorization of credit institutions, and authorizing the purchase of qualifying holdings, under the terms of the European regulations which establish the competences conferred on the ECB and the Single Supervisory Mechanism. In these cases, the Bank of Spain, as the national competent authority (NCA), will submit to the ECB plans for the granting of an authorization or the acquisition of a qualifying holding, and where applicable, proposals for the revocation of authorization.
Any financial institution organized and licensed in another Member State of the European Union may conduct business in Spain from an office outside Spain, without having obtained first prior authorization from the Spanish authorities to do so. The opening of a branch of any financial institution authorized in another Member State of the European Union does not need prior authorization or specific allocation of resources either.
Financial institutions which are not authorized in another Member State of the European Union do not benefit from the 'Community Passport', and are therefore required to obtain prior authorization from the Bank of Spain to operate in Spain with branches. The procedure to obtain such authorization from the Bank of Spain is similar to the one set up for the establishment of new Spanish banks in the Law 10/2014 of 26 June 2014 on Organization, Supervision and Solvency of Credit Entities and the Royal Decree 84/2015, of 13 February 2015, which develops Law 10/2014. These branches of third country institutions must necessarily be ascribed to the Spanish Deposit Guarantee Fund, in case there is no system of coverage in their home country, or if the system guarantees less than €100,000 per depositor (in this case, for the difference up to such €100,000). These institutions may also be authorized to operate in Spain and to provide services (no branches),
although, in this case, the institutions cannot raise funds from the public.
Spanish law requires prior approval by the Bank of Spain for a Spanish bank to acquire a significant interest in a bank organized outside the European Union, create a new bank outside the European Union or open a branch outside the European Union. Spanish banks must provide prior notice to the Bank of Spain to conduct any other business outside of Spain.
The opening of branches outside Spain requires prior application to the Bank of Spain, including information about the country where the branch will be located, the address, program of activities and names and resumes of the branch’s managers. The opening of representative offices requires prior notice to the Bank of Spain detailing the activities to be performed.
Brokerage services
We face competition in our brokerage activities in Spain from other brokerage houses, including those of other financial institutions.
Any investment services company authorized to operate in another Member State of the European Union may conduct business in Spain from an office outside Spain, once the Spanish Securities Markets Commission (“CNMV”) receives notice from the institution’s home country supervisory authority on the institution’s proposed activities in Spain.
Credit entities have access, as members, to the Spanish stock exchanges, in accordance with the provisions established by the European Union Investment Services Directive.
We also face strong competition in our mutual funds, pension funds and insurance activities from other banks, savings banks, insurance companies and other financial services firms.
On-line banks and insurance companies
The entry of on-line banks into the Spanish banking system has increased competition, mainly in customer funds businesses such as deposits. Insurance companies and other financial service firms also compete for customer funds.
Competition outside Spain
In addition, we face strong competition outside Spain, particularly in Argentina, Brazil, Chile, Mexico, Portugal, the United Kingdom, Germany, Poland, and the United States. In these corporate and institutional banking markets, we compete with the large domestic banks active in these markets and with the major international banks.
The global banking crisis resulted in the withdrawal or disappearance of a number of market participants and significant consolidation of competitors, particularly in the U.S. and UK Competition for retail deposits has intensified significantly reflecting the difficulties in the wholesale money markets.
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In a number of these markets there are regulatory barriers to entry or expansion, and the state ownership of banks. Competition is generally intensifying as more players enter markets that are perceived to be de-regulating and offer significant growth potential.
Competition for corporate and institutional customers in the UK is from UK banks and from large foreign financial institutions that are also active and offer combined investment and commercial banking capabilities. Santander UK’s main competitors are established UK banks, building societies and insurance companies and other financial services providers (such as supermarket chains and large retailers).
In the UK credit card market, large retailers and specialist card issuers, including major U.S. operators, are active in addition to the UK banks. In addition to physical distribution channels, providers compete through direct marketing activity and the Internet.
In the United States, Santander Bank competes in the Northeastern, New England and New York retail and mid-corporate banking markets with local and regional banks and other financial institutions. Santander Bank also competes in the U.S. in large corporate lending and specialized finance markets, and in fixed-income trading and sales. Competition is principally with the large U.S. commercial and investment banks and international banks active in the U.S.
10. Supervision and regulation
Single Supervisory Mechanism and Single Resolution Mechanism
The project of achieving a European banking union was launched in the summer of 2012. Its main goal is to resume progress towards the European single market for financial services by restoring confidence in the European banking sector and ensuring the proper functioning of monetary policy in the eurozone. The banking union is expected to be achieved through new harmonised banking rules (the single rulebook) and a new institutional framework with stronger systems for both banking supervision and resolution that will be managed at the European level. Its two main pillars are the Single Supervisory Mechanism (the “SSM”) and the Single Resolution Mechanism (the “SRM”). As a further step to a fully-fledged banking union, in November 2015, the European Commission put forward a proposal for a European Deposit Insurance Scheme (EDIS), which intends to provide a stronger and more uniform degree of insurance cover for all retail depositors in the banking union.
Pursuant to Article 127(6) of the Treaty on the Functioning of the EU and the SSM Framework Regulation, the ECB is responsible for specific tasks concerning the prudential supervision of credit institutions established in participating Member States. Since 2014, it carries out these supervisory tasks within the SSM framework, composed of the ECB and the relevant national authorities. The ECB is responsible for the effective and consistent functioning of the SSM, with a view to carrying out effective banking supervision,
contributing to the safety and soundness of the banking system and the stability of the financial system.
The ECB is responsible for the effective and consistent functioning of the SSM and exercises oversight over the functioning of the system. To ensure efficient supervision, credit institutions were categorized as “significant” and “less significant.” In accordance with the SSM Regulation, the ECB fully assumed its new supervisory responsibilities within the SSM on 4 November 2014.
The ECB supervises directly the significant banks,including us, through the Joint Supervisory Teams (JSTs), which are responsible for the day-to-day supervision of these institutions. These teams comprise staff from the ECB and the NCAs, whose work is coordinated by an ECB staff member, assisted by one or more NCA sub-coordinators. Among other duties, these teams are responsible for the ongoing assessment of institutions’ risk profiles, solvency and liquidity, and prepare the draft decisions to be presented to the Supervisory Board. All other less-significant institutions are directly supervised by NCAs, and indirectly supervised by the ECB.
In relation to significant institutions, the NCAs, including the Bank of Spain, must assist the ECB, contributing their experience and most of the supervisors making up the JSTs. Also, among other tasks, they provide support for on-site inspections (to be carried out by non-JST teams), gather and transmit any information required, participate in the preparation of supervisory decisions, and collaborate on sanction procedures.
In the case of less-significant institutions, the NCAs supervise them directly, while the ECB supervises them indirectly. In these cases, the ECB, which has ultimate responsibility for the functioning of the SSM, may issue guidelines to ensure consistent supervision in participating countries, request additional information, or even take over the direct supervision of an institution if it considers it necessary.
The participants in the SSM are all the countries that form part of the Eurosystem and all European Union countries which are not in the eurozone, but which want to establish a close cooperation with the ECB and therefore accept this new supervision system.
Article 6.4 of the Council Regulation (EU) 1024/2013 of 15 October 2013, conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), establishes the criteria under which an institution shall not be considered “less significant”:
•Size: Its consolidated total assets are worth over 30 billion euros.
•Cross border activities: Its assets are worth more than 20% of the GDP of the country in which it is established, unless the consolidated total assets are less than 5 billion euros, or it has subsidiaries in more than one participant country, with cross-border assets or liabilities representing a significant part of its total assets and liabilities.
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•Economic importance: it is one of the three most significant credit institutions in a member state.
•Public financial assistance: it has requested or received funding from the European Stability Mechanism or the European Financial Stability Facility.
Based on these criteria, as of 1 November 2020 the ECB is directly supervising 115 "significant banks" in the euro area. In the case of Spain, as of the date of this report, 19 significant credit institutions and financial holding groups are directly supervised by the ECB. We have been categorized as a significant institution.
To directly supervise the significant banks, the ECB has created two directorate generals, DG Microprudential Supervision I and DG Microprudential II, which perform the continuous day-to-day monitoring of the 115 groups. the supervision of specific aspects or matters, what is known as on-site inspection, is carried out by different teams. The ECB has thus adopted a different model to that place at the Bank of Spain to date: functionally separating the continuous monitoring of banks and inspection visits.
With regard to significant Spanish banks, the Bank of Spain, in addition to providing its experience and most of the staff of the joint supervisory teams, will shoulder the weight of on-site inspections, it will participate in the preparation of all the decisions to be adopted by the ECB Supervisory Board and it will be active in the exercise of its sanctioning powers. As regards the sanctioning regime, the ECB is responsible for imposing sanctions, provided that three requirements are met: that the sanction is imposed on the credit institution, i.e. on the legal person; that it stems from non-compliance with directly applicable European Union legal rules; and that the sanctions are of a pecuniary nature. In the remaining cases, power will continue to be exercised by the national supervisory authorities, without prejudice to the ECB being able to demand that the appropriate proceedings be initiated.
There are certain areas of banking activity whose supervision is not assumed by the SSM, but continue to be within the purview of the national authorities. The Bank of Spain thus continues to exercise supervisory powers in the areas of money laundering prevention, consumer protection and, partly, in the oversight of financial markets. It also retains the supervision of banking foundations associated with regional governments. In addition to this, the Bank of Spain, like the other national supervisory authorities participating in the SSM, fully retains its supervisory powers over non-bank financial institutions, other financial institutions and entities related to the financial sector such as payment institutions, electronic money institutions, credit financial intermediaries, mutual guarantee companies, currency-exchange bureau and appraisal companies.
Until 1 January 1999, the Bank of Spain was the entity responsible for implementing Spanish monetary policy. As of that date, the start of Stage III of the European Monetary Union, the European System of Central Banks and the ECB became jointly responsible for Spain’s monetary policy. The European System of Central Banks consists of the national central banks of the twenty eight Member States belonging to the European Union, whether they have
adopted the euro or not, and the ECB. The 'Eurosystem' is the term used to refer to the ECB and the national central banks of the Member States which have adopted the euro. The ECB is responsible for the monetary policy of the European Union. The Bank of Spain, as a member of the European System of Central Banks, takes part in the development of the European System of Central Banks’ powers including the design of the European Union’s monetary policy.
The ECB has delegated the authority to issue the euro to the central banks of each country participating in Stage III. These central banks are also in charge of executing the European Union’s monetary policy in their respective countries. The countries that have not adopted the euro will have a seat in the European System of Central Banks, but will not have a say in the monetary policy or instructions laid out by the governing council to the national central banks.
Since 1 January 1999, the Bank of Spain has performed the following basic functions attributed to the European System of Central Banks:
•executing the European Union monetary policy;
•conducting currency exchange operations consistent with the provisions of Article 109 of the Treaty on European Union, and holding and managing the States’ official currency reserves;
•promoting the sound working of payment systems in the eurozone; and
•issuing legal tender bank notes.
Notwithstanding the European Monetary Union, the Bank of Spain, as the Spanish national central bank, continues to be responsible for:
•maintaining, administering and managing the foreign exchange and precious metal reserves;
•promoting the sound working and stability of the financial system and, without prejudice to the functions of the European System of Central Banks, of national payment systems;
•supervising and compliance with the specific rules of credit institutions, other entities and financial markets, for which it has been assigned supervisory responsibility;
•placing currency in circulation and the performance, on behalf of the State, of all such other related functions;
•preparing and publishing statistics relating to its functions, and assisting the ECB in the compilation of the necessary statistical information;
•rendering treasury services to the Spanish Treasury and to the regional governments, although the granting of loans or overdrafts in favour of the State, the regional governments or other bodies referred to in Article 104 of the European Union Treaty, is generally prohibited;
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•rendering services related to public debt to the State and regional governments; and
•advising the Spanish Government and preparing the appropriate reports and studies.
The other main pillar of the EU banking union is the SRM, the main purpose of which is to ensure a prompt and coherent resolution of failing banks in Europe at minimum cost for the taxpayers and the real economy. The SRM Regulation establishes uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of the SRM and a Single Resolution Fund ("SRF"). The SRF became effective on 1 January 2016 and will be financed by bank contributions raised at national and at banking union level which will be pooled at Union level in accordance with an intergovernmental agreement on the transfer and progressive mutualization of those contributions, thus increasing financial stability and limiting the link between the perceived fiscal position of individual Member States and the funding costs of banks and undertakings operating in those Member States. At a national level, the Spanish Law 11/2015 of June 2018, on recovery and resolution of credit entities and investment firms, transposes the SRF regulation from Directive 2014/59/EU which sets the rules at European level, also creating National Resolution Funds to be financed by credit institutions and investment firms, and whose financial resources must reach before 31 December 2024, at least 1% of covered deposits of all authorized Spanish credit institutions, as well as of the branches in Spain of non-EU credit institutions. Contributions made by Santander to the Single Resolution Fund in 2020 amounted to EUR 322 million. 
Deposit Guarantee Fund scheme
The Deposit Guarantee Scheme (Fondo de Garantía de Depósitos, or the FGD) operates under the rules of the European Union and the guidance of Bank of Spain, guarantees in the case of the Bank and our Spanish banking subsidiaries: (i) bank deposits up to €100,000 per depositor; and (ii) securities and financial instruments which have been assigned to a credit institution for its deposit, register or for other such services, up to €100,000 per investor. Taking into account the principle of minimal capital impact, the FGD may participate in resolution proceedings by granting financial support in exceptional cases.
The FGD is funded by annual contributions from banks. The target level of Member States FGD contributions is to collect 0.8 per thousand of the total amount of covered deposits by 3 July 2024.
As of 31 December 2020, the Bank and its domestic bank subsidiaries were members of the FGD and thus were obligated to make annual contributions to it. The contributions made by the Bank to the FGD amounted to EUR 239 million in 2020. Contributions made by the Group to the different local deposit guarantee funds amounted to EUR 681 million in 2020.
On 16 April 2014, the recast Deposit Guarantee Schemes Directive was published (Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (recast)), which is aimed at
eliminating certain differences between the laws of the European Union Member States as regards the rules on deposit guarantee schemes to which those credit institutions are subject. Law 11/2015, of 18 June, for the recovery and resolution of credit institutions and investment firms, Royal Decree 1012/2015, Circular 8/2015 and Circular 5/2016 transpose the Deposit Guarantee Schemes Directive to the Spanish legislation.
Investment Guarantee Fund
Royal Decree 948/2001, of 3 August, regulates investor guarantee schemes (Fondo de Garantía de Inversores) related to both investment firms and to credit institutions. These schemes are set up through an investment guarantee fund for securities broker and broker-dealer firms and the deposit guarantee funds already in place for credit institutions. A series of specific regulations have also been enacted, defining the system for contributing to the funds.
The General Investment Guarantee Fund Management Company was created in a relatively short period of time and is a business corporation with capital in which all the fund members hold an interest. Member firms must make a joint annual contribution to the fund equal to 0.06% over the 5% of the securities that they hold on their client’s behalf. However, it is foreseen that these contributions may be reduced if the fund reaches a level considered to be sufficient.
Liquidity requirements - Reserve ratio
ECB Regulation (EC) N. 1745/2003 of the ECB of 12 September 2003 on the application of minimum reserves, requires credit institutions in each Member State that participates in the European Monetary Union, including us, to place a specific percentage of their “Reserve Base” liabilities with their respective National Central Banks (“NCBs”) in the form of interest bearing deposits as specified below (the “Reserve Ratio”).
“Reserve Base” liabilities are broadly defined as deposits and debt securities issued. Liabilities which are owed to any other institution not listed as being exempt from the ECB’s minimum reserve system and liabilities which are owed to the ECB or to a participating NCB are excluded from the Reserve Base. If an institution has liabilities in relation to a branch of the same entity, or in relation to the head office or registered office of the same entity, which are located outside participating EU Member States it shall include such liabilities in the reserve base. A Reserve ratio of 0% shall apply to (i) deposits with agreed maturity over two years; (ii) deposits redeemable at notice over two years; (iii) repos and (iv) debt securities issued with an agreed maturity over two years. A reserve ratio of 2.0 % shall apply to all other liabilities included in the reserve base.
According to article 460.2 of CRR, a liquidity coverage ratio (“LCR”) has been progressively introduced since 2015 with the following phasing-in: (a) 60% of the LCR in 2015; (b) 70% as of 1 January 2016; (c) 80% as of 1 January 2017; and (d) 100% as of 1 January 2018. As of 31 December 2020, our LCR was 168%, comfortably exceeding the regulatory requirement.

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Investment ratio
In the past, the government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of 31 December 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.
Concentration of risk
An institution’s exposure to a client or group of connected clients is considered a large exposure where its value is equal to or exceeds 10% of its eligible capital.
In accordance with Articles 395 of the Capital Requirements Regulation 575/2013 (CRR), an institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation, to a client or group of connected clients the value of which exceeds 25% of its Tier 1 capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed the greater of 25% of the institution’s Tier 1 capital and €150 million, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403 of the CRR, to all connected clients that are not institutions does not exceed 25% of the institution’s Tier 1 capital. Where the amount of €150 million is higher than 25 % of the institution’s Tier 1 capital, the value of the exposure, after having taken into account the effect of credit risk mitigation in accordance with Articles 399 to 403 of CRR shall not exceed a reasonable limit in terms of the institution’s Tier 1 capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of Directive 2013/36 (CRD), in order to address and control concentration risk. That limit shall not exceed 100% of the institution’s Tier 1 capital.
See “Item 4. Risk Factor 2.2.2 - Capital requirements, liquidity, funding and structural reform”.
Restrictions on dividends
We may only pay dividends (including interim dividends) if such payment is in compliance with the applicable capital requirement regulations (described under “-Capital Adequacy Requirements” herein) and other requirements. Credit institutions must comply at all times with the “combined capital buffers” requirement established in articles 43 of Law 10/2014, article 58 of the Royal Decree 84/2015, and in article 6 of the Circular 2/2016. The “combined capital buffers” requirement is defined as the total common equity tier 1 capital necessary to comply with the obligation to have a capital conservation buffer, and, where appropriate: a) institution-specific countercyclical capital buffer; b) a global systemically important institution (G-SII) buffer; c) a buffer for other systemically important institutions; and d) a systemic risk buffer.
Pursuant to article 48.2 of the Law 10/2014, credit institutions which do not fulfil the requirement of combined capital buffers, or those institutions for which a common equity tier 1 capital distribution results in their decline to a level where the combined buffer requirement is not fulfilled, shall calculate the maximum distributable amount
(MDA), in accordance with article 73 of the Royal Decree 84/2015. Until the MDA has been calculated and such MDA has been immediately reported to the Bank of Spain none of the following actions can be performed by the credit institutions: a) make a distribution in connection with common equity tier 1 capital; b) create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration if the obligation to pay was created at a time when the institution failed to meet the combined buffer requirements; and c) make payments on additional tier 1 instruments. The restrictions shall only apply to payments that result in a reduction of common equity tier 1 or in a reduction of the profits reduced, provided that the suspension or cancellation of the payment does not constitute an event of default of the payment obligations or other circumstances that lead to the opening of an insolvency proceeding.
In addition to the above, and having considered covid-19 related economic shock, the ECB adopted on 27 March 2020 its Recommendation ECB 2020/19, recommending banks not to pay dividends or buy back shares during the covid-19 pandemic until at least 1 October 2020. On 28 July 2020, the ECB extended this recommendation until 1 January 2021. Lastly, on 15 December 2020, the ECB issued its recommendation 2020/35 on dividend distributions during the covid-19 pandemic and repealing its previous recommendation on this matter, by which it recommends 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.
As of 31 December 2020, our total capital ratio is 16.18%. As of that date, our eligible capital exceeded the European Central Bank minimum regulatory consolidated requirement by over EUR 17.8 billion.
Limitations on types of business
Spanish banks generally are not subject to any prohibitions on the types of business they may conduct, although they are subject to certain limitations on the types of businesses they may conduct directly.
The activities that credit institutions authorized in another Member State of the European Union may conduct and which benefit from the mutual recognition within the European Union are detailed in article 12 and in the annex of Law 10/2014.
Data protection
On 25 May 2018, the Regulation (EU) 2016/279 of the European Parliament and of the Council of 27 April 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the “General Data Protection Regulation” or
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“GDPR”) became directly applicable in all Member States of the EU. Spain has enacted the Organic Law 3/2018, of 5 December, on Data Protection and the safeguarding of digital rights which has repealed the Spanish Organic Law 15/1999, of 13 December, on data protection.
Although a number of basic existing principles have remained the same, the GDPR has introduced extensive new obligations on data controllers and rights for data subjects, as well as new fines and penalties for a breach of requirements, including fines for systematic breaches of up to the higher of 4% of annual worldwide turnover or €20 million and fines of up to the higher of 2% of annual worldwide turnover or €10 million (whichever is highest) for other specified infringements.
Limitations on Types of Business
Spanish banks are subject to certain limitations on the types of businesses in which they may engage directly, but they are subject to few limitations on the types of businesses in which they may engage indirectly. Law 10/2014 and Royal Decree 84/2015 established the regulation for governance, authorization, supervision and solvency for credit institutions.
Mortgage legislation
Law 2/1981, of 25 March, on mortgage market, as amended by Law 41/2007, regulates the different aspects of the Spanish mortgage market and establishes additional rules for the mortgage and financial system.
Royal Decree 716/2009, of 24 April, implemented several aspects of Law 2/1981. The most significant aspect implemented by Royal Decree 716/2009 was the modification on the loan-to-value ratio requirement intending to improve the quality of Spanish mortgage-backed securities.
A deep reform of mortgage legislation has been produced in Spain resulting in changes to such legislation, which are described below.
Royal Decree 6/2012, of 9 March, on urgent measures to protect mortgage debtors without financial resources introduced measures to enable the restructuring of mortgage debt and easing of collateral foreclosure aimed to protect especially vulnerable debtors.
Such measures include the following:
•the moderation of interest rates charged on mortgage arrears;
•the improvement of extrajudicial procedures as an alternative to legal foreclosure;
•the introduction of a voluntary code of conduct among lenders for regulated mortgage debt restructuring affecting especially vulnerable debtors; and
•where restructuring is not viable, lenders may, where appropriate and on an optional basis, offer the debtor partial debt forgiveness.
In addition, Royal Decree 27/2012, of 15 November, on urgent measures to enhance the protection of mortgage debtors provided for a two-year moratorium, from the date of its adoption, on evictions applicable to debtor groups especially susceptible to social exclusion, which may remain at their homes for such period.
Law 1/2013, of 14 May, on measures to protect mortgagees, debt restructuring and social rents, introduced important modifications to mortgage law and civil procedure law. The most relevant modifications are:
•extension of the two-year moratorium, established by Royal Decree 27/2012, until 15 May 2015;
•broadening the potential beneficiaries of the moratorium of Royal Decree 6/2012;
•limitation of the interest rates applied for delay or arrears;
•in the context of an auction, the base value of the property shall be the value set forth in the relevant mortgage deed and in no case shall it be less than 75% of the official appraisal value of the property;
•the possibility of suspension of enforcement proceedings when the loan or credit facility secured by the mortgage contains abusive clauses; and
•modification of the out-of-court notarial procedure.
Royal Decree 11/2014, following the judgement of the EU Court of Justice of 17 July 2014 regarding Spanish foreclosure processes, allows debtors to appeal against a court’s resolution which rejects his or her opposition to the execution of a mortgage.
The Mortgage Credit Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property was adopted on 4 February 2014. This Directive aims to create a Union-wide mortgage credit market with a high level of consumer protection. It applies to both secured credit and home loans. Member States will have to transpose its provisions into their national law by March 2016.
The main purpose of Royal Decree-Law 1/2015 of 27 February on the “second chance” mechanism is to regulate such mechanism. This allows an individual who has been declared bankrupt to be discharged of outstanding obligations as long as he or she fulfils certain requirements: (i) the bankruptcy proceedings must have concluded, (ii) the debtor must have acted in good faith, the Royal Decree being restrictive as to when a debtor is considered to have acted in good faith, and (iii) the bankruptcy judge has to approve the terms of the discharge (and may revoke his or her approval under certain circumstances upon request of any creditor in the following five years). Discharge from mortgage obligations would only apply to the outstanding debts after the foreclosure, as long as such debts are considered ordinary or subordinate according to the Spanish Insolvency Law. Co-debtors and guarantors, if any, would remain liable.
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Law 25/2015, of 28 July, on the “second chance” mechanism reducing the financial burden and other measures of a social nature, entered into force on 30 July 2015. The passage through parliament of Royal Decree-Law 1/2015 allowed some new changes to be added, such as introduction of a fee protection account for insolvency managers, limits on the remuneration of insolvency managers and the introduction of greater flexibility to a number of elements of the second chance mechanism.
Royal Decree-Law 1/2017, of 20 January, on urgent consumer protection measures in respect of interest rate floor clauses, was published in the Official Gazette of the Spanish Rate on 21 January. The objective of the Royal Decree-Law is to regulate - with the incentive provided by the rules on costs, a simple and orderly avenue, voluntary for the consumer that facilitates reaching an agreement with the credit institution that allows them to settle their differences through the restitution of these amounts, thus averting the risk of overwhelming the courts. The principle inspiring the mechanism that is set in motion is the willingness of agreeing to an out-of-court settlement procedure prior to filing a lawsuit, at no additional cost for the consumer and which credit institutions must heed.
Royal Decree-Law 5/2017, of 17 March which amends the Royal Decree-Law 6/2012 of 9 March, concerning urgent measures for the protection of mortgage debtors without resources, and Act 1/2013 of 14 May, concerning measures to strengthen the protection of mortgage debtors, debt restructuring and low-income renters. This Royal Decree-Law addresses the mortgage restructuring of those individuals who suffer from major difficulties to make payments and attempts to facilitate and provide more flexibility in foreclosure procedures, such as expanding the suspension period of eviction or making it possible to execute more flexible mortgage policies after having expanded the number of possible beneficiaries and facilitating preferential leases.
On 16 March 2019, the Official Gazette of the Spanish State published the new Law 5/2019 of 15 March on Credit Agreements Relating to Real Estate Property, which partially transposes the Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property. The most relevant modifications included in the new law are:
•it covers credits and loans to individuals in connection with residential real estate properties (including land and the preservation of real estate properties), excluding reverse mortgages;
•establishes a seven-day period for consumers to evaluate the mortgage-related documents, supervised by a Notary Public (Notario Público);
•clarifies some controversial issues in which litigation has arisen in the past years (mainly, benchmark interest rates references, foreign currencies submission and default interests);
•establishes the possible fees that may be charged on borrowers;
•forbids linked sales; and
•settles rules regarding the early termination of mortgages based exclusively on the amount of defaulted payments by the borrower (in light of recent court decisions declaring null and void some early termination clauses for their abusive terms).
Consumer alternative dispute resolution systems for consumer disputes
Law 7/2017, of 4 November , seeks to ensure access for Spanish and European consumers to independent, impartial, transparent and effective alternative dispute resolution systems. For financial institutions, a specific law shall be passed and financial institutions will be forced to participate in those alternative dispute resolution mechanism.
Payment accounts
Royal Decree-Law 19/2017, of 24 November, on basic payment accounts, account switching and the comparability of payment account fees. The Royal Decree-Law transposes Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to basic payment accounts. This Directive supplements Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market, which will be replaced by Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, that will repeal the first one as of 13 January 2018. This RD-law establishes certain protections for clients and potential clients in connection with their relationships with credit institutions in the context of the opening of and general functioning of basic payment accounts, the switching of accounts and transparency in connection with fees related to payment accounts.
Payment Services
The second Payment Services Directive (EU) 2015/2366 (“PSD2”) allows authorized third parties (with consent) to access customer information that was previously only accessible to banks. PSD2 applies to payments within the European Economic Area (EEA) and has been implemented in Spain through Royal Decree-Law 19/2018, of November 23. This Royal Decree-Law expands the scope of the consumer protection provisions included in PSD2 (related to transparency and information sharing) to “microenterprises” and prohibits merchants from requesting additional charges for using specific payment methods, including credit cards.
Mutual Fund Regulation
Law 22/2014 of 12 November introduced a new legal regime for private investment entities in order to implement (i) Directive 2011/61/EU of the European Parliament and of the Council of June 8 on Alternative Investment Fund Managers, and (ii) Directive 2013/14/EU of the European Parliament and of the Council of 21 May.
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Asset Management Activities
Asset management activities in the EU are expected to be significantly impacted by the following regulation referred to below:
(i) Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (“MMFs”), which (with the exception of certain articles which are in force since 20 July 2017) will apply from 21 July 2018. The Regulation introduces a broad set of new regulatory measures that apply to MMFs established, managed or marketed in the EU. In light of the perceived systemic risk presented by MMFs, the Regulation aims to make these investment products more resilient and resistant to contagion risks. It does this by imposing rules on eligible assets, portfolio diversification, portfolio maturity and valuation of assets and introduces new categories of MMFs that can offer a constant net asset value per share if they meet certain requirements. The Regulation is meant to be an important step in adopting a uniform set of rules that are designed to ensure that MMFs are, as far as possible, in a position to honour redemption requests from investors, especially during stressed market conditions, and therefore remain a reliable tool for investors’ cash management needs;
(ii) Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product (“PEPP”). The PEPP constitutes one of the key measures towards the Commission’s project to create a single market for capital in the EU. It aims to provide pension providers with the tools to offer PEPPs outside their national markets, thereby creating a large and competitive EU-level market for personal pensions which allows consumers to voluntarily complement their savings for retirement, while benefiting from solid consumer protection. PEPPs have the same standard features wherever they are sold in the EU and can be offered by a broad range of providers, such as insurance companies, banks, occupational pension funds, investment firms and asset managers. They complement existing state-based, occupational and national personal pensions, but not replace or harmonize national personal pension regimes. In accordance with the Proposal, PEPP providers need to be authorized by the European Insurance and Occupational Pensions Authority (EIOPA).
(iii)  Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories;
(iv) Royal Decree 62/2018, of February 9, reduces the maximum fees which may be charged to investors in connection with pension funds and plans and allows them to withdraw their savings after ten years of having made them from 2025 onwards. This Royal Decree introduces other minor changes to the regulation of pension funds and plans in Spain, including (a) reducing fee limits; (b) making the regulation of investments in closed-end funds more
flexible; (c) clarification of the net asset value reference date used to determine the value of payments; (d) eliminating restrictions on delegation and related-party transactions; and (e) modifying time limits for the receipt of vested rights, order of priority for garnishment orders, reporting regime for participants and the schedule for adapting documentation for pension plans;
(v) Royal Decree Law implementing Directive (EU) 2016/2341 of the European Parliament and of the Council of December 14, 2016 on the activities and supervision of institutions for occupational retirement provisions. This Law (i)  clarifies the access cross-border pension plans activities, (ii) articulates a governance system to protect investors, (iii) adapts the Spanish legislation to the Directive and (iv) regulates the terms and scope of the prudential supervision to be carried out by the competent authority and the exchange of information with other competent authorities;
(vi) Law 11/2018 of December 28 modifying the Code of Commerce, Royal Decree-Law 1/2010 of July 2 and Law 22/2015 of July 20 in relation to non-financial information and diversity include the following amendments to Law 35/2003 on Collective Investment Schemes: (i) recognition of electronic communication with clients, and only requiring communication in paper when requested by a participant, (ii) extension of omnibus accounts to participants and preexistent positions, equalizing the distribution of national and foreign ICCs and (iii) inclusion of the sanctions system from UCITS (Undertakings for Collective Investments in Transferable Securities) V and reducing the penalties for serious and very serious infringements;
(vii)   Royal Decree-Law 19/2018 of November 23 on payment services and other urgent financial measures, also introduced a sanctions system for money market funds, modified the Stock Market Law to include some provisions applicable to asset management companies and introduced several European regulations into Spanish law (including regulations related to Benchmarks, MAR, PRIIPS and transparency in securities financing transactions);
(viii) Commission Delegated Regulation (EU) 2018/1619 of July 12, 2018 amending Delegated Regulation (EU) 2016/438 regarding the safe-keeping duties of depositaries; and
(ix) Directive and Regulation (EU) regarding the cross-border distribution of collective investment funds (UCITS, FIA, FECR and FESE) with the aim of reducing regulatory barriers for the cross-border distribution of funds, in relation to the European capital markets union.
Spanish capital companies act
The consolidated text of the Spanish Capital Companies Act adopted under Legislative Royal Decree 1/2010, of 2 July, repealed the former Companies Act, adopted under Legislative Royal Decree 1564/1989, of 22 December. This royal legislative decree has consolidated the legislation for public limited companies (sociedades anónimas) and limited liability companies (sociedades de responsabilidad limitada) in a single text, bringing together the contents of
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the two aforementioned acts, as well as a part of the Securities Exchange Act.
Law 25/2011 of 1 August, partially amended the Spanish Capital Companies Act and incorporated Directive 2007/36/EC, of 11 July, on the exercise of certain rights of shareholders in listed companies.
In addition, the Spanish Capital Companies Act (Law 14/2013) and an amendment to the Insolvency Act (Legislative Royal Decree 11/2014) introduced some modifications on the Spanish Capital Companies Act. Also, an amendment on corporate governance was introduced by Law 31/2014 of 3 December. The main changes introduced by this law are related to the rights of shareholders (assistance, information and voting), the calling of a general shareholders’ meeting and the duties of the board of directors and the audit committee, appointments committee and remuneration committee.
Royal Decree-Law 18/2017, of 24 November, which modifies the Commercial Code, the revised text of the Spanish Capital Companies Act approved by Royal Decree Legislative 1/2010, of 2 July, and Law 22/2015, of 20 July, on Audit of Accounts, regarding non-financial information and diversity. By virtue of the amendment introduced, the affected texts require the inclusion in the management report of public limited companies, limited liability companies and limited partnerships for actions that, simultaneously, have the status of “public interest” entities whose number average of workers employed during the year exceeds 500 and, additionally, are considered large companies, in the terms defined by Directive 2013/34, of non-financial information of a social and environmental nature. The inclusion of such information in the management report will affect the “public interest” entities defined in Article 15 of the Auditing Regulations, which include banks, insurance companies, listed companies, investment fund managers and pension funds., as well as, in general, all the large companies
Spanish auditing law
Law 22/2015, of 20 July, on Auditing, adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of 16 April, amending Directive 2006/43/EC of the European Parliament and of the Council of 17 May, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of 16 April, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.
Law 11/2015 of 18 June, on the recovery and resolution of credit institutions and investment firms
Law 11/2015 transposes a very important part of EU Law into Spanish law in respect of the recovery and resolution mechanisms for credit institutions and investment firms (the “institutions”). It further assumes many of the provisions of Law 9/2012 of 14 November 2012 on the restructuring and resolution of credit institutions, which it partially repeals.
The regime set in place constitutes a special and full administrative procedure that seeks to ensure maximum speed in the intervention of an institution so as to provide for the continuity of its core functions, while minimising the impact of its non-viability on the economic system and on public resources.
Compared to Law 9/2012, Law 11/2015 regulates internal recapitalisation as a resolution instrument conceived as a “bail-in” arrangement (the absorption of losses by the shareholders and by the creditors of an institution under resolution).
Internal recapitalisation is a new resolution instrument, since the loss-absorption mechanism makes it extensive to all the institution’s creditors, and not only to the shareholders and the subordinated creditors as envisaged under Law 9/2012 of 14 November 2012.
In this respect, liabilities eligible for bail-in are all the institution’s liabilities that are not expressly excluded or have not been excluded further to a decision by the FROB. These liabilities shall be susceptible to amortization or conversion into capital for the internal recapitalisation of the institution concerned. Among the liabilities excluded are deposits guaranteed by the Deposit Guarantee Fund (up to €100,000) and liabilities incurred with employees, trade creditors and the tax or social security authorities.
Certain changes were made to the regime applicable in the event of the insolvency of an institution, in order to provide greater protection to the deposits of individuals and SMEs. In this respect, the following shall be considered as privileged credits: (i) deposits guaranteed by the Deposit Guarantee Fund (maximum of €100,000) and the rights to which they may have been subrogated should the guarantee have been made effective and (ii) the portion of the deposits of individuals and SMEs that exceeds the guaranteed level, and those deposits of those individuals and SMEs that would be guaranteed had they not been set up in branches located outside the EU.
Royal Decree 1012/2015, which partially transposes the BRRD and develops Law 11/2015, includes a package of measures aimed at: (i) establishing the criteria for the application of the regulation for the resolution of credit entities, (ii) establishing the content of the recovery and resolution plans for credit entities, (iii) regulating the use of the resolution instruments set in Law 11/2015, and in particular, the actions to be carried out by the FROB, (iv) establishing the regime applicable to the FROB in connection with the managing of the funds addressed to finance the resolution procedures and to the contributions that credit entities must make to the National Resolution
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Fund and, (v) establishing the regime applicable to the resolution of cross border entities.
Markets in Financial Instruments (MiFID II)
Royal Decree-Law 14/2018, of September 28, modifies the Stock Markets Law to partially implement Directive 2014/65 relating to the markets of financial instruments (“MiFID II”), which process began under Royal Decree-Law 21/2017. This Royal Decree-Law aims to improve the soundness, transparency and regulation of the Spanish financial market’s trading activities, increase investor protection and harmonize Spanish financial markets regulations with those of other member states.
PRIIPs
Regulation (EU) 1286/2014 (The Packaged Retail and Insurance-Based Investment Products (“PRIIPs”) Regulation) was adopted on December 29, 2014 and came into force on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling PRIIPs to provide retail investors based in the European Economic Area (“EEA”) with KIDs to enable investors to better understand and compare products.
A PRIIP is defined as any investment where the amount repayable to the investor is subject to fluctuations because of exposure to reference values. In addition to insurance products, some examples of PRIIPs are options, futures, CFDs and structured products.
The main objectives of the PRIIPs Regulation are to: (i) ensure understanding and comparability between similar products in order to help the investors make investment decisions, (ii) improve transparency and increase confidence in the retail investment market and (iii) promote a single European insurance market.
EMIR
As referred above, on May 28, 2019, Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories was published in the Official Journal of the European Union. Such regulation introduced substantive amendments to the European Market Infrastructure Regulation (“EMIR”) relating to the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for uncleared OTC derivatives contracts, the registration and supervision of trade repositories, and the requirements for trade repositories. Most of its provisions entered into force on June 17, 2019 are being phased in. Many of the changes aim to reduce compliance costs for end-user counterparties that are non-financial counterparties (“NFCs”) and smaller financial counterparties (“FCs”).  Some of these changes include (i) an exemption from the reporting of intragroup transactions; (ii) an exemption for small FCs from the clearing obligation, (iii) removal of the obligation and legal liability for reporting when an NFC transacts with an FC,
and (iv) a determination of the NFC clearing obligation on an asset-class-by-asset-class basis. 
Spanish tax legislation
Financial Transactions Tax: On 15 October 2020, Spain enacted the Law 5/2020 that introduced its own FTT aligned with the Directive proposal. The Spanish FTT taxes the acquisition of shares and ADSs of Spanish companies with a market capitalization of more than EUR 1 billion, at a tax rate of 0.2%, but it does not affect transactions involving bonds or debt or similar instruments, such as preferred securities or derivatives. The new tax came into force on 16 January 2021.

Digital Service Tax: On 15 October 2020, Spain
enacted the Law 4/2020 that introduced a new tax on certain digital services. This entered into force on 16 January 2021. The Digital Services Tax (DST) is an indirect tax applicable to the provision of certain digital services when users are located in Spain (online advertising services targeted at users, online intermediary services and data transmissions) at a rate of 3%. Companies will be subject to the tax if (i) net turnover is over EUR 750 million (globally), and (ii) total revenues from taxable digital services in Spain are over EUR 3 million. The Preamble of the Law states the provisional nature of the DST until an international consensus on the taxation of digital business models is reached.
Law 10/2020 amending General Taxation Law regarding transposition and enforcement of DAC 6: On 30 December 2020, Law 10/2020, of 29 December, was published, modifying Law 58/2003, of 17 December, General Taxation, in transposition of Council Directive (EU) 2018/822 of 25 May 25 2018, amending Directive 2011/16/EU as regards the automatic and mandatory exchange of information in the field of taxation in relation to cross-border arrangements subject to communication of information. This Law transposes into Spanish law the Council Directive (EU) 2018/822, of 25 May 2018, known as “DAC 6” or the “Intermediaries Directive”, which establishes the obligation on so called “intermediaries” to report to the tax authorities cross-border arrangements that could be deemed to constitute aggressive cross-border tax planning.

General State Budget: On 30 December 2020, Spain
enacted the Law 11/2020 of the General State Budget for 2021, that includes tax measures in several laws, of which we highlight:
(i) In Corporate Income Tax: Article 21 of Law 27/2014 is amended in order to reduce the 100% participation exemption regime on dividends or income deriving from the transfer of holdings to a 95% participation exemption (generating a 1.25% tax liability as a general rule, 1.5% for financial and petrol entities). The tax liability is not mitigated even if the companies form part of a tax consolidated group. The participation exemption is no longer applicable for holdings with an acquisition value of more than EUR 20 million when the participation is not over 5% of equity, although a grandfather ruling is established for five years.

(ii) In Personal Income Tax, the most relevant changes are: (A) Taxation of employment-related income exceeding EUR 300,000 is increased by 2%, rising from 45% to 47%.
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However, the ultimate maximum rate will depend on each region ("comunidad autónoma" as defined in the applicable tax law). (B) Tax on savings in excess of EUR 200,000 will be increased by 3%, rising from 23% to 26%. (C) Mutual systems ("Pension plans"), the tax deductibility is limited to EUR 2,000 (previously EUR 8,000). However, this limit will be kept at EUR 8,000, provided that the increase comes from company contributions and does not exceed 30% of the sum of net income from employment and economic activities received by the individual in the tax year.
(iii) Wealth Tax. A 1% increase is applied to the highest tax band rate in those regions ("comunidades autónomas" as defined in the applicable tax law) that have not approved their own rates. This means that assets exceeding EUR 10,695,996.06 will be taxed at 3.5%. This provision shall remain in force indefinitely, eliminating the need to regulate any extensions.

(iv) Tax on Insurance Premiums. The tax rate is raised from 6% to 8%.
Royal Decree 1178/2020, of 29 December, that amends the Corporate Income Tax Regulation, approved by Royal Decree 634/2015, of 10 July, to adapt the current text to Bank of Spain Circular 4/2017, of 27 November, to credit institutions, and introduce certain amendments on the regulation of the country by country report.
United States supervision and regulation
Our operations are subject to extensive federal and state banking and securities regulation and supervision in the United States. We engage in U.S. banking activities directly through our New York branch and Santander Holdings USA, our U.S. top-tier IHC. Santander Holdings USA consolidates the majority of our U.S. operations, including our subsidiary Edge Act corporation Banco Santander International in Miami, Santander Bank, a national bank that has branches throughout the Northeast U.S., and SCUSA, an auto financing company. We also engage in securities activities in the United States directly through our broker-dealer subsidiaries, Santander Securities LLC and Santander Investment Securities, Inc.
Banking statutes and regulations are continually under review by Congress and state legislatures. In addition to laws and regulations, federal and state regulatory agencies may issue policy statements, interpretive letters and similar guidance applicable to our U.S. operations. Any change in the statutes, regulations or regulatory policies applicable to our U.S. operations, including changes in their interpretation or implementation, could have a material effect on our business or organization.
Both the scope of the laws and regulations, and the intensity of the supervision to which we are subject, have increased in response to the 2008 financial crisis, and have continued to change in response to political, technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its implementing regulations, most of which are now in place. More recently, there have
been several statutory and regulatory initiatives aimed at providing relief for the financial services industry. In 2018 the United States government enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Among other things, EGRRCPA, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the 'Federal Reserve Board') retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Banco Santander.
In October 2019, the federal banking agencies issued final rules (the 'Tailoring Rules') that, pursuant to EGRRCPA, adjust the thresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as Banco Santander and the U.S. IHCs of FBOs such as Santander Holdings USA. The Tailoring Rules establish risk-based categories for FBOs and their U.S. IHCs that determine whether and to what extent enhanced prudential standards and certain capital and liquidity requirements apply to FBOs and their U.S. IHCs. Banco Santander is classified as a Category IV FBO, and Santander Holdings USA is classified as a Category IV IHC. As a result, both Banco Santander and Santander Holdings USA are now generally subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under previously applicable regulations, as described in more detail in the relevant sections below.
The following discussion describes certain elements of the comprehensive U.S. regulatory framework applicable to us or our U.S. operations. This discussion is not intended to describe all laws and regulations applicable to Santander Holdings USA and its subsidiaries or to our U.S. operations in general.
Regulatory authorities
We are a financial holding company and a bank holding company under the Bank Holding Company Act, by virtue of our ownership of Santander Bank and other activities conducted by our U.S. operations. As a result, we and our U.S. operations are subject to regulation, supervision and examination by the Federal Reserve System, including both the Federal Reserve Board and Federal Reserve Banks, such as the Federal Reserve Bank of New York (the “FRB New York”) and FRB Boston.
Santander Holdings USA is subject to primary supervision, regulation and examination by the Federal Reserve System, which serves as the consolidated supervisor of our U.S. operations. The primary regulators of our U.S. non-bank subsidiaries directly regulate the activities of those subsidiaries, with the Federal Reserve exercising a supervisory role. Such non-bank subsidiaries include, for example, broker-dealers registered with the SEC and investment advisers registered with the SEC with respect to their investment advisory activities.
Our IHC and Enhanced Prudential Standards
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The Federal Reserve Board has imposed greater risk-based and leverage capital requirements, liquidity requirements, risk management and governance requirements, capital planning and stress testing requirements, risk management requirements and other enhanced prudential standards for bank holding companies that exceed certain asset thresholds. As noted under “United States Supervision and Regulation” above, Santander Holdings USA is classified as a Category IV IHC and is subject to the enhanced prudential standards and capital and liquidity requirements applicable to these organizations.
Our U.S. Depository Institution
Santander Bank is a national banking association chartered under the laws of the United States. As a national bank, the activities of Santander Bank are limited to those specifically authorized under the National Bank Act and related OCC regulations and interpretations. Santander Bank is subject to comprehensive primary supervision, regulation and examination by the OCC. As an insured depository institution, Santander Bank is also subject to regulation and examination by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) provides for extensive regulation of depository institutions (such as Santander Bank), including requiring federal banking regulators to take “prompt corrective action” with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. For this purpose, FDICIA establishes five capitalization categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” As an insured depository institution’s capital level declines, and the depository institution falls into lower categories (or if it is placed in a lower category by the discretionary action of its supervisor), greater limits are placed on its activities and federal banking regulators are authorized (and, in many cases, required) to take increasingly more stringent supervisory actions, which could ultimately include the appointment of a conservator or receiver for the depository institution. In addition, FDICIA generally prohibits an FDIC-insured bank from making any capital distribution (including payment of a dividend) or payment of a management fee to its holding company if the bank would thereafter be undercapitalized. If an insured depository institution becomes “undercapitalized,” it is required to submit to federal regulators a capital restoration plan guaranteed by the depository institution’s holding company. If an undercapitalized depository institution fails to submit an acceptable plan, it is treated as if it were “significantly undercapitalized.” Significantly undercapitalized depository institutions may be subject to a number of restrictions, including requirements to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and restrictions on accepting deposits from correspondent banks. “Critically undercapitalized” depository institutions are subject to appointment of a receiver or conservator.
Other supervised U.S. operations
Our New York branch is licensed by the New York State Department of Financial Services to conduct a commercial
banking business. Its activity is mainly focused on wholesale banking, providing lending, markets activity on rates and currencies derivatives and transactional services to corporate and institutional investors. Our New York branch is supervised by the FRB New York and the New York State Department of Financial Services, but its deposits are not insured (or eligible to be insured) by the FDIC.
Banco Santander International is supervised by the Federal Reserve Bank of Atlanta. SCUSA is regulated and supervised by the FRB Boston and various state regulators.
Restrictions on activities
Federal and state banking laws and regulations impose certain requirements and restrict our ability to engage, directly or indirectly through subsidiaries, in activities or make investments, directly or indirectly, in companies in the United States.
As a financial holding company and a bank holding company under the Bank Holding Company Act, we are subject to regulation and supervision by the Federal Reserve Board. As a financial holding company, the scope of our permitted activities and investments in the United States is broader than that permitted for bank holding companies that are not also financial holding companies, although it is nevertheless subject to certain limitations and restrictions. Our U.S. activities and investments are limited to those that are financial in nature or incidental or complementary to a financial activity, as determined by the Federal Reserve Board. To maintain our financial holding company status, we and all of our subsidiaries must be “well capitalized” and “well managed” as determined by the Federal Reserve Board. If at any time we fail to meet these capital and management requirements, the Federal Reserve Board may impose limitations or conditions on the conduct of our activities and we may not commence in the United States any new activities otherwise permissible for financial holding companies or acquire any shares in any U.S. company under Section 4(k) of the Bank Holding Company Act, subject to certain narrow exceptions, without prior Federal Reserve Board approval.
We are required to obtain the prior approval of the Federal Reserve Board before directly or indirectly acquiring the ownership or control of more than 5% of any class of voting shares of a U.S. bank or other depository institution, or a depository institution holding company. Under the Bank Holding Company Act and Federal Reserve Board regulations, our U.S. banking operations (including our New York branch) are also restricted from engaging in certain “tying” arrangements involving products and services.
Santander Bank is subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. In addition, the OCC has issued a final rule implementing the Dodd-Frank Act’s provisions relating to lending limits. Various consumer laws
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and regulations also affect the operations of these subsidiaries.
Under U.S. federal banking laws, state-licensed branches and agencies of foreign banks (such as our New York branch) may not, as a general matter, engage as a principal in any type of activity not permissible for their federally-chartered or licensed counterparts, unless the Federal Reserve Board determines that the additional activity is consistent with sound banking practices. United States federal banking laws also subject state branches and agencies to the single-borrower lending limits, which are substantially similar to the lending limits applicable to national banks. For our U.S. branches, these single-borrower lending limits are based on the worldwide capital of the entire foreign bank (e.g., Santander, in the case of our New York branch).
Under the New York State Banking Law and regulations, our New York branch is required to maintain eligible high-quality assets with banks in the State of New York, as security for the protection of depositors and certain other creditors. The New York State Banking Law also empowers the Superintendent of Financial Services to establish asset maintenance requirements for branches of foreign banks, expressed as a percentage of each branch’s liabilities. The current designated percentage is 0%, although the Superintendent of Financial Services may impose additional asset maintenance requirements upon individual branches on a case-by-case basis.
The New York State Banking Law authorizes the Superintendent of Financial Services to take possession of the business and property of a New York branch of a foreign bank under certain circumstances, generally involving violation of law, conduct of business in an unsafe manner, impairment of capital, suspension of payment of obligations, or initiation of liquidation proceedings against the foreign bank at its domicile or elsewhere. In liquidating or dealing with a branch’s business after taking possession of a branch, only the claims of depositors and other creditors that arose out of transactions with a branch are to be accepted by the Superintendent of Financial Services for payment out of the business and property of the foreign bank in the State of New York, without prejudice to the rights of the holders of such claims to be satisfied out of other assets of the foreign bank. After such claims are paid, the Superintendent of Financial Services will turn over the remaining assets, if any, to the foreign bank or its duly appointed liquidator or receiver.
Under the International Banking Act of 1978, as amended, the Federal Reserve Board may terminate the activities of any U.S. office of a foreign bank if it determines (i) that the foreign bank is not subject to comprehensive supervision on a consolidated basis in its home country (unless the home country is making demonstrable progress toward establishing such supervision), (ii) that there is reasonable cause to believe that such foreign bank or its affiliate has violated the law or engaged in an unsafe or unsound banking practice in the United States and, as a result of such violation or practice, the continued operation of the U.S. office would be inconsistent with the public interest or with the purposes of federal banking laws or, (iii) for a foreign bank that presents a risk to the stability of the U.S.
financial system, the home country of the foreign bank has not adopted, or made demonstrable progress toward adopting, an appropriate system of financial regulation to mitigate such risk.
There are various qualitative and quantitative restrictions on the extent to which we and our non-bank subsidiaries can borrow or otherwise obtain credit from our U.S. banking subsidiaries or engage in certain other transactions involving those subsidiaries. In general, these transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral and are subject to volume limitations. These restrictions also apply to certain transactions of our New York branch with certain of our U.S. affiliates.
Supervision, examination and enforcement
The Federal Reserve Board, OCC and FDIC have broad supervisory and enforcement authority with regard to bank holding companies and banks, including the power to conduct examinations and investigations, impose non-public supervisory agreements, issue cease and desist orders, impose fines and other civil and criminal penalties, terminate deposit insurance and appoint a conservator or receiver. In addition, Santander Holdings USA, Santander Bank, SCUSA and other of our U.S. subsidiaries are subject to supervision, regulation and examination by the Bureau of Consumer Financial Protection (“CFPB”), which is the primary administrator of most federal consumer financial statutes and our primary U.S. consumer financial regulator. Supervision and examinations are confidential, and the outcomes of these actions may not be made public.
Bank regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of a banking organization’s operations are unsatisfactory. The regulators may also take action if they determine that the banking organization or its management is violating or has violated any law or regulation. The regulators have the power to, among other things, enjoin unsafe or unsound practices, require affirmative actions to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers and directors, and terminate deposit insurance.
Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject the Bank, its subsidiaries, including Santander Holdings USA, and their respective officers, directors and institution-affiliated parties to the remedies described above and other sanctions. In addition, the FDIC may terminate a bank’s depository insurance upon a finding that the bank’s financial condition is unsafe or unsound or that the bank has engaged in unsafe or unsound practices or has violated an applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency.
In March 2017, Santander Holdings USA and SCUSA entered into a written agreement with the FRB Boston pursuant to
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which Santander Holdings USA and SCUSA agreed to submit written plans acceptable to the FRB Boston to strengthen board oversight of the management and operations of SCUSA and to strengthen board and senior management oversight of SCUSA’s risk management program. SCUSA agreed to submit a written revised compliance risk management program acceptable to the FRB Boston and Santander Holdings USA agreed to submit written revisions to its firm-wide internal audit program of SCUSA’s compliance risk management program. The written agreement between Santander Holdings USA and the FRB Boston dated 21 March 2017 was terminated on 4 February 2021.
As a separate supervisory matter, U.S. bank regulatory agencies from time to time take supervisory actions under certain circumstances that restrict or limit a financial institution’s activities, including in connection with examinations, which take place on a continual basis. In some instances, we are subject to significant legal restrictions on our ability to publicly disclose these actions or the full details of these actions, including those in examination reports. In addition, as part of the regular examination process, our U.S. banking and bank holding company subsidiaries’ regulators may advise our U.S. banking subsidiaries to operate under various restrictions as a prudential matter. Currently, under the U.S. Bank Holding Company Act, we and our U.S. banking and bank holding company subsidiaries may not be able to engage in certain categories of new activities in the U.S. or acquire shares or control of other companies in the U.S. Any such actions or restrictions, if and in whatever manner imposed, could adversely affect our costs and revenues. Moreover, efforts to comply with any non-public supervisory actions or restrictions may require material investments in additional resources and systems, as well as a significant commitment of managerial time and attention. As a result, such supervisory actions or restrictions, if and in whatever manner imposed, could have a material adverse effect on our business and results of operations and, in certain instances, we may be subject to significant legal restrictions on our ability to publicly disclose these matters or the full details of these actions.
U.S. Capital Standards applicable to our U.S. banking operations
Basel III regulatory capital framework
The U.S. bank regulators have implemented the Basel III capital framework for U.S. banks and bank holding companies, including Santander Holdings USA and Santander Bank. The U.S. Basel III capital rules differ in certain respects from those Basel III rules implemented in the EU. The minimum capital ratios under the U.S. Basel III capital rules include a total capital to risk-weighted assets of 8%, Tier 1 capital to risk-weighted assets of 6% and CET1 capital to risk-weighted assets of 4.5%. In 2020, the Federal Reserve Board replaced the fixed 2.5% capital conservation buffer requirement with a dynamic stress capital buffer, subject to a floor of 2.5%, as discussed below under “Stress Capital Buffer.” As of 1 January 2021, Santander Holdings USA, on a consolidated basis, must
maintain a stress capital buffer of greater than 2.5% to avoid being subject to limitations on its ability to make capital distributions and certain discretionary bonus payments.
In July 2019, the U.S. bank regulators finalized changes to certain aspects of the U.S. Basel III capital rules that simplified, for non-advanced approaches U.S. banking organizations, the frameworks for certain deductions from capital and the limits on recognition of minority interests in capital.
In December 2017, the Basel Committee released its final agreement on a comprehensive set of revisions to the Basel III capital standards, and the U.S. banking agencies have indicated that they will consider how to appropriately implement them in the United States. The implementation of any revisions to the Basel III capital standards could substantially change the U.S. regulatory capital framework.
Stress testing and capital planning
As our U.S. IHC, Santander Holdings USA is subject to stress testing and capital planning requirements under regulations implementing the Dodd-Frank Act. Santander Holdings USA is required to submit a capital plan periodically to the Federal Reserve Board for supervisory review in connection with its annual Comprehensive Capital Analysis and Review (“CCAR”) process. Santander Holdings USA is required to include within its capital plan an assessment of the expected uses and sources of capital and a description of all planned capital actions over the nine-quarter planning horizon, a detailed description of the process for assessing capital adequacy, its capital policy, and a discussion of any expected changes to its business plan that are likely to have a material impact on its capital adequacy.
The Federal Reserve Board expects companies subject to CCAR, such as Santander Holdings USA, to have sufficient capital to withstand a highly adverse operating environment and to be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries. In addition, the Federal Reserve Board evaluates the planned capital actions of these bank holding companies, including planned capital distributions such as dividend payments or stock repurchases. This involves a quantitative assessment of capital based on supervisor-run stress tests that assess the ability to maintain capital levels above certain minimum ratios, after taking all capital actions included in a bank holding company’s capital plan, under baseline and stressful conditions throughout the nine-quarter planning horizon. As part of CCAR, the Federal Reserve Board evaluates whether bank holding companies have sufficient capital to continue operations throughout times of economic and financial market stress and whether they have robust, forward-looking capital planning processes that account for their unique risks. Since the 2017 capital planning cycle, the qualitative assessment that was part of the Federal Reserve Board’s CCAR for certain large and non-complex bank holding companies and U.S. intermediate holding companies of FBOs, including Santander Holdings USA, is no longer part of the CCAR process.
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Santander Holdings USA was subject to the stress testing and CCAR process for the 2020 cycle, which, due to the rapidly changing macroeconomic developments related to the COVID pandemic, consisted of two rounds of stress tests. Santander Holdings USA submitted its 2020 capital plan to the Federal Reserve Board on 6 April 2020. In June 2020, the Federal Reserve Board released the results of the supervisory stress tests and CCAR process, along with a summary of the results an additional sensitivity analysis conducted in light of the COVID pandemic. Based on these results, the Federal Reserve Board announced in August 2020 that Santander Holding USA’s stress capital buffer, which took effect in October 2020, was calibrated at 2.5%. In addition, the Federal Reserve Board announced in June 2020 that it would require firms subject to CCAR, including Santander Holdings USA, to resubmit their 2020 capital plans by 2 November 2020, and that it would conduct a second round of supervisory stress tests using these resubmitted capital plans, which reflected more recent financial information and projections than the first round of stress tests. In December 2020, the Federal Reserve Board released the results of the second round of supervisory stress tests. The Federal Reserve Board did not change Santander Holdings USA’s stress capital buffer as a result of this second round of stress tests.
The Federal Reserve Board has the authority to limit the capital distributions of bank holding companies, including Santander Holding USA. In June 2020, the Federal Reserve Board imposed limitations on capital distributions for firms subject to CCAR, which took effect in the third quarter of 2020. On 30 September 2020, the Federal Reserve Board announced that it would extend the limitations for the fourth quarter of 2020. Under the capital distribution limitations that were in effect for the third and fourth quarter of 2020, Santander Holdings USA was not permitted to repurchase shares, and common dividend payments to its shareholder were limited based on the lesser of the amount paid in the second quarter of 2020 and an amount based on recent earnings. In December 2020, the Federal Reserve Board announced that it would extend the distribution limitations to the first quarter of 2021, subject to certain modifications During the first quarter of 2021, CCAR banking organizations that are U.S. bank holding companies are authorized to: (a) pay common stock dividends and make share repurchases that, in the aggregate, do not exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters, provided that the firm does not increase the amount of its common stock dividends to be larger than the level paid in the second quarter of 2020, and provided further that if the average of the firm’s net income for the four preceding calendar quarters does not exceed an amount equal to one cent per share, the firm may pay common stock dividends of one cent per share; (b) make share repurchases that equal the amount of share issuances related to expensed employee compensation; and (c) redeem and make scheduled payments on additional tier 1 and tier 2 capital instruments.
Stress capital buffer requirement
In March 2020, the Federal Reserve Board issued a final rule that integrated its capital planning and stress testing requirements with certain ongoing regulatory capital requirements, by introducing a stress capital buffer and making related changes to the capital planning and stress testing processes. The stress capital buffer rule applies to the consolidated operations of U.S. IHCs, including Santander Holdings USA.
The stress capital buffer rule replaced the capital conservation buffer, which was a fixed 2.5%, with a firm-specific and dynamic stress capital buffer, which is calculated during each supervisory stress testing cycle. For Santander Holdings USA, the stress capital buffer is equal to the greater of (i) the maximum decline in its CET1 Risk-Based Capital Ratio under the severely adverse scenario over the supervisory stress test measurement period, plus the sum of the ratios of the dollar amount of our planned common stock dividends to our projected risk-weighted assets for each of the fourth through seventh quarters of the supervisory stress test projection period, and (ii) 2.5%. Santander Holdings USA’s current stress capital buffer, calibrated based on the results of the 2020 supervisory stress tests, is 2.5%.
The stress capital buffer rule also implemented related changes to capital planning and stress testing processes for the consolidated operations of U.S. IHCs subject to the stress buffer requirements, including Santander Holdings USA. In particular, the rule limits projected capital actions to planned common stock dividends in the fourth through seventh quarters of the supervisory stress test projection period and assumes that the consolidated operations of IHCs maintain a constant level of assets and risk-weighted assets throughout the supervisory stress test projection period.
Total loss-absorbing capacity and long-term debt requirements
Santander Holdings USA is required, pursuant to the final total loss-absorbing capacity rule of the Federal Reserve Board, to comply with certain TLAC and long-term debt requirements applicable to U.S. IHCs of non-U.S. G-SIBs. The main purpose of the minimum TLAC and LTD requirements is to ensure that covered U.S. IHCs, such as Santander Holdings USA, will have enough loss-absorbing resources at the point of failure to be recapitalized through the conversion of eligible LTD to equity or otherwise by imposing losses on eligible LTD or other forms of TLAC. The minimum TLAC and LTD requirements for a covered U.S. IHC under the rule vary depending on the home country resolution authority’s preferred resolution strategy. Because the competent authorities informed Banco Santander, S.A. that Santander Holdings USA would enter Chapter 11 proceedings under the resolution strategy for the Group, Santander Holdings USA is a resolution covered IHC and is required to maintain external and internal TLAC that collectively amount to at least 18% of risk-weighted assets (plus a TLAC buffer of an additional 2.5% composed solely of common equity tier 1 capital) and at least 9% of average total consolidated assets, as well as external and internal LTD that collectively amount to at least 6% of risk-weighted assets and at least 3.5% of average total consolidated assets. The final rule also established a clean
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holding company framework that imposes certain restrictions on the types of liabilities or arrangements that may be incurred or entered into by a covered U.S. IHC. It also imposes a cap on the aggregate amount of certain unrelated liabilities of the covered U.S. IHC equal to 5% of the covered U.S. IHC’s TLAC.
Liquidity requirements
Liquidity coverage ratio
Under the Tailoring Rules, Santander Holdings USA is not subject to the liquidity coverage ratio (“LCR”) requirement since it is a Category IV IHC with less than $50 billion in weighted short-term wholesale funding. The LCR is one of the liquidity components of the international Basel III framework, and requires firms to meet certain liquidity measures by holding an adequate amount of unencumbered high-quality liquid assets to cover its projected net cash outflows over a 30 day stress scenario window.
Net stable funding ratio
The Federal Reserve Board in October 2020 issued a final rule that implementing in the United States a quantitative net stable funding ratio (“NSFR”) requirement, which is applicable to certain large bank holding companies and to certain large banks. Under the Tailoring Rules, Santander Holdings USA is not subject to the final NSFR requirement since it is a Category IV IHC with less than $50 billion in weighted short-term wholesale funding.
Volcker rule
Section 13 of Bank Holding Company Act, and its implementing rules (collectively, the “Volcker Rule”) prohibits “banking entities” from engaging in certain forms of proprietary trading or from sponsoring, or investing in “covered funds,” in each case subject to certain exceptions. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Banco Santander were required to bring their activities and investments into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. Banco Santander has assessed how the Volcker Rule affects its businesses and subsidiaries, and has brought its activities into compliance. Banco Santander has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permits certain ownership interests in certain types of funds to be retained. Those exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the essential actions take place outside the United States and any transactions are not with U.S. persons.
As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. Banking entities must comply with these amended requirements by 1 January 2021, but may elect to comply, in whole or in part, starting on 1 January 2020. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide to the federal agencies. Under the revised rule, firms that do not have significant trading activities, such as Banco Santander, will have simplified and streamlined compliance requirements. Non-U.S. banking organizations like Banco Santander would largely rely on the “solely outside the U.S. exemption” to conduct their trading activities outside of the US.
In June 2020, the five federal agencies finalized additional amendments to the Volcker Rule related to the restrictions on ownership interests in and relationships with covered funds. These amendments became effective on 1 October 2020. Banco Santander will continue to monitor Volcker Rule-related developments and assess their impact on its operations, as necessary.
OTC derivatives regulation
Title VII of the Dodd-Frank Act amended the U.S. Commodity Exchange Act and the Securities Exchange Act of 1934 to establish an extensive framework for the regulation of OTC derivatives by the CFTC and the SEC, including mandatory clearing of certain standardized OTC derivatives and the trading of such instruments through regulated trading venues, subject to exceptions, and transaction reporting. In addition, Title VII requires the registration of swap dealers and major swap participants with the CFTC and of security-based swap dealers and major security-based swap participants with the SEC. Banco Santander is provisionally registered as a swap dealer with the CFTC. Santander does not currently expect to register any entity with the SEC as a security-based swap dealer or major security-based swap participant.
As a result of its registration as a swap dealer, Banco Santander, S.A. is subject to margin, segregation of counterparty collateral, business conduct, recordkeeping, clearing, execution, reporting and other requirements. In general, as a non-U.S. swap dealer, Banco Santander, S.A. is not subject to all CFTC requirements, including certain business conduct standards, when entering into swaps with non-U.S. counterparties. In addition, subject to conditions, Banco Santander, S.A. may comply with EU OTC derivatives requirements in lieu of some CFTC requirements, including portfolio reconciliation, portfolio compression and trade confirmation requirements, pursuant to substituted compliance determinations issued by the CFTC.
While most of the rules applicable to swap dealers have been fully implemented, others are still being phased in. For example, the U.S. prudential regulatory agencies adopted final rules establishing initial and variation margin requirements for uncleared swaps and security-based swaps between prudentially-regulated swap dealers, such as Banco Santander, S.A., and certain counterparties, and
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

the CFTC adopted a final rule establishing initial and variation margin requirements for uncleared swaps between non-prudentially regulated swap dealers and certain counterparties. All swap dealers must currently comply with the variation margin requirements (to the extent applicable to a particular transaction); however, the initial margin requirements are still being phased in through 1 September 2022, based on the level of specified derivatives activity of the swap dealer and the relevant counterparty (and their affiliates). In June 2020, the U.S. regulatory agencies issued an interim final rule extending the initial margin compliance date until 1 September 2022 for certain swap dealers with lower levels of specified derivatives activity. In addition, in June 2020, the U.S. regulatory agencies issued a final rule amending the requirements for inter-affiliate swaps, under which entities that are part of the same banking organization generally are no longer required to hold a specific amount of initial margin for uncleared swaps with each other.
In the European Union (the “EU”), the implementation of the European Market Infrastructure Regulation (“EMIR”) and the revision of MiFID II will result in comparable, but not identical, changes to the European regulatory regime for OTC derivatives. The combined effect of the U.S. and EU requirements, and the potential conflicts and inconsistencies between them, may present challenges and risks to the Group’s OTC derivatives business. Substituted compliance rulings may allow for some limited relief from these challenges, and the Group has established cross-border working groups to meet regulatory requirements where there may be some crossborder overlap. The full impact of the various U.S. and non-U.S. regulatory developments in this area will not be known until all of the rules are finalized and implemented, cross-border conflicts can be identified, and market practices develop under the final rules.
QFC stay rules
The U.S. banking agencies have adopted QFC stay rules that impose contractual requirements on covered QFCs to which covered entities are parties. Banco Santander’s U.S. operations, including Santander Bank, are treated as covered entities under the QFC stay rules. Under the QFC stay rules, covered QFCs generally:
(1) must explicitly recognize the FDIC’s authority to stay the exercise of default rights under and transfer the covered QFC under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Act, and their implementing regulations; and
(2) may not (a) permit the exercise of any cross-default right against a covered entity based on an affiliate’s entry into receivership, insolvency, liquidation, resolution or similar proceedings, subject to certain creditor protections, or (b) prohibit the transfer of any credit enhancement (including a guarantee) provided by an affiliate in the G-SIB group that is a covered entity upon any affiliate in the G-SIB group entering into receivership, insolvency, liquidation, resolution, or similar proceedings.
The QFC stay rules establish a phased-in compliance schedule based on counterparty type and the final compliance date was 1 January 2020.
Single-counterparty credit limits
In June 2018, the Federal Reserve Board issued a final rule, which was subsequently amended by the Tailoring Rules, implementing single counterparty credit limits applicable to the U.S. operations of major FBOs, such as Banco Santander. The rule in general imposes percentage limitations on net credit exposures to individual counterparties (aggregated based on affiliation), generally as a percentage of tier 1 capital. Under the amendments to the U.S. single counterparty credit limits rule made by the Tailoring Rules, Santander Holdings USA is not subject to the single counterparty credit limits rule at the IHC level. In addition, although Banco Santander remains subject to the amended rules with respect to its U.S. operations, it may elect to comply by certifying that it complies with its home-country single counterparty credit limits, instead of complying with the Federal Reserve Board's implementation of these requirements.
Resolution planning
We are required to prepare and submit periodically to the Federal Reserve Board and the FDIC a plan, commonly called a living will (the “165(d) plan”), for the orderly resolution of our subsidiaries and operations that are domiciled in the United States in the event of future material financial distress or failure. We, on behalf of our IDI subsidiary, Santander Bank, must also submit a separate IDI resolution plan to the FDIC. The 165(d) plan and the IDI plan require substantial effort, time and cost to prepare and are subject to review by the Federal Reserve Board and the FDIC, in the case of the 165(d) plan, and by the FDIC only, in the case of the IDI plan. If, after reviewing our 165(d) plan and any related re-submissions, the Federal Reserve Board and the FDIC jointly determine that the 165(d) Plan is not credible and that deficiencies are not cured in a timely manner, they may jointly impose on our U.S. operations more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations., or even divestitures, which could have an adverse effect on our business. Banco Santander filed its most recent 165(d) plan on 19 December 2018 , and its most recent IDI plan on 28 June 2018. As a result of EGRRCPA and its implementing regulations, Banco Santander will now be required to file a reduced 165(d) plan once every three years. The FDIC released an Advanced Notice of Proposed Rulemaking in April 2019 seeking comment on ways to tailor and improve the IDI plan rule. No firm will be required to submit another IDI plan until the FDIC’s rulemaking process on a revised IDI plan rule has been completed.
Federal Reserve Board proposed supervisory guidance and Large Financial Institution rating system
In August 2017, the Federal Reserve Board issued a proposal on corporate governance to enhance the effectiveness of boards of directors and refocus the Federal Reserve Board’s supervisory expectations for boards of directors on their core responsibilities. The corporate governance proposal consists of three parts. The first part, the board effectiveness guidance, is proposed supervisory
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guidance identifying the attributes of effective boards of directors and is applicable to certain bank and savings and loan holding companies with total consolidated assets of USD 50 billion or more (other than those that are U.S. IHCs of foreign banking organizations), as well as to certain designated systemically important non-bank financial companies supervised by the Federal Reserve Board. This part would not apply to Santander Holdings USA, but the Federal Reserve Board solicited comments on how the guidance could be adapted to apply to U.S. IHCs of FBOs, signaling that Santander Holdings USA could fall within the scope of a related future proposal. The second and third parts of the corporate governance proposal would revise certain supervisory expectations for boards and clarify expectations for communicating supervisory findings to an institution’s board of directors and senior management.
In January 2018, the Federal Reserve Board proposed supervisory guidance setting out core principles of effective senior management, the management of business lines, independent risk management and controls. This proposed supervisory guidance, which would apply to our combined U.S. operations including Santander Holdings USA, and our New York branch, would be used in connection with the supervisory assessment of governance and controls under the LFI Rating System described below.
In November 2018, the Federal Reserve adopted a new rating system, the LFI Rating System, to align its supervisory rating system for large financial institutions, including Santander Holdings USA, with its current supervisory programs for these firms. As compared to the rating system it replaced, which will continue to be used for smaller BHCs, the LFI Rating System places a greater emphasis on capital and liquidity, including related planning and risk management practices. Santander Holdings USA received its first rating under the LFI Rating System in 2020.
Source of strength
Santander Holdings USA is required to serve as a source of financial and managerial strength to its U.S. depository institution subsidiaries, and, under appropriate conditions, to commit resources to support those subsidiaries. This support may be required by the Federal Reserve at times when we might otherwise determine not to provide it or when doing so is not otherwise in the interests of Santander Holdings USA or the Group’s stockholders or creditors. The Federal Reserve may require Santander Holdings USA to make capital injections into a troubled subsidiary bank and may charge Santander Holdings USA with engaging in unsafe and unsound practices if Santander Holdings USA fails to commit resources to such a subsidiary bank or if it undertakes actions that the Federal Reserve believes might jeopardize the bank holding company’s ability to commit resources to such subsidiary bank.
Under these requirements, Santander Holdings USA may in the future be required to provide financial assistance to its U.S. depository institution subsidiaries should they experience financial distress. Capital loans by Santander Holdings USA to its U.S. depository institution subsidiaries would be subordinate in right of payment to deposits and certain other debts of the U.S. depository institution
subsidiaries. In the event of Santander Holdings USA’s bankruptcy, any commitment by Santander Holdings USA to a federal bank regulatory agency to maintain the capital of its U.S. depository institution subsidiaries would be assumed by the bankruptcy trustee and entitled to a priority of payment.
Consumer protection regulation and supervision
The operations of Santander Bank and SCUSA are subject to supervision and regulation by the CFPB with respect to federal consumer protection laws. Our U.S. operations are also subject to certain state consumer protection laws, and under the Dodd-Frank Act, state attorneys general and other state officials are empowered to enforce certain federal consumer protection laws and regulations. State authorities have recently increased their focus on and enforcement of consumer protection rules. These federal and state consumer protection laws apply to a broad range of our activities and to various aspects of our business and include laws relating to interest rates, auto lending, fair lending, disclosures of credit terms and estimated transaction costs to consumer borrowers, debt collection practices, the use of and the provision of information to consumer reporting agencies, and the prohibition of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and services.
The CFPB has promulgated many mortgage-related final rules, including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, HMDA requirements and appraisal and escrow standards for higher priced mortgages. In addition, several proposed revisions to mortgage-related rules are pending finalization. The mortgage-related final rules issued by the CFPB have materially restructured the origination, servicing and securitization of residential mortgages in the United States. For example, under the CFPB’s Ability to Repay and Qualified Mortgage rule, before making a mortgage loan, a lender must establish that a borrower has the ability to repay the mortgage. “Qualified mortgages,” as defined in the rule, are presumed to comply with this requirement and, as a result, present less litigation risk to lenders. For a loan to qualify as a qualified mortgage, the loan must satisfy certain limits on terms and conditions, pricing and a maximum debt-to-income ratio. Loans eligible for purchase, guarantee or insurance by a government agency or government-sponsored enterprise are exempt from some of these requirements. Satisfying the qualified mortgage standards, ensuring correct calculations are made for individual loans, recordkeeping and monitoring, as well as understanding the effect of the qualified mortgage standards on CRA obligations, impose significant new compliance obligations on, and involve compliance costs for, U.S. mortgage lenders, including ours.
Federal and state regulators have also been increasingly focused on sales practices of branch personnel, including taking regulatory action against other financial institutions. We monitor and review our sales practices in light of evolving regulatory expectations. Any restrictions on our ability to offer our products could reduce earnings, increase
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

compliance costs and expose us to litigation or regulatory actions.
Community Reinvestment Act
The CRA is intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighbourhoods, consistent with safe and sound banking practices. The relevant federal bank regulatory agency, the OCC in Santander Bank’s case, examines each bank and assigns it a public CRA rating. A bank’s record of fair lending compliance is part of the resulting CRA examination report. Santander Bank is subject to the CRA. Santander Bank’s most recent public CRA report of examination rated Santander Bank as “Satisfactory” for the 1 January 2014 through 31 December 2016 evaluation period. The 2014-2016 CRA rating represents an upgrade in performance over that from the previous exam cycle, which was affected by previously disclosed instances of non-compliance that have since been remediated. The OCC takes into account Santander Bank’s CRA rating in considering certain regulatory applications Santander Bank makes, including applications related to establishing and relocating branches, and the Federal Reserve Board does the same with respect to certain regulatory applications Santander Holdings USA makes. In May 2020, the OCC issued a final rule implementing changes to the CRA’s regulatory framework. The new rule clarifies and expands the bank lending, investment and services that qualify for positive CRA consideration, updates how banks delineate the assessment areas in which they are evaluated, provides additional methods for evaluating CRA performance in a consistent and objective manner, and imposes new reporting requirements. Certain requirements of the final rule became effective in October 2020, with full compliance required by 1 January 2023. The impact of these changes on Santander Bank includes a significant increase in data collection and reporting requirements. Santander Bank will be required to collect loan level data on all consumer, small business, and community development lending, including consumer loans that do not qualify for CRA credit (the final rule excludes credit card lending). The final rule also requires Santander Bank to report all indirect auto lending for CRA purposes. Additionally, Santander Bank will be required to collect and report comprehensive deposit data for each account and report annual CRA evaluation measures with results pertaining to retail distribution at the assessment area level. The final rule overhauls CRA data collection and reporting and will require banks to implement significant procedural, operational, and technological changes in order to access and report the required data.
FDIC as receiver or conservator of Santander Bank
Upon the insolvency of an insured depository institution, such as Santander Bank, the FDIC may be appointed as the conservator or receiver of the institution. Under the Dodd-Frank Act’s Orderly Liquidation Authority, upon the insolvency of a bank holding company, such as Santander Holdings USA, the FDIC may be appointed as conservator or receiver of the bank holding company, if certain findings are made by the FDIC, the Federal Reserve Board and the Secretary of the Treasury, in consultation with the President. Acting as a conservator or receiver, the FDIC
would have broad powers to transfer any assets or liabilities of the institution without the approval of the institution’s creditors.
Lending standards and guidance
The U.S. bank regulatory agencies have adopted uniform regulations prescribing standards for extensions of credit that are secured by liens or interests in real estate or made for the purpose of financing permanent improvements to real estate. Under these regulations, all insured depository institutions, such as Santander Bank, must adopt and maintain written policies establishing appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration of the federal bank regulatory agencies’ Interagency Guidelines for Real Estate Lending Policies.
FDIC insurance
The Deposit Insurance Fund (“DIF”) provides insurance coverage for certain deposits up to a standard maximum deposit insurance amount of USD 250,000 per depositor per insured depository institution and is funded through assessments on insured depository institutions, based on the risk each institution poses to the DIF. The FDIC recently required large insured depository institutions, including Santander Bank, to enhance the recordkeeping systems to facilitate prompt payment of insured deposits if such an institution were to fail. The rule required us to reconfigure our information technology systems to be able to provide certain required information by 1 April 2020.
Data privacy
Federal and state law contains extensive consumer privacy protection provisions. The Gramm-Leach-Bliley Act requires financial institutions to periodically disclose their privacy policies and practices relating to sharing such information and enables retail customers to opt out of our ability to share information with unaffiliated third parties under certain circumstances. Other federal and state laws and regulations impact our ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. The Gramm-Leach-Bliley Act also requires financial institutions to implement a comprehensive information security program that includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations. Federal law also makes it a criminal offence, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means. States are also increasingly proposing or enacting legislation that relates to data privacy and data protection such as the California
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Consumer Privacy Act (“CCPA”), which went into effect on January 1, 2020. The CCPA gives consumers the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising their rights. While the CCPA is expected to have no material impact on Banco Santander’s U.S. operations, the CCPA may serve as a model for state level privacy laws that could appear in other states. Santander continues to assess the requirements of such laws and proposed legislation and their applicability to our operations.
Like other lenders, Santander Bank and other of our U.S. subsidiaries use credit bureau data in their underwriting activities. Use of such data is regulated under the FCRA, and the FCRA also regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing purposes. Similar state laws may impose additional requirements on us and our subsidiaries.
As noted in the “General Data Protection Regulation” section above, the GDPR became directly applicable in all member states of the EU on 25 May 2018. The GDPR creates additional requirements for the protection of natural persons with respect to the processing of personal data and on the free movement of such data. The implementation of the GDPR has required substantial amendments to Banco Santander’s procedures and policies, which have impacted, and could further adversely impact, Banco Santander’s business by increasing its operational and compliance costs.
Compensation
The compensation practices of our U.S. subsidiaries are subject to oversight by the Federal Reserve Board and, with respect to some of our subsidiaries and employees, by other financial regulatory bodies. The scope and content of compensation regulation in the financial industry are continuing to develop, and we expect that these regulations and resulting market practices will continue to evolve over a number of years.
Cybersecurity
In October 2016, the federal banking regulators issued an advance notice of proposed rulemaking regarding enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, including our U.S. bank subsidiaries. The proposed standards would expand existing cybersecurity regulations and guidance to focus on cyber risk governance and management; management of internal and external dependencies; and incident response, cyber resilience and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector.
Cybersecurity is also an area of increasing state legislative focus. For example, the CCPA contains both a limited private right of action for consumers as well as
enforcement capabilities for the California Attorney General for data breaches involving certain personal information if due to a business failure to implement reasonable security procedures and practices appropriate to the personal information held.
Anti-Money Laundering
The Bank Secrecy Act, as amended by the USA PATRIOT Act, contains provisions intended to detect, and prevent the use of the U.S. financial system for, money laundering and terrorist financing activities. Under the Bank Secrecy Act, U.S. financial institutions, including U.S. branches and subsidiaries of non-U.S. banks, are required to, among other things, maintain an AML program, verify the identity of clients, monitor for and report suspicious transactions, report on cash transactions exceeding specified thresholds, and respond to requests for information by regulatory authorities and law enforcement agencies. Santander Bank is subject to the Bank Secrecy Act and therefore is required to maintain a system of internal controls, provide its employees with AML training, designate an AML compliance officer and undergo an annual, independent audit to assess the effectiveness of its AML program. Santander Bank has implemented policies, procedures and internal controls that are designed to comply with its U.S. AML requirements. In May 2016, FinCEN, which promulgates regulations implementing the Bank Secrecy Act, issued a final customer due diligence (“CDD”) rule, which became applicable on 11 May 2018. It imposes several obligations on covered U.S. financial institutions with respect to their “legal entity customers,” including corporations, limited liability companies and other similar entities. For each such customer that opens an account (including an existing customer opening a new account), the covered financial institution must identify and verify the customer’s “beneficial owners,” as defined in the regulation. In addition, under the new regulation, covered financial institutions must implement risk-based procedures for conducting ongoing CDD.
U.S. bank regulators are focusing their examinations on AML compliance, and we will continue to monitor and augment, where necessary, our (including our U.S. branches’ and subsidiaries’) AML compliance programs. Failures to comply with applicable U.S. AML laws and regulations could have severe legal and reputational consequences, including significant civil monetary and criminal penalties and termination of U.S. banking licenses. In addition, U.S. regulators have taken actions against non-U.S. bank holding companies requiring them to improve their oversight of their U.S. subsidiaries’ Bank Secrecy Act programs and compliance. Further, U.S. federal banking agencies are required, when reviewing bank and bank holding company acquisition or merger applications, to take into account the effectiveness of the AML compliance record of the applicant.
U.S. sanctions
OFAC is responsible for administering economic sanctions imposed against designated foreign countries, governments, individuals and entities pursuant to various Executive Orders, statutes and regulations. OFAC-administered sanctions take many different forms. For
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

example, sanctions may include: (1) restrictions on U.S. persons’ trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets of targeted governments or “specially designated nationals,” by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. Blocked assets, such as property and bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. In addition, non-U.S. persons can be liable for “causing” a sanctions violation by a U.S. person or can violate U.S. sanctions by exporting services from the United States to a sanctions target, for example by engaging in transactions with targets of U.S. sanctions denominated in U.S. dollars that clear through U.S. financial institutions (including through U.S. branches or subsidiaries of non-U.S. banks).
Failure to comply with applicable U.S. sanctions could have serious legal and reputational consequences, including significant civil monetary penalties and, in the most severe cases, criminal penalties.
In addition, the U.S. government has implemented various sanctions that target non-U.S. persons, including non-U.S. financial institutions, that engage in certain activities undertaken outside the United States and without the involvement of any U.S. persons (“secondary sanctions”) that involve Iran, North Korea, Russia, or Hezbollah or other persons designated by the U.S. under the specially Designated Global Terrorist (SDGT) sanctions programme. If a non-U.S. financial institution were determined to have engaged in activities targeted by certain secondary U.S. sanctions, it could lose its ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential consequences.
Disclosure pursuant to Section 219 of the Iran threat reduction and Syria human rights act
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.
The following activities are disclosed in response to Section 13(r) with respect to the Group and its affiliates. During the period covered by this report:
a) Santander UK holds five blocked accounts for three customers, with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three customers, who are resident in the UK, are currently designated by the
US under the Specially Designated Global Terrorist (SDGT) sanctions programme. Revenues and profits generated by Santander UK on these accounts in the year ended 31 December 2020 were negligible relative to the overall profits of Banco Santander S.A.
b) Santander UK holds two frozen current accounts for two UK nationals who are designated by the US under the SDGT sanctions programme. The accounts held by one customer were fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughout 2020. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on these accounts in the year ended 31 December 2020.
c) Santander Consumer Bank, S.A. holds seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions programme. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the year ended 31 December 2020.
d) The Group also has certain legacy performance guarantees for the benefit of Bank Mellat (stand-by letters of credit to guarantee the obligations – either under tender documents or under contracting agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.
In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended 31 December 2020 which were negligible relative to the overall revenues and profits of Banco Santander, S.A. The Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.
Monetary policy and exchange controls
The decisions of the European System of Central Banks influence conditions in the money and credit markets, thereby affecting interest rates, the growth in lending, the distribution of lending among various industry sectors and the growth of deposits. Monetary policy has had a
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significant effect on the operations and profitability of Spanish banks in the past and this effect is expected to continue in the future. Similarly, the monetary policies of governments in other countries in which we have operations, particularly in Latin America, the United States and the United Kingdom, affect our operations and profitability in those countries. We cannot predict the effect which any changes in such policies may have upon our operations in the future, but we do not expect it to be material.
The European Monetary Union has had a significant effect upon foreign exchange and bond markets and has involved modification of the internal operations and systems of banks and of inter-bank payments systems. Since 1 January 1999, the start of Stage III, see “-Supervision and Regulation-Single Supervisory Mechanism, Bank of Spain and the European Central Bank,” Spanish monetary policy has been affected in several ways. The euro has become the national currency of the then fifteen participating countries and the exchange rates between the currencies of these countries were fixed to the euro. Additionally, the European System of Central Banks became the entity in charge of the European Union’s monetary policy.

930
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

11. Shareholders remuneration
The table below sets forth the historical per share and per ADS (each of which represents the right to receive one of our shares) amounts of interim and total remuneration payments in respect of each fiscal year indicated.
Euro per ShareDollars per ADS
FirstSecondThirdFourthTotalFirstSecondThirdFourthTotal
20160.05 0.04 0.05 0.05 0.2 0.05 0.05 0.06 0.06 0.21 
20170.06 0.04 0.06 0.06 0.21 0.07 0.04 0.07 0.07 0.25 
20180.06 0.03 0.06 0.06 0.22 0.07 0.04 0.07 0.07 0.25 
2019(A)0.096 0.096 n.a.n.a.0.19 0.106 0.115 n.a.n.a.0.22 
2020 (A)0.0275 n.a.n.a.0.0275 0.0337 n.a.n.a.0.0337 
(A) In September 2019 the board of directors of the Bank approved its first dividend against 2019 earnings of EUR 0.10 per share, which was entirely paid in cash on 1 November 2019. Banco Santander, upon the recommendation of the European Central Bank (ECB) to preserve capital by cancelling dividends charged to the financial years 2020 and 2019, decided during the first half of 2020 to cancel the payment of the supplementary dividend for 2019. In the third quarter of 2020, given the greater visibility, the strength of the Bank and the evolution of the underlying results, the board of directors proposed to the shareholders' meeting held on 27 October 2020, the approval of (i) a scrip dividend (in the form of 722,526,720 newly issued shares which started trading on 11 December 2020) equivalent to 0.10 euros per share as supplementary remuneration on account of the 2019 earnings; and (ii) a dividend of up to 0.10 euros per share to be charged to the share premium reserve in 2021 subject to the European Central Bank (ECB) guidance and approval. On 3 February 2021, we made public the board's intention to pay a cash dividend of €2.75 cents per share as shareholder remuneration for 2020. For more information see Part 1. Consolidated Directors´ Report-Corporate Governance. Section 3.3.
Note: 2016, 2017, 2018 and 2019 data adjusted to reflect the capital increase of December 2020.


12. The offer and listing

Santander’s shares

In 2020, Santander was the most actively traded stock on the Spanish stock exchange. As at 31 December 2020, the stock had a 10.38% weighting in the IBEX 35 Index and was ranked third among all Spanish issuers represented in this index. In 2020, 19,080 million shares were traded, for a cash amount of EUR 45,034 million. Our market capitalization of EUR 44,011 million at 2020 year-end made us one of the largest banks in the eurozone by market capitalization.
At 31 December 2020 a total of 3,848,147,561 shares, or 22.19% of our share capital, were held by 1,172 depositary receipt registered holders in our American Depositary Share Program. The Bank of New York Mellon is the depositary of our American Depositary Share Program.
At 31 December 2020, 60.18% of our shares were held of record by non-residents of Spain.
American Depositary Shares

Our ADSs have been listed and traded on the New York Stock Exchange since 30 July 1987. Each ADS represents
one of our shares and is evidenced by an American Depositary Receipt or “ADR.” Under the deposit agreement, pursuant to which ADRs have been issued, The Bank of New York Mellon is the depositary and holder from time to time of ADRs. At 31 December 2020, we had outstanding a total of 624,969,682 ADRs of which 14,082,918 were held by 13,299 registered holders with The Bank of New York Mellon. Since certain of such of our shares and our ADSs are held by nominees, the number of record holders is not representative of the number of beneficial owners. Our directors and executive officers owned 116,721 ADRs as of 31 December 2020, according to the information of the Spanish CNMV.
Our Depositary is The Bank of New York Mellon, with its principal executive office located at 240 Greenwich Street, New York, N.Y. 10286.
Each ADS represents the right to receive one of Common Stock of Santander, pay value EUR 0.50 each.
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Persons depositing or withdrawing shares or ADS holders must pay:
USD 5.00 (or less) per 100 ADSsIssuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

Cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agreement terminates
USD .05 (or less) per ADS (or a portion thereof)Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been deposited with the Depositary Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the Depositary to ADS holders
USD .05 (or less) per ADS (or a portion thereof) per calendar year Depositary services
Registration and transfer feesTransfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares
Expenses of the DepositaryCable (including SWIFT), telex and facsimile transmissions (when expressly provided in the Deposit Agreement)

Converting foreign currency to U.S. dollars
Taxes and other governmental charges the Depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as  stock transfer taxes, stamp duty or withholding taxesAs necessary
Any other charges incurred by the Depositary or its agents for servicing the shares or other deposited securitiesAs necessary
The Depositary may collect any of its fees by deducting those fees from any cash distributions payable to owners, or by selling a portion of distributable property to pay the fees.  The Depositary may also collect its annual fee for Depositary services and its fees for any other charges incurred by deducting those fees from any cash distributions or by directly billing ADS holders.
The Depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account.  The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the Deposit Agreement and the rate that the Depositary or its affiliate receives when buying or selling foreign currency for its own account.  The Depositary makes no representation that the exchange rate used or obtained in any currency conversion under the Deposit Agreement will be the most favourable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favourable to ADS holders, subject to the Depositary’s obligations under the Deposit Agreement.  The methodology used to determine exchange rates used in currency conversions is available upon request.
In performing its duties under the Deposit Agreement, the Depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated with the Depositary and that may earn or share fees, spreads or commissions.
The Depositary has agreed to make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the Depositary or share revenue from the fees collected from ADS holders from time to time. Under certain
circumstances, including termination of the program, we are required to repay to the Depositary amounts reimbursed in prior periods.
The reimbursements include direct payments (legal and accounting fees incurred in connection with preparation of Form 20-F and ongoing SEC compliance and listing requirements, listing fees, investor relations expenses, advertising and public relations expenses and fees payable to service providers for the distribution of hard copy materials to beneficial ADR holders in the Depositary Trust Company, such as information related to shareholders’ meetings and related voting instruction cards); and indirect payments (third-party expenses paid directly and fees waived).
In 2020, the Depositary made direct payments and reimbursements to us in the gross amount of USD 1,308,222.26 for expenses related to investor relations with no withholding for tax purposes in the U.S.
Trading by Santander’s subsidiaries in the shares
We and/or some of our subsidiaries, in accordance with market practice, as permitted under the relevant European regulations and according to our internal policy, have regularly purchased and sold our shares for our own account. We expect that we and/or our subsidiaries may continue to purchase and sell our shares from time to time.
Our trading activities in our shares are driven by orders, which are matched by the market’s computer system according to price and time entered. Santander’s broker (which is Banco Santander, S.A. after the absorption of Santander Investment Bolsa, S.V., S.A.U. and Popular Bolsa, S.V., S.A.U.) and the other brokers authorized to trade on the continuous market (“Member Firms”) are not required to and do not serve as market makers maintaining independently established bid and ask prices. Rather, Member Firms place orders for their customers, or for their
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

own account, into the market’s computer system. If an adequate counterparty order is not available on the continuous market at that time, the Member Firm may solicit counterparty orders from among its own clients and/or may accommodate the client by filling the client’s order as principal.
Under the Spanish Capital Companies Law, a company and its subsidiaries are prohibited from purchasing shares of the company in the primary market. However, purchase of the shares is permitted in the secondary market provided that: (1) the aggregate nominal value of such purchases (referred to as 'treasury stock' or 'autocartera') and of the shares previously held by the company and its subsidiaries does not exceed 10% of the total outstanding capital stock of the company, (2) the purchases are authorized at a meeting of the shareholders of the acquiring company and, if the acquisition relates to shares in the parent company, the acquiring company’s parent, and (3) such purchases, together with the shares previously held by the company and its subsidiaries, do not result in a net equity less than the company’s stock and the minimum reserves stipulated by law and our Bylaws.
Spanish Royal Decree 1362/2007, of October 19, requires that the CNMV be notified each time the acquisition of treasury stock made since the last notification reaches 1% of the voting rights of the company, regardless of any other preceding sales. Furthermore, the Spanish Capital
Companies Law establishes, in relation to the treasury stock shares (held by us and our affiliates), that the exercise of the right to vote and other non-financial rights attached to them shall be suspended. Financial rights arising from treasury stock held directly by us, with the exception of the right to allotment of new bonus shares, shall be attributed proportionately to the rest of the shares.
The portion of overall trading volume in Santander ordinary shares transacted by Group subsidiaries continues to vary from day to day and from month to month, and is expected to continue to do so in the future. In 2020, 15.2% of the total volume traded in Santander ordinary shares executed on the Primary Spanish Stock Exchange (Bolsas y Mercados Españoles) was transacted by Banco Santander, S.A. The portion of trading volume in shares allocable to purchases and sales as principal by our companies (treasury shares) was approximately 1.5% in the same period. The monthly average percentage of outstanding shares held by our subsidiaries ranged from 0.06% to 0.18% in 2020. At 31 December 2020, the Parent bank and our subsidiaries held 28,439,022 shares (0.164% of our total capital stock as of that date).
Purchases of equity securities by the issuer and affiliated purchasers
The following table shows the purchases of shares made by the Bank or any of its Affiliated Purchasers during 2020:
2020Total number of
shares -or units
purchased (A)		Average price
paid per share (or
unit) in euros		Total number of shares (or
units) purchased as part of
publicly announced plans or
programs		Maximum number (or
approximate dollar value) of shares
(or units) that may yet be purchased
under the plans or programs
January22,885,461 3.70— — 
February24,959,904 3.84— — 
March53,709,167 2.46— — 
April30,886,039 2.09— — 
May25,387,364 2.00— — 
June10,349,203 2.49— — 
July22,293,755 2.20— — 
August4,514,909 1.89— — 
September26,074,086 1.73— — 
October14,309,943 1.62— — 
November26,253,290 2.07— — 
December40,356,493 3.08— — 
Total301,979,614 
(A)    The number of shares purchased includes securities lending and short positions.

During 2020, all purchases and sales of equity securities were made in open-market transactions.

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13. Additional information
13.1. Memorandum and articles of association
Bylaws
The following summary of the material terms of our Bylaws is not meant to be complete and is qualified in its entirety by reference to our Bylaws. Because this is a summary, it does not contain all the information that may be important to you. You should read our Bylaws carefully before you decide to invest. Copies of our Bylaws are incorporated by reference.
The current Bylaws of Banco Santander were approved by our shareholders acting at the annual general shareholders’ meeting held on 21 June 2008 and incorporated with the office of the Mercantile Registry on 11 August 2008.
Subsequently, Article 5 of Banco Santander’s Bylaws has been updated several times, mostly to show the current share capital and the number of shares outstanding. The most recent of such amendments corresponds to the one required by the share capital increase carried out on 12 November 2020 and filed with the office of the Mercantile Registry on 3 December 2020.
Our current Bylaws are included as Exhibit 1.1 to this annual report. The Bylaws are also available on our corporate website (www.santander.com), which does not form part of this annual report on Form 20-F, under the heading 'Information for shareholders and investors- General information - Bylaws'.
Rules and regulations of the board and rules and regulations for the general meeting
Aside from the Bylaws, the rules and regulations of the board and the rules and regulations for the general meeting also form part of the internal governance rules of Banco Santander. The board amended its rules and regulations on 22 December 2020 in order to, amongst others to:
•Adapt them to the Spanish Corporate Governance Code revised in June 2020, and to show our alignment with it.
•Formally reflect specific Banco Santander’s long-standing good practices.
•Include specific technical improvements and other minor changes.
The above changes reflect the Group’s commitment to complying with the highest corporate governance standards at all times, and is a further step in strengthening its internal governance system. For further information regarding to the amendments to the rules and regulations of the board that occurred during 2020, we refer to 'Consolidated Directors’ Report - Corporate governance- 4.3' in Part 1 of this annual report on Form 20-F.
The rules and regulations of the board, as amended, and the rules and regulations of the general meeting are available on our corporate website (www.santander.com),
which does not form part of this annual report on Form 20-F, under the heading 'Shareholders and investors-Corporate Governance-Rules and Regulations of the Board of Directors' and 'Shareholders and investors-Corporate Governance-Rules and Regulations for the General Shareholders’ Meeting', respectively.
Corporate object and purpose
Article 2 of our Bylaws states that the corporate objective and purpose of Santander consists of carrying-out all types of activities, operations and services specific to the banking business in general and which are permitted under current legislation and the acquisition, holding and disposal of all types of securities.
Certain provisions regarding shareholder rights
As of the date of the filing of this report, Banco Santander’s capital is comprised of only one class of shares, all of which are ordinary shares and have the same rights. Banco Santander may issue non-voting shares for a nominal amount of not more than one-half of the paid-up share capital, and redeemable shares for a nominal amount of not more than one-fourth of its share capital.
Our Bylaws do not contain any provisions relating to sinking funds.
Our Bylaws do not specify what actions or quorums are required to change the rights of holders of our stock. Under Spanish law, the rights of holders of stock may only be changed by an amendment to the Bylaws of the company that complies with the requirements explained below under 'Meetings and Voting Rights'.
Meetings and voting rights
We hold our annual general shareholders’ meeting during the first six months of each fiscal year on a date fixed by the board of directors. Extraordinary meetings may be called from time to time by the board of directors whenever the board considers it advisable for corporate interests, and whenever so requested by shareholders representing at least 3% of the outstanding share capital of Banco Santander. Notices of all meetings have to be published at least one month prior to the date set for the meeting, except in those instances in which a different period is established by law, in the Official Gazette of the Mercantile Register or in one of the national newspapers having the largest circulation in Spain, on the website of the CNMV and on Banco Santander’s website (www.santander.com). In addition, under Spanish law, the agenda of the meeting must be sent to the CNMV and the Spanish Stock Exchanges and published on the company’s website. We held two ordinary general shareholder meetings on 3 April 2020 and on 27 October 2020, respectively.
Each Banco Santander share entitles the holder to one vote. Registered holders of any number of shares who are current in the payment of capital calls will be entitled to attend shareholders’ meetings. Our Bylaws do not contain provisions regarding cumulative voting.
Any Banco Santander share may be voted by proxy. Subject to the limitations imposed by Spanish law, proxies may be
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

given to any individual or legal person, must be in writing or by remote means of communication and are valid only for a single meeting. According to the Spanish law, if a director or another person acting on his/her behalf makes a public solicitation for proxies (thus obtaining more than three proxies), the director holding the proxies may not exercise the voting rights attaching to the represented shares (unless specific instructions were given by the shareholder) in connection with any items in respect of which the director or such other person is subject to a conflict of interest and, in any event, in connection with decisions relating to:
•His appointment or ratification, removal, dismissal or withdrawal as director;
•The institution of a derivative action against him; or
•The approval or ratification of transactions between Banco Santander and the director in question, companies controlled or represented by him, or persons acting for his account.
In accordance with the rules and regulations for the general meeting and in the manner established by such rules and regulations, our corporate website includes from the date when the call of the general shareholders’ meeting is published, the text of all resolutions proposed by the board of directors with respect to the agenda items and the details regarding the manner and procedures for shareholders to follow to confer representation on any individual or legal entity. The manner and procedures for electronic delegation and voting via the Internet are also indicated.
In 2004, our shareholders could exercise their voting and representation rights prior to the general shareholder's meeting by electronic means (via the Internet).Since 2005, our shareholders were also able to attend via the Internet (besides attending and voting in person) and were also able to vote in real time on the Internet on the resolutions considered at the meeting.
Only registered holders of Banco Santander shares of record at least five days prior to the day on which a meeting is scheduled to be held may attend and vote at shareholders’ meetings. As a registered shareholder, the depositary will be entitled to vote the Santander shares underlying the Santander ADSs. The deposit agreement requires the depositary to accept voting instructions from holders of Santander ADSs and to execute such instructions to the extent permitted by law.
In general, resolutions passed by a general meeting are binding upon all shareholders. In certain circumstances, Spanish law gives dissenting or absent shareholders the right to have their Santander shares redeemed at prices determined in accordance with established formula or criteria. Treasury shares held by Banco Santander or its affiliates are counted for purposes of determining quorums but may not be voted by Banco Santander or by its affiliates.
Resolutions at general meetings are passed provided that, regarding the voting capital present or represented at the meeting, the number of votes in favour is higher than the
number of votes against. Except for the foregoing cases in which the law and the Bylaws require a greater majority.
In accordance with Spanish law, a quorum on first call for a duly constituted ordinary or extraordinary general meeting of shareholders requires the presence in person or by proxy of shareholders representing at least 25% of the subscribed voting capital. On the second call there is no quorum requirement.
Notwithstanding the above, a quorum of at least 50% of the subscribed voting capital is required on the first call for a duly constituted ordinary or extraordinary general meeting of shareholders voting any of the following actions:
•The issuance of debentures;
•The increase or reduction of share capital, the exclusion or limitation of pre-emptive rights, or the relocation of the registered office abroad;
•The transformation, merger, split-off, or assignment of assets and liabilities; and
•Any other amendment of our Bylaws.
A quorum of 25% of the subscribed voting capital is required for a duly constituted ordinary or extraordinary general meeting of shareholders voting on such actions on the second call.
For the valid approval of all the above listed actions the favourable vote of more than half of the votes corresponding to the shares represented in person or by proxy at the general shareholders’ meeting shall be required, except when on second call shareholders representing less than fifty percent of the subscribed share capital with the right to vote are in attendance, in which case the favourable vote of two-thirds of the share capital represented in person or by proxy at the general shareholders’ meeting shall be required.
For purposes of determining the quorum, those shareholders who vote by mail or via the Internet are counted as present at the meeting, as provided by the rules and regulations of the general meeting. The quorum at the 2018 annual general meeting (AGM) was 64.55% of Banco Santander’s share capital, the quorum at the 2019 AGM was 68.50% of Banco Santander’s share capital, the quorum at the 2019 extraordinary general meeting was 59.22% of Banco Santander's share capital, the quorum at the April 2020 AGM was 65.0% of Banco Santander’s share capital and the quorum at the October 2020 AGM was 60.34% of the Banco Santander’s share capital.
Changes in capital
See 'Consolidated Directors’ Report - Corporate governance- Sections 2.1, 2.2, 3.4 and 3.5' in Part 1 of this annual report on Form 20-F.
Dividends
See 'Consolidated Directors’ Report -Corporate governance- 3.3' in Part 1 of this annual report on Form 20-F.
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Preemptive rights
In the event of a capital increase each shareholder has a preferential right by operation of law to subscribe for shares in proportion to its shareholding in each new issue of Banco Santander shares. The same right is vested on shareholders upon the issuance of convertible debt. However, preemptive rights of shareholders may be excluded under certain circumstances by specific approval at the general meeting (or upon its delegation by the board of directors) and preemptive rights are deemed excluded by operation of law in the relevant capital increase when our shareholders approve:
•Capital increases following conversion of convertible bonds into Banco Santander shares;
•Capital increases due to the absorption of another company or of part of the spin-off assets of another company, when the new shares are issued in exchange for the new assets received; or
•Capital increases due to Banco Santander’s tender offer for securities using Banco Santander’s shares as all or part of the consideration.
If capital is increased by the issuance of new shares in return for capital from certain reserves, the resulting new Banco Santander's shares will be distributed pro rata to existing shareholders.
Redemption
Our Bylaws do not contain any provisions relating to redemption of shares except as set forth in connection with capital reductions. Nevertheless, pursuant to Spanish law, redemption rights may be created at a duly held general meeting. Such meeting will establish the specific terms of any redemption rights created.
Registration and transfers
The Banco Santander shares are in book-entry form in the Iberclear system. We maintain a registry of shareholders. We do not recognize, at any given time, more than one person as the person entitled to vote each share in the shareholders meeting.
Under Spanish law and regulations, transfers of shares quoted on a stock exchange are normally made through a Sociedad o Agencia de Valores, credit entities and investment services companies that are members of the Spanish stock exchange.
Transfers executed through stock exchange systems are implemented pursuant to the stock exchange clearing and settlement procedures of Iberclear. Transfers executed “over the counter” are implemented pursuant to the general legal regime for book-entry transfer, including registration by Iberclear.
New shares may not be transferred until the capital increase is registered with the Commercial Registry.
Liquidation rights
Upon a liquidation of Banco Santander, our shareholders would be entitled to receive pro-rata any assets remaining after the payment of our debts, taxes and expenses of the liquidation. Holders of non-voting shares, if any, would be entitled to receive reimbursement of the amount paid before any amount is distributed to the holders of voting shares.
Change of control
Our Bylaws do not contain any provisions that would have an effect of delaying, deferring or preventing a change in control of the company and that would operate only with respect to a merger, acquisition or corporate restructuring involving Santander or any of our subsidiaries. Nonetheless, certain aspects of Spanish law described in the following section may delay, defer or prevent a change of control of the Bank or any of our financial subsidiaries in the event of a merger, acquisition or corporate restructuring.
Legal restrictions on acquisitions of our shares
See 'Consolidated Directors’ Report-Corporate governance-3.2' in Part 1 of this annual report on Form 20-F.
Reporting requirements
Royal Decree 1362/2007 requires that any entity which acquires or transfers shares and as a consequence the number of voting rights held exceeds, reaches or falls below the threshold of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80% or 90%, of the voting rights of a company, for which Spain is the member state of origin, listed on a Spanish stock exchange or on any other regulated market in the European Union, must, within 4 trading days from the date on which the person becomes aware or should have become aware of the circumstance obliging him or her to notify, notify and report it to such company, and to the Spanish CNMV. From 27 November 2015, notification must be given of financial instruments with a financial effect similar to that of holding shares, regardless of whether settlement is made through shares or in cash. For these purposes it should be considered as financial instruments negotiable securities, options, futures, swaps, forward rate agreements, contracts for difference and any other contract or agreement with similar financial effects that can be settled by delivering the underlying securities or in cash, and any others established by the Ministry of Economics and Competitiveness and, with its express authorization, the Spanish Securities and Exchange Market Commission. To calculate whether the thresholds for notification of major holdings have been met, the voting rights corresponding to holding shares (physical position) and financial instruments (derivative position) will be added together. The number of voting rights attributable to a financial instrument will be calculated by referring to the theoretical total amount of shares underlying the financial instrument. When the financial instrument is only settled in cash, the number of voting rights will be calculated by multiplying the number of underlying shares by the delta of the instrument (sensitivity of the price of the instrument to the price of the underlying value). To calculate the voting rights, only long
936
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

positions, which cannot be netted with short positions relating to the same underlying issuer, will be considered. All these calculations will be made under the provisions of Commission Delegated Regulation (EU) 2015/761.
This duty to report the holding of a significant stake is applicable not only to the acquisitions and transfers in the terms described above, but also to those cases in which in the absence of an acquisition or transfer of shares, the percentage of an individual’s voting rights exceeds, reaches or falls below the thresholds that trigger the duty to report, as a consequence of an alteration in the total number of voting rights of an issuer. Similar disclosure obligations apply, among others, in the event of: (i) certain voting, deposit, temporary transfer or other agreements regarding the relevant shares; or (ii) custodians or proxy-holders who can exercise with discretion the voting rights attached to the relevant shares. The above mentioned threshold percentage will be 1% or any multiple of 1% whenever the person who has the duty to notify is a resident of a tax haven or of a country or territory where there is no taxation or where there is no obligation to exchange tax information (in accordance with Spanish law).
In addition, any Spanish company listed on the Spanish stock exchanges must report any acquisition by such company (or a subsidiary) of the company’s own shares if the acquisition, together with any acquisitions since the date of the last report and without deducting sales of its own shares by the company or by its subsidiaries, causes the company’s ownership of its own shares to exceed 1% of its voting rights. See “Item 12. The Offer and Listing-Trading by Santander’s Subsidiaries in the Shares”.
Members of the board of directors of listed companies, in addition to notifying the CNMV of any transaction concerning the shares or other securities or financial instruments of the issuer which are linked to these shares, are required to inform the CNMV of their ratio of voting rights upon appointment or resignation. In addition, top managers of any listed company must report to the CNMV the acquisition or disposal of shares or other securities or financial instruments of the issuer which are linked to these shares.
Board of directors
See 'Consolidated Directors’ Report - Corporate governance- 4' in Part 1 of this annual report on Form 20-F.
Certain powers of the board of directors
The actions of the members of the board are limited by Spanish law and certain general provisions contained in our Bylaws. For instance, Article 57 of our Bylaws states that the directors will be liable to Banco Santander, to our shareholders and to our corporate creditors for any damages that they may cause by acts or omissions which are contrary to law or to the Bylaws or by acts or omissions contrary to the duties inherent in the exercise of their office, provided that there has been willful misconduct or negligence.
See information on related-party transactions and conflicts of interest in 'Consolidated Directors’ Report - Corporate
governance- 4.12' in Part 1 of this annual report on Form 20-F.
See information on compensation in 'Consolidated Directors’ Report - Corporate governance- 6' in Part 1 of this annual report on Form 20-F.
According to article 40 of our Bylaws. Such amendment aimed to conform the text thereof to recommendation 12 of the Code of Good Governance of listed companies, stating that the board of directors will be guided by the corporate interest, understood as the achievement of a business that is profitable and sustainable over the long term and that promotes the continuity thereof and the maximization of the value of the company.
Board of directors requirements
There are no mandatory retirement provisions due to age for board members in our Bylaws or in the rules and regulations of our board of directors. These regulations contain provisions relating to the cessation of directorship for other reasons.
In addition, there are no share ownership requirements in our Bylaws or in the rules and regulations of the board of directors.
Pursuant to Spanish law, directors appointed by the board but whose appointment remains subject to ratification by the shareholders may not necessarily be a shareholder of the Bank and, pursuant to the rules and regulations of the board, proprietary directors must submit their resignation proportionately when the shareholder that they represent parts with its shareholdings or reduces them in a significant manner. Our Bylaws and rules and regulations of the board do not otherwise require ownership of Santander shares for a director’s qualification.
13.2. Material contracts
The Bank is not a party to any contract outside its ordinary course of business that is material to the Group as a whole.
13.3. Exchange controls
Restrictions on foreign investments
On 4 July 2003, Law 19/2003 was approved which updated Spanish exchange control and money laundering prevention provisions, by recognizing the principle of freedom of the movement of capital between Spanish residents and non-residents. The law established procedures for the declaration of capital movements for purposes of administrative or statistical information and authorizes the Spanish Government to take measures which are justified on grounds of public policy or public security. It also provided the mechanism to take exceptional measures with regard to third countries if such measures have been approved by the European Union or by an international organization to which Spain is a party. Royal Decree 664/1999, on Foreign Investments (23 April 1999), established a new framework for the regulation of foreign investments in Spain which, on a general basis, should no longer require any prior consents or authorisations from authorities in Spain (without prejudice to specific regulations for several specific sectors, such as
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television, radio, mining, telecommunications, etc.). Likewise, Royal Decree 664/1999 requires notification of all foreign investments in Spain and liquidations of such investments upon completion of such investments to the Investments Registry of the Ministry of Economy and Finance, strictly for administrative statistical and economical purposes. Only investments from “tax haven” countries (as they are defined in Royal Decree 1080/1991), shall require notice before and after performance of the investment, except that no prior notice shall be required for: (1) investments in securities or participations in collective investment schemes that are registered with the CNMV, and (2) investments that do not increase the foreign ownership of the capital stock of a Spanish company to over 50%. In specific instances, the Council of Ministers may agree to suspend, all or part of, Royal Decree 664/1999 following a proposal of the Minister of Economy and Competitiveness, or, in some cases, a proposal by the head of the government department with authority for such matters and a report of the Foreign Investment Body. These specific instances included a determination that the investments, due to their nature, form or condition, affect activities, or may potentially affect activities relating to the exercise of public powers, national security or public health. Royal Decree 664/1999 was suspended for investments relating to national defence. Whenever Royal Decree 664/1999 was suspended, the affected investor should obtain prior administrative authorization in order to carry out the investment.
Notwithstanding the above, Spanish Royal Decree-Law 8/2020, of 17 March, on urgent extraordinary measures to address the economic and social impact of COVID-19, amended by Royal Decree-Law 11/2020, of 31 March (the "RDL 8/2020", has suspended, effective as of 18 March 2020, the regime on the deregulation of foreign direct investment in Spain, indefinitely, until the Spanish Government decides otherwise. To that end, it added a new Article 7 bis and has established new rules on sanctions in Articles 8 and 12 of Act 19/2003, of 4 July, on the legal regime governing the movement of capital and financial transactions with foreign countries. The RDL 8/2020 is based in this regard on Regulation EU 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union ("Regulation 2019/452"), some of the provisions of which it reproduces almost literally. As a result of RDL 8/2020, the need for authorisation for foreign investment has become the norm, when it had previously only been required exceptionally, for very specific sectors, when carried out by residents of countries outside the European Union ("EU") and the European Free Trade Association ("EFTA"). More recently, Royal Decree-Law 34/2020, of 17 November, on urgent measures to support business solvency and the energy sector as well as on taxation ("RDL 34/2020"), further restricts the freedom to carry out foreign investments in Spain, with a transitional rule until 30 June 2021, which also requires authorisation to be obtained for certain investments in this case by residents of other EU and EFTA countries. This extension of the suspension is due to the continuation of the situation created by COVID-19 and, consequently, the desire to monitor the acquisition of listed and non-listed Spanish companies whose equity value is falling and that the Government could see as opportunistic. Meanwhile, RDL 34/2020 also adjusts procedural issues and clarifies
definitions of sectors affected by the suspension of the regime on deregulation of foreign direct investment by non-EU investors.

13.4. Taxation
The following is a discussion of the material Spanish and U.S. federal income tax consequences to you of the ownership and disposition of ADSs or shares.
The description of Spanish tax consequences below is intended as a general guide and applies to you only if you are a non-resident of Spain and your ownership of ADSs or shares is not effectively connected with a permanent establishment or fiscal base in Spain and you are a U.S. resident entitled to the benefits of the Convention Between the United States of America and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, as amended by the protocol signed by the United States of America and the Kingdom of Spain that entered into force on 27 November 2019 (the “Treaty”).
This summary is for general information only and does not constitute tax advice. You should consult your own tax adviser as to the particular tax consequences to you of owning the shares or ADSs including your eligibility for the benefits of the Treaty, the applicability or effect of any special rules to which you may be subject, and the applicability and effect of state, local, foreign and other tax laws and possible changes in tax law.
Spanish tax considerations
The following is a summary of material Spanish tax matters and is not exhaustive of all the possible tax consequences to you of the acquisition, ownership and disposition of ADSs or shares. This discussion is based upon the tax laws of Spain and regulations thereunder, which are subject to change, possibly with retroactive effect.
Taxation of dividends
Under Spanish law, dividends paid by a Spanish resident company to a holder of ordinary shares or ADSs not residing in Spain for tax purposes and not operating through a permanent establishment in Spain are generally subject to Spanish Non-Resident Income Tax at a 19% rate.
We will withhold tax on the gross amount of dividends at the tax rates referred to above, following the procedures set forth by the Order of 13 April 2000. However, under the Treaty and subject to the fulfilment of certain requirements, you may be entitled to a general reduced rate of 15%.
To benefit from the Treaty’s general reduced rate of 15%, you must provide our depositary, JPMorgan Chase Bank, N.A., with a certificate from the U.S. Internal Revenue Service (the “IRS”) stating that to the knowledge of the IRS, you are a resident of the United States within the meaning of the Treaty. The IRS certificate is valid for a period of one year.
938
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

According to the Order of 13 April 2000, to get a direct application of the Treaty-reduced rate of 15%, the certificate referred to above must be provided to our depositary before the tenth day following the end of the month in which the dividends were distributable by us. If you fail timely to provide our depositary with the required documentation, you may obtain a refund of the amount withheld exceeding 15% that would result from the Spanish tax authorities in accordance with the procedures below. In the event of dividends distributed as a share premium distribution, the return is considered to reduce the acquisition value of the shares or equity held by the non-resident shareholders, and the excess over such acquisition value is taxed, as return on movable capital, at 19% unless a domestic exemption or a Double Tax Treaty sets forth otherwise. In this regard, under the Treaty and subject to the fulfilment of certain requirements, you may be entitled to a general reduced rate of 15%. No tax withholding applies in this case.
A scrip dividend will be treated as follows:
•If the holder of ordinary shares or ADSs elects to receive newly issued ordinary shares or ADSs it will be considered a delivery of fully paid-up shares free of charge and, hence, will not be considered income for purposes of the Spanish Non-Resident Income Tax. The acquisition value, both of the new ordinary shares or ADSs received in the scrip dividend and of the ordinary shares or ADSs from which they arise, will be the result of dividing the total original cost of the shareholder’s portfolio by the number of shares, both old and new. The acquisition date of the new shares will be that of the shares from which they arise.
•If the holder of ordinary shares or ADSs elects to sell the rights on the market, the full amount obtained from the sale of rights will be treated as a taxable capital gain for the holder at the time the transfer takes place (please refer to “-Taxation of capital gains” below).
•If the holder of ordinary shares or ADSs elects to receive the proceeds from the sale of rights back to us at a fixed price, the tax regime applicable to the amounts received will be that applicable to cash dividends described above.
Spanish refund procedure
According to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree 1776/2004, dated 30 July 2004, as amended, and the Order EHA/3316 dated 17 December 2010, a refund of the amount withheld in excess of the rate provided by the Treaty can be obtained from the relevant Spanish tax authorities. To pursue the refund claim, if you are a U.S. resident entitled to the benefits of the Treaty, you are required to file all of the following:
•the applicable Spanish Tax Form (currently, Form 210),
•the certificate of tax residence referred to in the preceding section, and
•evidence that Spanish Non-Resident Income Tax was withheld with respect to you.
For the purposes of the Spanish refund procedure, the holder must file Form 210 (together with the corresponding documentation) within the period from 1 February of the year following the year in which the Non-Resident Income Tax was withheld and ending four years after the end of the filing period in which we reported and paid such withholding taxes. The Spanish Revenue Office must make the refund within six months after the refund claim is filed. If such period lapses without receipt of the refund, the holder is entitled to receive interest for late payment on the amount of the refund claimed. For further details, prospective holders should consult their tax advisors.
You are urged to consult your own tax adviser regarding refund procedures and any U.S. tax implications of receipt of a refund.
Taxation of capital gains
Under Spanish law, any capital gains derived from the transfer of securities issued by Spanish tax residents are deemed to be Spanish-source income and, therefore, are taxable in Spain. If you are a U.S. resident, income from the sale of ADSs or shares will be treated as capital gains for Spanish tax purposes. Since 1 January 2016, Spanish Non-Resident Income Tax is levied at a 19% rate on capital gains realized by persons not residing in Spain for tax purposes who are not entitled to the benefit of any applicable treaty for the avoidance of double taxation. Capital gains and losses will be calculated separately for each transaction and losses may not be offset against capital gains.
Notwithstanding the above, capital gains derived from the transfer of shares on an official Spanish secondary stock market by any holder who is a resident of a country that has entered into a treaty for the avoidance of double taxation with Spain containing an “exchange of information” clause will be exempt from taxation in Spain. In addition, under the Treaty, if you are a U.S. resident, capital gains realized by you upon the disposition of ADSs or shares will not be taxed in Spain. You are required to establish that you are entitled to this exemption by providing to the relevant Spanish tax authorities an IRS certificate of residence in the United States, together with the appropriate Spanish 210 Form, between 1 January and 20 January of the calendar year following the year in which the transfer of ADSs or shares took place.
Spanish wealth tax
Individuals not resident in Spain for tax purposes who hold shares or ADSs located in Spain are subject to the Spanish wealth tax (Spanish Law 19/1991), which imposes a tax on property and rights located in Spain or that can be exercised within the Spanish territory on the last day of any year. The Spanish tax authorities might take the view that all shares of Spanish corporations and all ADSs representing such shares are located in Spain for Spanish tax purposes. If such a view were to prevail, non-residents of Spain who held shares or ADSs on the last day of any year would be subject to the Spanish wealth tax for such year on the average market value of such shares or ADSs during the last quarter of such year (this average price of listed shares is published in the Official State Gazette every year). Law 4/2008 amended the Spanish wealth tax law, introducing a 100% tax rebate and eliminating the obligation to file any form
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for tax periods starting as of 1 January 2008. However, this 100% tax rebate was temporarily abolished with effect as of the 2011 fiscal year, and since then this situation has been extended every year . From 2021, the abolition of the rebate has been established as indefinite, thus eliminating the need to stipulate extensions. Notwithstanding the above, the first EUR 700,000 of net wealth owned by an individual will be exempt from taxation.
As a result of the above legislation, non-residents of Spain who hold or held shares, ADSs, or other assets or rights located in Spain according to Spanish wealth tax law, on the last day of the year, the combined value of which exceeds EUR 700,000 might be subject to the Spanish wealth tax on that excess amount at marginal rates varying between 0.2% and 3.5% (the highest bracket increased by 1% since 2021), and would be obliged to file the corresponding wealth tax return.
Spanish inheritance and gift taxes
Transfers of shares or ADSs upon death or by gift are subject to Spanish inheritance and gift taxes (Spanish Law 29/1987) if the transferee is a resident of Spain for tax purposes, or if the shares or ADSs are located in Spain at the time of gift or death, or the rights attached thereto could be exercised or have to be fulfilled in the Spanish territory, regardless of the residence of the beneficiary. In this regard, the Spanish tax authorities might determine that all shares of Spanish corporations and all ADSs representing such shares are located in Spain for Spanish tax purposes. The applicable tax rate, after applying all relevant factors, ranges between 0% and 81.6% for individuals. Non Spanish resident taxpayers (both EU and non-EU citizens) receiving assets located in Spain by way of inheritance or donation will be eligible to apply the same benefits or tax reductions that Spanish resident taxpayer of such region is entitled to recognize.
Gifts granted to corporations non-resident in Spain are subject to Spanish Non-Resident Income Tax at a 19% tax rate from 1 January 2016 on the fair market value of the shares as a capital gain. If the donee is a United States corporation, the exclusions available under the Treaty described in the section “-Taxation of capital gains” above will be applicable.
Transfer tax and VAT
The subscription, acquisition and transfer of ADSs or shares will be exempt from Spanish transfer tax and value-added tax. Additionally, no Spanish Stamp Duty or registration tax will be levied as a result of such subscription, acquisition and transfer.
Financial Transactions Tax
The acquisition of ADS or shares will be subject to the Spanish Financial Transaction Tax at a 0.2% tax rate from 16 January 2021 except for (i) the acquisition of shares exclusively aimed at the issuance of depositary receipts; (ii) the acquisition of depositary receipts in exchange for the supply of the Spanish shares that will be represented by the depositary receipts; and (iii) transactions to cancel depositary receipts via supply of the Spanish shares represented by them.
Compliance
In certain circumstances, the Spanish tax authorities can impose penalties for any failure to comply with any of the Spanish tax requirements referred to above. Such penalties may in certain cases be based on the amount of tax payable.
U.S. Federal Income Tax considerations
The following summary describes the material U.S. federal income tax consequences of the ownership and disposition of ADSs or shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold such securities. The summary applies only to U.S. Holders (as defined below) that hold ADSs or shares as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including the potential application of the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax, state, local or non-United States tax laws, and tax consequences applicable to U.S. Holders subject to special rules, such as:
•financial institutions;
•insurance companies;
•dealers and traders in securities that use a mark-to-market method of tax accounting;
•persons holding ADSs or shares as part of a “straddle”, conversion transaction or integrated transaction;
•persons whose “functional currency” is not the U.S. dollar;
•persons liable for the alternative minimum tax;
•tax exempt entities, “individual retirement accounts” and “Roth IRAs”;
•partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
•persons that own or are deemed to own 10% or more of our shares by vote or value;
•persons that acquired our ADSs or shares pursuant to the exercise of an employee stock option or otherwise as compensation; or
•persons holding ADSs or shares in connection with a trade or business outside the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes holds shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of the shares or ADSs.
940
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

This summary is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury Regulations, and the Treaty, all as of the date hereof, changes to any of which may affect the tax consequences described herein, possibly with retroactive effect. In addition, this summary assumes that each obligation provided for in or otherwise contemplated by the deposit agreement or any other related document will be performed in accordance with its terms. U.S. Holders are urged to consult their own tax advisers as to the U.S., Spanish and other tax consequences of the ownership and disposition of ADSs or shares in their particular circumstances.
As used herein, a “U.S. Holder” is, for U.S. federal income tax purposes, a beneficial owner of ADSs or shares who is eligible for the benefits of the Treaty and is:
•a citizen or individual resident of the United States;
•a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or
•an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
In general, for U.S. federal income tax purposes, U.S. Holders of ADSs will be treated as the owners of the underlying shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.
Except as specifically discussed under “-Passive Foreign Investment Company Rules” below, this discussion assumes that we were not, and will not become, a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.
Taxation of distributions
To the extent paid out of our current or accumulated earnings and profits (as determined in accordance with U.S. federal income tax principles), distributions, including the amount of any Spanish withholding tax, made with respect to ADSs or shares (other than certain pro rata distributions of our capital stock or rights to subscribe for shares of our capital stock) will be includible in the income of a U.S. Holder as foreign-source ordinary dividend income. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. These dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s (or in the case of ADSs, the depositary’s) receipt of the dividends, and will not be eligible for the “dividends-received deduction” generally allowed to corporations receiving dividends from U.S. corporations under the Code. The amount of the distribution will equal the U.S. dollar value of the euros received, calculated by reference to the exchange rate in effect on the date that distribution is received (which, for U.S. Holders of ADSs, will be the date that distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts any euros received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S.
Holder generally will not be required to recognize foreign currency gain or loss in respect thereof. A U.S. Holder may have foreign currency gain or loss if the euros are converted into U.S. dollars after the date of receipt. Any gain or loss resulting from the conversion of euros into U.S. dollars will be treated as ordinary income or loss, as the case may be, and will be U.S.-source.
A scrip dividend will be treated as a distribution of cash, even if a U.S. Holder elects to receive the equivalent amount in shares. In that event, the U.S. Holder will be treated as having received the U.S. dollar fair market value of the shares on the date of receipt, and that amount will be the U.S. Holder’s tax basis in those shares. The holding period for the shares will begin on the following day.
Subject to generally applicable limitations that may vary depending upon a U.S. Holder’s individual circumstances, dividends paid to certain non-corporate U.S. Holders may be taxable at rates applicable to long-term capital gains. A U.S. Holder must satisfy minimum holding period requirements in order to be eligible to be taxed at these favourable rates. Non-corporate U.S. Holders are urged to consult their own tax advisers regarding the availability of the reduced rate on dividends in their particular circumstances.
Subject to certain generally applicable limitations that may vary depending upon a U.S. Holder’s circumstances, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability for Spanish income taxes withheld at a rate not exceeding the rate provided by the Treaty. Spanish income taxes withheld in excess of the rate applicable under the Treaty will not be eligible for credit against a U.S. Holder’s federal income tax liability. See “-Spanish tax considerations-Spanish refund procedure” for a discussion of how to obtain a refund of amounts withheld in excess of the applicable Treaty rate. The limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. Instead of claiming a credit, a U.S. Holder may, at its election, deduct such otherwise creditable Spanish taxes in computing taxable income, subject to generally applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.
The rules governing foreign tax credits are complex, and U.S. Holders are urged to consult their own tax advisers to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits.
Sale or exchange of ADSs or shares
A U.S. Holder will realize gain or loss on the sale or exchange of ADSs or shares in an amount equal to the difference between the U.S. Holder’s tax basis in the ADSs or shares and the amount realized on the sale or exchange, in each case as determined in U.S. dollars. Subject to the discussion of the passive foreign investment company rules below, the gain or loss will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder held the ADSs or shares for more than one year. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.
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Passive Foreign Investment Company rules

We believe that we were not a PFIC for U.S. federal income tax purposes for the 2020 taxable year. However, because our PFIC status depends upon the composition of our income and assets and the fair market value of our assets (including, among others, less than 25% owned equity investments) from time to time, and upon certain proposed Treasury Regulations that are not yet in effect but are proposed to become effective for taxable years after 31 December 1994, there can be no assurance that we were not or will not be a PFIC for any taxable year. In addition, if recently proposed Treasury Regulations are finalized in their current form, our PFIC status will also depend on the location of activities that produce active banking income and the location of our customers.
If we were a PFIC for any taxable year during which a U.S. Holder owns ADSs or shares, any gain recognized by a U.S. Holder on a sale or other disposition of ADSs or shares would be allocated ratably over the U.S. Holder’s holding period for the ADSs or shares. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amounts allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the amount allocated to each of those taxable years. Further, any distribution in respect of ADSs or shares in excess of 125% of the average of the annual distributions on ADSs or shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the ADSs or shares.
In addition, if we were a PFIC in a taxable year in which we paid a dividend or the prior taxable year, the reduced rate on dividends discussed above with respect to certain non-corporate U.S. Holders would not apply.
If we were a PFIC for any taxable year during which a U.S. Holder owned the ADSs or shares, the U.S. Holder would generally be required to file IRS Form 8621 with its annual U.S. federal income tax return, subject to certain exceptions.
Information reporting and backup withholding

Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related
financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is an exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
Certain U.S. Holders who are individuals and specified entities that are formed or availed of for purposes of holding certain foreign financial assets may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of a non-U.S. entity, subject to certain exceptions (including an exception for interests held in custodial accounts maintained by a U.S. financial institution). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of this requirement on the ownership and disposition of ADSs or shares.
13.5. Documents on display
We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1580, 100 F Street, N.E., Washington, D.C. 20549, and at the SEC’s regional offices at 200 Vesey Street, Suite 400, New York, New York 10281-1022 and 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition, the SEC maintains a website that contains information filed electronically with the SEC, which can be accessed on the internet at http://www.sec.gov. The information contained on this website does not form part of this annual report on Form 20-F.
13.6. Share ownership of Directors and senior management
As of 22 February 2021 the direct, indirect and represented holdings of our current directors were as follows:
942
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

DirectorsDirect StakeIndirect StakeRepresented StakeTotal shares% of Capital Stock
Ana Botín1,329,953 28,612,074 — 29,942,027 0.173 %
José Antonio Álvarez1,948,779 — — 1,948,779 0.011 %
Bruce Carnegie-Brown59,940 — — 59,940 0.000 %
Homaira Akbari67,826 45,913 — 113,739 0.001 %
Javier Botín5,502,083 19,466,853 123,904,169 A148,873,105 0.859 %
Álvaro Cardoso— — — — — %
R. Martín Chávez— — — — — %
Sol Daurella149,483 476,837 — 626,320 0.004 %
Henrique de Castro2,982 — — 2,982 0.000 %
Gina Díez— — — — — %
Luis Isasi— — — — — %
Ramiro Mato156,860 — — 156,860 0.001 %
Sergio Rial171,913 — — 171,913 0.001 %
Belén Romana208 4 — 212 0.000 %
Pamela Walkden2,608 — — 2,608 0.000 %
TOTAL9,392,635 48,601,681 123,904,169 181,898,485 1.049 %
A.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.
13.7. Unresolved staff comments
None.
13.8. Recent events
No significant events occurred from 1 January 2021 to the date of filing of this annual report on Form 20-F.
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14. Controls and procedures
(a) Evaluation of Disclosure Controls and Procedures
As of 31 December 2020, Banco Santander, S.A., under the supervision and with the participation of its management, including its disclosure committee, its chief executive officer, chief financial officer, and chief accounting officer, performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15 (e) under the Exchange Act). There are, as described below, inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.
Based on such evaluation, Banco Santander, S.A.’s chief executive officer, chief financial officer and chief accounting officer concluded that Santander’s disclosure controls and procedures at 31 December 2020 were effective in ensuring that information Banco Santander, S.A. is required to disclose in the reports it files or submits under the Exchange Act is (1) recorded, processed, summarised and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to Banco Santander, S.A.’s management, including its disclosure committee, chief executive officer, chief financial officer and the chief accounting officer, as appropriate to allow timely decisions regarding required disclosures.
(b) Management’s Report on Internal Control over Financial Reporting
The management of Banco Santander, S.A., is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15 (f) under the Exchange Act.
Our internal control over financial reporting is a process designed by, or under the supervision of, the Bank’s principal executive and principal financial officers and effected by the Bank’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with generally accepted accounting principles. For Banco Santander, S.A., generally accepted accounting principles refer to the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).
Our internal control over financial reporting includes those policies and procedures that:
◦Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
◦Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorisations of our management and directors; and
◦Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We have adapted our internal control over financial reporting to the most rigorous international standards and comply with the guidelines set by the Committee of Sponsoring Organizations of the Treadway Commission in its Internal Control - integrated framework. These guidelines have been extended and installed in our Group companies, applying a common methodology and standardising the procedures for identifying processes, risks and controls, based on the Internal Control - integrated framework.
The documentation, update and maintenance processes in the Group’s companies have been constantly directed and monitored by a global coordination team, which set the guidelines for its development and supervised its execution at the unit level.
The general framework is consistent, as it assigns to management specific responsibilities regarding the structure and effectiveness of the processes related directly and indirectly with the production of consolidated financial statements, as well as the controls needed to mitigate the risks inherent in these processes.
Under the supervision and with the participation of the management of the Group, including our chief executive officer, our chief financial officer and our chief accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of 31 December 2020, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on the assessment performed, management concluded that for the year ended 31 December 2020, the Group´s internal control over financial reporting was effective.
PricewaterhouseCoopers Auditores, S.L. which has audited the consolidated financial statements of the Group for the year ended 31 December 2020, has also audited the effectiveness of the Group’s internal control over financial reporting under auditing standards of the Public Company Accounting Oversight Board (United States) as stated in their report on page 522 to our consolidated financial statements included in Part 2 of this annual report on Form 20-F.
(c) Changes in internal controls over financial reporting.
There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably
944
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

likely to materially affect, our internal control over financial reporting.
Principal accountant fees and services
The services commissioned from the Group’s auditors meet the independence requirements stipulated by the Audit Law, the U.S. Securities and Exchange Commission (SEC) rules and the Public Company Accounting Oversight Board (PCAOB) and any other legislation in force in each of the countries relevant to the audit, and they did not involve the performance of any work that is incompatible with the audit function.
The Group Audit Committee is required to pre-approve the audit and non-audit services performed by the Group’s auditors in order to assure that the provision of such services do not impair the audit firm’s independence.
In the first months of each year, the Group Audit Committee proposes to the board the appointment of the independent auditor. At that time, the Group Audit Committee pre-approves the audit and audit related services that the appointed auditors will be required to carry out during the year to comply with the applicable regulation. These services will be included in the corresponding audit contracts of the Bank and of any other company of the Group with its principal auditing firm.
In addition, non-recurring audit or audit-related services and all non-audit services provided by the Group’s principal auditing firm are subject to case-by-case pre-approval by the Group Audit Committee.
During 2020, the Group Audit Committee reviewed the policies and procedures to manage the approval of services to be rendered by the auditor. A list of pre-approved audit related services and a list of non-audit services allowed to be provided by the auditor, including the most common non-prohibited services that may be required from the auditor, was adopted. Specific approval is required for the non-audit services and those not included in the list. The Chief Accounting Officer is in charge of managing the process and must report monthly to the Group Audit Committee detailing all services to be provided by auditors, including those pre-approved and others requiring individual approval.
All services provided by the Group’s principal auditing firm in 2020 detailed in note 47.b to our consolidated financial statements included in Part 2 of this annual report on Form 20-F were approved by the audit committee.
15. Corporate governance
The following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the NYSE listing standards.
Independence of the directors on the board of directors
Under the NYSE corporate governance rules, a majority of the board of directors of any U.S. company listed on the NYSE must be composed of independent directors, whose
independence is determined in accordance with highly detailed rules promulgated by the NYSE.
Under Spanish law, article 529 duodecies of the Capital Companies Law, passed by Royal Decree-Law 1/2010 (2 July 2010) sets out the requirements to be considered as independent director in a listed company but does not set the number of independent directors. There is a non-binding recommendation established in the Spanish Corporate Governance Code that the number of independent directors represent at least half of the total size of the board. Article 6.1 of the rules and regulations of the board sets likewise that the board shall aim that the number of independent directors represent at least half of all directors. Article 42.1 of our Bylaws sets that the shareholders at the general shareholders’ meeting shall endeavour to ensure that independent directors represent at least one-third of the total number of directors.
As a result of the appointments of R. Martín Chávez and Gina Díez as independent directors in 2020, the board of directors of Banco Santander currently has ten independent directors (out of fifteen directors total), as defined in Article 6.2.c) of the Rules and regulations of the board.
In accordance with article 529 duodecies of the Capital Companies Law, article 6.2.c) of the Rules and regulations of the board defines the concept of an independent director as follows:
“External or non-executive directors who have been appointed based on their personal or professional status and who perform duties not conditioned by relationships with the Company, or its Group or with the significant shareholders or management thereof shall be considered independent directors.
In no event may directors be classified as independent directors if they:
i)Have been employees or executive directors of companies within the Group, except after the passage of 3 or 5 years, respectively, since the end of such relationship.
ii)Receive from the Company or from another Group company any amount or benefit other than as director remuneration, unless it is immaterial for the director.
For purposes of the provisions of this subsection, neither dividends nor pension supplements that a director receives by reason of the director’s prior professional or employment relationship shall be taken into account, provided that such supplements are unconditional and therefore, the company paying them may not discretionarily suspend, modify or revoke the accrual thereof without breaching its obligations.
iii)Are, or have been during the preceding 3 years, a partner of the external auditor or the party responsible for auditing the Company or any other Group company during such period.
iv)Are executive directors or senior officers of another company in which an executive director or senior officer of the Company is an external director.
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945
v)Maintain, or have maintained during the last year, a significant business relationship with the Company or with any Group company, whether in their own name or as a significant shareholder, director or senior officer of an entity that maintains or has maintained such relationship.
Business relationships shall be considered the relationship of a provider of goods or services, including financial services, and that of an adviser or consultant.
vi)Are significant shareholders, executive directors or senior officers of an entity that receives, or has received during the preceding 3 years, donations from the Company or the Group.
Those who are merely members of the board of a foundation that receives donations shall not be considered included in this item.
vii)Are spouses, persons connected by a similar relationship of affection, or relatives to the second degree of an executive director or senior officer of the Company.
viii)Have not been proposed, whether for appointment or for renewal, by the appointments committee.
ix)Have been directors for a continuous period that exceeds 12 years.
x)Are, as regards a significant shareholder or shareholder represented on the board, in one of the circumstances set forth in items (i), (v), (vi) or (vii) of this subsection 2(c). In the event of a kinship relationship as set forth in item (vii), the limitation shall apply not only with respect to the shareholder, but also with respect to the proprietary directors thereof in the affiliated company.
Proprietary directors who lose such status as a result of the sale of its shareholding by the shareholder they represent may only be re-elected as independent directors if the shareholder they have represented until then has sold all its shares in the company.
A director who owns an equity interest in the Company may have the status of independent director provided that the director meets all the conditions set out in this paragraph 2 (c) and, in addition, the shareholding thereof is not significant.”
The independence standards set forth in the Rules and regulations of the board may not necessarily be consistent with, or as stringent as, the director independence standards established by the NYSE.
Under the NYSE rules, the members of our audit committee meet the independence criteria for foreign private issuers set forth in Rule 10A-3 under the Exchange Act.
Independence of the directors on the audit, nomination committee, remuneration committee and risk supervision, regulation and compliance committee
In accordance with the NYSE corporate governance rules, all U.S. companies listed on the NYSE must have a compensation committee and a nominating and corporate
governance committee and all members of such committees must be independent in accordance with highly detailed rules promulgated by the NYSE. The nomination committee of the Banco Santander’s board of directors is composed of three independent directors, the remuneration committee is composed of five external directors (four are independent and one in the opinion of the board are neither proprietary nor independent) and the risk supervision, regulation and compliance committee is composed of five external directors (four are independent and one in the opinion of the board is neither proprietary nor independent) and the chairman of those three committees is independent in accordance with the standards set forth in the previously mentioned Article 6.2. c) of the Rules and regulations of the board. These independence standards may not necessarily be consistent with, or as stringent as, the director independence standards established by the NYSE.
As of the date of present document, none of the members of the nomination committee, the remuneration committee and the risk supervision, regulation and compliance committee is an executive director, member of senior management or a Banco Santander employee, and no executive director or member of senior management has held a position on the board (or its remuneration committee) of companies that employ members of the nomination committee, the remuneration committee and the risk supervision, regulation and compliance committee.
Separate meetings for non-executive directors
In accordance with the NYSE corporate governance rules, non-executive directors must meet periodically outside of the presence of management. Although this practice is not required under Spanish law, several meetings among non-executives directors organized by the lead independent director are organized during the year as a result of changes made following the board’s self-assessment exercise in 2019. During 2020, in order to facilitate discussion and open dialogue among the independent directors, the lead independent directors has held three meetings with non-executive directors, without executive directors being present, where they were able to voice any concerns or opinions. these meetings represented a valuable opportunity to discuss other matters including board training topics, performance of the executive and the functioning of the board committees.
The audit committee, the nomination committee, the remuneration committee and the risk supervision, regulation and compliance committee of Banco Santander’s board of directors consist entirely of non-executive director, according to articles 17, 18, 19 and 20 of our Rules and regulation of the board of directors, respectively.
The audit committee met 15 times during 2020. The nomination committee met 13 times during 2020. The remuneration committee met 13 times during 2020. The risk supervision, regulation and compliance committee met 13 times during 2020.
Code of ethics
Under the NYSE corporate governance rules, all U.S. companies listed on the NYSE must adopt a Code of
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2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

Business Conduct and Ethics which contains certain required topics. In March 2000, Santander adopted a General Code of Conduct that applies to members of the board and to all employees of Santander, notwithstanding the fact that certain persons are also subject to the Code of Conduct in Securities Markets or to other Codes of Conduct related specifically to the activity or lines of business in which they undertake their responsibilities. On 28 July 2003, the board approved amendments to the General Code of Conduct to conform it to the requirements of Law 44/2002 (2 November 2002) on reform measures of the financial system. The code came into force on 1 August 2003 and replaced the previous one. The General Code of Conduct establishes the principles that guide the actions of officers and directors including ethical conduct, professional standards and confidentiality.
In 2012, a new General Code of Conduct was published. It primarily broadened the scope of the previous one by: (i) including guidelines for certain specific situations not included in the previous version and (ii) listing additional responsibilities in relation to the Code for compliance management and for other bodies and divisions of the Group. It has been updated in 2017.
On 28 November 2017, the board of directors approved amendments to the General Code of Conduct, which were mainly related to the Group’s current structure and the internal rules and regulations to which the Code refers.
The most recent update, approved in July 2020 by the Board of Directors, was carried out to include a reference to sexual and labour harassment in section 6, named “respect for people”, and a new section 28 regarding relations with competitors, which highlights the commitment to compete fairly and effectively and complying with applicable laws and regulations concerning Competition. In addition, the sections on the whistleblowing channel (named Canal Abierto in Banco Santander) have been also updated in order to align them with the internal requirements in this matter.
The current General Code of Conduct set an open door policy by which any Santander employee who becomes aware not only of an allegedly unlawful act or an act in breach of the General Code of Conduct or of our internal regulations, but also of any action that is not aligned with Santander´s corporate behaviours or SPF corporate culture, may report such act directly to compliance management through the appropriate whistleblowing channel (Canal Abierto).
As of 31 December 2020, no waivers with respect to the General Code of Conduct had been applied for or granted.
In addition, we abide by a Code of Conduct in Securities Markets (CCSM), which was adopted on 28 July 2003. This policy applies to those employees who develop professional activities related to stock markets or manage inside information due to their professional activities for Group. On 30 June 2020 the Board of Directors approved an update of the CCSM to include aspects which mainly seek the alignment of its content and definitions with current regulations, the internal organizational structure and best-practices from CNMV.
Both codes are available to the public on our website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading 'Information for shareholders and investors-corporate governance-codes of conduct'.
Shareholder approval of new share issuances
As a company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. Among other things, Section 312.03(c) of the NYSE Listed Company Manual requires shareholder approval of new share issuances above, in certain circumstances, the 20% threshold specified therein. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in Spain, which is our home country, differ significantly from the NYSE corporate governance listing standards. We have elected to follow the Spanish practices rather than Section 312.03(c) of the NYSE Listed Company Manual.

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16. Exhibits
Exhibit Number
Description
1.1
English translation of the Bylaws (Estatutos) of Banco Santander, S.A.
2.1

2.2

8.1
List of Subsidiaries (incorporated as Appendices I, II and III of our Financial Statements filed with this Form 20-F).
12.1
12.2
12.3
13.1
15.1
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
We will furnish to the SEC, upon request, copies of any unfiled instruments that define the rights of holders of long-term debt of Santander.

948
2020 Form 20-F
Cross-reference to Form 20-FPart 1. Consolidated directors' reportPart 2. Consolidated financial statementsPart 3. Supplemental information

17. Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
BANCO SANTANDER, S.A.
By:
/s/ José G. Cantera
Name:
José G. Cantera
Title:
Chief financial officer


Date: 26 February 2021



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