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Annual review2011
Thousand year old olive trees at Grupo Santander City, Boadilla del Monte, Madrid, Spain
2   Key figures 4   Letter from the Chairman 8   Letter from the Chief Executive Officer12   Corporate governance16   The ...
Key figuresBalance sheet and income statement                                      Million euros                 2011     ...
Santander posted an attributable profit of EUR 5,351 millionin 2011 and assigned EUR 3,183 million to provisions,while str...
Letter from the Chairman Emilio Botín                                     In a very difficult economic, financial and regu...
Shareholder remuneration                                                1. Geographic diversification and recurring nature...
The Group’s international expansion model, via subsidiaries that     4. Model of operational and commercial efficiency are...
“Net operating income of EUR 24,373 million underscored the Group’s strength and capacity to generate results” Future pros...
Letter from the Chief Executive Officer Alfredo Sáenz                                         Results and the Santander sh...
3. Provisions for real estate assets in Spain. We increased          6. Lastly, we have a high level of profit generation ...
Rest of Continental Europe/Santander Consumer                       b. Emerging marketsSantander Consumer posted an attrib...
“Our business units must pay particular attention to successfully carrying out the measures put into effect to improve the...
Corporate governance                                                              Grupo Santander City, Boadilla del Monte...
Transparency and remuneration policy                                                                   Transparency for Ba...
Board of directors of Banco SantanderLondon, November 21, 2011              General secretary       Director             D...
Executive committee                                                                                                       ...
The Santander shareGeneral meeting of shareholders, June 17, 2011, Santander, Cantabria, Spain                            ...
Investor Day, September 29 and 30, 2011, London, United Kingdom      Comparative performance of the Santander share       ...
The Santander business model                                                     Commercial focus                         ...
Banco Santander branch in Madrid, SpainCommercial focus                                                                   ...
Santander branch in GermanyQuality of service and customer satisfaction                                    There was also ...
Banco Santander branch in Mexico                                     Banco Santander branch in BrazilProducts and services...
Grupo Santander City, Boadilla del Monte, Madrid, SpainDisciplined use of capital                                         ...
Grupo Santander’s new data-processing centre in Cantabria, SpainPrudence in risk                                          ...
Geographic diversification                Grupo Santander has a geographic diversification balanced                       ...
Main countries.                                 Other countries where Banco Santander has                                 ...
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
Santander Bank  Annual Report 2011 Annual review 2011
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Santander Bank Annual Report 2011 Annual review 2011

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Santander Bank Annual Report 2011 Annual review 2011

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Transcript of "Santander Bank Annual Report 2011 Annual review 2011 "

  1. 1. Annual review2011
  2. 2. Thousand year old olive trees at Grupo Santander City, Boadilla del Monte, Madrid, Spain
  3. 3. 2 Key figures 4 Letter from the Chairman 8 Letter from the Chief Executive Officer12 Corporate governance16 The share18 Banco Santander’s business model19 Commercial focus22 Disciplined use of capital and financial strength23 Prudence in risks24 Geographic diversification26 Model of subsidiaries27 The Santander brand27 Efficiency28 Santander’s businesses in 201128 Grupo Santander results30 Continental Europe34 United Kingdom36 Latin America40 United States-Sovereign41 Global businesses44 Sustainability47 Human resources
  4. 4. Key figuresBalance sheet and income statement Million euros 2011 2010 % 2011/2010 2009Total assets 1,251,525 1,217,501 2.8 1,110,529Customer loans (net) 750,100 724,154 3.6 682,551Customer deposits 632,533 616,376 2.6 506,976Managed customer funds 984,353 985,269 (0.1) 900,057Shareholder’s funds(1) 80,629 75,273 7.1 70,006Total managed funds 1,382,980 1,362,289 1.5 1,245,420Net interest income 30,821 29,224 5.5 26,299Gross income 44,262 42,049 5.3 39,381Net operating income 24,373 23.853 2.2 22,960Profit from continuing operations 7,881 9,129 (13.7) 9,427Attributable profit to the Group 5,351 8,181 (34.6) 8,943Ratios (%) 2011 2010 2009Efficiency (with amortization) 44.9 43.3 41.7ROE 7.14 11.80 13.90ROTE(2) 10.81 18.11 21.05ROA 0.50 0.76 0.86RoRWA 1.07 1.55 1.74Core capital (BIS II) 10.02 8.80 8.61Tier 1 11.01 10.02 10,08BIS II ratio 13.56 13.11 14.19Tangible capital/tangible assets(3) 4.4 4.4 4.3Ratio of basic financing(4) 81.2 79.6 76.0Loan-to-deposit ratio(5) 117 117 135Non-performing loan (NPL) ratio 3.89 3.55 3.24NPL coverage 61 73 75The share and capitalisation 2011 2010 % 2011/2010 2009Number of shares in circulation (million)(6) 8,909 8,329 7.0 8,229Share price (euros) 5.870 7.928 (26.0) 11.550Market capitalisation (million euros) 50,290 66,033 (23.8) 95,043Shareholders’ funds per share (euros)(1) 8.62 8.58 8.04Share price/shareholders’ funds per share (times) 0.68 0.92 1.44PER (share price/attributable profit per share) (times) 9.75 8.42 11.05Attributable profit per share (euros) 0.6018 0.9418 (36.1) 1.0454Diluted attributable profit per share (euros) 0.5974 0.9356 (36.1) 1.0382Remuneration per share (euros) 0.6000 0.6000 0.0 0.6000Total shareholder return (million euros) 5,260 4,999 5.2 4,919Other figures 2011 2010 % 2011/2010 2009Number of shareholders 3,293,537 3,202,324 2.8 3,062,633Number of employees 193,349 178,869 8.1 169,460 Continental Europe 63,866 54,518 17.1 49,870 United Kingdom 26,295 23,649 11.2 22,949 Latin America 91,887 89,526 2.6 85,974 Sovereign 8,968 8,647 3.7 8,847 Corporate activities 2,333 2,529 (7.8) 1,820Number of branches 14,756 14,082 4.8 13,660 Continental Europe 6,608 6,063 9.0 5,871 United Kingdom 1,379 1,416 (2.6) 1,322 Latin America 6,046 5,882 2.8 5.745 Sovereign 723 721 0.3 722 (1) In 2011, scrip dividend for May 2012 estimate. (2) Return on tangible capital. (3) (Capital +Reserves+Minority Interests+Profits-Treasury stock-Dividends-Valuation adjustments-Goodwill-Intangibles)/(Total assets-Goodwill-Intangibles). (4) (Deposits+Medium and long-term wholesale financing+net equity/Total assets (excluding derivatives). (5) Includes retail commercial paper in Spain. (6) In 2011, includes shares issued to meet the exchange of preferential shares in December 2011.2 ANNUAL REVIEW 2011
  5. 5. Santander posted an attributable profit of EUR 5,351 millionin 2011 and assigned EUR 3,183 million to provisions,while strengthening its solvency and maintaining shareholderremuneration at EUR 0.60 per share for the third year running.Gross income Net operating incomeMillion euros Million euros+ 5.3% 2011/2010 + 2.2% 2011/2010 24,373 44,262 23,853 42,049 22,960 39,381 2009 2010 2011 2009 2010 2011Attributable profit Total dividend payoutMillion euros Million euros– 34.6% 2011/2010 + 5.2% 2011/2010 5,260 8,943 8,181 4,999 4,919 5,351 2009 2010 2011 2009 2010 2011Efficiency Core capital% BIS II criteria. %+ 1.6 p.p. 2011/2010 + 1.22 p.p. DEC 2011/DEC 2010 10.02 44.9 43.3 41.7 8.80 8.61 2009 2010 2011 DEC 09 DEC 10 DEC 11 ANNUAL REVIEW 2011 3
  6. 6. Letter from the Chairman Emilio Botín In a very difficult economic, financial and regulatory environment, Banco Santander maintained its policy of giving priority to strengthening its balance sheet as regards capital, liquidity and provisions and generated an attributable profit of EUR 5,351 million, 34.6% less than in 2010. This profit was generated after setting aside EUR 1,812 million of gross provisions, which were not required, to clean up our real estate assets. This increased coverage for repossessed property to 50% and got ahead of the extra provisioning requirements for the financial system approved by the government on February 3, 2012. This provisions, together with writing down part of the goodwill of Banco Santander Portugal, reduced net profits for the year by EUR 1,670 million. Net capital gains in 2011 from the strategic alliance with the insurer Zurich in Latin America and the entry of new partners into the capital of Santander Consumer Finance in the United States amounted to EUR 1,513 million and were used to bolster the balance sheet via other provisions. Net operating income (gross income less operating expenses) was EUR 24,373 million, underscoring the Group’s strength and capacity to generate results. We improved the capital base and liquidity and notably reinforced our balance sheet. With a core capital of 9.01%, according to the more demanding criteria of the European Banking Authority, Banco Santander complied with the EBA’s Emilio Botín new capital requirements six months ahead of the deadline. The requirements recently approved by the government and the Bank of Spain to raise coverage of bad property loans in Spain“In the last five years, the total will require EUR 2,300 million of provisions, over and above those made ahead of time against 2011’s earnings. These shareholder remuneration paid provisions will be fully charged in 2012. by Banco Santander was EUR 24,000 million” 4 ANNUAL REVIEW 2011
  7. 7. Shareholder remuneration 1. Geographic diversification and recurring natureThe Group’s sound results will enable, as I said at the last of revenuesshareholders’ meeting, the total remuneration per share to be Banco Santander has achieved a geographic positioning in themaintained at EUR 0.60 for the third year running. I would like last few years centred on its 10 core markets, with anto point out that in the last five years, thanks to recurring profits appropriate balance between developed countries (whichand international diversification, Banco Santander’s shareholder contribute 46% of the Group’s profits) and emerging marketsremuneration amounted to EUR 24,000 million. (54%).The Santander Dividendo Elección (scrip dividend) offers our The retail banking model, developed via our 15,000 branches,shareholders the option to receive part of the dividend in cash which provide services to 102 million customers, give usor new shares. Since its launch three years ago, more than 80% recurring growth in commercial revenues in most of theof capital has chosen shares. The board agreed to propose to countries where we operate.the next shareholders’ meeting applying this programme for thefourth dividend payment (May 2012). In 2011, we sold Banco Santander Colombia for $ 1,225 million. Our market share in Colombia is far from the 10% we aspire toIn short, Banco Santander demonstrated its capacity to generate have in the markets in which we are present in order to createresults to meet simultaneously the EBA’s capital requirements, value for our shareholders. This operation generated EUR 615substantially increase provisions for bad property loans and million of net capital gains, which will be recorded in 2012 andmaintain the remuneration at EUR 0.60 per share. assigned to further clean up bad property loans, in accordance with the new rules.Banco Santander’s response tothe challenges of the environment 2. Capital and liquidity management and model for subsidiariesIn my view, the Bank faced three big challenges in 2011 and Our overriding priority objective in 2011 was to strengthen thethey will continue to determine the international economic and balance sheet.financial situation in the coming quarters: In October 2011, the European Banking Authority announced• Weak economic activity, particularly in developed countries. the core capital requirements for the main European banks and• Very unstable financial markets, especially European sovereign set June 30 2012 as the deadline for meeting them. In debt markets. December, the EBA said Santander needed a further EUR 15,302 million of capital to comply with these requirements.• And very significant regulatory measures and changes, particularly higher liquidity and capital requirements for banks. Banco Santander has yet again demonstrated its flexibility and capacity of execution and, in just two months, we reached theBanco Santander has four management drivers, enabling it, core capital of 9% required by the EBA.from a position of strength, to comply with this new scenarioand continue to gain ground over its competitors: Our goal is to have a core capital of 10%, one percentage point above the EBA’s requirement and well above the demands of the new Basel III regulation and those applicable to systemically important financial institutions. We maintained a comfortable liquidity position by increasing our deposits base without having to remunerate above market rates. Meanwhile, the maturity profile of our debt, concentrated in the medium and long term, enables us not to have to go to the debt markets in Spain and Portugal. All of this, coupled with weak demand for loans in developed countries, produced an improvement in our liquidity situation. The loan-to-deposit ratio reached 117% at the end of 2011 (135% in 2009). ANNUAL REVIEW 2011 5
  8. 8. The Group’s international expansion model, via subsidiaries that 4. Model of operational and commercial efficiency are autonomous in capital and liquidity and in many cases listed, Banco Santander is the most efficient international bank among gives us access to markets in an efficient and rapid way and it its competitors, with a cost-to-income (efficiency) ratio of 45% facilitates the funding of aquisitions. compared to the average of 60% of our competitors. The financial autonomy of these units is very well viewed by the The model of operational and commercial efficiency, with the Group’s regulator and by local regulators, as it acts as a fire- same technology for the Group’s banks, generates cost break, limiting the risk of contagion from any problem between synergies and economies of scale, allows for the exchange of the Group’s units. best business practices between countries and enables us to make significant investments in innovation, development and We were the first international bank to present its living will to security for the benefit of our customers. the regulator thanks to the transparency of our model of autonomous subsidiaries. These four management drivers are strengthened by the strong, solid and attractive Santander brand. Santander is today the 3. Prudent risk management world’s fourth most valuable financial brand according to Brand Banco Santander’s traditional policy of prudence in risks has Finance. enabled the Group to maintain a non-performing loans (NPLs) ratio lower than the sector’s average in all countries where we *** do business. Moreover, in the current socio-economic environment, Santander remains firmly committed to sustainability, focusing The evolution of NPLs in Spain was worse than expected for two on higher education, and also attaches importance to social reasons: on the one hand, the downturn in the economy was actions and respect for the environment. The Santander more severe than envisaged and, on the other, the fall in Universities programme continues to grow and already has 990 lending meant the NPL ratio increased to a greater extent than agreements and has awarded 16,000 travel scholarships. the volume of non-performing loans. Furthermore, in 2011 Banco Santander launched in Spain an Real estate risk in Spain continued to fall and, at the end of ambitious youth employment plan, with 5,000 grants for 2011, represented 4% of the Group’s total lending, including internships in small-and medium-sized firms. foreclosed properties.“Banco Santander complied with the EBA’s new capital requirements six months ahead of the deadline” 6 ANNUAL REVIEW 2011
  9. 9. “Net operating income of EUR 24,373 million underscored the Group’s strength and capacity to generate results” Future prospects: Banco Santander’s The performance of the Santander share in 2011 was not in unique positioning accordance with the Group’s level of recurring profits, Some of the factors that have affected the financial sector in soundness and solvency or with the stability of earnings per recent years are likely to persist in 2012. It is therefore vital that share. the European Union approves as soon as possible the decisions Our share is the most liquid of Eurostoxx and ended 2011 with a needed to quickly restore confidence. dividend yield of more than 10%. The share’s low price was In the medium- and long-term, it is likely that, led by European mainly due to external factors, such as the penalisation of the countries, economic growth rates will gradually return to whole banking sector and the pressure exerted on the sovereign normal, which will make the financial markets more stable and debt of various euro zone countries, which have made it difficult reduce unemployment. to estimate adequately Banco Santander’s profit expectations, In this scenario, Banco Santander is in a unique position to I am convinced we will reach all our goals and this will push up create value for its shareholders, continue to register strong the share price significantly. You can rest assured that everyone growth in profits in emerging markets and profitably gain who works for the Group, from the board to the more than market shares in the most mature markets. 190,000 people at the service of our 102 million customers, will do all they can to make Banco Santander a safe and profitable Banco Santander has no significant acquisition or disposal plans investment for its more than three million shareholders. for the medium term, but it will be on the look out to take advantage of opportunities to strengthen itself in its core There were changes in the composition of the board during markets. In an environment of higher cost of capital, the strict 2011. In May, Mr Luis Ángel Rojo died and his place was taken criteria the Bank has always used for its acquisitions assume by the appointment of Mr Vittorio Corbo. Later, Mr Antoine even greater importance: attain in the third year a return on the Bernheim (representing Assicurazioni Generali) and Mr Francisco investment greater than the cost of capital and a positive Luzón left the board. At the next shareholders meeting, and if contribution to earnings per share. the boards proposal is approved, Mr Antonio Basagoiti, Mr Antonio Escámez and Mr Luis Alberto Salazar-Simpson will All of this will enable us, as I said last September at the Bank’s leave the board and Ms Esther Giménez-Salinas will become Investor Day in London, to boost Santander’s ROE to 12%-14% a director. On behalf of the board and on my own behalf I in 2014 and ROTE (return on tangible equity) to 16%-18% from would like to thank the outgoing directors for their work. I am the current 10.81%. sure the contribution to the board of the two new members will be very positive. Thank you for your support and confidence. Emilio Botín CHAIRMAN ANNUAL REVIEW 2011 7
  10. 10. Letter from the Chief Executive Officer Alfredo Sáenz Results and the Santander share Grupo Santander generated an attributable profit, excluding extraordinaries, of EUR 7,021 million, 14.2% less than in 2010. Including provisions and capital gains, profit was 34.6% lower at EUR 5,351 million. Earnings per share were EUR 0.60, 36.1% less than in 2010. Both our net profit as well as our share price, which dropped 26% in 2011, are at cyclically low levels as they were affected by the worsening of the international environment due to the euro zone’s sovereign debt crisis. I would like to point out, nevertheless, the good performance of operating profit, which amounted to EUR 24,373 million: net interest income was up 5.5%; net fee income rose 7.6% and net operating income (before provisions) was 2.2% higher. Very few international banks have been able to generate growth in revenue and in net operating income. This reflects the good commercial performance of our businesses, and underlines our strong potential to generate future results. I would like to transmit a clear message: the results we presented in 2011 do not represent our Group’s potential pace of profit generation. Over the next two or three years we will recover levels of profitability and growth that reflect the potential of our businesses. A vital first step in this process is to absorb, in 2011 and 2012, the regulatory and economic cycle impact. Once this has been done we can return to the profit levels the Group was used to before the crisis. Alfredo Sáenz Balance sheet soundness Banco Santander has given priority to balance sheet strengthening over short-term results. In 2011, we put the“Banco Santander has given emphasis on three corporate initiatives that enabled us to priority to balance sheet bolster the balance sheet: strengthening over short-term 1. Capital. We achieved the core capital ratio requirement of the European Banking Authority six months ahead of the deadline. results, placing emphasis on 1. The core capital ratio, with Basel II criteria, increased from capital, liquidity and provisions for 8.8% in 2010 to 10.0%. real estate assets in Spain“ 2. Liquidity. During the last three years, we have carried out a significant strengthening of our liquidity position. Leveraging in Spain and Portugal and the improvement in the savings rate enabled us to gradually reduce the gap between loans and deposits, additional liquidity that will finance debt maturities in the coming years. 8 ANNUAL REVIEW 2011
  11. 11. 3. Provisions for real estate assets in Spain. We increased 6. Lastly, we have a high level of profit generation before coverage of repossessed properties to 50% and in 2012 provisions. This gives us the capacity to absorb provisions we will complete the provisions required by Royal Decree-law when the economic cycle is weak and to generate profits and 2/2012. capital when the cycle improves.We made a significant effort to complete the three measures in Results and management priorities by unitsthe shortest time possible,while most of our competitors are still During 2011, many of our units had to absorb negative impacts:trying to absorb all these cyclical and regulatory effects. a cyclically high level of provisions, in the case of Spain; regulatory effects, as in the UK; and, in other cases, a higherIt is very important for the financial sector to complete this cost of wholesale liquidity and a worse than expected economicprocess of balance sheet strengthening. For this to happen, performance.moreover, two external conditions are vital: However, we are actively managing these effects and are very• First, financial stability: governments, regulators and central aware that, in the coming years, an excellent execution will be banks have to ensure a macroeconomic environment of even more vital. financial stability so that banks can capture liquidity normally and in reasonable conditions. Banco Santander has the necessary drivers, both in mature and• Second, regulatory clarity: banks have to have a clear idea of emerging markets, to return to its normal profit levels. the capital and liquidity ratios required; how they are A. Mature markets calculated; what types of balance sheet are sustainable and The challenges facing banking units in mature markets are well other types of costs to be assumed. Only in this way can they known: low demand for loans; economies under pressure; low make medium- and long-term business plans and adequate interest rate environments and higher cost of liquidity. financing of the economy can be assured. At the moment many of the regulatory changes are clearly pro-cyclical and We believe, however, that the dominant banks in these markets have a negative effect on economic growth. have a great opportunity to create value in the medium term:Only when these two conditions are met will the financial sector recover attractive profitability; gain market share and becomereturn to its role of financing the economy normally. large generators of capital.Strengths as a Group Spain and PortugalWe must concentrate all our efforts on taking advantage of our In 2011, I told you that we were seeing a turning point in thesebusiness opportunities and ensuring we return to a level of units. However, during 2011 the sovereign debt crisis triggeredprofitability and growth that befits our business mix and the a downturn in the Spanish and Portuguese economies, andquality of the organization. further falls in interest rates, which delayed the process of returning to the average profitability of our businesses in theseIn order to achieve this normalization of profits, we are starting countries.from a privileged position. We have strengths as a Group that setus apart from our international competitors: Both the results of the Santander Branch Network and Banesto in Spain as well as those of Portugal, suffered a sharp1. The diversification of our business portfolio is clearly better setback. The aggregate profit of the three units dropped from than the rest of international banks. EUR 1,722 million in 2010 to EUR 964 million in 2011.2. We have a major presence in growth markets. We generate However, our medium-term view has not changed: the crisis is more than 50% of our profits in high growth emerging offering the most solid banks opportunities to gain market share markets. and improve their competitive position. We have a unique situation to gain en edge in the Spanish and Portuguese markets,3. We have very strong local positions, with market shares of and we are going to exploit it. more than 10%. Many of our competitors have banks without scale in many markets, and this prevents them The management priorities for the next two years remain as attaining an acceptable level of profitability. follows: adapt prices to the new environment; maintain firm4. Our business model is sustainable in the new regulatory control on costs and gain profitable market share from and liquidity environment. Other banks are having to step up competitors immersed in processes of integration and the pace of reducing the size of their wholesale balance sheet. restructuring. Our objective in Spain and Portugal is to recover in the medium-term the level of profits we had in 2008.5. Our solvency and credit quality are clearly better than those of our local competitors. ANNUAL REVIEW 2011 9
  12. 12. Rest of Continental Europe/Santander Consumer b. Emerging marketsSantander Consumer posted an attributable profit of EUR 1,228 The growth opportunities in emerging markets are well known.million, 51.5% more than in 2010, largely due to an improved However, not all banks that operate in these markets will becost of the provisions made in the main markets where it able to create value in the medium- and long-term: it isoperates. This result includes the contribution of Santander necessary to have a good local critical mass; a strong cultureConsumer USA which, as of 2012, leaves the perimeter of and commercial model and an adequate risk appetite, with aSantander Consumer and will be included in the US. good view of the credit. Santander meets all these requirements.Santander Consumer can continue over the coming years totake advantage of its position of strength in its markets, Brazil’s attributable profit declined 7.2% to EUR 2,610 million.maintaining good management of prices and risk. Despite the good growth in net operating income (+10.6%), profits were under pressure from higher provisions andMoreover, we have a good opportunity to develop retail writedowns.banking in Germany, on the basis of the business acquired fromSEB. As you know, we have been betting on growth in Germany Once the integration of Santander and Banco Real is concluded,for many years and today we generate close to EUR 500 million the challenge is to narrow the profitability gap with our localof profits there. Our consumer business operations in the rest of competitors. This should give us a sustained 15% growthContinental Europe are also delivering very good profitability. potential in profits in the coming years.United Kingdom In México, attributable profit was 40.9% higher at EUR 936The profit from our business in the UK was 41.7% lower at EUR million. The management priority for the next few years is to1,145 million. It was hit by the provision for payment protection consolidate the business improvement achieved in 2011 andinsurance remediation (PPI) and by regulatory impacts on the continue to participate in the market’s growth opportunities.cost of liquidity which exerted pressure on Santander UK’s In my view, our potential in Mexico is very high and we expectresults. profit growth of more than 15% a year.The objective in the UK is to take the necessary measures to In Chile, attributable profit fell 9.0% to EUR 611 million due toabsorb the regulatory impact. This includes actively managing the increase in provisions. We have a privileged position in thisprices, the structure of the balance sheet and the cost base. market: in market share, customer base and quality ofMoreover, we continue to develop our business with companies, management. We have to be able to adapt our price and costsa segment where we still have a presence below that of our structure in order to absorb the new regulatory framework.natural share. In Argentina, attributable profit declined 2.7% to EUR 287For this, we have the business acquired from Royal Bank of million, but in local currency terms it was 8.0% higher.Scotland. We expect the big investment effort in installed capacity (34 new branches in 2011) to enable us to boost the profitUnited States contribution of this unit in the coming years.Sovereign’s attributable profit increased 24.0% to EUR 526million, largely due to the sharp fall in provisions. In Poland, the attributable profit from nine months consolidation with the Group was EUR 232 million, and for the whole yearAfter dedicating three years to strengthening the balance sheet EUR 288 million.and managing costs, our main challenge in the US for the nextfew years is to boost revenue generation and establish the Bank Zachodni WBK, our commercial bank in Poland, hastechnology and operational foundations needed to grow in the a long way to go and is already well positioned to capturecountry. The generation of fee income is clearly below that of growth opportunities. Furthermore, we can add value in theour regional competitors and we will have to work to gradually cooperation between this local unit in Poland and the Group’snarrow this divide. Our technology systems enable us to global units.increase the offer of transactional products and improve cross- The good results in 2011 enable us to reaffirm the goal of aselling to customers. profit contribution to the Group of more than EUR 450 million in 2013.10 ANNUAL REVIEW 2011
  13. 13. “Our business units must pay particular attention to successfully carrying out the measures put into effect to improve their profitability”The combination of cyclical normalisation and the measures Conclusionstaken by our units will enable us to return to normal profits I want to leave you with four clear messages:in the coming years. 1. The first is that we have been able to generate excellentIn September, we held our Investor Day in London at which we operating results, and this is a good reflection of ourpresented our strategy to analysts and investors. The message of business. However, we are very aware that the net profit inthese sessions was clear, and I want to reiterate it in this letter: 2011 does not reflect at all the potential profitability of ouras a Group, our normalised profitability is clearly higher than the businesses in the medium term.current levels. 2. The second is that we are taking the necessary steps toOur goals are: normalise our profitability. We do not base our future by • A return on equity of between 12% and 14% within three trusting the economic recovery will make our profits grow. years. On the contrary, we are very conscious that it is up to us to define and execute the strategies enabling us to attain our• A return on tangible equity (excluding goodwill) of between goals. 16% and 18%. 3. The third message is that, in order to carry out this profitWe believe that these objectives represent our normalised normalisation, we have the best professionals inprofitability, i.e. a return in accordance with the potential of our international commercial banking. We have a high qualitybusinesses, and which is not dragged down by the current team which is very motivated and has shown in the past itscyclical moment. In order to attain these levels, we need three capacity to assume ambitious goals and meet or even surpassconditions: them.First, it is vital to complete the threefold strengthening of 4. Fourth, the Santander share is currently at a level that doesthe balance sheet: capital, liquidity and provisions for real not reflect the structural profitability or our medium-termestate assets. We will finish this process during 2012. growth potential. As our capacity to normalise our profits becomes clear, this will be reflected in the share price.Second, we see some cyclical recovery, mainly in Europe,which we expect to begin in 2013 and consolidate in 2014 and I am very optimistic about the prospects for your investment2015. This means lower needs for specific provisions, reduced in the coming years.liquidity tensions and a rise in interest rates.Lastly, our business units must pay particular attention tosuccessfully carrying out the measures put into effect toimprove their profitability, adapt to the environment and takeadvantage of the opportunities that arise. We believe this willbe the case as we are very aware that, in a complicatedenvironment, execution is the key and we are not going to fail. Alfredo Sáenz CHIEF EXECUTIVE OFFICER ANNUAL REVIEW 2011 11
  14. 14. Corporate governance Grupo Santander City, Boadilla del Monte, Madrid, Spain The board of directors Banco Santander’s corporate Banco Santander’s board of directors is the maximum decision- governance model making body, except for matters reserved for the general meeting of shareholders. It is responsible, among other things, for the Group’s strategy. Its functioning and activities are Equality of shareholders’ rights. regulated by the Bank’s internal rules and principles of transparency, efficiency and defence of shareholders’ interests • The principle of one share, one vote, one dividend. guide it. The board oversees compliance with the best • No anti-takeover measures in the corporate By-laws. international practices in corporate governance and closely involves itself in the Group’s risks. In particular, the board, at the • Informed participation of shareholders in meetings. proposal of senior management, is the body responsible for establishing and monitoring the Bank’s risk appetite. The board has a balanced composition between executive and Maximum transparency, particularly non-executive directors, all members are recognised for their in remunerations. professional capacity, integrity and independence. There were changes to the board in 2011. Mr Luis Ángel Rojo A corporate governance model recognised by Duque, governor of the Bank of Spain between 1992 and 2000, socially responsible investment indices. died on May 24. He joined the board in 2005. In July, • Santander has been in the FTSE4Good and DJSI indices Mr Vittorio Corbo Lioi, chairman of the Central Bank of Chile since 2003 and 2000, respectively. between 2003 and 2007, joined the board as a non-executive director and in October Assicurazioni Generali S.p.A., also a non-executive director, left the board after reducing its stake in the Bank.12 ANNUAL REVIEW 2011
  15. 15. Transparency and remuneration policy Transparency for Banco Santander is vital for generating confidence and security among shareholders and investors, even more so at times of financial uncertainty and volatility such as today’s. In particular, the remuneration policy for directors and the Bank’s senior management has transparency as the fundamental principle driven by the board for many years. The other two pillars are: 1. Involvement of the board, as, at the proposal of the appointments and remuneration committee, it approves the report on the remuneration policy for directors, as well as their remuneration and contracts and of those of the other senior members of management and the remunerations of the remaining managers of the identified staff. 2. The board submits to the shareholders’ meeting on a consultative basis and as a separate item on the agenda the report on the remuneration policy for directors. 2. Anticipation and adapting to regulatory changes, given the importance that Santander has always attached to rigorous management of risk and a remuneration policy consistentOn January 23, 2012, Mr Francisco Luzón López resigned as an with it.executive director and executive vice-president responsible for 2. Towers Watson, an independent expert, certificated thatthe America division. Grupo Santander’s remuneration policy was in accordanceOn the occasion of the next general shareholders’ meeting, with the new regulatory framework.and if the board’s proposal is accepted, Mr Antonio Basagoiti,Mr Antonio Escámez and Mr Luis Alberto Salazar-Simpson will The board’s remuneration in 2011cease to hold office as directors and Ms Esther Giménez-Salinas, In 2011, the board agreed to reduce all directors’ remuneration,rector of the Ramon Llull University, will be appointed as for all items, by 8%.independent director to the board. The amount paid to its members for exercising their functions ofThe board expressed its gratitude for the outstanding supervision and collegiate decision-making has been reduced bycontribution made by the outgoing directors over the years they 6% over 2010. This amount has been unchanged since 2008.had formed part of it, highlighting the important executiveresponsibilities undertaken by several of them throughout their As regards executive directors, the board decided to maintain theprofessional careers in the Bank. fixed remuneration for 2012 and reduce by an average of 16% the variable ones for 2011.With these changes, the size of the board is reduced from 20directors at the beginning of 2011 to 16. Full details of director compensation policy in 2011 may be found in the report by the appointments & remuneration committeeThe board in 2011 which forms part of Banco Santander’s corporate documentation.• It held 14 meetings, two of which were dedicated to the Group’s global strategy.• During 2011, the second vice-chairman and chief executive officer presented to the board eight management reports and the third vice-chairman, responsible for the risk division, presented reports on his area. ANNUAL REVIEW 2011 13
  16. 16. Board of directors of Banco SantanderLondon, November 21, 2011 General secretary Director Director Director Director First vice-chairman and of the board Mr Ángel Jado Mr Luis Alberto Mr Abel Matutes Mr Antonio Basagoiti Mr Fernando de Asúa Álvarez Mr Ignacio Benjumea Becerro de Bengoa Salazar-Simpson Bos Juan García-Tuñón Cabeza de Vaca Director Director Director Fourth vice-chairman Chairman Mr Juan Rodríguez Ms Ana Patricia Botín-Sanz Mr Rodrigo Echenique Mr Manuel Soto Mr Emilio Botín-Sanz de Inciarte de Sautuola y O’Shea Gordillo Serrano Sautuola y García de los Ríos14 ANNUAL REVIEW 2011
  17. 17. Executive committee Risk committee Audit and compliance committee Appointments and remuneration committee International committee Technology, productivity and quality committeeSecond vice-chairman and Director Director Director Directorchief executive officer Mr Antonio Escámez Ms Isabel Tocino Lord Terence Burns Mr Vittorio Corbo LioiMr Alfredo Sáenz Abad Torres Biscarolasaga Third vice-chairman Director Director Director Mr Matías Rodríguez Inciarte Mr Guillermo de la Dehesa Romero Mr Francisco Luzón López* Mr Javier Botín-Sanz de Sautuola y O’Shea * Resigned his position on the board January 2012. ANNUAL REVIEW 2011 15
  18. 18. The Santander shareGeneral meeting of shareholders, June 17, 2011, Santander, Cantabria, Spain Shareholder remuneration Banco Santander assigned EUR 5,260 million to shareholder EUR 5,260 million assigned to remuneration in 2011, 5.2% more than in 2010. The high degree of recurrence of profits and the soundness of shareholder remuneration. Santander’s capital enabled the Bank to pay out more than EUR 24,000 million in the last five years. Market capitalization of EUR 50,290 As part of this remuneration, Santander has the Dividendo million at the end of 2011. Elección programme (scrip dividend), which enables shareholders to opt to receive an amount equivalent to certain The largest bank in the euro zone by dividends in the form of cash or new Santander shares. The Bank offers flexible remuneration, enabling its shareholders market value. to benefit from tax advantages. Some 80% of the Bank’s capital chose to receive shares in 2011. EUR 0.60 remuneration per share in Banco Santander paid against 2011 results: the last three years. • A first interim dividend of EUR 0.135 per share (August 2011); 3,3 million shareholders. • A scrip dividend of EUR 0.126 per share equivalent to the second interim dividend (November 2011); • A scrip dividend of EUR 0.119 per share equivalent to the third interim dividend (February 2012). The board also approved applying the Santander Dividendo Elección programme, with a remuneration of EUR 0.220 per share, at the date when the final dividend is normally paid (April/May 2012). This would bring the total remuneration per share to EUR 0.60 for the third year running.16 ANNUAL REVIEW 2011
  19. 19. Investor Day, September 29 and 30, 2011, London, United Kingdom Comparative performance of the Santander share Distribution of the capital stock by type of shareholder and indices Number of shares and % Data from December 31 2010 to December 31 2011 December 2011 Santander Dow Jones Stoxx 50 Base: 100 Dow Jones Stoxx Banks Ibex 35 Shares (%)120 Board 198,130,573 2.22110 Institutional 4,687,628,721 52.62100 Retail 4,023,283,909 45.16 90 Total 8,909,043,203 100.00 80 706050 31/12/10 31/12/11 Performance of the Santander share Shareholder base and capital The Santander share ended 2011 at EUR 5.87, 26% lower than The number of Banco Santander shareholders continued to a year earlier. This performance does not reflect the path of rise in 2011. It increased by 91,213 to 3.3 million. results, the soundness of the Bank’s balance sheet or its future prospects. The very volatile markets, as a result of the European At the end of the year, 2.2% of the capital stock was in the sovereign debt crisis and doubts on the euro, penalized hands of the board of directors, 45.2% with individual European stock market indices and, in particular, the financial shareholders and rest with institutional investors. Of the total sector. This situation was also accentuated by doubts on the capital stock, 87.85% is located in Europe, 11.85% in the recovery in global economic growth and by the new regulatory Americas and 0.30% in the rest of the world. requirements for banks. Banco Santander carried out four capital increases in 2011 to Santander’s performance, however, was better than that of tend to the Santander Dividendo Elección programmes (February the DJ Stoxx Banks (-32.5%), the main European banking index. and November), the conversion of 3,458 bonds (October) and Santander remains in a privileged position as the largest bank in the exchange of preferred shares for ordinary shares the euro zone by market value and the 13th on the world, (December). A total of 579,921,105 new shares were issued. with a capitalization of EUR 50,290 million at the end of 2011. In 2011, Banco Santander continued to strengthen its Furthermore, the Santander share is the most liquid in information and attention channels for shareholders in Spain, Eurostoxx. the United Kingdom, the United States, Brazil, Argentina, Mexico, Portugal and Chile. These offices tended to 232,430 consultations by telephone, 51,616 e-mails and 19,819 shareholders attended 206 forums and events held in various countries. On September 29 and 30, 2011 the Investor Day was held in London, at which the chairman and the chief executive officer, together with Banco Santander’s senior management, presented the Bank’s strategy for the coming years to more than 300 analysts and investors. ANNUAL REVIEW 2011 17
  20. 20. The Santander business model Commercial focus Disciplined Efficiency use of capital and financial strength Santander brand Prudence in risk Geographic diversification and model of subsidiaries Banco Santander’s business model gives substantial Santander complied with the European Banking recurrence in results. Authority’s core capital requirement of 9% six months ahead of schedule. Retail banking generates 87% of revenues. Santander has 102 million customers who are Santander did not need public funds at any time tended to via 14,756 branches, the largest network during the crisis and is one of the world’s most of an international bank. solid and solvent banks. Geographic diversification in 10 core countries In an environment of tensions in financial markets, provides Santander with an appropriate balance Santander’s liquidity position has remained between mature and emerging markets. comfortable. The Bank’s international expansion was achieved Grupo Santander’s non-performing loans ratio is with subsidiaries autonomous in capital and below the sector’s average in the main countries liquidity, giving us advantages when financing and where it operates. limiting the risk of contagion. Santander was recognized by Brand Finance as the The Group’s technology and its control of costs fourth most valuable brand in the world. make Santander one of the world’s most efficient banks.18 ANNUAL REVIEW 2011
  21. 21. Banco Santander branch in Madrid, SpainCommercial focus Total Group customersThe customer is the focal point of Banco Santander’s activity. (Million)Grupo Santander’s customer base has grown notably in the last Santander Branch Network 9.6few years and more than doubled between 2003 and 2011 Banesto 2.4(from 41 million to 102 million). The geographic distribution ofcustomers was as follows: 40.8% in Latin America, 31.3% in Portugal 2.0continental Europe, 26.2% in the UK and 1.7% in the US. Bank Zachodni WBK 2.4 Santander Consumer Finance 15.5The Bank’s retail business focus sets it apart from other globalcompetitors, underlined by the fact that 99.8% of the Group’s Rest 0.1customers are in the segments of commercial banking and Total continental Europe 32.0consumer finance. United Kingdom 26.7Lasting relations and greater value-added with customers are Brazil 25.3generated and maintained in branches. Santander has 14,756 Mexico 9.3branches, the largest network of an international bank. In 2011, Chile 3.5Grupo Santander increased its distribution capacity with theaddition of 674 branches mainly as a result of the incorporation Argentina 2.5of new businesses in Poland and Germany and plans to open Uruguay 0.2new branches in high growth countries such as Brazil, Mexico Colombia 0.3and Argentina. Puerto Rico 0.5In addition to this network, the Bank also has other channels, Peru 0.1available around-the-clock, such as online banking, mobile Rest 0.1telephone banking and telephone banking. In 2011, Santanderstepped up its investment in its call centres in the UK in order to Total Latin America 41.7improve its customer service. It also launched applications that United States-Sovereign 1.7enable it to operate via iPhone and other mobile telephone Total customers 102.1means in some of the Group’s banks.Customers BranchesMillion Number 102.1 14,756 14,082 97.2 13,660 92.0 2009 2010 2011 2009 2010 2011 ANNUAL REVIEW 2011 19
  22. 22. Santander branch in GermanyQuality of service and customer satisfaction There was also a significant advance in 2011 in implementing theQuality of service is a fundamental part of Banco Santander’s corporate model of complaints, which aims to unify the criteriastrategy. applied in managing the customer attention services of the Group’s various units.In 2011, customer satisfaction with the services provided by BancoSantander through various channels (branches, telephone and This model revolves around three elements:Internet) improved. Some 88.2% of customers said they were • Policies to improve customer attention, confidence andsatisfied, generating greater linkage, proximity and loyalty, as well satisfaction.as higher customer revenues. • Decision-taking structure based on agile and efficientIn order to improve the quality of service, the Group has a governance systems, with reports made to the first executivecorporate model called META 100, which has been extended to level.more countries year after year. The main objectives of META 100are to reflect the voice of customers and integrate it into the • Management of complaints in accordance with the prevailingBank’s businesses; establish a culture of quality (i.e. an organisation regulations as well as the good banking practices thatthat is closer to and focused on customers) and generate dynamics regulators require in each country.of continuous improvement, centred on customer satisfaction.Banco Santander’s professionals receive continuous training inorder to inform and advise customers transparently and rigorously Customer satisfactionand provide the best service. In the last quarters of 2011, % of individual customers satisfiedprogrammes to foster this culture were put into effect such asEl año del servicio in Chile, Nuestro estilo in Argentina and Santander Branch Network 88.0Impulsa tu lado Pro in Banco Santander Spain. The corporate Banesto 91.2function of Brand Customer Experience was also created, which Portugal 92.9oversees the consistency and coherence between the promise ofthe brand and the customer’s experience. United Kingdom 89.1 Argentina 91.8Santander has an advanced model for managing incidents called Brazil 83.0MIRÓ, which channels all the disagreements that the customertransmits to the Bank via various channels. Chile 90.4 Uruguay 83.7The objective of MIRÓ is to achieve a quick resolution ofcomplaints. It channels internally its treatment to specialised units Mexico 95.6and keeps the customer informed of the state of the incident. Puerto Rico 96.6MIRÓ also identifies the main reasons why customers are not Total 88.2satisfied and the causes of the incidents so that steps can be takento correct them. Customer satisfaction by channel % of individual customers satisfied Branches Telephone Internet 93.7 90.2 89.7 89.1 88.9 87.5 2010 2011 2010 2011 2010 201120 ANNUAL REVIEW 2011
  23. 23. Banco Santander branch in Mexico Banco Santander branch in BrazilProducts and services Corporate school of commercial bankingBanco Santander has a wide range of financial products and In order to improve Grupo Santander’s commercial bankingservices based on the risk profile of its customers and skills, the corporate school of commercial banking was createdcharacterised, in all its markets, by anticipation and dynamism in 2010.when launching new value offers. Of note among the productsand services launched in 2011 were: This project is supported and involves Banco Santander’s senior management: the governing board of the school is headed by• In the UK, more than 100,000 123 Cashback credit cards, Mr. Alfredo Sáenz, the chief executive officer, and comprises which return money to customers on the basis of the usage, senior executives responsible for the main countries and were sold in the first two months after its launch. divisions.• In Spain, Santander gave those customers with difficulties as a The school’s mission is to gather the best commercial and result of the crisis the possibility of benefiting from a three- business practices which make up the Group’s commercial year moratorium on the capital repayments of the mortgages banking and promote their transmission in order to drive for their main home. Almost 6,000 customers took up the business development in the various units. The school also offer. enables new countries that integrate into the Group to quickly• In Brazil, agreements were signed with major companies, such and efficiently adapt to Banco Santander’s commercial banking as the petrol distributor Shell and the telecoms company Vivo model. (Telefónica), to launch credit cards with added advantages for the Bank’s customers. The school is structured into knowledge areas that respond to the various fields and/or segments of commercial banking. Each• In the US, the SMEs area of Sovereign launched the Boost area has someone in charge and consists of expert teams for Your Business programme, designed to attract new customers each of the matters arising from the countries in which the and increase the already existing linkage. This programme Group operates. The school capitalises on the best commercial offers SMEs very attractive interest rates, new financial practices of countries, in terms of products, services, quality, products and advice shared by specialists. business intelligence, etc, and thereby becomes an extra competitive tool for the Group. The first phase of the school concentrated on individual customers. In 2011, it also began to work on company and SME banking, taking advantage of the experience acquired and incorporated the new countries to its sphere of action (the US, Poland and Germany).Advertising campaigns in Brazil, the UK and Mexico ANNUAL REVIEW 2011 21
  24. 24. Grupo Santander City, Boadilla del Monte, Madrid, SpainDisciplined use of capital Liquidityand financial strength Santander finances most of its loans with customer deposits, maintains comfortable access to wholesale funding and hasCapital many instruments and markets to obtain liquidity.Strengthening the balance sheet is a priority objective for BancoSantander, which has quickly and efficiently adapted to the new In 2011, Banco Santander continued to strengthen its liquiditycapital requirements of international and European banking with an increase of more than EUR 16,000 million in customerauthorities, such as Basel III, regarding globally systemic banks, deposits and debt issues that exceeded the year’s maturities byand the new requirements of the European Banking Authority more than EUR 8,000 million. All these issues were carried out(EBA). without the state’s guarantee.Banco Santander carried out various measures regarding capital Active management of the business portfolioin the last months of 2011, allowing it to achieve a core capital Santander made some selective sales in 2011 and obtainedratio of 9% six months ahead of the EBA’s deadline of June 30, EUR 1,513 million of capital gains:2012. • The strategic alliance with the insurer Zurich to developAccording to the EBA, Banco Santander’s additional capital business in Latin America which generated EUR 641 millionneeds amounted to EUR 15,302 million. This amount has been of capital gains.reached as follows: • The entry of new partners into the capital of Santander• EUR 6,829 million of Valores Santander, which have to be Consumer USA. This operation valued the bank at $4,000 converted into shares before October 2012. million and meant EUR 872 million of capital gains.• EUR 1,943 million through the exchange of preferred shares Santander also reached an agreement to sell the Group’s for ordinary new shares. businesses in Colombia for $1,225 million (net gain of• EUR 1,660 million through the application of the Santander EUR 615 million to be recorded in 2012). Dividendo Elección programme (scrip dividend) at the time of the final dividend corresponding to fiscal year 2011.• EUR 4,890 million through organic capital generation and the transfer of certain stakes, mainly in Chile and Brazil. Core capital Loan-to-deposit ratio(*)Regarding the latter, Santander reached in December 2011 BIS II. criteria. % %an agreement (implemented during the first week of 2012) totransfer 4.41% of Santander Brazil to a major international 135 10.02financial institution which will deliver such shares to holders ofconvertible bonds issued in October, 2010, by Banco Santander, 117 117when these mature, pursuant to the terms of said convertible 8.80bonds. 8.61Santander is one of the world’s most solid and well-capitalisedbanks, and at no time has had to recourse to public funds,as a result of which it is one of the international banks with thebest rating. 2009 2010 2011 2009 2010 2011 (*) Includes retail commercial paper in Spain.22 ANNUAL REVIEW 2011
  25. 25. Grupo Santander’s new data-processing centre in Cantabria, SpainPrudence in risk These additional needs will be entirely met in 2012 as follows:Prudent risk management has been a hallmark of Banco • EUR 1,800 million already charged against the Group’s fourthSantander since it was founded more than 150 years ago. quarter 2011 results, which lifted coverage of repossessedEveryone is involved in risk management, from the daily properties to 50% from 31%.transactions in branches, where business managers also haverisk objectives, to senior management and the board, whose risk • EUR 2,000 million are a capital buffer required by the rulescommittee comprises five directors and meets for some 300 and which are covered by capital already held by the Group.hours a year. • The remaining EUR 2,300 million will be covered through capital gains which may be obtained during the year –Of note among the corporate risk management principles is that including EUR 900 million from the capital gain on the sale ofthe risk function is independent of business. The head of the Banco Santander Colombia – and through ordinaryGroup’s Risk Division, Matías Rodríguez Inciarte, third vice- contributions to provisions during 2012.chairman and chairman of the risk committee, reports directly tothe executive committee and to the board. Santander’s exposure to the real estate promotion sector represented 14% of its total lending in Spain at the end of 2011A low and predictable risk profile and only 4% of the Group’s total loans, including repossessedThe board sets the Bank’s risk appetite at a medium-low level. homes. Santander’s market share of this business is estimatedSome 86% of Grupo Santander’s risk comes from retail banking. at 10%, well below that of the Group’s total business in SpainProximity to the customer enables us to act rigorously and with (14%).anticipation when admitting, monitoring and recovering loans.Santander has units dedicated to recovering unpaid loans, Moreover, Santander assigned EUR 1,513 million of capital gainswhich, under a corporate model, are integrated as one more obtained in 2011 to strengthening the balance sheet.business areas in the Group’s various countries and divisions. ***Santander’s risk profiles are highly diversified and their Banco Santander’s risk management principles are treated in more detail in the annual report.concentration in customers, business groups, sectors, productsand countries is subject to limits.The Group has the most advanced risk management models,such as use of tools for calculating ratings and internal scoring,economic capital, price-setting systems via return on risk-adjusted capital (RoRAC), use of value at risk (VaR) in marketrisk, and stress testing. Non-performing loan ratio Coverage ratioRisk quality % %The Group’s non-performing loan ratio increased to 3.89% in2011, but remains below the average on all the countries where 3.89 75 73it operates. In Spain, the NPL ratio was 5.49%, also well below 61 3.55the sector’s average. 3.24After approval of Royal Decree Law 2/2012, which sets newrequirements for cleaning up bad property loans in Spain,the Bank announced that the amount of provisions GrupoSantander in Spain needs to meet these requirements isEUR 6,100 million. 2009 2010 2011 2009 2010 2011 ANNUAL REVIEW 2011 23
  26. 26. Geographic diversification Grupo Santander has a geographic diversification balanced between mature and emerging markets (46% and 54% of profits, respectively, in 2011). The Bank concentrates on 10 core markets: Spain, Germany, Poland, Portugal, the UK, Brazil, Mexico, Chile, Argentina and the US. The global areas also develop products that are distributed in the Group’s commercial networks and tend to global sphere clients. Contribution to the Group´s attributable profit % United States 12% Mexico 10% Brazil 28% Chile 7% Argentina 3%Rest of Latin America 3%24 ANNUAL REVIEW 2011
  27. 27. Main countries. Other countries where Banco Santander has retail banking businesses: Peru, Puerto Rico, Uruguay, Colombia, Norway, Sweden, Finland, Denmark, Netherlands, Belgium, Austria, Switzerland and Italy.United Kingdom 12% Poland Germany 3% 5% Spain 13% Portugal 2% Rest of Europe 2% ANNUAL REVIEW 2011 25

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