Banco Santander S A : 2019 Earnings Presentation

29 January 2020

Argentina

2019 Earnings Presentation

Important Information

Non-IFRS and alternative performance measures

In addition to the financial information prepared in accordance with International Financial Reporting Standards ("IFRS") and derived from our financial statements, this presentation contains certain financial measures that constitute 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 (ESMA/2015/1415en) and other non-IFRS measures ("Non-IFRS Measures"). The financial measures contained in this presentation that qualify as APMs and non-IFRS measures have been calculated using the financial information from Santander Group but are not defined or detailed in the applicable financial reporting framework 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 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 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, other companies, including companies in our industry, may calculate or use such measures differently, which reduces their usefulness as comparative measures. For further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFRS, please see the 2018 Annual Financial Report, filed with the Comisión Nacional del Mercado de Valores of Spain (CNMV) on 28 February 2019, as well as the section "Alternative performance measures" of the annex to the Banco Santander, S.A. ("Santander") 2019 4Q Financial Report, published as Relevant Fact on 29 January 2020. These documents are available on Santander's website (www.santander.com).

The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries

Forward-looking statements

Santander cautions that this presentation contains statements that constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward- looking statements may be identified by words such as "expect", "project", "anticipate", "should", "intend", "probability", "risk", "VaR", "RoRAC", "RoRWA", "TNAV", "target", "goal", "objective", "estimate", "future" and similar expressions. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. The following important factors, in addition to those discussed elsewhere in this presentation, could affect our future results and could cause outcomes to differ materially from those anticipated in any forward-looking statement: (1) general economic or industry conditions in areas in which we have significant business activities or investments, including a worsening of the economic environment, increasing in the volatility of the capital markets, inflation or deflation, and changes in demographics, consumer spending, investment or saving habits; (2) exposure to various types of market risks, principally including interest rate risk, foreign exchange rate risk, equity price risk and risks associated with the replacement of benchmark indices; (3) potential losses associated with prepayment of our loan and investment portfolio, declines in the value of collateral securing our loan portfolio, and counterparty risk; (4) political stability in Spain, the UK, other European countries, Latin America and the US (5) changes in laws, regulations or taxes, including changes in regulatory capital and liquidity requirements, including as a result of the UK exiting the European Union and increased regulation in light of the global financial crisis; (6) our ability to integrate successfully our acquisitions and the challenges inherent in diverting management's focus and resources from other strategic opportunities and from operational matters while we integrate these acquisitions; and (7) changes in our ability to access liquidity and funding on acceptable terms, including as a result of changes in our credit spreads or a downgrade in our credit ratings or those of our more significant subsidiaries. Numerous factors could affect the future results of Santander and could result in those results deviating materially 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.

2

Important Information

Forward-looking statements speak only as of the date of this presentation and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

No offer

The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in this presentation. No investment activity should be undertaken on the basis of the information contained in this presentation. In making this presentation available Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever.

Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.

Historical performance is not indicative of future results

Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior period. Nothing in this presentation should be construed as a profit forecast.

Third Party Information

In particular, regarding the data provided by third parties, neither Santander, nor any of its administrators, directors or employees, either explicitly or implicitly, guarantees that these contents are exact, accurate, comprehensive or complete, nor are they obliged to keep them updated, nor to correct them in the case that any deficiency, error or omission were to be detected. Moreover, in reproducing these contents in by any means, Santander may introduce any changes it deems suitable, may omit partially or completely any of the elements of this presentation, and in case of any deviation between such a version and this one, Santander assumes no liability for any discrepancy.

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Index

1. Macroeconomic environment and financial system
2. Strategy and business
3. Results
4. Appendix

4

Macroeconomic environment and financial system

01

Macroeconomic environment

The new Administration's recent measures are positive to stabilise the economy

Annual GDP Growth (real, %)		Interest rates (year end, %)

2.9
				1.4
			-1.4
	-2.5	-2.3
2017	2018	2019 (e)	2020 (e)	2021 (e)

Annual inflation rate (year end, %)

	47.6	53.8
		44.9
24.8				28.8
2017	2018	2019	2020 (e)	2021 (e)

	59.3	55.0
			40.0
28.8				28.0
2017	2018	2019	2020 (e)	2021 (e)

Average exchange rate (ARS / EUR)

				109.5
			82.6
		55.3
	33.1
18.9
2017	2018	2019	2020 (e)	2021 (e)

Source: Central Bank of Argentina, National Institute of Statics and Census (INDEC) and estimates by Santander Research

6

Macroeconomic environment

Expansive policy stance to engineer a short-termpick-up in activity

Fiscal surplus / deficit (% of GDP)		External sector (USD bn)

			-0.3%	0.0%	66.9	65.4	65.5	66.2	68.1
		-0.7%
							47.4	50.2
					58.4	61.6	49.9
					18.8	17.9
							15.6
	-2.4%
-3.8%						-3.8
					-8.5
2017	2018	2019 (e)	2020 (e)	2021 (e)	2017	2018	2019 (e)	2020 (e)	2021 (e)
	Exports	Imports	Trade balance
	Consumer spending (%,YoY)				Employment
		46%	41%					11.4%	11.2%
			35%			10.0%
					9.1%
22%	29%	40%	39%		7.2%
	32%
			12.4	12.2	12.1	12.1	12.2

24%

21%

2017	2018	2019 (e)	2020 (e)	2021 (e)	2017	2018	2019 (e)	2020 (e)	2021 (e)
		Shopping Malls	Grocery Stores				Employment (millions)	Unemployment rate, %
	Source: Central Bank of Argentina, National Institute of Statics and Census (INDEC) and estimates by Santander Research			7

Financial system: Loan and customer fund evolution

Transactional and well capitalised financial system with low demand for credit. Dollar-denominated deposits stabilised after USD liquidity stress

Total loans (Constant EUR bn1)

39 40

34 35 35

YoY

(%) 38% 31%

15% 14% 19%

Dec-18Mar-19Jun-19Sep-19Dec-19

Total customer funds² (Constant EUR bn1)

	68	74
64	66
57

• Loans/GDP3: 11.7%.
• Deposits/GDP3: 20.5%.
• Loans: 25% growth YoY in local currency and -34% fall in foreign currency.
• Deposits: 26% growth YoY, 36% in local currency and -29% fall in foreign currency.
• Mutual funds: 41% YoY.
• Liquid assets/Deposits3: 49%. BIS ratio3: 16.3%. CET1 Ratio3: 14.3%.
• Private sector NPL ratio: 4.6% (coverage: 93%).
• 2019 Inflation: 53,8%.
• Financial system net income trend:

YoY	51%	57%	51%						2015	2016	2017	2018	9M'19
(%)						29%	31%	Net Income4	5.8	4.6	4.1	5.6	3.5
										RoE	32%	30%	23%	37%	42%
	Dec-18Mar-19		Jun-19		Sep-19		Dec-19

Source: Central Bank of Argentina	(2)	8
(1)	End period exchange rate as of Dec'19	Total customer funds include total deposits and mutual funds
(3)	As of Sep-19	(4)	EUR bn

Strategy and business

02

Our Franchise

Santander Argentina: The leading private bank in Argentina by business volume

STRATEGIC PRIORITIES

Profitable growth increasing revenue with efficient capital allocation

Customer-centric decisions, helping people and businesses prosper

Progressing towards a simpler and more efficient model, driven by digital transformation

Be agile and collaborative, with challenging goals and clear priorities

1. EUR mn
2. Thousands
3. Constant euros
4. Local criteria as of Sep-19

	KEY DATA	2019	YoY Var.3
	Gross loans1	4,993	+40%
	Deposits1	7,002	+24%
	Underlying profit1	144	+224%
	RoTE	22.2%	+11 pp
	Efficiency ratio	57.9%	-423 bps
	Loans market share4	10.1%	-7 bps
	Deposits market share4	11.4%	-202 bps
	Loyal customers2	1,363	-4%
	Digital customers2	2,196	+5%
	Branches	438	-6%
	Employees	9,178	-2%

10

Customers

Customer experience and digitalisation at the core of our strategy

Loyal individuals (k)

1,284	-4%	1,232
Dec-18		Dec-19

• More customised products and services to improve loyalty
• 46% of our active customer base is loyal

Loyal companies (k)

-6%

139131

Dec-18Dec-19

Digital customers (k)

2,094	+5%	2,196
Dec-18		Dec-19

• Reinforce assistance model through technology
• Loyal customers: SMEs 56% - Middle market companies 52% of active companies
• 64% of total sales are made through digital channels
• 60% of our digital customers are mobile banking users
• Best digital bank in Argentina for 17 consecutive years1

(1) By Global Finance Magazine

11

Strategy

Growth driven by our customer-centric strategy

New segments launched adding value to different audiences

Financial and non-financials benefits, aiming to increase our female entrepreneur customer base

Designed for young people that includes financial benefits and other non-financial advantages

Pre-paid card designed for teens (between 13 and 17 years old)

Products and services to simplify daily operations of independent professionals and businesses

Changing our network model

• Work Café
• Financial inclusion branches
• 2.0 branches: closer to our customers supported by technology
• Expanding our non-banking correspondent network

Reward and benefit programmes

• Miles fidelity programme co-branded with AAdvantage®
• Strengthen the Bank's positioning in high income segments

(1)

Recognitions

Best Digital banking 2007 to 2017 Best Bank 2018

Best Bank 2019

Top 5 in GPTW for 12 years

(1) ® American Airlines" and "AAdvantage" are trademarks of American Airlines, Inc. American Airlines is not responsible for products or services	12
offered by other participating companies

Total loans performance

Total loans grew 40% YoY, driven by an environment characterised by weak economic activity. Individuals +38% supported by inflation adjusted loans

Total loans (Constant EUR bn1)

			4.8	5.0
	4.3	4.2
3.6
Dec-18	Mar-19	Jun-19	Sep-19	Dec-19

	Dec-19 YoY (%) QoQ (%)
Individuals	2.2	38%	17%
Mortgage	0.3	55%	12%
Consumer Credit	1.9	35%	18%
Companies	2.8	41%	-4%
SMEs	0.4	11%	7%
Corporates	0.7	16%	-10%
CIB	1.7	66%	-4%
Total Loans	5.0	40%	4%

(1) End period exchange rate as of Dec-19

13

Total customer fund performance

Total deposits +24% YoY: Local currency deposits +58% YoY (demand deposits). USD-denominated deposits -42% but stabilised after USD liquidity stress

Total customer funds1 (Constant EUR bn2)

	7.5	7.9	7.2	8.1
6.5
Dec-18	Mar-19	Jun-19	Sep-19	Dec-19

	Dec-19 YoY (%) QoQ (%)
Demand	2.0	54%	4%
Savings	3.1	3%	7%
Time	1.9	40%	27%
Total deposits	7.0	24%	11%
Mutual Funds	1.1	24%	22%
Total customer funds	8.1	24%	12%

(1)	Total customer funds include total deposits and mutual funds	14
(2)	End period exchange rate as of Dec-19

Results

03

Net interest income

Net interest income increased 127% YoY, underpinned by the larger position in Central Bank notes and higher interest rates

Net interest income (Constant EUR mn1)

Yield on loans (%)

277	296
216
150
126

24.54 24.23 23.99 23.95

26.26

Q4'18

Q1'19

Q2'19

Q3'19

Q4'19

Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

Cost of deposits (%)

NIM2 (%)

6.58%	7.28%	9.33%	11.72%	12.64%
Official interest rate 3 (%)
50.2%	41.2%	50.8%	54.3%	48.3%

11.25 9.92 11.08 10.87 12.29

Q4'18

Q1'19

Q2'19

Q3'19

Q4'19

(1)	End period exchange rate as of Dec-19	16
(2)	Group criteria
(3)	Quarterly average

Net fee income

Net fee income rose 84% driven by foreign currency transactions and cash

management

	Net fee income (Constant EUR mn1)
					140					2019	2018	YoY (%)	QoQ (%)
				133
						Credit cards	68	52	31%	6%
			91							Account managment	57	47	23%	7%
		82
75								Insurance	22	19	11%	13%
										Payments & collections	68	48	42%	13%
										Other	231	76	203%	2%
										Total	446	242	84%	5%
	Q4'18	Q1'19	Q2'19	Q3'19	Q4'19

(1) End period exchange rate as of Dec-19

17

Gross income

Gross income increased 102% YoY, growing above inflation. Other income includes the high inflation adjustment accounting impact

	Gross income (Constant EUR mn1)
375	423					2019	2018	YoY (%) QoQ (%)
				NII	940	415	127%	7%
284					Fee income	446	242	84%	5%
233					Subtotal	1,386	657	111%	6%
172
				Other2	-70	-4	1681%	-64%
						Gross Income	1,316	653	102%	13%

Q4'18

Q1'19

Q2'19

Q3'19

Q4'19

(1)	End period exchange rate as of Dec-19	18
(2)	Other includes Gain (losses) on financial transactions and Other operating income

Operating expenses

Costs up 88%, driven by inflationary environment and peso depreciation. Higher amortisation as a result of technology investments. Positive jaws

	Operating expenses (Constant EUR mn1)			2019	2018 YoY (%) QoQ (%)
						Operating expenses	762	406	88%	20%
		247
		206
		167				Efficiency ratio	57.9%	62.1%
127	143				Employees (#)	9,178	9,324
				Branches (#)	438	468

Q4'18

Q1'19

Q2'19

Q3'19

Q4'19

(1) End period exchange rate as of Dec-19

19

Net operating income after loan-loss provisions (LLPs)

The NPL ratio remained relatively stable in a low credit growth environment in real terms

LLPs and cost of credit (Constant EUR mn1, %)

				4.86%	5.09%
		4.02%	4.33%
Cost of	3.45%
credit
				67	65
		51	51
	39

Net LLPs

	2019	2018	YoY (%)	QoQ (%)
Net Operating Income	554	247	124%	5%
LLP's	-235	-125	89%	-3%
Net op. Income after	319	123	160%	10%
LLPs

NPL ratio	3.39%	3.17%
NPL Coverage ratio	124%	135%

Q4'18

Q1'19

Q2'19

Q3'19

Q4'19

(1) End period exchange rate as of Dec-19

20

Underlying profit

Underlying attributable profit reached EUR 144 mn. High inflation-adjusted RoTE despite the macro environment

	Underlying profit (Constant EUR mn1)			2019	2018	YoY (%)	QoQ (%)
					54
								PBT	217	99	121%	-24%
			45						Tax on profit	-72	-54	34%	-98%
				37					Consolidated profit	145	45	225%	41%
									Underlying att. Profit	144	44	224%	43%
									Effective tax rate	33.2%	54.6%
2	7
	Q4'18	Q1'19	Q2'19	Q3'19	Q4'19

High Inflation Adjustment Accounting (HIAA)

(1) End period exchange rate as of Dec-19

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Concluding remarks

Concluding remarks

Market

Environment

• Financial System

Strategy

&

Business

• A challenging political, macro and financial environment
• The new Administration's recent measures are positive to stabilise the economy. Expansive policy stance in the short term
• Transactional and well capitalised financial system
• Low credit demand. Dollar-denominated deposits stabilised after USD liquidity stress
• Santander's strategy will continue to be focused on 4 pillars: profitable growth, customer experience, operational excellence and culture & talent
• Customer experience: Goal to recover Top 3 position
• New segments launched adding value to different audiences
• Expanding our non-banking correspondent network

• Strong growth across all lines impacted by high inflation and very high interest rates. Profit rose due to greater NII and efficiency improvement

22

Appendix

04

Appendix

Balance sheet

Constant EUR million1			Variation
	31-Dec-19	31-Dec-18	Amount	%
Loans and advances to customers	4,792	3,420	1,372	40.1
Cash, central banks and credit institutions	3,911	3,267	644	19.7
Debt instruments	429	529	(100)	(18.9)
Other financial assets	87	4	83	-
Other asset accounts	836	476	360	75.8
Total assets	10,054	7,695	2,359	30.7
Customer deposits	7,002	5,648	1,354	24.0
Central banks and credit institutions	1,033	545	488	89.6
Marketable debt securities	71	271	(200)	(73.9)
Other financial liabilities	747	477	270	56.6
Other liabilities accounts	392	197	195	99.0
Total liabilities	9,244	7,137	2,107	29.5
Total equity	810	558	252	45.1
Other managed customer funds	1,097	886	211	23.8
Mutual funds	1,097	886	211	23.8
Pension funds	-	-	-	-
Managed portfolios	-	-	-	-

(*) End of period exchange rate Dec-19

24

Appendix

Income statement

Constant EUR million1			Variation
	2019	2018	Amount	%
Net interest income	940	415	525	126.7
Net fee income	446	242	204	84.3
Gains (losses) on financial transactions	80	92	(11)	(12.3)
Other operating income	(150)	(96)	(55)	57.4
Total income	1,316	653	663	101.6
Operating expenses	(762)	(406)	(357)	87.9
Net operating income	554	247	307	124.1
Net loan-loss provisions	(235)	(125)	(111)	88.9
Other gains (losses) and provisions	(101)	(24)	(77)	321.2
Underlying profit before tax	217	99	119	120.6
Tax on profit	(72)	(54)	(18)	34.1
Underlying profit from continuing operations	145	45	100	224.8
Net profit from discontinued operations	-	-	-	-
Underlying consolidated profit	145	45	100	224.8
Non-controlling interests	(2)	(0)	(1)	364.8
Underlying attributable profit to the parent	144	44	99	223.7

(*) End of period exchange rate Dec-19

25

Appendix

Income statement

Constant EUR million1
		Q1'18	Q2'18	Q3'18	Q4'18	Q1'19	Q2'19	Q3'19	Q4'19
Net interest income	77	95	116	126	150	216	277	296
Net fee income	46	54	66	75	82	91	133	140
Gains (losses) on financial transactions	13	23	36	20	26	11	23	20
Other operating income	(1)	2	(48)	(49)	(25)	(34)	(58)	(33)
Total income	136	174	171	172	233	284	375	423
Operating expenses	(79)	(85)	(115)	(127)	(143)	(167)	(206)	(247)
Net operating income	57	89	56	45	91	117	169	177
Net loan-loss provisions	(18)	(30)	(38)	(39)	(51)	(51)	(67)	(65)
Other gains (losses) and provisions	(6)	(16)	(13)	11	(16)	2	(30)	(57)
Underlying profit before tax	33	43	5	17	24	68	71	55
Tax on profit	(9)	(14)	(15)	(15)	(16)	(22)	(33)	(1)
Underlying profit from continuing operations	24	29	(10)	1	7	45	38	54
Net profit from discontinued operations	-	-	-	-	-	-	-	-
Underlying consolidated profit	24	29	(10)	1	7	45	38	54
Non-controlling interests	(0)	(0)	(0)	0	(0)	(0)	(1)	(1)
Underlying attributable profit to the parent	24	29	(10)	2	7	45	37	54

(*) End of period exchange rate Dec-19

26

Thank you.

Our purpose is to help people and business prosper.

Our culture is based on believing that everything we do should be: